##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended September 30, 2008
  o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from  to
  LIBERATOR MEDICAL HOLDINGS, INC.
 
  NEVADA
    
    87-0267292(State or other jurisdiction of incorporation or organization)
    
    (IRS Employer Identification No.)
 Issuers telephone number: (772) 287-2414Securities registered under Section 12(b) of the Exchange Act: None.Securities registered under Section 12(g) of the Exchange Act:
    
    Common Stock,
$.001 par value
 o
 x o
 x
 o x
    o x




---



##### 



LIBERATOR MEDICAL HOLDINGS, INC.
 TABLE OF CONTENTS
 PART IItem 1.
    
    Description of Business
    
    
    3Item 2.
    
    Description of Property
    
    
    13Item 3.
    
    Legal Proceedings
    
    
    13Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    13PART IIItem 5.
    
    Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities
    
    
    14Item 6.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    15Item 7.
    
    Financial Statements
    
    
    19Item 8.
    
    Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    19Item 8A.
    
    Controls and Procedures
    
    
    20Item 8B.
    
    Other Information
    
    
    21PART IIIItem 9.
    
    Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act
    
    
    22Item 10.
    
    Executive Compensation
    
    
    23Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    26Item 12.
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    28Item 13.
    
    Exhibits
    
    
    28Item 14.
    
    Principal Accountant Fees and Services
    
    
    28Signatures
    
    
    30EX-31.1EX-31.2EX-32.1EX-32.2EX-33.1EX-33.2EX-33.3
   
 2




---



##### Table of Contents



PART I
 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
   
 Item 1.
    
    Description of Business
 Background of the Company
    3




---



##### Table of Contents



Background of Liberator Medical Supply, Inc.
  Market
     4




---



##### Table of Contents



Target Market
    
    Diagnosed
    
    Undiagnosed
    
    Current Market SizeUrological
    
    N/A
    

    
    
    N/A
    
    $4.1 billion*Diabetes
    
    17 million
    
    6 million
    
    $91.8 billionMastectomy
    
    3.2 million
    
    N/A
    
    $1.1 billionOstomy
    
    600,000
    

    
    
    N/A
    
    $1.2 billionTotal
    
    20.8 million
    
    6 million
    
    $98.2 billionSource: Center for Disease Control 2005* Market Intelligence Research Corp. Rand Health 2007
 Mail Order Medical Supplies
  Retail Sales Store and Internet Sales
    5




---



##### Table of Contents



Sales and Marketing
    Pharmacy Opportunities
  Suppliers
  Competitive Analysis
 Diabetes
   Mastectomy
  6




---



##### Table of Contents



Ostomy
  Urological
  Retail Stores
  Internet Sales Competition
   Litigation
  Technology Systems
  7




---



##### Table of Contents



www.liberatormedical.com
 Intellectual Property
  Employees
  Risks and Uncertainties
  Risks Relating to Our Business as a Result of the Liberator Medical Acquisition
  8




---



##### Table of Contents



9




---



##### Table of Contents



-
    
    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.
   -
    
    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.
 10




---



##### Table of Contents




    
    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 or
if our creditors demand payment of a portion or all of our
indebtedness, we may not have sufficient funds to make such
payments.
  
    
    the election of directors;
    
    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.
   11




---



##### Table of Contents



Risks Relating to Ownership of Our Common Stock
  nd
        -
    
    make a special suitability determination for purchasers of penny stocks;
 12




---



##### Table of Contents



-
    
    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.
  
 Item 2.
    
    Description of Property
   
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  For
    
    Against
    
    AbstainElection of Director
Mark Libratore
    
    
    21,126,885
    
    
    
    -0-
    
    
    
    88,154Adoption of Employee
2007 Stock Plan
    
    
    18,556,050
    
    
    
    92,340
    
    
    
    2,566,649Ratification of Berenfeld,
Spritzer, Shechter &
Sheer, LLP
    
    
    21,206,835
    
    
    
    8,000
    
    
    
    204
 13




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Common Equity and Related Stockholder Matters and Small Business 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
    
    
    $
    .48
       14




---



##### Table of Contents



Recent Sales of Unregistered Securities
  
 Item 6.
    
    Managements Discussion and Analysis or Plan of Operation
 You should read the following discussion in conjunction with our audited historical consolidated
financial statements, which are included elsewhere in this Form 10-KSB. Managements Discussion and
Analysis or Plan 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 1, of this Form 10-KSB.
     15




---



##### Table of Contents



Results of Operations
  2008
    
    
    2007Amount
    
    
    %
    
    
    Amount
    
    
    %Sales
    
    $
    9,550,106
    
    
    
    100.0
    
    
    $
    2,250,368
    
    
    
    100.0Cost of Sales
    
    
    3,439,427
    
    
    
    36.0
    
    
    
    951,298
    
    
    
    42.3Gross Profit
    
    
    6,110,679
    
    
    
    64.0
    
    
    
    1,299,070
    
    
    
    57.7Selling and G & A Expenses
    
    
    6,911,752
    
    
    
    72.4
    
    
    
    3,154,549
    
    
    
    140.2Income (Loss) from Operations
    
    
    (801,073
    )
    
    
    (8.4
    )
    
    
    (1,855,479
    )
    
    
    (82.5
    )Other Income (Expense)
    
    
    (507,829
    )
    
    
    (5.3
    )
    
    
    (112,763
    )
    
    
    (5.0
    )Income (Loss) Before Income Taxes
    
    
    (1,308,902
    )
    
    
    (13.7
    )
    
    
    (1,968,242
    )
    
    
    (87.5
    )Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Income (Loss)
    
    $
    (1,308,902
    )
    
    
    (13.7
    )
    
    $
    (1,968,242
    )
    
    
    (87.5
    )
   Quarter EndedDecember 31
    
    March 31
    
    June 30
    
    September 30Fiscal Year 2008Sales
    
    $
    1,429,465
    
    
    $
    1,425,293
    
    
    $
    2,444,400
    
    
    $
    4,250,948Gross profit
    
    
    907,840
    
    
    
    911,716
    
    
    
    1,554,717
    
    
    
    2,736,406Net income (loss)
    
    
    (579,175
    )
    
    
    (644,998
    )
    
    
    (217,835
    )
    
    
    133,106Income (Loss) per share  basic and diluted *
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    0.00Fiscal Year 2007Sales
    
    $
    n/a
    
    
    $
    657,877
    
    
    $
    775,773
    
    
    $
    816,718Gross profit
    
    
    n/a
    
    
    
    365,354
    
    
    
    447,363
    
    
    
    486,353Net loss
    
    
    n/a
    
    
    
    (555,886
    )
    
    
    (409,290
    )
    
    
    (1,003,066
    )(Loss) earnings per share  basic and
diluted *
    
    $
    n/a
    
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
 
 *
    
    For fiscal year 2008, the sum of the quarterly earnings (loss) per
share amounts differs from the amounts reflected in the accompanying
consolidated statement of operations due to rounding. Revenue
  16




---



##### Table of Contents



Liquidity and Capital Resources
    Financing Activities
  17




---



##### Table of Contents



Outlook
     -
    
    Obtain additional funding through a combination of debt and equity;-
    
    Increase advertising;-
    
    Increase our customer base;-
    
    Continue to service our current customer base and increasing the retention rate;-
    
    Increasing 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 two investment relations firms to further enhance our long-term capital
requirements.
    
    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.
    
    Leased a 25,000 square foot facility which has only been built out 83 percent to
accommodate our current operations including room for growth. The other 17 percent will be
built out in stages as additional growth
requires the additional office space. Leased an additional 5,000 square foot facility next
door to our current facility from our current landlord. We expect to build out this facility
during the second quarter of FY 2009.
 18




---



##### Table of Contents




    
    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.
    
    Tested our advertising methods and established methods of testing additional advertising
methods to meet with changing market conditions.
  Contractual Commitments
  Off-Balance Sheet Arrangements
  
 Item 7.
    
    Financial Statements
  Report of Independent Registered Public Accounting FirmConsolidated Balance Sheet  September 30, 2008Consolidated Statements of Operations  for the year ended September 30, 2008 and the nine
months ended September 30, 2007Consolidated Statements of Changes in Stockholders Equity (Deficit)  for the year ended
September 30, 2008 and the nine months ended September 30, 2007Consolidated Statements of Cash Flows  for the year ended September 30, 2008 and the nine
months ended September 30, 2007Notes to the Consolidated Financial Statements
 
 Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  19




---



##### Table of Contents



Item 8A(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control Over Financial Reporting
     Remediation of Certain Weaknesses and Changes in Internal Controls
  20




---



##### Table of Contents




    
    The Company has engaged a consulting firm with an individual with U.S. GAAP knowledge to
assist in the establishment of policies and procedures and to review the financial results
to insure that accurate consolidated financial statements are prepared and reviewed on a
timely basis.
    
    The Company has implemented additional policies and procedures to assure that account
reconciliations, account analysis, and journal entries are reviewed on a timely basis.
  Changes in Internal Controls
  Limitations on the Effectiveness of Controls
  
 Item 8B. Other Information
  21




---



##### Table of Contents



PART III
 
 Item 9.
    
    Directors, Executive Officers, Promoters, Control Persons and Corporate
Governance; Compliance with Section 16(a) of the Exchange Act
  Name
    
    Age
    
    Position(s) with the CompanyMark Libratore
    
    
    57
    
    
    President, Chief Executive Officer, DirectorRobert Davis
    
    
    62
    
    
    Chief Financial OfficerJohn Leger
    
    
    53
    
    
    Chief Operating Officer
       Section 16(a) Beneficial Ownership Reporting Compliance
  22




---



##### Table of Contents



Code of Ethics
 www.liberatormedical.com
 Board Committees and Designated Directors.
  
 Item 10.
    
    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.
  23




---



##### Table of Contents



Employment and Consulting Agreements
  Summary Compensation Table
  Name and principal
    
    
    
    
    
    
    
    
    
    Bonus
    
    Option
    
    All Otherposition
    
    Year
    
    Salary($)
    
    ($)
    
    Awards($)
    
    Compensation($)
    
    Total($)Mark A. Libratore
    
    
    2008
    
    
    $
    130,013
    
    
    $
    24,713
    
    
    $
    12,894
    
    
    $
    40,078
    
    
    $
    207,698President and Chief
    
    
    2007
    
    
    $
    95,000
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    17,907
    
    
    $
    112,907Executive OfficerRobert Davis
    
    
    2008
    
    
    $
    92,497
    
    
    $
    19,951
    
    
    $
    15,892
    
    
    $
    2,458
    
    
    $
    130,798Chief Financial Officer
    
    
    2007
    
    
    $
    65,769
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    2,458
    
    
    $
    68,227John Leger
    
    
    2008
    
    
    $
    125,017
    
    
    $
    17,332
    
    
    $
    9,536
    
    
    $
    2,458
    
    
    $
    154,343Chief Operating Officer
    
    
    2007
    
    
    $
    91,346
    
    
    $
    -0-
    
    
    $
    -0-
    
    
    $
    2,458
    
    
    $
    93,804
 All Other Compensation Table
  Outstanding Equity Awards at 2008 Fiscal Year End
  24




---



##### Table of Contents



Option AwardsEquity incentivePlan awards:Number of
    
    
    Number of
    
    
    Number ofSecurities
    
    
    securities
    
    
    SecuritiesUnderlying
    
    
    Underlying
    
    
    UnderlyingUnexercised
    
    
    unexercised
    
    
    Unexercised
    
    
    Option
    
    
    OptionOptions(#)
    
    
    options
    
    
    Unearned
    
    
    Exercise
    
    
    Expirationexercisable
    
    
    unexercisable
    
    
    Options(#)
    
    
    Price($)
    
    
    DateMark Libratore
    
    
    50,000
    
    
    
    50,000
    
    
    
    100,000
    
    
    $
    0.825
    
    
    April 14, 2013Robert Davis
    
    
    50,000
    
    
    
    50,000
    
    
    
    100,000
    
    
    $
    0.750
    
    
    April 14, 2013John Leger
    
    
    30,000
    
    
    
    30,000
    
    
    
    60,000
    
    
    $
    0.750
    
    
    April 14, 2013
 Potential Payments Upon Termination
 Employment and Consulting Agreements
  2007 Stock Plan
     25




---



##### Table of Contents



Weighted-Stock Options
    
    
    Average Exercise
    
    
    Shares AvailableOutstanding
    
    
    Price per Share
    
    
    To Grant2007 Employee Stock Incentive Plan
    
    
    480,000
    
    
    $
    0.77
    
    
    
    520,000
 Director Compensation
  How Compensation is Determined
  
 Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  
    
    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.
  26




---



##### Table of Contents



Name and Address
    
    Number of Shares
    
    
    Percent5% Beneficial Owners:Shaihesh C. Zaveri (1)
    
    
    2,985,342
    
    
    
    8.96
    %and Mayuri S. Zaveri
6559 N. Country Club Rd.
Mattoon, IL 61938Millennium Partners, L.P.(2)
    
    
    3,500,036
    (3)
    
    
    9.99
    %c/o Millennium Management LLC
666 Fifth Avenue, 8th Floor 
New York, NY 10103Directors and Executive Officers:Mark A. Libratore
    
    
    19,638,867
    (4)
    
    
    54.42
    %President and Chief Executive Officer and Director 
2979 SE Gran Park Way 
Stuart, FL 34997Robert Davis, Chief Financial Officer
    
    
    193,000
    (5)
    
    
    *2979 SE Gran Park Way 
Stuart, FL 34997John Leger, Vice President, Operations
    
    
    145,000
    (6)
    
    
    *2979 SE Gran Park Way 
Stuart, FL 34997All directors and executive officers as a group (3 persons)
    
    
    19,976,867
    (7)
    
    
    55.1
    %
 
 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)
    
    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.(3)
    
    Represents an aggregate of (i) 515,000 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 December 12, 2008,
Millennium Partners may be deemed to beneficially own
approximately 3,500,036 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. 27




---



##### Table of Contents



(4)
    
    Includes 3,996,009 shares underlying options exercisable by Mr.
Libratore within 60 days of December 12, 2008. Does not include
25,000 shares underlying options that are not exercisable within
60 days of December 12, 2008.(5)
    
    Includes 75,000 shares underlying options exercisable, and 18,000
shares underlying convertible debt and warrants convertible or
exercisable, as the case may be, by Mr. Davis within 60 days of
December 12, 2008. Does not include 25,000 shares underlying
options that are not exercisable within 60 days of December 12,
2008.(6)
    
    Includes 45,000 shares underlying options exercisable by Mr.
Leger within 60 days of December 12, 2008. Does not include
15,000 shares underlying options that are not exercisable within
60 days of December 12, 2008.(7)
    
    See Footnote Nos. (4) through (6) 
 Item 12.
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 13.
    
    Exhibits
  Number
    
    Description31.1
    
    
    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)33.1
    
    
    Employment Agreement with Mark Libratore (1)33.2
    
    
    Employment Agreement with Robert J. Davis (1)33.3
    
    
    Employment Agreement with John Leger (1)
 
 (1)
    
    Filed herewith. 
 Item 14.
    
    Principal Accountant Fees and Services
  28




---



##### Table of Contents



Fiscal Year endedSeptember 30,2008
    
    
    2007Audit fees
    
    $
    90,300
    
    
    $
    82,500Audit related fees
    
    
    
    
    
    
    3,000Tax fees
    
    
    13,700
    
    
    
    15,000All other fees
    
    
    
    
    
    
    Total fees
    
    $
    104,000
    
    
    $
    100,500
  29




---



##### Table of Contents



SIGNATURES
  LIBERATOR MEDICAL HOLDINGS, INC.Dated: December 15, 2008
    By:
    /s/ Mark A. LibratoreMark A. Libratore, President,Chief Executive Officer and Director  Signatures
    
    Titles
    
    Date/s/ Mark A. Libratore
    
    President, Chief Executive 
Officer and Director
    
    December 15, 2008/s/ Robert J. Davis
    
    Chief Financial Officer
    
    December 15, 2008
 30




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    32Consolidated Balance Sheet  September 30, 2008
    
    
    33Consolidated Statements of Operations  for the year ended September 30, 2008 and the nine months
ended September 30, 2007
    
    
    34Consolidated Statements of Changes in Stockholders Equity (Deficit)  for the year ended
September 30, 2008 and the nine months ended September 30, 2007
    
    
    35Consolidated Statements of Cash Flows  for the year ended September 30, 2008 and the nine months
ended September 30, 2007
    
    
    36Notes to the Consolidated Financial Statements
    
    
    37
 31




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    
 32




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Consolidated Balance Sheet
September 30, 2008
 2008AssetsCurrent AssetsCash
    
    $
    1,173,018Accounts receivable, net of allowance for doubtful accounts of $1,055,606
    
    
    2,405,102Prepaid expenses
    
    
    321,182Inventory, net of allowance for obsolete inventory of $50,000
    
    
    785,884Deferred advertising, current portion
    
    
    769,851Other
    
    
    1,848Total Current Assets
    
    
    5,456,885Property and EquipmentProperty and Equipment, net of accumulated depreciation of $714,641
    
    
    815,833Other AssetsDeferred advertising, net of current portion
    
    
    660,524Deferred Loan Costs
    
    
    492,821Deposits
    
    
    100,089Total Other Assets
    
    
    1,253,434Total Assets
    
    $
    7,526,152Liabilities and Stockholders EquityCurrent LiabilitiesAccounts payable
    
    $
    900,448Accrued liabilities
    
    
    289,848Stockholder loan
    
    
    1,664,649Convertible notes payable, net of unamortized discount of $56,833
    
    
    772,163Capital lease obligations, current portion
    
    
    50,816Deferred rent liability, current portion
    
    
    48,261Total Current Liabilities
    
    
    3,726,185Long-Term LiabilitiesConvertible notes payable, net of unamortized discount of $748,921
    
    
    2,788,704Capital lease obligations, net of current portion
    
    
    82,155Deferred rent liability, net of current portion
    
    
    214,215Total Long-Term Liabilities
    
    
    3,085,074Total Liabilities
    
    
    6,811,259Stockholders EquityCommon stock, $.001 par value, 200,000,000 shares authorized, 32,050,366 shares issued and outstanding
    
    
    32,050Additional paid-in capital
    
    
    11,177,266Accumulated deficit
    
    
    (10,494,423
    )Total Stockholders Equity
    
    
    714,893Total Liabilities and Stockholders Equity
    
    $
    7,526,152
  33




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
For the year ended September 30, 2008 and the nine months ended September 30, 2007
 2008
    
    2007Sales
    
    $
    9,550,106
    
    
    $
    2,250,368Cost of Sales
    
    
    3,439,427
    
    
    
    951,298Gross Profit
    
    
    6,110,679
    
    
    
    1,299,070General and Administrative ExpensesPayroll, payroll taxes and benefits
    
    
    2,684,870
    
    
    
    1,364,523Advertising
    
    
    469,710
    
    
    
    133,690Insurance
    
    
    53,469
    
    
    
    32,103Rent
    
    
    403,466
    
    
    
    291,867Professional fees
    
    
    728,841
    
    
    
    422,847Bad debts
    
    
    1,041,887
    
    
    
    347,938Depreciation
    
    
    213,431
    
    
    
    137,650Administrative
    
    
    1,316,078
    
    
    
    423,931Total General and Administrative Expenses
    
    
    6,911,752
    
    
    
    3,154,549Loss from Operations
    
    
    (801,073
    )
    
    
    (1,855,479
    )Other Income/ExpenseForgiveness of Debt
    
    
    
    
    
    
    107,776Loss on Sale of Assets
    
    
    
    
    
    
    (3,490
    )Interest Expense
    
    
    (520,015
    )
    
    
    (217,108
    )Interest Income
    
    
    12,186
    
    
    
    59Total Other Income
    
    
    (507,829
    )
    
    
    (112,763
    )Loss before Income Taxes
    
    
    (1,308,902
    )
    
    
    (1,968,242
    )Provision for Income Taxes
    
    
    
    
    
    
    Net Loss
    
    $
    (1,308,902
    )
    
    $
    (1,968,242
    )Weighted average basic and diluted common shares outstanding
    
    
    31,767,839
    
    
    
    27,265,116Basic and diluted loss per common share
    
    $
    (0.04
    )
    
    $
    (0.07
    )
  34




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders Equity (Deficit)
For the year ended September 30, 2008 and the nine months ended September 30, 2007
 Par $.001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    
    Common
    
    
    Paid in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    Equity (Deficit)Balance at December 31, 2006
    
    
    21,724,084
    
    
    $
    21,724
    
    
    $
    4,990,253
    
    
    $
    (6,981,002
    )
    
    $
    (1,969,025
    )Sale of common stock, prior to merger
    
    
    1,234,375
    
    
    
    1,234
    
    
    
    450,266
    
    
    
    
    
    
    
    451,500Common stock issued on conversion of debt
    
    
    2,489,497
    
    
    
    2,490
    
    
    
    1,884,866
    
    
    
    
    
    
    
    1,887,356Stockholder Equity of Cardiff Communications, Inc. at merger
    
    
    2,963,179
    
    
    
    2,963
    
    
    
    154,122
    
    
    
    (245,554
    )
    
    
    (88,469
    )Prior years retained earnings -Liberator Services Corporation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,277
    
    
    
    9,277Debt conversion at offering
    
    
    75,000
    
    
    
    75
    
    
    
    43,425
    
    
    
    
    
    
    
    43,500Shares issued for cash, net of costs
    
    
    720,629
    
    
    
    721
    
    
    
    565,383
    
    
    
    
    
    
    
    566,104Shares issued for services
    
    
    1,257,250
    
    
    
    1,257
    
    
    
    1,004,543
    
    
    
    
    
    
    
    1,005,800Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,968,242
    )
    
    
    (1,968,242
    )Balance at September 30, 2007
    
    
    30,464,014
    
    
    $
    30,464
    
    
    $
    9,092,858
    
    
    $
    (9,185,521
    )
    
    $
    (62,199
    )Shares issued for cash, net of costs
    
    
    1,286,352
    
    
    
    1,286
    
    
    
    684,914
    
    
    
    
    
    
    
    686,200Options issued to employees
    
    
    
    
    
    
    
    
    
    
    40,264
    
    
    
    
    
    
    
    40,264Warrants issued with convertible debt
    
    
    
    
    
    
    
    
    
    
    1,095,278
    
    
    
    
    
    
    
    1,095,278Warrants issued for services
    
    
    
    
    
    
    
    
    
    
    24,252
    
    
    
    
    
    
    
    24,252Shares issued for services
    
    
    300,000
    
    
    
    300
    
    
    
    239,700
    
    
    
    
    
    
    
    240,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,308,902
    )
    
    
    (1,308,902
    )Balance at September 30, 2008
    
    
    32,050,366
    
    
    $
    32,050
    
    
    $
    11,177,266
    
    
    $
    (10,494,423
    )
    
    $
    714,893
  35




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the year ended September 30, 2008 and the nine months ended September 30, 2007
 2008
    
    
    2007Cash flow from operating activitiesNet Loss
    
    $
    (1,308,902
    )
    
    $
    (1,968,242
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation and amortization
    
    
    662,707
    
    
    
    137,650Equity based compensation
    
    
    739,179
    
    
    
    263,755Bad debt expense
    
    
    1,041,887
    
    
    
    347,938Non-cash interest related to convertible notes payable
    
    
    233,326
    
    
    
    Deferred loan costs
    
    
    12,444
    
    
    
    Inventory reserve
    
    
    
    
    
    
    50,000Loss on disposal of assets
    
    
    
    
    
    
    3,490Changes in operating assets and liabilities:Gross accounts receivable
    
    
    (2,963,126
    )
    
    
    213,088Prepaid expenses
    
    
    42,863
    
    
    
    (47,345
    )Deposits
    
    
    (19,103
    )
    
    
    (15,935
    )Inventory
    
    
    (487,030
    )
    
    
    8,813Accounts payable
    
    
    500,839
    
    
    
    (97,035
    )Accrued expenses
    
    
    157,127
    
    
    
    75,271Other current assets
    
    
    (1,148
    )
    
    
    (700
    )Deferred rent
    
    
    (41,617
    )
    
    
    9,797Gross deferred advertising
    
    
    (1,567,037
    )
    
    
    (110,768
    )Deferred loan costs
    
    
    (449,067
    )
    
    
    Net Cash Flows Used in Operating Activities
    
    
    (3,446,658
    )
    
    
    (1,130,223
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (222,220
    )
    
    
    (17,536
    )Net Cash Flows Used in Investing Activities
    
    
    (222,220
    )
    
    
    (17,536
    )Cash flows from financing activitiesProceeds from sale of stock
    
    
    787,000
    
    
    
    640,504Proceeds from convertible notes payable and long-term debt
    
    
    4,073,000
    
    
    
    877,655Broker Commissions
    
    
    (100,800
    )
    
    
    (180,450
    )Payments of long-term debt and capital lease obligations
    
    
    (94,124
    )
    
    
    (137,439
    )Net Cash Flows Provided by Financing Activities
    
    
    4,665,076
    
    
    
    1,200,270Net increase in cash
    
    
    996,198
    
    
    
    52,511Cash at beginning of period
    
    
    176,820
    
    
    
    124,309Cash at end of period
    
    $
    1,173,018
    
    
    $
    176,820
  36




---



##### Table of Contents



Liberator Medical Holdings, Inc. and Subsidiaries
Notes To The Consolidated Financial Statements
September 30, 2008
 Note 1  Nature of the Business
 Corporate History
    37




---



##### Table of Contents



Note 2  Summary of Significant Accounting Policies
  Principles of Consolidation
  Cash Equivalents
  Accounts Receivable
   Inventories
  Deferred Advertising Costs
  38




---



##### Table of Contents



Deferred Loan Costs
  Property and Equipment
  Revenue Recognition
   Shipping and Handling Costs
  Income Taxes
  39




---



##### Table of Contents



Use of Estimates
  Reclassifications
  Leases
  Recent Accounting Pronouncements
  40




---



##### Table of Contents



41




---



##### Table of Contents



NOTE 3  Property and Equipment
  Estimated LifeLeased equipment
    
    5 years
    
    $
    491,261Transportation equipment
    
    3 years
    
    
    94,510Warehouse equipment
    
    5 years
    
    
    7,053Office furniture
    
    5 years
    
    
    79,056Computer equipment
    
    3 years
    
    
    38,478Telephone equipment
    
    5 years
    
    
    31,281Rental equipment
    
    7 years
    
    
    18,329Web Site
    
    3 years
    
    
    5,500Server Software
    
    3 years
    
    
    93,386Training guides
    
    3 years
    
    
    3,125Leasehold improvements
    
    5 years
    
    
    647,659Signage
    
    3 years
    
    
    12,986Fixed assets under construction
    
    
    
    
    7,850Total property and equipment
    
    
    
    
    1,530,474Less accumulated depreciation and amortization
    
    
    
    
    714,641$
    815,833
 42




---



##### Table of Contents



NOTE 4  Deposits
  2008Deposits on leased equipment
    
    $
    11,024Building rent deposits
    
    
    60,597Utility deposits
    
    
    6,198Deposit on software development
    
    
    13,515Deposit on catalog printing
    
    
    8,755Total deposits
    
    $
    100,089
 NOTE 5  Stockholder Loan
  NOTE 6  Convertible Notes Payable
 Short-term Convertible Notes Payable
    2008Notes Payable, face amount
    
    $
    779,000Discounts on Notes:Valuation of Warrants
    
    
    (126,140
    )Accumulated Amortization
    
    
    69,307Total Discounts
    
    
    (56,833
    )Accrued Interest
    
    
    49,996Convertible Notes Payable, net
    
    $
    772,163
 43




---



##### Table of Contents



Long-term Convertible Notes Payable
     2008Notes Payable, face amount
    
    $
    3,500,000Discounts on Notes:Valuation of Warrants
    
    
    (609,595
    )Intrinsic Value of Conversion Rights
    
    
    (303,345
    )Accumulated Amortization
    
    
    164,019Total Discounts
    
    
    (748,921
    )Accrued Interest
    
    
    37,625Convertible Notes Payable, net
    
    $
    2,788,704
 44




---



##### Table of Contents



NOTE 7  Capital Lease Obligations
   AmountYear ending September 30:2009
    
    $
    73,6882010
    
    
    64,8392011
    
    
    27,089Total minimum lease payments
    
    
    165,616Less: Interest on capitalized lease obligations
    
    
    (32,645
    )Present value of capitalized lease obligations
    
    
    132,971Less: Current portion
    
    
    (50,816
    )Capitalized lease obligations, net of current portion
    
    $
    82,155
  NOTE 8  Stockholders Equity
 Warrants
  Shares
    
    Expiration Date200,000
    
    March 20097,188
    
    April 201031,250
    
    May 20102,204,654
    
    June 2010337,500
    
    July 201012,500
    
    August 201025,000
    
    November 2010
 45




---



##### Table of Contents



Shares
    
    Expiration Date25,000
    
    July 2010234,375
    
    August 201075,625
    
    September 2010162,917
    
    October 2010151,250
    
    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
    %
 46




---



##### Table of Contents



AmountBalance at September 30, 2007
    
    
    3,084,342Issued in FY 2008
    
    
    6,150,417Exercised in FY 2008
    
    
    Expired in FY 2008
    
    
    Balance at September 30, 2008
    
    
    9,234,759
 Options
  Employee Stock Options
    47




---



##### Table of Contents



WeightedAvg.Exercise2007 Plan Employee Stock Options:
    
    Shares
    
    
    PriceOptions outstanding, beginning of year
    
    
    
    
    
    $
    Granted
    
    
    490,000
    
    
    
    0.77Exercised
    
    
    
    
    
    
    Expired or forfeited
    
    
    
    
    
    
    Options outstanding, end of year
    
    
    490,000
    
    
    $
    0.77Options exercisable, end of year
    
    
    245,000
    
    
    $
    0.77
   Risk-free interest rate:
    
    
    2.77
    %Expected term:
    
    3 yearsExpected dividend yield:
    
    
    0.00Expected volatility:
    
    
    27.97
    %
  Sale of Common Stock
  NOTE 9  Basic and Diluted Loss per Common Share
  48




---



##### Table of Contents



NOTE 10  Income Taxes
    Amount
    
    
    RatesComputed expected federal income tax (benefit) at statutory rate
    
    $
    (458,116
    )
    
    
    35.0
    %State tax benefit, net of federal provision (benefit)
    
    
    (262,667
    )
    
    
    20.1
    %Prior year adjustments
    
    
    (343,943
    )
    
    
    26.3
    %Change in valuation allowance
    
    
    1,049,232
    
    
    
    (80.2
    %)Nondeductible expenses
    
    
    15,494
    
    
    
    (1.2
    %)Total income tax expense (benefit)
    
    $
    
    
    
    
    0.0
    %
  September 30,2008Deferred tax assets:Net operating loss carryforwards
    
    $
    2,844,041Allowance for doubtful accounts receivable
    
    
    407,783Accrued interest
    
    
    4,546Depreciation and amortization
    
    
    110,341Inventory reserve
    
    
    19,288Charitable contribution carryforwards
    
    
    Total gross deferred tax assets
    
    
    3,385,999Less valuation allowance
    
    
    (2,834,232
    )Net deferred tax asset after valuation allowance
    
    $
    551,767Deferred tax liabilities:Deferred advertising
    
    $
    551,767Total gross deferred tax liabilities
    
    
    551,767Net deferred tax assets
    
    $
    
 NOTE 11  Related Party Transactions
  49




---



##### Table of Contents



NOTE 12  Commitments
  AmountYear ending September 30:2009
    
    $
    329,2262010
    
    
    309,8222011
    
    
    325,3182012
    
    
    282,290$
    1,246,656
  NOTE 13  401(K) Plan
   NOTE 14  Concentration of Credit Risk
  NOTE 15  Quarterly Financial Information (Unaudited)
 Quarter EndedDecember 31
    
    
    March 31
    
    
    June 30
    
    
    September 30Fiscal Year 2008Sales
    
    $
    1,429,465
    
    
    $
    1,425,293
    
    
    $
    2,444,400
    
    
    $
    4,250,948Gross profit
    
    
    907,840
    
    
    
    911,716
    
    
    
    1,554,717
    
    
    
    2,736,406Net income (loss)
    
    
    (579,175
    )
    
    
    (644,998
    )
    
    
    (217,835
    )
    
    
    136,118Income (Loss) per share  basic and diluted *
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )
    
    $
    0.00Fiscal Year 2007Sales
    
    $
    n/a
    
    
    $
    657,877
    
    
    $
    775,773
    
    
    $
    816,718Gross profit
    
    
    n/a
    
    
    
    365,354
    
    
    
    447,363
    
    
    
    486,353Net loss
    
    
    n/a
    
    
    
    (555,886
    )
    
    
    (409,290
    )
    
    
    (1,003,066
    )(Loss) earnings per share  basic and
diluted *
    
    $
    n/a
    
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
 
 *
    
    For fiscal year 2008, the sum of the quarterly earnings (loss) per
share amounts differs from the amounts reflected in the accompanying
consolidated statement of operations due to rounding. 50