##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2009
  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from  to
 Commission File Number: 000-05663
 LIBERATOR MEDICAL HOLDINGS, INC.
  NEVADA
    
    87-0267292(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 2979 SE Gran Park Way, Stuart, Florida 34997  (Address of principal executive offices)
 (772) 287-2414  (Registrants telephone number, including area code)
   o x
 o x
 x o
 o o
 x
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company x(Do not check if a smaller reporting company)
 o x




---



##### 



LIBERATOR MEDICAL HOLDINGS, INC.  TABLE OF CONTENTS
 PART IItem 1.
    
    Business
    
    
    1Item 1A.
    
    Risk Factors
    
    
    5Item 1B.
    
    Unresolved Staff Comments
    
    
    8Item 2.
    
    Properties
    
    
    8Item 3.
    
    Legal Proceedings
    
    
    8Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    9PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    10Item 6.
    
    Selected Financial Data
    
    
    11Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    20Item 8.
    
    Financial Statements and Supplementary Data
    
    
    21Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    21Item 9A(T).
    
    Controls and Procedures
    
    
    21Item 9B.
    
    Other Information
    
    
    22PART IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    23Item 11.
    
    Executive Compensation
    
    
    24Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    26Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    29Item 14.
    
    Principal Accounting Fees and Services
    
    
    30PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    30Signatures
    
    
    
    
    31EX-21.1EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
 Some of the information contained in this Report may constitute forward-looking statements or
statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in
this Annual 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 out under Risk Factors, below, 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 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.
 
 PART I
 
 Item 1. Business
 Background of the Company
    1




---



##### Table of Contents



Background of Liberator Medical Supply, Inc.
  Market
     Target Market
    
    Diagnosed
    
    Undiagnosed
    
    Current Market SizeUrological
    
    N/A
    
    N/A
    
    $4.4 billion*Diabetes
    
    18 million
    
    6 million
    
    $116 billion **Mastectomy
    
    3.2 million
    
    N/A
    
    $1.1 billion ***Ostomy
    
    600,000
    
    N/A
    
    $1.2 billion ***Total
    
    >21.8 million
    
    >6 million
    
    $122.7 billion
 
 *
    
    BCC Research, 2009**
    
    Center for Disease Control 2007***
    
    Center for Disease Control 2005 2




---



##### Table of Contents



Mail Order Medical Supplies
  Retail Sales
  Sales and Marketing
     Suppliers
  Competitive Analysis
 Diabetes
  Mastectomy
  3




---



##### Table of Contents



Ostomy
  Urological
  Litigation
  Technology Systems
    www.liberatormedical.com
 Intellectual Property
  Employees
  4




---



##### Table of Contents



Item 1A. Risk Factors
  Risks Relating to Our Business
 
    
    Our future operating results remain difficult to predict. We continue to face many risks
and uncertainties which could affect our operating results, including, without limitation,
those described below.
 
    
    Although we had net income of $2,222,000 in fiscal year 2009, we have incurred significant
net losses in every other year since our inception, including net losses of $1,309,000 for
fiscal year 2008, $1,968,000 for the nine months ended September 30, 2007, $2,295,000 for
fiscal year 2006, and $1,097,000 for fiscal year 2005. As of September 30, 2009, we had an
accumulated deficit of $8,272,000.
 
    
    The Company has aggressive marketing plans that require the Company to spend substantial
sums. The Company may need additional capital to continue our business plan. In addition, the
Company may not accurately predict the amount of capital it requires to operate its existing
and future business, which requirement may exceed the Companys estimates. The failure by the
Company to secure any additional financing which it may require may adversely affect its
ability to grow.
 
    
    We could experience significantly reduced profits if Medicare changes, delays or denies
reimbursement or directs Medicare consumers to other companies through the process of
competitive bidding, governmental contracts or any kind of nationwide managed care or
governmental program.
 
    
    Sales of a significant portion of our products depend on the continued availability of
reimbursement of our customers by government and private insurance plans. Any reduction in
Medicare reimbursement currently available for our products would reduce our revenues. Without
a corresponding reduction in the cost of such products, the result would be a reduction in our
overall profit margin. Similarly, any increase in the cost of such products would reduce our
overall profit margin unless there was a corresponding increase in Medicare reimbursement. Our
profits could also be affected by the imposition of more stringent regulatory requirements for
Medicare reimbursement. The regulations that govern Medicare reimbursement are complex and our
compliance with these regulations may be reviewed by federal agencies, including the
Department of Health and Human Services, the Department of Justice, and the Food and Drug
Administration. These agencies conduct audits and periodic investigations of most companies
billing Medicare. Negative findings or results of audits are subject to appeals and judicial
review and are often overturned at various levels. There is always the possibility that the
Company could be the subject of any audit or investigation as it performs a substantial amount
of Medicare billing each year. The Company is regularly audited by all four regional Medicare
carriers and has on some occasions had to reimburse claims previously paid. This type of
reimbursement is common to all Medicare participants. Medicare audits or investigations could
possibly lead to recoupment of monies paid to the Company, fines, off-sets on future payments
and even loss of Medicare billing privileges. Since its inception, the Company has had no
fines or penalties but the Company has been audited by all four regional Medicare carriers and
from time-to-time been asked to repay amounts on claims previously paid for various reasons
such as billing errors, lack of medical records in physician offices, insufficient patient
diagnoses, returns, patients having similar equipment, patient not seen by physician recently
enough, and lack of adequate medical necessity. Although the Company has set aside reserves
for these repayments, demands for repayment could exceed Company reserves and the Company
could be unable to pay them, which would adversely affect the Company.
 
    
    We believe that we are able to control our level of expansion as well as the costs
associated with the rapid growth which the Company presently plans. However, we cannot be
sure that our existing staffing levels will be sufficient if we expand as rapidly as we
currently believe. Further, (i) any expansion will create significant demands on our
administrative, operational and financial personnel and other resources; (ii) additional
expansion in existing or new markets could strain these resources and increase our need for
capital; and (iii) our personnel, systems, procedures, controls and existing space may not be
adequate to support substantial expansion.
 5




---



##### Table of Contents




    
    Our ability to operate at a profit is highly dependent on recurring orders from customers,
as to which there is no assurance. We generally incur losses and negative cash flow with
respect to the first order from a new customer for chronic care products and respiratory
products, due primarily to the marketing and regulatory compliance costs associated with
initial customer qualification. Accordingly, the profitability of these product lines depends,
in large part, on recurring and sustained reorders. Reorder rates are inherently uncertain due
to several factors, many of which are outside our control, including changing customer
preferences, competitive price pressures, customer transition to extended care facilities,
customer mortality and general economic conditions.
 
    
    We could be liable for harm caused by products that we sell. The sale of medical products
entails the risk that users will make product liability claims. A product liability claim
could be expensive. While management believes that our insurance provides adequate coverage,
no assurance can be made that adequate coverage will exist for these claims.
 
    
    We could lose customers and revenues to new or existing competitors who have greater
financial or operating resources.
 
    
    Competition from other sellers of products sold by us is intense and expected to increase.
Many of our competitors and potential competitors are large companies with well-known names
and substantial resources. These companies may develop products and services that are more
effective or less expensive than any that we are developing or selling. They may also promote
and market these products more successfully than we promote and market our products.
 
    
    Many of the products that we sell are regulated by the FDA and other regulatory agencies.
If any of these agencies mandate a suspension of production or sales of our products or
mandate a recall, we may lose sales and incur expenses until we are in compliance with the
regulations or change to another acceptable supplier.
 
    
    Our future results may vary significantly depending on a number of factors, including:
  changes in reimbursement guidelines and amounts; changes in regulations affecting the healthcare industry; changes in the mix or cost of our products; the timing of customer orders; the timing and cost of our advertising campaigns; and the timing of the introduction or acceptance of new products
and services offered by us or our competitors.
 
    
    We regularly review potential acquisitions of businesses and products. Acquisitions, if we
embark on any type of acquisition, involve a number of risks that might adversely affect our
financial and operational resources, including:
  diversion of the attention of senior management from important business matters; amortization of substantial intangible assets; difficulty in retaining key personnel of an acquired business; failure to assimilate operations of an acquired business; failure to retain the customers of an acquired business; possible operating losses and expenses of an acquired business; exposure to legal claims for activities of an acquired business prior to acquisition; and incurrence of debt and related interest expense.
 
    
    The success of the Company will largely be dependent on Mark Libratore, the Companys founder and our President and
Chief Executive Officer, who is responsible for the day-to-day management of the business. Loss of Mr. Libratores
services, either through retirement, incapacity or death, may have a material adverse effect on the Company. The
Company has $4,000,000 of key man insurance on Mr. Libratores life, with the Company as the beneficiary of $3,000,000
and his wife, Cynthia Libratore, the beneficiary of $1,000,000.
 6




---



##### Table of Contents




    
    Our indebtedness aggregated approximately $11.0 million as of September 30, 2009. As a result, we are subject to the
risks associated with significant indebtedness, including:
 
    we must dedicate a portion of our cash flows from operations to
pay debt service costs and, as a result, we have less funds available for
operations and other purposes;
    it may be more difficult and expensive to obtain additional
funds through financings, if available at all;
    we are more vulnerable to economic downturns and fluctuations
in interest rates, less able to withstand competitive pressures and less
flexible in reacting to changes in our industry and general economic
conditions; and
    if we default under any of our outstanding notes and/or if our
creditors demand payment of a portion or all of our indebtedness, we may not
have sufficient funds to make such payments.
 
    
    As of November 30, 2009, Mark Libratore, our President and Chief Executive Officer, held
approximately 47.5% of our outstanding common stock, excluding options to purchase up to
4,111,009 shares of our common stock. As a result, Mr. Libratore has the ability to exercise
substantial control over all corporate actions requiring shareholder approval, including the
following actions:
 
    the election of directors;
    the adoption of stock option plans;
    the amendment of charter documents; or
    the approval of certain mergers and other significant corporate
transactions, including a sale of substantially all of our assets.
 Risks Relating to Ownership of Our Common Stock
 
    
    Even though we expect our common stock to continue to be quoted on the OTC Bulletin Board,
we cannot predict the changes in the trading market for our common stock, including changes in
liquidity. Because only a small percentage of our outstanding shares are freely traded in the
public market, the price of our shares could be volatile and liquidation of an investors
holdings may be difficult. Thus, holders of our common stock may be required to retain their shares for a long period of time.
 
    
    We anticipate that we will retain any future earnings and other cash resources for future
operation and development of our business and do not intend to declare or pay any cash
dividends in the foreseeable future. Any future payment of cash dividends will be at the
discretion of our board of directors after taking into account many factors, including our
operating results, financial condition and capital requirements. Corporations that pay
dividends may be viewed as a better investment than corporations that do not.
 
    
    Future sales or the potential for sale of a substantial number of shares of our common
stock could cause our market value to decline and could impair our ability to raise capital
through subsequent equity offerings. Sales of a substantial number of shares of our common
stock in the public markets, or the perception that these sales may occur, could cause the
market price of our common stock to decline and could materially impair our ability to raise
capital through the sale of additional equity securities.
 7




---



##### Table of Contents




    
    Our bylaws contain provisions which could make it more difficult for a third party to
acquire us without the consent of our board of directors. Our bylaws impose restrictions on
the persons who may call special shareholder meetings. Furthermore, the Nevada Revised
Statutes contain an affiliated transaction provision that prohibits a publicly-held Nevada
corporation from engaging in a broad range of business combinations or other extraordinary
corporate transactions with an interested stockholder unless, among others, (i) the
transaction is approved by a majority of disinterested directors before the person becomes an
interested shareholder or (ii) the
transaction is approved by the holders of a majority of the corporations voting shares other
than those owned by the interested shareholder. An interested shareholder is defined as a person
who together with affiliates and associates beneficially owns more than 10% of the corporations
outstanding voting shares. This provision may have the effect of delaying or preventing a change
of control of our company even if this change of control would benefit our shareholders.
 
    
    Public trading of our common stock on the OTCBB is subject to certain provisions, commonly
referred to as the penny stock rules, promulgated under the Securities Exchange Act of 1934. A
penny stock is generally defined to be any equity security that has a market price less than
$5.00 per share, subject to certain exceptions. If our stock is deemed to be a penny stock,
trading in our stock will be subject to additional sales practice requirements on
broker-dealers. These require a broker dealer to:
 
    make a special suitability determination for purchasers of penny stocks;
    receive the purchasers written consent to the transaction prior to the purchase; and
    deliver to a prospective purchaser of a penny stock, prior to
the first transaction, a risk disclosure document relating to the penny stock
market.
 Consequently, penny stock rules may restrict the ability of broker-dealers to trade and/or
maintain a market in our common stock. Also, many prospective investors may not want to get
involved with the additional administrative requirements, which may have a material adverse
effect on the trading of our shares.
 
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
      
 Item 3. Legal Proceedings
  8




---



##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders
  For
    
    
    Against
    
    
    AbstainElection of Director  Mark Libratore
    
    
    21,479,273
    
    
    
    -0-
    
    
    
    25,250Approval of 2009 Employee Stock Purchase Plan
    
    
    19,578,448
    
    
    
    106,252
    
    
    
    412,656Approval of Amendment to the Employee 2007 Stock Plan
    
    
    19,578,348
    
    
    
    106,300
    
    
    
    52,708Ratification of Berenfeld, Spritzer, Shechter & Sheer, LLP
    
    
    21,434,273
    
    
    
    30,100
    
    
    
    40,150
 9




---



##### Table of Contents



PART II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
  Stock PriceHigh
    
    LowQuarter Ended:September 30, 2007
    
    $
    2.75
    
    
    $
    1.10December 31, 2007
    
    $
    1.80
    
    
    $
    .75March 31, 2008
    
    $
    1.35
    
    
    $
    .41June 30, 2008
    
    $
    1.00
    
    
    $
    .55September 30, 2008
    
    $
    1.05
    
    
    $
    .48December 31, 2008
    
    $
    .80
    
    
    $
    .37March 31, 2009
    
    $
    .64
    
    
    $
    .31June 30, 2009
    
    $
    .70
    
    
    $
    .33September 30, 2009
    
    $
    1.49
    
    
    $
    .49
      10




---



##### Table of Contents



Stock Repurchase Program
   Total Number of
    
    
    Approximate DollarTotal
    
    
    
    
    
    
    Shares Purchased as
    
    
    Value of Shares thatNumber of
    
    
    Average
    
    
    Part of Publicly
    
    
    May Yet BeShares
    
    
    Price Paid
    
    
    Announced Plans or
    
    
    Purchased Under thePurchased
    
    
    per Share
    
    
    Programs(2)
    
    
    Plans or Programs(2)July 131, 2009(1)
    
    
    
    
    
    $
    August 131, 2009(1)
    
    
    
    
    
    $
    September 130, 2009(1)
    
    
    
    
    
    $
    Total
    
    
    
    
    
    $
    
    
    
    
    85,600
    
    
    $
    459,422
 
 (1)
    
    In December 2008, we opened a separate money market account with an
investment bank pursuant to which we transferred $50,000 into the
account, of which $0 was used to purchase 0 shares during the three
months ended September 30, 2009.(2)
    
    As of September 30, 2009, 85,600 cumulative shares have been purchased
under our stock repurchase program for $40,578, and an approximate
dollar value of shares in the amount of $459,422 may be purchased
under the program through December 2009. 
 Item 6. Selected Financial Data
  11




---



##### Table of Contents



Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion in conjunction with our audited historical consolidated
financial statements, which are included elsewhere in this Form 10-K . Managements Discussion and
Analysis of Financial Condition and Results of Operation contains statements that are
forward-looking. These statements are based on current expectations and assumptions, which are
subject to risk, uncertainties and other factors, including, but not limited to, those described in
the subsection titled Risk Factors, located in Part I, Item 1A, of this Form 10-K .
 Company Overview
    Results of Operations
   2009
    
    
    2008
    
    
    2007Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Sales
    
    $
    25,818
    
    
    
    100.0
    
    
    $
    9,550
    
    
    
    100.0
    
    
    $
    2,250
    
    
    
    100.0Cost of Sales
    
    
    9,050
    
    
    
    35.1
    
    
    
    3,439
    
    
    
    36.0
    
    
    
    951
    
    
    
    42.3Gross Profit
    
    
    16,768
    
    
    
    64.9
    
    
    
    6,111
    
    
    
    64.0
    
    
    
    1,299
    
    
    
    57.7Operating Expenses
    
    
    13,479
    
    
    
    52.2
    
    
    
    6,912
    
    
    
    72.4
    
    
    
    3,155
    
    
    
    140.2Income (Loss) from Operations
    
    
    3,289
    
    
    
    12.7
    
    
    
    (801
    )
    
    
    (8.4
    )
    
    
    (1,856
    )
    
    
    (82.5
    )Other Income (Expense)
    
    
    (1,035
    )
    
    
    (4.0
    )
    
    
    (508
    )
    
    
    (5.3
    )
    
    
    (112
    )
    
    
    (5.0
    )Income (Loss) Before Income Taxes
    
    
    2,254
    
    
    
    8.7
    
    
    
    (1,309
    )
    
    
    (13.7
    )
    
    
    (1,968
    )
    
    
    (87.5
    )Income Taxes
    
    
    32
    
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income (Loss)
    
    
    2,222
    
    
    
    8.6
    
    
    $
    (1,309
    )
    
    
    (13.7
    )
    
    $
    (1,968
    )
    
    
    (87.5
    )
 12




---



##### Table of Contents



Revenues
   Gross Profit
   Operating Expenses
  2009
    
    
    2008
    
    
    2007Amount
    
    
    %
    
    
    Amount
    
    
    %
    
    
    Amount
    
    
    %Operating Expenses:Payroll, taxes and benefits
    
    $
    5,406
    
    
    
    20.9
    
    
    $
    2,685
    
    
    
    28.1
    
    
    $
    1,365
    
    
    
    60.7Advertising
    
    
    2,042
    
    
    
    7.9
    
    
    
    470
    
    
    
    4.9
    
    
    
    134
    
    
    
    6.0Bad debts
    
    
    2,488
    
    
    
    9.6
    
    
    
    1,042
    
    
    
    10.9
    
    
    
    348
    
    
    
    15.5Depreciation
    
    
    306
    
    
    
    1.2
    
    
    
    213
    
    
    
    2.2
    
    
    
    138
    
    
    
    6.1General and administration
    
    
    3,237
    
    
    
    12.5
    
    
    
    2,502
    
    
    
    26.2
    
    
    
    1,170
    
    
    
    52.0Total Operating Expenses
    
    $
    13,479
    
    
    
    52.2
    
    
    $
    6,912
    
    
    
    72.4
    
    
    $
    3,155
    
    
    
    140.2
  13




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007Advertising Expenses:Amortization of direct-response costs
    
    $
    1,866
    
    
    $
    450
    
    
    $
    113Other advertising expenses
    
    
    176
    
    
    
    20
    
    
    
    21Total Advertising Expenses
    
    $
    2,042
    
    
    $
    470
    
    
    $
    134
     Income (Loss) from Operations
   14




---



##### Table of Contents



Other Income (Expense)
  2009
    
    
    2008
    
    
    2007Other Income (Expense):Interest Expense
    
    $
    (1,054
    )
    
    $
    (520
    )
    
    $
    (217
    )Forgiveness of debt
    
    
    
    
    
    
    
    
    
    
    108Loss on sale of assets
    
    
    
    
    
    
    
    
    
    
    (3
    )Interest income
    
    
    19
    
    
    
    12
    
    
    
    Total Other Income (Expense)
    
    $
    (1,035
    )
    
    $
    (508
    )
    
    $
    (112
    )
  Liquidity and Capital Resources
  2009
    
    
    2008
    
    
    2007Cash Flows:Net cash provided by (used in) operating activities
    
    $
    1,712
    
    
    $
    (2,870
    )
    
    $
    (1,130
    )Net cash used in investing activities
    
    
    (941
    )
    
    
    (222
    )
    
    
    (18
    )Net cash provided by financing activities
    
    
    1,854
    
    
    
    4,088
    
    
    
    1,201Net increase in cash
    
    
    2,625
    
    
    
    996
    
    
    
    53Cash at beginning of period
    
    
    1,173
    
    
    
    177
    
    
    
    124Cash at end of period
    
    $
    3,798
    
    
    $
    1,173
    
    
    $
    177
    15




---



##### Table of Contents



Operating Activities
    Investing Activities
    Financing Activities
  16




---



##### Table of Contents



Outlook
     
    
    Accelerate our advertising and marketing efforts;
    
    Increase our customer base;
    
    Continue to service our current customer base and increase the retention rate;
    
    Continue to invest in the expansion of our infrastructure; and
    
    Increase our accounts receivable collection efforts.
  
    
    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;
    
    Retained an investor relations firm to further enhance our exposure and opportunities
for long-term capital requirements;
    
    Identified products and related target customers through extensive market research;
 17




---



##### Table of Contents




    
    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;
    
    Leased an additional 24,000 square foot facility to house our expanding workforce and
support our continued growth. We are currently in the process of completing the build out
of this facility to house our call center and other administrative functions. We expect to
be in the new facility by the end of January 2010;
    
    Created a HIPPA compliant IT infrastructure and staff to accommodate additional growth
in sales;
    
    Established a marketing plan that can be monitored for effectiveness and is flexible
enough to adjust to changing market conditions; and
    
    Tested our advertising methods and established methods of testing additional advertising
methods to meet with changing market conditions.
  Contractual Obligations
  Payments due by periodTotals
    
    
    FY 2010
    
    
    FY 2011
    
    
    FY 2012
    
    
    FY 2013
    
    
    FY 2014Convertible debt obligations (1)
    
    $
    6,901
    
    
    $
    4,360
    
    
    $
    2,541
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    176
    
    
    
    100
    
    
    
    63
    
    
    
    13
    
    
    
    
    
    
    
    Operating leases
    
    
    1,566
    
    
    
    470
    
    
    
    492
    
    
    
    439
    
    
    
    94
    
    
    
    71Purchase commitment (2)
    
    
    532
    
    
    
    102
    
    
    
    120
    
    
    
    120
    
    
    
    120
    
    
    
    70Total contractual obligations
    
    $
    9,175
    
    
    $
    5,032
    
    
    $
    3,216
    
    
    $
    572
    
    
    $
    214
    
    
    
    141
 
 (1)
    
    The convertible debt obligations that are due in fiscal year 2010 include $601,000 of
convertible notes that are convertible into shares of our common stock at a conversion
price of $0.50 per share and $3,500,000 of convertible notes that are convertible into
shares of our common stock at a conversion price of $0.80 per share. Based on the current
price of our common stock, we anticipate that the majority of this debt will be converted
into shares of common stock at some point during fiscal year 2010. If for some reason the
notes are not converted, we believe we have significant financial resources to meet our
debt obligations.(2)
    
    The purchase commitment includes a long distance service agreement that requires us to
purchase a minimum of $6,000 per month of long distance service through December 2009.
Effective January 2010, our commitment level will increase to a minimum level of $10,000
per month, partially offset by rebates for the first five months of service. The long
distance service agreement expires in April 2014. Off-Balance Sheet Arrangements
  18




---



##### Table of Contents



Critical Accounting Policies, Judgments and Estimates
   Accounts Receivable
    Deferred Advertising
 Capitalized Advertising
Costs
  19




---



##### Table of Contents



Stock-Based Compensation Expense
 Compensation 
Stock Compensation,
     Income Taxes
   
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  20




---



##### Table of Contents



Item 8. Financial Statements
  Report of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets as of September 30, 2009 and 2008
    
    
    F-2Consolidated Statements of Operations for the years ended September 30, 2009 and 2008 and the nine months ended September 30, 2007
    
    
    F-3Consolidated Statements of Changes in Stockholders Equity (Deficit) for the years ended September 30, 2009 and 2008 and the nine months ended September 30, 2007
    
    
    F-4Consolidated Statements of Cash Flows for the years ended September 30, 2009 and 2008 and the nine months ended September 30, 2007
    
    
    F-5Notes to the Consolidated Financial Statements
    
    
    F-6
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
   21




---



##### Table of Contents



Changes in Internal Controls
   Limitations on the Effectiveness of Controls
  
 Item 9B. Other Information
  22




---



##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance
  Name
    
    Age
    
    Position(s) with the CompanyMark Libratore
    
    58
    
    President, Chief Executive Officer, DirectorRobert Davis
    
    63
    
    Chief Financial OfficerJohn Leger
    
    54
    
    Chief Operating Officer
  Mark Libratore
 Robert Davis
 John Leger
   Section 16(a) Beneficial Ownership Reporting Compliance
  23




---



##### Table of Contents



Code of Ethics
 www.liberatormedical.com
 Board Committees and Designated Directors.
  
 Item 11. Executive Compensation
 Compensation Discussion and Analysis
  Compensation Philosophy and Objectives
  
    
    To offer a total compensation package to the Named Executive Officers
that is competitive in the marketplace for executive talent.
    
    To motivate the Named Executive Officers to achieve our business
objectives by providing incentive compensation awards that take into
account our overall performance and that measure performance against
those business objectives.
    
    To provide equity-based, long-term compensation arrangements that
creates meaningful incentives for the Named Executive Officers to
maximize our near and long-term future performance that aligns their
interests with our shareholders and encourage the Named Executive
Officers to remain with the Company.
  Employment and Consulting Agreements
  24




---



##### Table of Contents



Summary Compensation Table
  Name and principal
    
    
    
    
    
    
    
    
    
    Bonus
    
    
    Option
    
    
    All Otherposition
    
    Year
    
    
    Salary($)
    
    
    ($)
    
    
    Awards($)
    
    
    Compensation($)
    
    
    Total($)Mark A. Libratore
    
    
    2009
    
    
    $
    230,000
    
    
    $
    88,070
    
    
    $
    2,810
    
    
    $
    43,090
    
    
    $
    363,970President and Chief
    
    
    2008
    
    
    $
    130,013
    
    
    $
    24,713
    
    
    $
    12,894
    
    
    $
    40,078
    
    
    $
    207,698Executive Officer
    
    
    2007
    
    
    $
    95,000
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    17,907
    
    
    $
    112,907Robert Davis
    
    
    2009
    
    
    $
    166,920
    
    
    $
    56,870
    
    
    $
    9,680
    
    
    $
    5,650
    
    
    $
    239,120Chief Financial Officer
    
    
    2008
    
    
    $
    92,497
    
    
    $
    19,951
    
    
    $
    15,892
    
    
    $
    2,458
    
    
    $
    130,7982007
    
    
    $
    65,769
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    2,458
    
    
    $
    68,227John Leger
    
    
    2009
    
    
    $
    151,920
    
    
    $
    55,850
    
    
    $
    6,470
    
    
    $
    6,040
    
    
    $
    220,280Chief Operating Officer
    
    
    2008
    
    
    $
    125,017
    
    
    $
    17,332
    
    
    $
    9,536
    
    
    $
    2,458
    
    
    $
    154,3432007
    
    
    $
    91,346
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    2,458
    
    
    $
    93,804
 All Other Compensation Table
  Outstanding Equity Awards at 2009 Fiscal Year End
   Number of
    
    
    Number ofSecurities
    
    
    Securities
    
    
    
    
    
    
    
    
    
    
    
    
    MarketUnderlying
    
    
    Underlying
    
    
    
    
    
    
    
    
    Number of
    
    
    Value ofUnexercised
    
    
    Unexercised
    
    
    Option
    
    
    Option
    
    Shares
    
    
    SharesOptions (#)
    
    
    Options (#)
    
    
    Exercise
    
    
    Expiration
    
    That Have
    
    
    That HaveExercisable
    
    
    Unexercisable
    
    
    Price ($)
    
    
    Date
    
    Not Vested (#)
    
    
    Not Vested ($)Mark Libratore
    
    
    100,000
    
    
    
    
    
    
    $
    0.825
    
    
    April 14, 2013
    
    
    
    
    
    $
    
    
    
    
    90,000
    
    
    $
    1.10
    
    
    August 18, 2014
    
    
    90,000
    
    
    $
    130,500Robert Davis
    
    
    100,000
    
    
    
    
    
    
    $
    0.75
    
    
    April 14, 2013
    
    
    
    
    
    $
    
    
    
    
    100,000
    
    
    $
    0.60
    
    
    October 30, 2013
    
    
    100,000
    
    
    $
    145,000
    
    
    
    100,000
    
    
    $
    1.00
    
    
    August 18, 2014
    
    
    100,000
    
    
    $
    145,000John Leger
    
    
    60,000
    
    
    
    
    
    
    $
    0.75
    
    
    April 14, 2013
    
    
    
    
    
    $
    
    
    
    
    60,000
    
    
    $
    0.60
    
    
    October 30, 2013
    
    
    60,000
    
    
    $
    87,000
    
    
    
    80,000
    
    
    $
    1.00
    
    
    August 18, 2014
    
    
    80,000
    
    
    $
    116,000
 25




---



##### Table of Contents



Potential Payments Upon Termination
 Employment and Consulting Agreements
  Director Compensation
  How Compensation is Determined
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 Equity Compensation Plans
 2007 Stock Plan
     26




---



##### Table of Contents



Weighted-Stock Options
    
    
    Average Exercise
    
    
    Shares AvailableOutstanding
    
    
    Price per Share
    
    
    To Grant2007 Employee Stock Incentive Plan
    
    
    1,580,000
    
    
    $
    0.81
    
    
    
    420,000
 Security Ownership of Certain Beneficial Owners and Management
  
    
    by each person known by us to be the beneficial owner of 5% or more of our common stock;
    
    by each of our directors and executive officers; and
    
    by all of our directors and executive officers as a group.
 27




---



##### Table of Contents



Name and Address
    
    Number of Shares
    
    
    Percent5% Beneficial Owners:Shaihesh C. Zaveri (1)
    
    
    2,085,342
    (2)
    
    
    5.01
    %and Mayuri S. Zaveri
6559 N. Country Club Rd.
Mattoon, IL 61938Millennium Partners, L.P.(3)
    
    
    3,260,158
    (4)
    
    
    7.83
    %c/o Millennium Management LLC
666 Fifth Avenue, 8th Floor
New York, NY 10103Directors and Executive Officers:Mark A. Libratore
    
    
    19,663,867
    (5)
    
    
    47.22
    %President and Chief Executive Officer and Director
2979 SE Gran Park Way
Stuart, FL 34997Robert Davis, Chief Financial Officer
    
    
    301,000
    (6)
    
    
    *2979 SE Gran Park Way
Stuart, FL 34997John Leger, Vice President, Operations
    
    
    175,000
    (7)
    
    
    *2979 SE Gran Park Way
Stuart, FL 34997All directors and executive officers as a group (3 persons)
    
    
    20,139,867
    (8)
    
    
    48.36
    %
 
 *
    
    Less than one percent (1%).(1)
    
    Information with respect to the reporting person is derived from a
Schedule 13G/A filed with the SEC on behalf of the reporting person on
February 13, 2008.(2)
    
    Includes 375,000 of our common stock issuable upon exercise of a
warrant at an exercise price of $1.00 per share.(3)
    
    Millennium Management LLC, a Delaware limited liability company
(Millennium Management), is the managing partner of Millennium
Partners, L.P., a Cayman Islands exempted limited partnership
(Millennium Partners), and the manager of Millenco LLC, a Delaware
limited liability company (Millenco), and consequently may be deemed
to have voting control and investment discretion over securities owned
by Millennium Partners or Millenco. Israel A. Englander is the
managing member of Millennium Management and as a result, Mr.
Englander may be deemed to be the beneficial owner of any shares
deemed to be beneficially owned by Millennium Management. The
foregoing should not be construed in and of itself as an admission by
Millennium Management or Mr. Englander as to beneficial ownership of
the shares owned by Millennium Partners or Millenco. The foregoing
information is derived from the reporting person and a Schedule 13D
filed with the SEC on behalf of the reporting person on June 2, 2008. 28




---



##### Table of Contents



(4)
    
    Represents an aggregate of (i) 730,000 shares of our common stock held
by Millenco, (ii) 4,375,000 shares of our common stock issuable upon
conversion of an outstanding senior convertible note held by
Millennium Partners in the original principal amount of $3,500,000, at
an initial conversion price of $0.80 per share, subject to adjustment,
which matures on May 22, 2010, (iii) 3,333,334 shares of our common
stock issuable upon conversion of an outstanding senior convertible
note held by Millennium Partners in the original principal amount of
$2,500,000, at an initial conversion price of $0.75 per share, subject
to adjustment, which matures on October 17, 2010, (iv) 4,375,000
shares of our common stock issuable upon exercise of a warrant held by
Millennium Partners at an initial exercise price of $1.00 per share,
subject to adjustment, which has a term of five years, and (v)
1,166,667 shares of our common stock issuable upon exercise of a
warrant held by Millennium Partners at an initial exercise price of
$1.25 per share, subject to adjustment, which has a term of three
years; provided, however, that the number of shares of our common
stock into which such senior convertible notes and warrants is limited
pursuant to the terms of the senior convertible notes and the warrants
to that number of shares of our common stock which would result in
Millennium Partners (together with its affiliates) having aggregate
beneficial ownership of not more than 9.99% of our total issued and
outstanding common stock. Thus, as of November 30, 2009, Millennium
Partners may be deemed to beneficially own 3,260,158 shares of our
common stock, which represents approximately 9.99% of the outstanding
shares of the issued and outstanding shares of our common stock as of
such date and 7.83% of the outstanding beneficially owned shares as
defined by Rule 13d-3 under the Securities Exchange Act of 1934.(5)
    
    Includes 4,021,009 shares underlying options exercisable by Mr.
Libratore within 60 days of November 30, 2009. Does not include 90,000
shares underlying options that are not exercisable within 60 days of
November 30, 2009.(6)
    
    Includes 125,000 shares underlying options exercisable, and 6,000
shares underlying warrants exercisable by Mr. Davis within 60 days of
November 30, 2009. Does not include 175,000 shares underlying options
that are not exercisable within 60 days of November 30, 2009.(7)
    
    Includes 75,000 shares underlying options exercisable by Mr. Leger
within 60 days of November 30, 2009. Does not include 125,000 shares
underlying options that are not exercisable within 60 days of November
30, 2009.(8)
    
    See Footnote Nos. (5) through (7) 
 Item 13. Certain Relationships and Related Transactions, and Director Independence
  29




---



##### Table of Contents



Item 14. Principal Accounting Fees and Services
  Fiscal Year endedSeptember 30,2009
    
    
    2008Audit fees
    
    $
    105,675
    
    
    $
    110,800Audit related fees
    
    
    1,225
    
    
    
    3,000Tax fees
    
    
    21,525
    
    
    
    28,075All other fees
    
    
    
    
    
    
    264Total fees
    
    $
    128,425
    
    
    $
    142,139
  
 Item 15. Exhibits and Financial Statement Schedules
  Number
    
    Description21.1
    
    
    Subsidiaries (1)31.1
    
    
    Section 302 Certificate of Chief Executive Officer (1)31.2
    
    
    Section 302 Certificate of Chief Financial Officer (1)32.1
    
    
    Section 906 Certificate of Chief Executive Officer (1)32.2
    
    
    Section 906 Certificate of Chief Financial Officer (1)
 
 (1)
    
    Filed herewith. 30




---



##### Table of Contents



SIGNATURES
  LIBERATOR MEDICAL HOLDINGS, INC.Dated: December 17, 2009
    By:
    /s/ Mark A. LibratoreMark A. Libratore, President,Chief Executive Officer and Director  Signatures
    
    Titles
    
    Date/s/ Mark A. Libratore

Mark A. Libratore
    
    President, Chief Executive
Officer and Director
    
    December 17, 2009/s/ Robert J. Davis

Robert J. Davis
    
    Chief Financial Officer
    
    December 17, 2009
 31




---



##### 



INDEX TO FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets as of September 30, 2009 and 2008
    
    F-2Consolidated Statements of Operations for the years ended September 30, 2009
and 2008 and the nine months ended September 30, 2007
    
    F-3Consolidated Statements of Changes in Stockholders Equity (Deficit) for the
years ended September 30, 2009 and 2008 and the nine months ended September 30,
2007
    
    F-4Consolidated Statements of Cash Flows for the years ended September 30, 2009
and 2008 and the nine months ended September 30, 2007
    
    F-5Notes to the Consolidated Financial Statements
    
    F-6




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    
 F-1




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
As of September 30, 2009 and 2008
 2009
    
    
    2008AssetsCurrent AssetsCash
    
    $
    3,798
    
    
    $
    1,173Restricted cash
    
    
    500
    
    
    
    Accounts receivable, net of allowance for doubtful accounts of $2,327 and
$1,056, respectively
    
    
    3,850
    
    
    
    2,405Prepaid expenses
    
    
    59
    
    
    
    321Inventory, net of allowance for obsolete inventory of $110 and $50, respectively
    
    
    902
    
    
    
    786Deferred advertising, current portion
    
    
    2,016
    
    
    
    770Debt issuance costs, current portion
    
    
    347
    
    
    
    316Other
    
    
    77
    
    
    
    2Total Current Assets
    
    
    11,549
    
    
    
    5,773Property and EquipmentProperty and Equipment, net of accumulated depreciation of $1,021 and $715,
respectively
    
    
    1,041
    
    
    
    816Other AssetsDeferred advertising, net of current portion
    
    
    1,739
    
    
    
    660Debt issuance costs, net of current portion
    
    
    7
    
    
    
    177Deposits
    
    
    123
    
    
    
    100Total Other Assets
    
    
    1,869
    
    
    
    937Total Assets
    
    $
    14,459
    
    
    $
    7,526Liabilities and Stockholders EquityCurrent LiabilitiesAccounts payable
    
    $
    2,089
    
    
    $
    900Accrued liabilities
    
    
    716
    
    
    
    290Stockholder loan
    
    
    1,515
    
    
    
    1,665Convertible notes payable, net of unamortized discount of $292 and $57,
respectively
    
    
    3,893
    
    
    
    772Capital lease obligations, current portion
    
    
    80
    
    
    
    51Deferred rent liability, current portion
    
    
    60
    
    
    
    48Total Current Liabilities
    
    
    8,353
    
    
    
    3,726Long-Term LiabilitiesConvertible notes payable, net of unamortized discount of $90 and $749,
respectively
    
    
    2,447
    
    
    
    2,789Capital lease obligations, net of current portion
    
    
    70
    
    
    
    82Deferred rent liability, net of current portion
    
    
    165
    
    
    
    214Total Long-Term Liabilities
    
    
    2,682
    
    
    
    3,085Total Liabilities
    
    
    11,035
    
    
    
    6,811Stockholders EquityCommon stock, $.001 par value, 200,000,000 shares authorized, 32,462,311 and
32,050,366 shares issued at September 30, 2009 and 2008, respectively
    
    
    32
    
    
    
    32Additional paid-in capital
    
    
    11,705
    
    
    
    11,177Accumulated deficit
    
    
    (8,272
    )
    
    
    (10,494
    )3,465
    
    
    
    715Less: Treasury stock, at cost (85,600 shares)
    
    
    (41
    )
    
    
    Total Stockholders Equity
    
    
    3,424
    
    
    
    715Total Liabilities and Stockholders Equity
    
    $
    14,459
    
    
    $
    7,526
  F-2




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
For the years ended September 30, 2009 and 2008 and for the nine months ended September 30, 2007
 2009
    
    
    2008
    
    
    2007Sales
    
    $
    25,818
    
    
    $
    9,550
    
    
    $
    2,250Cost of Sales
    
    
    9,050
    
    
    
    3,439
    
    
    
    951Gross Profit
    
    
    16,768
    
    
    
    6,111
    
    
    
    1,299Operating ExpensesPayroll, taxes and benefits
    
    
    5,406
    
    
    
    2,685
    
    
    
    1,365Advertising
    
    
    2,042
    
    
    
    470
    
    
    
    134Bad debts
    
    
    2,488
    
    
    
    1,042
    
    
    
    348Depreciation
    
    
    306
    
    
    
    213
    
    
    
    138General and administrative
    
    
    3,237
    
    
    
    2,502
    
    
    
    1,170Total Operating Expenses
    
    
    13,479
    
    
    
    6,912
    
    
    
    3,155Income (Loss) from Operations
    
    
    3,289
    
    
    
    (801
    )
    
    
    (1,856
    )Other Income (Expense)Forgiveness of debt
    
    
    
    
    
    
    
    
    
    
    108Loss on sale of assets
    
    
    
    
    
    
    
    
    
    
    (3
    )Interest Expense
    
    
    (1,054
    )
    
    
    (520
    )
    
    
    (217
    )Interest Income
    
    
    19
    
    
    
    12
    
    
    
    Total Other Income (Expense)
    
    
    (1,035
    )
    
    
    (508
    )
    
    
    (112
    )Income (Loss) before Income Taxes
    
    
    2,254
    
    
    
    (1,309
    )
    
    
    (1,968
    )Provision for Income Taxes
    
    
    32
    
    
    
    
    
    
    
    Net Income (Loss)
    
    $
    2,222
    
    
    $
    (1,309
    )
    
    $
    (1,968
    )Basic earnings (loss) per share:Weighted average shares outstanding
    
    
    32,128
    
    
    
    31,768
    
    
    
    27,265Earnings (loss) per share
    
    $
    0.07
    
    
    $
    (0.04
    )
    
    $
    (0.07
    )Diluted earnings (loss) per share:Weighted average shares outstanding
    
    
    43,620
    
    
    
    31,768
    
    
    
    27,265Earnings (loss) per share
    
    $
    0.06
    
    
    $
    (0.04
    )
    
    $
    (0.07
    )
  F-3




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity (Deficit)
For the years ended September 30, 2009 and 2008 and for the nine months ended September 30, 2007
 TotalCommon
    
    
    Common
    
    
    Paid in
    
    
    Accumulated
    
    
    Treasury
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    Equity (Deficit)Balance at December 31, 2006
    
    
    21,724,084
    
    
    $
    22
    
    
    $
    4,989
    
    
    $
    (6,980
    )
    
    $
    
    
    
    $
    (1,969
    )Sale of common stock, prior to merger
    
    
    1,234,375
    
    
    
    1
    
    
    
    451
    
    
    
    
    
    
    
    
    
    
    
    452Common stock issued upon conversion of debt
    
    
    2,489,497
    
    
    
    2
    
    
    
    1,885
    
    
    
    
    
    
    
    
    
    
    
    1,887Stockholders equity of Cardiff Communications,
Inc. at merger
    
    
    2,963,179
    
    
    
    3
    
    
    
    155
    
    
    
    (246
    )
    
    
    
    
    
    
    (88
    )Prior years retained earnings for Liberator Health
and Education Services, Inc.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9
    
    
    
    
    
    
    
    9Debt conversion at offering
    
    
    75,000
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    
    
    
    
    43Common stock issued for cash, net of costs
    
    
    720,629
    
    
    
    1
    
    
    
    565
    
    
    
    
    
    
    
    
    
    
    
    566Common issued for services
    
    
    1,257,250
    
    
    
    1
    
    
    
    1,005
    
    
    
    
    
    
    
    
    
    
    
    1,006Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,968
    )
    
    
    
    
    
    
    (1,968
    )Balance at September 30, 2007
    
    
    30,464,014
    
    
    $
    30
    
    
    $
    9,093
    
    
    $
    (9,185
    )
    
    $
    
    
    
    $
    (62
    )Common stock issued for cash, net of costs
    
    
    1,236,352
    
    
    
    1
    
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    661Common stock issued upon conversion of debt
    
    
    50,000
    
    
    
    
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25Options issued to employees
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    40Warrants issued with convertible debt
    
    
    
    
    
    
    
    
    
    
    792
    
    
    
    
    
    
    
    
    
    
    
    792Intrinsic value of conversion rights issued with
convertible debt
    
    
    
    
    
    
    
    
    
    
    303
    
    
    
    
    
    
    
    
    
    
    
    303Warrants issued for services
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    24Common stock issued for services
    
    
    300,000
    
    
    
    1
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    241Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,309
    )
    
    
    
    
    
    
    (1,309
    )Balance at September 30, 2008
    
    
    32,050,366
    
    
    $
    32
    
    
    $
    11,177
    
    
    $
    (10,494
    )
    
    $
    
    
    
    $
    715Options issued to employees
    
    
    
    
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    105Warrants issued with convertible debt
    
    
    
    
    
    
    
    
    
    
    106
    
    
    
    
    
    
    
    
    
    
    
    106Intrinsic value of conversion rights issued with
convertible debt
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    
    
    
    
    86Common stock issued for interest on convertible debt
    
    
    171,945
    
    
    
    
    
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    105Common stock issued upon conversion of debt
    
    
    170,000
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    85Common stock issued for services
    
    
    60,000
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Common stock issued for exercise of warrants
    
    
    10,000
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    10Purchase common treasury stock
    
    
    (85,600
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (41
    )
    
    
    (41
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,222
    
    
    
    
    
    
    
    2,222Balance at September 30, 2009
    
    
    32,376,711
    
    
    $
    32
    
    
    $
    11,705
    
    
    $
    (8,272
    )
    
    $
    (41
    )
    
    $
    3,424
  F-4




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended September 30, 2009 and 2008 and for the nine months ended September 30, 2007
 2009
    
    
    2008
    
    
    2007Cash flow from operating activitiesNet Income (Loss)
    
    $
    2,222
    
    
    $
    (1,309
    )
    
    $
    (1,968
    )Adjustments to reconcile net income (loss) to net cash
provide by (used in) operating activities:Depreciation and amortization
    
    
    2,172
    
    
    
    663
    
    
    
    251Equity based compensation
    
    
    420
    
    
    
    739
    
    
    
    264Bad debt expense
    
    
    2,488
    
    
    
    1,042
    
    
    
    348Non-cash interest related to convertible notes payable
    
    
    701
    
    
    
    233
    
    
    
    Amortization of non-cash debt issuance costs
    
    
    37
    
    
    
    12
    
    
    
    Inventory reserve
    
    
    60
    
    
    
    
    
    
    
    50Loss on disposal of assets
    
    
    
    
    
    
    
    
    
    
    3Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,933
    )
    
    
    (2,963
    )
    
    
    213Prepaid expenses and other current assets
    
    
    (119
    )
    
    
    23
    
    
    
    (64
    )Inventory
    
    
    (176
    )
    
    
    (487
    )
    
    
    9Accounts payable
    
    
    1,189
    
    
    
    501
    
    
    
    (97
    )Accrued expenses
    
    
    433
    
    
    
    157
    
    
    
    75Deferred rent
    
    
    (37
    )
    
    
    (42
    )
    
    
    10Deferred advertising
    
    
    (4,191
    )
    
    
    (1,567
    )
    
    
    (224
    )Debt issuance costs
    
    
    446
    
    
    
    128
    
    
    
    Net Cash Flows Provided by (Used in) Operating
Activities
    
    
    1,712
    
    
    
    (2,870
    )
    
    
    (1,130
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (441
    )
    
    
    (222
    )
    
    
    (18
    )Purchase of certificates of deposit
    
    
    (500
    )
    
    
    
    
    
    
    Net Cash Flows Used in Investing Activities
    
    
    (941
    )
    
    
    (222
    )
    
    
    (18
    )Cash flows from financing activitiesProceeds from sale of stock
    
    
    
    
    
    
    762
    
    
    
    641Broker commissions
    
    
    
    
    
    
    (101
    )
    
    
    (180
    )Proceeds from the exercise of warrants
    
    
    10
    
    
    
    
    
    
    
    Proceeds from convertible notes payable and long-term debt
    
    
    2,500
    
    
    
    4,098
    
    
    
    877Debt issuance costs
    
    
    (326
    )
    
    
    (577
    )
    
    
    Proceeds from employee stock purchase plan
    
    
    27
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    (41
    )
    
    
    
    
    
    
    Payments of long-term debt and capital lease obligations
    
    
    (316
    )
    
    
    (94
    )
    
    
    (137
    )Net Cash Flows Provided by Financing Activities
    
    
    1,854
    
    
    
    4,088
    
    
    
    1,201Net increase in cash
    
    
    2,625
    
    
    
    996
    
    
    
    53Cash at beginning of period
    
    
    1,173
    
    
    
    177
    
    
    
    124Cash at end of period
    
    $
    3,798
    
    
    $
    1,173
    
    
    $
    177Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    319
    
    
    $
    215
    
    
    $
    194Cash paid for income taxes
    
    
    21
    
    
    
    
    
    
    
    Supplemental schedule of non-cash investing and financing
activities:Capital expenditures funded by capital lease borrowings
    
    $
    91
    
    
    $
    79
    
    
    $
    25Common stock issued for interest expense
    
    
    105
    
    
    
    
    
    
    
    Common stock issued for conversion of debt
    
    
    85
    
    
    
    
    
    
    
    1,930
  F-5




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements
September 30, 2009
 Note 1  Nature of the Business
 Corporate History
    F-6




---



##### Table of Contents



Note 2  Summary of Significant Accounting Policies
  Principles of Consolidation
  Cash Equivalents
  Restricted Cash
  Accounts Receivable
   Inventories
  Deferred Advertising Costs
 Capitalized Advertising
Costs
 F-7




---



##### Table of Contents



Debt Issuance Costs
  Property and Equipment
  Revenue Recognition
  Shipping and Handling Costs
  Income Taxes
  F-8




---



##### Table of Contents



Use of Estimates
  Reclassifications
  Leases
 Leases
 Recent Accounting Pronouncements
  Derivatives and Hedging Disclosures about Derivative
Instruments and Hedging Activities
 Financial Instruments Disclosures about the Fair Value of Financial Instruments
 F-9




---



##### Table of Contents



Fair Value Measurements and Disclosures Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That
Are Not Orderly
 Subsequent Events Subsequent Events
 The Hierarchy of Generally Accepted Accounting
Principles Generally
Accepted Accounting Principles
 Measuring
Liabilities at Fair Value
 Multiple-Deliverable Revenue Arrangements,
 NOTE 3  Property and Equipment
  Estimated
    
    
    September 30,
    
    
    September 30,Life
    
    
    2009
    
    
    2008Leased equipment
    
    5 years
    
    $
    582
    
    
    $
    491Transportation equipment
    
    3 years
    
    
    95
    
    
    
    95Warehouse equipment
    
    5 years
    
    
    56
    
    
    
    7Office furniture
    
    5 years
    
    
    150
    
    
    
    79Computer equipment
    
    3 years
    
    
    87
    
    
    
    39Telephone equipment
    
    5 years
    
    
    33
    
    
    
    31Rental equipment
    
    7 years
    
    
    18
    
    
    
    18Web Site
    
    3 years
    
    
    6
    
    
    
    6Server Software
    
    3 years
    
    
    130
    
    
    
    93Training guides
    
    3 years
    
    
    3
    
    
    
    3Leasehold improvements
    
    5 years
    
    
    889
    
    
    
    648Signage
    
    3 years
    
    
    13
    
    
    
    13Fixed assets under construction
    
    
    
    
    
    
    
    
    
    
    8Total property and equipment
    
    
    
    
    
    
    2,062
    
    
    
    1,531Less: accumulated depreciation
    
    
    
    
    
    
    (1,021
    )
    
    
    (715
    )Property and equipment, net
    
    
    
    
    
    $
    1,041
    
    
    $
    816
 F-10




---



##### Table of Contents



NOTE 4  Deposits
  September 30,
    
    
    September 30,2009
    
    
    2008Deposits on leased equipment
    
    $
    9
    
    
    $
    11Building rent deposits
    
    
    67
    
    
    
    61Utility deposits
    
    
    9
    
    
    
    6Deposits on software development
    
    
    25
    
    
    
    13Deposits for building expansion
    
    
    3
    
    
    
    Deposits for professional fees
    
    
    10
    
    
    
    Deposit on catalog printing
    
    
    
    
    
    
    9Total deposits
    
    $
    123
    
    
    $
    100
 NOTE 5  Stockholder Loan
  NOTE 6  Convertible Notes Payable
 April 2008 Convertible Notes
   Amount DueFebruary 2010
    
    $
    263March 2010
    
    
    50April 2010
    
    
    288Total April 2008 Convertible Notes Due
    
    $
    601
 F-11




---



##### Table of Contents



May 2008 Convertible Note
   October 2008 Convertible Note
    F-12




---



##### Table of Contents



April08 Notes
    
    
    May08 Note
    
    
    TotalsNotes Payable, face amount
    
    $
    601
    
    
    $
    3,500
    
    
    $
    4,101Discounts on Notes:Valuation of Warrants
    
    
    (126
    )
    
    
    (610
    )
    
    
    (736
    )Intrinsic Value of Conversion Rights
    
    
    
    
    
    
    (303
    )
    
    
    (303
    )Accumulated Amortization
    
    
    126
    
    
    
    621
    
    
    
    747Total Discounts
    
    
    
    
    
    
    (292
    )
    
    
    (292
    )Accrued Interest
    
    
    40
    
    
    
    44
    
    
    
    84Convertible Notes Payable, net
    
    $
    641
    
    
    $
    3,252
    
    
    $
    3,893
  April08 NotesNotes Payable, face amount
    
    $
    779Discounts on Notes:Valuation of Warrants
    
    
    (126
    )Accumulated Amortization
    
    
    69Total Discounts
    
    
    (57
    )Accrued Interest
    
    
    50Convertible Notes Payable, net
    
    $
    772
  Oct08 NoteNotes Payable, face amount
    
    $
    2,500Discounts on Notes:Valuation of Warrants
    
    
    (86
    )Intrinsic Value of Conversion Rights
    
    
    (86
    )Accumulated Amortization
    
    
    82Total Discounts
    
    
    (90
    )Accrued Interest
    
    
    37Convertible Notes Payable, net
    
    $
    2,447
  May08 NoteNotes Payable, face amount
    
    $
    3,500Discounts on Notes:Valuation of Warrants
    
    
    (610
    )Intrinsic Value of Conversion Rights
    
    
    (303
    )Accumulated Amortization
    
    
    164Total Discounts
    
    
    (749
    )Accrued Interest
    
    
    38Convertible Notes Payable, net
    
    $
    2,789
 NOTE 7  Capital Lease Obligations
  F-13




---



##### Table of Contents



AmountYear ending September 30:2010
    
    $
    1002011
    
    
    632012
    
    
    13Total minimum lease payments
    
    
    176Less: Interest on capitalized lease obligations
    
    
    (26
    )Present value of capitalized lease obligations
    
    
    150Less: Current portion
    
    
    (80
    )Capitalized lease obligations, net of current portion
    
    $
    70
  NOTE 8  Credit Line Facility
   NOTE 9  Stockholders Equity
 Warrants
  Shares
    
    Expiration Date7,188
    
    April 201031,250
    
    May 20102,194,654
    
    June 2010337,500
    
    July 201012,500
    
    August 201025,000
    
    November 2010
  F-14




---



##### Table of Contents



Shares
    
    Expiration Date25,000
    
    July 2010234,375
    
    August 201075,625
    
    September 2010169,167
    
    October 2010145,000
    
    November 201031,250
    
    December 20106,250
    
    January 2011
  Risk-free interest rate:
    
    
    4.11
    %Expected term:
    
    5 yearsExpected dividend yield:
    
    
    0.00Expected volatility:
    
    
    27.97
    %
  Shares
    
    Expiration Date263,000
    
    February 2013100,000
    
    March 2013517,000
    
    April 2013
  Risk-free interest rate:
    
    Range of 2.39% to 2.93%Expected term:
    
    5 yearsExpected dividend yield:
    
    
    0.00Expected volatility:
    
    
    27.97
    %
  Risk-free interest rate:
    
    
    3.24
    %Expected term:
    
    5 yearsExpected dividend yield:
    
    
    0.00Expected volatility:
    
    
    27.97
    %
  Risk-free interest rate:
    
    
    1.90
    %Expected term:
    
    3 yearsExpected dividend yield:
    
    
    0.00
    %Expected volatility:
    
    
    35.19
    %
 F-15




---



##### Table of Contents



# of SharesBalance at September 30, 2008
    
    
    9,234,759Issued
    
    
    1,433,334Exercised
    
    
    (10,000
    )Expired
    
    
    (200,000
    )Balance at September 30, 2009
    
    
    10,458,093
 Options
  Employee Stock Options
       F-16




---



##### Table of Contents



WeightedAvg.
    
    
    AggregateExercise
    
    
    Intrinsic2007 Plan Employee Stock Options:
    
    Shares
    
    
    Price
    
    
    ValueOptions outstanding, beginning of year
    
    
    490,000
    
    
    $
    0.77Granted
    
    
    1,100,000
    
    
    
    0.83Exercised
    
    
    
    
    
    
    Expired or forfeited
    
    
    (10,000
    )
    
    
    0.75Options outstanding, end of year
    
    
    1,580,000
    
    
    $
    0.81
    
    
    $
    611,500Options exercisable, end of year
    
    
    480,000
    
    
    $
    0.77
    
    
    $
    208,500
 Compensation  Stock
Compensation,
  2009
    
    2008Risk-free interest rate:
    
    
    1.68
    %
    
    
    2.77
    %Expected term:
    
    3 years
    
    3 yearsExpected dividend yield:
    
    
    0
    %
    
    
    0
    %Expected volatility:
    
    
    57.32
    %
    
    
    27.97
    %
  2009 Employee Stock Purchase Plan
 st th
 F-17




---



##### Table of Contents



Sale of Common Stock
  NOTE 10  Basic and Diluted Earnings (Loss) per Common Share
  2009
    
    2008
    
    2007Numerator:Net income (loss)  basic
    
    $
    2,222
    
    
    $
    (1,309
    )
    
    $
    (1,968
    )Effect of dilutive securities:Convertible debt
    
    
    196
    
    
    
    
    
    
    
    Net income (loss)  diluted
    
    $
    2,418
    
    
    $
    (1,309
    )
    
    $
    (1,968
    )Denominator:Weighted average shares outstanding  basic
    
    
    32,128
    
    
    
    31,768
    
    
    
    27,265Effect of dilutive securities:Stock options
    
    
    3,939
    
    
    
    
    
    
    
    Convertible debt
    
    
    7,553
    
    
    
    
    
    
    
    Weighted average shares outstanding  diluted
    
    
    43,620
    
    
    
    31,768
    
    
    
    27,265Earnings per share  basic
    
    $
    0.07
    
    
    $
    (0.04
    )
    
    $
    (0.07
    )Earnings per share  diluted
    
    $
    0.06
    
    
    $
    (0.04
    )
    
    $
    (0.07
    )
  2009
    
    2008
    
    2007Stock options
    
    
    1,580
    
    
    
    4,411
    
    
    
    3,921Warrants
    
    
    10,458
    
    
    
    9,235
    
    
    
    3,084Convertible Debt
    
    
    1,203
    
    
    
    5,933
    
    
    
    Totals
    
    
    13,241
    
    
    
    19,579
    
    
    
    7,005
 F-18




---



##### Table of Contents



NOTE 11  Income Taxes
   Amount
    
    
    RatesComputed expected federal income tax (benefit)
    
    $
    789
    
    
    
    35.0
    %State tax (benefit), net of federal provision (benefit)
    
    
    108
    
    
    
    4.8
    %True-up of prior year differences
    
    
    121
    
    
    
    5.3
    %Change in valuation allowance
    
    
    (1,060
    )
    
    
    (47.0
    %)Nondeductible expenses
    
    
    74
    
    
    
    3.3
    %Total income tax expense (benefit)
    
    $
    32
    
    
    
    1.4
    %
  September 30,2009Deferred tax assets  current:Allowance for bad debts
    
    $
    898Inventory reserve
    
    
    42Deferred expenses
    
    
    7Accrued expenses
    
    
    55Deferred tax assets  current
    
    
    1,002Less: Valuation allowance
    
    
    (1,002
    )Net deferred tax assets  current
    
    
    Deferred tax assets  non-current:Net operating loss carryforwards
    
    
    1,874Amortization of value of warrants
    
    
    320Minimum tax credit carryforward
    
    
    32Deferred tax assets  non-current
    
    
    2,226Less: Valuation allowance
    
    
    (771
    )Net deferred tax assets  non-current
    
    
    1,455Deferred tax liability  non-current:Deferred advertising
    
    
    1,449Property, plant and equipment
    
    
    6Deferred tax liability  non-current
    
    
    1,455Net deferred tax liability  non-current
    
    
    
 F-19




---



##### Table of Contents



NOTE 12  Related Party Transactions
  NOTE 13  Commitments
  AmountYear ending September 30:2010
    
    $
    4702011
    
    
    4922012
    
    
    4392013
    
    
    942014
    
    
    71$
    1,566
  NOTE 14  401(K) Plan
   NOTE 15  Concentration of Credit Risk
  NOTE 16  Subsequent Events
  F-20




---



##### Table of Contents



AmountYear ending September 30:2010
    
    $
    772011
    
    
    1552012
    
    
    1552013
    
    
    522014
    
    
    522015
    
    
    9$
    500
    F-21