UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
DC 20549
 __________________________
 
 Form
10-K
 __________________________
 (MARK
      ONE)x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended June 30, 2009ORo
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from  ______________ to
      ______________
 Commission
file number:000-53514
 
 LIBERATOR,
INC.
 (Exact
name of Company as specified in its charter)
  Nevada
                26-3213475(State
      or other jurisdiction of  incorporation or
    organization)
                (IRS
      Employer Identification No.)
  2745 Bankers Industrial
Drive, Atlanta, Georgia 30360
 (Address
of principal executive offices) (Zip Code)
 Company's
telephone number: (770)
246-6400
 
 Securities
registered pursuant to Section 12(b) of the Act: None
  Securities
registered pursuant to Section 12(g) of the Act:  Common Stock,
$0.0001 Par Value
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  o YES    
x NO
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  o YES    
x NO
  Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  o YES    
x NO
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
twelve months (or for such shorter period that the registrant was required to
submit and post such files)   o YES   
o NO
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.  o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act
 Large
      accelerated filer  o
              
              Accelerated
      filer  o
              
              Non-accelerated
      filer  o
              
              Smaller
      reporting company  x
  Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  o YES    
x NO
 
 State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter:  The registrant’s common stock had no active trading market
as of the last business day of its most recently completed second fiscal
quarter.
 
 As of
February 11, 2010, there were 61,915,981 shares of common stock
outstanding.
  
  TABLE
OF CONTENTS
  PAGEFORWARD-LOOKING
      STATEMENTSPART I.ITEM 1.
                
                Business
                
                2ITEM 1A.
                
                Risk
      Factors
                
                8ITEM 1B.
                
                Unresolved
      Staff Comments
                
                8ITEM 2.
                
                Properties
                
                8ITEM 3.
                
                Legal
      Proceedings
                
                8ITEM 4.
                
                Submission
      of Matters to a Vote of Security Holders
                
                8PART
      II.ITEM 5.
                
                Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                
                9ITEM 6.
                
                Selected
      Financial Data
                
                10ITEM 7.
                
                Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                10ITEM 7A.
                
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                15ITEM 8.
                
                Financial
      Statements and Supplementary Data
                
                16ITEM 9.
                
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                
                17ITEM 9A(T).
                
                Controls
      and Procedures
                
                17ITEM 9B.
                
                Other
      Information
                
                18PART
      III.ITEM 10.
                
                Directors,
      Executive Officers and Corporate Governance
                
                18ITEM 11.
                
                Executive
      Compensation
                
                20ITEM 12.
                
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                
                22ITEM 13.
                
                Certain
      Relationships and Related Transactions, and Director
      Independence
                
                23ITEM 14.
                
                Principal
      Accountant Fees and Services
                
                23PART
      IV.ITEM 15.
                
                Exhibits, Financial
      Statement Schedule
                
                24
  i
  FORWARD-LOOKING
STATEMENTS
 
 This
report and other presentations made by Liberator, Inc. ("Liberator") and its
subsidiaries contain "forward-looking statements," which include statements that
are predictive in nature, depend upon or refer to future events or conditions,
and usually include words such as "expects," "anticipates," "intends," "plan,"
"believes," "predicts", "estimates" or similar expressions. In addition, any
statement concerning future financial performance, ongoing business strategies
or prospects and possible future actions are also forward-looking statements.
Forward-looking statements are based upon current expectations and projections
about future events and are subject to risks, uncertainties and the accuracy of
assumptions concerning Liberator and its subsidiaries (collectively, the
"Company"), the performance of the industry in which they do business and
economic and market factors, among other things. These forward-looking
statements are not guarantees of future performance.
 
 Forward-looking
statements speak only as of the date of this report, presentation or filing in
which they are made. Except to the extent required by federal securities laws,
the Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Our forward-looking statements in this report include, but
are not limited to:
 
 ·
              Statements
      relating to our business strategy;
 
 ·
              Statements
      relating to our business objectives;
and
 
 ·
              Expectations
      concerning future operations, profitability, liquidity and financial
      resources.
 
 These
forward-looking statements are subject to risk, uncertainties and assumptions
about us and our operations that are subject to change based on various
important factors, some of which are beyond our control. The following factors,
among others, could cause our financial performance to differ significantly from
the goals, plans, objectives, intentions and expectations expressed in our
forward-looking statements:
 
 ·
              competition
      from other sexual wellness retailers and adult-oriented
      websites;
 
 ·
              our
      ability to generate significant sales revenue from magazine, radio and
      television advertising;
 
 ·
              our
      ability to maintain our brands;
 
 ·
              unfavorable
      economic and market conditions;
 
 ·
              our
      reliance on credit cards as a form of
payment;
 
 ·
              our
      ability to keep up with new technologies and remain
      competitive;
 
 ·
              our
      ability to continue as a going
concern;
 
 ·
              our
      history of operating losses and the risk of incurring additional losses in
      the future;
 
 ·
              security
      breaches may cause harm to our
systems;
 
 ·
              supply
      interruptions from raw material
vendors:
 
 ·
              our
      ability to enforce and protect our intellectual property
      rights;
 
 ·
              we
      may be subject to claims that we have violated the intellectual property
      rights of others;
 
 ·
              the
      loss of our main data center or other parts of our
      infrastructure;
 
 ·
              systems
      failures and interruptions in our ability to provide access to our
      websites and content;
 
 ·
              companies
      providing products and services on which we rely may refuse to do business
      with us;
 
 ·
              changes
      in government laws affecting our
business;
  1
 
 ·
              we
      may not be successful in integrating any future acquisitions we
      make;
 
 ·
              our
      dependence on the experience and competence of our executive officers and
      other key employees;
 
 ·
              restrictions
      to access on the internet affecting traffic to our
    websites;
 
 ·
              risks
      associated with currency
fluctuations;
 
 ·
              risks
      associated with litigation and legal proceedings;
  and
 
 ·
              other
      risks or uncertainties described elsewhere in this report and in other
      periodic reports previously and subsequently filed by the Company with the
      Securities and Exchange Commission.
 
 PART
I.
 
 ITEM 1.        Business
 
 Our
History
 
 We were
incorporated in the State of Nevada on October 31, 2007 under the name Remark
Enterprises, Inc.  On April 3, 2009, we entered into a Stock Purchase
and Recapitalization Agreement (the “Merger Agreement”) with OneUp
Innovations, Inc., a privately held Georgia corporation (“OneUp”), and One
Up Acquisition, Inc. (“Subsidiary”), our wholly owned Georgia
subsidiary.  On June 26, 2009, we consummated the transactions
contemplated by the Merger Agreement, as amended.  Pursuant to the
Merger Agreement, the Subsidiary and OneUp merged, and all of the issued and
outstanding common stock of OneUp was exchanged for an aggregate of 45,000,000
shares of the Company’s common stock (90% of the total issued and outstanding
shares of common stock of the Company).  In addition, all of the
issued and outstanding shares of preferred stock of OneUp was exchanged for
4,300,000 shares of preferred stock of the Company.  After the merger,
OneUp became our wholly owned subsidiary, and our business operations were
conducted through OneUp.  On July 2, 2009, we changed our name to
“Liberator, Inc.”
 
 General
 
 We are a
provider of goods and information to consumers who believe that sensual pleasure
and fulfillment are essential to a well-lived and healthy life. The information
that we provide consists primarily of product demonstration videos that we show
on our websites and instructional DVD’s that we sell.
  Established
with this conviction, Liberator Bedroom Adventure Gear®empowers
exploration, fantasy and the communication of desire, no matter the person’s
shape, size or ability. Products include the original Liberator shapes and
furniture, sophisticated lingerie and latex apparel, pleasure objects, as well
as bath and body, bedding and home décor. Liberator is a growing consumer brand
that celebrates intimacy by inspiring romantic imagination. Our primary website
address is www.liberator.com.
  Liberator
Bedroom Adventure Gear® is a
love-style brand that exists in a space where the act of love meets art and
invention.  Not prurient enough to be an "adult" product, yet too sexy
to be considered mainstream, we created a retail category called “lovestyle” to
define ourselves in a marketplace that is rapidly gaining in popularity and
acceptance.
  Since we
shipped our first product in 2002, we have evolved into a community of dedicated
employees that create, develop, make, market, advertise, and promote products
and ideas that allow couples to have a fuller sexual experience of themselves
and each other.
  We are
focused on building, developing and marketing our Liberator brand of Bedroom
Adventure Gear products.  Since inception, we have spent over $7
million in print advertising, building awareness of the brand primarily through
magazine advertisements.
  In
addition to the Liberator Shapes®, we also
produce a line of casual foam-based furniture that we sell under the Studio
OneUp brand. These products are produced as a by-product from the manufacturing
of Liberator products, as we re-purpose the scrap foam created from the cutting
of the Liberator cushions.  The Studio OneUp products are offered
directly to consumers through our web site www.studiooneup.com, to e-Merchants
under drop-ship agreements where we ship directly to their customers, and to
other resellers and retailers.
  2
  Our
executive offices are located at 2745 Bankers Industrial Dr., Atlanta, GA 30360;
our telephone number is +1-770-246-6400.  Our primary Web site
addresses are www.liberator.com, www.studiooneup.com, www.theooh.com and
www.foamlabs.com.
Information contained on our websites does not constitute a part of this
report.
 
 Industry
Background
 
 OneUp
participates in the rapidly growing worldwide market of sexual wellness. What
was once called Family Planning has evolved over the last 5 years into a new
category called Sexual Wellness. All of the major retailers, pharmacies and
on-line retailers have embraced this development including:
 
 Walmart.com
– Sexual Wellness products are sold in their Health & Beauty
section
 Amazon.com
– Has a dedicated section called Sexual Wellness
 Walgreens.com
– Has a dedicated section called Sexual Wellness
 CVS.com –
Has a dedicated section called Sexual Health
 Rite-Aid.com
– Has a dedicated section called Sexual Well-being
 Target.com
– Has a dedicated section called Sexual Health
 
 Major
consumer brands are rapidly entering the Sexual Wellness market, with either new
products or repackaged existing products. These brands include:
 
 K-Y
Personal Lubricant (a division of $63 billion Johnson &
Johnson)
 Trojan
Condoms (a division of $2.4 billion Church & Dwight)
 Philips
Electronics (a $26 billion company) recently introduced a line of personal
vibrators
 Durex
Condoms (a $250 million division of UK-based SSL International)
 
 We
believe that the category of sexual wellness is in the early stages of consumer
awareness and that it will continue to grow and gain consumer acceptance to
become a major trend in society.
 
 Our
Competitive Strengths
 
 We
believe that we have the following competitive strengths that we can leverage to
implement our strategy:
 
 Leading market position. Since
our first magazine advertisements appeared in 2002, we have been one of only a
handful of companies that are permitted to advertise sexual wellness products in
mainstream publications. Because of our upscale presentation and mainstream
appeal, Liberator product advertisements have passed the approval of magazines
that have never before permitted an adult product to advertise. As a result, we
believe that we enjoy a somewhat exclusive franchise in this category. Because
of our ability to reach mainstream consumers through print advertisements, we
believe that we have established a leading market position in the category of
sexual wellness products. To some degree, we believe this is evidenced by our
product position on leading e-commerce websites.
 
 Vertically integrated operations
which includes product and packaging design, website design, manufacturing, and
marketing capabilities. Our state-of-the-art design and production
facility allows us to rapidly bring new products to market and respond quickly
to changes in consumer preference, and our in-house website design capabilities
allows us to create a constant stream of website content that provides our
consumers with an entertainment venue, which creates a catalyst for them to
revisit our website after their initial purchase.
 
 Broad product offering. OneUp
currently manufactures approximately 1,200 products and purchases for resale an
additional 400 products.
 
 Established and diversified customer
base. OneUp has approximately 145,000 unique individual customers in
addition to leading retailers and e-merchants.
 
 Experienced executive team. We
have an experienced team of corporate managers. Our founder and Chief Executive
Officer, Louis Friedman, is an entrepreneur and investor whose management
experience spans the past 30 years. Our Chief Financial Officer, Ronald Scott,
has over 30 years of experience in accounting and financial management, with 13
years as the Chief Financial Officer for a NASDAQ-listed natural products
company.
 
 Products
and Services
 
 Since the
first products were sold in 2002, OneUp has continued to evolve and expand its
product offering.
  3
 
 OneUp has
developed a product line of "Bedroom Adventure Gear®"which
consists of six differently shaped cushions being marketed as Liberator® Shapes.
Liberator Shapes are positioning props that rock, elevate and create surfaces
and textures that expand the sexual repertoire and make the act of love more
exciting. As human bodies come in different sizes, so do Liberator Shapes. And
Liberator Shapes are available in an assortment of fabric colors and prints to
add to the visual excitement. The Shapes produced by OneUp Innovations are
marketed under OneUp Innovation’s registered trademark “Liberator®” and
covered under United States Patent #6,925,669. Each of the six Liberator Shapes
has a unique shape, designed to introduce to the sexual experience positions
which were previously difficult to achieve. The Liberator Shapes are
manufactured from structured urethane foam cut at an angle, in large cubes and
in platform shapes. The urethane base is encased in a tight, fluid resistant
nylon shell, helping the cushions to maintain their shape.
 
 OneUp has
also developed a unique a line of furniture pieces, called “sex furniture”,
which set the benchmark for relaxed interaction and creative sex. Three of the
sex furniture pieces are made from contoured urethane foam and covered in a
variety of fabrics and colors. These items are marketed as the Esse®, the
EquusTM, and the
FreestyleTM. The sex
furniture line also includes products based on shredded polyurethane foam
encased in a wide range of fabric types and colors and sold as the ZeppelinTM, the
ZeppelinTM Lounger,
the ZeppelinTMCocoon,
and the ZeppelinTMPillow.
 
 In
addition to the above Liberator products, OneUp manufactures couture lingerie,
latex garments, fetish wear and a line of boudoir bedding items that are sold
under the FascinatorTM line.
Beginning in mid-2006, OneUp began importing high-quality pleasure objects and
erotica from around the world. This collection now includes products for the
body and mind, including erotic books, music and gifts.
 
 In
addition to the Liberator product line, OneUp also produces a line of casual
foam-based furniture that it sells under the Studio OneUp brand. These products
are offered directly to consumers through OneUp’s web site www.studiooneup.com,
to e-Merchants under drop-ship arrangement where OneUp ships directly to their
customers, and to other resellers.
 
 Beginning
in early fiscal 2007, OneUp began providing contract manufacturing services to
companies seeking private label specialty products made from fabric and foam.
These products are typically designed by the client companies and manufactured
to their specifications. This is not a material segment of our
business.
 
 Beginning
in early 2008, OneUp introduced The Ooh web site www.theooh.com. This web site
was designed as a health and wellness site where the Liberator intimacy products
could be presented in a more conservative format.
 
 Competition
 
 The
markets for the products and information offered by OneUp are highly fragmented
and are characterized by thousands of small and often undercapitalized
businesses. We believe that we compete on the basis of integrity, the
distinctiveness, quality and performance of our products, quality of customer
service, creative presentations and brand name recognition.
 
 We
believe that the primary competitive factors in e-commerce are brand
recognition, site content, ease of use, price, fulfillment speed, customer
support, reliability and integrity. Our success, particularly against larger and
better financed competitors, will continue to depend upon our ability to provide
a compelling and satisfying shopping experience for the consumer, both on-line
and at our current and future retail stores.
 
 Strategy
 
 As one of
the few recognized brands in the sexual wellness market, our goal is to enhance
revenue opportunities while improving our profitability. We plan to achieve
these goals using the following strategies:
 
 ·
              Expand
      Advertising Beyond Magazines. Since inception, 95% of OneUp’s
      advertising expenditures have been for print advertisements in magazines.
      While we plan to continue and grow this effort, we also believe that we
      can be more successful by advertising on adult and mainstream cable
      television and network channels, and satellite and terrestrial radio
      stations.
 
 ·
              Pursue
      Targeted Acquisitions. We believe that the sexual
      wellness industry is highly fragmented, with few market leaders, and we
      seek to pursue acquisitions that meet our values, strategic focus and
      economic criteria. We believe there is a significant opportunity to expand
      our business by acquiring and integrating companies that manufacture or
      market high-quality products to the sexual wellness consumer market and
      that, in many cases, such companies could increase their sales as a result
      of offering their products for sale under the Liberator
      brand.
  4
 
 ·
              Capitalize on
      the Liberator brand.
      We intend to extend the Liberator brand through the introduction of
      Liberator brand pleasure objects and consumables, like personal lubricants
      and massage oils.
 
 ·
              Expand our
      Channels of Distribution. In 2008, OneUp began licensing
      the Liberator brand to entrepreneurs in foreign countries and we now have
      licensees in 11 European and Asian countries with a total population of
      250 million. OneUp intends to continue to add to its list of international
      licensees. OneUp also believes there is a significant opportunity to open
      Liberator Love Artist stores in specific domestic markets like Atlanta,
      New York, Los Angeles and Miami. Not only will such stores increase
      awareness of the brand, but they will serve as regional hubs to support
      local networks of independent sales agents that purchase products from our
      stores and resell them to their friends and family members through in-home
      parties.
 
 ·
              Expand
      Distribution of our Studio OneUp and TheOoh products. OneUp has developed a unique
      point-of-purchase packaging system for our “bean bag” line of Studio OneUp
      seating. This system allows the retailer to stock a variety of bean bag
      colors and fabric types while maintaining minimal inventory of the
      foam-based filling. The foam-based filling is re-purposed scrap foam
      created from the manufacturing of the Liberator cushions. The foam-based
      filling is compressed into square capsules with a maximum weight of 25
      pounds, which makes it easier for the consumer to transport the product,
      and it reduces the amount of shelf space required by the retailer. To
      purchase one of the various sizes of bean bags, consumers simply select
      the required size and number of compressed foam capsules that match the
      selected cover.
 
 Intellectual
Property
 
 Liberator,
Wedge, Ramp, Cube, Stage, Esse, Zeppelin, Jaxx, “Explore More”, “Bedroom
Adventure Gear“, and the Liberator logo are subject to trademark or pending
trademark applications of OneUp.
 
 We also
currently hold various web domain names relating to our brand, including the
domain names listed below:
 
 Liberator.com
                theliberator.com
                liberatormusic.comstudiooneup.com
                sulibertador.com
                liberatormail.comtheooh.com
                ourliberator.com
                liberatorextreme.comfoamlabs.com
                oneupinnovations.com
                liberatoraffiliates.comliberatorcushions.com
                loveliberator.com
                liberater.comsexcushions.com
                liberatorworks.com
                hisliberator.comliberator-scentuelle.com
                liberatorshop.com
                herliberator.comoneupstore.com
                liberatorshapes.com
                foamrx.comyourliberator.com
                liberatorpads.comthezerk.com
                liberatoroffers.com
 
 In August
2005, we were issued a United States utility patent number US 6,925,669,
“Support Cushion and System of Cushions.”
 
 Marketing
 
 Through
advertisements in a broad range of national magazines, consumers are directed to
one of OneUp’s three e-commerce websites to learn more about the products and
place their orders. These websites include www.liberator.com,
www.studiooneup.com and www.theooh.com.
 
 OneUp
intends to expand its advertising efforts beyond magazines to reach broader
segments of the population and increase its consumer base.
 
 Through
its in-house sales organization, OneUp engages retailers directly and then
either ships to them on a wholesale basis or provides fulfillment services by
drop-shipping directly to their customers.
 
 Through
attendance at a variety of domestic and international consumer and industry
trade shows, OneUp gains valuable feedback from consumers and retailers
regarding its product offering. Attendance at these trade shows also provides
OneUp with an opportunity to monitor the competitive environment and be made
aware of any emerging trends in the sexual wellness industry.
  5
 
 Licenses
 
 OneUp
launched its international expansion program in mid-2008 through a licensing
program. Through a co-manufacturing arrangement whereby the foam is contoured
locally, OneUp has created a way for local partners to launch the brand quickly
and aggressively. Each licensee has the full capability to sell directly to
consumers and traditional resellers, and has made significant financial
commitments to marketing the Liberator brand through country specific
advertising channels which include print, television, and radio. These licensees
are also empowered to interpret the brand so as to be culturally sensitive to
their respective territories.
 
 Since
September 2008, OneUp has licensed 11 countries around the world including the
UK, Germany, Netherlands, Belgium, France, Italy, Australia / New Zealand,
Singapore, Indonesia, and Malaysia (with a combined population greater than 250
million residents.) There are currently five other territories under negotiation
with licensees. All territories will have, if not already, a fully functional
consumer website, and in some cases, our partners will develop Liberator
Lovestyle retail stores.
 
 International
websites being launched include:
 
 Singapore
                www.liberator.sgUK
                www.theliberatoruk.co.ukNetherlands
                www.liberatorshop.nlGermany
                www.liberatorship.deBelgium
                www.liberatorshop.beAustralia
      / New Zealand
                www.theliberator.com.au
 
 These
international licensees are expected to eventually be successful distribution
pipelines which will market the Liberator branded products, ranging from
consumables and toys to shapes and furniture. Under the licensing agreements,
the licensees are encouraged to open all sales channels within their territories
including big box retailers, drugstores, and other retail channels. Sales to
licensees consist of an initial license fee plus recurring product sales.
Product sales and license fees from international licensees was less than 1% of
total net sales in fiscal 2008 and less than 3% of total net sales during fiscal
2009. The international license agreements, which have a term of three to six
years, appoint the companies or individuals as exclusive distributors in their
respective territories (with no minimum annual purchase requirements) and
require the licensees to spend specific amounts on advertising in their local
markets. However, to date, these advertising requirements have not been enforced
by the Company. The international license agreements may be terminated at any
time upon the mutual written agreement of the parties, and upon the occurrence
of any event of default, as defined in the agreements.
 
 Sales
Channels
 
 We
conduct our business through two primary sales channels: Direct (consisting of
our Internet website and telephone sales) and Wholesale (consisting of our
stocking reseller, drop-ship, contract manufacturing and distributor accounts).
The following is a summary of our revenues:
 
 (Dollars
      in thousands)
                        
                        Fiscal
                          2007
                        
                        
                        Fiscal
                          2008
                        
                        
                        Fiscal
                          2009Direct
                        
                        $
                        6,547
                        
                        
                        $
                        6,703
                        
                        
                        $
                        5,144Wholesale
                        
                        
                        2,369
                        
                        
                        
                        3,550
                        
                        
                        
                        4,022Other
                        
                        
                        1,218
                        
                        
                        
                        1,498
                        
                        
                        
                        1,095Total
      Net Sales
                        
                        $
                        10,134
                        
                        
                        $
                        11,751
                        
                        
                        $
                        10,261
 
 Other
revenues consist principally of shipping and handling fees derived from our
Direct business.
 
 Direct
 
 The
following is a summary of our Direct business net sales and the percentage
relationship to total revenues:
  (Dollars
      in thousands)
                            
                            Fiscal
                              2007
                            
                            
                            Fiscal
                              2008
                            
                            
                            Fiscal
                              2009Internet
                            
                            $
                            5,883
                            
                            
                            $
                            6,096
                            
                            
                            $
                            4,536Phone
                            
                            
                            664
                            
                            
                            
                            607
                            
                            
                            
                            608Total
      Direct Net Sales
                            
                            $
                            6,547
                            
                            
                            $
                            6,703
                            
                            
                            $
                            5,144Direct
      net sales as a percentage of total revenues
                            
                            
                            64.6
                            %
                            
                            
                            57.0
                            %
                            
                            
                            50.1
                            %
  6
 
 Since
inception, OneUp has sold directly to approximately 200,000 consumers, many of
these consumers have ordered from the Company more than once.
 
 Wholesale
 
 The
following is a summary of our net sales to Wholesale customers and the
percentage relationship to total revenues:
 
 (Dollars
      in thousands)
                      
                      Fiscal
                        2007
                      
                      
                      Fiscal
                        2008
                      
                      Fiscal
                        2009Wholesale
      customers
                      
                      $
                      2,369
                      
                      
                      $
                      3,550
                      
                      $
                      4,022Percentage
      of total revenues
                      
                      
                      23.4
                      %
                      
                      
                      30.2
                      %
                      
                      39.2
                      %
 
 As of
June 30, 2009, OneUp has approximately 800 wholesale accounts, most of which are
located in the United States.
 
 Internet
Website
 
 Since
2002, our website located at www.liberator.com has allowed our customers to
purchase our merchandise over the Internet. Using a consistent standard measure,
our website logged over 3.1 million visits in fiscal 2009, as compared to over
3.5 million visits in fiscal 2008, representing an 11% decrease in website
visits. Internet revenues represented 88% of the Direct business in fiscal 2009,
compared to 91% of the Direct business in fiscal 2008. We design and operate our
websites using an in-house technical and creative staff. Our www.liberator.com
website is intended to be an entertainment and educational venue where consumers
can watch product demonstration videos, videos on sexual wellness topics and
humorous videos on the many facets of human sexuality. In addition to our
www.Liberator.com website, we also maintain the www.StudioOneUp.com website and
the www.TheOoh.com website.
 
 In
response to declining sales on our Liberator.com website, in fiscal 2009 (the
year ended June 30, 2009) we began an implementation project of a new e-commerce
platform and a new enterprise resource planning (ERP) system. The implementation
of both of these systems was substantially completed during the first quarter of
fiscal 2010 (the year ended June 30, 2010).
 
 Liberator®
“Lovestyle” Store
 
 Sex and
love are inherently essential to life, but we do not believe they have been
properly presented in retailing. Couples seeking products to enhance intimacy
have limited choices beyond that of the local sex shop. OneUp will present
“lovestyle” and sexual adventure in an interactive environment that is couple
friendly, mainstream and not faced with the zoning restrictions of adult
shops.
 
 Products
offered may include:
 
 ·
              Liberator Shapes, sexual
      furniture, playful
restraints
 ·
              Bedding – silk / satin sheets,
      duvets, pillows
 ·
              Pleasure objects (imported
      high-end)
 ·
              Leather
      products.
 ·
              Erotic prints, books and
      sculptures
 ·
              Borosilicate glass art and
      pleasure objects
 ·
              Lingerie – leather, silk, latex,
      and high end dress-up
costumes
 ·
              Dance wear & accessories –
      burlesque, belly dance, strip tease plus
  DVD’s
 ·
              Sensual Massage, bath and body
      products
 ·
              Music, educational DVD’s, limited
      erotic DVD’s
 ·
              Personal
      lubricants
 ·
              Scents, fragrances and
      candles
 ·
              Gift
    baskets
 ·
              Instructional monthly
      presentations or salons
 
 Our 3,500
square foot factory store has demonstrated the power of the Liberator brand –
customers want to feel and touch Liberator products and are willing to travel to
the store, return repeatedly and refer friends.
  7
 
 The
Liberator Lovestyle Store serves as a laboratory to observe consumer reaction to
new products and to evaluate price points and merchandising
techniques.
 
 We
believe that our retail store concept is ready to be rolled out or licensed
throughout the United States, providing an upscale experience in-sync with the
mainstreaming of sexual well-being.
 
 Government
Regulation
 
 We are
subject to customs, truth-in-advertising and other laws, including consumer
protection regulations that regulate the promotion and sale of merchandise and
the operation of warehouse facilities. We monitor changes in these laws and
believe that we are in material compliance with applicable laws.
 
 Seasonality
 
 Our
business has a seasonal pattern. In the past three years, we have realized an
average of approximately 28% of our annual revenues in our second quarter, which
includes Christmas, and an average of approximately 29% of our revenues in the
third quarter, which includes Valentine’s Day. Also, during these past three
years, we have had net income in our second and third quarters and generated
losses in our first and fourth quarters, although there can be no assurance that
this trend will continue.
 
 Employees
and Labor Relations
 
 As of the
date of this Current Report, we have 112 employees. In addition, approximately
20 employees are hired on a seasonal basis to meet demand during the peak
season. None of our employees are represented by a union. We have had no
labor-related work stoppages and we believe our relationship with our employees
is good.
 
 ITEM 1A.     Risk Factors
 
 Not
required of smaller reporting companies.
 
 ITEM 1B.     Unresolved Staff
Comments
 
 None.
 
 ITEM 2.        Properties
 
 We
operate our business from one facility. We lease 140,000 square feet located at
2745 Bankers Industrial Drive, Atlanta, GA 30360. This facility serves as our
manufacturing facility, design and creative center, administrative and corporate
headquarters and company store.  The facility lease expires December
31, 2015.
 
 We
believe our facilities are currently adequate for their intended purposes and
are adequately maintained.
 
 ITEM 3.        Legal
Proceedings
 
 We know
of no material, existing or pending legal proceedings against us, nor are we
involved as a plaintiff in any material proceeding or pending
litigation.  There are no proceedings in which any of our directors,
officers, or affiliates, or any registered or beneficial holder of more than 5%
of our voting securities, or any associate of such persons, is an adverse party
or has a material interest adverse to our company.
 
 ITEM 4.        Submission
of Matters to a Vote of Security Holders
 
 None.
  8
 
 PART
II.
  ITEM 5.
              Market for Registrant’s Common
      Equity, Related Stockholder Matters and Issuer Purchases of Equity
      Securities
 
 Market
Information
 
 There is
presently no established market for our securities.
 
 As of
February 9, 2010, we have 61,915,981 shares of common stock issued and
outstanding. 1,492,456 shares of our common stock are subject to outstanding
options, 2,462,393 shares of our common stock are subject to warrants, 1,500,000
shares of common stock are issuable upon the conversion of convertible notes,
and 4,300,000 shares of common stock are issuable upon the conversion of the
preferred stock (after July 1, 2011).  None of the shares of our
issued and outstanding common stock are currently eligible for resale pursuant
to an exemption under Rule 144 promulgated under the Securities Act of 1933, as
amended, as we ceased being a shell company on June 26, 2009 and such shares
will be eligible subject to the requirements of Rule 144 after one (1) year has
elapsed from the date we file “Form 10 information” with the Commission. We
believe we have filed such “Form 10 information” as of the filing date of this
Amendment to Current Report on Form 8-K.
 
 Holders
 
 As of
February 9, 2010, we had approximately 57 stockholders of record of our common
stock based upon the stockholder list provided by our transfer agent, and one
holder of our preferred stock.
 
 Transfer
Agent
 
 The
transfer agent and registrar for our common stock is Pacific Stock Transfer
Company, 500 E. Warm Springs Road, Suite 240, Las Vegas, NV,
89119-4355.
  Dividend
Policy
  We plan
to retain all earnings generated by our operations, if any, for use in our
business. We do not anticipate paying any cash dividends to our stockholders in
the foreseeable future. The payment of future dividends on the common stock and
the rate of such dividends, if any, and when not restricted, will be determined
by our board of directors in light of our earnings, financial condition, capital
requirements, and other factors.
 
 Securities
Authorized for Issuance under Equity Compensation Plans
  We do not have any equity compensation
plans.
  Recent
Sales of Unregistered Securities
 
 Pursuant
to the Merger Agreement, on June 26, 2009, we issued 45,000,000 shares of our
common stock to 11 individuals who collectively owned 100% of OneUp Innovations
in exchange for 100% of the outstanding shares of OneUp. These shares were
issued in reliance on the exemption under Section 4(2) of the Securities Act of
1933, as amended (the “Act”) and were issued as founders shares. These shares of
our common stock qualified for exemption under Section 4(2) of the Securities
Act of 1933 since the issuance shares by us did not involve a public offering.
The offering was not a “public offering” as defined in Section 4(2) due
to the insubstantial number of persons involved in the deal, size of the
offering, manner of the offering and number of shares offered. We did not
undertake an offering in which we sold a high number of shares to a high number
of investors. In addition, these shareholders had the necessary investment
intent as required by Section 4(2) since they agreed to and received share
certificates bearing a legend stating that such shares are restricted pursuant
to Rule 144 of the 1933 Securities Act. This restriction ensures that these
shares would not be immediately redistributed into the market and therefore not
be part of a “public offering.” Based on an analysis of the above factors, we
met the requirements to qualify for exemption under Section 4(2) of the
Securities Act of 1933 for this transaction.
  9
 
 Pursuant
to the offering, on June 26, 2009, we issued 8,000,000 shares of our common
stock to 37 individuals and entities pursuant to a private placement memorandum
and subscription agreement in the aggregate amount of $2,000,000. All of the
shares were sold to “accredited investors” as defined in 501(a) of the
Securities Act. Please note that pursuant to Rule 506, all shares purchased in
the Regulation D Rule 506 offering were restricted in accordance with Rule 144
of the Securities Act of 1933. In addition, each of these shareholders was
accredited as defined in Rule 501 (a) of Regulation D promulgated under the
Securities Act.
 
 Pursuant
to the engagement letter with New Castle Financial Services, on June 26, 2009,
we issued 2,732,980 shares of our common stock to New Castle Financial Services
with respect to investment banking and financial services performed by New
Castle Financial Services in connection with the Offering. Such securities were
not registered under the Securities Act of 1933. The issuance of these shares
was exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933.
 
 In
addition, in connection with a finders’ fee agreement, we issued 200,000 shares
of our common stock to Downshire Capital with respect to services as a finder
performed by Downshire Capital in connection with the Merger. Pursuant to the
verbal agreement, Downshire agreed to receive 2.5% of the gross amount raised in
the June 2009 private placement, in stock. Such securities were not registered
under the Securities Act of 1933. The issuance of these shares was exempt from
registration pursuant to Section 4(2) of the Securities Act of
1933.
  ITEM 6.        Selected Financial
Data
 
 Not
required of a small reporting company.
 
 ITEM 7.        Management’s Discussion and Analysis of
Financial Condition and Results of Operations
 
 This
discussion summarizes the significant factors affecting the results of
operations and financial condition of the Company during the fiscal years ended
June 30, 2009 and 2008 and should be read in conjunction with our financial
statements and accompanying notes thereto included elsewhere herein. Certain
information contained in this “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” are “forward-looking statements” within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements that
are not historical in nature and which may be identified by the use of words
like “expects,” “assumes,” “projects,” “anticipates,” “estimates,” “we believe,”
“could be” and other words of similar meaning, are forward-looking statements.
These statements are based on management’s expectations and assumptions and are
subject to risks and uncertainties that may cause actual results to differ
materially from those expressed. Our actual results may differ materially from
the results discussed in this section because of various factors, including
those set forth elsewhere herein. See “Forward-Looking Statements” included in
this report.
 
 Description
of the Company and Business Segments
 
 We are a
provider of goods and information to consumers who believe that sensual pleasure
and fulfillment are essential to a well-lived and healthy life.
 
 Established
with this conviction, Liberator Bedroom Adventure Gear®empowers
exploration, fantasy and the communication of desire, no matter the person’s
shape, size or ability. Products include the original Liberator shapes and
furniture, sophisticated lingerie and latex apparel, pleasure objects, as well
as bath and body, bedding and home décor. Liberator is a growing consumer brand
that celebrates intimacy by inspiring romantic imagination. Our primary website
address is www.liberator.com.
 
 Liberator
Bedroom Adventure Gear® is a
love-style brand that exists in a space where the act of love meets art and
invention. Not prurient enough to be an "adult" product, yet too sexy to be
considered mainstream, we created a retail category called “lovestyle” to define
ourselves in a marketplace that is rapidly gaining in popularity and
acceptance.
  10
 
 Since
OneUp shipped its first product in 2002, OneUp has evolved into a community of
dedicated employees that create, develop, make, market, advertise, and promote
products and ideas that allow couples to have a fuller sexual experience of
themselves and each other.
 
 We are
focused on building, developing and marketing our Liberator brand of Bedroom
Adventure Gear products. Since inception, we have spent over $7 million in print
advertising, building awareness of the brand primarily through magazine
advertisements. We now intend to broaden our marketing reach by advertising on
selected cable television and radio channels and in newspaper ads.
 
 In
addition to the Liberator Shapes®, we also
produce a line of casual foam-based furniture that we sell under the Studio
OneUp brand. These products are produced as a by-product from the manufacturing
of Liberator products, as we re-purpose the scrap foam created from the cutting
of the cushions. The Studio OneUp products are offered directly to consumers
through our web site www.studiooneup.com, to e-Merchants under drop-ship
agreements where we ship directly to their customers, and to other
resellers.
 
 We are
currently housed in a 140,000 sq. ft. vertically integrated manufacturing
facility in a suburb of Atlanta, Georgia. Since our first sale in May 2002, we
have grown to include 112 employees, with our products being sold directly to
consumers and through hundreds of domestic resellers and on-line affiliates and
six international resellers.
 
 The
following information should be read together with the consolidated financial
statements and notes thereto included elsewhere herein.
 
 Critical
Accounting Policies and Estimates
 
 Management’s
discussion and analysis of financial condition and results of operations are
based upon the Company’s consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“U.S. GAAP”). The preparation of these consolidated
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
 
 The
Company believes the following critical accounting policies affect its more
significant judgments and estimates used in the preparation of its consolidated
financial statements.
 
 Revenue Recognition.The
Company recognizes revenues as product is shipped to the customers. Net sales
are comprised of the total product sales billed during the period plus amounts
paid for shipping and handling, less the actual returns, customer allowances,
and customer discounts.
 
 Inventories.Inventories are
carried at the “lower of cost or market value,” with cost being determined on
the “first-in, first-out” basis of accounting. Finished goods and goods in
process include a provision for manufacturing overhead.
 
 Impairment of Long-Lived Assets.Long-lived assets are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amounts of such assets to future net cash flows
expected to be generated by the assets. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.
 
 New
Accounting Pronouncements
 
 Please
refer to Note C, “Summary of Significant Accounting Policies—Recent Accounting
Pronouncements and Recently Issued Accounting Pronouncements” to our financial
statements included in this report for a discussion on the impact of the
adoption of new accounting pronouncements.
 
 Overview
 
 Comparisons
of selected consolidated statements of operations data as reported herein follow
for the periods indicated:
  11
 
 Total:
                  
                  Year Ended
                    June 30, 2009
                  
                  
                  Year Ended
                    June 30, 2008
                  
                  
                  %
                    ChangeNet
      sales:
                  
                  $
                  10,260,552
                  
                  
                  $
                  11,750,832
                  
                  
                  
                  (13
                  )%Gross
      profit
                  
                  $
                  3,116,444
                  
                  
                  $
                  4,234,099
                  
                  
                  
                  (26
                  )%Operating
      income (loss)
                  
                  $
                  (1,000,869
                  )
                  
                  $
                  73,625
                  
                  
                  
                  —Diluted
      (loss) per share
                  
                  $
                  (0.08
                  )
                  
                  $
                  (0.00
                  )
                  
                  
                  —
 
 Net
      Sales by Channel:
                  
                  Year Ended
                    June 30, 2009
                  
                  
                  Year Ended
                    June 30, 2008
                  
                  
                  %
                    ChangeDirect
                  
                  $
                  5,143,604
                  
                  
                  $
                  6,703,172
                  
                  
                  
                  (23
                  )%Wholesale
                  
                  $
                  4,022,127
                  
                  
                  $
                  3,549,808
                  
                  
                  
                  13
                  %Other
                  
                  $
                  1,094,821
                  
                  
                  $
                  1,497,852
                  
                  
                  
                  (27
                  )%Total
      Net Sales
                  
                  $
                  10,260,552
                  
                  
                  $
                  11,750,832
                  
                  
                  
                  (13
                  )%
 
 Other
revenues consist principally of shipping and handling fees derived from our
Direct business.
 
 Gross Profit by Channel:
                      
                      Year Ended
                        June 30, 2009
                      
                      
                      Margin
                        %
                      
                      
                      Year Ended
                        June 30, 2008
                      
                      
                      Margin
                        %
                      
                      
                      %
                        ChangeDirect
                      
                      $
                      1,896,561
                      
                      
                      
                      37
                      %
                      
                      $
                      2,993,815
                      
                      
                      
                      45
                      %
                      
                      
                      (37
                      )%Wholesale
                      
                      $
                      1,096,678
                      
                      
                      
                      27
                      %
                      
                      $
                      866,899
                      
                      
                      
                      24
                      %
                      
                      
                      27
                      %Other
                      
                      $
                      123,205
                      
                      
                      
                      11
                      %
                      
                      $
                      373,385
                      
                      
                      
                      25
                      %
                      
                      
                      (67
                      )%Total
      Gross Profit
                      
                      $
                      3,116,444
                      
                      
                      
                      30
                      %
                      
                      $
                      4,234,099
                      
                      
                      
                      36
                      %
                      
                      
                      (26
                      )%
 
 Fiscal
Year ended June 30, 2009 Compared to the Fiscal Year Ended June 30,
2008
 
 Net sales
for the twelve months ended June 30, 2009 decreased from the comparable prior
year period by $1,490,280, or 13%. The decrease in sales is due to a decrease in
consumer sales of $1,265,000. Direct sales, which consists of consumer sales
through our three websites and, to a lesser extent, our factory store, decreased
from approximately $6.7 million in the twelve months ended June 30, 2008 to
approximately $5.1 million in the twelve months ended June 30, 2009, a decrease
of approximately 23%. We attribute this decrease to the current economic
uncertainty and changes in consumer spending leading to consumers purchasing
fewer of our products, as our products are typically a discretionary purchase.
As a result of an increased focus on our Wholesale business, sales to wholesale
customers increased approximately 13% from the prior year. Wholesale customers
include Liberator products sold to distributors and retailers and private label
items sold to other resellers. The Wholesale category also includes contract
manufacturing services, which consists of specialty items that are manufactured
in small quantities for certain customer, and which, to date, has not been a
material part of our business.
 
 Gross
profit, derived from net sales less the cost of product sales, includes the cost
of materials, direct labor, manufacturing overhead and depreciation. Gross
margin as a percentage of sales decreased to 30% for the year ended June 30,
2009 from 36% in the prior year. This is primarily the result of a decrease in
Direct to consumer sales combined with more frequent order and product specific
discount offers for consumers. One of the most frequent consumer discount offers
during fiscal 2009 was “free” or significantly reduced shipping and handling,
which accounts for the decrease in the Other category revenue and gross profit.
Gross profit on Wholesale sales increased as a result of a price increase that
was implemented during the third quarter of fiscal 2009. Because product margins
for all products in a given distribution channel are comparable, we analyze and
manage our business based on changes in distribution channels and not by product
mix.
 
 Total
operating expenses for the year ended June 30, 2009 were 40% of net sales, or
$4,117,313, compared to 35% of net sales, or $4,160,474, for the year ended June
30, 2008. This slight decrease in operating expenses was primarily the result of
lower advertising and promotion costs offset by higher sales and marketing
personnel costs to support greater domestic and international wholesale
distribution efforts. Advertising and promotion expenses decreased by 18% (or
$190,269) from $1,054,959 in fiscal 2008 to $864,690 in fiscal 2009. Advertising
and promotion expenses were reduced during fiscal 2009 as part of a plan to
improve the targeting, timing and effectiveness of advertising spending. Other
Selling and Marketing costs increased 18% (or $181,365) from fiscal 2008 to
fiscal 2009, primarily as a result of increased sales staff and related
personnel costs and additional website hosting costs.
  12
 
 Other
income (expense) increased from ($153,113) to ($2,754,113) in fiscal 2009.
Interest (expense) and financing costs in fiscal 2009 included $167,879 in
additional interest expense related to the issuance of the preferred stock. This
additional interest expense was recorded to bring the carrying value of the
shares to their stated liquidation value. Expenses related to the merger during
fiscal 2009 total $2,273,495. This item consists of $285,750 for the discounted
face value of the convertible note payable to Hope Capital, $4,500 for the fair
market value of the warrant for 1 million shares issued to Hope Capital,
$1,250,000 for the fair market value of the Company shares deemed issued to our
former shareholders, and $733,245 for the fair market value of shares issued for
services in connection with the private placement that closed on June 26, 2009.
All of the expenses related to the merger included in other income (expense) are
non-cash expenses.
 
 No
expense or benefit from income taxes was recorded in the twelve months ended
June 30, 2009 or 2008. We do not expect any U.S. federal or state income taxes
to be recorded for the current fiscal year because of available net operating
loss carry-forwards.
 
 We had
net loss of $3,754,982, or ($0.08) per diluted share, for the twelve months
ended June 30, 2009 compared with net loss of $153,113, or $0.00 per diluted
share, for the year ended June 30, 2008.
 
 Fiscal
Year ended June 30, 2008 Compared to the Fiscal Year Ended June 30,
2007
 
 Net sales
for the twelve months ended June 30, 2008 increased from the comparable prior
year period by $1,616,810, or 16%. The increase in sales was substantially due
to an increase in wholesale private label revenue and, to a lesser extent,
higher sales of wholesale Liberator products through wholesale and retail
distribution channels.
 
 Gross
profit, derived from net sales less the cost of product sales, includes the cost
of materials, direct labor, manufacturing overhead and depreciation. Gross
margin as a percentage of sales increased slightly from 35% for the year ended
June 30, 2007 to 36% for the year ended June 30, 2008. Because product margins
for all products in a given distribution channel are comparable, we analyze and
manage our business based on changes in distribution channels and not by product
mix.
 
 Total
operating expenses for the year ended June 30, 2008 were 35% of net sales, or
$4,160,474, compared to 42% of sales, or $4,236,136, for the year ended June 30,
2007. This decrease in operating expenses was primarily the result of a 26%
reduction in advertising spending, from $1,422,263 in fiscal 2007 to $1,054,959
in fiscal 2008.
 
 No
expense or benefit from income taxes was recorded in the twelve months ended
June 30, 2008 or 2007. We do not expect any U.S. federal or state income taxes
to be recorded for the current fiscal year because of available net operating
loss carry-forwards.
 
 We had
net loss of $153,113, or ($0.00) per diluted share, for the twelve months ended
June 30, 2008 compared with net loss of $864,127, or $(0.02) per diluted share,
for the twelve months ended June 30, 2007.
 
 Variability
of Results
 
 We have
experienced significant quarterly fluctuations in operating results and
anticipate that these fluctuations may continue in future periods. As described
in previous paragraphs, operating results have fluctuated as a result of changes
in sales levels to consumers and wholesalers, competition, costs associated with
new product introductions and increases in raw material costs. In addition,
future operating results may fluctuate as a result of factors beyond our control
such as foreign exchange fluctuation, changes in government regulations, and
economic changes in the regions it operates in and sells to. A portion of our
operating expenses are relatively fixed and the timing of increases in expense
levels is based in large part on forecasts of future sales. Therefore, if net
sales are below expectations in any given period, the adverse impact on results
of operations may be magnified by our inability to meaningfully adjust spending
in certain areas, or the inability to adjust spending quickly enough, as in
personnel and administrative costs, to compensate for a sales shortfall. We may
also choose to reduce prices or increase spending in response to market
conditions, and these decisions may have a material adverse effect on financial
condition and results of operations.
 
 Financial
Condition
 
 Cash and
cash equivalents increased $1,726,114 to $1,815,633 at June 30, 2009 from
$89,519 at June 30, 2008. This increase in cash resulted from cash provided by
operating activities of $252,097 and cash provided by financing activities of
$1,826,409, offset by cash used in investing activities of $352,392. Cash
provided by operating activities for the year ended June 30, 2009 represents the
results of operations adjusted for non-cash depreciation and the non-cash
deferred rent accrual of $289,370, a decrease in inventory of $552,400 and
increases in accounts payable of $633,674, offset by a slight increase in
accounts receivable and other less significant changes. Cash flow used in
investing activities reflects capital expenditures during the year ended June
30, 2009. The largest component of capital expenditures during the year ended
June 30, 2009, is our project to upgrade our e-commerce platform and ERP system.
Expenditures on the e-commerce platform and ERP system, as of June 30, 2009,
total approximately $274,000. Cash flows provided by financing activities are
attributable to the net proceeds from the sale of common stock of $1,699,465,
proceeds of $550,000 from the credit card cash advance, loans from related
parties of $120,948, and $111,188 in proceeds from new capital leases, offset in
part by repayment of the credit card advance and repayment of a short-term note
payable and unsecured notes.
  13
 
 As of
June 30, 2009, net accounts receivable increased by $16,710, or 5%, to $346,430
from $329,720 at June 30, 2008. The increase in accounts receivable is primarily
the result of increased sales to wholesale accounts. Management believes that
our accounts receivable are collectible net of the allowance for doubtful
accounts of $5,740 at June 30, 2009.
 
 Net
inventory decreased $552,400, or 44%, to $700,430 as of June 30, 2009 compared
to $1,252,803 as of June 30, 2008. The decrease is greater than the year-to-date
reduction in sales of 13% and also reflects better management of raw materials
and finished goods.
 
 Accounts
payable increased $633,674, or 39%, to $2,247,845 as of June 30, 2009 compared
to $1,614,170 as of June 30, 2008. The increase in accounts payable was due to
our working capital deficiency and the necessity to unilaterally extend the
payment periods to vendors.
 
 Liquidity
 
 At June
30, 2009, our working capital deficiency was $106,124, an improvement of
$583,350 compared to $689,474 at June 30, 2008. Cash and cash equivalents at
June 30, 2009 totaled $1,815,633, an increase of $1,726,114 from $89,519 at June
30, 2008.
 
 As of
June 30, 2009, we had a revolving line of credit with a commercial finance
company which provides up to $500,000 credit against 85% of eligible accounts
receivable (aged less than 90 days) and eligible inventory (as defined in the
agreement) up to a sub-limit of $220,000, such inventory loan not to exceed 30%
of the accounts receivable loan. Borrowings under the agreement bear interest at
the Prime rate plus two percent (7 percent at June 30, 2008 and 5.25 percent at
June 30, 2009), payable monthly. As of June 30, 2009. we were in full compliance
with the terms of this revolving line of credit. The amount owed on the
revolving line of credit was $287,140 at June 30, 2008 and $171,433 at June 30,
2009.
 
 On July
2, 2008, we received $350,000 from a finance company under the terms of a credit
facility that is secured by our future credit card receivables. Terms of the
credit facility require repayment on each business day of principal and interest
at a daily rate of $1,507 over a twelve month period. The credit facility has a
financing fee of 12% (equal to $42,000) on the principal amount, which equates
to an effective annual interest rate of 21.1%. The credit facility is personally
guaranteed by our CEO and majority shareholder, Louis Friedman. On June 3, 2009,
we borrowed an additional $200,000 under this credit facility. Terms of the
current loan require repayment on each business day of principal and interest at
a daily rate of $1,723.08 over a six month period. The current loan has a
financing fee of 12% (equal to $24,000) on the principal amount, which equates
to an effective annual interest rate of 43.2%. On June 26, 2009, the balance due
on the credit card advance was $198,935.
 
 As of
June 30, 2007, we had a revolving line of credit with Fidelity Bank in the
amount of $500,000. We were not in compliance at June 30, 2007 to the extent
that the note required us to maintain a tangible net worth of $500,000.
Subsequent to June 30, 2007, we signed a renewal note dated August 17, 2007 and
maturing on December 31, 2007 that required us to achieve a tangible net worth
of $700,000. The creditor waived the financial covenant requirement concerning
the tangible net worth through August 8, 2007. Regardless of the financial
covenants, we were always current with the principal and interest payments. The
interest rate applied to the unpaid principal balance on this revolving line of
credit was one percentage point above prime rate. The balance outstanding at
June 30, 2007 was $ 500,000 and the current interest rate being applied to the
balance was prime rate plus one percent which was then 9.25% with interest being
payable monthly. This credit facility was repaid in full on March 19,
2008.
 
 Management
believes cash flows generated from operations, along with current cash as well
as borrowing capacity under the line of credit and other credit facilities,
should be sufficient to finance operating and capital requirements through the
end of fiscal 2010. If new business opportunities do arise, additional outside
funding may be required.
 
 Sufficiency
of Liquidity
 
 The
accompanying financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. The Company incurred a net loss of $3,754,982 and
$153,113 for the years ended June 30, 2009 and 2008, respectively, and as of
June 30, 2009 the Company has an accumulated deficit of $15,965 and a working
capital deficit of $106,124.
  14
 
 In view
of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financing requirements, and the success of its future operations. Management
believes that actions presently being taken to revise the Company's operating
and financial requirements provide the opportunity for the Company to continue
as a going concern.
 
 These
actions include initiatives to increase gross profit margins through improved
production controls and reporting. To that end, the Company recently implemented
a new Enterprise Resource Planning (ERP) software system. We also plan to reduce
discretionary expense levels to be better in line with current revenue levels.
Furthermore, our plan of operation in the next twelve months continues a
strategy for growth within our existing lines of business with an on-going focus
on growing domestic sales. We estimate that the operational and strategic
development plans we have identified will require approximately $2,300,000 of
funding. We expect to invest approximately $500,000 for additional inventory of
sexual wellness products and $1,800,000 on sales and marketing programs,
primarily sexual wellness advertising in magazines and on cable television. We
will also be exploring the opportunity to acquire other compatible
businesses.
 
 We plan
to finance the required $2,300,000 with a combination of cash flow from
operations as well as cash on hand and cash raised through equity and debt
financings.
 
 Capital
Resources
 
 We do not
currently have any material commitments for capital expenditures. We expect
total fiscal 2010 capital expenditures to be under $100,000 and to be funded by
capital leases and, to a lesser extent, operating cash flows. This includes
capital expenditures in support of our normal operations, and expenditures that
we may incur in conjunction with initiatives to upgrade our e-commerce platform
and enterprise resource planning system (ERP system).
 
 If our
business plans and cost estimates are inaccurate and our operations require
additional cash or if we deviate from our current plans, we could be required to
seek debt financing for particular projects or for ongoing operational needs.
This indebtedness could harm our business if we are unable to obtain additional
financing on reasonable terms. In addition, any indebtedness we incur in the
future could subject us to restrictive covenants limiting our flexibility in
planning for, or reacting to changes in, our business. If we do not comply with
such covenants, our lenders could accelerate repayment of our debt or restrict
our access to further borrowings, which in turn could restrict our operating
flexibility and endanger our ability to continue operations.
 
 Item 7A.       
 QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not
required of a smaller reporting company.
  15
 
 ITEM 8.          Financial Statements and Supplementary
Data
  INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  PageConsolidated
      Financial Statements:Report of Independent Registered
      Public Accounting Firm
                      
                      F-1Consolidated Balance Sheets as of
      June 30, 2009 and 2008
                      
                      F-2Consolidated Statements of
      Operations for the years ended June 30, 2009 and 2008
                      
                      F-3Consolidated Statements of
      Changes in Stockholders' Equity (Deficit) from July 1, 2007 to June 30,
      2009
                      
                      F-4Consolidated Statements of Cash
      Flows for the years ended June 30, 2009 and 2008
                      
                      F-5Notes to Consolidated Financial
      Statements
                      
                      F-6
  16
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 To the
Board of Directors and Stockholders of Liberator, Inc.
 
 We have
audited the accompanying consolidated balance sheets of Liberator, Inc. (f/k/a
Remark Enterprises, Inc.) as of June 30, 2009 and 2008, and the related
consolidated statements of operations, changes in stockholders’ equity
(deficit), and cash flows for each of the years in the two year period ended
June 30, 2009.  Liberator, Inc.’s management is responsible for these
consolidated financial statements. Our responsibility is to express an opinion
on these financial statements based on our audits.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Liberator, Inc. as of
June 30, 2009 and 2008, and the results of its consolidated operations and
its consolidated cash flows for each of the years in the two year period ended
June 30, 2009, in conformity with accounting principles generally accepted in
the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note B to the
financial statements, conditions exist which raise substantial doubt about the
Company’s ability to continue as a going concern unless it is able to generate
sufficient cash flows to meet its financing requirements and attain profitable
operations. Management’s plans in regard to these matters are also described in
Note B.  The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
 
 Gruber
& Company, LLC
 /s/
Gruber & Company, LLC
 
 Lake
Saint Louis, Missouri
 October
8, 2009
  F-1
 
 LIBERATOR,
INC.
 (f/k/a
Remark Enterprises, Inc.)
 CONSOLIDATED BALANCE
SHEETS
 
 June 30,
                              2009
                            
                            
                            June 30,
                              2008Assets:Current
      assets:Cash
      and cash equivalents
                            
                            $
                            1,815,633
                            
                            
                            $
                            89,519Accounts
      receivable, net of allowance for doubtful accounts of $5,740 in 2009 and
      2008
                            
                            
                            346,430
                            
                            
                            
                            329,720Inventories
                            
                            
                            700,403
                            
                            
                            
                            1,252,803Prepaid
      expenses
                            
                            
                            95,891
                            
                            
                            
                            112,998Total
      current assets
                            
                            
                            2,958,357
                            
                            
                            
                            1,785,040Property
      and equipment, net of accumulated depreciation of $1,515,194 in
      2009   and $1,244,976 in 2008
                            
                            
                            1,135,517
                            
                            
                            
                            1,053,343Total
      assets
                            
                            $
                            4,093,874
                            
                            
                            $
                            2,838,383Liabilities
      and stockholders’ equity:Current
      liabilities:Accounts
      payable
                            
                            $
                            2,247,845
                            
                            
                            $
                            1,614,171Accrued
      compensation
                            
                            
                            154,994
                            
                            
                            
                            138,078Accrued
      expenses and interest
                            
                            
                            145,793
                            
                            
                            
                            204,966Revolving
      line of credit
                            
                            
                            171,433
                            
                            
                            
                            278,140Short-term
      note payable
                            
                            
                            –
                            
                            
                            
                            100,000Current
      portion of long-term debt
                            
                            
                            145,481
                            
                            
                            
                            139,159Credit
      card advance
                            
                            
                            198,935
                            
                            
                            
                            –Total
      current liabilities
                            
                            
                            3,064,481
                            
                            
                            
                            2,474,514Long-term
      liabilities:Note
      payable – equipment
                            
                            
                            72,812
                            
                            
                            
                            128,787Leases
      payable
                            
                            
                            225,032
                            
                            
                            
                            141,129Notes
      payable – related party
                            
                            
                            125,948
                            
                            
                            
                            705,000Convertible
      note payable – shareholder (net of $89,250 in unamortized
      discount)
                            
                            
                            285,750
                            
                            
                            
                            –Unsecured
      lines of credit
                            
                            
                            124,989
                            
                            
                            
                            139,149Deferred
      rent payable
                            
                            
                            356,308
                            
                            
                            
                            337,155Less:
      current portion of long-term debt
                            
                            
                            (145,481
                            )
                            
                            
                            (139,159
                            )Total
      long-term liabilities
                            
                            
                            1,045,358
                            
                            
                            
                            1,312,061Total
      Liabilities
                            
                            
                            4,109,839
                            
                            
                            
                            3,786,575Commitments
      and contingenciesStockholders’
      equity:Series
      A Convertible Preferred stock, $0.0001 par value, 10,000,000 shares
      authorized, 4,300,000 shares issued and outstanding in 2009, zero shares
      outstanding in 2008, liquidation preference of $1,000,000
                            
                            
                            430
                            
                            
                            
                            –Common
      stock, $0.0001 par value, 250,000,000 shares authorized, 60,932,981 shares
      issued and outstanding in 2009; 45,000,001 shares in 2008
                            
                            
                            6,093
                            
                            
                            
                            4,500Additional
      paid-in capital
                            
                            
                            5,286,970
                            
                            
                            
                            601,784Retained
      deficit
                            
                            
                            (5,309,458
                            )
                            
                            
                            (1,554,476
                            )Total
      stockholders’ deficit
                            
                            
                            (15,965
                            )
                            
                            
                            (948,192
                            )Total
      liabilities and stockholders’ equity
                            
                            $
                            4,093,874
                            
                            
                            $
                            2,838,383
 
 The
accompanying notes are an integral part of these statements.
  F-2
  LIBERATOR,
INC.
 (f/k/a
Remark Enterprises, Inc.)
 
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 
 Years
Ended June 30, 2009 and 2008
 
 2009
                                
                                
                                2008Net
      Sales
                                
                                $
                                10,260,552
                                
                                
                                $
                                11,750,832Cost
      of goods sold
                                
                                
                                7,144,108
                                
                                
                                
                                7,516,733Gross
      profit
                                
                                
                                3,116,444
                                
                                
                                
                                4,234,099Operating
      expensesAdvertising
      and Promotion
                                
                                
                                864,690
                                
                                
                                
                                1,054,959Other
      Selling and Marketing
                                
                                
                                1,201,054
                                
                                
                                
                                1,019,689General
      and Administrative
                                
                                
                                1,781,352
                                
                                
                                
                                1,776,628Depreciation
                                
                                
                                270,217
                                
                                
                                
                                309,198Total
      operating expenses
                                
                                
                                4,117,313
                                
                                
                                
                                4,160,474Income
      (Loss) from Operations
                                
                                
                                (1,000,869
                                )
                                
                                
                                73,625Other
      Income (Expense):Interest
      income
                                
                                
                                1,980
                                
                                
                                
                                780Interest
      (expense) and financing costs
                                
                                
                                (482,598
                                )
                                
                                
                                (227,518
                                )Expenses
      related to merger
                                
                                
                                (2,273,495
                                )
                                
                                
                                –Total
      Other Income (Expense)
                                
                                
                                (2,754,113
                                )
                                
                                
                                (226,738
                                )Net
      Loss Before Income taxes
                                
                                
                                (3,754,982
                                )
                                
                                
                                (153,113
                                )Provision
      for Income Taxes
                                
                                
                                –
                                
                                
                                
                                –Net
      Loss
                                
                                
                                (3,754,982
                                )
                                
                                
                                (153,113
                                )Loss
      per shareBasic
                                
                                $
                                (0.08
                                )
                                
                                $
                                (0.00
                                )Diluted
                                
                                $
                                (0.08
                                )
                                
                                $
                                (0.00
                                )Weighted-average
      number of common shares outstandingBasic
                                
                                
                                48,341,549
                                
                                
                                
                                45,000,001Diluted
                                
                                
                                48,341,549
                                
                                
                                
                                45,000,001
  The
accompanying notes are an integral part of these consolidated
statements.
  F-3
  Liberator,
Inc.
 (f/k/a/
Remark Enterprises, Inc.)
 
 Statement of Changes in
Stockholders’ Equity (Deficit)
 
 From July 1, 2007 to June
30, 2009
  TotalSeries A Preferred
                              
                              
                              
                              
                              
                              Additional
                              
                              
                              
                              
                              
                              Stockholders'Stock
                              
                              
                              Common Stock
                              
                              
                              Paid-in
                              
                              
                              Accumulated
                              
                              
                              EquityShares
                              
                              
                              $
                              
                              
                              Shares
                              
                              
                              $
                              
                              
                              Capital
                              
                              
                              Deficit
                              
                              
                              (Deficit)Balance,
      July 1, 2007
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              45,000,000
                              
                              
                              $
                              4,500
                              
                              
                              $
                              595,284
                              
                              
                              $
                              (1,401,363
                              )
                              
                              $
                              (801,579
                              )Stock
      issued for cash and contribution
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1
                              
                              
                              
                              
                              
                              
                              
                              6,500
                              
                              
                              
                              -
                              
                              
                              
                              6,500Net
      loss
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (153,113
                              )
                              
                              
                              (153,113
                              )Ending
      balance,June
      30, 2008
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              45,000,001
                              
                              
                              
                              4,500
                              
                              
                              
                              601,784
                              
                              
                              
                              (1,554,476
                              )
                              
                              
                              (948,192
                              )Stock
      issued for cash
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              5,000,000
                              
                              
                              
                              500
                              
                              
                              
                              2,500
                              
                              
                              
                              -
                              
                              
                              
                              3,000Related
      party debt and interest exchanged for convertible preferred
      stock
                              
                              
                              4,300,000
                              
                              
                              $
                              430
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              831,690
                              
                              
                              
                              -
                              
                              
                              
                              832,120Common
      stock issued in private placement, net of $303,535 in issuance costs, fees
      and expenses
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              8,000,000
                              
                              
                              
                              800
                              
                              
                              
                              1,695,665
                              
                              
                              
                              -
                              
                              
                              
                              1,696,465Shares
      issued for services in connection with the private
    placement
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              2,932,980
                              
                              
                              
                              293
                              
                              
                              
                              (293
                              )
                              
                              
                              -
                              
                              
                              
                              -Fair
      market value of shares issued for services in connection with the private
      placement
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              733,245
                              
                              
                              
                              
                              
                              
                              
                              733,245Fair
      market value of shares issued in merger
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              1,250,000
                              
                              
                              
                              -
                              
                              
                              
                              1,250,000Fair
      market value of warrant issued to Hope Capital
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              4,500
                              
                              
                              
                              -
                              
                              
                              
                              4,500Additional
      interest expense recorded on value of Series A Convertible Preferred
      Shares
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              167,879
                              
                              
                              
                              
                              
                              
                              
                              167,879Net
      loss
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              -
                              
                              
                              
                              (3,754,982
                              )
                              
                              
                              (3,754,982
                              )Ending
      balance,June
      30, 2009
                              
                              
                              4,300,000
                              
                              
                              $
                              430
                              
                              
                              
                              60,932,981
                              
                              
                              $
                              6,093
                              
                              
                              $
                              5,286,970
                              
                              
                              $
                              (5,309,458
                              )
                              
                              $
                              (15,965
                              )
  The
accompanying notes are an integral part of these consolidated
statements.
  F-4
  LIBERATOR,
INC.
 (f/k/a
Remark Enterprises, Inc.)
  CONSOLIDATED
STATEMENTS OF CASH FLOWS
  Years
Ended June 30, 2009 and 2008
  2009
                          
                          
                          2008OperationsNet
      loss
                          
                          $
                          (3,754,982
                          )
                          
                          $
                          (153,113
                          )Adjustments
      to reconcile net loss to net cash provided byoperating
      activities:Depreciation
                          
                          
                          270,217
                          
                          
                          
                          309,198Additional
      interest expense on issuance of preferred shares
                          
                          
                          167,880Expenses
      related to merger
                          
                          
                          2,273,495Net
      (increase) decrease in assets:Accounts
      Receivable
                          
                          
                          (16,710
                          )
                          
                          
                          (110,227
                          )Inventory
                          
                          
                          552,400
                          
                          
                          
                          (62,535
                          )Prepaid
      expenses
                          
                          
                          17,107
                          
                          
                          
                          (14,851
                          )Net
      increase (decrease) in liabilities:Accounts
      payable
                          
                          
                          633,674
                          
                          
                          
                          (9,058
                          )Accrued
      expenses
                          
                          
                          72,947
                          
                          
                          
                          72,312Accrued
      compensation
                          
                          
                          16,916
                          
                          
                          
                          32,711Deferred
      rent payable
                          
                          
                          19,153
                          
                          
                          
                          88,933Net
      cash provided by operating activities
                          
                          
                          252,097
                          
                          
                          
                          153,370InvestingInvestments
      in equipment
                          
                          
                          (352,392
                          )
                          
                          
                          (85,342
                          )Net
      cash used in investing
                          
                          
                          (352,392
                          )
                          
                          
                          (85,342
                          )FinancingNet
      proceeds from sale of common stock
                          
                          
                          1,699,465
                          
                          
                          
                          6,500Borrowings
      under revolving line of credit
                          
                          
                          2,710,368
                          
                          
                          
                          734,968Repayment
      of revolving line of credit
                          
                          
                          (2,817,075
                          )
                          
                          
                          (965,179
                          )Loans
      from related party
                          
                          
                          120,948
                          
                          
                          
                          –Proceeds
      from credit card advance
                          
                          
                          550,000
                          
                          
                          
                          –Repayment
      of credit card advance
                          
                          
                          (351,065
                          )
                          
                          
                          –Proceeds
      from short term note and unsecured notes
                          
                          
                          100,000
                          
                          
                          
                          247,500Repayment
      of short term note and unsecured notes
                          
                          
                          (214,160
                          )
                          
                          
                          –Principle
      payments on note payable and capital leases
                          
                          
                          (83,260
                          )
                          
                          
                          (175,545
                          )Additions
      to capital leases
                          
                          
                          111,188
                          
                          
                          
                          37,556Net
      cash provided by (used in) financing
                          
                          
                          1,826,409
                          
                          
                          
                          (114,200
                          )Net
      change in cash and cash equivalents
                          
                          
                          1,726,114
                          
                          
                          
                          (46,172
                          )Cash
      and cash equivalents, beginning of period
                          
                          
                          89,519
                          
                          
                          
                          135,691Cash
      and cash equivalents, end of period
                          
                          $
                          1,815,633
                          
                          
                          $
                          89,519Supplemental
      Disclosure of Cash Flow Information:Non
      cash items:Additional
      equipment acquired with direct financing
                          
                          
                          –
                          
                          
                          $
                          218,500Common
      stock issued in acquisition of subsidiary
                          
                          $
                          1,987,745
                          
                          
                          
                          –Additional
      interest expense on issuance of preferred shares
                          
                          $
                          167,880
                          
                          
                          
                          –Note
      payable issued in acquisition of subsidiary
                          
                          $
                          285,750
                          
                          
                          
                          –Cash
      paid during the year for:Interest
                          
                          $
                          245,256
                          
                          
                          $
                          209,528Income
      Taxes
                          
                          
                          –
                          
                          
                          
                          –
 
 The
accompanying notes are an integral part of these statements.
  F-5
  LIBERATOR, INC.
 (f/k/a
Remark Enterprises, Inc.)
 
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE
A—NATURE OF BUSINESS
  Remark
Enterprises Inc. (“Remark” or the “Company”) was incorporated in Nevada on
November 1, 2007. On April 3, 2009, we entered into a Stock Purchase and
Recapitalization Agreement (the “Merger Agreement”) with One Up Innovations,
Inc., a privately held Georgia corporation (“OneUp”), and One Up Acquisition,
Inc. (“Subsidiary”), our newly formed wholly owned Georgia
subsidiary.  On June 26, 2009, Remark consummated the transactions
contemplated by the Merger Agreement, as amended.  Pursuant to the
Merger Agreement, the Subsidiary and OneUp merged and all of the issued and
outstanding common stock of OneUp was exchanged for an aggregate of 45,000,000
shares of Remark’s common stock (90% of the total issued and outstanding shares
of common stock of the Company).  In addition, all of the issued and
outstanding shares of Series A convertible preferred stock of OneUp was
exchanged for 4,300,000 shares of Series A convertible preferred stock of the
Company.  OneUp is the surviving corporation and is a wholly owned by
the Company; all business operations of the Company are now the business
operations of OneUp.  Effective with the consummation of the merger, we
changed our name to Liberator, Inc.  Prior to the merger, the
Company’s fiscal year end was December 31, and the fiscal year end of OneUp was
June 30.  On August 10, 2009, the Board of Directors of the Company
acted by unanimous written consent to change the Company’s fiscal year end from
December 31 to June 30.
 
 Prior to
the merger, the Company was a non-operating “shell” corporation. The merger was
accounted for as a reverse acquisition, to be applied as an equity
recapitalization in accordance with U.S. generally accepted accounting
principles for accounting and financial reporting purposes. Under this method of
accounting, Remark was treated as the ‘‘acquired’’ company for financial
reporting purposes. In accordance with guidance applicable to these
circumstances, the merger was considered to be a capital transaction in
substance. Accordingly, for accounting purposes, the merger was treated as the
equivalent of OneUp issuing stock for the net monetary assets of Remark,
accompanied by a recapitalization. The net monetary assets of Remark were stated
at their fair value, essentially equivalent to historical costs, with no
goodwill or other intangible assets recorded. The accumulated deficit of OneUp
was carried forward after the merger. Operations prior to the merger are those
of OneUp. Since the merger is a recapitalization and not a business combination,
pro-forma information is not presented.
 
 The
Company is a designer and manufacturer of various specialty furnishings for the
sexual wellness market.  The Company's sales and manufacturing
operation are located in the same facility in Doraville, Georgia (a suburb of
Atlanta.)  Sales are generated through the internet and print ads. We
have a diversified customer base with no one customer accounting for 10% or more
of consolidated net sales and no particular concentration of credit risk in one
economic sector.  Foreign operations and foreign net sales are not
material.
 
 NOTE
B—GOING CONCERN
 
 The
accompanying financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, which contemplates continuation of the
Company as a going concern. The Company incurred a net loss of $3,754,982 and
$153,113 for the years ended June 30, 2009 and 2008, respectively, and as of
June 30, 2009 the Company has an accumulated deficit of $15,965 and a working
capital deficit of $106,124.
 
 In view
of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
financing requirements, and the success of its future
operations.  Management believes that actions presently being taken to
revise the Company's operating and financial requirements provide the
opportunity for the Company to continue as a going concern.
 
 These
actions include initiatives to increase gross profit margins through improved
production controls and reporting. To that end, the Company recently implemented
a new Enterprise Resource Planning (ERP) software system. We also plan to reduce
discretionary expense levels to be better in line with current revenue
levels.  Furthermore, our plan of operation in the next twelve months
continues a strategy for growth within our existing lines of business with an
on-going focus on growing domestic sales. We estimate that the operational and
strategic development plans we have identified will require approximately
$2,300,000 of funding. We expect to invest approximately $500,000 for additional
inventory of sexual wellness products and $1,800,000 on sales and marketing
programs, primarily sexual wellness advertising in magazines and on cable
television. We will also be exploring the opportunity to acquire other
compatible businesses.
  We plan
to finance the required $2,300,000 with a combination of cash flow from
operations as well as cash on hand and cash raised through equity and debt
financings.
  F-6
  The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plans described in the preceding
paragraph and eventually secure other sources of financing and attain profitable
operations.  However, management cannot provide any assurances that
the Company will be successful in accomplishing these plans.  The
accompanying financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.
  NOTE
C—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Basis
of Presentation
 
 These consolidated financial statements
include the accounts and operations of Liberator, Inc. and our wholly owned
subsidiaries.  Intercompany accounts and transactions have been
eliminated in consolidation.  Certain prior period amounts have been
reclassified to conform to the current year presentation.
 
 Use
of Estimates
 
 The preparation of the consolidated
financial statements in conformity with accounting principles generally accepted
in the United States requires management to make estimates and assumptions in
determining the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting
period.  Significant estimates in these consolidated financial
statements include estimates of: asset impairment; income taxes; tax valuation
reserves; restructuring reserve; loss contingencies; allowances for doubtful
accounts; share-based compensation; and useful lives for depreciation and
amortization.  Actual results could differ materially from these
estimates.
 
 Revenue
Recognition
 
 The
Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
(“SAB”) No. 104, “Revenue
Recognition.”(“SAB No. 104”).  SAB No. 104
requires that four basic criteria must be met before revenue can be recognized:
(1) persuasive evidence of an arrangement exists; (2) title has
transferred; (3) the fee is fixed or determinable; and
(4) collectibility is reasonably assured.  The Company uses
contracts and customer purchase orders to determine the existence of an
arrangement. The Company uses shipping documents and third-party proof of
delivery to verify that title has transferred. The Company assesses whether the
fee is fixed or determinable based upon the terms of the agreement associated
with the transaction. To determine whether collection is probable, the Company
assesses a number of factors, including past transaction history with the
customer and the creditworthiness of the customer. If the Company determines
that collection is not reasonably assured, then the recognition of revenue is
deferred until collection becomes reasonably assured, which is generally upon
receipt of payment.
  The
Company records product sales net of estimated product returns and discounts
from the list prices for its products. The amounts of product returns and the
discount amounts have not been material to date. The Company includes shipping
and handling costs in cost of product sales.
 
 Cash
and Cash Equivalents
 
 For purposes of reporting cash flows,
the Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
 
 Allowance
for Doubtful Accounts
 
 The
allowance for doubtful accounts reflects management's best estimate of probable
credit losses inherent in the accounts receivable balance.  The
Company determines the allowance based on historical experience, specifically
identified nonpaying accounts and other currently available
evidence.  The Company reviews its allowance for doubtful accounts
monthly with a focus on significant individual past due balances over 90
days.  Account balances are charged off against the allowance after
all means of collection have been exhausted and the potential for recovery is
considered remote. The Company does not have any off-balance sheet credit
exposure related to its customers.  At June 30, 2009, accounts
receivable totaled $346,430 net of $5,740 in the allowance for doubtful
accounts.
  F-7
  Inventories
 
 Inventories are stated at the lower of
cost or market. Cost is determined using the first-in, first-out (FIFO) method.
Market is defined as sales price less cost to dispose and a normal profit
margin.  Inventory costs include materials, labor, depreciation and
overhead.
 
 Concentration
of Credit Risk
 
 Financial instruments that potentially
subject us to significant concentration of credit risk consist primarily of
cash, cash equivalents, and accounts receivable.  As of June 30, 2009,
substantially all of our cash and cash equivalents were managed by a number of
financial institutions.  As of June 30, 2009 our cash and cash
equivalents and restricted cash with certain of these financial institutions
exceed FDIC insured limits.  Accounts receivable are typically
unsecured and are derived from revenue earned from customers primarily located
in the United States and Europe.
 
 Fair
Value of Financial Instruments
 
 At June 30, 2009, our financial
instruments included cash and cash equivalents, accounts receivable, accounts
payable, and other long-term debt.
 
 The fair values of these financial
instruments approximated their carrying values based on either their short
maturity or current terms for similar instruments.
 
 Advertising
Costs
 
 Advertising costs are expensed in the
period when the advertisements are first aired or distributed to the public.
Prepaid advertising (included in prepaid expenses) was $63,020 at June 30, 2008
and $57,625 at June 30, 2009. Advertising expense for the years ended June 30,
2008 and 2009 was $1,054,959 and $864,690, respectively.
 
 Research
and Development
 
 Research and development expenses for
new products are expensed as they are incurred.  Expenses for new
product development totaled $12,119 for the year ended June 30, 2008 and
$173,583 for the year ended June 30, 2009.
 
 Shipping
and Handling
 
 Net sales for the year ended June 30,
2009 and 2008 includes amounts charged to customers of $1,071,978 and
$1,465,262, respectively, for shipping and handling charges.
 
 Property
and Equipment
 
 Property and equipment are stated at
cost. Depreciation and amortization are computed using the straight-line method
over estimated service lives for financial reporting purposes.
 
 Expenditures for major renewals and
betterments which extend the useful lives of property and equipment are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred. When properties are disposed of, the related costs and accumulated
depreciation are removed from the respective accounts, and any gain or loss is
recognized currently.
 
 Operating
Leases
 
 The Company leases its facility under a
ten year operating lease which was signed in September 2005 and expires December
31, 2015.  The lease is on an escalating schedule with the final year
on the lease at $34,358 per month.  The liability for this difference
in the monthly payments is accounted for as a deferred rent liability and the
balance in this account at June 30, 2009 is $356,308.  The Rent
expense under this lease for the years ended June 30, 2009 and 2008 was
$323,723.
 
 Segment
Information
 
 During
fiscal 2009 and 2008, the Company only operated in one segment; therefore,
segment information has not been presented.
  F-8
  Recent
Accounting Pronouncements
 (Recently
adopted)
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standard
(“SFAS”) No. 157, Fair Value Measurements (“SFAS No. 157”). The standard defines
fair value, outlines a framework for measuring fair value, and details the
required disclosures about fair value measurements. The standard was effective
for fiscal years beginning after November 15, 2007 (our fiscal 2009).  In
February 2008, the FASB issued FASB Staff Position (“FSP”) 157-1, Application of
FASB Statement No. 157 to FASB Statement No. 13 and Other Accounting
Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13 (“FSP 157-1”) and 157-2,
Effective Date of FASB Statement No. 157 (“FSP 157-2”).  FSP157-1 amends
SFAS No. 157 to exclude FASB Statement No. 13, Accounting for Leases, and other
accounting pronouncements that address fair value measurements of leases from
the provisions of SFAS No. 157. FSP 157-2 delays the effective date of SFAS No.
157 for most nonfinancial assets and nonfinancial liabilities to fiscal years
beginning after November 15, 2008 (our fiscal 2010).  As a result, the
application of the definition of fair value and related disclosures of SFAS
No. 157 (as impacted by these FSPs) was effective for our Company beginning
with the first quarter of fiscal 2009.  This adoption did not have a
material impact on our consolidated results of operations or financial condition
for the first quarter of our fiscal 2009.  We have not completed our
evaluation of the potential impact, if any, from the remaining aspects of SFAS
No. 157 for which the effective date was deferred under FSP 157-2, on our
consolidated financial position, results of operations and cash flows.  On
October 10, 2008, the FASB issued FSP 157-3, Fair Value Measurements (“FSP
157-3”), which clarifies the application of SFAS No. 157 in an inactive
market and provides an example to demonstrate how the fair value of a financial
asset is determined when the market for that financial asset is inactive. FSP
157-3 was effective upon issuance, including prior periods for which financial
statements had not been issued. The adoption of this standard as of
October 25, 2008 did not have a material impact on our results of
operations, cash flows or financial positions.
 
 In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities (“SFAS No. 159”).  SFAS
No. 159 permits an entity to choose, at specified election dates, to
measure eligible financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. An entity reports
unrealized gains and losses on items for which the fair value option has been
elected in earnings at each subsequent reporting date.  Upfront costs and
fees related to items for which the fair value option is elected are recognized
in earnings as incurred and not deferred.  SFAS No. 159 also
established presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities.  As a result, the application of
the fair value option for financial assets and financial liabilities of SFAS No.
159 was effective for our Company beginning with the first quarter of fiscal
2009.  At the effective date, an entity could elect the fair value option
for eligible items that existed at that date and is required to report the
effect of the first remeasurement to fair value as a cumulative-effect
adjustment to the opening balance of retained earnings. We chose not to elect
the fair value option for our financial assets and liabilities existing on July
30, 2008, and did not elect the fair value option for any financial assets and
liabilities transacted during the twelve months ended July 30,
2009.
  In April
2009, the FASB issued FSP No. FAS 157-4, 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 (“FSP
FAS 157-4”).  This FSP clarifies the application of SFAS No. 157
when there is no active market or where the price inputs being used represent
distressed sales.  Additional guidance is provided regarding estimating the
fair value of an asset or liability (financial and nonfinancial) when the volume
and level of activity for the asset or liability have significantly decreased
and identifying transactions that are not orderly. FSP FAS 157-4 is effective
for interim and annual periods ending after June 15, 2009.  The
adoption of SFAS 157-4 did not impact our results of operations, cash flows or
financial positions.
  In April
2009, the FASB issued FSP No. FAS 115-2, Recognition and Presentation of
Other-Than-Temporary Impairments (“FSP FAS 115-2”). This FSP provides additional
guidance to provide greater clarity about the credit and noncredit component of
an other-than-temporary impairment event and to more effectively communicate
when an other-than-temporary impairment event has occurred.  This FSP
applies to debt securities.  FSP FAS 115-2 will be effective for interim
and annual periods ending after June 15, 2009.  The adoption of FSP
FAS 115-2 did not impact our results of operations, cash flows or financial
positions.
  In April
2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosures
about Fair Value of Financial Instruments (“FSP FAS 107-1 and APB
28-1”).  This FSP amends FASB Statement No. 107, Disclosures about
Fair Value of Financial Instruments, to require disclosures about fair value of
financial instruments in interim as well as in annual financial
statements.  This FSP also amends APB Opinion No. 28, Interim
Financial Reporting, to require those disclosures in all interim financial
statements.  FSP FAS 107-1 and APB 28-1 is effective for interim and
annual periods ending after June 15, 2009.  The adoption of FSP
FAS 107-1 and APB 28-1 did not impact our results of operations, cash
flows or financial positions.
  F-9
 In
May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No.
165”). SFAS No. 165 was issued in order to establish principles and
requirements for reviewing and reporting subsequent events and requires
disclosure of the date through which subsequent events are evaluated and whether
the date corresponds with the time at which the financial statements were
available for issue (as defined) or were issued. SFAS No. 165 is effective
for interim reporting periods ending after June 15, 2009. The adoption of
SFAS No. 165 did not impact our results of operations, cash flows or
financial positions. We have evaluated events and transactions that occurred
after July 30, 2009 through October 8, 2009, the date we issued these financial
statements. See further discussion in Note O.
 
 Recently
Issued Accounting Pronouncements
 
 In
December 2007, the FASB issued SFAS No. 141R (revised 2007),Business Combinations
(“SFAS No. 141R”), which replaces SFAS No. 141, Business Combinations. 
SFAS No. 141R was issued to improve the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its
effects.  In April 2009, the FASB issued FSP No. 141R-1,Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise from
Contingencies (“FSP 141 R-1”). FSP 141 R-1 was issued to deal with the initial
recognition and measurement of an asset acquired or a liability assumed in a
business combination that arises from a contingency provided the asset or
liability’s fair value on the date of acquisition can be determined. This
Statement is effective as of the beginning of an entity’s fiscal year that
begins after December 15, 2008 (our fiscal 2010) and will be applied to the
pending  merger with WES Consulting, Inc.
 
 In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51 (“SFAS No. 160”), which establishes accounting and reporting standards
for ownership interests in subsidiaries held by parties other than the parent,
the amount of consolidated net income attributable to the parent and to the
noncontrolling interest, changes in a parent’s ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated.  The Statement also establishes reporting requirements that
provide sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. SFAS
No.160 is effective as of the beginning of an entity’s fiscal year that begins
after December 15, 2008 (our fiscal 2010). The adoption of SFAS No. 160 will not
have a material impact on our consolidated financial statements.
 
 In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities, an amendment of FASB Statement No. 133 (“SFAS No.
161”).  SFAS No. 161 amends and expands the disclosure requirements of SFAS
No. 133 with the intent to provide users of financial statements with an
enhanced understanding of: (i) how and why an entity uses derivative
instruments; (ii) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations and (iii) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows.  This Statement is
effective for financial statements issued for fiscal years and interim periods
beginning after November 15, 2008 (our fiscal 2010), with early application
encouraged.  The adoption of SFAS No. 161 will not have a material impact
on our consolidated financial statements.
 
 In April
2008, the FASB issued FSP 142-3, Determination of the Useful Life of Intangible
Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, Goodwill and Other Intangible
Assets (“SFAS No. 142”). The objective of FSP 142-3 is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
No. 142 and the period of expected cash flows used to measure the fair value of
the asset under SFAS No. 141R, and other generally accepted accounting
principles in the United States (“GAAP”).  FSP 142-3 applies to all
intangible assets, whether acquired in a business combination or otherwise, and
shall be effective for financial statements issued for fiscal years beginning
after December 15, 2008 (our fiscal 2010), and interim periods within those
fiscal years and should be applied prospectively to intangible assets acquired
after the effective date. Early adoption is prohibited. We are in the process of
evaluating FSP 142-3 and do not expect it to have a significant impact on our
consolidated financial statements.
 
 In
June 2009, the FASB issued SFAS No. 166,Accounting for
Transfers of Financial Assets — an amendment of FASB Statement No. 140(“SFAS No. 166”).
 SFAS No. 166 improves the relevance, representational faithfulness,
and comparability of the information that a reporting entity provides in its
financial statements about a transfer of financial assets, the effects of a
transfer on its financial position, financial performance, and cash flows, and a
transferor’s continuing involvement, if any, in transferred financial
assets.  Additionally, SFAS No. 166 removes the concept of a
qualifying special-purpose entity from Statement 140,“Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”,  and
removes the exception from applying FASB Interpretation No. 46 (revised
December 2003),“Consolidation of
Variable Interest Entities”,  to qualifying special-purpose entities. 
SFAS No. 166 is effective for financial statements issued for interim and
annual periods beginning after November 15, 2009 (our fiscal
2011). We have not completed our evaluation of the potential impact, if
any, of the adoption of SFAS No. 166 on our consolidated financial
statements.
  F-10
  Recently
Issued Accounting Pronouncements (continued)
 
 In
June 2009, the FASB issued SFAS No. 167,Amendmentsto FASB Interpretation
No. 46(R)(“SFAS
No. 167”). This
statement amends Interpretation 46(R) to require an enterprise to perform
an analysis to determine whether the enterprise’s variable interest or interests
give it a controlling financial interest in a variable interest entity. 
SFAS No. 167 is effective for financial statements issued for interim and
annual periods beginning after November 15, 2009 (our fiscal 2011). 
Earlier application is prohibited. We have not completed our evaluation of
the potential impact, if any, of the adoption of SFAS No. 167 on our
consolidated financial statements.
 
 In
June 2009, the FASB issued SFAS No. 168,The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162 (“SFAS
No. 168”). SFAS
No. 168 identifies the sources of accounting principles and the framework
for selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with GAAP.
TheFASB
Accounting Standards Codification (the “Codification”) will become the
source of authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC under
authority of federal securities laws are also sources of authoritative GAAP for
SEC registrants. On the effective date of this statement, the Codification will
supersede all then-existing non-SEC accounting and reporting standards. With
limited exceptions, non-SEC accounting literature not included in the
Codification will become nonauthoritative. SFAS No. 168 is effective for
financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of SFAS No. 168 will be effective in
the first quarter of fiscal 2010.
 
 NOTE
D—IMPAIRMENT OF LONG-LIVED ASSETS
 
 The Company accounts for impairment of
its equipment or leasehold improvements in accordance with SFAS
No. 144.  Pursuant to SFAS No. 144, long-lived assets, such
as property, plant and equipment and purchased intangibles subject to
amortization shall be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to the estimated undiscounted
future cash flows expected to be generated by the asset. If the carrying amount
of an asset exceeds its estimated future cash flows, an impairment charge is
recognized to the extent that the carrying amount exceeds the asset's fair
value. Assets to be disposed of and related liabilities would be separately
presented in the consolidated balance sheet. Assets to be disposed of would be
reported at the lower of the carrying value or fair value less costs to sell and
would not be depreciated.  There was no impairment as of June 30, 2008
or 2009.
  NOTE
E—INVENTORY
  All inventories are stated at the lower
of cost or market using the first-in, first-out method of
valuation.
  The Company's inventories consist of
the following components at June 30, 2009 and 2008:
  2009
                            
                            
                            2008Raw
      materials
                            
                            $
                            366,355
                            
                            
                            $
                            561,124Work
      in Process
                            
                            
                            176,637
                            
                            
                            
                            152,363Finished
      Goods
                            
                            
                            157,411
                            
                            
                            
                            539,316$
                            700,403
                            
                            
                            $
                            1,252,803
  F-11
  NOTE
F—PROPERTY AND EQUIPMENT
  Property
and equipment at June 30, 2009 and 2008 consisted of the following:
  2009
                
                2008
                
                Estimated
                  Useful LifeFactory
      Equipment
                
                $
                1,506,147
                
                
                $
                1,451,158
                
                7-10 yearsComputer
      Equipment and Software
                
                
                665,135
                
                
                
                389,688
                
                5-7 yearsOffice
      Equipment and Furniture
                
                
                166,996
                
                
                
                164,746
                
                5-7 yearsLeasehold
      Improvements
                
                
                312,433
                
                
                
                292,727
                
                15
      yearsSubtotal
                
                
                2,650,711
                
                
                
                2,298,319Accumulated
      Depreciation & Amortization
                
                
                (1,515,194
                )
                
                
                (1,244,976
                )$
                1,135,517
                
                
                $
                1,053,343
  Depreciation
expense was $270,217 and $309,198 for the years ended June 30, 2009 and 2008,
respectively.
  NOTE
G—NOTE PAYABLE - EQUIPMENT
  Note
payable – equipment, at June 30, 2009 and 2008 consisted of the
following:
  June
      30,2009
                          
                          
                          2008Note
      payable to Fidelity Bank in monthly installments of $5,364
      includingInterest
      at 8%, maturing October 25, 2010, secured by equipment
                          
                          $
                          72,812
                          
                          
                          $
                          128,787Long
      term debt
                          
                          $
                          11,568
                          
                          
                          $
                          72,237
  The schedule of minimum maturities of
the note payable for fiscal years subsequent to June 30, 2009 is as
follows:
  Year
      ending June 30,2010
                                    
                                    $
                                    61,2442011
                                    
                                    
                                    11,568Total
      note payments
                                    
                                    $
                                    72,812
  NOTE H—REVOLVING
LINE OF CREDIT
  On
March 19, 2008, the Company entered into a loan agreement for a revolving line
of credit with a commercial finance company which provides credit to 85% of
accounts receivable aged less than 90 days up to $500,000 and eligible inventory
(as defined in the agreement) up to a sub-limit of $220,000, such inventory loan
not to exceed 30% of the accounts receivable loan. Borrowings under the
agreement bear interest at the Prime rate plus two percent (5.25 percent at June
30, 2009 and 7 percent at June 30, 2008), payable monthly.  At June
30, 2008 and 2009, the balance owed under the revolving line of credit was
$278,140 and $171,433, respectively.
  Management
believes cash flows generated from operations, along with current cash and
investments as well as borrowing capacity under the line of credit and other
credit facilities should be sufficient to finance capital requirements required
by operations. If new business opportunities do arise, additional outside
funding may be required.
  F-12
  NOTE
I—CREDIT CARD ADVANCE
  On July
2, 2008 the Company received $350,000 from a finance company under the
terms of a credit facility that is secured by the Company's future credit
card receivables.  Terms of the credit facility require repayment on
each business day of principal and interest at a daily rate of $1,507 over a
twelve month period. The credit facility has a financing fee of 12% (equal to
$42,000) on the principal amount, which equates to an effective annual
interest rate of 21.1%.  The credit facility is personally guaranteed
by the Company's CEO and majority shareholder, Louis
Friedman.  On June 3, 2009, the Company borrowed an additional
$200,000 under this credit facility. Terms of the current loan require repayment
on each business day of principal and interest at a daily rate of $1,723.08 over
a six month period. The current loan has a financing fee of 12% (equal to
$24,000) on the principal amount, which equates to an effective annual interest
rate of 43.2%.  On June 30, 2009, the balance due on the credit card
advance was $198,935.
  NOTE
J – UNSECURED LINES OF CREDIT
  The
Company has drawn cash advances on three unsecured lines of credit that are in
the name of the Company and Louis S. Friedman. The terms of these unsecured
lines of credit call for monthly payments of principal and interest, with
interest rates ranging from 12% to 18%. The aggregate amount owed on the three
unsecured lines of credit was $139,149 at June 30, 2008 and $124,989 at June 30,
2009.
 
 NOTE
K—COMMITMENTS AND CONTINGENCIES
 
 Operating
Leases
 
 The Company leases its facility under a
ten year operating lease which was signed in September 2005 and expires December
31, 2015. The lease is on an escalating schedule with the final year on the
lease at $34,358 per month. The liability for this difference in the monthly
payments is accounted for as a deferred rent liability and the balance in this
account at June 30, 2008 and 2009 is $356,308 and $337,155. The rent expense
under this lease for the years ended June 30, 2009 and 2008 was
$323,723.
 
 The lease for the facility requires the
Company to provide a standby letter of credit payable to the lessor in the
amount of $225,000 until December 31, 2010. The majority shareholder agreed to
provide this standby letter of credit on the Company's behalf.  Upon
expiration of the initial letter of credit, a letter of credit in the amount of
$25,000 in lieu of a security deposit is required to be provided.
 
 The Company leases certain material
handling equipment under an operating lease.  The monthly lease amount
is $4,082 per month and expires September 2012.
 
 The Company also leases certain
warehouse equipment under an operating lease.  The monthly lease is
$508 per month and expires February 2011.
 
 The Company also leases certain postage
equipment under an operating lease.  The monthly lease is $144 per
month and expires January 2013.
 
 Future minimum lease payments under
non-cancelable operating leases at June 30, 2009 are as
follows:
 
 Year
      ending June 30,2010
                            
                            $
                            405,2652011
                            
                            
                            412,8582012
                            
                            
                            413,9402013
                            
                            
                            392,0282014
                            
                            
                            391,685Thereafter
      through 2016
                            
                            
                            1,002,816Total
      minimum lease payments
                            
                            $
                            3,018,592
  F-13
  Capital
Leases
 
 The Company has acquired equipment
under the provisions of long-term leases. For financial reporting purposes,
minimum lease payments relating to the equipment have been capitalized. The
leased properties under these capital leases have a total cost of $349,205.
These assets are included in the fixed assets listed in Note 1 and include
computers, software, furniture, and equipment. The capital leases have stated or
imputed interest rates ranging from 7% to 21%.
 
 The
following is an analysis of the minimum future lease payments subsequent to the
year ended June 30, 2009:
 
 Year
      ending June 302010
                                
                                $
                                84,2372011
                                
                                
                                76,9562012
                                
                                
                                34,0742013
                                
                                
                                22,9302014
                                
                                
                                6,835Present
      value of capital lease obligations
                                
                                $
                                225,032Imputed
      interest
                                
                                
                                46,397Future
      minimum lease payments
                                
                                $
                                271,429
  NOTE
L—RELATED PARTY TRANSACTIONS
  On June 30, 2008, the Company had a
subordinated note payable to the majority shareholder and CEO in the amount of
$310,000 and the majority shareholder's wife in the amount of $395,000. During
fiscal 2009, the majority shareholder loaned the Company an additional $91,000
and a director loaned the Company $29,948.  In connection with the
Company’s June 26, 2009 merger, the majority shareholder and his wife agreed to
convert $700,000 of principal balance and $132,120 of accrued but unpaid
interest to Series A Convertible Preferred Stock.  Interest during
fiscal 2009 was accrued by the Company at the prevailing prime rate (which is
currently at 3.25%) and totaled $34,647. The interest accrued on these notes for
the year ended June 30, 2008 was $47,576. The accrued interest balance on these
notes, as of June 30, 2009, is $8,210. The notes are subordinate to all other
credit facilities currently in place.
 
 The Company issued a 3% convertible
note payable to Hope Capital with a face amount of $375,000. Hope Capital is a
shareholder of the Company and was the majority shareholder of the Company
before the merger with OneUp Innovations.  The note is convertible, at
the holders option, into common stock at $.25 per share and may be converted at
any time prior to the maturity date of August 15, 2012. Upon maturity, the
Company has the option to either repay the note plus accrued interest in cash or
issue the equivalent number of shares of common stock at $.25 per share. The 3%
convertible note payable is carried net of the fair market value of the embedded
conversion feature of $89,250.  This amount will be amortized over the
life of the note as additional interest.
 
 Our former officer and director,
Lawrence Rothberg, received no consideration in connection with the acquisition
of OneUp Innovations.
 
 The lease for the Company’s current
facility required the Company to provide a standby letter of credit payable to
the lessor in the amount of $225,000 until December 31, 2010. Upon expiration of
the initial letter of credit, a letter of credit in the amount of $25,000 (in
lieu of a security deposit) is required to be secured. As the Company was unable
to obtain the letter of credit at the inception of the facility lease, the
Company’s President and Chief Executive Officer agreed to provide this standby
letter of credit on the Company’s behalf.
  NOTE
M—STOCK OPTIONS, WARRANTS AND COMMON STOCK ISSUANCES
  Stock
Options
 
 On October 1, 2007, the Company granted
a five-year option to purchase 438,456 shares at an exercise price of $.228 per
share to its non-employee Chief Financial Officer. The option became 100% vested
on October 1, 2008.
 
 Stock-based compensation expense
related to stock options granted to non-employees is recognized as the stock
options are earned in accordance with SFAS 123 and Emerging Issues Task
Force No. 96-18, Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services. We believe that the fair value of the stock
options is more reliably measurable than the fair value of the services
received. The estimated fair value of the stock options granted is calculated
using the Black-Scholes option pricing model, as prescribed by SFAS 123,
using a fair value of common stock of $.067 per share
  F-14
 
 We recognized $0 and $866 during the
years ended June 30, 2009 and 2008, respectively, of stock-based
compensation expense for stock options granted to a
non-employee.  These options were valued
using a volatility rate of 25% and a risk-free interest rate of 4.5% and an
expected life of 5 years.There were no grants made during the fiscal
year ended June 30, 2009.
 
 Changes for the years ending June 30,
2009 and 2008, with respect to options outstanding, is detailed in the following
table:
 
 For the Year Ended
                                            June 30, 2009
                                          
                                          
                                          For the Year Ended
                                            June 30, 2008Shares
                                          
                                          
                                          Weighted
                                            Average
                                            Exercise Price
                                          
                                          
                                          Shares
                                          
                                          
                                          Weighted
                                            Average
                                            Exercise PriceOutstanding
      at beginning of period
                                          
                                          
                                          438,456
                                          
                                          
                                          $
                                          0.228
                                          
                                          
                                          
                                          —
                                          
                                          
                                          $
                                          —Issued
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          438,456
                                          
                                          
                                          
                                          .228Exercised
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —Expired
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —Outstanding
      at end of period
                                          
                                          
                                          438,456
                                          
                                          
                                          $
                                          0.228
                                          
                                          
                                          
                                          438,456
                                          
                                          
                                          $
                                          0.228Exercisable
      at end of period
                                          
                                          
                                          438,456
                                          
                                          
                                          $
                                          0.228
                                          
                                          
                                          
                                          0
                                          
                                          
                                          $
                                          0Weighted-average
      fair value of options granted during the period
                                          
                                          
                                          —
                                          
                                          
                                          $
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          $
                                          .002
 
 Information about stock options
outstanding at June 30, 2009 is summarized as follows:
 
 Options Outstanding
                                          
                                          
                                          Options ExercisableExercise Price
                                          
                                          Shares
                                            Outstanding
                                          
                                          Weighted Average
                                            Remaining
                                            Contract Life
                                          
                                          Weighted
                                            Average
                                            Exercise Price
                                          
                                          
                                          Shares
                                            Exercisable
                                          
                                          
                                          Weighted
                                            Average
                                            Exercise Price$
                                          0.228
                                          
                                          
                                          438,456
                                          
                                          3.3
      Years
                                          
                                          $
                                          0.228
                                          
                                          
                                          
                                          438,456
                                          
                                          
                                          $
                                          0.228
 
 Warrants
 
 The Company issued 2,462,393 warrants
during fiscal 2009 in conjunction with the merger with OneUp Innovations. All of
these warrants are exercisable immediately and expire five years from the date
of issuance, June 26, 2014. These warrants were valued using a volatility rate
of 25% and a risk-free interest rate of 4.5%.
 
 A total of 1,462,393 warrants were
issued for services rendered by the placement agent in the private placement
that closed on June 26, 2009. These warrants have exercise prices of $.50 per
share (292,479 warrants), $.75 per share (292,479 warrants) and $1.00 per share
(877,435 warrants.)
 
 A total of 1,000,000 warrants were
issued to Hope Capital (the former majority shareholder of the Company prior to
the OneUp merger) at an exercise price of $.75.
 
 A summary of the status of warrants
granted at June 30, 2009 and June 30, 2008 and changes during the periods then
ended is presented below:
 For the Twelve Months
                                        
                                        
                                        For the Twelve MonthsEnded June 30, 2009
                                        
                                        
                                        Ended June 30, 2008Shares
                                        
                                        
                                        Weighted
                                          Average Exercise
                                          Price
                                        
                                        
                                        Shares
                                        
                                        
                                        Weighted Average
                                          Exercise PriceOutstanding
      at beginning of period
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        —Granted
                                        
                                        
                                        2,462,393
                                        
                                        
                                        
                                        0.809
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Exercised
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Forfeited
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Expired
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —
                                        
                                        
                                        
                                        —Outstanding
      at end of period
                                        
                                        
                                        2,462,393
                                        
                                        
                                        $
                                        0.809
                                        
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        —Weighted
      average fair value of warrants granted during the period
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        0.0057
                                        
                                        
                                        
                                        —
                                        
                                        
                                        $
                                        —
  F-15
  A summary of the warrants outstanding
at June 30, 2009 is presented below:
  Warrants Outstanding
                                    
                                    
                                    Warrants ExercisableExercise
                                      Prices
                                    
                                    
                                    Number
                                      Outstanding
                                    
                                    
                                    Weighted-Average
                                      Remaining
                                      Contractual Life
                                    
                                    
                                    Weighted
                                      Average
                                      Exercise Price
                                    
                                    
                                    Number
                                      Exercisable
                                    
                                    
                                    Weighted-
                                      Average
                                      Exercise Price$
                                    0.50
                                    
                                    
                                    
                                    292,479
                                    
                                    
                                    
                                    5.00
                                    
                                    
                                    $
                                    0.50
                                    
                                    
                                    
                                    292,479
                                    
                                    
                                    $
                                    0.50$
                                    0.75
                                    
                                    
                                    
                                    1,292,479
                                    
                                    
                                    
                                    5.00
                                    
                                    
                                    $
                                    0.75
                                    
                                    
                                    
                                    1,292,479
                                    
                                    
                                    $
                                    0.75$
                                    1.00
                                    
                                    
                                    
                                    877,435
                                    
                                    
                                    
                                    5.00
                                    
                                    
                                    $
                                    1.00
                                    
                                    
                                    
                                    877,435
                                    
                                    
                                    $
                                    1.00
  Common
Stock Issued
  On June
26, 2009, we issued 8,000,000 shares of our common stock to individuals and
entities pursuant to a private placement memorandum and subscription agreement
in the aggregate amount of $2,000,000. Such securities were not registered under
the Securities Act of 1933. The issuance of these shares was exempt from
registration, pursuant to Regulation D under the Securities Act of 1933 and
in part pursuant to Section 4(2) of the Securities Act of
1933.  The net proceeds to the Company, after deducting placement
agent fees and expenses was $1,696,465.
 
 Pursuant
to the engagement letter with New Castle Financial Services, on June 26, 2009,
we issued 2,732,980 shares of our Common Stock to New Castle Financial Services
with respect to services performed by New Castle Financial Services in
connection with the Offering. Such securities were not registered under the
Securities Act of 1933. The issuance of these shares was exempt from
registration, pursuant to Regulation D under the Securities Act of 1933 and
in part pursuant to Section 4(2) of the Securities Act of
1933.  The fair market value of these shares totaled $683,245 and was
charged to expense during fiscal 2009.
 
 In
addition, in connection with a consulting agreement, we issued 200,000 shares of
our Common Stock to Downshire Capital with respect to services performed by
Downshire Capital in connection with the Merger. Such securities were not
registered under the Securities Act of 1933. The issuance of these shares was
exempt from registration, pursuant to Regulation D under the Securities Act
of 1933 and in part pursuant to Section 4(2) of the Securities Act of 1933.
The fair market value of these shares totaled $50,000 and was charged to expense
during fiscal 2009.
  In
connection with the June 26, 2009 transaction with OneUp, the shares issued to
the Company’s shareholders were deemed to have a value equal to the value of the
shares issued pursuant to the private placement memorandum. As a result, the
value of the 5,000,001 shares issued to our shareholders was equal to $1,250,000
and was charged to expense during fiscal 2009.
  NOTE
N—INCOME TAXES
  The Company provides for income taxes
under Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. SFAS No. 109 requires the use of an asset and liability approach in
accounting for income taxes. Deferred tax assets and liabilities are recorded
based on the differences between the financial statement and tax bases of assets
and liabilities and the tax rates in effect when these differences are expected
to reverse.
 
 SFAS No. 109 requires the reduction of
deferred tax assets by a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. At this time, Management believes that it is
more likely than not that the deferred tax assets will not be
utilized.
 
 As of June 30, 2009
                                      
                                      
                                      As of June 30, 2008Deferred
      tax assets:Net
      operating loss carry-forwards
                                      
                                      $
                                      3,161,019
                                      
                                      
                                      $
                                      1,850,412Gross
      deferred tax assets
                                      
                                      
                                      1,194,871
                                      
                                      
                                      
                                      605,098Valuation
      allowance
                                      
                                      
                                      (1,194,871
                                      )
                                      
                                      
                                      (605,098
                                      )Net
      deferred tax assets
                                      
                                      $
                                      -0-
                                      
                                      
                                      $
                                      -0-
 
 The income tax provision differs from
the amount of income tax determined by applying the U.S. federal and state
income tax rates of 45% to pretax income (loss) from continuing operations for
the year ended June 30, 2008 due to the following:
 F-16
  Year
      ended
                                      June30, 2009
                                    
                                    
                                    Year
      ended
                                      June 30, 2008Book
      loss from operations
                                    
                                    $
                                    589,773
                                    
                                    
                                    $
                                    65,976Valuation
      (allowance)
                                    
                                    
                                    (589,773
                                    )
                                    
                                    
                                    (65,976
                                    )Net
      tax benefit
                                    
                                    $
                                    -0-
                                    
                                    
                                    $
                                    -0-
 
 At June 30, 2009, the Company had net
operating loss carry forwards of approximately $3,161,019 that may be offset
against future taxable income. The net operating loss carry forwards expire in
the year 2024 through 2028. A tax benefit of $0 was recognized in the year ended
June 30, 2009, as management believes that it is more likely than not that the
deferred tax assets will not be utilized.
 
 Due to the change in ownership
provisions of the Tax Reform Act of 1986, net operating loss carry forwards for
Federal income tax reporting purposes are subject to annual limitations. Should
a change in ownership occur, net operating loss carry forwards may be limited as
to use in future years.
 
 NOTE
O— SUBSEQUENT EVENTS
 
 On September 2, 2009, the Company
acquired the majority of the issued and outstanding common stock of WES
Consulting, Inc., a Florida corporation (“WES”) in accordance with a common
stock purchase agreement (the “Stock Purchase Agreement”) by and among the
Company and Belmont Partners, LLC, a Virginia limited liability company (the
“Seller”).  On the closing date, pursuant to the terms of the Stock
Purchase Agreement, the Company acquired 972,000 shares ( 81%) of WES from the
Seller for a total of two hundred forty thousand five hundred dollars
($240,500).  Funds for the purchase came from a convertible note in
the amount of $250,000, payable to Hope Capital Inc., a shareholder of the
Company. The note bears interest at 3% annually and is due September 2, 2012.
The note is convertible at any time prior to maturity, at the holders’ option,
into common stock at a conversion price of $.25 per share, subject to
adjustment.  On the closing date, all of the officers and directors of
WES resigned and were succeeded by the directors and officers of the
Company.
 
 On October 19, 2009, WES entered into a
Merger and Recapitalization Agreement with the Company.  Pursuant to
the agreement, the Company agreed to merge with and into WES, with WES surviving
as the sole remaining entity.  On the closing date, each issued and
outstanding share of the common stock of the Company are to be converted, into
one share of WES’s common stock, $0.01 par value, which, after giving effect to
the merger, equaled, in the aggregate, 98.4% of the total issued and outstanding
common stock of WES.  Pursuant to the agreement, each Series A
Preferred Share of the Company are to be converted into one share of WES’s
preferred stock with the provisions, rights, and designations set forth in the
agreement.   Upon the consummation of the transactions contemplated by
the agreement, the shares of WES common stock owned by us prior to execution of
the agreement will be immediately cancelled.  As of the date of this
report, this transaction has not closed as both the Company and WES have not
satisfied the information statement rules of the Securities and Exchange
Commission and all of the closing conditions of the agreement are not, yet
satisfied.
 F-17
  ITEM 9.      
   Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure
 
 There are
no events required to be disclosed under this Item.
 
 ITEM 9A(T).  Controls and
Procedures
 
 Disclosure
Controls and Procedures
 
 Regulations
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
require public companies to maintain “disclosure controls and procedures,” which
are defined to mean a company’s controls and other procedures that are designed
to ensure that information required to be disclosed in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the SEC’s rules and
forms.  Our Chief Executive Officer and Chief Financial Officer
carried out an evaluation of the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report.  Based
on those evaluations, as of June 30, 2009, our CEO and CFO believe
that:
 
 (i)
              our disclosure controls and
      procedures are designed to ensure that information required to be
      disclosed by us in the reports we file under the Exchange Act is recorded,
      processed, summarized, and reported within the time periods specified in
      the SEC’s rules and forms, and that such information is accumulated and
      communicated to our management, including the CEO and CFO, as appropriate,
      to allow timely decisions regarding required disclosure;
      and
 
 (ii)
              our disclosure controls and
      procedures are effective.
 
 Internal
Control over Financial Reporting
 
 (a)           Management’s
annual report on internal control over financial reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated
under the Exchange Act as a process designed by, or under the supervision of,
the Company’s principal executive officer and principal financial officer and
effected by the Company’s board of directors, management, and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and
procedures that:
 
 ·
              Pertain to the maintenance of
      records that in reasonable detail accurately and fairly reflect the
      transactions and dispositions of the assets of the
      Company;
 
 ·
              Provide reasonable assurance that
      transactions are recorded as necessary to permit preparation of financial
      statements in accordance with generally accepted accounting principles,
      and that receipts and expenditures of the Company are being made only in
      accordance with authorizations of management and directors of the Company;
      and
 
 ·
              Provide reasonable assurance
      regarding prevention or timely detection of unauthorized acquisition, use,
      or disposition of the Company’s assets that could have a material effect
      on the financial statements.
 
 Because
of its inherent limitations, the Company’s internal control over financial
reporting may not prevent or detect misstatements.  Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and
presentation.  Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
 
 Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2008.  In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework.  Based on our assessment, management believes that,
as of June 30, 2009, our internal control over financial reporting is effective
based on those criteria.
  17
 
 This
annual report does not include an attestation report of the Company's registered
public accounting firm regarding internal control over financial
reporting.  Management's report was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only the
management's report in this annual report.
 
 (b)           Changes in
internal control over financial reporting
 
 There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by Rule 13a-15(d) or
Rule15d-15(d) promulgated under the Exchange Act that occurred during our
fourth fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
  ITEM 9B.       Other Information.
  None.
 
 PART
III.
  ITEM 10.      Directors. Executive Officers and
Corporate Governance.
  The
following table sets forth certain information with respect to our directors and
executive officers.
  Name
              
              Age
              
              PositionLouis
      S. Friedman
              
              58
              
              Chief
      Executive Officer, President, DirectorRonald
      P. Scott
              
              55
              
              Chief
      Financial Officer, Secretary,
    DirectorDon
      Cohen
              
              49
              
              DirectorLeslie
      Vogelman
              
              56
              
              TreasurerDavid
      Wirth
              
              30
              
              Vice
      President - Operations
 
 All
directors serve for one-year terms until their successors are elected or they
are re-elected at the annual stockholders' meeting.  Officers hold
their positions at the pleasure of the board of directors.
 
 There is
no arrangement, agreement or understanding between any of the directors or
officers and any other person pursuant to which any director or officer was or
is to be selected as a director or officer.  Also, there is no
arrangement, agreement or understanding between management and non-management
stockholders under which non-management stockholders may directly or indirectly
participate in or influence the management of our affairs.
 
 Directors
are not presently compensated for their service on the board, other than the
repayment of actual expenses incurred.  There are no present plans to
compensate directors for their service on the board.
 
 Background
of Executive Officers and Directors
 
 The
business experience of each of the persons listed above during the past five
years is as follows:
 
 Louis S. Friedman, Founder,
President, Chief Executive Officer and Director.  Mr. Friedman
has served as Chief Executive Officer and a director since Liberator’s founding
in 2000.  He has been an entrepreneur all his adult
life.  In 1980, at the age of 28, Mr. Friedman purchased equity in and
became Managing Director of Chemtronics, Inc. During his ten years with the
company, Chemtronics developed diverse distribution in both the industrial and
consumer sectors and emerged as a world leader in electronic consumables and
specialty chemicals.  In 1990, at the age of 38, Mr. Friedman was
instrumental in negotiating and completing the sale of Chemtronics, Inc. to
Morgan Crucible Company plc, a British company founded in 1856 and traded on the
London Stock Exchange. After the sale of Chemtronics, Inc., Mr. Friedman retired
to become a full time investor in hedge funds and a strategic investor and board
member in venture capital start-ups.  His exposure to the venture
capital markets has provided him the experience and opportunity to evaluate many
companies in business sectors ranging from consumer products to
telecommunications.
  Ronald P. Scott, Chief Financial
Officer, Secretary and Director.  Mr. Scott joined Liberator as
a part-time consultant in July, 2006 and as a full-time consultant in October,
2007, serving as Liberator’s Chief Financial Officer.  Prior to
Liberator, and from 1990 to 2003, Mr. Scott was Executive Vice President of
Finance and Administration and, from 1995 to 2004, a member of the Board of
Directors for Cyanotech Corporation, a NASDAQ-listed natural products
company.  Mr. Scott holds a B.S. degree in Finance and Management from
San Jose State University and an M.B.A. degree with a concentration in
Accounting from Santa Clara University.
  18
 
 Don Cohen, Founder and
Director. Mr. Cohen co-founded Liberator with Mr. Friedman in 2000 and
has served as a director since its founding.  From 2000 to November,
2008, Mr. Cohen was the President of Liberator and responsible for establishing
relationships with major retailers, online merchants, home party companies,
affiliates, domestic distributors, international distributors and partners. Mr.
Cohen was also responsible for the Liberator’s sales efforts and managing the
Liberator sales team. In November, 2008, Mr. Cohen’s title was changed to
Director of Business Development on April 1, 2009 became an independent sales
representative responsible for managing certain existing accounts and developing
new key accounts in the United States and Canada.  Mr. Cohen is a
resident of Canada.
 
 Leslie Vogelman,
Treasurer.  Ms. Vogelman worked for many years at New York
Telephone, AT&T and NYNEX in the areas of consumer marketing, marketing
research, strategic planning and finance. She joined Liberator at its inception
in 2000.  She brings a wealth of knowledge in both marketing and
finance, although her primary responsibilities are in the financial
arena.  Ms. Vogelman holds a B.A. from the State University of New
York in Binghamton and an M.B.A. from Adelphi University. Leslie Vogelman is
married to Louis Friedman.
 
 David Wirth, Vice President –
Operations.  David Wirth is a graduate of Colorado College with
a Bachelor of Arts degree in Biology and a Graduate Certificate in Business
Administration from Idaho State University.  Mr. Wirth joined
Liberator in June 2008 as the Purchasing Manager. Prior to joining the Company,
and from October 2006 to May 2008, Mr. Wirth was the Logistics Manager for
Distilled Resources, Inc., where he managed the purchasing, production, shipping
and receiving departments. Distilled Resources, Inc. is located in Idaho Falls,
ID and is the only certified organic distillery in North America. From September
2004 to August 2006, Mr. Wirth was with Marine Electric Company in Louisville,
KY where he was the Purchasing Manager.
 
 None of
our directors or executive officers has, during the past five
years:
 
 ·
              had any petition under the
      federal bankruptcy laws or any state insolvency law filed by or against,
      or had a receiver, fiscal agent, or similar officer appointed by a court
      for the business or property of such person, or any partnership in which
      he was a general partner at or within two years before the time of such
      filing;
 
 ·
              been convicted in a criminal
      proceeding or a named subject of a pending criminal proceeding (excluding
      traffic violations and other minor
  offenses);
 
 ·
              been the subject of any order,
      judgment, or decree, not subsequently reversed, suspended, or vacated, of
      any court of competent jurisdiction, permanently or temporarily enjoining
      him from, or otherwise limiting, the following
      activities:
 
 (i)
              acting as a futures commission
      merchant, introducing broker, commodity trading advisor, commodity pool
      operator, floor broker, leverage transaction merchant, any other person
      regulated by the Commodity Futures Trading Commission, or an associated
      person of any of the foregoing, or as an investment adviser, underwriter,
      broker or dealer in securities, or as an affiliated person, director or
      employee of any investment company, bank, savings and loan association or
      insurance company, or engaging in or continuing any conduct or practice in
      connection with such
activity;
 
 (ii)
              engaging in any type of business
      practice; or
 
 (iii)
              engaging in any activity in
      connection with the purchase or sale of any security or commodity or in
      connection with any violation of federal or state securities laws or
      federal commodities laws;
 
 ·
              been the subject of any order,
      judgment, or decree, not subsequently reversed, suspended, or vacated, of
      any federal or state authority barring, suspending, or otherwise limiting
      for more than 60 days the right of such person to engage in any activity
      described in (i) above, or to be associated with persons engaged in any
      such activity;
 
 ·
              been found by a court of
      competent jurisdiction in a civil action or by the SEC to have violated
      any federal or state securities law, where the judgment in such civil
      action or finding by the SEC has not been subsequently reversed,
      suspended, or vacated; or
 
 ·
              been found by a court of
      competent jurisdiction in a civil action or by the Commodity Futures
      Trading Commission to have violated any federal commodities law, where the
      judgment in such civil action or finding by the Commodity Futures Trading
      Commission has not been subsequently reversed, suspended, or
      vacated.
  19
 
 Family
Relationships
 
 Louis
Friedman, our President, Chief Executive Officer and Chairman, and Leslie
Vogelman, our Treasurer, are husband and wife.  There are no other
relationships between the officers or directors of the Company.
 
 Committees
 
 As of the
date of this Annual Report, we have not appointed members to an audit committee
and, therefore, the respective role of an audit committee has been conducted by
our Board of Directors as a whole. When established, the audit committee's
primary function will be to provide advice with respect to our financial matters
and to assist our Board of Directors in fulfilling its oversight
responsibilities regarding finance, accounting, tax and legal compliance. The
audit committee's primary duties and responsibilities will be to: (i) serve as
an independent and objective party to monitor our financial reporting process
and internal control system; (ii) review and appraise the audit efforts of our
independent accountants; (iii) evaluate our Annual financial performance as well
as our compliance with laws and regulations; (iv) oversee management's
establishment and enforcement of financial policies and business practices; and
(v) provide an open avenue of communication among the independent accountants,
management and our Board of Directors.
 
 Compliance
with Section 16(a) of the Exchange Act
 
 Section
16(a) of the Exchange Act requires our executive officers, directors, and
persons who beneficially own more than 10% of a registered class of our equity
securities to file with the SEC initial statements of beneficial ownership,
reports of changes in ownership, and annual reports concerning their ownership
of our common shares and other equity securities on Forms 3, 4, and 5
respectively.  Executive officers, directors, and greater than 10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file.  Based on a review of the copies of
such forms received by us, and to the best of our knowledge, no required reports
during the fiscal year ended June 30, 2009 were untimely filed by any executive
officer, director, or greater than 10% stockholder except as follows: Louis S.
Friedman filed an untimely Form 3 on February 9, 2010; Ronald P. Scott filed an
untimely Form 3 on February 9, 2010; Leslie Vogelman filed an untimely Form 3 on
February 9, 2010; David Wirth filed an untimely Form 3 on February 9, 2010; and
Don Cohen filed an untimely Form 3 on February 10, 2010.
 
 Code
of Ethics
  We have
not yet adopted a code of business conduct and ethics that applies to all
directors, officers and employers as we have not had the resources to do
so.
 
 ITEM 11.      Executive
Compensation.
 
 Executive
Compensation
 
 Summary Compensation
Table
 
 The
following summary compensation table indicates the cash and non-cash
compensation earned during the fiscal years ended June 30, 2009, 2008, and 2007
by (i) our Chief Executive Officer (principal executive officer), (ii) our Chief
Financial Officer (principal financial officer), (iii) the three most highly
compensated executive officers other than our CEO and CFO who were serving as
executive officers at the end of our last completed fiscal year, whose total
compensation exceeded $100,000 during such fiscal year ends, and (iv) up to two
additional individuals for whom disclosure would have been provided but for the
fact that the individual was not serving as an executive officer at the end of
our last completed fiscal year, whose total compensation exceeded $100,000
during such fiscal year ends (collectively, the “Named Executive
Officers”).
 Fiscal
                                  
                                  Salary
                                  
                                  
                                  Bonus
                                  
                                  
                                  Stock
                                    Awards
                                  
                                  
                                  Option
                                    Awards
                                  
                                  
                                  Non-Equity
                                    Incentive Plan
                                    Compensation
                                  
                                  
                                  All Other
                                    Comp-
                                    ensation
                                  
                                  
                                  TotalName and Principal Position
                                  
                                  Year
                                  
                                  ($)
                                  
                                  
                                  ($)
                                  
                                  
                                  ($)
                                  
                                  
                                  ($)(1)
                                  
                                  
                                  ($)
                                  
                                  
                                  ($)
                                  
                                  
                                  ($)Louis
      S. Friedman (2)
                                  
                                  2009
                                  
                                  
                                  78,000
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  78,000President,
      Chief Executive
                                  
                                  2008
                                  
                                  
                                  71,500
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  71,500Officer
      and Chairman of the Board
                                  
                                  2007
                                  
                                  
                                  55,500
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  55,500Ronald
      P. Scott
                                  
                                  2009
                                  
                                  
                                  128,500
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  128,500Chief
      Financial Officer, Secretary
                                  
                                  2008
                                  
                                  
                                  101,280
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  866
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  102,146And
      Director
                                  
                                  2007
                                  
                                  
                                  51,625
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  51,625Lawrence Rothberg
      (3)
                                  
                                  2009
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —President,
      Chief Executive Officer
                                  
                                  2008
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —and
      Director
                                  
                                  2007
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —
  20
 
 (1)
              Awards consist of stock options
      granted to the Named Executive Officer in the fiscal year specified as
      well as prior fiscal years. Amounts shown do not reflect whether the Named
      Executive Officer has actually realized a financial benefit from the
      awards (such as by exercising stock options). Amounts listed in this
      column represent the compensation cost recognized by us for financial
      statement reporting purposes. These amounts have been calculated in
      accordance with
  SFAS No. 123(R).
 
 (2)
              Mr. Friedman’s current annual
      salary, effective July 1, 2009, is
  $150,000.
 
 (3)
              Lawrence Rothberg was the
      Company’s President and Chief Executive Officer from December
      15, 2007 until the Company’s merger with OneUp Innovations on June
      26, 2009. He received no compensation from the company for his service in
      those positions.
 
 Outstanding
Equity Awards at Fiscal Year End
 
 The
following table shows, for the fiscal year ended June 30, 2008, certain
information regarding outstanding equity awards at fiscal year end for our Named
Executive Officers.
 
 Option Awards
                        
                        
                        Stock AwardsName
                        
                        Number of
                          Securities
                          Underlying
                          Unexercised
                          Options
                          (#)
                          Exercisable
                          (1)
                        
                        
                        Number of
                          Securities
                          Underlying
                          Unexercised
                          Options
                          (#)
                          Unexercisable
                        
                        
                        Option
                          Exercise
                          Price ($)
                        
                        
                        Option
                          Expiration
                          Date
                        
                        
                        Number of
                          Shares or
                          Units of
                          Stock That
                          Have Not
                          Vested
                          (#)
                        
                        
                        Market
                          Value of
                          Shares or
                          Units of
                          Stock That
                          Have Not
                          Vested
                          ($)
                        
                        
                        Equity
                          Incentive
                          Plan
                          Awards:
                          Number of
                          Unearned
                          Shares,
                          Units or
                          Other
                          Rights That
                          Have Not
                          Vested (#)
                        
                        
                        Equity
                          Incentive
                          Plan Awards:
                          Market or
                          Payout Value
                          of Unearned
                          Shares, Units
                          or Other
                          Rights That
                          Have Not
                          Vested($)Louis
      S. Friedman
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Ronald
      P. Scott
                        
                        
                        438,456
                        
                        
                        
                        —
                        
                        
                        
                        0.228
                        
                        
                        10/1/2012
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —Lawrence
      Rothberg
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
 
 (1)
              Options granted to the Named
      Executive Officers expire five years after the grant
      date.  These options were not granted pursuant to a Section
      16(b)(3) Plan.
 
 Options/SAR
Grants in the Last Fiscal Year
 
 None.
 
 Aggregated
Options/SAR Exercises in Last Fiscal Year and Year End Option/SAR
Values
 
 None.
  21
 
 Directors’
Compensation
 
 For the
fiscal year ended June 30, 2009, our directors did not receive any compensation
in their capacity as a director.
 
 ITEM 12.      Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder
Matters.
 
 The
following table sets forth certain information known to us with respect to the
beneficial ownership of our common stock by:
 
 •
              all persons who are beneficial
      owners of five percent (5%) or more of our common
      stock;
 
 •
              each of our
      directors;
 
 •
              each of our executive officers;
      and
 
 •
              all current directors and
      executive officers as a
group.
 
 Except as
otherwise indicated, and subject to applicable community property laws, the
persons named in the table below have sole voting and investment power with
respect to all shares of common stock held by them.
 
 Applicable
percentage ownership in the following table is based on 61,915,981 shares of
common stock outstanding as of February 9, 2010.
 
 Beneficial
ownership is determined in accordance with the rules of the SEC. In computing
the number of shares beneficially owned by a person and the percentage ownership
of that person, shares of common stock subject to options held by that person
that are currently exercisable or exercisable within 60 days of February 9,
2010, are deemed outstanding. Such shares, however, are not deemed outstanding
for the purpose of computing the percentage ownership of any other
person.
 
 Title of
                            Class
                          
                          Name and Address of Beneficial
      Owner
                          
                          Amount and Nature
                            of
                            Beneficial Ownership
                          
                          
                          Percent
                            of ClassCommon
                          
                          Louis
      S. Friedman (1)
                          
                          
                          28,394,376
                          
                          
                          
                          45.9
                          %Common
                          
                          Ronald
      P. Scott (1)
                          
                          
                          438,456
                          (2)
                          
                          
                          0.7
                          %Common
                          
                          Donald
      Cohen (3)
                          
                          
                          13,022,127
                          
                          
                          
                          21.0
                          %Common
                          
                          Leslie
      Vogelman (1)
                          
                          
                          0
                          
                          
                          
                          0.0
                          %Common
                          
                          David
      Wirth (1)
                          
                          
                          0
                          
                          
                          
                          0.0
                          %Common
                          
                          Hope
      Capital, Inc. (4)
                          
                          
                          6,190,001
                          (5)
                          
                          
                          9.9
                          %Common
                          
                          All
      directors and executive officers as a group (5 persons)
                          
                          
                          41,854,959
                          
                          
                          
                          67.1
                          %Preferred
                          
                          Louis
      S. Friedman (1)
                          
                          
                          4,300,000
                          
                          
                          
                          100.0
                          %Preferred
                          
                          Ronald
      P. Scott (1)
                          
                          
                          0
                          
                          
                          
                          0.0
                          %Preferred
                          
                          Donald
      Cohen (3)
                          
                          
                          0
                          
                          
                          
                          0.0
                          %Preferred
                          
                          Leslie
      Vogelman (1)
                          
                          
                          0
                          
                          
                          
                          0.0
                          %Preferred
                          
                          David
      Wirth (1)
                          
                          
                          0
                          
                          
                          
                          0.0
                          %Preferred
                          
                          Ronald
      P. Scott (1)
                          
                          
                          0
                          
                          
                          
                          0.0
                          %Preferred
                          
                          All
      directors and executive officers as a group (5 persons)
                          
                          
                          4,300,000
                          
                          
                          
                          100.0
                          %
 
 (1)
              This person’s address is
      c/o Liberator, Inc., 2745 Bankers Industrial Drive, Doraville, GA
      30360.
 
 (2)
              Includes options to purchase
      438,456 shares of common
stock.
 
 (3)
              This person’s address is c/o Paul
      M. Spizzirri, Esq., 1170 Peachtree Street NE, Suite 1200, Atlanta, GA
      30309.
 
 (4)
              This person’s address is 1 Linden
      Place, Suite 207, Great Neck, NY 11021. Curt Kramer is the sole
      shareholder of Hope Capital,
Inc.
 
 (5)
              Includes 1,040,000 shares of the
      1,500,000 shares that are issuable upon conversion of the $375,000
      convertible note payable held by Hope Capital, Inc.  Such note
      is convertible only to the extent that Hope Capital’s total ownership does
      not exceed 9.9% of the total shares issued and outstanding.  The
      reported amount does not include a warrant to purchase 1,000,000 shares of
      common stock to Hope Capital. Such warrant is exercisable at the holders
      option until June 26, 2014 and allows the holder to purchase shares of the
      Company at $.75 per share. The warrant is only exercisable to the extent
      that Hope Capital’s total share ownership does not exceed 9.9% of the
      total shares issued and
outstanding.
  22
 
 ITEM 13.      Certain Relationships and Related
Transactions, and Director Independence.
 
 Except as
set forth below, there were no transactions during the last fiscal year, and
there are no proposed transactions, to which the Company was or is to become a
party in which any director, executive officer, director nominee, beneficial
owner of more than five percent (5%) of any class of our stock, or members of
their immediate families had, or is to have, a direct or indirect material
interest.
 
 On June
30, 2008, the Company had a subordinated note payable to the majority
shareholder and CEO in the amount of $310,000 and the majority shareholder's
wife in the amount of $395,000, which was not memorialized in writing. During
fiscal 2009, the majority shareholder loaned the Company an additional $91,000
and a director loaned the Company $29,948, each of which were also not
memorialized in writing.  On June 26, 2009, in connection with the
merger into Remark Enterprises, Inc., the majority shareholder and his wife
verbally agreed to convert $700,000 of principal balance and $132,120 of accrued
but unpaid interest to preferred stock.  Interest during fiscal 2009
was accrued by the Company at the prevailing prime rate (which is currently at
3.25%) and totaled $34,647. The interest accrued on these notes for the year
ended June 30, 2008 was $47,576. The accrued interest balance on these notes, as
of June 30, 2009, is $8,210. The notes are subordinate to all other credit
facilities currently in place and are based on verbal agreements between the
lenders and the Company.
 
 In
connection with the merger, the Company issued a 3% convertible note payable to
Hope Capital with a face amount of $375,000. Hope Capital is a shareholder of
the Company.  The note is convertible, at the holders option, into
common stock at $.25 per share and may be converted at any time prior to the
maturity date of August 15, 2012. Upon maturity, the Company has the option to
either repay the note plus accrued interest in cash or issue the equivalent
number of shares of common stock at $.25 per share. The 3% convertible note
payable is carried net of the fair market value of the embedded conversion
feature of $89,250.  This amount will be amortized over the life of
the note as additional interest.
 
 Our
former officer and director, Lawrence Rothberg, received no consideration in
connection with the acquisition of OneUp Innovations.
 
 The lease
for the Company’s current facility required the Company to provide a standby
letter of credit payable to the lessor in the amount of $225,000 until December
31, 2010. Upon expiration of the initial letter of credit, a letter of credit in
the amount of $25,000 (in lieu of a security deposit) is required to be secured.
As the Company was unable to obtain the letter of credit at the inception of the
facility lease, the Company’s President and Chief Executive Officer agreed to
provide this standby letter of credit on the Company’s behalf.
 
 ITEM 14.      Principal Accountant Fees and
Services.
 
 The
aggregate fees billed by our principal accountant for each of the last two
fiscal years for Audit Fees, Audit-Related Fees, Tax Fees and All Other Fees are
as follows:
 Fiscal Year Ended June 30,2008
                        
                        2009Audit
      Fees(1)
                        
                        $
                        10,000
                        
                        $
                        11,000Audit-Related
      Fees(2)
                        
                        $
                        -
                        
                        $
                        -Tax
      Fees(3)
                        
                        $
                        -
                        
                        $
                        -All
      Other Fees(4)
                        
                        $
                        -
                        
                        $
                        -
 
 (1)
              Audit
      Fees– This category
      includes the audit of our annual financial statements, review of financial
      statements included in our Quarterly Reports on Form 10-Q, and services
      that are normally provided by independent auditors in connection with the
      engagement for fiscal years.  This category also includes advice
      on audit and accounting matters that arose during, or as a result of, the
      audit or the review of interim financial
  statements.
 
 (2)
              Audit-Related
      Fees– This category
      consists of assurance and related services by our independent auditors
      that are reasonably related to the performance of the audit or review of
      our financial statements and are not reported above under "Audit
      Fees."  The services for the fees disclosed under this category
      include consultation regarding our correspondence with the
      SEC.
 
 (3)
              Tax
      Fees– This category
      consists of professional services rendered by our independent auditors for
      tax compliance and tax advice.  The services for the fees
      disclosed under this category include tax return preparation and technical
      tax advice.
  23
  (4)
              All Other
      Fees– This category
      consists of fees for other miscellaneous
  items.
 
 Our board
of directors reviews and approves audit and permissible non-audit services
performed by its independent accountants, as well as the fees charged for such
services.  In its review of non-audit service fees and its appointment
of Gruber & Company LLC as our independent accountants, the Board considered
whether the provision of such services is compatible with maintaining
independence.  All of the services provided and fees charged by Gruber
& Company LLC were approved by the Board.
 
 PART
IV.
  ITEM 15.      Exhibits, 
Financial Statement Schedules.
 
 Financial
Statements; Schedules
 
 Our
consolidated financial statements for the fiscal years ended June 30, 2009 and
2008 begin on page F-1 of this annual report.  We are not required to
file any financial statement schedules.
 
 Exhibit
Table
 
 Exhibit No.
                
                Description2.1
                
                Stock
      Purchase and Recapitalization Agreement dated March 31, 2009 and fully
      executed on April 3, 2009 (5)2.2
                
                Amendment
      No. 1 to Stock Purchase and Recapitalization Agreement, dated June 22,
      2009 (5)3.1
                
                Articles
      of Incorporation (1)3.2
                
                Amended
      and Restated Certificate of Incorporation (1)3.3
                
                Bylaws
      (1)3.4
                
                Certificate
      of Amendment (3)4.1
                
                Common
      Stock Purchase Warrant issued to Hope Capital, Inc., dated June 26, 2009
      (5)4.2
                
                Common
      Stock Purchase Warrant issued to New Castle Financial Services LLC, dated
      June 26, 2009 (5)4.3
                
                3%
      Convertible Note Due August 15, 2012 issued to Hope Capital, Inc., dated
      June 24, 2009 (5)10.1
                
                Engagement
      Letter with New Castle Financial Services, dated January 22, 2009
      (2)10.2
                
                Amended
      and Restated Engagement Letter with New Castle Financial Services, dated
      April 1, 2009 (4)10.3
                
                Amendment
      to Engagement Letter with New Castle Financial Services, dated June 26,
      2009 (4)10.4
                
                Distribution
      Agreement between OneUp Innovations, Inc. and InJoy Innovations Pty Ltd.,
      dated May 12, 2008 (5)10.5
                
                Distribution
      Agreement between OneUp Innovations, Inc. and Ong S.C. Ian, dated May 21,
      2008 (5)10.6
                
                Distribution
      Agreement between OneUp Innovations, Inc. and UpOne Trading B.V., dated
      May 31, 2008 (5)10.7
                
                Distribution
      Agreement between OneUp Innovations, Inc. and Freedom Worldwide Limited,
      dated June 2, 2008 (5)10.8
                
                Distribution
      Agreement between OneUp Innovations, Inc. and Dahlab Pascal, dated October
      20, 2008 (5)10.9
                
                Distribution
      Agreement between OneUp Innovations, Inc. and TRE PI SRL, dated January
      12, 2009 (5)10.10
                
                Lease
      Agreement between Bedford Realty Company, LLC and OneUp Innovations, Inc.,
      dated September 26, 2005 (5)10.11
                
                Written
      Description of Oral Agreement between OneUp Innovations, Inc. and
      Downshire Capital, dated March 11, 2009 (5)10.12
                
                Receivables
      Financing Agreement between Advance Financial Corporation and OneUp
      Innovations, Inc., dated March 19, 2008 (5)10.13
                
                Credit
      Cash Receivables Advance Agreement between CC Funding and OneUp
      Innovations, Inc., dated June 25, 2008 (5)10.14
                
                Irrevocable
      Standby Letter of Credit issued by Fidelity Bank to Bedford Realty
      Company, LLC for the account of OneUp Innovations, Inc., dated September
      29, 2005 (5)10.15
                
                Form
      of Subscription Agreement (5)10.16
                
                Common
      Stock Purchase Agreement dated September 2, 2009 by and between Liberator,
      Inc, Belmont Partners, LLC, and WES Consulting, Inc.
  (3)
 24
 10.17
                    
                    Written
      Description of Oral Agreement between OneUp Innovations, Inc. and Louis S.
      Friedman, dated January 1, 2005 (5)10.18
                    
                    Written
      Description of Oral Agreement between OneUp Innovations, Inc. and Leslie
      Vogelman, dated June 23, 2006 (5)10.19
                    
                    Written
      Description of Oral Agreement between OneUp Innovations, Inc. and Don
      Cohen, dated July 25, 2008 (5)10.20
                    
                    Guaranty
      by Louis Friedman, dated June 25, 2008 (5)21.1
                    
                    Subsidiaries
      (5)31.1
                    
                    Section
      302 Certificate of Chief Executive Officer *31.2
                    
                    Section
      302 Certificate of Chief Financial Officer *32.1
                    
                    Section
      906 Certificate of Chief Executive Officer *32.2
                    
                    Section
      906 Certificate of Chief Financial Officer
*
 *
              Filed
      herewith.
 
 (1)
              Filed on December 3, 2008 as an
      exhibit to our Registration Statement on Form 10, and incorporated herein
      by reference.
 (2)
              Filed on June 12, 2009 as an
      exhibit to Amendment No. 4 of our Registration Statement on Form 10, and
      incorporated herein by
reference.
 (3)
              Filed on February 2, 2010 as an
      exhibit to our Current Report on Form 8-K, and incorporated herein by
      reference.
 (4)
              Filed on February 4, 2010 as an
      exhibit to Amendment No. 1 of our Annual Report on Form 10-K, and
      incorporated herein by
reference.
 (5)
              Filed
      on February 10, 2010 as an exhibit to Amendment No. 1 of our Current
      Report on Form 8-K, and incorporated herein by
  reference.
  25
  SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned hereunto duly
authorized.
 
 LIBERATOR,
      INC.Date:
      February 12, 2010
              /s/ Louis S. FriedmanLouis
      S. Friedman, Chief Executive Officer and
  President
  In
accordance with the Securities Exchange Act of 1934, as amended, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
 
 NAME
                          
                          TITLE
                          
                          DATE/s/
      Louis S. Friedman
                          
                          Chairman
      of the Board, Chief Executive Officer,
                            and
      President (Principal Executive Officer)
                          
                          February
      12, 2010Louis
      S. Friedman/s/
      Ronald P. Scott
                          
                          Chief
      Financial Officer (Principal Financial and
                            Accounting
      Officer), Secretary, and Director
                          
                          February
      12, 2010Ronald
      P. Scott
  26