UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-Q/A

(Amendment No. 1)

(Mark One)



|R |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934
    For the quarterly period ended March 31, 2011
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------



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: 000-05663



LIBERATOR MEDICAL HOLDINGS, INC.

(Exact name of registrant as specified
in its charter)



|NEVADA(State or other jurisdiction of 
    incorporation or organization) |  | 87-0267292(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)



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.



YesþNo ̈



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).



Yes ̈No ̈



Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-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 ̈                        |  | Smaller reporting companyþ
|------------------------ |  | ------------------ |  | --------------------------------------------- |  | --------------------------
|                         |  |                    |  | (Do not check if a smaller reporting company) |  |                           



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



Yes ̈Noþ



APPLICABLE 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.



|Class               |  | Outstanding as of May 10,
    2011
|------------------- |  | ----------------------------------
|Common Stock, $.001 |  | 48,009,909                        











TABLE OF CONTENTS



|                               |                                                                                       | Page
|------------------------------ | ------------------------------------------------------------------------------------- | ----
|                               |                                                                                      
|Explanatory Note               | 3                                                                                    
|                               |                                                                                      
|PART I — FINANCIAL INFORMATION |                                                                                      
|                               |                                                                                       |     
|Item 1.                        | Condensed Consolidated Financial Statements                                           | 4   
|                               |                                                                                       |     
|                               | Notes to Condensed Consolidated Financial Statements                                  | 8   
|                               |                                                                                       |     
|Item 2.                        | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 16  
|                               |                                                                                       |     
|Item 3.                        | Quantitative and Qualitative Disclosures about Market Risk                            | 23  
|                               |                                                                                       |     
|Item 4.                        | Controls and Procedures                                                               | 23  
|                               |                                                                                       |     
|PART II — OTHER INFORMATION    |                                                                                      
|                               |                                                                                       |     
|Item 1.                        | Legal Proceedings                                                                     | 25  
|                               |                                                                                       |     
|Item 1A.                       | Risk Factors                                                                          | 25  
|                               |                                                                                       |     
|Item 2.                        | Unregistered Sales of Equity Securities and Use of Proceeds                           | 25  
|                               |                                                                                       |     
|Item 3.                        | Defaults Upon Senior Securities                                                       | 25  
|                               |                                                                                       |     
|Item 5.                        | Other Information                                                                     | 25  
|                               |                                                                                       |     
|Item 6.                        | Exhibits                                                                              | 25  
|                               |                                                                                       |     
|SIGNATURES                     | 26                                                                                   
|EX-31.1                        |                                                                                      
|EX-31.2                        |                                                                                      
|EX-32.1                        |                                                                                      
|EX-32.2                        |                                                                                      



2







Explanatory Note — Restatement of Previously Issued
Financial Statements



Liberator Medical Holdings, Inc. (the “Company”)
is filing this amendment to its Quarterly Report on Form 10-Q for the interim period ended March 31, 2011, which was originally
filed with the Securities and Exchange Commission (“SEC”) on May 12, 2011 (the “Original Filing”), to
include restated financial statements as described in Note 3 to the condensed consolidated financial statements. The Company has
restated its previously issued condensed consolidated financial statements as of and for the three and six months ended March
31, 2011, to correct the following errors:



| | · | The journal
                                                                                                               entries to record
                                                                                                               the cost of goods
                                                                                                               sold each month
                                                                                                               contained errors
                                                                                                               due to unit of
                                                                                                               measure conversion
                                                                                                               issues with certain
                                                                                                               products. As a
                                                                                                               result, the Company's
                                                                                                               inventory balance
                                                                                                               was overstated
                                                                                                               and the cost of
                                                                                                               sales was understated
                                                                                                               for the interim
                                                                                                               period; and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Partially offsetting
                                                                                                               the adjustments
                                                                                                               to inventory and
                                                                                                               cost of sales,
                                                                                                               the Company identified
                                                                                                               additional sales
                                                                                                               that were not properly
                                                                                                               submitted to insurance
                                                                                                               carriers due to
                                                                                                               the unit of measure
                                                                                                               issues identified.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Please refer to Note 3 of the condensed consolidated financial
statements below for a detailed analysis of the effects of the restatements on our condensed consolidated financial statements
for the three and six months ended March 31, 2011.



This Form 10-Q/A amends the following items in the Company’s
Original Filing:



| | · | Part
                                                                                                               I — Item
                                                                                                               1 — Condensed
                                                                                                               Consolidated Financial
                                                                                                               Statements
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Part I —
                                                                                                               Item 2 —
                                                                                                               Management’s
                                                                                                               Discussion and
                                                                                                               Analysis of Financial
                                                                                                               Condition and Results
                                                                                                               of Operations
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Part
                                                                                                               I — Item
                                                                                                               4 — Controls
                                                                                                               and Procedures
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Part
                                                                                                               II — Item
                                                                                                               6 — Exhibits
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the convenience of the reader, this Form 10-Q/A sets
forth the Quarterly Report on Form 10-Q in its entirety. Other than as described above, the Original Filing has not been amended
or updated. Forward-looking statements made in the Original Filing have not been revised to reflect events that occurred or facts
that became known to the Company after the filing of the Original Filing. This Form 10-Q/A should be read in conjunction with
the Company’s filings subsequent to the Original Filing with the SEC.



3







PART I — FINANCIAL INFORMATION



Item 1. Financial Statements



Liberator Medical Holdings, Inc.
and Subsidiaries
Condensed Consolidated Balance Sheets
As of March 31, 2011 (unaudited) and September 30, 2010(In thousands, except dollar per share amounts)



|                                                                                                                                                                                                          |  | As Restated |         |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ------- | - | --------- | -
|                                                                                                                                                                                                          |  | March       |         |   | September |  
|                                                                                                                                                                                                          |  | 31, 2011    |         |   | 30, 2010  |  
|Assets                                                                                                                                                                                                    |  |             |         |   |           |  
|Current Assets:                                                                                                                                                                                           |  |             |         |   |           |  
|Cash                                                                                                                                                                                                      |  | $           | 4,594   |   |           | $
|Accounts receivable, net of allowance of $3,740 and $3,312, respectively                                                                                                                                  |  |             | 7,439   |   |           |  
|Inventory, net of allowance for obsolete inventory of $137 and $110, respectively                                                                                                                         |  |             | 2,416   |   |           |  
|Deferred taxes, current portion                                                                                                                                                                           |  |             | 1,541   |   |           |  
|Prepaid and other current assets                                                                                                                                                                          |  |             | 504     |   |           |  
|Total Current Assets                                                                                                                                                                                      |  |             | 16,494  |   |           |  
|Property and equipment, net of accumulated depreciation of $1,818 and $1,527, respectively                                                                                                                |  |             | 1,686   |   |           |  
|Deferred advertising                                                                                                                                                                                      |  |             | 15,126  |   |           |  
|Other assets                                                                                                                                                                                              |  |             | 218     |   |           |  
|Total Assets                                                                                                                                                                                              |  | $           | 33,524  |   |           | $
|                                                                                                                                                                                                          |  |             |         |   |           |  
|Liabilities and Stockholders’ Equity                                                                                                                                                                      |  |             |         |   |           |  
|Current Liabilities:                                                                                                                                                                                      |  |             |         |   |           |  
|Accounts payable                                                                                                                                                                                          |  | $           | 6,234   |   |           | $
|Accrued liabilities                                                                                                                                                                                       |  |             | 799     |   |           |  
|Derivative liabilities                                                                                                                                                                                    |  |             | —       |   |           |  
|Stockholder loans                                                                                                                                                                                         |  |             | —       |   |           |  
|Convertible notes payable, net of unamortized discount of $21                                                                                                                                             |  |             | —       |   |           |  
|Other current liabilities                                                                                                                                                                                 |  |             | 132     |   |           |  
|Total Current Liabilities                                                                                                                                                                                 |  |             | 7,165   |   |           |  
|Deferred tax liability                                                                                                                                                                                    |  |             | 2,361   |   |           |  
|Other long-term liabilities                                                                                                                                                                               |  |             | 87      |   |           |  
|Total Liabilities                                                                                                                                                                                         |  |             | 9,613   |   |           |  
|                                                                                                                                                                                                          |  |             |         |   |           |  
|Stockholders’ Equity:                                                                                                                                                                                     |  |             |         |   |           |  
|Common stock, $.001 par value, 200,000 shares authorized, 48,100 and 44,707 shares issued, respectively;
    48,010 and 44,617 shares outstanding at March 31, 2011, and September 30, 2010, respectively |  |             | 48      |   |           |  
|Additional paid-in capital                                                                                                                                                                                |  |             | 34,312  |   |           |  
|Accumulated deficit                                                                                                                                                                                       |  |             | (10,399 | ) |           |  
|Treasury stock, at cost; 89 shares at March 31, 2011, and September 30,
    2010                                                                                                                          |  |             | (50     | ) |           |  
|Total Stockholders’ Equity                                                                                                                                                                                |  |             | 23,911  |   |           |  
|Total Liabilities and Stockholders’ Equity                                                                                                                                                                |  | $           | 33,524  |   |           | $



See accompanying notes to unaudited
condensed consolidated financial statements.



4







Liberator Medical Holdings, Inc.
and Subsidiaries
Condensed Consolidated Statements of Operations
For the three and six months ended March 31, 2011 and 2010
(Unaudited)(in thousands, except per share amounts)



|                                               |  | Three Months Ended March 31, |        |   | Six Months Ended March 31, |  
|---------------------------------------------- |  | ---------------------------- | ------ | - | -------------------------- | -
|                                               |  | As Restated 2011             |        |   | 2010                       |  
|Sales                                          |  | $                            | 12,664 |   |                            | $
|                                               |  |                              |        |   |                            |  
|Cost of Sales                                  |  |                              | 4,774  |   |                            |  
|                                               |  |                              |        |   |                            |  
|Gross Profit                                   |  |                              | 7,890  |   |                            |  
|                                               |  |                              |        |   |                            |  
|Operating Expenses                             |  |                              |        |   |                            |  
|Payroll, taxes and benefits                    |  |                              | 2,930  |   |                            |  
|Advertising                                    |  |                              | 2,019  |   |                            |  
|Bad debts                                      |  |                              | 877    |   |                            |  
|Depreciation                                   |  |                              | 171    |   |                            |  
|General and administrative                     |  |                              | 1,224  |   |                            |  
|Total Operating Expenses                       |  |                              | 7,221  |   |                            |  
|                                               |  |                              |        |   |                            |  
|Income from Operations                         |  |                              | 669    |   |                            |  
|                                               |  |                              |        |   |                            |  
|Other Income (Expense)                         |  |                              |        |   |                            |  
|Interest expense                               |  |                              | (1     | ) |                            |  
|Change in fair value of derivative liabilities |  |                              | —      |   |                            |  
|Gain (Loss) on disposal of assets              |  |                              | —      |   |                            |  
|Interest income                                |  |                              | 2      |   |                            |  
|Total Other Income (Expense)                   |  |                              | 1      |   |                            |  
|                                               |  |                              |        |   |                            |  
|Income (Loss) before Income Taxes              |  |                              | 670    |   |                            |  
|                                               |  |                              |        |   |                            |  
|Provision for (Benefit from) Income Taxes      |  |                              | 361    |   |                            |  
|                                               |  |                              |        |   |                            |  
|Net Income (Loss)                              |  | $                            | 309    |   |                            | $
|                                               |  |                              |        |   |                            |  
|Basic earnings (loss) per share:               |  |                              |        |   |                            |  
|Weighted average shares outstanding            |  |                              | 47,996 |   |                            |  
|Earnings (loss) per share                      |  | $                            | 0.01   |   |                            | $
|                                               |  |                              |        |   |                            |  
|Diluted earnings (loss) per share:             |  |                              |        |   |                            |  
|Weighted average shares outstanding            |  |                              | 53,773 |   |                            |  
|Earnings (loss) per share                      |  | $                            | 0.01   |   |                            | $



See accompanying notes to unaudited
condensed consolidated financial statements.



5







Liberator Medical Holdings, Inc.
and Subsidiaries
Condensed Consolidated Statement of Changes in Stockholders’ Equity
For the six months ended March 31, 2011 As Restated
(Unaudited)(in thousands)



|                                                      |  |        |        |  |        |   |    |         |  |   |             |  |  |          |         |   | Total         |  
|----------------------------------------------------- |  | ------ | ------ |  | ------ | - | -- | ------- |  | - | ----------- |  |  | -------- | ------- | - | ------------- | -
|                                                      |  | Common |        |  | Common |   |    | Paid in |  |   | Accumulated |  |  | Treasury |         |   | Stockholders’ |  
|                                                      |  | Shares |        |  | Stock  |   |    | Capital |  |   | Deficit     |  |  | Stock    |         |   | Equity        |  
|Balance at October 1, 2010                            |  |        | 44,617 |  |        | $ | 45 |         |  | $ | 28,927      |  |  | $        | (10,506 | ) |               | $
|                                                      |  |        |        |  |        |   |    |         |  |   |             |  |  |          |         |   |               |  
|Options issued to employees and directors             |  |        |        |  |        |   |    |         |  |   | 236         |  |  |          |         |   |               |  
|Common stock issued upon conversion of debt           |  |        | 3,333  |  |        |   | 3  |         |  |   | 5,097       |  |  |          |         |   |               |  
|Common stock issued for employee stock purchase plan  |  |        | 46     |  |        |   | —  |         |  |   | 52          |  |  |          |         |   |               |  
|Common stock issued for cashless exercise of warrants |  |        | 14     |  |        |   | —  |         |  |   | —           |  |  |          |         |   |               |  
|Net income                                            |  |        |        |  |        |   |    |         |  |   |             |  |  |          | 107     |   |               |  
|                                                      |  |        |        |  |        |   |    |         |  |   |             |  |  |          |         |   |               |  
|Balance at March 31, 2011                             |  |        | 48,010 |  |        | $ | 48 |         |  | $ | 34,312      |  |  | $        | (10,399 | ) |               | $



See accompanying notes to unaudited
condensed consolidated financial statements.



6







Liberator Medical Holdings, Inc.
and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the six months ended March 31, 2011 and 2010
(Unaudited)(in thousands)

|                                                                                     |  | Six Months Ended |       
|------------------------------------------------------------------------------------ |  | ---------------- | ------
|                                                                                     |  | March 31,        |       
|                                                                                     |  | As Restated2011  |       
|Cash flow from operating activities:                                                 |  |                  |       
|Net Income (Loss)                                                                    |  | $                | 107   
|Adjustments to reconcile net income (loss) to net cash used in operating activities: |  |                  |       
|Depreciation and amortization                                                        |  |                  | 4,172 
|Change in fair value of derivative liabilities                                       |  |                  | 902   
|Equity based compensation                                                            |  |                  | 236   
|Provision for doubtful accounts and sales returns and adjustments                    |  |                  | 1,865 
|Non-cash interest related to convertible notes payable                               |  |                  | 21    
|Deferred income taxes                                                                |  |                  | 690   
|Amortization of non-cash debt issuance costs                                         |  |                  | —     
|Reserve for inventory obsolescence                                                   |  |                  | 28    
|Loss (Gain) on disposal of assets                                                    |  |                  | (2    
|Changes in operating assets and liabilities:                                         |  |                  |       
|Accounts receivable                                                                  |  |                  | (2,561
|Deferred advertising                                                                 |  |                  | (8,954
|Inventory                                                                            |  |                  | (458  
|Other assets                                                                         |  |                  | (179  
|Accounts payable                                                                     |  |                  | 2,409 
|Accrued liabilities                                                                  |  |                  | (308  
|Other liabilities                                                                    |  |                  | (37   
|Net Cash Flow Used in Operating Activities                                           |  |                  | (2,069
|                                                                                     |  |                  |       
|Cash flow from investing activities:                                                 |  |                  |       
|Purchase of property and equipment                                                   |  |                  | (163  
|Proceeds from the sale of assets                                                     |  |                  | 3     
|Purchase of certificates of deposit                                                  |  |                  | —     
|Net Cash Flow Used in Investing Activities                                           |  |                  | (160  
|                                                                                     |  |                  |       
|Cash flow from financing activities:                                                 |  |                  |       
|Proceeds from the sale of common stock                                               |  |                  | —     
|Costs associated with the sale of common stock                                       |  |                  | —     
|Proceeds from the exercise of warrants                                               |  |                  | —     
|Proceeds from employee stock purchase plan                                           |  |                  | 44    
|Proceeds from credit line facility                                                   |  |                  | —     
|Costs associated with new credit line facility                                       |  |                  | (51   
|Purchase of treasury stock                                                           |  |                  | —     
|Payments of debt and capital lease obligations                                       |  |                  | (598  
|Net Cash Flow Provided by (Used in) Financing Activities                             |  |                  | (605  
|                                                                                     |  |                  |       
|Net increase (decrease) in cash                                                      |  |                  | (2,834
|                                                                                     |  |                  |       
|Cash at beginning of period                                                          |  |                  | 7,428 
|Cash at end of period                                                                |  | $                | 4,594 
|                                                                                     |  |                  |       
|Supplemental disclosure of cash flow information:                                    |  |                  |       
|Cash paid for interest                                                               |  | $                | 49    
|Cash paid for income taxes                                                           |  | $                | 5     
|                                                                                     |  |                  |       
|Supplemental schedule of non-cash investing and financing activities:                |  |                  |       
|Common stock issued for interest expense                                             |  | $                | —     
|Common stock issued for conversion of debt                                           |  | $                | 5,100 



See accompanying
notes to unaudited condensed consolidated financial statements.



7







Liberator Medical Holdings, Inc. and Subsidiaries



Notes To The Unaudited Condensed Consolidated Financial
Statements

March 31, 2011



Note 1 — Interim Financial Statements



The accompanying unaudited condensed consolidated financial
statements of Liberator Medical Holdings, Inc. (the “Company”) and the notes thereto have been prepared in accordance
with instructions for Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been condensed or omitted. However, in the opinion of the Company,
such information includes all adjustments (consisting only of normal recurring adjustments) which are necessary for a fair presentation
of the financial position and results of operations for the interim periods presented. The unaudited condensed consolidated financial
statements included herein should be read in conjunction with the audited consolidated financial statements and the notes thereto
that are included in the Company’s Annual Report on Forms 10-K and 10-K/A for the year ended September 30, 2010, that
were filed with the SEC on January 13, 2011, and January 28, 2011, respectively. The results of operations for the six
months ended March 31, 2011 are not necessarily indicative of the results to be expected for the full year.



The unaudited condensed consolidated financial statements
include the accounts of the Company, Liberator Medical Supply, Inc., Liberator Health and Education, Inc., Liberator Health and
Wellness, Inc., and Practica Medical Manufacturing, Inc., its wholly-owned subsidiaries. Intercompany balances and transactions
have been eliminated in consolidation.



Note 2 — Summary of Significant Accounting Policies



The significant accounting policies followed by the Company
for interim reporting are consistent with those included in the Company’s Annual Report on Form 10-K for the year ended
September 30, 2010.



Recent Accounting Pronouncements



In January 2010, the FASB issued new guidance for fair
value measurements and disclosures which requires a reporting entity to disclose separately the amounts of significant transfers
in and out of Level 1 and 2 fair value measurements and describe the reasons for the transfers. The guidance also requires a reporting
entity to present separately information about purchases, sales, issuances, and settlements in the reconciliation for fair value
measurements using significant unobservable inputs (Level 3). The guidance was effective on January 1, 2010, except for disclosures
about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures
are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The
guidance adopted on January 1, 2010 did not have a material impact on the Company’s financial statements. Adoption
of the remaining guidance on January 1, 2011 did not have a material impact on the Company’s financial statements.



Note 3 — Restatement of Previously Issued Financial
Statements (Restated)



On December 1, 2011, the Company concluded that the Company's
previously issued unaudited financial statements as of and for the interim period ended March 31, 2011, contained errors in the
valuation of inventory and cost of goods sold. The Company has restated its previously issued condensed consolidated financial
statements as of and for the three and six months ended March 31, 2011, to correct the following errors:



| | · | During the
                                                                                                               reconciliation
                                                                                                               of the annual physical
                                                                                                               inventory count
                                                                                                               at fiscal year-end,
                                                                                                               the Company determined
                                                                                                               that the journal
                                                                                                               entries to record
                                                                                                               the cost of goods
                                                                                                               sold each month
                                                                                                               during fiscal year
                                                                                                               2011 contained
                                                                                                               errors as a result
                                                                                                               of unit of measure
                                                                                                               conversion issues
                                                                                                               with certain products.
                                                                                                               As a result of
                                                                                                               the unit of measure
                                                                                                               errors, the Company's
                                                                                                               inventory balance
                                                                                                               was overstated
                                                                                                               by $205,000 as
                                                                                                               of March 31, 2011,
                                                                                                               and cost of sales
                                                                                                               was understated
                                                                                                               by $102,000 and
                                                                                                               $205,000, respectively,
                                                                                                               for the three and
                                                                                                               six months ended
                                                                                                               March 31, 2011;
                                                                                                               and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



8







| | · | Partially offsetting
                                                                                                               the adjustments
                                                                                                               to inventory and
                                                                                                               cost of sales,
                                                                                                               the Company identified
                                                                                                               additional sales
                                                                                                               of $21,000 and
                                                                                                               $37,000, respectively,
                                                                                                               for the three and
                                                                                                               six months ended
                                                                                                               March 31, 2011,
                                                                                                               that were not properly
                                                                                                               submitted to insurance
                                                                                                               carriers due to
                                                                                                               the unit of measure
                                                                                                               issues identified.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The following tables provide a summary of amounts restated, including
tax effects of adjustments, due to the unit of measure errors as of and for the three and six months ended March 31, 2011 (dollars
in thousands, except per share amounts):



|Balance Sheet Data:                        |  | As Previously Reported |         |   | Current Period Effects |   |      | As Restated | 
|------------------------------------------ |  | ---------------------- | ------- | - | ---------------------- | - | ---- | ----------- | 
|Accounts receivable, net                   |  | $                      | 7,402   |   |                        | $ | 37   |             | 
|Inventory, net                             |  |                        | 2,621   |   |                        |   | (205 | )           | 
|Deferred taxes, current portion            |  |                        | 1,557   |   |                        |   | (16  | )           | 
|Current Assets                             |  |                        | 16,678  |   |                        |   | (184 | )           | 
|Total Assets                               |  | $                      | 33,708  |   |                        | $ | (184 | )           | 
|                                           |  |                        |         |   |                        |   |      |             | 
|Current Liabilities                        |  | $                      | 7,165   |   |                        | $ | —    |             | 
|Deferred tax liability                     |  |                        | 2,459   |   |                        |   | (98  | )           | 
|Total Liabilities                          |  |                        | 9,711   |   |                        |   | (98  | )           | 
|Accumulated Deficit                        |  |                        | (10,313 | ) |                        |   | (86  | )           | 
|Total Stockholders’ Equity                 |  |                        | 23,997  |   |                        |   | (86  | )           | 
|Total Liabilities and Stockholders’ Equity |  | $                      | 33,708  |   |                        | $ | (184 | )           | 







|Statement of Operations Data: |  | For the three months ended 
    March 31, 2011 |        |  | For the six months ended 
    March 31, 2011 |  
|----------------------------- |  | ---------------------------------------------- | ------ |  | -------------------------------------------- | -
|                              |  | As Previously Reported                         |        |  | Current Period Effects                       |  
|Sales                         |  | $                                              | 12,643 |  |                                              | $
|Cost of Sales                 |  |                                                | 4,672  |  |                                              |  
|Gross Profit                  |  |                                                | 7,971  |  |                                              |  
|Total Operating Expenses      |  |                                                | 7,221  |  |                                              |  
|Income from Operations        |  |                                                | 750    |  |                                              |  
|Total Other Income (Expense)  |  |                                                | 1      |  |                                              |  
|Income before Income Taxes    |  |                                                | 751    |  |                                              |  
|Provision for Income Taxes    |  |                                                | 400    |  |                                              |  
|Net Income                    |  | $                                              | 351    |  |                                              | $
|                              |  |                                                |        |  |                                              |  
|Basic Earnings per Share      |  | $                                              | 0.01   |  |                                              | $
|Diluted Earnings per Share    |  | $                                              | 0.01   |  |                                              | $



9







Note 4 — Stockholder Loans



The stockholder loans at September 30, 2010, in the
amounts of $565,000 consist of various 8% and 11% notes payable to the President and principal stockholder of the Company, Mark
Libratore. The notes payable were non-collateralized and due on demand. However, the notes were subordinated to the senior, unsecured,
convertible notes payable discussed below in Note 6. During the first quarter of fiscal year 2011, the balance of the notes was
repaid to Mr. Libratore. Interest expense related to the stockholder loans for the six months ended March 31, 2011 and
2010 was $4,000, and $60,000, respectively.



Note 5 — Credit Line Facility



Gulfstream Credit Line Facility



On September 4, 2009, the Company entered into a one-year
Business Loan Agreement, Promissory Note and Assignment of Deposit (collectively, the “Gulfstream Credit Line Facility”)
with a lender. Pursuant to the Gulfstream Credit Line Facility, the lender agreed to advance the Company a maximum of $500,000
secured by the Company’s $500,000 certificate of deposit held by the lender. Interest was payable on any advance under the
Gulfstream Credit Line Facility at a rate of 1.000 percentage point under the corporate loan base rate index published by
the Wall Street Journal, with a minimum interest rate of 4.750% per annum.



On November 2, 2009, the Company entered into a revised
Gulfstream Credit Line Facility with the same lender discussed above. Under the revised loan agreement, the lender agreed to advance
the Company a maximum of $1,000,000 secured by the existing $500,000 certificate of deposit held by the lender plus an additional
$550,000 certificate of deposit to be held by the lender. The revised Credit Line Facility expired on September 8, 2010.
All other terms of the September 4, 2009 Credit Line Facility remained unchanged.



In November and December 2009, the Company borrowed
$750,000 from the Gulfstream Credit Line Facility. In June 2010, the Company repaid the $750,000 balance under the credit line
facility.



In September 2010, the Company elected not to renew
the Gulfstream Credit Line Facility.



Interest expense related to the Gulfstream Credit Line Facility
for the six months ended March 31, 2011 and 2010, was $0 and $11,000, respectively.



PNC Credit Line Facility



On February 11, 2011, the Company entered into a Committed
Line of Credit agreement (the “PNC Credit Line Facility”) with PNC Bank, National Association ("PNC"). Pursuant
to the PNC Credit Line Facility, the PNC will provide a maximum of $8,500,000 of revolving credit secured by the Company’s
personal property, including inventory and accounts receivable. Interest is payable on any advance at LIBOR plus 2.75%. Advances
under the PNC Credit Line Facility are subject to a Borrowing Base Rider, which establishes a maximum percentage amount of the
Company’s accounts receivable and inventory that can constitute the permitted borrowing base. The PNC Credit Line Facility
expires in February 2013.



The PNC Credit Line Facility requires the Company to comply
with certain financial covenants which are defined in the credit agreement. As of March 31, 2011, these financial covenants included:



| | · | The Company
                                                                                                               will maintain as
                                                                                                               of the end of each
                                                                                                               fiscal quarter,
                                                                                                               on a rolling four
                                                                                                               quarter basis,
                                                                                                               a ratio of Senior
                                                                                                               Funded Debt to
                                                                                                               EBITDA of less
                                                                                                               than 2.0 to 1;
                                                                                                               and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The Company
                                                                                                               will maintain as
                                                                                                               of the end of each
                                                                                                               fiscal quarter,
                                                                                                               on a rolling four
                                                                                                               quarters basis,
                                                                                                               a Fixed Charge
                                                                                                               Coverage Ratio
                                                                                                               of at least 1.25
                                                                                                               to 1.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of March 31, 2011, the Company was in compliance with
all applicable financial covenants pursuant to the PNC Credit Line Facility. The permitted borrowing base as of March 31, 2011,
was $5,858,000. As of March 31, 2011, the Company has not borrowed any funds or incurred any interest expense from the PNC Credit
Line Facility.



10







Note 6 — Convertible Notes Payable



May 2008 Convertible Note



On May 22, 2008, the Company closed a private placement
consisting of a convertible note and a warrant for gross proceeds of $3,500,000. The note was convertible into shares of our common
stock at an initial conversion price of $0.80 per share, subject to adjustment, and matured on May 22, 2010. The note was
a senior unsecured obligation of ours and accrued interest at the rate of 3% per annum, paid semi-annually on each November 15
and May 15. The note was unconditionally guaranteed by Liberator Medical Supply and Liberator Health and Education Services,
Inc. The conversion price of the note could have been reduced if, among other things, we issued shares of common stock or securities
exercisable, exchangeable or convertible for or into shares of common stock at a price per share less than both the conversion
price then in effect and $0.75, subject to certain exclusions. The Company concluded that the adjustment feature for the conversion
price of the note was not indexed to the Company’s own stock and, therefore, was an embedded derivative financial liability
that required bifurcation and separate accounting. The warrants have a term of 5 years and are exercisable for up to 4,375,000
shares of our common stock at an exercise price of $1.00 per share. The exercise price of the warrants will be reduced if, among
other things, we issue shares of our common stock or common stock equivalents at a price per share less than both the exercise
price then in effect and the closing sale price of our common stock for any of the 10 consecutive trading days immediately preceding
such issuance, subject to certain exclusions. The Company has concluded that the adjustment feature for the exercise price of
the warrants is indexed to the Company’s own stock, and, accordingly, has classified the warrants as equity instruments.
In addition, we issued a warrant to the placement agent exercisable for up to 350,000 shares of our common stock on terms substantially
similar to the warrant issued in connection with the note described above.



On May 11, 2010, the $3,500,000 note was converted
into 4,375,000 shares of the Company’s common stock at a conversion price of $0.80 per share.



Interest expense related to the May 2008 convertible
note was $0 and $437,000 for the six months ended March 31, 2011 and 2010, respectively.



October 2008 Convertible Note



On October 17, 2008, the Company closed a private placement
consisting of a convertible note and a warrant for gross proceeds of $2,500,000. The note was convertible into shares of our common
stock at an initial conversion price of $0.75 per share, subject to adjustment, and matured on October 17, 2010. The note was
a senior unsecured obligation of ours and accrued interest at the rate of 3% per annum, paid semi-annually on each October 15
and April 15. The note was unconditionally guaranteed by Liberator Medical Supply and Liberator Health and Education Services,
Inc. The conversion price of the note could have been reduced if, among other things, we issued shares of common stock or securities
exercisable, exchangeable or convertible for or into shares of common stock (“common stock equivalents”) at a price
per share less than both the conversion price then in effect and $0.75, subject to certain exclusions. The Company concluded that
the adjustment feature for the conversion price of the note was not indexed to the Company’s own stock and, therefore, was
an embedded derivative financial liability that required bifurcation and separate accounting. The warrants have a term of 3 years
and are exercisable for up to 1,166,667 shares of our common stock at an exercise price $1.25 per share. The exercise price of
the warrants will be reduced if, among other things, we issue shares of our common stock or common stock equivalents at a price
per share less than both the exercise price then in effect and the closing sale price of our common stock for any of the 10 consecutive
trading days immediately preceding such issuance, subject to certain exclusions. The Company has concluded that the adjustment
feature for the exercise price of the warrants is indexed to the Company’s own stock, and, accordingly, has classified the
warrants as equity instruments. In addition, we issued a warrant to the placement agent exercisable for up to 266,667 shares of
our common stock on terms substantially similar to the warrants issued in connection with the note described above.



In October 2009, the Company entered into a Waiver
Agreement with the note holder of the October 2008 convertible note discussed above. As part of the Waiver Agreement, the note
holder agreed to accept 18,101 shares of the Company’s common stock, with a fair market value of $45,000, in lieu of the
Company’s obligation to pay cash in the amount of $38,000 for an interest payments that was due October 15, 2009, under
the original terms of the note. As a result of this transaction, the Company incurred an additional $7,000 of interest expense
that would not have been incurred if the Company had paid the interest due in cash. The rights and obligations of the note holder
and the Company with respect to any future interest payments and the other terms of the note were in all other respects unchanged.



11







On October 15, 2010, the $2,500,000 note was converted
into 3,333,333 shares of the Company’s common stock at a conversion price of $0.75 per share.



Interest expense related to the October 2008 convertible
note was $24,000 and $276,000 for the six months ended March 31, 2011 and 2010, respectively.



Short-term convertible notes payable consist of the following
as of September 30, 2010 (in thousands):



|                                                    |  | Oct’08 Note |      
|--------------------------------------------------- |  | ----------- | -----
|Notes Payable, face amount                          |  | $           | 2,500
|Discounts on Notes:                                 |  |             |      
|Initial valuation of Warrants                       |  |             | (86  
|Initial valuation of Bifurcated Embedded Derivative |  |             | (841 
|Accumulated Amortization                            |  |             | 906  
|Total Discounts                                     |  |             | (21  
|Accrued Interest                                    |  |             | 37   
|Convertible Notes Payable, net                      |  | $           | 2,516



NOTE 7 — Derivative Liabilities



The May 2008 and October 2008 convertible notes,
discussed above in Note 6, contained embedded adjustment features whereby the conversion price could have been adjusted if the
Company had issued additional shares of common stock or securities exercisable, exchangeable, or convertible into shares of common
stock at a price per share less than both the conversion price then in effect and $0.75. The embedded adjustment features were
not indexed to the Company’s own stock and, therefore, were embedded derivative financial liabilities (the “Embedded
Derivatives”) that required bifurcation and separate accounting. Accordingly, the Company recorded a cumulative effect adjustment
to the opening balance of retained earnings on October 1, 2009. Subsequently, the Company adjusted the Embedded Derivatives
to fair value at each interim period and recognized the changes in fair value as a charge or a benefit to earnings included in
the Other Income (Expense) section of the Company’s Consolidated Statement of Operations.



On May 11, 2010, the May 2008 convertible note
was converted into 4,375,000 shares of the Company’s common stock at a conversion price of $0.80 per share.



As of September 30, 2010, the fair value of the Embedded
Derivative for the October 2008 convertible note was $1,698,000. The fair value as of September 30, 2010, was calculated
using a Monte Carlo simulation model with the following assumptions:



|                                           |  | October 2008 Note |        
|------------------------------------------ |  | ----------------- | -------
|Risk-free interest rate:                   |  |                   | 0.14   
|Expected term:                             |  |                   | 17 days
|Expected dividend yield:                   |  |                   | 0.00   
|Expected volatility:                       |  |                   | 49.30  
|Probability of triggering reset provision: |  |                   | 0.01   
|Existing conversion price per share        |  | $                 | 0.75   
|Company’s stock price per share            |  | $                 | 1.26   



On October 15, 2010, the October 2008 convertible note
was converted into shares of our common stock at a conversion price of $0.75 per share. The fair value of the embedded derivative
on October 15, 2010, was $2,600,000, which was the intrinsic value of the conversion, based on the Company’s stock
price as of the conversion date. As a result of the increase in fair value of the embedded derivative from September 30,
2010, to the date of conversion, $902,000 was recorded as an additional non-cash charge to earnings for the six months ended March 31,
2011. As a result of the conversion, $2,600,000 was transferred from derivative liabilities into additional paid in capital.



12







The following represents a reconciliation of the changes
in fair value of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level
3) for the six months ended March 31, 2011 (dollars in thousands):



|                                          |  | 2011 |       
|----------------------------------------- |  | ---- | ------
|Beginning balance: Derivative liabilities |  | $    | 1,698 
|Total (gains) losses                      |  |      | 902   
|Settlements                               |  |      | (2,600
|Ending balance: Derivative liabilities    |  | $    | —     



Note 8 — Stockholders’ Equity



Warrants



A summary of warrants issued, exercised and expired during
the six months ended March 31, 2011, is as follows:



|                           |  |        |           |   | Weighted |  
|-------------------------- |  | ------ | --------- | - | -------- | -
|                           |  |        |           |   | Avg.     |  
|                           |  |        |           |   | Exercise |  
|Warrants:                  |  | Shares |           |   | Price    |  
|Balance at October 1, 2010 |  |        | 7,393,334 |   |          | $
|Issued                     |  |        | —         |   |          |  
|Exercised                  |  |        | (51,000   | ) |          |  
|Expired                    |  |        | (376,667  | ) |          |  
|Balance at March 31, 2011  |  |        | 6,965,667 |   |          | $



Employee & Director Stock Options



The weighted-average grant date fair value of options granted
during the six months ended March 31, 2011 and 2010, was $0.40 and $0.99, respectively. There were no options exercised during
the six months ended March 31, 2011 and 2010. The fair values of stock-based awards granted during the six months ended March 31,
2011 and 2010, were calculated with the following weighted-average assumptions:



|                         |  | 2011 |         |   | 2010 | 
|------------------------ |  | ---- | ------- | - | ---- | 
|Risk-free interest rate: |  |      | 1.05    | % |      | 
|Expected term:           |  |      | 3 years |   |      | 
|Expected dividend yield: |  |      | 0.00    | % |      | 
|Expected volatility:     |  |      | 48.91   | % |      | 



For the six months ended March 31, 2011 and 2010 the
Company recorded $216,000 and $119,000, respectively, of stock-based compensation expense, which has been classified as Operating
expenses, sub-classification of Payroll, taxes and benefits, for the employees and General and administrative for the directors.
As of March 31, 2011, there is $246,000 in total unrecognized compensation expense related to non-vested employee and director
stock options granted under the 2007 Stock Plan, which is expected to be recognized over 1.6 years.

13







Stock option activity for the six months ended March 31,
2011, is summarized as follows:



|                                                     |  |        |           |   |          |   |      | Weighted     |  |  |           | 
|---------------------------------------------------- |  | ------ | --------- | - | -------- | - | ---- | ------------ |  |  | --------- | 
|                                                     |  |        |           |   | Weighted |   |      | Average      |  |  |           | 
|                                                     |  |        |           |   | Average  |   |      | Remaining    |  |  | Aggregate | 
|                                                     |  |        |           |   | Exercise |   |      | Contractual  |  |  | Intrinsic | 
|2007 Stock Plan:                                     |  | Shares |           |   | Price    |   |      | Life (Years) |  |  | Value     | 
|Options outstanding at October 1, 2010               |  |        | 1,655,000 |   |          | $ | 0.92 |              |  |  | 2.82      | 
|Granted                                              |  |        | 500,000   |   |          |   | 1.25 |              |  |  |           | 
|Expired or forfeited                                 |  |        | (70,000   | ) |          |   | 1.03 |              |  |  |           | 
|Options outstanding at March 31, 2011                |  |        | 2,085,000 |   |          | $ | 0.99 |              |  |  | 3.26      | 
|Options exercisable at March 31, 2011                |  |        | 1,376,250 |   |          | $ | 0.90 |              |  |  | 2.84      | 
|Options vested or expected to vest at March 31, 2011 |  |        | 2,085,000 |   |          | $ | 0.99 |              |  |  | 3.26      | 



2009 Employee Stock Purchase Plan



The 2009 Employee Stock Purchase Plan (the “ESPP”)
became effective June 10, 2009, the effective date of the registration statement filed on Form S-8 with the SEC. The ESPP
provides a means by which employees of the Company are given an opportunity to purchase common stock of the Company through payroll
deductions. The maximum number of shares to be offered under the ESPP is 500,000 shares of the Company’s common stock, subject
to changes authorized by the Board of Directors of the Company. Shares are offered through consecutive offering periods with durations
of approximately six (6) months, commencing on the first trading day on or after June 1 and November 30 of each year
and terminating on the last trading day before the commencement of the next offering period. The ESPP is intended to qualify as
an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code. The ESPP allows
employees to designate up to 15% of their cash compensation to purchase shares of the Company’s common stock at 85% of the
lesser of the fair market value at the beginning of the offering period or the exercise date, which is the last trading day of
the offering period. Employees who own stock possessing 5% or more of the total combined voting power or value of all classes
of the Company’s common stock are not eligible to participate in the ESPP.



As of March 31, 2011, 237,840 shares of the Company’s
common stock have been purchased through the ESPP, using $168,000 of proceeds received from employee payroll deductions. For the
six months ended March 31, 2011 and 2010, the Company received $44,000 and $104,000, respectively, through payroll deductions
under the ESPP.



The Company uses the Black-Scholes option pricing model
to estimate the fair value of the shares expected to be issued under the ESPP at the grant date, the beginning date of the offering
period, and recognizes compensation expense ratably over the offering period. If an employee elects to increase their payroll
withholdings during the offering period, the increase is treated as a modification to the original option granted under the ESPP.
As a result of the modification, the incremental fair value, if any, associated with the modified award is recognized as compensation
expense at the date of the modification. Compensation expense is recognized only for shares that vest under the ESPP. For the
six months ended March 31, 2011 and 2010, the Company recognized $19,000 and $105,000, respectively, of compensation expense
related to the ESPP.



Note 9 — Basic and Diluted Earnings (Loss) per
Common Share (Restated)



The following is a reconciliation of the numerator and denominator
used in the computation of basic and diluted earnings per share for the three and six months ended March 31, 2011 and 2010
(in thousands, except per share amounts):



|                                              |  | For the three months |        |  | For the six months |  
|--------------------------------------------- |  | -------------------- | ------ |  | ------------------ | -
|                                              |  | ended March 31,      |        |  | ended March 31,    |  
|                                              |  | 2011                 |        |  | 2010               |  
|Numerator:                                    |  |                      |        |  |                    |  
|Net income (loss) — basic                     |  | $                    | 309    |  |                    | $
|                                              |  |                      |        |  |                    |  
|Denominator:                                  |  |                      |        |  |                    |  
|Weighted average shares outstanding — basic   |  |                      | 47,966 |  |                    |  
|Effect of dilutive securities:                |  |                      |        |  |                    |  
|Stock options and warrants                    |  |                      | 5,777  |  |                    |  
|Weighted average shares outstanding — diluted |  |                      | 53,773 |  |                    |  
|                                              |  |                      |        |  |                    |  
|Earnings (loss) per share — basic             |  | $                    | 0.01   |  |                    | $
|Earnings (loss) per share — diluted           |  | $                    | 0.01   |  |                    | $



14







The following table summarizes the number of weighted shares
outstanding for each of the periods presented, but not included in the calculation of diluted income per share because the impact
would have been anti-dilutive for the three and six months ended March 31, 2011 and 2010 (in thousands):



|                 |  | For the three and six months |    
|---------------- |  | ---------------------------- | ---
|                 |  | ended March 31,              |    
|                 |  | 2011                         |    
|Stock options    |  |                              | 640
|Warrants         |  |                              | 358
|Convertible debt |  |                              | —  
|                 |  |                              | 998



Note 10 — Income Taxes (Restated)



The provision for income taxes was $690,000 for the six
months ended March 31, 2011. The effective tax rate was approximately 87% of the income before income taxes of $797,000,
which differs from the federal statutory rate of 35% due to the effect of state income taxes and certain of the Company’s
expenses that are not deductible for tax purposes, primarily consisting of $902,000 of expense related to the change in fair value
of derivative liabilities recorded for the six months ended March 31, 2011.



The benefit for income taxes was $1,012,000 for the six
months ended March 31, 2010. The effective tax rate was approximately 23% of the loss before income taxes of $4,449,000,
which differs from the federal statutory rate of 35% due to the effect of state income taxes, a $1,438,000 decrease to the valuation
allowance for deferred tax assets that management has determined will, more likely than not, be utilized, and certain of the Company’s
expenses that are not deductible for income tax purposes, primarily consisting of $5,157,000 of expense for the change in fair
value of derivative liabilities.



15







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/A contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations
of future events based on certain assumptions and include any statement that does not directly relate to any historical or current
fact. When used in this quarterly report, in future filings by the Company with the Securities and Exchange Commission, in the
Company’s press releases or other public or shareholder communications, or in oral statements made with the approval of
an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will
continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended
to identify “forward-looking statements.” The Company wishes to caution readers not to place undue reliance on any
such forward-looking statements, which speak as of the date made, and to advise readers that various factors, including regional
and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of manufacturing,
distributing or marketing activities, competitive and regulatory factors, and those factors set forth in the Company’s Annual
Report on Form 10-K for the year ended September 30, 2010, under the caption “Risk Factors,” could affect the
Company’s financial performance and could cause the Company’s actual results for future periods to differ materially
from those anticipated by any forward-looking statements.



The following discussion should be read in conjunction
with our unaudited consolidated financial statements and notes thereto included in this Form 10-Q/A and the audited financial
statements of the Company, included in our Annual Report on Forms 10-K and 10-K/A for the year ended September 30, 2010,
and management’s discussion and analysis contained therein. The Company does not undertake and specifically disclaims any
obligation to update any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances
after the date of such statements.



Overview



We are a leading national direct-to-consumer provider of
quality medical supplies to Medicare-eligible seniors. Liberator Medical Supply, Inc. (“LMS”), a wholly-owned subsidiary
of the Company, is a federally licensed, direct-to-consumer, provider of Medicare Part B Benefits. An Exemplary ProviderTM
accredited by The Compliance Team, our Company’s unique combination of marketing, industry expertise and customer service
has demonstrated success over a broad spectrum of chronic conditions. Liberator is recognized for offering a simple, reliable
way to purchase medical supplies needed on a regular, ongoing, repeat-order basis, with the convenience of direct billing to Medicare
and private insurance. Liberator’s revenue primarily comes from supplying products to meet the rapidly growing requirements
of general medical supplies, primarily diabetes supplies, catheters, ostomy supplies and mastectomy fashions. Customers may purchase
by phone, mail, or Internet, with repeat orders confirmed with the customer and shipped when needed.



We market our products directly to consumers primarily through
targeted media and direct response television advertising. Our customer service representatives are specifically trained to communicate
with Medicare-eligible beneficiaries. Our operating platforms enable us to collect and process required documents from physicians
and customers, bill and collect amounts due from Medicare and/or other government agencies and/or third party payers and/or customers.



Results of Operations



The following table summarizes the results of operations
for the three and six months ended March 31, 2011 and 2010, including percentage of sales (dollars in thousands):



|                                  |  | For the three months ended March 31, |        |  | For the six months ended March 31, | 
|--------------------------------- |  | ------------------------------------ | ------ |  | ---------------------------------- | 
|                                  |  | As Restated
    2011                 |        |  | 2010                               | 
|                                  |  | Amount                               |        |  | %                                  | 
|Sales                             |  | $                                    | 12,664 |  |                                    | 
|Cost of Sales                     |  |                                      | 4,774  |  |                                    | 
|Gross Profit                      |  |                                      | 7,890  |  |                                    | 
|Operating Expenses                |  |                                      | 7,221  |  |                                    | 
|Income from Operations            |  |                                      | 669    |  |                                    | 
|Other Income (Expense)            |  |                                      | 1      |  |                                    | 
|Income (loss) before Income Taxes |  |                                      | 670    |  |                                    | 
|Income Tax Expense (Benefit)      |  |                                      | 361    |  |                                    | 
|Net Income (Loss)                 |  | $                                    | 309    |  |                                    | 



16







Revenues:



Sales for the three months ended March 31, 2011, increased
by $3,014,000, or 31.2%, to $12,664,000, compared with sales of $9,650,000 for the three months ended March 31, 2010. Sales for
the six months ended March 31, 2011, increased by $6,076,000, or 32.3%, to $24,884,000, compared with sales of $18,808,000 for
the six months ended March 31, 2010. The increase in sales was primarily due to our continued emphasis on our direct response
advertising campaign to obtain new customers and our dedication to customer service to retain our recurring customer base. Our
direct-response advertising expenditures for the six months ended March 31, 2011, were $8,954,000 compared with $4,630,000
for the six months ended March 31, 2010.



Gross Profit:



Gross profit for the three months ended March 31, 2011,
increased by $1,626,000, or 26.0%, to $7,890,000, compared with gross profit of $6,264,000 for the three months ended March 31,
2010. For the six months ended March 31, 2011, gross profit increased by $3,497,000, or 28.7%, to $15,671,000, compared with gross
profit of $12,175,000. The increase was attributed to our increased sales volume for the three and six months ended March 31,
2011, compared with the three and six months ended March 31, 2010.



As a percentage of sales, gross profit decreased by 2.6%
and 1.7%, respectively, for the three and six months ended March 31, 2011, compared with the three and six months ended March
31, 2010. The decrease in gross profit as a percentage of sales was due to $100,000 of additional costs associated with a product
recall and product mix during the three and six months ended March 31, 2011.



Operating Expenses:



The following table provides a breakdown of our operating
expenses for the three and six months ended March 31, 2011 and 2010, including percentage of sales (dollars in thousands):



|                           |  | For the three months ended March 31, |       |  | For the six months ended March 31, | 
|-------------------------- |  | ------------------------------------ | ----- |  | ---------------------------------- | 
|                           |  | As Restated
    2011                 |       |  | 2010                               | 
|                           |  | Amount                               |       |  | %                                  | 
|Operating Expenses:        |  |                                      |       |  |                                    | 
|Payroll, taxes, & benefits |  | $                                    | 2,930 |  |                                    | 
|Advertising                |  |                                      | 2,019 |  |                                    | 
|Bad debts                  |  |                                      | 877   |  |                                    | 
|Depreciation               |  |                                      | 171   |  |                                    | 
|General and administration |  |                                      | 1,224 |  |                                    | 
|Total Operating Expenses   |  | $                                    | 7,221 |  |                                    | 



Payroll, taxes and benefits increased by $312,000, or 11.9%,
to $2,930,000 for the three months ended March 31, 2011, compared with the three months ended March 31, 2010. Payroll, taxes
and benefits increased by $984,000, or 20.6%, to $5,771,000 for the six months ended March 31, 2011, compared with the six months
ended March 31, 2010. The increase was due to an increase in the number of employees to support our increased sales volume. As
of March 31, 2011, we had 250 active employees compared with 220 at March 31, 2010.



17











Advertising expenses increased by $905,000, or 81.2%, to
$2,019,000 for the three months ended March 31, 2011, compared with the three months ended March 31, 2010. For the six months
ended March 31, 2011, advertising expenses increased by $2,000,000, or 104.2%, to $3,920,000, compared with the six months ended
March 31, 2010. The majority of our advertising expenses are associated with the amortization of previously capitalized direct
response advertising costs. The balance of our advertising expenses is for costs that do not qualify as direct response advertising
and are expensed as incurred. The following table shows a breakdown of our advertising expenses for the three and six months ended
March 31, 2011 and 2010 (dollars in thousands):



|                                      |  | For the three months
    Ended March 31, |       |  | For the six months
    Ended March 31, |  
|------------------------------------- |  | ---------------------------------------- | ----- |  | -------------------------------------- | -
|                                      |  | 2011                                     |       |  | 2010                                   |  
|                                      |  |                                          |       |  |                                        |  
|Advertising Expenses:                 |  |                                          |       |  |                                        |  
|Amortization of direct-response costs |  | $                                        | 1,990 |  |                                        | $
|Other advertising expenses            |  |                                          | 29    |  |                                        |  
|Total Advertising Expenses            |  | $                                        | 2,019 |  |                                        | $



As of March 31, 2011, we had $15,126,000 of deferred
advertising costs that will be expensed over a period between four and six years based on estimated future revenues for each cost
pool, updated at each reporting period and expected to result directly from such advertising.



As a percentage of sales, advertising expenses increased
by 4.4% and 5.5%, respectively, for the three and six months ended March 31, 2011, compared with the three and six months ended
March 31, 2010. The increase in advertising expenses as a percentage of sales was primarily attributed to higher amortization
expense associated with increased costs incurred over the last twelve months to place our direct response advertisements.



Bad debt expenses decreased by $51,000, or 5.5%, to $877,000
for the three months ended March 31, 2011, compared with the three months ended March 31, 2010. For the six months ended
March 31, 2011, bad debt expenses increased by $186,000, or 11.7%, compared with the six months ended March 31, 2010. The increase
in bad debt expenses for the six months ended March 31, 2011, is due to our increased sales levels, partially offset by improvements
in our collection efforts during the six months ended March 31, 2011.



Depreciation expense increased by $67,000, or 24.8%, to
$337,000 for the six months ended March 31, 2011, compared with the six months ended March 31, 2010. The increase in
depreciation expense is primarily attributed to the build out of an additional 24,000 square foot facility during the first six
months of fiscal year 2010 to house our expanding workforce and provide the capacity necessary to support our future sales growth.
Purchases of property and equipment totaled $163,000 and $1,217,000 during the six months ended March 31, 2011 and 2010,
respectively.



General and administrative expenses increased by $154,000,
or 14.4%, to $1,224,000 for the three months ended March 31, 2011 compared with the three months ended March 31, 2010.
For the six months ended March 31, 2011, general and administrative costs increased by $55,000, or 2.6%, compared with the six
months ended March 31, 2010. The increase is due to increases in software costs, equipment lease payments, and compensation for
the board of directors; partially offset by the reduction of amortization costs associated with debt issuance costs and office
expenses. As a percentage of sales, general and administrative expenses have decreased by 1.4% and 2.5%, respectively, for the
three and six months ended March 31, 2011, compared with the three and six months ended March 31, 2010.



Income from Operations:



Income from operations for the three months ended March
31, 2011, increased by $309,000, or 85.8%, to $669,000, compared with the three months ended March 31, 2010. For the six months
ended March 31, 2011, income from operations increased by $206,000, or 13.6%, to $1,725,000, compared with the six months ended
March 31, 2010. The increase in operating income is primarily attributed to our increased sales volumes with a reduction as a
percentage of sales in payroll costs, bad debt expenses, and administrative costs; partially offset by increases in our advertising
costs.



18







Other Income (Expense):



The following table shows a breakdown of other income (expense) for
the three and six months ended March 31, 2011 and 2010 (dollars in thousands):



|                                               |  | For the three months
    ended March 31, |    |   | For the six months
    ended March 31, |  
|---------------------------------------------- |  | ---------------------------------------- | -- | - | -------------------------------------- | -
|                                               |  | 2011                                     |    |   | 2010                                   |  
|Other Income (Expense):                        |  |                                          |    |   |                                        |  
|Interest Expense                               |  | $                                        | (1 | ) |                                        | $
|Change in fair value of derivative liabilities |  |                                          | —  |   |                                        |  
|Gain (Loss) on disposal of assets              |  |                                          | —  |   |                                        |  
|Interest income                                |  |                                          | 2  |   |                                        |  
|Total Other Income (Expense)                   |  | $                                        | 1  |   |                                        | $



Other income (expense) is predominantly non-cash charges
associated with the amortization of discounts on our convertible debt, recorded as interest expense, and non-cash charges associated
with the change in fair value of derivative liabilities embedded within our convertible debt. Non-cash charges to other income
(expense) for the six months ended March 31, 2011 and 2010, respectively, totaled $923,000 and $5,774,000.



Interest expense decreased by $401,000 and $784,000, respectively,
for the six months ended March 31, 2011, compared with the three and six months ended March 31, 2010. The decrease in interest
expense was due to reduced levels of debt during the six months ended March 31, 2011, as a result of the conversion of $6,452,000
of notes into shares of our common stock and $1,315,000 of principal payments towards shareholder loans since December 31,
2009.



We were required to adjust the embedded derivative liabilities
to fair value at each balance sheet date, or interim period, and recognize the changes in fair value as a non-cash charge or benefit
to earnings. The changes in fair value of the derivative liabilities at each interim period are very sensitive to changes in the
market price for our common stock. When the market price of our common stock increases, the fair value of the embedded derivatives
increases, resulting in additional non-cash charges to our earnings. Conversely, when the market price for our common stock declines,
the fair value of the embedded derivatives decreases, resulting in non-cash benefits to our earnings. The following table illustrates
the changes in the market price of our common stock and the changes in fair value of the derivative liabilities recorded in fiscal
year 2010 and the six months ended March 31, 2011 (dollars in thousands, except per share amounts):



|                                                                        |  |          |      |  | Change in     |  
|----------------------------------------------------------------------- |  | -------- | ---- |  | ------------- | -
|                                                                        |  | Closing  |      |  | Fair Value of |  
|                                                                        |  | Market   |      |  | Derivative    |  
|                                                                        |  | Price of |      |  | Liabilities   |  
|                                                                        |  | Common   |      |  | Income /      |  
|                                                                        |  | Stock    |      |  | (Expense)     |  
|Interim period ended:                                                   |  |          |      |  |               |  
|September 30, 2009, Q4 FY 2009                                          |  | $        | 1.45 |  |               | $
|December 31, 2009, Q1 FY 2010                                           |  |          | 2.18 |  |               |  
|March 31, 2010, Q2 FY 2010                                              |  |          | 2.20 |  |               |  
|June 30, 2010, Q3 FY 2010                                               |  |          | 1.49 |  |               |  
|September 30, 2010, Q4 FY 2010                                          |  |          | 1.26 |  |               |  
|October 15, 2010, Q1
    FY 2011 (Conversion Date of $2.5 million note) |  |          | 1.53 |  |               |  
|Total change in fair
    value of derivative liabilities                |  |          |      |  |               | $



As a result of the increase in fair value of the embedded
derivatives from October 1, 2009, to March 31, 2010, $5,157,000 was recorded as a non-cash charge to earnings for the
six months ended March 31, 2010.



19







On May 11, 2010, the $3.5 million convertible
note issued in May 2008 was converted into shares of our common stock at a conversion price of $0.80 per share. As of September 30,
2010, derivatives liabilities had a remaining balance of $1,698,000, which is related to the embedded derivative contained in
the $2.5 million convertible note due October 17, 2010.



On October 15, 2010, the $2.5 million convertible
note was converted into shares of our common stock at a conversion price of $0.75 per share. The fair value of the embedded derivative
on October 15, 2010, was $2,600,000. As a result of the increase in fair value of the embedded derivative from September 30,
2010, to the date of conversion on October 15, 2010, $902,000 was recorded as an additional non-cash charge to earnings for
the six months ended March 31, 2011. As a result of the conversion, $5.1 million, which is the balance of the derivative
liabilities plus the face value of the convertible note, was transferred into additional paid in capital, eliminating any additional
exposure to changes in fair value of the derivative liabilities associated with the convertible debt issued in May and October 2008
since the notes have been converted into shares of our common stock.



Income Taxes:



The provision for income taxes was $690,000 for the six
months ended March 31, 2011. The effective tax rate was approximately 87% of the income before income taxes of $797,000,
which differs from the federal statutory rate of 35% due to the effect of state income taxes and certain of the Company’s
expenses that are not deductible for tax purposes, primarily consisting of $902,000 of expense related to the change in fair value
of derivative liabilities recorded for the six months ended March 31, 2011.



The benefit from income taxes was $1,012,000 for the six
months ended March 31, 2010. The effective tax rate was approximately 23% of the loss before income taxes of $4,449,000,
which differs from the federal statutory rate of 35% due to the effect of state income taxes, a $1,438,000 decrease to the valuation
allowance for deferred tax assets that management has determined will, more likely than not, be utilized, and certain of the Company’s
expenses that are not deductible for income tax purposes, primarily consisting of $5,157,000 of expense for the change in fair
value of derivative liabilities.



Liquidity and Capital Resources



The following table summarizes our cash flows from operating,
investing, and financing activities for the six months ended March 31, 2011 and 2010 (dollars in thousands):



|                                                    |  | For the Six Months Ended |       
|--------------------------------------------------- |  | ------------------------ | ------
|                                                    |  | March
    31,            |       
|                                                    |  | 2011                     |       
|Cash Flows:                                         |  |                          |       
|Net cash used in operating activities               |  | $                        | (2,069
|Net cash used in investing activities               |  |                          | (160  
|Net cash provided by (used in) financing activities |  |                          | (605  
|Net increase (decrease) in cash                     |  |                          | (2,834
|Cash at beginning of period                         |  |                          | 7,428 
|Cash at end of period                               |  | $                        | 4,594 



The Company had cash of $4,594,000 at March 31, 2011, compared
with cash of $7,428,000 at September 30, 2010, a decrease of $2,834,000. The decrease in cash for the six months ended March
31, 2011, is primarily due to $2,069,000 of cash used in operating activities and payments of $598,000 on our debt obligations.



Operating Activities



During the six months ended March 31, 2011, cash used in
operations was $2,069,000, which was the result of net income of $107,000 plus non-cash charges of $7,912, 000 less changes in
operating assets and liabilities of $10,088,000. The non-cash charges consist primarily of $3,835,000 for amortization of deferred
advertising costs, $1,769,000 for bad debt expense, $902,000 for the change in fair value of derivative liabilities, $690,000
for deferred income taxes, $337,000 for depreciation, $236,000 for equity based compensation associated with employee and director
stock options, and $96,000 for increase in reserve for sales returns and adjustments. The changes in operating assets and liabilities
for the six months ended March 31, 2011, consist of $8,954,000 of deferred advertising expenditures related to our direct
response advertising efforts, increases for accounts receivable of $2,561,000 and inventory of $458,000 as a result of our increased
sales, and a decrease of $308,000 for accrued expenses primarily related to the payment of management incentives in October 2010,
partially offset by an increase in accounts payable of $2,409,000 due to increased purchases and improved vendor payment terms
for our higher volume items.



20







During the six months ended March 31, 2010, cash used
in operations was $1,821,000, which was the result of a net loss of $3,437,000 plus non-cash charges of $8,963,000 less changes
in operating assets and liabilities of $7,347,000. The non-cash charges consist primarily of $5,157,000 for the change in fair
value of derivative liabilities, $1,887,000 for amortization of deferred advertising costs, $1,583,000 for bad debt expense, $662,000
for non-cash interest expense related to convertible notes payable, $223,000 for equity based compensation associated with employee
and director stock options, $145,000 for increase in the reserve for sales returns and adjustments, and $270,000 for depreciation;
less, $982,000 for deferred income taxes. The changes in operating assets and liabilities for the six months ended March 31,
2010, consist of $4,630,000 of deferred advertising expenditures related to our direct response advertising efforts, increases
for accounts receivable of $3,621,000 and inventory of $650,000 as a result of our increased sales, partially offset by an increase
in accounts payable of $1,479,000 due to increased purchases.



Investing Activities



During the six months ended March 31, 2011, we purchased
$163,000 of property and equipment to support our continued growth.



During the six months ended March 31, 2010, we purchased
$1,217,000 of property and equipment primarily related to the build out of our new 24,000 square foot facility, into which we
moved in January 2010. In addition, we purchased a $550,000 certificate of deposit as additional security for a $1,000,000
credit line facility discussed above in Note 5 of the unaudited condensed consolidated financial statements.



Financing Activities



During the six months ended March 31, 2011, cash used
in financing activities was $605,000, which included payments of $598,000 towards our debt obligations and payment of $51,000
for costs associated with a new PNC Credit Line Facility discussed above in Note 5, partially offset by $44,000 of proceeds from
our employee stock purchase plan.



During the six months ended March 31, 2010, cash provided
by financing activities was $7,752,000, which included net proceeds of $6,618,000 from the sale of common stock to a single institutional
investor, borrowings of $750,000 from our credit line facility, $530,000 of proceeds from the exercise of warrants, and $104,000
of proceeds from our employee stock purchase plan, partially offset by payments of $241,000 to pay down a portion of our outstanding
debt and capital lease obligations.



Outlook



The second quarter of our fiscal year is typically a challenging
quarter for us each year due to the annual renewal of our customers’ insurance coverage, primarily Medicare Part B
coverage, and calendar year deductibles that must be met by the majority of our customers at the beginning of each calendar year.
In spite of these challenges, we were able to increase our sales for the twelfth consecutive quarter. Our growth over the last
three years has been driven by our direct response marketing campaign, primarily through television ads at remnant (discounted) rates.
During the second quarter of fiscal year 2011, based on buying opportunities within the direct response advertising markets, we
increased our advertising spend across all media channels. As a result of the increased advertising spend and the seasonal challenges
that we encountered during the second quarter of fiscal year 2011, we have a backlog of customer leads, of which a portion of
these leads will be converted into closed customer sales during the third quarter of fiscal year 2011, consistent with past quarters
that have resulted in similar build-ups of customer leads.



21







Demand for television time slots within the direct response
advertising market continues to be competitive, increasing the costs of our direct-response advertising efforts. We plan to decrease
our television advertising spend from second quarter levels for the remainder of fiscal year 2011. Based on results of our advertising
efforts within alternate media channels, we plan to continue those efforts and increase our spend within specific areas during
fiscal year 2011. Our cost structure continues to remain flexible enough to adapt to changing market conditions. We can pulse
our advertising spend and the expansion of our workforce relatively quickly based on the results of our marketing programs. We
believe we are well positioned to continue to grow our sales and improve profitability over the long term.



The outlook for demand for our products and services is
favorable, as there should be an increase in newly-diagnosed patients requiring the medical supplies that we provide. We expect
our revenues to continue to grow over the next two quarters of fiscal year 2011 due to our advertising and marketing programs.
The Company does not anticipate any major changes affecting the Company in Medicare reimbursement in 2011, nor in any other reimbursement
programs available from other third-party payers.



As of March 31, 2011, we had $4.6 million of cash available
and a credit line available to fund our operations. We believe that existing cash and the availability of funds through our credit
line, if necessary, together with cash generated from the collection of accounts receivable, and the sale of products will be
sufficient to meet our cash requirements during the next twelve months.



At March 31, 2011, our current assets of $16,494,000
exceeded our current liabilities of $7,165,000 by $9,329,000.



Our plan for the next twelve months includes the following:



| | • | Continue our advertising and marketing efforts at reduced spending levels;    
| | - | ------------------------------------------------------------------------------
| |   |                                                                               
| | • | Explore potential acquisition opportunities;                                  
| | • | 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                
| |   |                                                                               
| | • | Increase our accounts receivable collection efforts.                          



In order to implement our current business model, we have
completed the following:



| | • | Identified and presented to many large funding sources, soliciting terms for long-term
    capital in the form of debt, equity or a combination of both;                                              
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                       
| | • | Identified products and related target customers through extensive market research;                                                                                                                   
| |   |                                                                                                                                                                                                       
| | • | Established efficient and cost-effective methods to reach qualified customers;                                                                                                                        
| |   |                                                                                                                                                                                                       
| | • | 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;
| |   |                                                                                                                                                                                                       
| | • | Created a HIPAA 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 adapt to changing market conditions; and                                                           
| |   |                                                                                                                                                                                                       
| | • | Established methods of testing our current and new advertising methods to meet changing market
    conditions.                                                                                        



We will continue to operate as a federally licensed, direct-to-consumer,
Part B Benefits Provider, primarily focused on supplying medical supplies to chronically ill patients.



22







Off-Balance Sheet Arrangements



As of March 31, 2011, we had no off-balance sheet arrangements.



Critical Accounting Policies



See “Summary of Significant Accounting Policies”
in the Notes to the unaudited condensed consolidated financial statements and our current Annual Report on Form 10-K for the year
ended September 30, 2010, for discussion of significant accounting policies, recent accounting pronouncements and their effect,
if any, on the Company.



Effect of Inflation



We do not believe that inflation has had a material effect
on our business, results of operations or financial condition during the past two years.



Item 3. Quantitative and Qualitative Disclosures
about Market Risk



We have not entered into any hedging agreements or swap
agreements. Our principal market risk is the risk related to our customers and Medicare.



Item 4. Controls and Procedures.



Evaluation of Disclosure Controls and Procedures



Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management,
including our Chief Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.



We carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
as of March 31, 2011. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our
disclosure controls and procedures were not effective due to material weaknesses identified in the Company’s internal control
over financial reporting described below.



Management’s Report on Internal Control Over Financial
Reporting



A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement
of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.



Under the supervision and with the participation of our
Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our internal control over financial
reporting as of March 31, 2011, as required by Securities Exchange Act Rule 13a-15(c). In making our assessment, we
have utilized the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control
—Integrated Framework. We concluded that based on our evaluation, our internal control over financial reporting was not
effective as of March  31, 2011, due to the material weakness identified as follows:



| | · | Documentation
                                                                                                               of Accounting Review
                                                                                                               and Approval Process:In connection
                                                                                                               with the audit
                                                                                                               of our consolidated
                                                                                                               financial statements
                                                                                                               for the fiscal
                                                                                                               year ended September 30,
                                                                                                               2010, our independent
                                                                                                               registered accounting
                                                                                                               firm reported to
                                                                                                               our Board of Directors
                                                                                                               that they observed
                                                                                                               inadequate documented
                                                                                                               review and approval
                                                                                                               of certain aspects
                                                                                                               of the accounting
                                                                                                               process including
                                                                                                               the documented
                                                                                                               review of accounting
                                                                                                               reconciliations
                                                                                                               and journal entries
                                                                                                               that they considered
                                                                                                               to be a material
                                                                                                               weakness in internal
                                                                                                               control. After
                                                                                                               a review of our
                                                                                                               current review
                                                                                                               and approval of
                                                                                                               certain aspects
                                                                                                               of the accounting
                                                                                                               process, management
                                                                                                               concluded that
                                                                                                               the inadequate
                                                                                                               documented review
                                                                                                               and approval process
                                                                                                               represented a material
                                                                                                               weakness.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



23







| | · | Inventory
                                                                                                               Controls: Management
                                                                                                               has identified
                                                                                                               a material weakness
                                                                                                               related to the
                                                                                                               Company’s
                                                                                                               procedures to account
                                                                                                               for inventory.
                                                                                                               During the reconciliation
                                                                                                               of the annual physical
                                                                                                               inventory count
                                                                                                               at fiscal year-end,
                                                                                                               the Company determined
                                                                                                               that the journal
                                                                                                               entries to record
                                                                                                               the cost of goods
                                                                                                               sold each month
                                                                                                               contained errors
                                                                                                               as a result of
                                                                                                               unit of measure
                                                                                                               conversion issues
                                                                                                               with certain products
                                                                                                               that were sold
                                                                                                               in each month of
                                                                                                               fiscal year 2011.
                                                                                                               As a result, the
                                                                                                               Company has amended
                                                                                                               its Reports on
                                                                                                               Form 10-Q for the
                                                                                                               first and second
                                                                                                               quarters of fiscal
                                                                                                               year 2011 and will
                                                                                                               amend its Report
                                                                                                               on Form 10-Q for
                                                                                                               the third quarter
                                                                                                               of fiscal year
                                                                                                               2011.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Change in Internal Control over Financial Reporting



During the three months ended March 31, 2011, the Company
remediated the following material weakness previously disclosed in the Company’s Annual Report for fiscal year 2010 and
Interim Report for period ending December 31, 2010, filed with the SEC on Forms 10-K and 10-Q:



| | · | Assess
                                                                                                               and Identify the
                                                                                                               Impact of Recently
                                                                                                               Issued Accounting
                                                                                                               Pronouncements:The Company’s
                                                                                                               procedures to assess
                                                                                                               and identify the
                                                                                                               impact of Recently
                                                                                                               Issued Accounting
                                                                                                               Pronouncements
                                                                                                               were not sufficient,
                                                                                                               as evidenced by
                                                                                                               the Company’s
                                                                                                               failure to timely
                                                                                                               identify the impact
                                                                                                               of ASC 815-40-15,
                                                                                                               “Derivatives
                                                                                                               and Hedging —
                                                                                                               Contracts in Entity’s
                                                                                                               Own Equity (Scope
                                                                                                               and Scope Exceptions),”
                                                                                                               which became effective
                                                                                                               for the Company
                                                                                                               on October 1,
                                                                                                               2009. The Company
                                                                                                               did not become
                                                                                                               aware of the new
                                                                                                               guidance until
                                                                                                               June 2010,
                                                                                                               and the impacts
                                                                                                               of the accounting
                                                                                                               guidance were not
                                                                                                               properly identified
                                                                                                               by the Company
                                                                                                               until December 2010.
                                                                                                               As a result, the
                                                                                                               Company determined
                                                                                                               that the previously
                                                                                                               issued interim
                                                                                                               financial statements
                                                                                                               for fiscal year
                                                                                                               2010 should no
                                                                                                               longer be relied
                                                                                                               upon, which resulted
                                                                                                               in the restatement
                                                                                                               of the interim
                                                                                                               financial statements
                                                                                                               for the interim
                                                                                                               periods ending
                                                                                                               December 31,
                                                                                                               2009, March 31,
                                                                                                               2010, and June 30,
                                                                                                               2010.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Remediation:During the second quarter of fiscal
year 2011, the Company subscribed to an outside service that provides the Company’s Chief Financial Officer and Controller
with timely guidance on Recently Issued Accounting Pronouncements. In addition, the Company supplemented its current interim reporting
processes with documentation of the Controller’s and Chief Financial Officer’s review and assessment of the timing
and impacts, if any, that the new accounting pronouncements will have on the Company’s financial statements.



Remediation of Material Weaknesses in Internal Control
over Financial Reporting



In order to remediate the material weakness in internal
control over financial reporting, the Company, under the direction of the Company’s Audit Committee, intends to implement
improvements during the remainder of fiscal year 2011 as follows:



| | · | Document
                                                                                                               all significant
                                                                                                               accounting policies
                                                                                                               and ensure that
                                                                                                               the accounting
                                                                                                               policies are in
                                                                                                               accordance with
                                                                                                               accounting principles
                                                                                                               generally accepted
                                                                                                               in the United States
                                                                                                               and that internal
                                                                                                               controls are designed
                                                                                                               effectively to
                                                                                                               ensure that the
                                                                                                               financial information
                                                                                                               is properly reported.
                                                                                                               Management will
                                                                                                               engage independent
                                                                                                               accounting specialists
                                                                                                               to ensure that
                                                                                                               there is an independent
                                                                                                               verification of
                                                                                                               the accounting
                                                                                                               positions taken.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | In
                                                                                                               connection with
                                                                                                               the reported inadequate
                                                                                                               documented review
                                                                                                               and approval of
                                                                                                               certain aspects
                                                                                                               of the accounting
                                                                                                               process, management
                                                                                                               has plans to review
                                                                                                               the current review
                                                                                                               and approval processes
                                                                                                               and implement changes
                                                                                                               to ensure that
                                                                                                               all accounting
                                                                                                               reconciliations
                                                                                                               and journal entries
                                                                                                               are reviewed and
                                                                                                               approved on a timely
                                                                                                               basis and that
                                                                                                               this review is
                                                                                                               documented by a
                                                                                                               member of management
                                                                                                               separate from the
                                                                                                               preparer.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







| | · | The Company
                                                                                                               plans on evaluating
                                                                                                               new inventory systems
                                                                                                               during fiscal year
                                                                                                               2012. Until a new
                                                                                                               perpetual inventory
                                                                                                               system is implemented
                                                                                                               and the appropriate
                                                                                                               controls are put
                                                                                                               in place, the Company
                                                                                                               will conduct quarterly
                                                                                                               physical inventories
                                                                                                               for each future
                                                                                                               reporting period.
                                                                                                               During the first
                                                                                                               quarter of fiscal
                                                                                                               year 2012, additional
                                                                                                               analytical procedures
                                                                                                               will be implemented
                                                                                                               for the Company's
                                                                                                               monthly cost of
                                                                                                               goods sold journal
                                                                                                               entries and additional
                                                                                                               testing of cut-off
                                                                                                               controls will be
                                                                                                               performed at each
                                                                                                               interim period.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24







PART II — OTHER INFORMATION



Item 1. Legal Proceedings



None.



Item 1A. Risk Factors



There have been no material changes to the risk factors
disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010. Please refer to the “Risks
Factors” section in our Annual Report for a discussion of risks to which our business, financial condition, results of operations
and cash flows are subject.



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



During the six months ended March 31, 2011, the Company
issued 3,333,333 shares of common stock upon the conversion of convertible notes payable. The securities were issued in reliance
upon the exemptions from registration provided by Regulation D, Rule 506, and Section 4(2) of the Securities Act
of 1933, as amended.



Item 3. Defaults Upon Senior Securities



None.



Item 5. Other Information



None.



Item 6. Exhibits



Exhibit 31.1 — Section 302 Certificate of
Chief Executive Officer
Exhibit 31.2 — Section 302 Certificate of Chief Financial Officer
Exhibit 32.1 — Section 906 Certificate of Chief Executive Officer
Exhibit 32.2 — Section 906 Certificate of Chief Financial Officer



25







SIGNATURES



In accordance with 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, duly authorized.



/s/ LIBERATOR MEDICAL HOLDINGS, INC.



Registrant



|/s/
    Mark A. Libratore |  | President               |  | February 21, 2012
|------------------------- |  | ----------------------- |  | -----------------
|Mark A. Libratore         |  |                         |  |                  
|                          |  |                         |  |                  
|/s/
    Robert J. Davis   |  | Chief Financial Officer |  | February 21, 2012
|Robert J. Davis           |  |                         |  |                  





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