10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

  X . ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2013

or

 . TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-05663

LIBERATOR MEDICAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

NEVADA (State or other jurisdiction of incorporation or organization) 87-0267292 (I.R.S. Employer Identification No.)

2979 SE Gran Park Way, Stuart, Florida 34997

(Address of principal executive offices)

(772) 287-2414

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, par value $0.001	NYSE MKT

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes.No X .

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes.No X .

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. 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X .No.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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. X .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	.	Accelerated filer	.
Non-accelerated filer	. (Do not check if a smaller reporting company)	Smaller reporting company	X .

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes.No X .

The aggregate market value of the voting and non-voting shares of the Company’s Common Stock held by non-affiliates based on the last sale of the Common Stock on March 28, 2013, was $25,650,787.

The number of shares outstanding of the issuer’s Common Stock as of December 15, 2013, was 52,403,484.

LIBERATOR MEDICAL HOLDINGS, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I
Item 1. Business	3
Item 1A. Risk Factors	6
Item 1B. Unresolved Staff Comments	9
Item 2. Properties	9
Item 3. Legal Proceedings	9
Item 4. Mine Safety Disclosures	9
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	10
Item 6. Selected Financial Data	11
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	22
Item 8. Financial Statements and Supplementary Data	22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	22
Item 9A. Controls and Procedures	22
Item 9B. Other Information	23
PART III
Item 10. Directors, Executive Officers and Corporate Governance	24
Item 11. Executive Compensation	25
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	30
Item 13. Certain Relationships and Related Transactions, and Director Independence	31
Item 14. Principal Accountant Fees and Services	31
PART IV
Item 15. Exhibits and Financial Statement Schedules	32
Signatures	34
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

FORWARD-LOOKING STATEMENTS

Some of the information contained in this Report constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include current expectations of future events based on certain assumptions and statements that do not directly relate to any historical or current fact. When used in this Annual Report, in future filings by the Company with the Securities and Exchange Commission, in the Company’s press releases or other public or shareholder communications, on the Company’s website, or in oral statements made with the approval of an authorized executive officer, the words or phrases “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” “plans,” “believes,” or similar expressions are intended to identify forward-looking statements. The Company’s forward-looking statements are based on management’s current expectation and assumption regarding the Company’s business and performance, the economy, and other future conditions and forecasts of future events, circumstances and results.  As with any projection statement or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances.  The Company’s actual results may vary materially from those expressed or implied in its forward-looking statements.  Important factors that could cause the Company’s actual results to differ materially from those in its forward-looking statements include regional and national economic conditions, substantial changes in levels of market interest rates, credit and other risks of manufacturing, distributing or marketing activities, competitive and regulatory factors, and those factors set out under “Risk Factors,” below, could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from those anticipated by any forward-looking statements.

The Company does not undertake and specifically disclaims any obligation to update any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

PART I

Item 1. Business

Overview

Throughout this Report we use the terms “we,” “our Company,” and “us” to refer to Liberator Medical Holdings, Inc., and its wholly-owned consolidated subsidiaries, Liberator Medical Supply, Inc. (which is sometimes called “Liberator Medical”), Liberator Health and Education Services, Inc., Liberator Health and Wellness, Inc., Practica Medical Manufacturing, Inc. and Tri-County Medical & Ostomy Supplies Inc.

We were organized in December 1906 in the State of Utah and changed our domicile to Nevada in 1999.  In June 2007 we acquired Liberator Medical, a Florida corporation located in Stuart, Florida.  Our principal offices are located at 2979 SE Gran Park Way, Stuart, Florida 34997.  Our telephone number is 772-287-2414 and our internet address is www.liberatormedical.com.  

We are a leading national direct-to-consumer provider of quality medical supplies, primarily to Medicare-eligible seniors. Liberator Medical, a wholly-owned subsidiary of the Company, is a federally licensed, direct-to-consumer, provider of Medicare Part B Benefits. Accredited by The Joint Commission, our Company’s unique combination of marketing, industry expertise and customer service has demonstrated success over a broad spectrum of chronic conditions. Liberator Medical is recognized for offering a simple, reliable way to purchase medical supplies needed on a recurring basis, with the convenience of direct billing to Medicare and private insurance. Our employees communicate directly with our patients and their physicians regarding patients’ prescriptions and supply requirements on a regular basis. We bill Medicare and third-party insurers on behalf of our patients. Liberator Medical markets products directly to consumers, primarily through targeted media, direct-response television, Internet, and print advertising throughout the United States. Customer service representatives are specifically trained to communicate with patients, in particular seniors, helping them to follow their doctors’ orders and manage their chronic diseases. Our operating platforms enable us to efficiently collect and process required documents from physicians and patients and bill and collect amounts due from Medicare, other third party payers and directly from patients.

Market

The U.S. domestic healthcare spending is expected to increase by approximately $2.3 trillion from $2.7 trillion in 2011 to $5.0 trillion in 2022, according to the Centers for Medicare and Medicaid Services (“CMS”).

The Company targets seniors and others with chronic illnesses who are insured by Medicare, Medicaid, or third-party insurers, or have the ability to pay for our products from their own resources. As the baby boomer population ages, CMS estimates that the number of Americans over the age of 65 will increase from an estimated 42.6 million in 2012 to 58.3 million in 2022. The Centers for Disease Control estimates that 80% of older adults have at least one chronic condition and 50% have at least two.

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We are a quasi-medical distributor providing home health care supplies. The products that we distribute are classified as Durable Medical Equipment (“DME”). CMS estimates that the national expenditures within the DME market will increase by over $27 billion from $38.9 billion in 2011 to $66.7 billion in 2022. The number of DME companies billing Medicare less than $300,000 per year has been declining, or consolidating, over the last few years according to HME News, primarily as a result of increased Medicare accreditation, bonding requirements and Medicare Competitive Bidding. We have been able to attract new customers, looking for new suppliers, as a result of consolidation within the DME market over the last few years.

Liberator’s revenue comes from supplying products to meet the growing requirements for general medical supplies, primarily urological catheters, ostomy supplies, mastectomy fashions, and diabetic supplies. Customers may purchase by phone, mail, or Internet, with repeat orders confirmed with the customer and shipped when needed.

Urological Catheters

The majority of our revenue is generated from urological catheters, primarily intermittent catheters. Our sales growth was accelerated in April 2008, when the Medicare reimbursement rate for intermittent catheters was increased from four catheters per month to two hundred catheters per month.

An aging population and a rising incidence of various urological problems (i.e. neurogenic bladder), will drive continued growth in the U.S. urological catheter market, according to The Global Industry Analysts Inc. (the "GIA") report released in August 2011. The advent of advanced catheters aimed at minimizing invasiveness and lowering infection risk and other complications, as well as the adoption of favorable reimbursement policies, are also expected to fuel market growth in the U.S. According to CMS data reported by HME News the utilization of straight tip catheters by Medicare beneficiaries increased by 21% from 2011 to 2012.

According to data released by CMS for Medicare claims paid in 2012, Liberator Medical is the leading supplier of urological intermittent catheters for Medicare patients, exceeding the second leading supplier by 27%.

Competition in the urological catheter area comes primarily from 180 Medical, Inc., Medical Direct Club, LLC and MP Total Care Medical, Inc., Liberty Medical Supply, Inc., and many independent dealers and retail stores.

Ostomy Supplies

According to a GIA report released in October 2011, the ostomy supply market in the U.S. was approximately $380 million in 2009 and expected to grow 3.8% each year to over $500 million in 2017. The aging population in the U.S. and the rising incidence of diseases such as colorectal cancer, inflammatory bowel diseases, and bladder cancer, among others, has increased the demand for ostomy supplies. The United Ostomy Association estimates that over 500,000 Americans have some type of stoma due to a colostomy, ileostomy, and/or urostomy.

Many smaller DME companies have refused to accept assignment of insurance benefits for ostomy supplies due to low reimbursement rates from Medicare and other insurance providers, which may result in higher out-of-pocket costs to the patient. We have been able to leverage our increased ostomy supply volumes to negotiate lower prices from our vendors, which has enabled us to accept assignment from an increased number of insurance carriers, reduce consumer cash outlay, and gain share in the ostomy supply market.

Competition exists primarily from two major national competitors for ostomy supplies: Edgepark Medical Supplies, and Byram Healthcare.

Mastectomy Fashions

Liberator Medical has been accepting assignment of insurance benefits for mastectomy fashions for over ten years. We believe that we are the only medical supply company that combines a comprehensive product catalogue, which is available on-line and in hard copy, and direct billing to Medicare and other insurance providers.

According to data released by CMS for Medicare claims paid in 2012, Liberator Medical is the leading supplier of mastectomy fashions for Medicare patients by more than double the payments received by the second leading supplier. Although the overall market size has stabilized as the number of mastectomies performed each year has declined in recent years due to the advancement of breast-conserving surgeries and breast cancer treatments, an emerging market for partial forms has developed for breast restorations, which are covered by Medicare and most insurance plans.

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Competition in this area is limited mostly to small specialty shops. Most small boutiques require the customer to walk in and discuss this sensitive matter with a stranger. For many, this may be inconvenient or an unacceptable option. Instead, our approach provides the level of privacy many customers need and want. In addition, many small boutiques have chosen to exit the Medicare market due to increased regulation and bonding requirements, which provides us with additional opportunities to gain customers.

Diabetic Supplies

Diabetic supplies are a small portion of our total revenue. In 2008, we elected not to participate in the Medicare competitive bidding process that was implemented in certain U.S. metropolitan areas in 2009 and nationally in 2012 due to the low reimbursement rates provided under the program for diabetic supplies. If customers have insurance other than traditional fee for service Medicare, we will consider providing supplies and accepting assignment of insurance if reimbursement rates are deemed acceptable.

Sales and Marketing

The Company focuses on making the buying process easy and convenient. Customers can purchase by phone, mail, or over the Internet. This produces an annuity-like revenue stream with a high return on advertising dollars. Our growth will depend upon the success of our advertising campaigns. Management believes that it has developed a method of capturing initial and recurring sales through use of local, regional and national ad placement.

With an average customer life of between four to six years, we believe our strategy should provide predictable, recurring income. Management is constantly evaluating and testing new products for direct marketing to various targeted customers. As these new and innovative products come to market, we anticipate being positioned to bring them to the public quickly with the right marketing, intake, processing, and third-party billing mechanisms.

Suppliers

The Company distributes products from over 200 manufacturers, including all of the largest U.S. suppliers. As the Company’s sales volumes have increased, we have been able to develop partnerships with the larger manufacturers, enabling the Company to obtain preferred pricing and maintain a readily available supply of products for our customers’ medical necessities.

Medicare and Third-party Insurers

Our Medicare and insurance relationships are essential to our customer enrollment and retention process. Currently, we are enrolled with all four of the Part B Medicare regions and five of the largest seven insurance carriers in the U.S. We are able to accept assignment of insurance benefits for approximately 70% of the customers that respond to our advertisements and choose to become customers. Currently, we are a provider for over 700 insurance plans and continually adding plans to our insurance networks.

Government Regulation

The healthcare industry is subject to extensive regulation by a number of governmental entities at the federal, state and local level. The healthcare regulatory environment is also subject to frequent change. Laws and regulations in the healthcare industry are extremely complex. While our management believes we are in substantial compliance with all of the existing laws and regulations applicable to us, such laws and regulations are subject to rapid change and often are uncertain in their application In addition, the Patient Protection and Affordable Care Act, or PPACA, and the Health Care and Education Reconciliation Act of 2010, which amended PPACA (collectively, the "Health Reform Law"), may have a considerable impact on the financing and delivery of health care and conceivably could have a material adverse effect on our business.

Among the various federal and state laws and regulations which may govern or impact our current and planned operations are the following:

Medicare and Medicaid Reimbursement

Many of the products that we provide are reimbursed by Medicare and state Medicaid programs and are therefore subject to extensive government regulation. Medicare is a federally funded program that provides health insurance coverage for qualified persons age 65 or older and for some disabled persons with certain specific conditions.

Medicaid provides medical benefits to groups of low-income and disabled individuals, some who may have inadequate or no medical insurance. Although the federal government establishes general guidelines for the program, Medicaid is a state-administered program and each state sets its own guidelines regarding eligibility and covered services, subject to certain minimum federal requirements.

5

Congress often enacts legislation that affects, positively or negatively, the reimbursement rates of Medicare providers and also may impact Medicaid providers. Generally, Medicare provider payment modifications occur in the context of budget reconciliation; however, Medicare changes also may occur in the context of broader healthcare policy legislation, including the Health Reform Law. In the last several years, Congress has reduced Medicare reimbursement for various providers.  We are also subject to regulatory reductions and reimbursement for our products.

Approximately 79% of our revenue for the year ended September 30, 2013, was derived directly from Medicare, Medicaid or other government-sponsored healthcare programs. Should there be material changes to federal or state reimbursement methodologies, regulations or policies, our direct reimbursements from government-sponsored healthcare programs could be adversely affected.

Regulation of Client Confidentiality

We are subject to the Health Insurance Portability and Accountability Act, or HIPAA, which established comprehensive federal standards with respect to the use and disclosure of protected health information, and the Health Information Technology for Economic and Clinical Health Act, or HITECH Act, which was passed as part of the American Recovery and Reinvestment Act and which strengthens many of the requirements applicable to privacy and security, among other things. We provide extensive training to our staff with respect to compliance with patient confidentiality requirements and have additional systems in place to further comply with those requirements. However, the failure to meet regulatory standards concerning patient confidentiality could subject us to criminal and civil sanctions. See “Risk Factors.”

Litigation

From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. There are currently no such pending proceedings to which we are a party that our management believes will have a material adverse effect on the Company’s consolidated financial position or results of operations. However, future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

Employees

As of September 30, 2013, we had 297 employees. None of our employees are members of any union or covered by collective bargaining agreements. We believe that the relations between our management and employees are good.

Item 1A. Risk Factors

Current and potential shareholders should consider carefully the risk factors described below. Any of these factors, or others, many of which are beyond the Company’s control, could negatively affect the Company’s revenues, profitability or cash flows in the future. These factors include:

6

Risks Relating to Our Business

• Sales of a significant portion of our products depend on the continued availability of reimbursement of our customers by government and private insurance plans. See “Business—Government Regulation." Any reduction in Medicare reimbursement currently available for our products would reduce our revenues. Without a corresponding reduction in the cost of such products, the result would be a reduction in our overall gross profit. Similarly, any increase in the cost of such products would reduce our overall gross profit unless there was a corresponding increase in Medicare reimbursement. Our profits could also be affected by the imposition of more stringent regulatory requirements for Medicare reimbursement. The regulations that govern Medicare reimbursement are complex and our compliance with these regulations may be reviewed by federal agencies, including the Department of Health and Human Services, the Department of Justice, and the Food and Drug Administration (“FDA”). These agencies conduct audits of most companies and periodic investigations of some companies billing Medicare. Negative findings or results of audits are subject to appeals and judicial review and are often overturned at various levels. The Company is routinely audited by Medicare and other insurance companies. There is always the possibility that the Company could be the subject of an accelerated audit or investigation as it performs a substantial amount of Medicare billing each year. Medicare audits or investigations could possibly lead to recoupment of monies paid to the Company, fines, off-sets on future payments and even loss of Medicare billing privileges. Since its inception, the Company has had no fines or penalties but the Company has been audited by all four regional Medicare carriers and from time-to-time been asked to repay amounts on claims previously paid for various reasons such as billing errors, lack of medical records in physician offices, insufficient patient diagnoses, patients receiving home health care, patients having similar equipment, patients not seen by physician recently enough, and lack of adequate medical necessity, which is common to all Medicare providers. Although the Company has set aside reserves for contractual adjustments, demands for repayment could exceed Company reserves and the Company could be unable to pay them, which would adversely affect the Company. We are also subject to other statutes and regulations, including HIPAA and the HITECH Act with respect to the use and disclosure of potential health information.  Violations of these statutes or regulations could subject us to criminal or civil penalties and adversely affect our business.  See “Business-Government Regulation.”

• A significant portion of the Company’s revenues is generated from the sale of urological supplies. As a result, changes in the external environment, including regulatory changes, could be detrimental, depending on market conditions.

• While we are able to control our level of expansion as well as the costs associated with our growth plans, (i) some expansions may create significant demands on our administrative, operational and financial personnel and other resources, (ii) expansion into existing or new markets could strain these resources and increase our need for capital, and (iii) our personnel, systems, procedures, controls and existing space may have to be adjusted to support substantial expansion.

• We generally incur negative cash flow with respect to the first order from a new customer for chronic care products, due primarily to the marketing and regulatory compliance costs associated with initial customer qualification. Accordingly, the profitability of these product lines depends, in large part, on recurring and sustained reorders. Reorder rates are inherently uncertain due to several factors, many of which are outside our control, including changing customer preferences, competitive price pressures, customer transition to extended care facilities, customer mortality and general economic conditions.

• We could be liable for harm caused by products that we sell. The sale of medical products entails the risk that users will make product liability claims. A product liability claim could be expensive. While management believes that our insurance provides adequate coverage, no assurance can be made that adequate coverage will exist for these claims.

• Our growth is dependent upon a robust marketplace with affordable television and Internet advertising opportunities. The effects of competitors entering the marketplace may increase the costs of our advertising efforts and have a negative impact on our growth. We could lose customers as a result of more effective and higher volumes of advertising by competitors.

• Many of the products that we sell are regulated by the FDA and other regulatory agencies. If any of these agencies mandate a suspension of production or sales of our products or mandate a recall, we may lose sales and incur expenses until we are in compliance with the regulations or change to another acceptable supplier.

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• Our future results may vary significantly depending on a number of factors, including:

— changes in reimbursement guidelines and amounts;

— changes in regulations affecting the healthcare industry;

— changes in the mix or cost of our products;

— the timing of customer orders;

— the timing, cost, and levels of our advertising spend; and

— the timing of the introduction or acceptance of new products and services offered by us or our competitors.

• We regularly review potential acquisitions of businesses and products. Acquisitions involve a number of risks that might adversely affect our financial and operational resources, including:

— diversion of the attention of senior management from important business matters;

— difficulty in retaining key personnel of an acquired business;

— failure to assimilate operations of an acquired business;

— failure to retain the customers of an acquired business;

— possible operating losses and expenses of an acquired business;

— exposure to legal claims for activities of an acquired business prior to acquisition; and

— incurrence of debt and related interest expense.

• The success of the Company will largely be dependent on Mark Libratore, the Company’s founder and our President and Chief Executive Officer, who is responsible for the day-to-day management of the business. Loss of Mr. Libratore’s services, either through retirement, incapacity or death, may have a material adverse effect on the Company. The Company has $4,000,000 of key man insurance on Mr. Libratore’s life, with the Company as the beneficiary of $3,000,000 and his wife the beneficiary of $1,000,000.

• As of November 30, 2013, Mark Libratore, our President and Chief Executive Officer, held 19,620,867 shares of common stock, or 37.4% of our outstanding common stock, excluding his options to purchase up to 165,000 shares of our common stock. As a result, Mr. Libratore has the ability to exercise substantial control over all corporate actions requiring shareholder approval, including the following actions:

— the election of directors;

— the adoption of stock option plans;

— the amendment of charter documents; and

— the approval of certain mergers and other significant corporate transactions, including the sale of the Company.

8

Risks Relating to Ownership of Our Common Stock

• Our common stock has been listed on the NYSE MKT since November 20, 2013.  Even though we expect our common stock to continue to be quoted on the NYSE MKT, we cannot predict changes in the trading market for our common stock, including changes in liquidity. A large percentage of our outstanding shares are held by a relatively small number of investors, including our President and Chief Executive Officer. Future sales of a substantial number of shares of our common stock in the public markets, or the perception that these sales may occur, could affect the market price of our common stock.

• We will continue to retain future earnings to develop our business, as opportunities arise, and evaluate on a quarterly basis the amount and timing of future dividends based on the Company’s operating results, financial condition, capital requirements and general business conditions.  The amount and timing of any future dividends may vary, and the payment of any dividend does not assure that the Company will be able to pay dividends in the future.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

The Company leases four facilities in Stuart, Florida, and one facility in Johnson City, Tennessee.

The following table summarizes our leased properties as of September 30, 2013:

	Square Feet	Lease Expires	Current Use
1.	41,468	July 2019	FL Corporate headquarters, administrative offices, warehouse and shipping
2.	24,000	September 2014	FL Call center and administrative offices
3.	6,900	December 2013	FL Records storage
4.	6,400	July 2016	FL Administrative offices
5.	2,720	July 2016	TN storefront and warehouse

We believe that our existing facilities are suitable as office, shipping and warehouse space, and are adequate to meet our current needs. We also believe that our insurance coverage adequately covers our current interest in our leased space. We do not own any real property for use in our operations or otherwise.

Item 3. Legal Proceedings

From time-to-time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. There are currently no such pending proceedings to which we are a party that our management believes will have a material adverse effect on the Company’s consolidated financial position or results of operations. However, future events or circumstances, currently unknown to management, will determine whether the resolution of any litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

Item 4. Mine Safety Disclosures

Not applicable.  

9

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

The Company’s common stock has been traded on the NYSE MKT since November 20, 2013, under the symbol “LBMH.”  Prior to that date, the Company’s common stock was quoted on the OTC Bulletin Board under the same symbol.  The following table reflects the range of the high and low closing sales prices of the Company’s common stock during the last two fiscal years on the OTC Bulletin Board:

	Stock Price
	High		Low
Quarter Ended:
December 31, 2011	$	1.19	$	0.76
March 31, 2012	$	1.15	$	0.86
June 30, 2012	$	1.04	$	0.89
September 30, 2012	$	0.97	$	0.68
December 31, 2012	$	0.84	$	0.56
March 31, 2013	$	1.09	$	0.68
June 30, 2013	$	1.40	$	0.91
September 30, 2013	$	2.42	$	1.28

As of November 30, 2013, the Company had approximately 1,329 shareholders of record of the Company’s common stock. Also, as of November 30, 2013, there were 52,757,733 shares of the Company’s common stock issued and 52,403,484 shares outstanding. The number of holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of broker-dealers and registered clearing agencies.  The transfer agent of our common stock is Jersey Transfer and Trust Company, Inc., 201 Bloomfield Avenue, Verona, New Jersey 07044.  

Dividends

In April, 2013, the Company paid a cash dividend of $0.02 per share on its common stock, which was its first cash dividend on its common stock since inception, and implemented a policy of paying sustainable quarterly dividends.  The Company also paid dividends of $0.03 per share on its common stock on July 22, 2013, and $0.03 per share on its common stock on October 10, 2013. The Company’s Board of Directors will evaluate on a quarterly basis the amount and timing of future dividends based on the Company’s operating results, financial condition, capital requirements and general business conditions.  The amount and timing of any future dividends may vary, and the payment of any dividend does not assure that the Company will be able to pay dividends in the future, or that, if able, our Board will consistently declare dividends.

Stock Buyback Program

Under a stock buyback program approved by our Board of Directors in June 2013, we are authorized to purchase up to 1,000,000 shares of our Common Stock through June 2014. The authorization enables the Company to purchase shares through open market transactions at management’s discretion. We intend to retain any common shares purchased as treasury shares or use them in connection with our employee stock option program.

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A summary of the shares purchased for the three months ended September 30, 2013 is as follows:

					Total Number of		Maximum Number
	Total				Shares Purchased as		of Shares that
	Number of		Average		Part of Publicly		May Yet Be
	Shares		Price Paid		Announced Plan or		Purchased Under the
	Purchased		per Share		Program(1)		Plan or Program(1)
July 1—31, 2013		50,000	$	1.64
August 1—31, 2013		214,649	$	1.62
September 1—30, 2013		—	$	—
Total		264,649	$	1.62		264,649		735,351
(1) As of September 30, 2013, 264,649 shares have been purchased under our stock buyback program for proceeds of $429,779. At management's discretion, 735,351 additional shares may be purchased under the program through June 2014.

Item 6. Selected Financial Data

Not required for smaller reporting companies.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with our audited historical consolidated financial statements, which are included elsewhere in this Form 10-K. Management’s Discussion and Analysis of Financial Condition and Results of Operations contains statements that are forward-looking. These statements are based on current expectations and assumptions, which are subject to risk, uncertainties and other factors, including, but not limited to, those described in the subsection titled “Risk Factors,” located in Part I, Item 1A, of this Form 10-K.

Company Overview

Liberator Medical Supply, Inc. (“Liberator Medical”), a wholly-owned subsidiary of the Company, is a leading, federally licensed, national direct-to-consumer provider of quality medical supplies to Medicare-eligible seniors. Accredited by The Joint Commission, our Company’s unique combination of marketing, industry expertise and customer service has demonstrated success over a broad spectrum of chronic conditions. Liberator is recognized for offering a simple, reliable way to purchase medical supplies needed by our patients on a recurring basis, generally on a continual basis for a lifetime, with the convenience of direct billing to Medicare and private insurance. Liberator’s revenue primarily comes from supplying urological, ostomy, and diabetic medical supplies and mastectomy fashions. Customers may purchase by phone, mail, or the Internet; repeat orders are confirmed with the customer and shipped when needed.

We market our products directly to consumers through our direct response advertising efforts. We target consumers with chronic conditions who require a continuous supply of medical products that we can provide at attractive gross margins. Our advertising efforts do not represent an effort to target new markets or sell new products, but are a continuation of our efforts to acquire new customers in the markets we currently serve. We also generate new customers through referrals as a result of our regular communication with doctors’ offices, home health organizations, vendors, and existing customers.

We receive initial contact from prospective customers in the form of leads. A certain number of leads are then qualified and become new customers. Our qualification efforts primarily involve verifying insurance eligibility, obtaining the required medical documentation from the customer’s physician, and explaining our billing and collection processes, if applicable. The majority of the new customers qualified from our process typically place their initial order with us within three to six months from the time we receive initial contact from the customer. Since our inception, we have demonstrated our ability to attract and retain customers with our unique customer service that generates an annuity-like revenue stream that can last for periods of greater than ten years.

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The following table shows our revenue streams, including new and recurring orders, for the twelve months ended September 30, 2013 and 2012, based on the fiscal year that we received the initial lead from these customers (dollars in thousands):

New and recurring revenues generated from customer leads received during:	For the twelve months ended September 30,
	2013			2012
Pre-FY 2009	$	10,992		$	11,920
FY 2009		12,305			13,320
FY 2010		11,511			12,446
FY 2011		12,536			14,314
FY 2012		13,532			9,092
FY 2013		8,515			n/a
Total Revenues *		69,391			61,092
Other Sales and Adjustments		(280	)		(149	)
Net Sales	$	69,111		$	60,943
* Revenues include orders from new and recurring customers, net of contractual allowances. Revenue from new customers will impact comparisons between the periods for fiscal year 2013 and the corresponding periods from fiscal year 2012, especially revenue from new customers acquired during the latter portion of the fiscal years.

We believe the recurring nature of our customer base helps provide a long-term stable cash flow. We are able to adjust our advertising spend relatively quickly to respond to changing market conditions, favorable or unfavorable, which helps control our operating cash flows. As our customer base grows and revenues increase, we continue to focus on improving operational efficiencies to increase profitability.

Results of Operations

The following table summarizes the results of operations for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	2013					2012
	Amount			%		Amount			%
Net Sales	$	69,111		100.0		$	60,943			100.0
Cost of Sales		25,689		37.2			23,924			39.3
Gross Profit		43,422		62.8			37,019			60.7
Operating Expenses		31,663		45.8			32,712			53.7
Income from Operations		11,759		17.0			4,307			7.0
Other Expense		(83	)	(0.1	)		(75	)		(0.1
Income Before Income Taxes		11,676		16.9			4,232			6.9
Provision for Income Taxes		4,598		6.7			1,731			2.8
Net Income	$	7,078		10.2		$	2,501			4.1

12

Revenues

Sales for fiscal year 2013 increased by $8,168,000, or 13.4%, to $69,111,000, compared with sales of $60,943,000 for fiscal year 2012. The increase in sales was primarily due to our continued emphasis on our direct response advertising campaign to acquire new customers and our emphasis on customer service to maximize the reorder rates for our recurring customer base. Our direct response advertising expenditures for fiscal year 2013 were $9,000,000, compared to $13,113,000 for fiscal year 2012. In July 2013, we acquired a small ostomy supply business for $343,000, which also contributed to the number of new customers acquired in fiscal year 2013.

The following table summarizes the number of customers serviced and revenues generated from our new customers and our recurring customer base for fiscal years 2013 and 2012 (dollars in thousands):

	2013			2012
	# of Customers	Net Sales		# of Customers	Net Sales
New Customers Acquired*	12,752	$	12,264	14,245	$	12,244
Recurring Customer Base	30,283		57,127	27,537		48,848
Total Revenues, net of contractual allowances	43,035	$	69,391	41,782	$	61,092
Other Sales and Adjustments			(280)			(149)
Net Sales		$	69,111		$	60,943
* We receive initial contact from prospective customers in the form of leads. The majority of the new customers acquired place their initial order with us within three to six months from the time we receive the initial customer lead. For fiscal year 2013, $8,515 of the net sales for new customers acquired was generated from leads received during fiscal year 2013. For fiscal year 2012, $9,092 of the net sales for new customers acquired was generated from leads received during fiscal year 2012. The remaining net sales generated from new customers acquired were generated from leads received during prior fiscal years.

Due to our reduced levels of advertising spend during fiscal year 2013, we acquired 1,541 fewer customers than we acquired during fiscal year 2012. However, by targeting urology patients using supplies with higher reimbursement rates and ostomy patients utilizing accessory products, our net sales generated from new customers acquired during fiscal year 2013 exceeded the net sales generated by our new customers acquired during fiscal year 2012 by $20,000, increasing our returns on our advertising spend.

The average annual order value of our recurring customer base increased to $1,886 per customer during fiscal year 2013 compared with $1,774 per customer during fiscal year 2012. The increase in the average annual order value per recurring customer for fiscal year 2013 was primarily attributed to a decrease in the number of diabetic patients and urology patients using foley catheters, both of which have lower average annual order values than our other product lines.

Gross Profit

Gross profit for fiscal year 2013 increased by $6,403,000, or 17.3%, to $43,422,000, compared with gross profit of $37,019,000 for fiscal year 2012. The increase was attributed to our increased sales volume for fiscal year 2013 compared with fiscal year 2012.

As a percentage of net sales, gross profit increased by 2.1% to 62.8% for fiscal year 2013 compared with gross profit of 60.7% for fiscal year 2012. The increase in gross profit as a percentage of sales was attributed to cost savings of approximately $1.2 million, or 1.7% of net sales, in shipping costs during fiscal year 2013.  

13

Operating Expenses

The following table provides a breakdown of our operating expenses for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	2013			2012
	Amount		%	Amount		%
Operating Expenses:
Payroll, taxes and benefits	$	14,311	20.7	$	14,136	23.2
Advertising		8,908	12.9		8,099	13.3
Bad debts		3,069	4.4		4,664	7.7
Depreciation and amortization		683	1.0		794	1.3
General and administrative		4,692	6.8		5,019	8.2
Total Operating Expenses	$	31,663	45.8	$	32,712	53.7

Payroll, taxes and benefits increased by $175,000, or 1.2%, to $14,311,000 for fiscal year 2013 compared with fiscal year 2012. As of September 30, 2013, we had 297 active employees, compared with 326 at September 30, 2012. Even though the number of employees decreased by 29 employees from September 30, 2012, to September 30, 2013, the average number of employees (317) during fiscal year 2013 was higher compared with the average number of employees (310) during fiscal year 2012 to support our increased sales volumes.

As a result of process and system enhancements implemented over the last year and continued growth of our recurring revenue as a percentage of our total revenue, our payroll expenses as a percentage of net sales decreased by 2.5% for fiscal year 2013 compared with fiscal year 2012.

Advertising expenses increased by $809,000, or 10.0%, to $8,908,000 for fiscal year 2013 compared with fiscal year 2012. The majority of our advertising expenses are associated with the amortization of previously capitalized direct response advertising costs. The balance of our advertising expenses is for costs that do not qualify as direct response advertising and are expensed as incurred. The following table shows a breakdown of our advertising expenses for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	2013		2012
Advertising Expenses:
Amortization of direct-response costs	$	8,721	$	7,878
Other advertising expenses		187		221
Total Advertising Expenses	$	8,908	$	8,099

Direct response advertising costs are accumulated into quarterly cost pools and amortized separately. The amortization is the amount computed using the ratio that current period revenues for each direct-response advertising cost pool bear to the total of current and estimated future benefits for that direct response advertising cost pool. We have persuasive evidence that demonstrates future benefits are realized from our direct response advertising efforts beyond four years. Since the reliability of accounting estimates decreases as the length of the period for which such estimates are made increases, we estimate future benefits for each advertising cost pool for a period of no longer than four years at each reporting period, which creates a “rolling” type amortization period. Once a particular cost pool has been amortized to a level where the difference between amortizing the cost pool over a “rolling” four-year period and amortizing the cost pool on a “straight-line” basis over a period shorter than four years is de minimis, we amortize the costs over a fixed time period based on current and expected future revenues. As a result of this policy, our direct response advertising costs are amortized over a period of approximately six years based on probable future net revenues updated at each reporting period.

Similar to our past direct response advertising efforts, when we decreased our advertising spend during fiscal year 2013, our costs to acquire new customers decreased compared with fiscal year 2012.

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The table below shows our historical direct response advertising spend and a breakdown of the amortization expense associated with the respective accumulated advertising cost pools for the fiscal year ended September 30, 2013 and 2012. For presentation purposes, the quarterly advertising cost pools have been aggregated into fiscal years (dollars in thousands):

Actual Advertising Spend		Grouped by Fiscal or Interim Period	Amortization Expense for the twelve months ended September 30,				Deferred Advertising  Balance @ 9/30/2013
			2013		2012
$	1,567	FY2008	$	30	$	70	$	—
	4,191	FY2009		228		394		184
	10,808	FY2010		1,326		1,717		1,843
	15,245	FY2011		2,570		3,407		5,422
	13,113	FY2012		2,952		2,290		7,871
	9,000	FY2013		1,615		—		7,385
	Total Amortization Expense		$	8,721	$	7,878	$	22,705

Bad debt expense decreased by $1,595,000, or 34.2%, to $3,069,000 for fiscal year 2013 compared with fiscal year 2012. The decrease in bad debt expense was due to increased accounts receivable collection efforts during fiscal year 2013. During the last quarter of fiscal year 2012, we implemented improvements to our billing and collections processes, including system enhancements, and increased the number of employees in our accounts receivable department. As a result of these efforts, our collections of receivables, as a percentage of sales, increased and the number of days outstanding of gross accounts receivables, excluding reserves, decreased by 19.9 days to 64.1 days as of September 30, 2013, compared with 84.0 days as of September 30, 2012, which reduced our bad debt reserve requirements for fiscal year 2013 compared with fiscal year 2012.   

Depreciation and amortization expenses decreased by $111,000, or 14.0%, to $683,000 for fiscal year 2013 compared with fiscal year 2012. The decrease in depreciation and amortization expenses was primarily related to leasehold improvements that were fully depreciated as of the end of July 2012, which reduced our depreciation by $51,000 per quarter.   This decrease was partially offset by depreciation expense related to purchases of property and equipment over the last year.  

Purchases of property and equipment totaled $390,000 and $353,000 during fiscal years 2013 and 2012, respectively.

General and administrative expenses decreased by $327,000, or 6.5%, to $4,692,000 for fiscal year 2013 compared with fiscal year 2012. The decrease was due to a reduction in costs incurred for answering services, selling expenses, postage, temporary labor, and professional fees.  These decreases were partially offset by increases in software support and rent expense, and other administrative type expenses to support the growth of our business.  

As a percentage of net sales, general and administrative expenses decreased from 8.2% for fiscal year 2012 to 6.8% for fiscal year 2013.

Income from Operations

Income from operations for fiscal year 2013 increased by $7,452,000, or 173.0%, to $11,759,000, compared with fiscal year 2012. The increase in operating income was primarily attributed to increased gross profits driven by our increased sales volumes and lower shipping costs, as well as a reduction as a percentage of net sales of our operating expenses as discussed above.

Other Expense

Other expense for fiscal years 2013 and 2012 was interest expense related to the outstanding balance on our credit line facility.

Interest expense increased by $8,000 for fiscal year 2013 compared with fiscal year 2012 due to an increase of $1.0 million in borrowings under our credit line facility during the first quarter of fiscal year 2012.  At the end of the fourth quarter of fiscal year 2013, we repaid $1.0 million in borrowings to the credit line facility.

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Income Taxes

The following table provides a breakdown of our income tax expenses for fiscal years 2013 and 2012 (dollars in thousands):

	Fiscal year ended September 30,
	2013		2012
Current income tax expense:
Federal	$	1,005	$	3
State		271		31
	$	1,276	$	34
Deferred income tax expense:
Federal	$	2,879	$	1,454
State		443		243
	$	3,322	$	1,697
Total income tax expense	$	4,598	$	1,731

As of September 30, 2012, the Company had net operating losses of approximately $8.0 million for federal income tax purposes and $7.3 million for Florida income tax purposes that can be carried forward for up to twenty years and deducted against future taxable income. Our taxable income for fiscal year 2013 exceeded our net operating loss carry-forwards. As a result, our income tax expense for fiscal year 2013 included a larger proportion of current income tax expense versus deferred income expense compared with fiscal year 2012. For fiscal year 2013, our federal and state income tax liabilities were reduced by approximately $3.1 million through the utilization of substantially all of our net operating loss carry-forwards.

The following table provides a breakdown of our income tax liabilities by current and deferred as of September 30, 2013 and 2012 (dollars in thousands):

	As of September 30,
	2013		2012
Current income tax liabilities	$	1,195	$	92
Deferred income tax liabilities:
Deferred tax liability	$	8,561	$	5,421
Less: Deferred tax assets, current portion		(2,067)		(2,254)
Net deferred tax liabilities:	$	6,494	$	3,167

The provision for income taxes was $4,598,000 for fiscal year 2013. The effective tax rate was approximately 39% of the income before income taxes of $11,676,000, which differs from the federal statutory rate of 35% due to the effect of state income taxes and certain of the Company’s expenses that are not deductible for tax purposes.

The provision for income taxes was $1,731,000 for fiscal year 2012. The effective tax rate was approximately 41% of the income before income taxes of $4,232,000, which differs from the federal statutory rate of 35% due to the effect of state income taxes and certain of the Company’s expenses that are not deductible for tax purposes.

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Liquidity and Capital Resources

The following table summarizes the cash flows for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	2013			2012
Cash Flows:
Net cash provided by (used in) operating activities	$	13,633		$	(546	)
Net cash used in investing activities		(686	)		(151	)
Net cash provided by (used in) financing activities		(3,820	)		1,007
Net increase in cash		9,127			310
Cash at beginning of period		3,326			3,016
Cash at end of period	$	12,453		$	3,326

The Company had cash of $12,453,000 at September 30, 2013, compared with $3,326,000 at September 30, 2012, an increase of $9,127,000. The increase in cash during fiscal year 2013 was due to $13,633,000 of cash provided by operating activities, partially offset by $686,000 cash used in investing activities and $3,820,000 of cash used in financing activities.

Operating Activities

Cash provided by operating activities was $13,633,000 for fiscal year 2013, which represents an improvement of $14,179,000 compared with cash used in operating activities of $546,000 for fiscal year 2012. The improvement in operating cash flows for fiscal year 2013 was the result of; a decrease of $6,506,000 in the change in accounts receivable due to our improved collection efforts; an increase in net income of $4,577,000 due to an increase in profitability; a reduction in direct response advertising spend of $4,113,000; an increase in non-cash charges of $890,000; partially offset by a decrease in the change accounts payables of $2,030,000.  

The number of days outstanding of gross accounts receivables, excluding reserves, decreased by 19.9 days to 64.1 days as of September 30, 2013, compared with 84.0 days as of September 30, 2012. The reduction in the number of days of gross accounts receivable outstanding was due to improvements in our accounts receivable collection efforts, which included enhancements to our billing and collection processes and an increase in the number of employees in our accounts receivable department.

During the second half of fiscal year 2012, we experienced a significant increase in the number of Medicare pre-payment audits for claims that were submitted to one of the four Medicare regions. The results of these audits have not generated a significant number of denials and/or adjustments, and we expect to receive payment for most of these claims from Medicare. As a result, we have experienced a delay of up to 45 to 90 days in receiving payments for these Medicare claims. As of September 30, 2013, we had approximately $625,000 of Medicare claims delayed due to pre-payment audits.

In late September 2013, a second Medicare region began conducting pre-payment audits on our Medicare claims. We process about 1.5 times more claims for the second Medicare region than we do for the first Medicare region and expect approximately $1.0 million of additional Medicare claims to be delayed from this second region during the first quarter of fiscal year 2014. Similar to our results from the first Medicare region, we do not expect to generate a significant number of denials and/or adjustments from these audits and expect to receive payment for most of these claims from Medicare, consistent with our previous levels of collections from Medicare, but on a delayed basis.

Investing Activities

During fiscal year 2013, we purchased $367,000 of property and equipment for cash, primarily office furniture, computer equipment, and leasehold improvements related to the build-out of a new 6,400 square-foot facility, which was completed in January 2013.  

In July 2013, we acquired the stock of a small ostomy supply business for $319,000, net of $24,000 cash included as part of the acquisition. The acquisition was immaterial to our consolidated financial position and results of operations.

During fiscal year 2012, we purchased $151,000 of property and equipment for cash, primarily computer equipment and software, to support our continued growth.

17

Financing Activities

During fiscal year 2013, cash used in financing activities was $3,820,000, which included cash dividends paid of $2,616,000, repayment of $1,000,000 towards our credit line facility, repurchases of our common stock of $430,000, payments of $71,000 toward capital lease obligations, and payments of $21,000 for costs associated with the renewal of our credit line facility, partially offset by $270,000 of proceeds from the exercise of stock options and warrants and $48,000 of proceeds from our employee stock purchase plan.

During fiscal year 2012, cash provided by financing activities was $1,007,000, primarily as a result of $1,000,000 in proceeds from the credit line facility and $67,000 of proceeds from our employee stock purchase plan, partially offset by payments of $39,000 for capital lease obligations and $21,000 for costs associated with the renewal of our credit line facility.

Outlook

We increased our sales by $8.2 million, or 13.4%, to $69.1 million for fiscal year 2013 compared with sales of $60.9 million for fiscal year 2012. Our operating income increased by $7.5 million, or 173%, to $11.8 million for fiscal year 2013 compared with operating income of $4.3 million for fiscal year 2012. Our operating margins improved from 7.1% for fiscal year 2012 to 17.0% for fiscal year 2013. In addition, we generated cash from operating activities of $13.6 million for fiscal year 2013.

We will continue to manage the levels of our direct response advertising spend to maximize profitability and cash flows for fiscal year 2014, which may result in slower top-line sales growth. We continue to explore potential acquisition targets during fiscal year 2014 that allow us to acquire new customers at competitive rates and are accretive to our earnings. Based on investments we have made in our employees, infrastructure, and technology, we will continue to implement process improvements designed to increase our operating margins during fiscal year 2014.

As of September 30, 2013, we had $12.5 million of cash and $4.9 million available from our credit line facility to fund our operations. We believe that the existing cash and the availability of funds through our credit line, together with cash generated from the collection of accounts receivable and the sale of products, will be sufficient to meet our cash requirements during the next twelve months.

At September 30, 2013, our current assets of $24,762,000 exceeded our current liabilities of $9,144,000 by $15,618,000.

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

Off-Balance Sheet Arrangements

As of September 30, 2013, we had no off-balance sheet arrangements.

Critical Accounting Policies, Judgments and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are 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.

An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimate that are reasonably likely to occur, could materially impact the consolidated financial statements. We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of the consolidated financial statements.

18

Accounts Receivable

Our accounts receivable are generally due from Medicare, Medicaid, private insurance companies, and our patients. Accounts receivable are reported net of allowances for contractual adjustments and uncollectible accounts. The collection process is time consuming, complex and typically involves the submission of claims to multiple layers of payers whose payment of claims may be contingent upon the payment of another payer. As a result, our collection efforts may be active for up to 18 to 24 months from the initial billing date. In accordance with regulatory requirements, we make reasonable and appropriate efforts to collect our accounts receivable, including deductible and co-payment amounts, in a manner consistent for all classes of payers.

The Company has established an allowance to account for contractual adjustments that result from differences between the payment amount received and the expected realizable amount. These adjustments are recorded as a reduction of both gross revenues and accounts receivable. Based on our current billing system, we are unable to directly compare the aggregate estimated allowance for contractual adjustments to the actual contractual adjustments recorded. However, we do analyze the aggregate allowance for contractual adjustments as a percentage of net sales compared to the last twelve months’ actual contractual adjustments as a percentage of net sales to determine that our estimated allowance for contractual adjustments is a reasonable basis for recording our periodic allowance for contractual adjustments. As a percentage of gross receivables, our estimated allowance for contractual adjustments increased by 4.0% to 9.0% of gross accounts receivables as of September 30, 2013, compared with 5.0% of gross accounts receivables as of September 30, 2012. As a result of the Budget Control Act of 2011, or sequestration, effective April 1, 2013, Medicare reduced payments for Part B Medicare claims by 2%, but did not change the published allowable Medicare rates, which increased our contractual adjustments recorded during fiscal year 2013 compared with fiscal year 2012. In addition, we experienced an increase in contractual allowances recorded during 2013 for Medicaid claims, primarily related to secondary insurance claims.

Allowances for uncollectible accounts (or bad debts) are recorded as an operating expense and consist of billed charges that are ultimately deemed uncollectible due to the customer’s or third-party payer’s inability or refusal to pay. In establishing the appropriate allowance for uncollectible accounts, management makes assumptions with respect to future collectability. We base our estimates of accounts receivable collectability on our historical collection and write-off experience, our credit policies, and aging of our accounts receivable. Changes in judgment regarding these factors will cause the level of accounts receivable allowances to be adjusted.

The typical collection process begins with the electronic submission of a claim to Medicare, Medicaid, or other primary insurance carriers, for which a response (and payment) is obtained within 15 to 30 days. Any claim denials are generally acted upon timely following the response and, where applicable, corrected claims are submitted. A response (and co- payment) for amounts billed to secondary payers, including Medicaid, private third-party insurance carriers, and patients, generally occurs within 30 to 60 days of submission of the claim. On a continual basis, the outstanding accounts receivable balances are reviewed by collection personnel, including contacting the insurance company and/or patient in an attempt to determine why payment has not been remitted and obtain payment from the respective responsible party. When applicable, corrected claims are submitted to the insurance carrier. Patient statements are generated and sent out monthly. Outbound calls are continually made to patients with outstanding balances in an attempt to obtain payment. Uncollectible account balances for all payer classes are written off after remaining unpaid for a period of 24 months. Balances that are determined to be uncollectible prior to the passage of 24 months from the last billing date are written off at the time of such determination.

We perform eligibility and insurance verification on patients prior to the shipment of products and submission of a claim. As a result, we do not have amounts that are pending approval from third-party payers outside of the typical review process for submitted claims.

The Company performs analyses to evaluate the net realizable value of accounts receivable. Specifically, the Company considers historical realization data, accounts receivable aging trends, other operating trends and relevant business conditions. However, because of continuing changes in the health care industry and third-party reimbursement, it is possible that the Company’s estimates could change, which could have a material impact on the Company’s future results of operations and cash flows. For the fiscal year ended September 30, 2013, a hypothetical change of 1% in the allowances for contractual adjustments as a percentage of gross sales would have resulted in a change in our revenue and net income of approximately $0.8 million.

19

The following table sets forth our accounts receivable balances outstanding by aging category for each major payer source as of September 30, 2013 (in thousands):

	Aging of Accounts Receivable as of September 30, 2013
	< 30		31 – 60		61 – 120		> 120
Type of Payer	Days		Days		Days		Days		Totals
Medicare and Medicaid	$	3,579	$	623	$	455	$	1,552	$	6,209
Private insurance companies		1,409		458		410		856		3,133
Patients		399		307		386		1,904		2,996
Total gross accounts receivable	$	5,387	$	1,388	$	1,251	$	4,312		12,338
Less: Allowances										(4,502)
Accounts receivable, net									$	7,836

The following table sets forth our accounts receivable balances outstanding by aging category for each major payer source as of September 30, 2012 (in thousands):

	Aging of Accounts Receivable as of September 30, 2012
	< 30		31 – 60		61 – 120		> 120
Type of Payer	Days		Days		Days		Days		Totals
Medicare and Medicaid	$	4,757	$	995	$	946	$	2,256	$	8,954
Private insurance companies		1,427		607		661		1,132		3,827
Patients		285		210		334		1,799		2,628
Total gross accounts receivable	$	6,469	$	1,812	$	1,941	$	5,187		15,409
Less: Allowances										(5,044)
Accounts receivable, net									$	10,365

Deferred Advertising

We capitalize and amortize direct-response advertising and related costs when we can demonstrate, among other things, which patients have directly responded to our advertisements. We assess the realizability of the amounts of direct-response advertising costs reported as assets at the end of each reporting period by comparing the carrying amounts of such assets to the probable remaining future benefits expected to result directly from such advertising. Management’s judgments include determining the period over which such net cash flows are estimated to be realized.

We receive responses to our direct-response advertising efforts in the form of leads, of which a certain number are qualified as new customers. Our qualification efforts primarily involve verifying insurance eligibility, obtaining the required medical documentation from the customer’s physician, and explaining our process of billing the customer’s insurance carrier directly and collecting any customer co-payments, if applicable. The majority of the new customers qualified from our direct-response advertisements place their initial order within three to six months from the time we receive their initial response from our direct-response advertising.

In order to capitalize our direct-response advertising costs, we must demonstrate that the results of our direct-response advertising will be similar to the effects of responses to past direct-response advertising activities that resulted in future benefits. We monitor the initial success rate of our advertisements as a cost per lead and track the overall cost per acquired customer for each of our quarterly cost pools. For fiscal years 2013 and 2012, our direct-response advertising results demonstrated a continuation of similar patterns. Our advertising efforts in fiscal years 2013 and 2012 do not represent an effort to target new markets or sell new products, but are a continuation of our efforts to acquire new customers in the markets we currently serve. During fiscal year 2013, we decreased our advertising spend compared with fiscal year 2012. Consistent with our past direct-response advertising efforts, when we decreased our advertising spend; our costs to acquire new customers decreased proportionally to our decreased advertising spend.

20

Direct-response advertising costs are accumulated into quarterly cost pools and amortized separately. The amortization is the amount computed using the ratio that current period revenues for each direct-response advertising cost pool bear to the total of current and estimated future benefits for that direct-response advertising cost pool. We have persuasive evidence that demonstrates future benefits are realized from our direct-response advertising efforts beyond four years. Since the reliability of accounting estimates decreases as the length of the period for which such estimates are made increases, we estimate future benefits for each advertising cost pool for a period of no longer than four years at each reporting period, which creates a “rolling” type amortization period. Once a particular cost pool has been amortized to a level where the difference between amortizing the cost pool over a “rolling” four-year period and amortizing the cost pool on a “straight-line” basis over a period shorter than four years is de minimis, we amortize the costs over a fixed time period based on current and expected future revenues. As a result of this policy, our direct-response advertising costs are amortized over a period of approximately six years based on probable future net revenues updated at each reporting period.

Stock-Based Compensation Expense

The Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model, which requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based award.

The expected volatility is based on the historical volatility of the Company's common stock share price using a historical term equal to the expected term of the stock-based award.

Prior to the third quarter of fiscal year 2013, the Company had not declared any dividends and 0% was used as the expected dividend yield for calculating the fair value of stock-based awards. Beginning in the third quarter of fiscal year 2013, the expected dividend yield is calculated based on the annualized cash dividend declared by the Company's Board of Directors for the current quarter corresponding to the grant date of the stock-based award.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term equal to the expected term of the stock-based award.

In December 2007, the SEC issued guidance allowing companies, under certain circumstances, to utilize a simplified method, based on the average of the vesting term and contractual term of the award, in determining the expected term of stock-based awards. Since we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term, we utilize the simplified method to calculate the expected term of stock-based awards.

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company files consolidated federal and state income tax returns.

Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 8. Financial Statements

The following is an index to the Financial Statements of the Company being filed here-with commencing at page F-1 below:

Report of Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of September 30, 2013 and 2012	F-2
Consolidated Statements of Operations for the fiscal years ended September 30, 2013 and 2012	F-3
Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended September 30, 2013 and 2012	F-4
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2013 and 2012	F-5
Notes to the Consolidated Financial Statements	F-6

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

We have had no disagreements with our independent registered accounting firm on accounting and financial disclosure.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2013. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2013.

Management’s Report on Internal Control Over Financial Reporting

We are responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined by Securities Exchange Act Rule 13a-15(f). Our internal controls are designed to provide reasonable assurance as to the reliability of our financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

Internal control over financial reporting has inherent limitations and may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable, not absolute, assurance with respect to financial statement preparation and presentation. Further, because of changes in conditions, the effectiveness of internal control over financial reporting may vary over time.

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

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our internal control over financial reporting as of September 30, 2013, as required by Securities Exchange Act Rule 13a-15(c). In making our assessment, we have utilized the Internal Control - Integrated Framework  that was  published in 1992 by the Committee of Sponsoring Organizations of the Treadway Commission. We concluded that based on our evaluation, our internal control over financial reporting was effective as of September 30, 2013.

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The Company is neither an accelerated filer nor a large accelerated filer, as defined in Rule 12b-2 under the Exchange Act, and there is not otherwise included in this Annual Report an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not required to be attested by the Company’s registered public accounting firm pursuant to Item 308(b) of Regulation S-K.

Limitations on the Effectiveness of Controls

A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The Company’s management, including its Chief Executive Officer and its Chief Financial Officer, do not expect that the Company’s disclosure controls will prevent or detect all errors and all fraud. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with associated policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Item 9B. Other Information

None

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PART III

Item 10. Directors, Executive Officers and Corporate Governance

As of September 30, 2013, the Executive Officers and Directors of the Company were:

Name	Age		Position(s) with the Company
Mark Libratore		62	President, Chief Executive Officer, Director
Robert Davis		67	Chief Financial Officer
John Leger		58	Chief Operating Officer
Jeannette Corbett (1)(2)(3)		63	Director
Tyler Wick (1)(2)(3)		42	Director

(1)

Member of the Governance and Nominating Committee.

(2)

Member of the Audit Committee.

(3)

Member of the Compensation Committee.

Mark Libratore - In 1990, Mr. Libratore founded Liberty Medical Supply, Inc., which has become the nation’s largest direct-to-consumer diabetic supplier.  Mr. Libratore sold this business to PolyMedica Corporation in August 1996 and remained President of Liberty Medical and Senior Vice President of PolyMedica until February 1999.  Mr. Libratore founded Liberator Medical Supply, Inc., in 1999, and has served as its President and Chief Executive Officer since inception.  Liberator Medical Supply, Inc., was acquired by the Company on June 22, 2007, at which time he became President and Chief Executive Officer of the Company.

Robert Davis – Mr. Davis, has a Masters degree in Accounting from the University of Houston, and holds a CPA certificate from the State of Texas. Mr. Davis has held numerous financial executive-level positions as Comptroller and Vice President of Finance for companies such as controller for a Manufacturer of Jet Engine parts, TurboCombustor Corp., Data Development Inc., and Caribbean Computer Corp., and served as CFO and Manager of Financial Planning for Liberty Medical Supply, Inc. from 1995 to 1999. He has been the Chief Financial Officer of Liberator Medical Supply, Inc., since its organization, and of the Company since 2007.

John Leger – Mr. Leger joined Liberator Medical Supply, Inc. in April 2006, and has been the Chief Operating Officer of the Company since 2007. John was the Senior VP of Operations at Liberty Medical Supply from December 1991 through January 2004. He was responsible for diabetic call center operations, customer services, repeat customer sales, document acquisition and management, claims processing to Medicare, mail services, shipping, receiving, and purchasing. Mr. Leger worked closely with Mark Libratore in building the mail order diabetes business to $100M in annualized sales, and stayed on with the company through its growth to over 650,000 active customers. Due to an agreement not to compete with Liberty during a severance agreement period, John made his expertise available as an independent consultant until he joined Closer Healthcare, Inc. as a VP of Operations in 2005. Closer is a mail order provider of diabetes testing supplies and primarily serviced customers in national clinical trials as well as the managed care sector. He spent a year with Closer prior to joining Liberator Medical.

Jeannette Corbett - Mrs. Corbett, a Certified Public Accountant, is President Emeritus and Acting Interim President of the Quantum Foundation, West Palm Beach, Florida.  Previously, she served as CFO of the Medical Services Division and Vice President of Finance of Phymatrix Corporation (PHMX), West Palm Beach, Florida. Prior to her position at Phymatrix, Mrs. Corbett was President of McGill, Roselli, Ayala & Hoppmann, a West Palm Beach-based accounting firm. She has also served as an adjunct instructor of taxation of Palm Beach State College in Lake Worth, Florida. Mrs. Corbett has a bachelor's of science degree in business administration from the University of Florida, graduating Summa Cum Laude. Mrs. Corbett was Chairman of the Board of JFK Medical Center in Atlantis, Florida, from 1991-1994 and was Chair of the Hospital's Finance Committee from 1989-1991. Ms. Corbett became a member of our Board of Directors in February 2010. She was elected to the Board primarily because of her expertise in accounting and finance.

Tyler Wick – Mr. Wick is a principal with Abry Partners, Boston, Massachusetts, a private equity firm which he joined in December 2011.  Prior to that time, he was a principal with Ticonderoga Capital, a Boston, Massachusetts, private equity firm.  His private equity experience also includes serving as an Associate at Dillon Read Venture Capital. He was an Associate in the healthcare practice of the investment-banking group of Advest, Inc., where he focused on private placements and mergers and acquisitions for middle market healthcare services companies. Prior to Advest, he was a consultant with the Mentor Group, an international legal consulting firm. Mr. Wick is a member of the Board of Directors of AFS Technologies, ALN Medical Management, Brainshark, Octagon Research, Outside the Classroom and Softrax and is an Observer to the Boards of nuBridges and Construction Software Technologies. He is also a member of the Executive Committee of NERASBIC and serves on the Board of Directors for the Boston Chapter of the Association for Corporate Growth. Mr. Wick received a B.A. degree cum laude from Amherst College. Mr. Wick became a member of our Board of Directors in October 2010. He was elected to the Board primarily because of his background in investment banking and private equity.

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Each director of the Company serves until the next annual meeting of shareholders and until his or her successor is duly elected and qualifies. Each officer serves until the first meeting of the Board of Directors following the next annual meeting of the shareholders and until his or her successor is duly elected and qualifies. There are no family relationships among any of our executive officers or directors.

The following persons are not executive officers of the Company but make significant contributions to the Company’s business:

Paul Levett joined Liberator in 2005 as its Chief Marketing Officer.   From 1990 to 1996 Mr. Levett served as President of Lowe Direct, a direct marketing and advertising agency in New York City, New York.  In 1996, Mr. Levett founded Lieber, Levett, Koenig, Farese and Babcock, a New York advertising agency.  He was retired from 2000 until he joined Liberator in 2005.

George Narr joined Liberator in April 2010 as its Chief Information Officer.  From 1996 to 2006 Mr. Narr served as Chief Information Officer of Liberty Medical Supply, Inc.  From 2006 to 2008 Mr. Narr was a private consultant in the medical supply industry.  From 2008 to 2010 Mr. Narr was the Chief Information Officer at Simplex Healthcare in Franklin, Tennessee.

Compliance With Section 16(a) of the Exchange Act

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(d) of the Securities Exchange Act during the fiscal year ended September 30, 2013 and Forms 5 and amendments thereto furnished to us with respect to the fiscal year ended September 30, 2013, as well as any written representation from a reporting person that no Form 5 is required, we are aware of no officer, director or 10% or greater shareholder that failed to file on a timely basis, as disclosed in the aforementioned Forms, reports required by Section 16(a) of the Securities Exchange Act during the fiscal year ended September 30, 2013.

Director Committees

Our Board of Directors has an Audit Committee, a Compensation Committee, and a Governance and Nominating Committee. The Board of Directors has also determined that Jeannette Corbett is an audit committee financial expert, as that term is defined in Item 407 of Regulation S-K. The Board has determined that Ms. Corbett is independent under the independence standards for audit committee members pursuant to applicable SEC regulations and NYSE MKT listing standards.

Compensation Committee

The members of the Company’s Compensation Committee are non-employee directors.  The Compensation Committee, with the advice of an outside consulting firm, will determine compensation for our executive officers and managers by multiple factors, including individual performance, compensation of persons in similar capacities in other companies having a size and business comparable to the Company, performance, and our financial results. Base salaries are supplemented by cash performance bonuses determined by our Compensation Committee in October of each year based on the prior year financial results.

Code of Ethics

We adopted a Code of Conduct and Ethics that applies to all officers, directors and employees of our Company on January 14, 2008, as amended on August 10, 2010.  Any person may, without charge, request a copy of our Code of Ethics by writing to our Chief Financial Officer at 2979 SE Gran Park Way, Stuart, Florida 34997.

Item 11. Executive Compensation

Employment Agreements

We have entered employment agreements with Mark A. Libratore, our President and Chief Executive Officer; Robert Davis, our Chief Financial Officer; and John Leger, our Chief Operating Officer. The employment agreements are renewed annually in accordance with their terms or until either we or the executive officer notifies the other party at least 90 days prior to the end of the term that such party does not wish to further extend the term. Each employment agreement provides for a minimum annual salary of $400,000, $275,000 and $200,000, in the case of Messrs. Libratore, Davis and Leger, respectively, which salary is reviewed annually by our board of directors (or committee thereof) and adjusted upward, at the sole discretion of our board of directors (or committee thereof). Pursuant to the agreements, each of Messrs. Libratore, Davis and Leger is eligible to receive additional cash incentive compensation pursuant to our annual bonus plan then in effect, and the target annual bonus for each of Messrs. Libratore, Davis and Leger is up to 15%, 10% and 10%, respectively, of such executive officer’s annual base salary, with the actual bonus to be based upon such individual and/or Company performance criteria established for each fiscal year by our board of directors in consultation with the executive officer. See the “bonus” column of the “Summary Compensation Table” for each such executive officer’s bonus award for fiscal year 2012 and 2013. Each executive officer is also eligible to participate in distributions from the quarterly executive bonus plan configured by our President and Chief Financial Officer.

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Each executive officer is entitled to participate in our stock purchase plan and to be considered by our board of directors (or compensation committee of our board of directors, if any) for grants or awards of stock, stock options or warrants under any of our stock incentive or similar plans in effect from time to time. During the term, each executive officer shall be eligible to participate in such health and other group insurance and other employee benefit plans and programs in effect from time to time on the same basis as other senior executives. In addition, during the term of his agreement, Mr. Libratore shall be entitled to a minimum monthly automobile allowance of $800, plus gas expense.

The employment agreements provide that each executive officer is entitled to severance benefits. If the executive officer’s employment is terminated during the term by us other than for Cause or Disability (each as defined below), or by the executive officer for Good Reason (as defined herein), the executive officer will be entitled to receive (i) his pro-rata bonus for the fiscal year of termination, (ii) payment of an amount equal to the sum of 1/12 of his annual base salary and 1/12 of the target annual bonus each month for 18 months, 12 months and six months, in the case of Messrs. Libratore, Davis and Leger, respectively, following termination, and (iii) continuation of medical benefits on the same terms as active senior executives for 18 months, 12 months and six months, in the case of Messrs. Libratore, Davis and Leger, respectively, following termination. In addition, all of the executive officer’s unvested options outstanding at the time of such termination will become fully vested. If the executive officer’s employment with us is terminated due to the executive officer’s death or Disability, the executive officer (or his estate, if applicable) will be entitled to receive (i) the pro-rata bonus and (ii) option vesting. Receipt of the severance payments, continued medical coverage and option vesting shall be conditioned on the executive officer’s continued compliance with the non-disclosure, non-competition and non-solicitation obligations under the employment agreement. For purposes of the employment agreements, the following terms have the following meanings:

“Cause” means termination upon (i) the willful and continued failure by executive officer to substantially perform his duties or the oral or written instructions of our President, Chief Executive Officer and/or Board of Directors (other than any such failure resulting from executive officer’s incapacity due to physical or mental illness) after an oral or written demand for substantial performance is delivered to the executive officer by our President, Chief Executive Officer, and/or Board of Directors, which demands specifically identifies the manner in which the President, Chief Executive Officer, and/or the Board of Directors believes that executive officer has not substantially performed his duties or complied with an instruction from our President, Chief Executive Officer, and/or Board of Directors; (ii) the willful engaging by executive officer in conduct that is demonstrably and materially injurious to us; (iii) the failure to observe material policies generally applicable to our officers or employees; (iv) the failure to cooperate with any internal investigation of our Company or any of our affiliates; (v) commission of any act of fraud, theft or financial dishonesty with respect us or any of our affiliates or indictment or conviction of any felony; or (vi) material violation of the provisions of the employment agreement.

“Disability” means the executive officer is entitled to receive long-term disability benefits under our long-term disability plan in which the executive officer participates, or, if there is no such plan, the executive officer’s inability, due to physical or mental ill health, to perform the essential functions of the executive officer’s job, with or without a reasonable accommodation, for 180 days during any 365 day period irrespective of whether such days are consecutive.

“Good Reason” means (i) a material and adverse change in the executive officer’s duties or responsibilities; (ii) a reduction in the executive officer’s base salary or target annual bonus; (iii) a relocation of the executive officer’s principal place of employment by more than 50 miles; or (iv) breach by us of any material provision of the employment agreement; provided, that the executive officer must give notice of termination for Good Reason within 60 days of the occurrence of the first event giving rise to Good Reason.

During the term of the employment agreements and for a period of 18 months thereafter, subject to applicable law, the executives will be subject to restrictions on competition with us and restrictions on the solicitation of our customers and employees. For all periods during and after the term, the executives will be subject to nondisclosure and confidentiality restrictions relating to our confidential information and trade secrets.

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SUMMARY COMPENSATION TABLE

The following table provides summary information regarding compensation earned by the named executive officers during the fiscal years ended September 30, 2013 and 2012.

									All Other
Name						Option			Compensation
and Principal Position	Year		Salary($)	Bonus ($)		Awards($)			($)(1)		Total ($)
Mark A. Libratore	2013	$	400,000	$	246,530	$	0	$	33,400	$	679,930
President and Chief	2012	$	400,000	$	174,610	$	11,270	$	38,130	$	624,010
Executive Officer
Robert Davis	2013	$	275,000	$	158,400	$	7,140	$	4,670	$	445,210
Chief Financial Officer	2012	$	275,000	$	107,630	$	11,090	$	4,570	$	398,290
John Leger	2013	$	200,000	$	85,450	$	7,140	$	4,700	$	297,290
Chief Operating Officer	2012	$	200,000	$	61,820	$	2,960	$	4,680	$	269,460

(1) All Other Compensation includes expenses paid on behalf of the named executive officers for health insurance, life insurance, transportation and certain other personal expenses.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The Company’s outstanding equity awards to the named executive officers at September 30, 2013 are set forth in the following table:

	Number of
	Securities
	Underlying
	Unexercised		Option		Option
	Options (#)		Exercise		Expiration
Name	Exercisable		Price ($)		Date
Mark A. Libratore		90,000	$	1.10	August18, 2014
		75,000	$	1.32	December 27, 2015
Robert J. Davis		63,000	$	1.00	August 18, 2014
		75,000	$	1.20	December 27, 2015
		45,000	$	0.97	February14, 2018
John Leger		60,000	$	.60	October 30, 2013
		80,000	$	1.00	August 18, 2014
		20,000	$	1.20	December 27, 2015
		45,000	$	0.97	February14, 2018

The Company’s 2007 Stock Plan (the “Stock Plan”) provides that the Board of Directors may grant to those individuals who are eligible under the terms of the Stock Plan nonqualified stock options, incentive stock options, restricted stock, stock appreciation rights, performance awards, performance units and other incentives payable in shares of the Company’s common stock as the Board of Directors may determine.  Such grants may be made to officers, employees or members of the Board of Directors of the Company and its subsidiaries as well as the Company’s consultants, agents, advisors and independent contractors in exchange for bona fide services rendered.  The number of shares of common stock to be reserved and available for awards under the Stock Plan (subject to certain adjustments as provided therein) is 2,105,000.  

The purpose of the Stock Plan is to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company by providing them the opportunity to acquire a proprietary interest in the Company and to link their interests and efforts to the long-term interests of the Company’s shareholders.  See “Description of the Stock Plan,” below.

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Equity Compensation Plan Information

The following table presents details of the Company’s equity compensation plan as of September 30, 2013:

					Number of securities remaining
					available for future issuance under
	Number of securities to be		Weighted-average		equity compensation plans
	issued upon exercise of		exercise price of		(excluding securities reflected in
	outstanding options		outstanding options		column (a))
Plan Category	(a)		(b)		(c)
2007 Employee Stock Incentive Plan		1,450,500	$	1.07		654,500

Description of the Stock Plan

The Stock Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors of the Company.  The maximum number of shares of common stock available for issuance under the Stock Plan is 2,105,000.

The Stock Plan permits awards of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, performance shares, performance units and other incentives payable in cash or in shares of common stock.  The Stock Plan provides that the exercise price of any option will not be less than the fair market value of the common stock on the date of grant or, for a 10% shareholder, 110% of fair market value.

Eligibility

An award under the Stock Plan can be made to any employee, officer or director of the Company or a subsidiary, as selected by the Committee.  Subject to certain limitations, an award under the plan can also be made to any consultant, agent, advisor or independent contractor to the Company or a related company, as selected by the Committee.  As of September 30, 2013, there were approximately 297 employees, including officers, and 2 directors eligible to participate in the Stock Plan.

Shares Covered by the Stock Plan

The Stock Plan permits the granting of awards covering an aggregate of 2,105,000 shares of Company common stock.  The shares of Company common stock may be either authorized but unissued shares or treasury shares.

Any shares that are reserved for options or performance shares that lapse, expire, terminate or are cancelled, or if shares of Company common stock are issued under the plan and are thereafter reacquired by the Company, the shares subject to such awards and the reacquired shares may be available for subsequent awards under the Stock Plan.

Stock Options and Rights

Options granted under the Stock Plan may be either non-qualified stock options or incentive stock options qualifying for special tax treatment under Section 422 of the Internal Revenue Code.  The exercise price of any stock option may not be less than the fair market value of the shares of common stock on the date of grant and 110% of fair market value for 10% shareholders.  The exercise price is payable in cash, shares of common stock previously owned by the optionee or a combination of cash and shares of common stock previously owned by the optionee, or by a recourse or non-recourse note executed by the nominee (subject to Sarbanes-Oxley prohibitions on officer loans).  Both non-qualified stock options and incentive stock options will generally expire on the tenth anniversary of the date of grant, unless otherwise specified.

Stock appreciation rights may be granted in tandem with stock options or alone as freestanding stock appreciation rights.  The grant price of a tandem stock appreciation right shall be equal to the exercise price of the related option, and the grant price of a freestanding stock appreciation right shall be the fair market value of the common stock on the grant date.  The exercise of a stock appreciation right will entitle the holder to receive payment equal to the product of (i) the excess of the fair market value of the common stock on the date of exercise over the grant price and (ii) the number of shares with respect to which the stock appreciation right is exercised.  At the discretion of the Compensation Committee, payment upon an exercise of a stock appreciation right may be in cash, common stock or some combination thereof.

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Restricted Stock and Stock Units

Under the Stock Plan, the Committee may grant shares of restricted stock and stock units on terms and conditions, including performance criteria, repurchase and forfeiture, as determined by the Committee.  Upon satisfaction of the terms and conditions of the award, shares of restricted stock become transferable, and the stock units become payable in cash, shares of common stock, or a combination of both, in the discretion of the Committee.

Amendment and Termination of the Stock Plan

The Board or the Committee may, at any time, amend, suspend or terminate the Stock Plan or any portion of the plan, provided that to the extent required by law or a stock exchange rule, shareholder approval is required for any amendment to the plan.  By its terms, the Stock Plan terminates ten years after its effective date.

Recent Grants

In the fiscal year which ended September 30, 2013, the Company granted 370,000 options to its directors, executive officers and employees who were directors, executive officers and employees in the 2013 fiscal year.

DIRECTOR COMPENSATION

Directors other than Mr. Libratore receive (i) an annual fee of $12,000 (plus an additional $6,000 if Audit Committee chairman, and $3,000 if chairman of another Board committee); (ii) a per Board meeting fee of $1,000 ($500 if by telephone) and $500 for each committee meeting ($250 if by telephone) and (iii) a one-time issuance of options for the purchase of 50,000 common shares of the Company, exercisable at the market price at the date of grant and vesting over a two-year period.  Payments for the third and fourth quarter director’s fees were paid in the form of options for the purchase of common shares.  Mr. Libratore is not compensated as a director of the Company.

The following table sets forth each Director’s compensation for the year ended September 30, 2013:

Name	Fees Earned or Paid in Cash ($)		Option  Awards ($)		Total ($)
Mark A. Libratore (1)		—		—		—
Jeannette Corbett	$	18,250	$	7,140	$	25,390
Morgan Duke (2)(3)	$	12,500	$	6,590	$	19,090
Tyler Wick	$	14,750	$	8,180	$	22,930

(1)	Mr. Libratore is not compensated for his services as a director.
(2)	At the direction of Mr. Duke, his compensation is paid to Kinderhook Capital Management, LLC.
(3)	Mr. Duke resigned on July 18, 2013.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information regarding ownership of shares of our common stock, as of November 30, 2013:

·

by each person known by us to be the beneficial owner of 5% or more of our common stock;

·

by each of our directors and executive officers; and

·

by all of our directors and executive officers as a group.

Except as otherwise indicated, each person and each group shown in the table has sole voting and investment power with respect to the shares of common stock indicated. For purposes of the table below, in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person is deemed to be the beneficial owner, of any shares of our common stock over which he or she has or shares, directly or indirectly, voting or investment power or of which he or she has the right to acquire beneficial ownership at any time within 60 days. As used in this prospectus, “voting power” is the power to vote or direct the voting of shares and “investment power” includes the power to dispose or direct the disposition of shares. Common stock beneficially owned and percentage ownership was based on 52,403,484 shares outstanding on November 30, 2013, plus 1,467,583 shares deemed outstanding pursuant to Rule 13d-3, for a total of 53,871,067 shares outstanding. Unless otherwise indicated, the address of each beneficial owner is c/o Liberator Medical Holdings, Inc., 2979 SE Gran Park Way, Stuart, Florida 34997.

Name and Address	Number of Shares		Percent
5% Beneficial Owners:
Millennium Partners, L.P.(1) c/o Millennium Management LLC 666 Fifth Avenue, 8th Floor New York, NY 10103	7,828,202	(2)	14.53	%
Directors and Named Executive Officers:
Mark A. Libratore President and Chief Executive Officer and Director	19,785,867	(3)	36.73	%
Robert Davis Chief Financial Officer	803,750	(4)	1.49	%
John Leger, Vice President, Operations	298,499	(5)	*
Tyler Wick	158,750	(6)	*
Jeannette Corbett	103,750	(7)	*
All directors and executive officers as a group (5 persons)	21,150,616	(8)	39.26	%

*

Less than one percent (1%).

(1)

Millennium Management LLC, a Delaware limited liability company (“Millennium Management”), is the general partner of Millennium Partners, L.P., a Cayman Islands exempted limited partnership (“Millennium Partners”), and may be deemed to have shared voting control and investment discretion over securities owned by Millennium Partners. Millennium Management is also the general partner of the 100% shareholder of ICS Opportunities, Ltd., and may be deemed to have shared voting control and investment discretion over securities owned by ICS Opportunities, Ltd. Millennium International Management, L.P., a Delaware limited liability partnership, is the investment manager of ICS Opportunities, Ltd., and may be deemed to have shared voting control and investment discretion over securities owned by ICS Opportunities, Ltd. Millennium International Management GP LLC, a Delaware limited liability company, is the general partner of Millennium International Management, and may also be deemed to have shared voting control and investment discretion over securities owned by ICS Opportunities, Ltd. Israel A. Englander is the managing partner of Millennium Management and Millennium International Management GP LLC, and consequently may also be deemed to have shared voting control and investment discretion over securities owned by Millennium Partners or ICS Opportunities, as the case may be. The foregoing information is derived from the reporting persons as set forth in a Schedule 13D Amendment filed with the SEC on behalf of the reporting persons on October 16, 2013, and a Form 4 filed on December 3, 2013.

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(2)	Represents as of November 30, 2013, an aggregate 7,828,202 shares owned beneficially by Millennium Partners, L.P., 7,824,079 shares owned beneficially by Millennium Management LLC and Israel Englander (See footnote (1), above), and 4,123 shares owned beneficially by Millennium International Management GP LLC, Millennium International Management LP, and ICS Opportunities, Ltd.
(3)	Includes 165,000 shares underlying options exercisable by Mr. Libratore within 60 days of November 30, 2013.
(4)	Includes 171,750 shares underlying options exercisable by Mr. Davis within 60 days of November 30, 2013.
(5)	Includes 133,750 shares underlying options exercisable by Mr. Leger within 60 days of November 30, 2013.
(6)	Includes 83,750 shares underlying options exercisable by Mr. Wick within 60 days of November 30, 2013.
(7)	Includes 83,750 shares underlying options exercisable by Ms. Corbett within 60 days of November 30, 2013.
(8)	See Footnote Nos. (3) through (7)

Item 13. Certain Relationships and Related Transactions, and Director Independence

All transactions between the Company and related parties are reviewed and approved by our Audit Committee, which is made up entirely of independent directors. We collect information about related party transactions from our officers and directors through annual questionnaires distributed to officers and directors. Each director and officer agrees to abide by our Code of Conduct and Ethics, which provides that officers and directors should avoid conflicts of interest and that any transaction or situation that could involve a conflict of interest between the Company and the officer or director must be reported to the Audit Committee of the Board and is subject to approval by the Audit Committee if and when appropriate. The Code of Conduct and Ethics identifies a non-exclusive list of situations that may present a conflict of interest, including significant dealings with a competitor, customer or supplier, similar dealings by an immediate family member, personal investments in entities that do business with the Company, and gifts and gratuities that influence a person’s business decisions, as well as other transactions between an individual and the Company. The Audit Committee’s charter provides that the Audit Committee will review, investigate and monitor matters pertaining to the integrity or independence of the Board, including related party transactions. The Audit Committee reviews and makes determinations about related party transactions or other conflicts of interest as they arise. Policies requiring review and approval of any transaction or arrangement with a director or executive officer that may present a conflict of interest are set forth in the Code of Conduct and Ethics.

There have not been, since October 1, 2012, nor are the currently proposed, any transactions with related person required to be reported pursuant to Item 404(a) of Regulations S-K.

Item 14. Principal Accountant Fees and Services

Crowe Horwath LLP has served as the Company’s independent registered public accounting firm for the fiscal years ended September 30, 2013 and 2012.

Independent Auditor Fees

The following table sets forth fees billed, or expected to be billed, to the Company by the Company’s independent auditors for the years ended September 30, 2013 and 2012, for (i) services rendered for the audit of the Company’s annual financial statements and the review of the Company’s quarterly financial statements; (ii) services rendered that are reasonably related to the performance of the audit or review of the Company’s financial statements that are not reported as Audit Fees; (iii) services rendered in connection with tax preparation, compliance, advice and assistance; and (iv) all other services:

	Crowe Horwath, LLP
	2013		2012
Audit fees	$	124,900	$	116,358
Audit related fees		4,500		3,000
Total Fees	$	129,400	$	119,358

Audit Committee

The audit and non-audit related fees of the Company’s independent auditors are subject to an engagement letter between the Company and the independent auditors.  Each engagement letter is reviewed and approved by the Company’s Audit Committee.

31

PART IV.

Item 15. Exhibits and Financial Statement Schedules

The following exhibits designated with a footnote reference are incorporated herein by reference to a prior registration statement or a periodic report filed by the Registrant pursuant to Section 13 or 15(d) of the Exchange Act:

Exhibit No.	Description
3.1	Articles of Incorporation of Liberator Medical Holdings, Inc. (formerly known as Cardiff Communications, Inc.), as amended by the Certificate of Amendment to Articles of Incorporation, dated August 26, 2005, and the Certificate Of Amendment to Articles of Incorporation, dated June 4, 2007.  (3)
3.2	Amended and Restated By-Laws of Liberator Medical Holdings, Inc. (5)
4.1	Securities Purchase Agreement, dated as of May 22, 2008, by and among Liberator Medical Holdings, Inc., Liberator Medical Supply, Inc., and the investors listed therein.  (1)
4.2	Intentionally Omitted.
4.3	Form of Warrant, dated May 22, 2008. (1)
4.4	Form of Registration Rights Agreement, dated May 22, 2008, between Liberator Medical Holdings, Inc. and the investor named therein.  (1)
4.5	Form of Guaranty, dated May 22, 2008, made by Liberator Medical Supply, Inc. in favor of the investor named therein. (1)
4.6	Securities Purchase Agreement, dated as of October 17, 2008, by and among Liberator Medical Holdings, Inc., as issuer, Liberator Medical Supply, Inc., and Liberator Health and Education Services, Inc., as guarantors, and the investors listed on the Schedule of Buyers attached thereto.  (5)
4.7	Amended and Restated Senior Convertible Note, dated October 17, 2008, issued to Millennium Partners, L.P.  (5)
4.8	Senior Convertible Note, dated October 17, 2008, issued to Millennium Partners, L.P. (5)
4.9	Warrant to Purchase Common Stock, dated October 17, 2008, issued to Ladenburg Thalmann & Co., Inc.  (5)
4.10	Warrant to Purchase Common Stock, dated October 17, 2008, issued to Millennium Partners, L.P. (5)
4.11	Guaranty, dated October 17, 2008, by Liberator Health and Education Services, Inc. (5)
4.12	Guaranty, dated October 17, 2008, by Liberator Health and Education Services, Inc. (5)
4.13	Guaranty, dated October 17, 2008, by Liberator Medical Supply, Inc. (5)
4.14	Letter, dated October 17, 2008 (re: Registration Rights Agreement dated May 22, 2008). (5)
4.15	Letter, dated October 17, 2008 (re: Ladenburg, Thalmann & Co. Inc., Waiver and Amendment). (5)
4.16	Letter, dated October 17, 2008 (re: Millennium Partners, L.P., Waivers, Amendment and Restatement).  (5)
4.17	Subordination Agreement, dated October 17, 2008. (5)
4.18	Securities Purchase Agreement by and between Liberator Medical Holdings, Inc., and Kinderhook Partners, L.P., dated March 9, 2010.  (7)
4.19	Stockholders Agreement by and between Mark A. Libratore and Kinderhook Partners, L.P., dated March 9, 2010.  (7)
10.1	Lease Agreement, dated April 19, 2005, by and between Liberator Medical Holdings, Inc. and Sunshine Holdings, Inc.  (3)
10.2	Lease Extension Agreement, dated January 23, 2012, by and between Liberator Medical Holdings, Inc. and Sunshine Holdings, Inc., as amended. (9)
10.3	Employment Agreement, dated December 1, 2008, by and between Liberator Medical Holdings, Inc. and Mark A. Libratore.  (6)
10.4	Employment Agreement, dated December 1, 2008, by and between Liberator Medical Holdings, Inc. and Robert Davis.  (6)
10.5	Employment Agreement, dated December 1, 2008, by and between Liberator Medical Holdings, Inc. and John Leger.  (6)
10.6	Investment Banking Agreement by and among Liberator Medical Holdings, Inc., Littlebanc Advisors LLC, and Wilmington Securities, LLC, dated February 5, 2010  (7)
10.7	Research and Consulting Agreement by and between Liberator Medical Holdings, Inc., and Littlebanc Advisors LLC, dated June 21, 2009  (7)
10.8	Letter Agreement dated February 11, 2011, by and among the Liberator Medical Holdings, Inc., Liberator Medical Supply, Inc., and PNC Bank, National Association (8)
10.9	Revolving Line of Credit Note dated February 11, 2011, by and among Liberator Medical Holdings, Inc., Liberator Medical Supply, Inc., and PNC Bank, National Association (8)

32

Exhibit No.	Description
10.10	Borrowing Base Rider dated February 11, 2011, by and among Liberator Medical Holdings, Inc., Liberator Medical Supply, Inc., and PNC Bank, National Association (8)
10.11	Security Agreement dated as of February 11, 2011, by and between Liberator Medical Holdings, Inc., and PNC Bank, National Association (8)
10.12	Security Agreement dated as of February 11, 2011, by and between Liberator Medical Supply, Inc., and PNC Bank, National Association (8)
10.13	Guaranty and Suretyship Agreement dated as of February 11, 2011, by and between Liberator Health and Education Services, Inc., and PNC Bank, National Association (8)
10.14	Guaranty and Suretyship Agreement dated as of February 11, 2011, by and between Practica Medical Manufacturing, Inc., and PNC Bank, National Association (8)
10.15	Guaranty and Suretyship Agreement dated as of February 11, 2011, by and between Liberator Health and Wellness, Inc., and PNC Bank, National Association (8)
10.16	Renewal of Expiration Date Letter Agreement dated February 15, 2013, by and between Liberator Medical Holdings, Inc., and PNC Bank, National Association(9)
14.1	Liberator Medical Holdings, Inc. Code of Conduct and Ethics. (2)
21.1	Subsidiaries*
23.1	Consent of Crowe Horwath LLP *
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)	Incorporated by reference to Liberator Medical Holdings, Inc.’s Current Report Form 8-K, filed with the Securities and Exchange Commission on May 5, 2008.
(2)	Incorporated by reference to Liberator Medical Holdings, Inc.’s Annual Report Form 10-K for the fiscal year ended September 30, 2007, filed with the Securities and Exchange Commission filed with the Securities and Exchange Commission on January 18, 2008.
(3)	Incorporated by reference to Liberator Medical Holdings, Inc.’s Registration Statement on Form S-1 initially filed with the Securities and Exchange Commission on July 30, 2008.
(4)	Incorporated by reference to Liberator Medical Holdings, Inc.’s Amendment No. 1 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on September 30, 2008.
(5)	Incorporated by reference to Liberator Medical Holdings, Inc.’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 21, 2008
(6)	Incorporated by reference to Liberator Medical Holdings, Inc.’s Amendment No. 3 to Registration Statement on Form S-1 filed with the Securities and Exchange Commission on January 9, 2009.
(7)	Incorporated by reference to Liberator Medical Holdings, Inc.’s Form 8-K filed on March 11, 2010.
(8)	Incorporated by reference to Liberator Medical Holdings, Inc.’s Form 8-K filed on February 16, 2011.
(9)	Incorporated by reference to Liberator Medical Holdings, Inc.’s Form S-1/A filed on March 22, 2013.

33

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

LIBERATOR MEDICAL HOLDINGS, INC.

By: /s/ Mark A. Libratore

Mark A. Libratore

President, Chief Executive Officer and Director

Pursuant to the requirements of the Securities Exchange Act of 1934, the following persons on behalf of the registrant and in the capacities and on the dates indicated have signed this report below.

Signature	Title	Date
/s/ Mark A. Libratore Mark A. Libratore	President, Chief Executive Officer and Director (principal executive officer)	December 23, 2013
/s/ Robert J. Davis Robert J. Davis	Chief Financial Officer (principal financial and accounting officer)	December 23, 2013
/s/ Jeannette Corbett Jeannette Corbett	Director	December 23, 2013
/s/ Tyler Wick Tyler Wick	Director	December 23, 2013

34

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of September 30, 2013 and 2012	F-3
Consolidated Statements of Operations for the fiscal years ended September 30, 2013 and 2012	F-4
Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended September 30, 2013 and 2012	F-5
Consolidated Statements of Cash Flows for the fiscal years ended September 30, 2013 and 2012	F-6
Notes to the Consolidated Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders

Liberator Medical Holdings, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Liberator Medical Holdings, Inc. and Subsidiaries (the “Company”) as of September 30, 2013 and 2012, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. 

We conducted our audits 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2013 and 2012, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

Crowe Horwath LLP

Fort Lauderdale, Florida

December 23, 2013

F-2

Liberator Medical Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

As of September 30, 2013 and 2012

(In thousands, except dollar per share amounts)

	2013			2012
Assets
Current Assets:
Cash	$	12,453		$	3,326
Accounts receivable, net of allowances of $4,502 and $5,044, respectively		7,836			10,365
Inventory, net of allowance for obsolete inventory of $308 and $310, respectively		2,187			2,627
Deferred tax assets		2,067			2,254
Prepaid and other current assets		219			287
Total Current Assets		24,762			18,859
Property and equipment, net of accumulated depreciation of $3,492 and $2,888, respectively		1,044			1,250
Deferred advertising, net		22,705			22,426
Intangible assets, net of accumulated amortization of $169 and $91, respectively		414			239
Other assets		174			88
Total Assets	$	49,099		$	42,862
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	4,915		$	6,537
Accrued liabilities		1,354			1,129
Dividends payable		1,569			-
Income tax payable		1,195			92
Other current liabilities		111			92
Total Current Liabilities		9,144			7,850
Deferred tax liability		8,561			5,421
Credit line facility		1,500			2,500
Other long-term liabilities		63			132
Total Liabilities		19,268			15,903
Commitments and contingencies (see Note 9)
Stockholders’ Equity:
Common stock, $.001 par value, 200,000 shares authorized, 52,637 and 48,232 shares issued, respectively; 52,283 and 48,143 shares outstanding at September 30, 2013 and 2012, respectively		53			48
Additional paid-in capital		35,111			34,707
Accumulated deficit		(4,853	)		(7,746	)
Treasury stock, at cost;  354 and 89 shares at September 30, 2013 and 2012, respectively		(480	)		(50	)
Total Stockholders’ Equity		29,831			26,959
Total Liabilities and Stockholders’ Equity	$	49,099		$	42,862

See accompanying notes to consolidated financial statements

F-3

Liberator Medical Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations

For the fiscal years ended September 30, 2013 and 2012

(In thousands, except dollar per share amounts)

	2013			2012
Net Sales	$	69,111		$	60,943
Cost of Sales		25,689			23,924
Gross Profit		43,422			37,019
Operating Expenses:
Payroll, taxes and benefits		14,311			14,136
Advertising		8,908			8,099
Bad debts		3,069			4,664
Depreciation and amortization		683			794
General and administrative		4,692			5,019
Total Operating Expenses		31,663			32,712
Income from Operations		11,759			4,307
Other Expense
Interest expense		(83	)		(75	)
Total Other Expense		(83	)		(75	)
Income before Income Taxes		11,676			4,232
Provision for Income Taxes		4,598			1,731
Net Income	$	7,078		$	2,501
Basic earnings per share:
Weighted average shares outstanding		50,115			48,097
Earnings per share	$	0.14		$	0.05
Diluted earnings per share:
Weighted average shares outstanding		52,375			52,266
Earnings per share	$	0.14		$	0.05
Dividends declared per common share *	$	0.08		$	—
* Three quarterly dividends were declared during fiscal year 2013

See accompanying notes to consolidated financial statements

F-4

Liberator Medical Holdings, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the fiscal years ended September 30, 2013 and 2012

(In thousands)

						Additional								Total
	Common			Common		Paid in		Accumulated			Treasury			Stockholders’
	Shares			Stock		Capital		Deficit			Stock			Equity
Balance at October 1, 2011		48,046		$	48	$	34,504	$	(10,247	)	$	(50	)	$	24,255
Options issued to employees and directors		—			—		122		—			—			122
Common stock issued for employee stock purchase plan		97			—		81		—			—			81
Net income		—			—		—		2,501			—			2,501
Balance at September 30, 2012		48,143		$	48	$	34,707	$	(7,746	)	$	(50	)	$	26,959
Options issued to employees and directors		—			—		76		—			—			76
Common stock issued for exercise of options and warrants		4,294			5		265		—			—			270
Common stock issued for employee stock purchase plan		111			—		63		—			—			63
Purchase of treasury stock		(265	)		—		—		—			(430	)		(430	)
Net income		—			—		—		7,078			—			7,078
Cash dividends declared, $0.08 per share		—			—		—		(4,185	)		—			(4,185	)
Balance at September 30, 2013		52,283		$	53	$	35,111	$	(4,853	)	$	(480	)	$	29,831

See accompanying notes to consolidated financial statements

F-5

Liberator Medical Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the fiscal years ended September 30, 2013 and 2012

(In thousands)

	2013			2012
Cash flow from operating activities:
Net income	$	7,078		$	2,501
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		9,404			8,672
Stock-based compensation		76			122
Provision for doubtful accounts and contractual adjustments		3,407			4,787
Deferred income taxes		3,321			1,697
Reserve for inventory obsolescence		126			166
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		(787	)		(7,293	)
Deferred advertising		(9,000	)		(13,113	)
Inventory		368			216
Other assets		40			143
Accounts payable		(1,724	)		1,529
Accrued liabilities		1,339			116
Other liabilities		(15	)		(89	)
Net Cash Flows Provided by (Used in) Operating Activities		13,633			(546	)
Cash flows from investing activities
Purchase of property and equipment and other		(367	)		(151	)
Acquisition of business, net of cash acquired		(319	)		—
Net Cash Flows Used in Investing Activities		(686	)		(151	)
Cash flows from financing activities
Proceeds from (repayments to) credit line facility		(1,000	)		1,000
Costs associated with credit line facility		(21	)		(21	)
Proceeds from employee stock purchase plan		48			67
Proceeds from exercise of options and warrants		270			—
Cash dividends paid		(2,616	)		—
Purchase of treasury stock		(430	)		—
Payments of capital lease obligations		(71	)		(39	)
Net Cash Flows Provided by (Used in) Financing Activities		(3,820	)		1,007
Net increase in cash		9,127			310
Cash at beginning of period		3,326			3,016
Cash at end of period	$	12,453		$	3,326
Supplemental disclosure of cash flow information:
Cash paid for interest	$	84		$	73
Cash paid for income taxes	$	171			—
Supplemental schedule of non-cash investing and financing activities:
Capital expenditures funded by capital lease borrowings	$	23		$	202
Cash dividends declared, but not yet paid	$	1,569			—

See accompanying notes to consolidated financial statements

F-6

Liberator Medical Holdings, Inc. and Subsidiaries

Notes To The Consolidated Financial Statements

September 30, 2013

Note 1 — Description of Business

Liberator Medical Holdings, Inc. and subsidiaries (the “Company”) distribute direct-to-consumer durable medical supplies to customers in all fifty states within the United States. The Company’s revenue is primarily derived from supplying urological, ostomy, and diabetic medical supplies and mastectomy fashions to Medicare-eligible seniors with chronic conditions. We provide a simple, reliable way for patients to purchase medical supplies on a recurring basis. Our employees communicate directly with the patients and their physicians regarding the patients’ prescriptions and supply requirements. The Company bills Medicare and third-party insurers on behalf of its patients. The Company markets its products directly to consumers, primarily through targeted media, direct-response television, Internet, and print advertising throughout the United States. Our patient service representatives are specifically trained to communicate with patients, in particular seniors, helping them to follow their doctors’ orders and manage their chronic diseases. The Company’s operating platforms enable it to efficiently collect the required documentation from physicians and patients in order to bill and collect amounts due from Medicare, other third party payers and directly from patients.

In July 2013, the Company acquired the stock of a small ostomy supply business for a cash purchase price of $343,000. The acquisition was immaterial to the Company's consolidated financial position and results of operations.

Note 2 — Summary of Significant Accounting Policies

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America. A summary of the more significant policies is set forth below:

Principles of Consolidation

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

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements in order to maintain consistency and comparability between the periods presented.  The following reclassification was made to the fiscal year 2012 financial statements to be consistent with the fiscal year 2013 financial statements presented:

·

On the Consolidated Balance Sheet for the fiscal year ended September 30, 2012, $92,000 was reclassified within the Current Liabilities section from Accrued liabilities to Income tax payable.

The reclassification had no impact on previously reported total assets, stockholders’ equity, cash flows or net income.

Segment Reporting

The Company operates and tracks its results as one reportable segment, Mail Order Supplies, based on the aggregation of three operating segments. Over 99% of the Company's net sales are generated through the Mail Order Supplies operating segment. The Company operates a retail store in Tennessee and a small specialty catheter manufacturer based in Florida, which sell the same types of medical supplies as our Mail Order Supplies segment, but sales are less than 1% of the Company's total net sales for these two operating segments. The Company's President and Chief Executive Officer has been identified as the Chief Operating Decision Maker.

F-7

The following table summarizes the Company's revenues by product line as a percentage of net sales for the fiscal years ending September 30, 2013 and 2012:

	2013	2012
Product Lines:
Urological supplies	77.3%	76.7%
Ostomy supplies	16.5%	15.6%
Mastectomy fashions	5.2%	6.3%
Diabetic supplies	1.0%	1.4%

Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Such estimates include, but are not limited to, (i) the net realizable value of accounts receivable; (ii) the reserve for excess and obsolete inventory; (iii) the expected period and amounts of future benefits to be realized directly from deferred direct advertising costs; (iv) the fair values of stock compensation expense; (v) the valuation of intangible assets; and (vi) valuation allowances for deferred income tax assets. Actual results could differ from management’s estimates.

Fair Value of Financial Instruments

Financial instruments include cash, receivables, payables and debt obligations. Due to the short-term nature of the financial instruments, the carrying value is representative of their fair value. The carrying value of the Credit Line Facility approximates fair value as interest rates are indexed to the Daily LIBOR Rate.

Accounts Receivable

Accounts receivable are reported net of allowances for contractual adjustments and uncollectible accounts. Contractual adjustments are recorded against revenues. Contractual adjustments result from differences between the payment amount received and the expected realizable amount. Bad debt is recorded as an operating expense and consists of billed charges that are ultimately deemed uncollectible due to the customer’s or third-party payer’s inability or refusal to pay.

The Company performs analyses to evaluate the net realizable value of accounts receivable. Specifically, the Company considers historical realization data, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that the Company’s estimates could change, which could have a material impact on the Company’s results of operations and cash flows. The Company does not accrue interest on its accounts receivable.

F-8

The following is a reconciliation of the beginning and ending allowances for accounts receivable for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	Beginning Balance at October 1st		Charged against Revenues or to Bad Debt Expense		Actual Deductions against Allowance			Ending Balance at September 30th
Fiscal year ended September 30, 2012:
Allowance for contractual adjustments	$	646	$	123	$	—		$	769
Allowance for uncollectible accounts		3,531		4,664		(3,920	)		4,275
Total allowances for accounts receivable	$	4,177	$	4,787	$	(3,920	)	$	5,044
Fiscal year ended September 30, 2013:
Allowance for contractual adjustments	$	769	$	338	$	—		$	1,107
Allowance for uncollectible accounts	4,275			3,069		(3,949	)	3,395
Total allowances for accounts receivable	$	5,044	$	3,407	$	(3,949	)	$	4,502

Inventories

Inventories are comprised of finished goods and are stated at the lower of cost or market determined by the first-in, first-out (FIFO) method. Allowances for excess and obsolete inventory are recorded for inventory considered to be in excess or obsolete.

Deferred Advertising Costs

We capitalize and amortize direct-response advertising and related costs when we can demonstrate among other things that patients have directly responded to our advertisements. We assess the realizability of the amounts of direct-response advertising costs reported as assets at the end of each reporting period by comparing the carrying amounts of such assets to the probable remaining future net cash flows expected to result directly from such advertising. Management’s judgments include determining the period over which such net cash flows are estimated to be realized.

Direct-response advertising costs are accumulated into quarterly cost pools and amortized separately. The amortization is the amount computed using the ratio that current period revenues for each direct-response advertising cost pool bear to the total of current and estimated future benefits for that direct-response advertising cost pool. We have persuasive evidence that demonstrates future benefits are realized from our direct-response advertising efforts beyond four years. Since the reliability of accounting estimates decreases as the length of the period for which such estimates are made increases, we estimate future benefits for each advertising cost pool for a period of no longer than four years at each reporting period, which creates a “rolling” type amortization period. Once a particular cost pool has been amortized to a level where the difference between amortizing the cost pool over a “rolling” four-year period and amortizing the cost pool on a “straight-line” basis over a period shorter than four years is de minimis, we amortize the costs over a fixed time period based on current and expected future revenues. As a result of this policy, our direct-response advertising costs are amortized over a period of approximately six years based on probable future net revenues updated at each reporting period.

A summary of deferred advertising costs for the fiscal years ending September 30, 2013 and 2012, is as follows (in thousands):

	2013			2012
Deferred Advertising Costs:
Beginning Balance, 10/1	$	22,426		$	17,191
Plus: Direct-response advertising spend		9,000			13,113
Less: Amortization of deferred advertising costs		(8,721	)		(7,878	)
Ending Balance, 9/30	$	22,705		$	22,426

F-9

A business change, including a significant change in reimbursement rates, that reduces or increases expected net cash flows or that shortens or lengthens the period over which such net cash flows are estimated to be realized could result in accelerated or reduced charges against our earnings.

Debt Issuance Costs

Costs associated with obtaining, closing, and modifying loans and/or debt instruments such as, but not limited to placement agent fees, attorney fees and state documentary fees are capitalized and expensed over the term of the loan.

Debt issuance costs of $21,000 and $21,000 were capitalized during the years ended September 30, 2013 and 2012, respectively. Debt issuance costs amortized for the years ended September 30, 2013 and 2012, were $23,000 and $24,000, respectively.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Property and equipment is depreciated using the straight-line method over the estimated useful life of the respective assets, which range from 3 to 10 years. Leasehold improvements are amortized using the straight-line method over the shorter of the related lease term or useful life. Maintenance, repairs, and minor improvements are charged to expense as incurred; major renewals and betterments that extend the useful life of the associated asset are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in results of operations for the period.

Intangible Assets

Intangible assets with definite lives are amortized over their estimated useful lives. We currently amortize acquired intangible assets with definite lives over a period of between five and eight years.

Long –lived Assets

Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair value. We did not record any impairments of long-lived assets during fiscal years 2013 and 2012.

Treasury Stock

Treasury stock is accounted for using the cost method whereby the entire cost of the acquired stock is recorded as treasury stock.

Revenue Recognition

We recognize revenue related to product sales upon delivery to customers, provided that we have received and verified any written documentation required to bill Medicare, other government agencies, third-party payers, and patients. For product shipments for which we have not yet received the required written documentation, revenue recognition is delayed until the period in which those documents are collected and verified. We record revenue at the amounts expected to be collected from government agencies, other third-party payers, and from patients directly. We record, if necessary, contractual adjustments equal to the difference between the reimbursement amounts defined in the fee schedule and the revenue recorded per the billing system. These adjustments are recorded as a reduction of both gross revenues and accounts receivable. We analyze various factors in determining revenue recognition, including a review of specific transactions, current Medicare regulations and reimbursement rates, historical experience and the credit-worthiness of patients.

Revenue related to Medicare reimbursements is calculated based on government-determined reimbursement prices for Medicare-covered items. The reimbursements that Medicare pays are subject to review by appropriate government regulators. Medicare reimburses at 80% of the government-determined prices for reimbursable supplies, and we bill the remaining balance to either third-party payers or directly to patients.

F-10

Shipping and Handling Costs

Shipping and handling costs are not charged to the patients in compliance with Medicare policy. Shipping and handling costs for the years ended September 30, 2013 and 2012, were $2,163,000 and $2,905,000, respectively. These amounts are included in cost of sales on the accompanying consolidated statements of operations.

Stock-Based Compensation

The Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model, which requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based award.

The expected volatility is based on the historical volatility of the Company's common stock share price using a historical term equal to the expected term of the stock-based award.

Prior to the third quarter of fiscal year 2013, the Company had not declared any dividends and 0% was used as the expected dividend yield for calculating the fair value of stock-based awards. Beginning in the third quarter of fiscal year 2013, the expected dividend yield is calculated based on the annualized cash dividend declared by the Company's Board of Directors for the current quarter corresponding to the grant date of the stock-based award.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term equal to the expected term of the stock-based award.

In December 2007, the SEC issued guidance allowing companies, under certain circumstances, to utilize a simplified method, based on the average of the vesting term and contractual term of the award, in determining the expected term of stock-based awards. Since we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term, we utilize the simplified method to calculate the expected term of stock-based awards.

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company files consolidated federal and state income tax returns.

Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense.

Leases

The Company performs a review of newly acquired leases to determine whether a lease should be treated as a capital or operating lease. Capital lease assets are capitalized and depreciated over the term of the initial lease. A liability equal to the present value of the aggregated lease payments is recorded utilizing the stated lease interest rate. If an interest rate is not stated, the Company will determine an estimated cost of capital and utilize that rate to calculate the present value. For operating leases, the Company records rent expense and amortization of leasehold improvements on a straight-line basis over the initial term of the lease. All leasehold incentives, rent holidays, and/or other incentives are factored into the calculation of the deferred rent liability in order to record rent expense on a straight-line basis over the initial term of the lease. Leasehold incentives are capitalized and depreciated over the initial term of the lease.

F-11

Earnings per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated using the treasury stock method and reflect the potential dilution that could occur if stock options or warrants were exercised and were not anti-dilutive.

Recent Accounting Pronouncements

In July 2013, the FASB issued guidance on financial statement presentation of an unrecognized tax benefit when a net operation loss carryforward, a similar tax loss, or a tax credit carryforward exists.  Under this guidance an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows.  To the extent a net operating loss carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any addition income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The adoption will not have a material impact on the Company’s consolidated financial statements.

NOTE 3 — Property and Equipment

A summary of property and equipment at September 30, 2013 and 2012, is as follows (dollars in thousands):

	Estimated
	Life	2013			2012
Leased equipment	3 — 5 years	$	807		$	784
Transportation equipment	5 — 10 years		55			51
Warehouse equipment	5 — 10 years		132			131
Office furniture	5 — 10 years		613			495
Computer equipment	3 — 5 years		599			507
Telephone equipment	5 years		101			87
Website	5 years		114			114
Server software	3 years		343			318
Leasehold improvements	Shorter of life of asset or lease		1,749			1,630
Signage	5 — 10 years		23			21
Total property and equipment			4,536			4,138
Less: accumulated depreciation			(3,492	)		(2,888	)
Property and equipment, net		$	1,044		$	1,250

The amounts charged to operating expenses for depreciation of property and equipment for the years ended September 30, 2013 and 2012 were $604,000 and $729,000, respectively.

Note 4 — Intangible Assets

A summary of intangible assets at September 30, 2013 and 2012, is as follows (in thousands):

	2013				2012
Acquired customer lists	$	502		$	330
Acquired trade name		81			-
Less: accumulated amortization		(169	)		(91	)
Net intangible assets	$	414		$	239

F-12

Amortization expense associated with intangible assets for fiscal years 2013 and 2012 was $78,000 and $66,000, respectively. Estimated amortization expense for intangible assets as of September 30, 2013, for the next five fiscal years is as follows (in thousands):

	Amount
Fiscal years ending September 30:
2014	$	121
2015		121
2016		89
2017		35
2018		29
	$	395

NOTE 5 — Credit Line Facility

PNC Credit Line Facility

On February 11, 2011, the Company entered into a Committed Line of Credit agreement (the “PNC Credit Line Facility”) with PNC Bank, National Association ("PNC"). Pursuant to the PNC Credit Line Facility, the PNC will provide a maximum of $8,500,000 of revolving credit secured by the Company’s personal property, including inventory and accounts receivable. Interest is payable on any advance at LIBOR plus 2.75%. Advances under the PNC Credit Line Facility are subject to a Borrowing Base Rider, which establishes a maximum percentage amount of the Company’s accounts receivable and inventory that can constitute the permitted borrowing base. The PNC Credit Line Facility originally expired in February 2013; however, in January 2012 and February 2013, the expiration was extended to February 2014 and February 2015, with all other terms and conditions remaining the same.

The PNC Credit Line Facility requires the Company to comply with certain financial covenants which are defined in the credit agreement. As of September 30, 2013, these financial covenants included:

·

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

·

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

As of September 30, 2013, the Company was in compliance with all applicable financial covenants pursuant to the PNC Credit Line Facility. As of September 30, 2013, the availability under the PNC Credit Line Facility was $4,908,000 with an outstanding balance of $1,500,000. The interest rate for the outstanding balance as of September 30, 2013, was 2.93%. For fiscal years ended September 30, 2013 and 2012, the Company incurred $75,000 and $69,000, respectively, in interest expense related to the PNC Credit Line Facility.

NOTE 6 — Stockholders’ Equity

Warrants

In November 2007, the Company issued warrants to purchase 125,000 shares of the Company’s common stock at an exercise price of $2.00 per share as compensation for consulting services. These warrants expired in November 2012.

In connection with convertible notes issued from February 2008 through October 2008, the Company issued warrants to purchase 5,204,000 shares of the Company's common stock at an exercise price of $1.00 per share and 1,166,667 shares of the Company’s common stock at an exercise price of $1.25 per share to the note holders. In addition, the Company  issued warrants to purchase 51,000 shares of the Company’s common stock at an exercise price of $1.00 per share and 266,667 shares of the Company’s common stock at an exercise price of $1.25 per share to the placement agents. As of September 30, 2013, 97,000 shares of these warrants were exercised and the remaining warrants expired unexercised during fiscal years 2012 and 2013.

F-13

In connection with the sale of common stock on March 9, 2010, for gross proceeds of $7 million, the Company issued warrants to purchase 233,333 shares of the Company’s common stock at an exercise price of $2.50 per share to the placement agent. These warrants are still outstanding as of September 30, 2013, and expire in October 2015. The grant-date fair value of these warrants of $228,961 was determined using the Black-Scholes option pricing model with the assumptions listed below:

Risk-free interest rate:		2.34%
Expected term:	5 years
Expected dividend yield:		0.00%
Expected volatility:		63.66%

A summary of warrants issued, exercised and expired during the fiscal years ended September 30, 2013 and 2012, is as follows:

				Weighted
				Avg.
				Exercise
Warrants:	Shares			Price
Balance at October 1, 2011		6,965,667		$	1.12
Issued		-			-
Exercised		-			-
Expired		(1,433,334	)		1.25
Balance at September 30, 2012		5,532,333		$	1.09
Issued		-			-
Exercised		(16,000	)		1.00
Expired		(5,283,000	)		1.02
Balance at September 30, 2013		233,333		$	2.50

Options

In connection with conversion of $1,589,000 of debt to equity and under the terms of the reverse merger in June 2007, Mr. Libratore, the Company’s founder, principal shareholder and President, received options to purchase 4,541,009 shares of the Company’s common stock at an exercise price of $0.0001.  In March 2007, Mr. Libratore exercised options to purchase 620,000 shares. In April 2013, options for the remaining 3,921,009 shares were exercised by Mr. Libratore.

Employee and Director Stock Options

On September 14, 2007, the Board of Directors adopted the Company’s 2007 Stock Plan with an aggregate of 1,000,000 shares of the Company’s unissued common stock. The Plan was approved by the shareholders at the Company’s annual meeting in September 2008. The 1,000,000 shares authorized under the 2007 Stock Plan are reserved for issuance to officers, directors, employees, prospective employees and consultants as incentive stock options, non-qualified stock options, restricted stock awards, other equity awards and performance based stock incentives. The option price, number of shares and grant date are determined at the discretion of the Company’s board of directors or the committee overseeing the 2007 Stock Plan.

On July 13, 2009, the Board of Directors of the Company approved an amendment to the 2007 Stock Plan to increase the number of shares authorized under the plan from 1,000,000 to 2,000,000 shares. The amendment was approved at the Company’s annual meeting on September 4, 2009.

On September 12, 2011, the Board of Directors of the Company approved an amendment to the 2007 Stock Plan to increase the number of shares authorized under the plan from 2,000,000 to 2,105,000 shares.  This amendment was approved at the Company’s annual meeting on October 20, 2011.

As of September 30, 2013, there are 1,450,500 shares outstanding and 654,500 shares available for grant under the 2007 Stock Plan.

F-14

There were 370,000 options granted during the fiscal year 2013 and no options granted during the fiscal year 2012. The weighted-average grant date fair value of options granted during the fiscal year 2013 was $0.29.  There were 367,000 options exercised during fiscal year 2013 and none exercised during fiscal year 2012. The total intrinsic value of options exercised during fiscal year 2013 was approximately $309,000.

The fair values of stock-based awards granted during the fiscal year ended September 30, 2013, were calculated with the following weighted-average assumptions:

	2013
Risk-free interest rate:	0.40%
Expected term:	3 years
Expected dividend yield:	0.00%
Expected volatility:	46.87%

For the fiscal years ended September 30, 2013 and 2012, the Company recorded $58,000 and $95,000, respectively, of stock-based compensation expense, which has been classified as Operating expenses, sub-classification of Payroll, taxes and benefits, for the employees and General and administrative for the directors. As of September 30, 2013, there was $45,000 in total unrecognized compensation expense related to non-vested employee stock options granted under the 2007 Stock Plan, which is expected to be recognized over 1.0 year.

Stock option activity for the fiscal years ended September 30, 2013 and 2012 is summarized as follows:

			Weighted		Weighted
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
2007 Stock Plan:	Shares		Price		Life (Years)	Value
Options outstanding at October 1, 2011	2,085,000		$	0.99	2.75	$	141,750
Granted	-			-
Expired or forfeited	(50,000	)		2.18
Options outstanding at September 30, 2012	2,035,000		$	0.97	1.74	$	92,150
Granted	370,000			0.93
Exercised	(367,000	)		0.72
Expired or forfeited	(587,500	)		0.83
Options outstanding at September 30, 2013	1,450,500		$	1.07	1.98	$	1,401,445
Options exercisable at September 30, 2013	1,263,000		$	1.10	1.65	$	1,190,320
Options vested or expected to vest at September 30, 2013	1,450,500		$	1.07	1.98	$	1,401,445

2009 Employee Stock Purchase Plan

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

As of September 30, 2013, 481,579 shares of the Company’s common stock have been purchased through the ESPP, using $355,000 of proceeds received from employee payroll deductions. For the fiscal years ended September 30, 2013 and 2012, the Company received $48,000 and $67,000, respectively, through payroll deductions under the ESPP.

F-15

As of September 30, 2013, the Company had not authorized additional shares to be offered under the ESPP, effectively suspending the plan.

The Company used the Black-Scholes option pricing model to estimate the fair value of the shares expected to be issued under the ESPP at the grant date, the beginning date of the offering period, and recognized compensation expense ratably over the offering period. If an employee elected to increase their payroll withholdings during the offering period, the increase was treated as a modification to the original option granted under the ESPP. As a result of the modification, the incremental fair value, if any, associated with the modified award was recognized as compensation expense at the date of the modification.  Compensation expense is recognized only for shares that vest under the ESPP. For the fiscal years ended September 30, 2013 and 2012, the Company recognized $18,000 and $27,000, respectively, of compensation expense related to the ESPP.

NOTE 7 — Basic and Diluted Earnings per Common Share

The following is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share for the fiscal years ended September 30, 2013 and 2012 (in thousands, except per share amounts):

	2013			2012
Numerator:
Net income — diluted	$	7,078	$	2,501
Denominator:
Weighted average shares outstanding — basic		50,115		48,097
Effect of dilutive securities:
Stock options and warrants		2,260		4,169
Weighted average shares outstanding — diluted		52,375		52,266
Earnings per share — basic	$	0.14	$	0.05
Earnings per share — diluted	$	0.14	$	0.05

The following table summarizes the number of shares outstanding for each of the periods presented, but not included in the calculation of diluted earnings per share because the impact would have been anti-dilutive for the fiscal years indicated (in thousands):

	2013		2012
Stock options		735		1,150
Warrants		233		5,532
Totals		968		6,682

F-16

NOTE 8 — Income Taxes

Income tax expense is as follows (in thousands):

	Fiscal year ended September 30,
	2013		2012
Current income tax expense:
Federal	$	1,005	$	3
State		271		31
	$	1,276	$	34
Deferred income tax expense:
Federal	$	2,879	$	1,454
State		443		243
	$	3,322	$	1,697
Total income tax expense	$	4,598	$	1,731

Income tax expense differs from the amounts that would result from applying the federal statutory rate of 35% to the Company’s income before taxes as follows (in thousands):

	Fiscal year ended September 30,
	2013			2012
Computed “expected” income tax expense	$	4,087	$	1,481
State income taxes, net of federal benefit		459		178
True-up of prior year differences		—		18
Other nondeductible expenses		52		54
Total income tax expense	$	4,598	$	1,731

F-17

Temporary differences that give rise to the components of deferred tax assets and liabilities are as follows (in thousands):

	As of September 30,
	2013			2012
Deferred tax assets — current:
Allowance for bad debts	$	1,746		$	1,946
Capitalization of costs to inventory		30			33
Inventory reserve		132			120
Deferred expenses		97			94
Accrued expenses		62			61
Deferred tax assets — current		2,067			2,254
Less: Valuation allowance		—			—
Net deferred tax assets — current	$	2,067		$	2,254
Deferred tax assets — non-current:
Net operating loss carry-forwards	$	55		$	3,074
Transaction costs		4			—
Charitable contribution carry-forwards		—			5
Maximum tax credit carry-forward		—			3
Property and equipment		145			165
Deferred tax assets — non-current		204			3,247
Less: Valuation allowance		(7	)		(17)
Net deferred tax assets — non-current	$	197		$	3,230
Deferred tax liability — non-current:
Deferred advertising		(8,758	)		(8,651)
Deferred tax liability — non-current	$	(8,758	)	$	(8,651)
Net deferred tax liability	$	(6,494	)	$	(3,167)

As of September 30, 2013, the Company had net operating losses of approximately $137,000 for federal income tax purposes that can be carried forward for up to twenty years and deducted against future federal taxable income.  The Company also had net operating losses of approximately $158,000 for Tennessee income tax purposes that can be carried forward for up to fifteen years and deducted against future Tennessee taxable income.  The net operating loss carry-forwards expire in various years through 2031.  All of the total federal and Tennessee net operating losses are subject to limitations under the provisions of Internal Revenue Code section 382 due to an ownership change.

As of September 30, 2013, management determined a valuation allowance against the net deferred tax assets of $6,700.  As of September 30, 2012, management determined a valuation allowance against the net deferred tax assets of $17,000.  In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making the assessment.

The Company and its subsidiaries file a consolidated federal and Florida income tax return.  Two of the Company’s subsidiaries will file additional separate state income tax returns.  These returns remain subject to examination by taxing authorities for all years after September 30, 2009.

F-18

For fiscal years 2013 and 2012, the Company recorded as part of its income tax expense an unrecognized tax benefit for certain state taxes of $46,000 and $26,000, respectively, and interest and/or penalties related to the unrecognized tax benefit of $8,000 and $4,000, respectively.  The Company had $146,000 and $92,000 of total unrecognized tax benefits, including accrued interest and penalties that are included in accrued liabilities in the accompanying balance sheet as of September 30, 2013 and 2012, respectively.  The state statutes and regulations and their applicability to specific situations vary by state.  

The following is a reconciliation of the beginning and ending liabilities for unrecognized tax benefits for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	2013		2012
Balance at October 1	$	78	$	52
Gross increases – tax positions in current period		46		26
Gross decreases – tax positions in current period		—		—
Balance at September 30	$	124	$	78
Accrued interest and penalties		22		14
Total liability for unrecognized tax benefits	$	146	$	92

We do not believe it is reasonably possible that unrecognized tax benefits will significantly change within the next twelve months. We also do not believe that the recognition of any of the unrecognized tax benefits would affect the Company’s effective tax rate.

NOTE 9 — Commitments and Contingencies

Capital Lease Obligations

The Company leases certain computer equipment, software, office furniture, and warehouse equipment under capital leases. The net book value of these assets was $133,000 and $179,000 as of September 30, 2013, and 2012, respectively. The payment terms of the capital leases expire between November 2013 and November 2015.

The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of September 30, 2013 (in thousands):

	Amount
Fiscal year ending September 30:
2014	$	89
2015		59
2016		1
Total minimum lease payments		149
Less: Interest on capitalized lease obligations		(8	)
Present value of capitalized lease obligations		141
Less: Current portion		(83	)
Capitalized lease obligations, net of current portion	$	58

The present value of capital lease obligations is included in other current liabilities and other long-term liabilities on the Company’s Consolidated Balance Sheet as of September 30, 2013. Interest expense on capitalized leases was $9,000 and $6,000 for the fiscal years ended September 30, 2013 and 2012, respectively.

F-19

Operating Leases

The Company leases various office and warehouse facilities, software, and equipment under non-cancelable operating leases that expire at various times through April 2016. Future minimal rental and lease commitments under non-cancelable operating leases with terms in excess of one year as of September 30, 2013 are as follows (in thousands):

	Amount
Fiscal year ending September 30:
2014	$	844
2015		125
2016		49
Total minimum lease payments	$	1,018

Rent, software, and equipment lease expense for the years ended September 30, 2013 and 2012, was $1,337,000 and $1,205,000, respectively.

Purchase Commitments

In May 2009, the Company entered into a long distance telephone service agreement that requires the company to purchase a minimum of $6,000 per month, excluding vendor rebates, of long distance service through December 2009. Effective January 2010, the agreement was revised to $10,000 per month, excluding additional vendor rebates. The long distance service agreement expires in April 2014. The Company purchased $146,000 and $161,000 of long distance service under the agreement for the fiscal years ended September 30, 2013 and 2012, respectively.

Litigation

From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. There are currently no such pending proceedings to which we are a party that our management believes will have a material adverse effect on the Company’s consolidated financial position or results of operations. However, future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

NOTE 10 — Concentration of Credit Risk

The Company has cash in financial institutions in excess of federally insured limits. However, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash balances. Cash exceeding federally insured limits amounted to $11,345,000 and $1,000 as of September 30, 2013 and 2012, respectively.

The Company generally does not require collateral or other security in extending credit to its customers; however, the Company routinely accepts assignment of (or is otherwise entitled to receive) benefits receivable under the health insurance programs, plans, or policies covering its customers. Accounts receivable due from government sources under Medicare, Medicaid, and other federally funded programs was approximately 50% and 58% of total gross receivables as of September 30, 2013 and 2012, respectively.

A significant portion of the Company’s revenues are generated from the sale of urological products. As a result, changes in the external environment, including regulatory changes, could be beneficial or detrimental depending on market conditions. The impact of these changes cannot be determined at this time.

NOTE 11 — Subsequent Events

On November 14, 2013, the Board of Directors approved a cash dividend of $0.03 per common share to its shareholders.  The dividend will be paid on January 10, 2014, to all shareholders of record as of the close of business on December 26, 2013.  The total dividend payment is expected to be approximately $1.6 million.

F-20

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF LIBERATOR MEDICAL HOLDINGS, INC.

Name of Subsidiary	Jurisdiction of Organization
Liberator Medical Supply, Inc.	Florida
Liberator Health and Education Services, Inc.	Florida
Liberator Health and Wellness, Inc.	Florida
Practica Medical Manufacturing, Inc.	Florida
Tri-County Medical & Ostomy Supplies, Inc.”	Tennessee

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements Forms S-1/A (No. 333-152652) and Form S-8 (No. 333-159883) of Liberator Medical Holdings, Inc. of our report dated December 23, 2013, relating to the consolidated financial statements appearing in this Annual Report on Form 10-K.

/s/ Crowe Horwath LLP

Crowe Horwath LLP

Fort Lauderdale, Florida

December 23, 2013

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

 PURSUANT TO RULE 13a-14(a) OR 15d-14(a)

 OF THE SECURITIES EXCHANGE ACT OF 1934,

 AS ADOPTED PURSUANT TO SECTION 302 OF THE

 SARBANES-OXLEY ACT OF 2002

I, Mark A. Libratore, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Liberator Medical Holdings, Inc., and Subsidiaries (the “Registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the unaudited condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c)

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d)

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.

The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: December 23, 2013

/s/ Mark A. Libratore

Mark A. Libratore,

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

 PURSUANT TO RULE 13a-14(a) OR 15d-14(a)

 OF THE SECURITIES EXCHANGE ACT OF 1934,

 AS ADOPTED PURSUANT TO SECTION 302 OF THE

 SARBANES-OXLEY ACT OF 2002

I, Robert J. Davis, certify that:

1.

I have reviewed this Annual Report on Form 10-K of Liberator Medical Holdings, Inc., and Subsidiaries (the “Registrant”);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the unaudited condensed consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

4.

The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c)

Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;

(d)

Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.

The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of Registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Dated: December 23, 2013

/s/ Robert J. Davis

Robert J. Davis, Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark A. Libratore, the President and Chief Executive Officer of Liberator Medical Holdings, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

This Annual Report on Form 10-K of the Company for the fiscal year ended September 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2.

The information contained in this Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: December 23, 2013

/s/ Mark A. Libratore

Mark A. Libratore,

President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert J. Davis, the Chief Financial Officer of Liberator Medical Holdings, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

This Annual Report on Form 10-K of the Company for the fiscal year ended September 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

2.

The information contained in this Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: December 23, 2013

/s/ Robert J. Davis

Robert J. Davis, Chief Financial Officer

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Subsequent Events

12 Months Ended

Sep. 30, 2013

Subsequent Events

Subsequent Events

NOTE 11 — Subsequent Events

On November 14, 2013, the Board of Directors approved a cash dividend of $0.03 per common share to its shareholders.  The dividend will be paid on January 10, 2014, to all shareholders of record as of the close of business on December 26, 2013.  The total dividend payment is expected to be approximately $1.6 million.

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Lease commitments during the period (Details) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Lease commitments during the period
Interest expense on capitalized leases during the period	$ 9,000	$ 6,000
Rent, software, and equipment lease expense for the years	$ 1,337,000	$ 1,205,000

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Consolidated Statements of Operations (in thousands, except per share amounts) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
REVENUES:
Net Sales	$ 69,111	$ 60,943
Cost of Sales	25,689	23,924
Gross Profit	43,422	37,019
Operating Expenses
Payroll, taxes and benefits	14,311	14,136
Advertising	8,908	8,099
Bad debts	3,069	4,664
Depreciation and amortization	683	794
General and administrative	4,692	5,019
Total Operating Expenses	31,663	32,712
Income from Operations	11,759	4,307
Other Expense
Interest expense	(83)	(75)
Total Other Expense	(83)	(75)
Income before Income Taxes	11,676	4,232
Provision for Income Taxes	4,598	1,731
Net Income	$ 7,078	$ 2,501
Basic earnings per share:
Weighted average shares outstanding;	50,115	48,097
Earnings per share;	$ 0.14	$ 0.05
Diluted earnings per share:
Weighted average shares outstanding	52,375	52,266
Earnings per share	$ 0.14	$ 0.05
Dividends declared per common share *	$ 0.08	$ 0.00

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Intangible Assets

12 Months Ended

Sep. 30, 2013

Intangible Assets:

Intangible Assets

Note 4 — Intangible Assets

A summary of intangible assets at September 30, 2013 and 2012, is as follows (in thousands):

	2013				2012
Acquired customer lists	$	502		$	330
Acquired trade name		81			-
Less: accumulated amortization		(169	)		(91	)
Net intangible assets	$	414		$	239

Amortization expense associated with intangible assets for fiscal years 2013 and 2012 was $78,000 and $66,000, respectively. Estimated amortization expense for intangible assets as of September 30, 2013, for the next five fiscal years is as follows (in thousands):

	Amount
Fiscal years ending September 30:
2014	$	121
2015		121
2016		89
2017		35
2018		29
	$	395

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Schedule Of Income Taxes (Tables)

12 Months Ended

Sep. 30, 2013

Schedule Of Income Taxes:

Schedule of Components of Income Tax Expense (Benefit)

Income tax expense is as follows (in thousands):

	Fiscal year ended September 30,
	2013		2012
Current income tax expense:
Federal	$	1,005	$	3
State		271		31
	$	1,276	$	34
Deferred income tax expense:
Federal	$	2,879	$	1,454
State		443		243
	$	3,322	$	1,697
ToTotal income tax expense	$	4,598	$	1,731

Schedule of Effective Income Tax Rate Reconciliation

	Fiscal year ended September 30,
	2013			2012
CoComputed “expected” income tax expense	$	4,087	$	1,481
St  State income taxes, net of federal benefit		459		178
Tr True-up of prior year differences		—		18
Ot Other nondeductible expenses		52		54
ToTotal income tax expense	$	4,598	$	1,731

Schedule of Deferred Tax Assets and Liabilities

	As of September 30,
	2013			2012
Deferred tax assets — current:
Allowance for bad debts	$	1,746		$	1,946
Capitalization of costs to inventory		30			33
Inventory reserve		132			120
Deferred expenses		97			94
Accrued expenses		62			61
Deferred tax assets — current		2,067			2,254
Less: Valuation allowance		—			—
Net deferred tax assets — current	$	2,067		$	2,254
Deferred tax assets — non-current:
Net operating loss carry-forwards	$	55		$	3,074
Transaction costs		4			—
Charitable contribution carry-forwards		—			5
Maximum tax credit carry-forward		—			3
Property and equipment		145			165
Deferred tax assets — non-current		204			3,247
Less: Valuation allowance		(7	)		(17
Net deferred tax assets — non-current	$	197		$	3,230
Deferred tax liability — non-current:
Deferred advertising		(8,758	)		(8,651
Deferred tax liability — non-current	$	(8,758	)	$	(8,651
Net deferred tax liability	$	(6,494	)	$	(3,167

Schedule of Unrecognized Tax Benefits

	2013		2012
Balance at October 1	$	78	$	52
Gross increases – tax positions in current period		46		26
Gross decreases – tax positions in current period		—		—
Balance at September 30	$	124	$	78
Accrued interest and penalties		22		14
Total liability for unrecognized tax benefits	$	146	$	92

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Significant Accounting Policies (Policies)

12 Months Ended

Sep. 30, 2013

Significant Accounting Policies:

Principles of Consolidation

Principles of Consolidation

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

Reclassifications

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements in order to maintain consistency and comparability between the periods presented.  The following reclassification was made to the fiscal year 2012 financial statements to be consistent with the fiscal year 2013 financial statements presented:

·         On the Consolidated Balance Sheet for the fiscal year ended September 30, 2012, $92,000 was reclassified within the Current Liabilities section from Accrued liabilities to Income tax payable.

The reclassification had no impact on previously reported total assets, stockholders’ equity, cash flows or net income.

Segment Reporting

Segment Reporting

The Company operates and tracks its results as one reportable segment, Mail Order Supplies, based on the aggregation of three operating segments. Over 99% of the Company's net sales are generated through the Mail Order Supplies operating segment. The Company operates a retail store in Tennessee and a small specialty catheter manufacturer based in Florida, which sell the same types of medical supplies as our Mail Order Supplies segment, but sales are less than 1% of the Company's total net sales for these two operating segments. The Company's President and Chief Executive Officer has been identified as the Chief Operating Decision Maker.

The following table summarizes the Company's revenues by product line as a percentage of net sales for the fiscal years ending September 30, 2013 and 2012:

	2013	2012
Product Lines:
Urological supplies	77.3%	76.7%
Ostomy supplies	16.5%	15.6%
Mastectomy fashions	5.2%	6.3%
Diabetic supplies	1.0%	1.4%

Use of Estimates

Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Such estimates include, but are not limited to, (i) the net realizable value of accounts receivable; (ii) the reserve for excess and obsolete inventory; (iii) the expected period and amounts of future benefits to be realized directly from deferred direct advertising costs; (iv) the fair values of stock compensation expense; (v) the valuation of intangible assets; and (vi) valuation allowances for deferred income tax assets. Actual results could differ from management’s estimates.

Fair Value of Financial Instruments Policy

Fair Value of Financial Instruments

Financial instruments include cash, receivables, payables and debt obligations. Due to the short-term nature of the financial instruments, the carrying value is representative of their fair value. The carrying value of the Credit Line Facility approximates fair value as interest rates are indexed to the Daily LIBOR Rate.

Accounts Receivable

Accounts Receivable

Accounts receivable are reported net of allowances for contractual adjustments and uncollectible accounts. Contractual adjustments are recorded against revenues. Contractual adjustments result from differences between the payment amount received and the expected realizable amount. Bad debt is recorded as an operating expense and consists of billed charges that are ultimately deemed uncollectible due to the customer’s or third-party payer’s inability or refusal to pay.

The Company performs analyses to evaluate the net realizable value of accounts receivable. Specifically, the Company considers historical realization data, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that the Company’s estimates could change, which could have a material impact on the Company’s results of operations and cash flows. The Company does not accrue interest on its accounts receivable.

The following is a reconciliation of the beginning and ending allowances for accounts receivable for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	Beginning Balance at October 1st		Charged against Revenues or to Bad Debt Expense		Actual Deductions against Allowance			Ending Balance at September 30th
Fiscal year ended September 30, 2012:
Allowance for contractual adjustments	$	646	$	123	$	—		$	769
Allowance for uncollectible accounts		3,531		4,664		(3,920	)		4,275
Total allowances for accounts receivable	$	4,177	$	4,787	$	(3,920	)	$	5,044
Fiscal year ended September 30, 2013:
Allowance for contractual adjustments	$	769	$	338	$	—		$	1,107
Allowance for uncollectible accounts	4,275			3,069		(3,949	)	3,395
Total allowances for accounts receivable	$	5,044	$	3,407	$	(3,949	)	$	4,502

Inventories

Inventories

Inventories are comprised of finished goods and are stated at the lower of cost or market determined by the first-in, first-out (FIFO) method. Allowances for excess and obsolete inventory are recorded for inventory considered to be in excess or obsolete.

Deferred Advertising Costs

Deferred Advertising Costs

We capitalize and amortize direct-response advertising and related costs when we can demonstrate among other things that patients have directly responded to our advertisements. We assess the realizability of the amounts of direct-response advertising costs reported as assets at the end of each reporting period by comparing the carrying amounts of such assets to the probable remaining future net cash flows expected to result directly from such advertising. Management’s judgments include determining the period over which such net cash flows are estimated to be realized.

Direct-response advertising costs are accumulated into quarterly cost pools and amortized separately. The amortization is the amount computed using the ratio that current period revenues for each direct-response advertising cost pool bear to the total of current and estimated future benefits for that direct-response advertising cost pool. We have persuasive evidence that demonstrates future benefits are realized from our direct-response advertising efforts beyond four years. Since the reliability of accounting estimates decreases as the length of the period for which such estimates are made increases, we estimate future benefits for each advertising cost pool for a period of no longer than four years at each reporting period, which creates a “rolling” type amortization period. Once a particular cost pool has been amortized to a level where the difference between amortizing the cost pool over a “rolling” four-year period and amortizing the cost pool on a “straight-line” basis over a period shorter than four years is de minimis, we amortize the costs over a fixed time period based on current and expected future revenues. As a result of this policy, our direct-response advertising costs are amortized over a period of approximately six years based on probable future net revenues updated at each reporting period.

A summary of deferred advertising costs for the fiscal years ending September 30, 2013 and 2012, is as follows (in thousands):

	2013			2012
Deferred Advertising Costs:
Beginning Balance, 10/1	$	22,426		$	17,191
Plus: Direct-response advertising spend		9,000			13,113
Less: Amortization of deferred advertising costs		(8,721	)		(7,878	)
Ending Balance, 9/30	$	22,705		$	22,426

A business change, including a significant change in reimbursement rates, that reduces or increases expected net cash flows or that shortens or lengthens the period over which such net cash flows are estimated to be realized could result in accelerated or reduced charges against our earnings.

Debt Issuance Costs

Debt Issuance Costs

Costs associated with obtaining, closing, and modifying loans and/or debt instruments such as, but not limited to placement agent fees, attorney fees and state documentary fees are capitalized and expensed over the term of the loan.

Debt issuance costs of $21,000 and $21,000 were capitalized during the years ended September 30, 2013 and 2012, respectively. Debt issuance costs amortized for the years ended September 30, 2013 and 2012, were $23,000 and $24,000, respectively.

Property and Equipment Policy

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Property and equipment is depreciated using the straight-line method over the estimated useful life of the respective assets, which range from 3 to 10 years. Leasehold improvements are amortized using the straight-line method over the shorter of the related lease term or useful life. Maintenance, repairs, and minor improvements are charged to expense as incurred; major renewals and betterments that extend the useful life of the associated asset are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in results of operations for the period.

Intangible Assets Policy

Intangible Assets

Intangible assets with definite lives are amortized over their estimated useful lives. We currently amortize acquired intangible assets with definite lives over a period of between five and eight years.

Long-Lived Assets Policy

Long –lived Assets

Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair value. We did not record any impairments of long-lived assets during fiscal years 2013 and 2012.

Treasury Stock Policy

Treasury Stock

Treasury stock is accounted for using the cost method whereby the entire cost of the acquired stock is recorded as treasury stock.

Revenue Recognition Policy

Revenue Recognition

We recognize revenue related to product sales upon delivery to customers, provided that we have received and verified any written documentation required to bill Medicare, other government agencies, third-party payers, and patients. For product shipments for which we have not yet received the required written documentation, revenue recognition is delayed until the period in which those documents are collected and verified. We record revenue at the amounts expected to be collected from government agencies, other third-party payers, and from patients directly. We record, if necessary, contractual adjustments equal to the difference between the reimbursement amounts defined in the fee schedule and the revenue recorded per the billing system. These adjustments are recorded as a reduction of both gross revenues and accounts receivable. We analyze various factors in determining revenue recognition, including a review of specific transactions, current Medicare regulations and reimbursement rates, historical experience and the credit-worthiness of patients.

Revenue related to Medicare reimbursements is calculated based on government-determined reimbursement prices for Medicare-covered items. The reimbursements that Medicare pays are subject to review by appropriate government regulators. Medicare reimburses at 80% of the government-determined prices for reimbursable supplies, and we bill the remaining balance to either third-party payers or directly to patients.

Shipping and Handling Costs

Shipping and Handling Costs

Shipping and handling costs are not charged to the patients in compliance with Medicare policy. Shipping and handling costs for the years ended September 30, 2013 and 2012, were $2,163,000 and $2,905,000, respectively. These amounts are included in cost of sales on the accompanying consolidated statements of operations.

Stock-Based Compensation Policy

Stock-Based Compensation

The Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model, which requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based award.

The expected volatility is based on the historical volatility of the Company's common stock share price using a historical term equal to the expected term of the stock-based award.

Prior to the third quarter of fiscal year 2013, the Company had not declared any dividends and 0% was used as the expected dividend yield for calculating the fair value of stock-based awards. Beginning in the third quarter of fiscal year 2013, the expected dividend yield is calculated based on the annualized cash dividend declared by the Company's Board of Directors for the current quarter corresponding to the grant date of the stock-based award.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term equal to the expected term of the stock-based award.

In December 2007, the SEC issued guidance allowing companies, under certain circumstances, to utilize a simplified method, based on the average of the vesting term and contractual term of the award, in determining the expected term of stock-based awards. Since we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term, we utilize the simplified method to calculate the expected term of stock-based awards.

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Income Tax Policy

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company files consolidated federal and state income tax returns.

Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense.

Lease Policy

Leases

The Company performs a review of newly acquired leases to determine whether a lease should be treated as a capital or operating lease. Capital lease assets are capitalized and depreciated over the term of the initial lease. A liability equal to the present value of the aggregated lease payments is recorded utilizing the stated lease interest rate. If an interest rate is not stated, the Company will determine an estimated cost of capital and utilize that rate to calculate the present value. For operating leases, the Company records rent expense and amortization of leasehold improvements on a straight-line basis over the initial term of the lease. All leasehold incentives, rent holidays, and/or other incentives are factored into the calculation of the deferred rent liability in order to record rent expense on a straight-line basis over the initial term of the lease. Leasehold incentives are capitalized and depreciated over the initial term of the lease.

Earnings Per Share Policy

Earnings per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated using the treasury stock method and reflect the potential dilution that could occur if stock options or warrants were exercised and were not anti-dilutive.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In July 2013, the FASB issued guidance on financial statement presentation of an unrecognized tax benefit when a net operation loss carryforward, a similar tax loss, or a tax credit carryforward exists.  Under this guidance an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows.  To the extent a net operating loss carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any addition income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The adoption will not have a material impact on the Company’s consolidated financial statements.

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Deferred Tax Assets And Liabilities (Details) (in thousands) (USD $)	Sep. 30, 2013	Sep. 30, 2012
Deferred tax assets - current:
Allowance for bad debts	$ 1,746	$ 1,946
Capitalization of costs to inventory	30	33
Inventory reserve	132	120
Deferred expenses	97	94
Accrued expenses,,	62	61
Deferred tax assets - current Gross,	2,067	2,254
Less: Valuation allowance current		0
Net deferred tax assets - current,	2,067	2,254
Net operating loss carry-forwards	55	3,074
Transaction costs	4	0
Charitable contribution carry-forwards		5
Maximum tax credit carry-forward		3
Property and equipment	145	165
Deferred tax assets - non-current Gross	204	3,247
Less: Valuation allowance non-current	(7)	(17)
Net deferred tax assets - non-current	197	3,230
Deferred advertising;	(8,758)	(8,651)
Deferred tax liability - non-current	(8,758)	(8,651)
Net deferred tax asset (liability)	$ (6,494)	$ (3,167)

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Warrants weighted-average assumptions (Details) (USD $)	Sep. 30, 2013
Warrants weighted-average assumptions
Risk-free interest rate of warrants	2.34%
Expected term of warrants in years	5
Expected dividend yield of warrants	0.00%
Expected volatility of warrants	63.66%
Fair value of warrants determined	$ 228,961

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Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Significant Accounting Policies Details
Reclassified within the Current Liabilities section from Accrued liabilities to Income tax payable.		$ 92,000
Percentage of net sales generated through the Mail Order Supplies operating segment	99.00%
Debt issuance costs capitalized	21,000	21,000
Debt issuance costs amortized	23,000	24,000
Medicare reimburses at percentage of the government-determined prices for reimbursable supplies	80.00%
Shipping and handling costs for the years ended	$ 2,163,000	$ 2,905,000

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Business Description (Details) (USD $)	Jul. 31, 2013
Business Description
Company acquired the stock of a small ostomy supply business	$ 343,000

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Income tax expense benefit (Details) (in thousands) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Current income tax expense:
Federal	$ 1,005	$ 3
State	271	31
Current income tax expense	1,276	34
Federal,	2,879	1,454
State,	443	243
Deferred income tax expense	3,322	1,697
Total income tax expense	$ 4,598	$ 1,731

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Estimated amortization expense for intangible assets for the next five fiscal years is as follows (Details) (dollars in thousands): (USD $)	Sep. 30, 2013
Estimated amortization expense for intangible assets for the next five fiscal years is as follows
Estimated amortization for Fiscal years ending September 30 2014	$ 121
Estimated amortization for Fiscal years ending September 30 2015	121
Estimated amortization for Fiscal years ending September 30 2016	89
Estimated amortization for Fiscal years ending September 30 2017	35
Estimated amortization for Fiscal years ending September 30 2018	29
Total Estimated amortization	$ 395

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Employee and Director Stock Options (Details) (USD $)	Sep. 30, 2013	Sep. 12, 2011	Jul. 13, 2009	Sep. 14, 2007
Employee and Director Stock Options
Board of Directors adopted the Company's 2007 Stock Plan with an aggregate shares of the Company's unissued common stock				1,000,000
Shares authorized under the 2007 Stock Plan are reserved for issuance				1,000,000
Company approved an amendment to the 2007 Stock Plan to increase the number of shares authorized under the plan		2,105,000	2,000,000
Number of shares outstanding under the 2007 Stock Plan.	1,450,500
Number of shares available for grant under the 2007 Stock Plan.	654,500
Total unrecognized compensation expense related to non-vested employee stock options granted under the 2007 Stock Plan	$ 45,000

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Reconciliation of the unrecognized tax benefits (Details) (dollars in thousands) (USD $)	Sep. 30, 2013	Sep. 30, 2012
Reconciliation of the unrecognized tax benefits
Unrecognized tax benefits Balance at October 1	$ 78	$ 52
Gross increases - tax positions in current period	46	26
Gross decreases - tax positions in current period	0	0
Unrecognized tax benefits Balance at September 30	124	78
Accrued interest and penalties	22	14
Total liability for unrecognized tax benefits	$ 146	$ 92

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Summary of property and equipment is as follows (Details) (dollars in thousands): (USD $)	Sep. 30, 2013	Sep. 30, 2012
Summary of property and equipment is as follows
Leased equipment Estimated Life with 3 to 5 years	$ 807	$ 784
Transportation equipment Estimated Life with 5 to 10 years	55	51
Warehouse equipment Estimated Life with 5 to 10 years	132	131
Office furniture Estimated Life with 5 to 10 years	613	495
Computer equipment Estimated Life with 3 to 5 years	599	507
Telephone equipment Estimated Life with 5 years	101	87
Website Estimated Life with 5 years	114	114
Server software Estimated Life with 3years	343	318
Leasehold improvements Estimated Life with Shorter of life of asset or lease	1,749	1,630
Signage Estimated Life with 5 to 10 years	23	21
Total property and equipment	4,536	4,138
Less: accumulated depreciation	(3,492)	(2,888)
Property and equipment, net details	$ 1,044	$ 1,250

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Employee Stock Purchase Plan 2009 transactions during the period (Details) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Employee Stock Purchase Plan 2009 transactions during the period
Received through payroll deductions under the ESPP	$ 48,000	$ 67,000
Compensation expense related to the ESPP	$ 18,000	$ 27,000

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Schedule Of Lease Payments (Tables)

12 Months Ended

Sep. 30, 2013

Schedule Of Lease Payments:

Schedule of Future Minimum Lease Payments for Capital Leases

	Amount
Fiscal year ending September 30:
2014	$	89
2015		59
2016		1
Total minimum lease payments		149
Less: Interest on capitalized lease obligations		(8	)
Present value of capitalized lease obligations		141
Less: Current portion		(83	)
Capitalized lease obligations, net of current portion	$	58

Schedule of Future Minimum Rental Payments for Operating Leases

	Amount
Fiscal year ending September 30:
2014	$	844
2015		125
2016		49
Total minimum lease payments	$	1,018

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Consolidated Statement of Changes in Stockholders' Equity (in thousands) (USD $)	Common Stock Shares	Common Stock Amount	Additional Paid-in Capital USD ($)	Accumulated Deficit USD ($)	Treasury Stock	Total Stockholders' Equity USD ($)
Balance at Sep. 30, 2011	48,046	48	34,504	(10,247)	(50)	24,255
Options issued to employees and directors;			$ 122			$ 122
Common stock issued for employee stock purchase plan;	97		81			81
Net income for september 30, 2012				2,501		2,501
Balance at Sep. 30, 2012	48,143	48	34,707	(7,746)	(50)	26,959
Options and warrants issued to employees and directors.			76			76
Common stock issued for exercise of options and warrants.	4,294	5	265			270
Common stock issued for employee stock purchase plan.	111		63			63
Cash dividends declared, $0.08 per share				$ 7,078		$ 7,078
Balance at Sep. 30, 2013	52,283	53	35,111	(4,185)		(4,185)

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Summary of Significant Accounting Policies

12 Months Ended

Sep. 30, 2013

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Note 2 — Summary of Significant Accounting Policies

The accounting and reporting policies of the Company conform with accounting principles generally accepted in the United States of America. A summary of the more significant policies is set forth below:

Principles of Consolidation

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

Reclassifications

Certain reclassifications of amounts previously reported have been made to the accompanying consolidated financial statements in order to maintain consistency and comparability between the periods presented.  The following reclassification was made to the fiscal year 2012 financial statements to be consistent with the fiscal year 2013 financial statements presented:

·         On the Consolidated Balance Sheet for the fiscal year ended September 30, 2012, $92,000 was reclassified within the Current Liabilities section from Accrued liabilities to Income tax payable.

The reclassification had no impact on previously reported total assets, stockholders’ equity, cash flows or net income.

Segment Reporting

The Company operates and tracks its results as one reportable segment, Mail Order Supplies, based on the aggregation of three operating segments. Over 99% of the Company's net sales are generated through the Mail Order Supplies operating segment. The Company operates a retail store in Tennessee and a small specialty catheter manufacturer based in Florida, which sell the same types of medical supplies as our Mail Order Supplies segment, but sales are less than 1% of the Company's total net sales for these two operating segments. The Company's President and Chief Executive Officer has been identified as the Chief Operating Decision Maker.

The following table summarizes the Company's revenues by product line as a percentage of net sales for the fiscal years ending September 30, 2013 and 2012:

	2013	2012
Product Lines:
Urological supplies	77.3%	76.7%
Ostomy supplies	16.5%	15.6%
Mastectomy fashions	5.2%	6.3%
Diabetic supplies	1.0%	1.4%

Use of Estimates

Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles. Such estimates include, but are not limited to, (i) the net realizable value of accounts receivable; (ii) the reserve for excess and obsolete inventory; (iii) the expected period and amounts of future benefits to be realized directly from deferred direct advertising costs; (iv) the fair values of stock compensation expense; (v) the valuation of intangible assets; and (vi) valuation allowances for deferred income tax assets. Actual results could differ from management’s estimates.

Fair Value of Financial Instruments

Financial instruments include cash, receivables, payables and debt obligations. Due to the short-term nature of the financial instruments, the carrying value is representative of their fair value. The carrying value of the Credit Line Facility approximates fair value as interest rates are indexed to the Daily LIBOR Rate.

Accounts Receivable

Accounts receivable are reported net of allowances for contractual adjustments and uncollectible accounts. Contractual adjustments are recorded against revenues. Contractual adjustments result from differences between the payment amount received and the expected realizable amount. Bad debt is recorded as an operating expense and consists of billed charges that are ultimately deemed uncollectible due to the customer’s or third-party payer’s inability or refusal to pay.

The Company performs analyses to evaluate the net realizable value of accounts receivable. Specifically, the Company considers historical realization data, accounts receivable aging trends, other operating trends and relevant business conditions. Because of continuing changes in the health care industry and third-party reimbursement, it is possible that the Company’s estimates could change, which could have a material impact on the Company’s results of operations and cash flows. The Company does not accrue interest on its accounts receivable.

The following is a reconciliation of the beginning and ending allowances for accounts receivable for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	Beginning Balance at October 1st		Charged against Revenues or to Bad Debt Expense		Actual Deductions against Allowance			Ending Balance at September 30th
Fiscal year ended September 30, 2012:
Allowance for contractual adjustments	$	646	$	123	$	—		$	769
Allowance for uncollectible accounts		3,531		4,664		(3,920	)		4,275
Total allowances for accounts receivable	$	4,177	$	4,787	$	(3,920	)	$	5,044
Fiscal year ended September 30, 2013:
Allowance for contractual adjustments	$	769	$	338	$	—		$	1,107
Allowance for uncollectible accounts	4,275			3,069		(3,949	)	3,395
Total allowances for accounts receivable	$	5,044	$	3,407	$	(3,949	)	$	4,502

Inventories

Inventories are comprised of finished goods and are stated at the lower of cost or market determined by the first-in, first-out (FIFO) method. Allowances for excess and obsolete inventory are recorded for inventory considered to be in excess or obsolete.

Deferred Advertising Costs

We capitalize and amortize direct-response advertising and related costs when we can demonstrate among other things that patients have directly responded to our advertisements. We assess the realizability of the amounts of direct-response advertising costs reported as assets at the end of each reporting period by comparing the carrying amounts of such assets to the probable remaining future net cash flows expected to result directly from such advertising. Management’s judgments include determining the period over which such net cash flows are estimated to be realized.

Direct-response advertising costs are accumulated into quarterly cost pools and amortized separately. The amortization is the amount computed using the ratio that current period revenues for each direct-response advertising cost pool bear to the total of current and estimated future benefits for that direct-response advertising cost pool. We have persuasive evidence that demonstrates future benefits are realized from our direct-response advertising efforts beyond four years. Since the reliability of accounting estimates decreases as the length of the period for which such estimates are made increases, we estimate future benefits for each advertising cost pool for a period of no longer than four years at each reporting period, which creates a “rolling” type amortization period. Once a particular cost pool has been amortized to a level where the difference between amortizing the cost pool over a “rolling” four-year period and amortizing the cost pool on a “straight-line” basis over a period shorter than four years is de minimis, we amortize the costs over a fixed time period based on current and expected future revenues. As a result of this policy, our direct-response advertising costs are amortized over a period of approximately six years based on probable future net revenues updated at each reporting period.

A summary of deferred advertising costs for the fiscal years ending September 30, 2013 and 2012, is as follows (in thousands):

	2013			2012
Deferred Advertising Costs:
Beginning Balance, 10/1	$	22,426		$	17,191
Plus: Direct-response advertising spend		9,000			13,113
Less: Amortization of deferred advertising costs		(8,721	)		(7,878	)
Ending Balance, 9/30	$	22,705		$	22,426

A business change, including a significant change in reimbursement rates, that reduces or increases expected net cash flows or that shortens or lengthens the period over which such net cash flows are estimated to be realized could result in accelerated or reduced charges against our earnings.

Debt Issuance Costs

Costs associated with obtaining, closing, and modifying loans and/or debt instruments such as, but not limited to placement agent fees, attorney fees and state documentary fees are capitalized and expensed over the term of the loan.

Debt issuance costs of $21,000 and $21,000 were capitalized during the years ended September 30, 2013 and 2012, respectively. Debt issuance costs amortized for the years ended September 30, 2013 and 2012, were $23,000 and $24,000, respectively.

Property and Equipment

Property and equipment are recorded at cost, less accumulated depreciation and amortization. Property and equipment is depreciated using the straight-line method over the estimated useful life of the respective assets, which range from 3 to 10 years. Leasehold improvements are amortized using the straight-line method over the shorter of the related lease term or useful life. Maintenance, repairs, and minor improvements are charged to expense as incurred; major renewals and betterments that extend the useful life of the associated asset are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in results of operations for the period.

Intangible Assets

Intangible assets with definite lives are amortized over their estimated useful lives. We currently amortize acquired intangible assets with definite lives over a period of between five and eight years.

Long –lived Assets

Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment and intangible assets are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds its fair value. We did not record any impairments of long-lived assets during fiscal years 2013 and 2012.

Treasury Stock

Treasury stock is accounted for using the cost method whereby the entire cost of the acquired stock is recorded as treasury stock.

Revenue Recognition

We recognize revenue related to product sales upon delivery to customers, provided that we have received and verified any written documentation required to bill Medicare, other government agencies, third-party payers, and patients. For product shipments for which we have not yet received the required written documentation, revenue recognition is delayed until the period in which those documents are collected and verified. We record revenue at the amounts expected to be collected from government agencies, other third-party payers, and from patients directly. We record, if necessary, contractual adjustments equal to the difference between the reimbursement amounts defined in the fee schedule and the revenue recorded per the billing system. These adjustments are recorded as a reduction of both gross revenues and accounts receivable. We analyze various factors in determining revenue recognition, including a review of specific transactions, current Medicare regulations and reimbursement rates, historical experience and the credit-worthiness of patients.

Revenue related to Medicare reimbursements is calculated based on government-determined reimbursement prices for Medicare-covered items. The reimbursements that Medicare pays are subject to review by appropriate government regulators. Medicare reimburses at 80% of the government-determined prices for reimbursable supplies, and we bill the remaining balance to either third-party payers or directly to patients.

Shipping and Handling Costs

Shipping and handling costs are not charged to the patients in compliance with Medicare policy. Shipping and handling costs for the years ended September 30, 2013 and 2012, were $2,163,000 and $2,905,000, respectively. These amounts are included in cost of sales on the accompanying consolidated statements of operations.

Stock-Based Compensation

The Company estimates the fair values of share-based payments on the date of grant using a Black-Scholes option pricing model, which requires assumptions for the expected volatility of the share price of our common stock, the expected dividend yield, and a risk-free interest rate over the expected term of the stock-based award.

The expected volatility is based on the historical volatility of the Company's common stock share price using a historical term equal to the expected term of the stock-based award.

Prior to the third quarter of fiscal year 2013, the Company had not declared any dividends and 0% was used as the expected dividend yield for calculating the fair value of stock-based awards. Beginning in the third quarter of fiscal year 2013, the expected dividend yield is calculated based on the annualized cash dividend declared by the Company's Board of Directors for the current quarter corresponding to the grant date of the stock-based award.

The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant date with a remaining term equal to the expected term of the stock-based award.

In December 2007, the SEC issued guidance allowing companies, under certain circumstances, to utilize a simplified method, based on the average of the vesting term and contractual term of the award, in determining the expected term of stock-based awards. Since we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term, we utilize the simplified method to calculate the expected term of stock-based awards.

The assumptions used in calculating the fair value of stock-based awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance on deferred tax assets is established when management considers it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company files consolidated federal and state income tax returns.

Tax benefits from an uncertain tax position are only recognized if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Interest and penalties related to unrecognized tax benefits are recorded as incurred as a component of income tax expense.

Leases

The Company performs a review of newly acquired leases to determine whether a lease should be treated as a capital or operating lease. Capital lease assets are capitalized and depreciated over the term of the initial lease. A liability equal to the present value of the aggregated lease payments is recorded utilizing the stated lease interest rate. If an interest rate is not stated, the Company will determine an estimated cost of capital and utilize that rate to calculate the present value. For operating leases, the Company records rent expense and amortization of leasehold improvements on a straight-line basis over the initial term of the lease. All leasehold incentives, rent holidays, and/or other incentives are factored into the calculation of the deferred rent liability in order to record rent expense on a straight-line basis over the initial term of the lease. Leasehold incentives are capitalized and depreciated over the initial term of the lease.

Earnings per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is calculated using the treasury stock method and reflect the potential dilution that could occur if stock options or warrants were exercised and were not anti-dilutive.

Recent Accounting Pronouncements

In July 2013, the FASB issued guidance on financial statement presentation of an unrecognized tax benefit when a net operation loss carryforward, a similar tax loss, or a tax credit carryforward exists.  Under this guidance an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows.  To the extent a net operating loss carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any addition income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets.  These amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The adoption will not have a material impact on the Company’s consolidated financial statements.

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Credit Line Facility

12 Months Ended

Sep. 30, 2013

Credit Line Facility

Credit Line Facility

NOTE 5 — Credit Line Facility

PNC Credit Line Facility

On February 11, 2011, the Company entered into a Committed Line of Credit agreement (the “PNC Credit Line Facility”) with PNC Bank, National Association ("PNC"). Pursuant to the PNC Credit Line Facility, the PNC will provide a maximum of $8,500,000 of revolving credit secured by the Company’s personal property, including inventory and accounts receivable. Interest is payable on any advance at LIBOR plus 2.75%. Advances under the PNC Credit Line Facility are subject to a Borrowing Base Rider, which establishes a maximum percentage amount of the Company’s accounts receivable and inventory that can constitute the permitted borrowing base. The PNC Credit Line Facility originally expired in February 2013; however, in January 2012 and February 2013, the expiration was extended to February 2014 and February 2015, with all other terms and conditions remaining the same.

The PNC Credit Line Facility requires the Company to comply with certain financial covenants which are defined in the credit agreement. As of September 30, 2013, these financial covenants included:

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

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

As of September 30, 2013, the Company was in compliance with all applicable financial covenants pursuant to the PNC Credit Line Facility. As of September 30, 2013, the availability under the PNC Credit Line Facility was $4,908,000 with an outstanding balance of $1,500,000. The interest rate for the outstanding balance as of September 30, 2013, was 2.93%. For fiscal years ended September 30, 2013 and 2012, the Company incurred $75,000 and $69,000, respectively, in interest expense related to the PNC Credit Line Facility.

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Property and Equipment

12 Months Ended

Sep. 30, 2013

Property and Equipment:

Property and Equipment

NOTE 3 — Property and Equipment

A summary of property and equipment at September 30, 2013 and 2012, is as follows (dollars in thousands):

	Estimated
	Life	2013			2012
Leased equipment	3 — 5 years	$	807		$	784
Transportation equipment	5 — 10 years		55			51
Warehouse equipment	5 — 10 years		132			131
Office furniture	5 — 10 years		613			495
Computer equipment	3 — 5 years		599			507
Telephone equipment	5 years		101			87
Website	5 years		114			114
Server software	3 years		343			318
Leasehold improvements	Shorter of life of asset or lease		1,749			1,630
Signage	5 — 10 years		23			21
Total property and equipment			4,536			4,138
Less: accumulated depreciation			(3,492	)		(2,888	)
Property and equipment, net		$	1,044		$	1,250

The amounts charged to operating expenses for depreciation of property and equipment for the years ended September 30, 2013 and 2012 were $604,000 and $729,000, respectively.

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Options granted during the fiscal year (Details) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Options granted during the fiscal year
Options granted during the fiscal year 2013	370,000
Weighted-average grant date fair value of options	$ 0.29
Options exercised during fiscal year 2013	367,000
The total intrinsic value of options exercised during fiscal year 2013 was approximately	309,000
Company recorded stock-based compensation expense which has been classified as Operating expenses	$ 58,000	$ 95,000
Risk-free interest rate:	0.40%
Expected term:	3
Expected dividend yield:	0.00%
Expected volatility:	46.87%

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Deferred advertising costs Summary (Details) (dollars in thousands): (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Deferred advertising costs Summary
Deferred Advertising Costs Beginning Balance on october1	$ 17,191	$ 22,426
Plus: Direct-response advertising spend	13,113	9,000
Less: Amortization of deferred advertising costs	(7,878)	(8,721)
Deferred Advertising Costs Ending Balance on September30	$ 22,426	$ 22,705

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Summary of intangible assets is as follows (Details) (dollars in thousands): (USD $)	Sep. 30, 2013	Sep. 30, 2012
Summary of intangible assets is as follows
Acquired customer lists	$ 502	$ 330
Acquired trade name	81
Less: accumulated amortization of Intangible assets	(169)	(91)
Net intangible assets	$ 414	$ 239

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Summary of Warrants Activities (Details)	Warrant Shares	Weighted-Average Exercise Price
Balance of Warrants at Sep. 30, 2011	6,965,667	1.12
Issued	0
Exercised	0
Expired	(1,433,334)	1.25
Balance of Warrants at Sep. 30, 2012	5,532,333	1.09
Issued,	0
Exercised,	(16,000)	1.00
Expired,	(5,283,000)	1.02
Balance of Warrants at Sep. 30, 2013	233,333	2.50

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Future minimum lease payments under capital leases (Details) (In thousands) (USD $)	Sep. 30, 2013	Sep. 30, 2012
Fiscal year ending September 30:
Capital leases for Fiscal year ending September 30, 2014	$ 89
Capital leases for Fiscal year ending September 30, 2015	59
Capital leases for Fiscal year ending September 30, 2016	1
Total minimum lease payments	149
Less: Interest on capitalized lease obligations	(8)
Present value of capitalized lease obligations	141
Less: Current portion	(83)
Capitalized lease obligations, net of current portion	58
The net book value of capital lease assets	$ 133,000	$ 179,000

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Basic and Diluted Earnings per Common Share Anti-dilutive shares (Details) (in thousands)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Basic and Diluted Earnings per Common Share Anti-dilutive shares:
Stock options.	735	1,150
Warrants.	233	5,532
Total Options And Warrants	968	6,682

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Consolidated Balance Sheets Parentheticals (In thousands, except dollar per share amounts) (USD $)	Sep. 30, 2013	Sep. 30, 2012
Parentheticals
Accounts receivable, net of allowance	$ 4,502	$ 5,044
Inventory, net of allowance	308	310
Property and equipment, net of accumulated depreciation	3,492	2,888
Intangible assets, net of accumulated amortization	$ 169	$ 91
Common Stock, par value	$ 0.001	$ 0.001
Common Stock, shares authorized	200,000	200,000
Common Stock, shares issued	52,637	48,232
Common Stock, shares outstanding	52,283	48,143
Treasury stock, shares	354	89

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Income Taxes

12 Months Ended

Sep. 30, 2013

Income Taxes

Income Taxes

NOTE 8 — Income Taxes

Income tax expense is as follows (in thousands):

	Fiscal year ended September 30,
	2013		2012
Current income tax expense:
Federal	$	1,005	$	3
State		271		31
	$	1,276	$	34
Deferred income tax expense:
Federal	$	2,879	$	1,454
State		443		243
	$	3,322	$	1,697
ToTotal income tax expense	$	4,598	$	1,731

Income tax expense differs from the amounts that would result from applying the federal statutory rate of 35% to the Company’s income before taxes as follows (in thousands):

	Fiscal year ended September 30,
	2013			2012
CoComputed “expected” income tax expense	$	4,087	$	1,481
St  State income taxes, net of federal benefit		459		178
Tr True-up of prior year differences		—		18
Ot Other nondeductible expenses		52		54
ToTotal income tax expense	$	4,598	$	1,731

Temporary differences that give rise to the components of deferred tax assets and liabilities are as follows (in thousands):

	As of September 30,
	2013			2012
Deferred tax assets — current:
Allowance for bad debts	$	1,746		$	1,946
Capitalization of costs to inventory		30			33
Inventory reserve		132			120
Deferred expenses		97			94
Accrued expenses		62			61
Deferred tax assets — current		2,067			2,254
Less: Valuation allowance		—			—
Net deferred tax assets — current	$	2,067		$	2,254
Deferred tax assets — non-current:
Net operating loss carry-forwards	$	55		$	3,074
Transaction costs		4			—
Charitable contribution carry-forwards		—			5
Maximum tax credit carry-forward		—			3
Property and equipment		145			165
Deferred tax assets — non-current		204			3,247
Less: Valuation allowance		(7	)		(17
Net deferred tax assets — non-current	$	197		$	3,230
Deferred tax liability — non-current:
Deferred advertising		(8,758	)		(8,651
Deferred tax liability — non-current	$	(8,758	)	$	(8,651
Net deferred tax liability	$	(6,494	)	$	(3,167

As of September 30, 2013, the Company had net operating losses of approximately $137,000 for federal income tax purposes that can be carried forward for up to twenty years and deducted against future federal taxable income.  The Company also had net operating losses of approximately $158,000 for Tennessee income tax purposes that can be carried forward for up to fifteen years and deducted against future Tennessee taxable income.  The net operating loss carry-forwards expire in various years through 2031.  All of the total federal and Tennessee net operating losses are subject to limitations under the provisions of Internal Revenue Code section 382 due to an ownership change.

As of September 30, 2013, management determined a valuation allowance against the net deferred tax assets of $6,700.  As of September 30, 2012, management determined a valuation allowance against the net deferred tax assets of $17,000.  In assessing the ability to realize a portion of the deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making the assessment.

The Company and its subsidiaries file a consolidated federal and Florida income tax return.  Two of the Company’s subsidiaries will file additional separate state income tax returns.  These returns remain subject to examination by taxing authorities for all years after September 30, 2009.

For fiscal years 2013 and 2012, the Company recorded as part of its income tax expense an unrecognized tax benefit for certain state taxes of $46,000 and $26,000, respectively, and interest and/or penalties related to the unrecognized tax benefit of $8,000 and $4,000, respectively.  The Company had $146,000 and $92,000 of total unrecognized tax benefits, including accrued interest and penalties that are included in accrued liabilities in the accompanying balance sheet as of September 30, 2013 and 2012, respectively.  The state statutes and regulations and their applicability to specific situations vary by state. 

The following is a reconciliation of the beginning and ending liabilities for unrecognized tax benefits for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	2013		2012
Balance at October 1	$	78	$	52
Gross increases – tax positions in current period		46		26
Gross decreases – tax positions in current period		—		—
Balance at September 30	$	124	$	78
Accrued interest and penalties		22		14
Total liability for unrecognized tax benefits	$	146	$	92

We do not believe it is reasonably possible that unrecognized tax benefits will significantly change within the next twelve months. We also do not believe that the recognition of any of the unrecognized tax benefits would affect the Company’s effective tax rate.

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Consolidated Statements of Cash Flows (in thousands) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Cash flow from operating activities:
Net Income	$ 7,078	$ 2,501
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization.	9,404	8,672
Stock -based compensation	76	122
Provision for doubtful accounts and contractual adjustments	3,407	4,787
Deferred income taxes	3,321	1,697
Reserve for inventory obsolescence	126	166
Changes in operating assets and liabilities net of acquition:
Accounts receivables.	(787)	(7,293)
Deferred advertising.	(9,000)	(13,113)
Inventory.	368	216
Other assets.	40	143
Accounts payables.	(1,724)	1,529
Accrued liabilities	1,339	116
Other liabilities.	(15)	(89)
Net Cash Flow Provided by (Used in) Operating Activities	13,633	(546)
Cash flow from investing activities:
Purchase of property and equipment and other	(367)	(151)
Acquisition of business, net of cash acquired	(319)
Net Cash Flow Used in Investing Activities	(686)	(151)
Cash flow from financing activities:
Proceeds from credit line facility	(1,000)	1,000
Costs associated with credit line facility	(21)	(21)
Proceeds from employee stock purchase plan	48	67
Proceeds from exercise of options and warrants	270	0
Cash dividends paid	(2,616)
Purchase of treasury stock	(430)
Payments of debt and capital lease obligations	(71)	(39)
Net Cash Flow Provided by (Used in) Financing Activities	(3,820)	1,007
Net increase (decrease) in cash	9,127	310
Cash at beginning of period	3,326	3,016
Cash at end of period	12,453	3,326
Supplemental disclosure of cash flow information:
Cash paid for interest	84	73
Cash paid for income taxes	171
Supplemental schedule of non-cash investing and financing activities:
Capital expenditures funded by capital lease borrowing	23	202
Common stock issued for conversion of debt	$ 1,569

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Consolidated Balance Sheets (In thousands, except dollar per share amounts) (USD $)	Sep. 30, 2013	Sep. 30, 2012
Current Assets:
Cash	$ 12,453	$ 3,326
Accounts receivable, net of allowance of $4,502 and $5,044, respectively	7,836	10,365
Inventory, net of allowance for obsolete inventory of $308 and $310, respectively	2,187	2,627
Deferred taxes	2,067	2,254
Prepaid and other current assets	219	287
Total Current Assets	24,762	18,859
Property and equipment, net of accumulated depreciation of $3,492 and $2,888, respectively.	1,044	1,250
Deferred advertising	22,705	22,426
Intangible assets, net of accumulated amortization of $144 and $91, $25 respectively.	414	239
Other assets	174	88
Total Assets	49,099	42,862
Current Liabilities:
Accounts payable	4,915	6,537
Accrued liabilities	1,354	1,129
Dividends payable	1,569	0
Income tax payable	1,195	92
Other current liabilities	111	92
Total Current Liabilities	9,144	7,850
Deferred tax liability	8,561	5,421
Credit line facility	1,500	2,500
Other long-term liabilities	63	132
Total Liabilities	19,268	15,903
Commitments and contingencies (see Note 9)
Stockholders' Equity:
Common stock, $.001 par value, 200,000 shares authorized, 52,637 and 48,232, shares issued, respectively; 52,283 and 48,143, shares outstanding at September 30, 2013, and September 30, 2012, and 2011, respectively.	53	48
Additional paid-in capital	35,111	34,707
Accumulated deficit	(4,853)	(7,746)
Treasury stock, at cost; 354 and 89 shares at September 30, 2013, and September 30, 2012 respectively.	(480)	(50)
Total Stockholders' Equity	29,831	26,959
Total Liabilities and Stockholders' Equity	$ 49,099	$ 42,862

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Lease commitments under non-cancelable operating leases (Details) (In thousands) (USD $)	Sep. 30, 2013
Lease commitments under non-cancelable operating leases
Operating leases Fiscal year ending September 30, 2014	$ 844
Operating leases Fiscal year ending September 30, 2015	125
Operating leases Fiscal year ending September 30, 2016	49
Total minimum operating lease payments	$ 1,018

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Reconciliation of the beginning and ending allowances for accounts receivable (Details) (dollars in thousands) (USD $)	Allowance for contractual adjustments	Allowance for uncollectible accounts	Total allowances for accounts receivable
Balance of allowances at Sep. 30, 2011	$ 646	$ 3,531	$ 4,177
Charged against Revenues or to Bad Debt Expense	123	4,664	4,787
Actual Deductions against Allowance	0	(3,920)	(3,920)
Balance of allowances, at Sep. 30, 2012	769	4,275	5,044
Balance of allowances at Sep. 30, 2012
Charged against Revenues or to Bad Debt Expense,	338	3,069	3,407
Actual Deductions against Allowance,	0	(3,949)	(3,949)
Balance of allowances. at Sep. 30, 2013	$ 1,107	$ 3,395	$ 4,502

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Basic and Diluted Earnings per Common Share (Tables)

12 Months Ended

Sep. 30, 2013

Basic and Diluted Earnings

Earnings Per Share, Basic and Diluted

	2013			2012
Numerator:
Net income — diluted	$	7,078	$	2,501
Denominator:
Weighted average shares outstanding — basic		50,115		48,097
Effect of dilutive securities:
Stock options and warrants		2,260		4,169
Weighted average shares outstanding — diluted		52,375		52,266
Earnings per share — basic	$	0.14	$	0.05
Earnings per share — diluted	$	0.14	$	0.05

Number Of Shares Outstanding For Earnings Per Share Calculation

	2013		2012
Stock options		735		1,150
Warrants		233		5,532
Totals		968		6,682

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Basic and Diluted Earnings per Common Share (Details) (in thousands, except per share amounts) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Basic and Diluted Earnings per Common Share:
Net income - basic	$ 7,078	$ 2,501
Weighted average shares outstanding - basic	50,115	48,097
Stock options and warrants	2,260	4,169
Weighted average shares outstanding - diluted	52,375	52,266
Earnings per share - basic	$ 0.14	$ 0.05
Earnings per share - diluted	$ 0.14	$ 0.05

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Significant credit risk (Details) (USD $)	Sep. 30, 2013	Sep. 30, 2012
Significant credit risk
Cash exceeding federally insured limits amounted to	$ 11,345,000	$ 1,000
Accounts receivable due from government sources under Medicare, Medicaid, and other federally funded programs	50.00%	58.00%

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Stock option activity summarized as follows (Details)	Options Shares	Weighted Average Exercise Price,	Weighted-Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Options outstanding at Sep. 30, 2011	2,085,000	0.99	2.75	141,750
Granted	0
Expired or forfeited	(50,000)	2.18
Options outstanding at Sep. 30, 2012	2,035,000	0.97	1.74	92,150
Granted	370,000	0.93
Expired or forfeited	(587,500)	0.83
Exercised	(367,000)	0.72
Options vested or expected to vest at Sep. 30, 2013	1,450,500	1.07	1.98	1,401,445
Options exercisable at Sep. 30, 2013	1,263,000	1.10	1.65	1,190,320
Options outstanding at Sep. 30, 2013	1,450,500	1.07	1.98	1,401,445

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Summary of Line of Credit (Details) (USD $)	Sep. 30, 2013	Sep. 30, 2012	Feb. 11, 2011
Summary of Line of Credit
Maximum Borrowing Capacity Line Of Credit			$ 8,500,000
Interest is payable on any advance at LIBOR plus			2.75%
Remaining Borrowing Capacity Line Of Credit available	4,908,000
Line Of Credit Facility	1,500,000
Interest rate for the outstanding balance	2.93%
Periodic Payment Interest Line Of Credit	$ 75,000	$ 69,000

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Company issued warrants (Details) (USD $)	Sep. 30, 2013	Mar. 09, 2010	Oct. 31, 2008	Nov. 30, 2007
Company issued warrants
Gross proceeds of common stock in millions		7
Company issued warrants to purchase shares			5,204,000	125,000
Warrants were exercisable for Common stock				1,166,667
Warrants were exercisable for Common stock at an exercise price			$ 1.00	$ 2.00
Company issued warrants to purchase shares to the placement agents		233,333	266,667
Exercise price per share issued to the placement agents		$ 2.50	$ 1.25
Company issued additional warrants to purchase shares of the Company's common stock			51,000
No of warrants exercised	97,000
Grant-date fair value of the warrants issued to the placement agents		$ 228,961

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Basic and Diluted Earnings per Common Share

12 Months Ended

Sep. 30, 2013

Basic and Diluted Earnings per Common Share

Basic and Diluted Earnings per Common Share

NOTE 7 — Basic and Diluted Earnings per Common Share

The following is a reconciliation of the numerator and denominator used in the computation of basic and diluted earnings per share for the fiscal years ended September 30, 2013 and 2012 (in thousands, except per share amounts):

	2013			2012
Numerator:
Net income — diluted	$	7,078	$	2,501
Denominator:
Weighted average shares outstanding — basic		50,115		48,097
Effect of dilutive securities:
Stock options and warrants		2,260		4,169
Weighted average shares outstanding — diluted		52,375		52,266
Earnings per share — basic	$	0.14	$	0.05
Earnings per share — diluted	$	0.14	$	0.05

The following table summarizes the number of shares outstanding for each of the periods presented, but not included in the calculation of diluted earnings per share because the impact would have been anti-dilutive for the fiscal years indicated (in thousands):

	2013		2012
Stock options		735		1,150
Warrants		233		5,532
Totals		968		6,682

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Company's revenues by product line as a percentage of net sales for the fiscal years (Details)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Company's revenues by product line as a percentage of net sales for the fiscal years
Urological supplies	77.30%	76.70%
Ostomy supplies	16.50%	15.60%
Mastectomy fashions	5.20%	6.30%
Diabetic supplies	1.00%	1.40%

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Employee Stock Purchase Plan 2009 (Details) (USD $)	Sep. 30, 2013
Employee Stock Purchase Plan 2009:
Maximum number of shares offered under the ESPP	500,000
ESPP allowed employees to designate of their cash compensation	15.00%
Purchase shares of the common stock at lesser of the fair market value	85.00%
Employees stock possessing	5.00%
Proceeds received from employee payroll deductions	$ 355,000
Company's common stock had been purchased through the ESPP	$ 481,579

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Concentration of Credit Risk

12 Months Ended

Sep. 30, 2013

Concentration of Credit Risk:

Concentration of Credit Risk

NOTE 10 — Concentration of Credit Risk

The Company has cash in financial institutions in excess of federally insured limits. However, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on its cash balances. Cash exceeding federally insured limits amounted to $11,345,000 and $1,000 as of September 30, 2013 and 2012, respectively.

The Company generally does not require collateral or other security in extending credit to its customers; however, the Company routinely accepts assignment of (or is otherwise entitled to receive) benefits receivable under the health insurance programs, plans, or policies covering its customers. Accounts receivable due from government sources under Medicare, Medicaid, and other federally funded programs was approximately 50% and 58% of total gross receivables as of September 30, 2013 and 2012, respectively.

A significant portion of the Company’s revenues are generated from the sale of urological products. As a result, changes in the external environment, including regulatory changes, could be beneficial or detrimental depending on market conditions. The impact of these changes cannot be determined at this time.

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Stockholders' Equity

12 Months Ended

Sep. 30, 2013

Stockholders' Equity: {1}

Stockholders' Equity

NOTE 6 — Stockholders’ Equity

Warrants

In November 2007, the Company issued warrants to purchase 125,000 shares of the Company’s common stock at an exercise price of $2.00 per share as compensation for consulting services. These warrants expired in November 2012.

In connection with convertible notes issued from February 2008 through October 2008, the Company issued warrants to purchase 5,204,000 shares of the Company's common stock at an exercise price of $1.00 per share and 1,166,667 shares of the Company’s common stock at an exercise price of $1.25 per share to the note holders. In addition, the Company  issued warrants to purchase 51,000 shares of the Company’s common stock at an exercise price of $1.00 per share and 266,667 shares of the Company’s common stock at an exercise price of $1.25 per share to the placement agents. As of September 30, 2013, 97,000 shares of these warrants were exercised and the remaining warrants expired unexercised during fiscal years 2012 and 2013.

In connection with the sale of common stock on March 9, 2010, for gross proceeds of $7 million, the Company issued warrants to purchase 233,333 shares of the Company’s common stock at an exercise price of $2.50 per share to the placement agent. These warrants are still outstanding as of September 30, 2013, and expire in October 2015. The grant-date fair value of these warrants of $228,961 was determined using the Black-Scholes option pricing model with the assumptions listed below:

Risk-free interest rate:		2.34%
Expected term:	5 years
Expected dividend yield:		0.00%
Expected volatility:		63.66%

A summary of warrants issued, exercised and expired during the fiscal years ended September 30, 2013 and 2012, is as follows:

				Weighted
				Avg.
				Exercise
Warrants:	Shares			Price
Balance at October 1, 2011		6,965,667		$	1.12
Issued		-			-
Exercised		-			-
Expired		(1,433,334	)		1.25
Balance at September 30, 2012		5,532,333		$	1.09
Issued		-			-
Exercised		(16,000	)		1.00
Expired		(5,283,000	)		1.02
Balance at September 30, 2013		233,333		$	2.50

Options

In connection with conversion of $1,589,000 of debt to equity and under the terms of the reverse merger in June 2007, Mr. Libratore, the Company’s founder, principal shareholder and President, received options to purchase 4,541,009 shares of the Company’s common stock at an exercise price of $0.0001.  In March 2007, Mr. Libratore exercised options to purchase 620,000 shares. In April 2013, options for the remaining 3,921,009 shares were exercised by Mr. Libratore.

Employee and Director Stock Options

On September 14, 2007, the Board of Directors adopted the Company’s 2007 Stock Plan with an aggregate of 1,000,000 shares of the Company’s unissued common stock. The Plan was approved by the shareholders at the Company’s annual meeting in September 2008. The 1,000,000 shares authorized under the 2007 Stock Plan are reserved for issuance to officers, directors, employees, prospective employees and consultants as incentive stock options, non-qualified stock options, restricted stock awards, other equity awards and performance based stock incentives. The option price, number of shares and grant date are determined at the discretion of the Company’s board of directors or the committee overseeing the 2007 Stock Plan.

On July 13, 2009, the Board of Directors of the Company approved an amendment to the 2007 Stock Plan to increase the number of shares authorized under the plan from 1,000,000 to 2,000,000 shares. The amendment was approved at the Company’s annual meeting on September 4, 2009.

On September 12, 2011, the Board of Directors of the Company approved an amendment to the 2007 Stock Plan to increase the number of shares authorized under the plan from 2,000,000 to 2,105,000 shares.  This amendment was approved at the Company’s annual meeting on October 20, 2011.

As of September 30, 2013, there are 1,450,500 shares outstanding and 654,500 shares available for grant under the 2007 Stock Plan.

There were 370,000 options granted during the fiscal year 2013 and no options granted during the fiscal year 2012. The weighted-average grant date fair value of options granted during the fiscal year 2013 was $0.29.  There were 367,000 options exercised during fiscal year 2013 and none exercised during fiscal year 2012. The total intrinsic value of options exercised during fiscal year 2013 was approximately $309,000.

The fair values of stock-based awards granted during the fiscal year ended September 30, 2013, were calculated with the following weighted-average assumptions:

	2013
Risk-free interest rate:	0.40%
Expected term:	3 years
Expected dividend yield:	0.00%
Expected volatility:	46.87%

For the fiscal years ended September 30, 2013 and 2012, the Company recorded $58,000 and $95,000, respectively, of stock-based compensation expense, which has been classified as Operating expenses, sub-classification of Payroll, taxes and benefits, for the employees and General and administrative for the directors. As of September 30, 2013, there was $45,000 in total unrecognized compensation expense related to non-vested employee stock options granted under the 2007 Stock Plan, which is expected to be recognized over 1.0 year.

Stock option activity for the fiscal years ended September 30, 2013 and 2012 is summarized as follows:

			Weighted		Weighted
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
2007 Stock Plan:	Shares		Price		Life (Years)	Value
Options outstanding at October 1, 2011	2,085,000		$	0.99	2.75	$	141,750
Granted	-			-
Expired or forfeited	(50,000	)		2.18
Options outstanding at September 30, 2012	2,035,000		$	0.97	1.74	$	92,150
Granted	370,000			0.93
Exercised	(367,000	)		0.72
Expired or forfeited	(587,500	)		0.83
Options outstanding at September 30, 2013	1,450,500		$	1.07	1.98	$	1,401,445
Options exercisable at September 30, 2013	1,263,000		$	1.10	1.65	$	1,190,320
Options vested or expected to vest at September 30, 2013	1,450,500		$	1.07	1.98	$	1,401,445

2009 Employee Stock Purchase Plan

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

As of September 30, 2013, 481,579 shares of the Company’s common stock have been purchased through the ESPP, using $355,000 of proceeds received from employee payroll deductions. For the fiscal years ended September 30, 2013 and 2012, the Company received $48,000 and $67,000, respectively, through payroll deductions under the ESPP.

As of September 30, 2013, the Company had not authorized additional shares to be offered under the ESPP, effectively suspending the plan.

The Company used the Black-Scholes option pricing model to estimate the fair value of the shares expected to be issued under the ESPP at the grant date, the beginning date of the offering period, and recognized compensation expense ratably over the offering period. If an employee elected to increase their payroll withholdings during the offering period, the increase was treated as a modification to the original option granted under the ESPP. As a result of the modification, the incremental fair value, if any, associated with the modified award was recognized as compensation expense at the date of the modification.  Compensation expense is recognized only for shares that vest under the ESPP. For the fiscal years ended September 30, 2013 and 2012, the Company recognized $18,000 and $27,000, respectively, of compensation expense related to the ESPP.

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Description of Business

12 Months Ended

Sep. 30, 2013

Description of Business:

Description of Business

Note 1 — Description of Business

Liberator Medical Holdings, Inc. and subsidiaries (the “Company”) distribute direct-to-consumer durable medical supplies to customers in all fifty states within the United States. The Company’s revenue is primarily derived from supplying urological, ostomy, and diabetic medical supplies and mastectomy fashions to Medicare-eligible seniors with chronic conditions. We provide a simple, reliable way for patients to purchase medical supplies on a recurring basis. Our employees communicate directly with the patients and their physicians regarding the patients’ prescriptions and supply requirements. The Company bills Medicare and third-party insurers on behalf of its patients. The Company markets its products directly to consumers, primarily through targeted media, direct-response television, Internet, and print advertising throughout the United States. Our patient service representatives are specifically trained to communicate with patients, in particular seniors, helping them to follow their doctors’ orders and manage their chronic diseases. The Company’s operating platforms enable it to efficiently collect the required documentation from physicians and patients in order to bill and collect amounts due from Medicare, other third party payers and directly from patients.

In July 2013, the Company acquired the stock of a small ostomy supply business for a cash purchase price of $343,000. The acquisition was immaterial to the Company's consolidated financial position and results of operations.

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Purchase Commitments (Details) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Purchase Commitments
Minimum purchases to be made as per long distance telephone service agreement excluding vendor rebates	$ 6,000	$ 6,000
Revised minimum purchases to be made	10,000	10,000
Total purchases made as per long distance telephone service agreement	$ 161,000	$ 161,000

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Company's income before taxes as follows (Details) (in thousands) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Company's income before taxes as follows
Computed "expected" income tax expense	$ 4,087	$ 1,481
State income taxes, net of federal benefit	459	178
True-up of prior year differences		18
Other nondeductible expenses	52	54
Total income tax expense;	$ 4,598	$ 1,731

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Amortization Expense OF Assets (Details) (USD $)	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Amortization Expense OF Assets
Operating expenses for depreciation of property and equipment	$ 604,000	$ 729,000
Amortization expense associated with intangible assets	$ 78,000	$ 66,000

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Significant Policies (Tables)

12 Months Ended

Sep. 30, 2013

Significant Policies:

Segment Reporting - Summary of Company revenue by product line (TABLE)

The following table summarizes the Company's revenues by product line as a percentage of net sales for the fiscal years ending September 30, 2013 and 2012:

	2013	2012
Product Lines:
Urological supplies	77.3%	76.7%
Ostomy supplies	16.5%	15.6%
Mastectomy fashions	5.2%	6.3%
Diabetic supplies	1.0%	1.4%

Reconciliation of the begining and ending allowances for accounts receivable (TABLE)

The following is a reconciliation of the beginning and ending allowances for accounts receivable for the fiscal years ended September 30, 2013 and 2012 (dollars in thousands):

	Beginning Balance at October 1st		Charged against Revenues or to Bad Debt Expense		Actual Deductions against Allowance			Ending Balance at September 30th
Fiscal year ended September 30, 2012:
Allowance for contractual adjustments	$	646	$	123	$	—		$	769
Allowance for uncollectible accounts		3,531		4,664		(3,920	)		4,275
Total allowances for accounts receivable	$	4,177	$	4,787	$	(3,920	)	$	5,044
Fiscal year ended September 30, 2013:
Allowance for contractual adjustments	$	769	$	338	$	—		$	1,107
Allowance for uncollectible accounts	4,275			3,069		(3,949	)	3,395
Total allowances for accounts receivable	$	5,044	$	3,407	$	(3,949	)	$	4,502

Deferred Costs Prepaid

A summary of deferred advertising costs for the fiscal years ending September 30, 2013 and 2012, is as follows (in thousands):

	2013			2012
Deferred Advertising Costs:
Beginning Balance, 10/1	$	22,426		$	17,191
Plus: Direct-response advertising spend		9,000			13,113
Less: Amortization of deferred advertising costs		(8,721	)		(7,878	)
Ending Balance, 9/30	$	22,705		$	22,426

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Commitments and Contingencies

12 Months Ended

Sep. 30, 2013

Commitments and Contingencies,:

Commitments and Contingencies,

NOTE 9 — Commitments and Contingencies

Capital Lease Obligations

The Company leases certain computer equipment, software, office furniture, and warehouse equipment under capital leases. The net book value of these assets was $133,000 and $179,000 as of September 30, 2013, and 2012, respectively. The payment terms of the capital leases expire between November 2013 and November 2015.

The following is a schedule by years of future minimum lease payments under capital leases together with the present value of the net minimum lease payments as of September 30, 2013 (in thousands):

	Amount
Fiscal year ending September 30:
2014	$	89
2015		59
2016		1
Total minimum lease payments		149
Less: Interest on capitalized lease obligations		(8	)
Present value of capitalized lease obligations		141
Less: Current portion		(83	)
Capitalized lease obligations, net of current portion	$	58

The present value of capital lease obligations is included in other current liabilities and other long-term liabilities on the Company’s Consolidated Balance Sheet as of September 30, 2013. Interest expense on capitalized leases was $9,000 and $6,000 for the fiscal years ended September 30, 2013 and 2012, respectively.

Operating Leases

The Company leases various office and warehouse facilities, software, and equipment under non-cancelable operating leases that expire at various times through April 2016. Future minimal rental and lease commitments under non-cancelable operating leases with terms in excess of one year as of September 30, 2013 are as follows (in thousands):

	Amount
Fiscal year ending September 30:
2014	$	844
2015		125
2016		49
Total minimum lease payments	$	1,018

Rent, software, and equipment lease expense for the years ended September 30, 2013 and 2012, was $1,337,000 and $1,205,000, respectively.

Purchase Commitments

In May 2009, the Company entered into a long distance telephone service agreement that requires the company to purchase a minimum of $6,000 per month, excluding vendor rebates, of long distance service through December 2009. Effective January 2010, the agreement was revised to $10,000 per month, excluding additional vendor rebates. The long distance service agreement expires in April 2014. The Company purchased $146,000 and $161,000 of long distance service under the agreement for the fiscal years ended September 30, 2013 and 2012, respectively.

Litigation

From time to time, we are party to certain legal proceedings that arise in the ordinary course and are incidental to our business. There are currently no such pending proceedings to which we are a party that our management believes will have a material adverse effect on the Company’s consolidated financial position or results of operations. However, future events or circumstances, currently unknown to management, will determine whether the resolution of pending or threatened litigation or claims will ultimately have a material effect on our consolidated financial position, liquidity or results of operations in any future reporting periods.

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Stockholders' Equity (Tables)

12 Months Ended

Sep. 30, 2013

Stockholders Equity Note

Stockholders' Equity Note, Warrants

Risk-free interest rate:		2.34%
Expected term:	5 years
Expected dividend yield:		0.00%
Expected volatility:		63.66%

Summary of warrants issued, exercised and expired

				Weighted
				Avg.
				Exercise
Warrants:	Shares			Price
Balance at October 1, 2011		6,965,667		$	1.12
Issued		-			-
Exercised		-			-
Expired		(1,433,334	)		1.25
Balance at September 30, 2012		5,532,333		$	1.09
Issued		-			-
Exercised		(16,000	)		1.00
Expired		(5,283,000	)		1.02
Balance at September 30, 2013		233,333		$	2.50

Black-Scholes option pricing model assumptions

	2013
Risk-free interest rate:	0.40%
Expected term:	3 years
Expected dividend yield:	0.00%
Expected volatility:	46.87%

Summary of Stock Options Activity

			Weighted		Weighted
			Average		Remaining	Aggregate
			Exercise		Contractual	Intrinsic
2007 Stock Plan:	Shares		Price		Life (Years)	Value
Options outstanding at October 1, 2011	2,085,000		$	0.99	2.75	$	141,750
Granted	-			-
Expired or forfeited	(50,000	)		2.18
Options outstanding at September 30, 2012	2,035,000		$	0.97	1.74	$	92,150
Granted	370,000			0.93
Exercised	(367,000	)		0.72
Expired or forfeited	(587,500	)		0.83
Options outstanding at September 30, 2013	1,450,500		$	1.07	1.98	$	1,401,445
Options exercisable at September 30, 2013	1,263,000		$	1.10	1.65	$	1,190,320
Options vested or expected to vest at September 30, 2013	1,450,500		$	1.07	1.98	$	1,401,445

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Summary of property and equipment (Tables)

12 Months Ended

Sep. 30, 2013

Summary of property and equipment:

Summary of property and equipment

	Estimated
	Life	2013			2012
Leased equipment	3 — 5 years	$	807		$	784
Transportation equipment	5 — 10 years		55			51
Warehouse equipment	5 — 10 years		132			131
Office furniture	5 — 10 years		613			495
Computer equipment	3 — 5 years		599			507
Telephone equipment	5 years		101			87
Website	5 years		114			114
Server software	3 years		343			318
Leasehold improvements	Shorter of life of asset or lease		1,749			1,630
Signage	5 — 10 years		23			21
Total property and equipment			4,536			4,138
Less: accumulated depreciation			(3,492	)		(2,888	)
Property and equipment, net		$	1,044		$	1,250

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Document and Entity Information (USD $)	12 Months Ended
	Sep. 30, 2013	Dec. 15, 2013	Mar. 28, 2013
Document and Entity Information:
Entity Registrant Name	LIBERATOR MEDICAL HOLDINGS, INC.
Document Type	10-K
Document Period End Date	Sep. 30, 2013
Amendment Flag	false
Entity Central Index Key	0000017485
Current Fiscal Year End Date	--09-30
Entity Common Stock, Shares Outstanding		52,403,484
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	FY
Entity Public Float			$ 25,650,787

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Summary of intangible assets (Tables)

12 Months Ended

Sep. 30, 2013

Summary of intangible assets:

Summary of intangible assets

A summary of intangible assets at September 30, 2013 and 2012, is as follows (in thousands):

	2013				2012
Acquired customer lists	$	502		$	330
Acquired trade name		81			-
Less: accumulated amortization		(169	)		(91	)
Net intangible assets	$	414		$	239

Estimated amortization expense for intangible assets

	Amount
Fiscal years ending September 30:
2014	$	121
2015		121
2016		89
2017		35
2018		29
	$	395