See accompanying notes to unaudited consolidated financial statements

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

HASCO Medical, Inc. (“HASCO” or the “Company”), formerly BBC Graphics of Palm Beach Inc, was incorporated in May 2009 under the laws of the State of Florida. The Company operated as a provider of advertising and graphic design services. In June 2009, the Company changed its name to HASCO Medical, Inc.

On May 12, 2009, HASCO completed the acquisition of Southern Medical & Mobility, Inc. (SMM”) pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) among HASCO, SMM and Southern Medical Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement Southern Medical Acquisition, Inc. was merged into Southern Medical & Mobility, Inc., and Southern Medical & Mobility, Inc. became a wholly-owned subsidiary of HASCO. The shareholder of Southern Medical & Mobility, Inc. was issued a total of 554,676,000 shares of the Company’s common stock in exchange for their Southern Medical & Mobility, Inc. share.

After the merger and transactions that occurred at the same time as the merger, there were 642,176,000 shares of the Company’s common stock outstanding, of which 620,000,000, approximately 96.5%, were held by HASCO Holdings, LLC, the former sole shareholder of Southern Medical & Mobility, Inc.

Prior to the merger, the Company was a shell company with no business operations.

Southern Medical & Mobility, Inc. provides home health care services and products consisting primarily of the rental and sale of home medical equipment and home health care supplies. These services and products are paid for primarily by Medicare, Medicaid, and other third-party payors.

For accounting purposes, HASCO Medical, Inc. has accounted for the transaction as a reverse acquisition and HASCO will be the surviving entity as a publicly-traded company under the name HASCO Medical Inc. or together with its subsidiaries. The Company did not recognize goodwill or any intangible assets in connection with this transaction.

The Merger was accounted for as a reverse acquisition, with Southern Medical & Mobility, Inc, as the accounting acquirer. Therefore, the Company’s historical financial statements reflect those of Southern Medical & Mobility, Inc. Accordingly, the reverse acquisition is being accounted for as a capital transaction in substance, rather than a business combination. For accounting purposes, the net liabilities of HASCO Medical, Inc. were recorded at fair value as of the Closing Date, with an adjustment to additional paid-in capital. The deficit accumulated by HASCO was carried forward after the Merger.

Effective with the reverse merger, all previously outstanding common stock owned by HASCO Medical, Inc.’s shareholders were exchanged for the Company’s common stock. The value of the Company’s common stock that was issued to HASCO Medical, Inc.’s shareholders was the historical cost of the Company’s net tangible assets, which did not differ materially from its fair value.

All references to common stock, share and per share amounts have been retroactively restated to reflect the reverse acquisition as if the transaction had taken place as of the beginning of the earliest period presented.

On May 13, 2011 Hasco Medical, Inc. completed the acquisition of Mobility Freedom, Inc and Wheel Chair Vans of America. Mobility Freedom was founded in 1999 in Clermont, Florida, by Mr. Jeff Connors, who continues to serve as its President. With over 30 years experience in the van conversion industry, Mr. Connors formed Mobility Freedom in response to his identification of a need in the fast growing Central Florida area for a quality full service dealership of conversion vans and other mobility products that would help the disabled become mobile. A few years after the business started, Mr. Connors had an opportunity to purchase a van rental company, which now does business under the name “Wheelchair Vans of America.” Wheelchair Vans of America specializes in renting conversion vans to the disabled individuals visiting the State of Florida. This business unit has proven to be an effective complement to Mobility Freedom and is anticipated to be expanded to other areas of the country.

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

Mobility Freedom caters to individuals with physical limitations that need specialty equipment to drive as well as families with members who are disabled that need to be transported. In certain circumstances, both the van itself as well as its specialty equipment is paid for, directly to Mobility Freedom, by a federal or state agency. As an example, approximately 45% of Mobility Freedom’s customers are veterans receiving benefits from the United States Department of Veterans Affairs (the “VA”). As part of the VA’s mission “to provided veterans the world-class benefits and services they have earned”, the VA pays for a van for disabled veterans. As a result, Mobility Freedom is both a VA and Vocational Rehabilitation (VR) state certified vendor. In addition, Mobility Freedom is an exclusive vendor for certain Florida state funded agencies, including the Florida Birth-Related Neurological Injury Compensation Association (NICA).

Mobility Freedom provides mobility solutions to its client base with disabilities through both the sale and rental of wheelchair accessible vans. Its sales operations are conducted as an authorized dealer for a number of OEM handicap van manufacturers including:


	•	The Braun Corporation, which offers a variety of wheelchair accessible van conversions of popular minivan models including the Dodge Grand Caravan, the Chrysler Town & Country, the Toyota Sienna and the Honda Odyssey;

	•	Vantage Mobility International; and

	•	ElDorado National Company, a THOR company.

These OEM manufacturers provide chassis conversions to traditional minivans and full size vans in order to make them handicap accessible. These conversions traditionally include lowering the floors in order to increase head room, the addition of side entry or rear entry ramps and the installation of a wheelchair lift. Upon the selection by a customer of its base van, Mobility Freedom provides custom conversion services.

Mobility Freedom’s mobility services revolve around an analysis of each individual’s use of the van as well as individual physical limitations. In those instances where it is the passenger and not the driver who requires a wheelchair, Mobility Freedom provides full installation of EZ Lock Tie Down Systems to secure the wheelchair during movement. In connection with meeting the needs of a handicapped driver, the Company utilizes an independent evaluator who evaluates the needs of the driver and recommends the appropriate Driver Adaptive Equipment (“DAE”).

DAE installed by Mobility Freedom covers a broad array of products designed to allow a motorist with disabilities to drive despite his or her physical limitations. The equipment, the cost of which in certain circumstances can exceed $100,000, includes:


	•	hand controls;

	•	spinner knob to aid in turning the steering wheel;

	•	a transfer seat;

	•	electronic driving controls such as a touch screen which controls various electronic equipment in an auto such as the ignition; and

	•	reduced effort steering and braking.

Mobility Freedom also offers another unique solution with the option of a wheelchair accessible truck or truck conversion. Offered by Ryno Mobility a wheelchair truck conversion offers the ability to retain the style and performance of a truck while the handicap truck conversion allows wheelchair access.

Mobility Freedom has four corporate owned stores which are located in Orlando, Largo, Clermont and Palm Coast/Bunell, and two affiliates which are located in Edgewater and Ocala for a total of six operations centers in Florida. We believe that many of the demographics factors in North Central Florida make it an ideal location for Mobility Freedom’s operations including:

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010


	•	an older and aging population;

	•	the numerous tourist destinations that define the greater Orlando are; and

	•	a significant population of military veterans attracted by the Orlando VA Medical Center. Currently the new Orlando VA Medical Center is under construction and will be located on a 65-acre campus in southeast Orange County. The 1.2 million square foot facility, scheduled to open in fall of 2012, will have a large multispecialty outpatient clinic, 134-inpatient beds, 120-community living center beds, a 60-bed domiciliary and administrative and support services. The VA will be co-located with the University of Central Florida College of Medicine, the Burnham Institute, the University of Florida Academic and Research Center and Nemours Children’s Hospital in the Lake Nona area known as the “Medical City.”

Mobility Freedom’s agreements with the vehicle manufacturers permit it to sell the vehicles within certain specific territories and it is not authorized to sell all brands in all of these areas. The agreements with the affiliates provide that Mobility Freedom holds the territory rights to sell vehicles and the affiliate provides the location. The affiliate is entitled to receive 50% of the profit on each van sold as consideration for providing the location. We expect that Mobility Freedom’s operations will represent a material portion of our business in the future.

Historically, our operations were focused on the provision of a diversified range of home health care services and products. Following our May 2011 acquisition of Mobility Freedom, our operations are conducted within two business units:


	•	Mobility Freedom, including its rental operations conducted under the trade name Wheelchair Vans of America located in Central Florida, and

	•	Southern Medical & Mobility located in Mobile Alabama.

Our objective is to continue to grow both intrinsically and through acquisitions in areas that we currently offer products and services in, as well in areas that are complementary. As Mobility Freedom is significantly larger than Southern Mobility, we anticipate that Mobility Freedom will drive our near term financial results.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2010 and notes thereto and other pertinent information contained in Form 10-K of HASCO Medical, Inc. (the “Company”, “we”, “us”. Or “our”) as filed with the Securities and Exchange Commission (the “Commission”). All significant intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheets and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates in 2011 and 2010 include the allowance for doubtful accounts, the valuation of inventory, the useful life of property and equipment and the assumptions used to calculate stock-based compensation.

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

Reclassification

Certain amounts in the 2010 consolidated financial statements have been reclassified to conform to the 2011 presentation. Such reclassifications had no effect on the reported net loss. Prior year information has been restated from prior issued financials to include the transactions of Southern Mobility, which was acquired in 2011,

Fair Value of Financial Instruments

Effective January 1, 2008, the Company adopted FASB ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements, and establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.

ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:


	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities

	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data

	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

Cash and cash equivalents include money market securities that are considered to be highly liquid and easily tradable as of September 30, 2011 and December 31, 2010. These securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within our fair value hierarchy.

In addition, FASB ASC 825-10-25 Fair Value Option was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.

The carrying amounts of financial instruments, including cash, accounts receivable, accounts payable and accrued liabilities, and promissory note, approximated fair value as of September 30, 2011 and December 31, 2010 , because of the relatively short-term maturity of these instruments and their market interest rates.

Revenue Recognition and Concentration of Credit Risk

Revenues are recognized under fee for service arrangements through equipment that the Company rents to patients, sales of equipment, supplies, and other items the Company sells to patients. Revenue generated from equipment that the Company rents to patients is recognized over the rental period and commences on delivery of the equipment to the patients. Revenue related to sales of equipment, and supplies is recognized on the date of delivery to the patients. All revenues are recorded at amounts estimated to be received under reimbursement arrangements with third-party payers, including private insurers, prepaid health plans, Medicare and Medicaid.

Revenues are recognized on an accrual basis at the time services and related products are provided to patients and collections are reasonably assured, and are recorded at amounts estimated to be received under healthcare contracts with third-party payers, including private insurers, Medicaid, and Medicare. Insurance benefits are assigned to us by patients receiving medical treatments and related products and, accordingly, we bill on behalf of our patients/customers. Under these contracts, we provide healthcare services, medical equipment and supplies to patients pursuant to a physician’s prescription. The insurance company reimburses us for these services and products at agreed upon rates. The balance remaining for product or service costs becomes the responsibility of the patient. A systematic process is employed to ensure that sales are recorded at net realizable value and that any required adjustments are recorded on a timely basis. We have established an allowance to account for contractual sales adjustments that result from differences between

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

the amount remitted for reimbursement and the expected realizable amount. Due to the nature of the industry and the reimbursement environment in which we operate, certain estimates are required to record net revenue and accounts receivable at their net realizable values at the time products and/or services are provided. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity of many third party billing arrangements and the uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review. The Company reports revenues in our financial statements net of such adjustments. The Company recorded contractual adjustments of $520,508 and $252,724 during the nine months ended September 30, 2011 and 2010, respectively.

Certain items provided by the Company are reimbursed under rental arrangements that generally provide for fixed monthly payments established by fee schedules for as long as the patient is using the equipment and medical necessity continues (subject to capped rental arrangements which limit the rental payment periods in some instances and which may result in a transfer of title to the patient at the end of the rental payment period). Once initial delivery of rental equipment is made to the patient, a monthly billing cycle is established based on the initial date of delivery. The Company recognizes rental arrangement revenues ratably over the monthly service period and defers revenue for the portion of the monthly bill that is unearned. No separate payment is earned from the initial equipment delivery and setup process. During the rental period, the Company is responsible for servicing the equipment and providing routine maintenance, if necessary.

The Company follows the guidance of the FASB ASC 605-10-S99 “Revenue Recognition Overall – SEC Materials. The Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured.

Included in accounts receivable are earned but unbilled receivables. Unbilled accounts receivable represent charges for equipment and supplies delivered to customers for which invoices have not yet been generated by the billing system. Prior to the delivery of equipment and supplies to customers, the Company performs certain certification and approval procedures to ensure collection is reasonably assured and that unbilled accounts receivable are recorded at net amounts expected to be paid by customers and third-party payors. Billing delays, generally ranging from several days to several weeks, can occur due to delays in obtaining certain required payor-specific documentation from internal and external sources, interim transactions occurring between cycle billing dates established for each customer within the billing system and business acquisitions awaiting assignment of new provider enrollment identification numbers. In the event that a third-party payor does not accept the claim for payment, the customer is ultimately responsible.

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 our estimates could change, which could have a material impact on the Company’s operations and cash flows.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company places its cash with a high credit quality financial institution. The Company’s account at this institution is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. For the nine months ended September 30, 2011, the Company has not reached bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least annually the rating of the financial institution in which it holds deposits.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and notes payable. The Company's investment policy is to invest in low risk, highly liquid investments. The Company does not believe it is exposed to any significant credit risk in its cash investment.

The Company performs on-going credit evaluations of its customer base including those included in accounts receivable at September 30, 2011 and December 31, 2010, and, generally, does not require collateral. The Company maintains reserves for potential credit losses and such losses have been within management’s expectations.

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

Accounts Receivable

Accounts receivable of Southern Medical and Mobility consists primarily of receivables due from Medicare, Medicaid, and third party payers. The Company recorded a bad debt allowance of $303,177 and $327,697 as of September 30, 2011 and December 31, 2010, respectively. Management performs ongoing evaluations of its accounts receivable.

Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity and uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review.

Management performs periodic analyses to evaluate accounts receivable balances to ensure that recorded amounts reflect estimated net realizable value. Specifically, management considers historical realization data, accounts receivable aging trends, and other operating trends. Also considered are relevant business conditions such as governmental and managed care payor claims processing procedures and system changes.

Accounts receivable are reduced by an allowance for doubtful accounts which provides for those accounts from which payment is not expected to be received, although services were provided and revenue was earned. Upon determination that an account is uncollectible, it is written-off and charged to the allowance.

Accounts receivable balance concentrations by major payor category as of September 30, 2011 and December 31, 2010 were as follows:


Percentage of Accounts Receivable Outstanding:	September 30, 2011	December 31, 2010

Medicare	31.9%	36.6%
Medicaid/Other Government	14.3%	3.6%
Private Insurance/Other	53.8%	59.8%
Total	100.0%	100.0%

Inventory

Inventory is valued at the lower of cost or market, on an average cost basis and includes primarily finished goods.

Advertising

Advertising, marketing and selling is expensed as incurred. Such expenses for the nine months ended September 30, 2011 and 2010, and totaled $134,779 and $59,532, respectively.

Shipping and Handling Costs

The Company classifies costs related to freight as costs of sales.

Property and Equipment

Property and equipment, including rental equipment are carried at cost and are depreciated on a straight-line basis over the estimated useful lives of the assets. Depreciation of rental equipment is computed using the straight-line method over the estimated useful lives, generally one to three years. Such depreciation of rental equipment is charged to cost of sales. The cost of repairs and maintenance is expensed as incurred; major replacements and improvements are capitalized. When assets are retired or disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gains or losses are included in income in the year of disposition. The Company examines the possibility of decreases in the value of fixed assets when events or changes in circumstances reflect the fact that their recorded value may not be recoverable.

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

Impairment of Long-Lived Assets

The Company reviews, long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value. The Company did not record any impairment charges for the nine months ended September 30, 2011 and 2010.

Income Taxes

Deferred income tax assets and liabilities are computed for differences between the carrying amounts of assets and liabilities for financial statement and tax purposes. Deferred income tax assets are required to be reduced by a valuation allowance when it is determined that it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining the necessity and amount of a valuation allowance, management considers current and past performance, the operating market environment, tax planning strategies and the length of tax benefit carry forward periods.

Pursuant to accounting standards related to the accounting for uncertainty in income taxes, the evaluation of a tax position is a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is measured at the largest amount of benefit that is greater than 50% likelihood of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent period in which the threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not criteria should be de-recognized in the first subsequent financial reporting period in which the threshold is no longer met. The accounting standard also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition. The adoption had no effect on the Company’s consolidated financial statements.

Subsequent Events

For purposes of determining whether a post-balance sheet event should be evaluated to determine whether it has an effect on the financial statements for the nine months ended September 30, 2011, subsequent events were evaluated by the Company as of the date on which the consolidated financial statements for the three and nine months ended September 30, 2011 and 2010 were available to be issued.

Stock Based Compensation

In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC Topic 718: Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under ASC 718. Upon adoption of ASC 718, the Company elected to value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.

Related Parties

Parties are considered to be related to the Company if the parties that, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. The Company discloses all related party transactions. All transactions shall be recorded at fair value of the goods or services exchanged. Property purchased from a related party is recorded at the cost to the related party and any payment to or on behalf of the related party in excess of the cost is reflected as a distribution to related party.

Recently Issued Accounting Pronouncements

We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration. Reference is made to these recent accounting pronouncements as if they are set forth therein in their entirety.

Earnings (Loss) Per Share

Earnings per common share are calculated under the provisions of a FASB issued new guidance,” which established new accounting standards for computing and presenting earnings per share. The accounting standard requires the Company to report both basic earnings per share, which is based on the weighted-average number of common shares outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all potential dilutive common shares outstanding. The computation of diluted net loss per share does not include dilutive common stock equivalents in the weighted average shares outstanding as they would be anti-dilutive. As of September 30, 2011, there were 3,075,000 stock options which could potentially dilute future earnings per share.

NOTE 2 – GOING CONCERN CONSIDERATIONS

The accompanying consolidated financial statements are prepared assuming the Company will continue as a going concern. At September 30, 2011, the Company had an accumulated deficit of approximately $4.1 million. The ability of the Company to continue as a going concern is dependent upon increasing sales and obtaining additional capital and financing to support its recent acquisition. During the quarter ended September 30, 2011, the Company secured a working capital line of credit in the amount of $2,750,000. Management intends to attempt to raise additional funds by way of a public or private offering. While the Company believes in the viability of its strategy to increase sales volume and in its ability to raise additional funds, there can be no assurances to that effect.

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:


		September 30,			December 31,
	Estimated	2011			2010
	Life	(unaudited)			(audited)
Building improvements	15-39 years	$	60,110		$	—
Office furniture and equipment	5 years		117,748			38,979
Rental equipment	13-36 months		1,051,482			468,646
Vehicles	5 years		156,243			71,656
Computer equipment	5 years		52,781			31,483
			1,438,364			610,764
Accumulated depreciation			(660,280	)		(462,995	)
		$	778,084		$	147,769

For the nine months ended September 30, 2011 and 2010, depreciation expense amounted to $197,285 and $267,823, respectively of which $76,397 and $90,974 is included in cost of sales, respectively.

The Company has entered into various financing arrangements in connection with the acquisition of three delivery vehicles (see Note 4 below).

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

NOTE 4 – NOTES PAYABLE

Between December 2008 and January 2009, the Company issued notes payable amounting to $52,979 in connection with the acquisition of three delivery vehicles. The notes payable bear approximately 2% interest per annum and are secured by a lien of all three delivery vehicles. These notes shall be payable in thirty-six equal monthly payments of $1,516 beginning in January 2009 through December 2011. As of September 30, 2011, there was $7,859 remaining on the notes. As of December 31, 2010, the current and long term portion of these notes amounted to $18,005 and $2,509, respectively.

On August 15, 2011 Hasco Medical, Inc. completed its $2,750,000 revolving line of credit with Whitney Bank, which includes an annual renewal. An annual facility fee of .25% was charged. Interest at the Wall Street Journal prime rate plus .5% on the used facility will be paid monthly. The aforementioned interest rate was 3.75% as of November 1, 2011 .In addition, $50,000 in corporate credit cards were provided as part of the facility. The facility is asset based and as of November 14, 2011 there was approximately $250,000 available on the borrowing base.

On May 13, 2011, the Company issued a promissory note, payable to the Sellers of Mobility Freedom Inc (the Acquisition), in the amount of $3,850,000, in exchange for all the shares of acquired company. The terms of the agreement included an employment agreement with the seller. The acquisition price consists of two notes:


	1.	Note for $2,000,000 ($1,850,000 cash proceeds to seller and consolidation of $150,000 previously advanced for working capital) to Hal Compton, Sr, our Chairman. The note bears interest at 5% annually with monthly payments of interest and principal of $21,213, commencing August 15, 2011 for 120 months;

	2.	Promissory note to seller note in the amount of $2,000,000, secured by grantee from the majority shareholder, with interest at 6% per annum and equal monthly installments of interest and principal of $16,877.14 for 180 months.

NOTE 5 – LOANS PAYABLE – RELATED PARTY

In February 2011, HASCO Holdings, LLC, the largest shareholder of the Company, loaned $50,000 to the Company. These loans are non interest bearing and are due on demand.

In February 2011, one of the Company’s directors loaned $135,000 to the Company. These loans are non interest bearing and are due on demand.

NOTE 6 – EQUITY

On May 12, 2009 HASCO Medical, Inc. (“HASCO”) completed the acquisition of Southern Medical & Mobility, Inc. (SMM”) pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) among HASCO, SMM and Southern Medical Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement Southern Medical Acquisition, Inc. was merged into Southern Medical & Mobility, Inc., and Southern Medical & Mobility, Inc. became a wholly-owned subsidiary of HASCO. The shareholder of Southern Medical & Mobility, Inc. was issued a total of 554,676,000 shares of the Company’s common stock in exchange for their Southern Medical & Mobility, Inc. share.

Prior to the merger, the Company was a shell company with no business operations.

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

In January 2011, in connection with the sale of the Company’s common stock, the Company issued 2,000,000 shares of common stock for net proceeds of approximately $20,000.

In February 2011, the Company entered into a placement agent agreement whereby the Company engaged that firm to assist us in a best efforts private offering of the Company’s securities. Under the terms of the agreement, the Company paid the firm an upfront retainer of 150,000 shares of the Company’s common stock as compensation for services. The Company shall pay 2% commissions based on the proceeds received by the Company from the offering. The Company valued these common shares at the fair market value on the date of grant at $0.02 per share or $3,000 and was recorded as stock-based consulting expense.

In March 2011, the Company issued 9,000,000 shares in connection with the payment of accrued management fees of $180,000 to HASCO Holdings, LLC. The Company valued these common shares at the fair market value on the date of grant at $0.02 per share or $180,000.

NOTE 7 – STOCK OPTION PLAN

Under the Company’s stock option plan, adopted on July 9, 2009, 20,000,000 shares of common stock were reserved for issuance upon exercise of options granted to directors, officers and employees of the Company. The Company is authorized to issue Incentive Stock Options (“ISOs”), which meet the requirements of Section 422 of the Internal Revenue Code of 1986. At its discretion, the Company can also issue Non Statutory Options (“NSOs”). When an ISO is granted, the exercise price shall be equal to the fair market value per share of the common stock on the date of the grant. The exercise price of an NSO shall not be less than fair market value of one share of the common stock on the date the option is granted. The vesting period will be determined on the date of grant.

On November 1, 2009, the Company granted an aggregate of 4,075,000 5-year option to purchase shares of common stock at $0.007 per share which vests at the end of two years, to four officers and three directors of the Company. The 4,075,000 options were valued on the grant date at $0.0064 per option or a total of $26,080 using a Black-Scholes option pricing model with the following assumptions: stock price of $0.007 per share, volatility of 150%, expected term of five years, and a risk free interest rate of 2.33%.

Stock option activity for the three months ended September 30, 2011 is summarized as follows:


	Number of shares		Weighted average exercise price
Outstanding at December 31, 2010	4,075,000		$	0.007
Granted	—			—
Exercised	—			—
Cancelled	(1,000,000	)		—
Outstanding at September 30, 2011	3,075,000		$

Options exercisable at end of year	—		$	—
Weighted average fair value of options granted during the year			$	—

Stock options outstanding at June 30, 2011 as disclosed in the above table have $29,212 intrinsic value at the end of the year.

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HASCO MEDICAL, INC. AND SUBSIDIARY

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2011 and 2010

The following table summarizes the Company's stock options outstanding at September 30, 2011:


Options Outstanding						Options Exercisable
	Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life		Weighted Average Exercise Price	Number Exercisable		Weighted Average Exercise Price
$	0.007	3,075,000	3.58 Years	$	0.007	—	$	—
		3,075,000		$	0.007	—	$	—

NOTE 8 – COMMITMENTS

Operating Lease

The Company leases office space in Mobile, Alabama, and several sites in Florida under two- five-year operating leases that expire on April 30, 2014. The office lease agreements have certain escalation clauses and renewal options. Additionally, the Company has lease agreements for computer equipment, including an office copier and fax machine. Future minimum rental payments required under these operating leases are as follows:


Period ending September 30:
2011		72,655
2012		268,468
2013 and thereafter		302,747
	$	643,870

Rent expense was $195,847 and $147,734 for the nine months ended September 30, 2011 and 2010, respectively.

In April 2011, the Company received approximately $80,000 from Hasco Holdings, LLC. In March 2011, Hasco Holdings LLC. entered into a settlement and release agreement with the former owners of Southern Medical & Mobility, Inc. (“SMM”). The former owners agreed to reimburse Hasco Holdings LLC for all the refunds made to third party payors associated with billings prior to the acquisition of Hasco Holdings LLC of SMM in June 2008.

NOTE 9 – SEGMENT REPORTING

Pursuant to accounting standards related to the Disclosure about Segments of an Enterprise and Related Information which establishes standards for the reporting by business enterprises of information about operating segments, products and services, geographic areas, and major customers. The method for determining what information to report is based on the way that management organizes the operations of the Company for making operational decisions and assessments of financial performance.

The Company’s operating decision-maker is considered to be the chief executive officer (CEO). The CEO reviews financial information for purposes of making operating decisions and assessing financial performance. The financial information reviewed by the CEO is identical to the information presented in the accompanying statements of operations. Therefore, the Company has determined that it operates in a single operating segment. For the periods ended September 30, 2011 and 2010 all material assets and revenues of the Company were in the United States.

NOTE 10 – RELATED PARTY TRANSACTIONS

Management Fee

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Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to the risks discussed in this report.

Overview

From our formation in May 1999 through April 2006, we were in the business of providing advertising and graphic design services to our clients. On October 1, 2004, we were administratively dissolved by the State of Florida pursuant to Sections 607.1420 and 607.1421 of the Florida Business Corporation Act. On April 29, 2006, we were reinstated as an active Florida corporation pursuant to Section 607.1422 of the Florida Business Corporation Act. As of that date, we discontinued our advertising and graphics design business.

We were organized under the laws of the State of Florida in May 1999. Our principal executive offices are located at 1416 West I-65 Service Road S., Mobile, AL 36693, and our telephone number is (251) 633-4133.

On January 12, 2009 HASCO Holdings, LLC acquired 65,324,000 shares of HASCO Medical, Inc. common stock for total consideration of $150,000. HASCO Holdings, LLC thereby purchased beneficial ownership of 75% of the outstanding shares of common stock of the Company. HASCO Holdings, LLC acquired the common shares of the Company from two shareholders, Robert Druzak, and John R. Signorello.

On May 12, 2009, HASCO Medical, Inc. (i) closed a share exchange transaction, pursuant to which HASCO Medical, Inc. became the 100% parent of SOUTHERN MEDICAL & MOBILITY, and (ii) assumed the operations of SOUTHERN MEDICAL & MOBILITY.

On May 12, 2009, we completed the acquisition of Southern Medical & Mobility, Inc. (SMM”) pursuant to the terms of the Agreement and Plan of Merger (the “Merger Agreement”) among HASCO, SMM and Southern Medical Acquisition, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company. Under the terms of the Merger Agreement Southern Medical Acquisition, Inc. was merged into Southern Medical & Mobility, Inc., and Southern Medical & Mobility, Inc. became our wholly-owned subsidiary. The shareholder of Southern Medical & Mobility, Inc. was issued a total of 554,676,000 shares of our common stock in exchange for their Southern Medical & Mobility, Inc. share.

After the merger and transactions that occurred at the same time as the merger, there were 642,176,000 shares of our common stock outstanding, of which 620,000,000, approximately 96.5%, were held by HASCO Holdings, LLC, the former sole shareholder of Southern Medical & Mobility, Inc.

Prior to the merger, we were a shell company with no business operations.

HASCO Medical, Inc., through the reverse merger of its wholly-owned subsidiary with and into Southern Medical & Mobility, is a low cost, quality provider of a broad range of home healthcare services that serve patients in Alabama, Florida, and Mississippi. We have two major service lines: home respiratory equipment and durable/ home medical equipment. Our objective is to be a leading provider of home health care products and services in the markets we operate.

For accounting purposes, the Merger was treated as a reverse acquisition with Southern Medical & Mobility, Inc. being the accounting acquirer. Therefore, the Company’s historical financial statements reflect those of Southern Medical & Mobility, Inc.

Historically, our operations were focused on the provision of a diversified range of home health care services and products. Following our May 13, 2011 acquisition of Mobility Freedom, our operations are conducted within two business units:


	•	Mobility Freedom, including its rental operations conducted under the trade name Wheelchair Vans of America located in Northern Florida, and

	•	Southern Medical & Mobility located in Mobile Alabama.

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Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Significant estimates in 2011 and 2010 include the allowance for doubtful accounts, the valuation of inventory, the useful life of property and equipment and the assumptions used to calculate stock-based compensation.

A summary of significant accounting policies is included in Note 1 to the audited consolidated financial statements included for the year ended December 31, 2010 and notes thereto contained in this report as filed with the Securities and Exchange Commission. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about the Company’s operating results and financial condition.

Our consolidated financial statements include a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. Management believes the following critical accounting policies affect the significant judgments and estimates used in the preparation of the consolidated financial statements.

Use of Estimates - Management’s Discussion and Analysis or Plan of Operations is based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates these estimates, including those related to allowances for doubtful accounts receivable and the carrying value of and equipment and long-lived assets. Management bases these estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition - The Company follows the guidance of the FASB ASC 605-10-S99 “Revenue Recognition Overall – SEC Materials. The Company records revenue when persuasive evidence of an arrangement exists, services have been rendered or product delivery has occurred, the sales price to the customer is fixed or determinable, and collectability is reasonably assured. The following policies reflect specific criteria for the various revenues streams of the Company:


	•	Revenues are recognized under fee for service arrangements through vans that the Company rents to disabled individuals visiting Florida. Revenue generated from vans that the Company rents to individuals is recognized over the rental period and commences on delivery of the van to the customer. Revenue related to sales of vans, and supplies is recognized on the date of delivery to the customer.

	•	Revenues from sales of products are generally recognized when products are shipped unless the Company has obligations remaining under sales or licensing agreements, in which case revenue is either deferred until all obligations are satisfied or recognized ratably over the term of the contract.

	•	Revenue from services is recorded as it is earned. Customers are generally billed every two weeks based on the units of production for the project. Each project has an estimated total which is based on the estimated units of production and agreed upon billing rates.

	•	Amounts billed in advance of services being provided are recorded as deferred revenues and recognized in the consolidated statement of operations as services are provided.

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Stock Based Compensation - In December 2004, the Financial Accounting Standards Board, or FASB, issued FASB ASC Topic 718: Compensation – Stock Compensation (“ASC 718”). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Companies may elect to apply this statement either prospectively, or on a modified version of retrospective application under which financial statements for prior periods are adjusted on a basis consistent with the pro forma disclosures required for those periods under ASC 718. Upon adoption of ASC 718, the Company elected to value employee stock options using the Black-Scholes option valuation method that uses assumptions that relate to the expected volatility of the Company’s common stock, the expected dividend yield of our stock, the expected life of the options and the risk free interest rate. Such compensation amounts, if any, are amortized over the respective vesting periods or period of service of the option grant.

Accounts Receivable - Management performs ongoing evaluations of its accounts receivable. Due to the nature of the industry and the reimbursement environment in which the Company operates, certain estimates are required to record net revenues and accounts receivable at their net realizable values. Inherent in these estimates is the risk that they will have to be revised or updated as additional information becomes available. Specifically, the complexity and uncertainty of reimbursement amounts for certain services from certain payors may result in adjustments to amounts originally recorded. Such adjustments are typically identified and recorded at the point of cash application, claim denial or account review. Management performs periodic analyses to evaluate accounts receivable balances to ensure that recorded amounts reflect estimated net realizable value. Specifically, management considers historical realization data, accounts receivable aging trends, and other operating trends. Also considered are relevant business conditions such as governmental and managed care payor claims processing procedures and system changes. Accounts receivable are reduced by an allowance for doubtful accounts which provides for those accounts from which payment is not expected to be received, although services were provided and revenue was earned. Upon determination that an account is uncollectible, it is written-off and charged to the allowance.

Inventory is valued at the lower of cost or market, on an average cost basis and includes primarily finished goods.

Long-Lived Assets - The Company reviews for impairment whenever events or circumstances indicate that the carrying amount of assets may not be recoverable, pursuant to guidance established in ASC 360-10-35-15, “Impairment or Disposal of Long-Lived Assets” . The Company reviews, long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable, or at least annually. The Company recognizes an impairment loss when the sum of expected undiscounted future cash flows is less than the carrying amount of the asset. The amount of impairment is measured as the difference between the asset’s estimated fair value and its book value.

Reimbursement by Third Party Payors

With the acquisition of Mobility Freedom & Wheelchairs of America on May 13, 2011 the revenue mix has changed significantly. Mobility Freedom revenues are recognized under fee for service arrangements through vans that the Company rents to disabled individuals visiting Florida. Revenue generated from vans that the Company rents to individuals is recognized over the rental period and commences on delivery of the van to the customer. Revenue related to sales of vans, and supplies is recognized on the date of delivery to the customer.

We no longer derive substantially all of our revenues from reimbursement by third party payors, including Medicare, Medicaid, and private insurers. However, our business has been, and may continue to be, significantly impacted by changes mandated by Medicare legislation

Under existing Medicare laws and regulations, the sale and rental of our products generally are reimbursed by the Medicare program according to prescribed fee schedule amounts calculated using statutorily-prescribed formulas. The Balanced Budget Act of 1997 (BBA) granted authority to the Secretary of the Department of Health and Human Services (DHHS) to increase or reduce the reimbursement for home medical equipment, including oxygen, by up to 15% each year under an inherent reasonableness procedure. The regulation implementing the inherent reasonableness authority establishes a process for adjusting payments for certain items and services covered by Medicare Part B when the existing payment amount is determined to be grossly excessive or deficient. The regulation lists factors that may be used by the Centers for Medicare and Medicaid Services (CMS), the agency within the DHHS responsible for administering the Medicare program, and its contractors to determine whether an existing reimbursement rate is grossly excessive or deficient and to determine what a realistic and equitable payment amount is. Also, under the regulation, CMS and its contractors will not consider a payment amount to be grossly excessive or deficient and make an adjustment if they determine that an overall payment adjustment of less than 15% is necessary to produce a realistic and equitable payment amount. The implementation of the inherent reasonableness procedure itself does not trigger payment adjustments for any items or services and to date, no payment adjustments have occurred or been proposed under this inherent reasonableness procedure.

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In addition to its inherent reasonableness authority, CMS has the discretion to reduce the reimbursement for home medical equipment (HME) to an amount based on the payment amount for the least costly alternative (LCA) treatment that meets the Medicare beneficiary’s medical needs. LCA determinations may be applied to particular products and services by CMS and its contractors through the informal notice and comment process used in establishing local coverage policies for HME. Using either its inherent reasonableness authority or LCA determinations, CMS and its contractors may reduce reimbursement levels for certain items and services covered by Medicare Part B, including products and services we offer which could have a material adverse effect on our revenues, profit margins, profitability, operating cash flows and results of operations. With respect to its LCA policies, on October 16, 2008, a U.S. District Court in the District of Columbia held that CMS did not have the authority to implement LCA determinations in setting payment amounts for covered inhalation drugs. DHHS filed its notice of appeal on December 10, 2008. We cannot predict whether this court decision will be overturned or whether CMS or its contractors will continue to apply LCA policies in the future to inhalation drugs or other HME products we offer to Medicare beneficiaries.

Recent legislation, each of which has been signed into law, including the Patient Protection and Affordable Care Act (“PPACA”), Medicare Improvement for Patients and Providers Act of 2008 (MIPPA), Medicare, Medicaid and State Children’s Health Insurance Program Extension Act of 2007 (“SCHIP Extension Act”), the Deficit Reduction Act of 2005 (DRA) and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), contain provisions that negatively impact reimbursement for the primary HME products that we provide. MIPPA retroactively delayed the implementation of competitive bidding for eighteen months and decreased the 2009 fee schedule payment amounts by 9.5 percent for product categories included in competitive bidding. The SCHIP Extension Act reduced Medicare reimbursement amounts for covered Medicare Part B drugs, including inhalation drugs that we provide, beginning April 1, 2008. The DRA caps the Medicare rental period for oxygen equipment at 36 months of continuous use, after which time title of the equipment would transfer to the beneficiary. For purposes of this cap, the DRA provides for a new 36-month rental period that began January 1, 2006 for all oxygen equipment. With the passage of MIPPA, transfer of title of oxygen equipment at the end of the 36-month rental cap was repealed, although the rental cap remained in place. The MMA significantly reduced reimbursement for inhalation drug therapies beginning in 2005, reduced payment amounts for five categories of HME, including oxygen, beginning in 2005, froze payment amounts for other covered HME items through 2007, established a competitive acquisition program for HME and implemented quality standards and accreditation requirements for HME suppliers. PPACA was signed into law on March 23, 2010. Together with the Health Care and Education Reconciliation Act of 2010 (signed into law on March 30, 2010) which amended the statute, PPACA is a comprehensive health care law that is intended to expand access to health insurance, reform the health insurance market to provide additional consumer protections, and improve the health care delivery system to reduce costs and produce better outcomes through a combination of cost controls, subsidies and mandates. These legislative provisions, as currently in effect and when fully implemented, have had and will have a material adverse effect on our business, financial condition, operating results and cash flows. We cannot predict the impact that any federal legislation enacted in the future will have on our revenues, profit margins, profitability, operating cash flows and results of operations.

Changes in the law or new interpretations of existing laws could have a dramatic effect on permissible activities, the relative costs associated with doing business and the amount of reimbursement by government and other third-party payors. Reimbursement from Medicare and other government programs is subject to federal and state statutory and regulatory requirements, administrative rulings, interpretations of policy, implementation of reimbursement procedures, retroactive payment adjustments and governmental funding restrictions. Our levels of revenue and profitability, like those of other health care companies, are affected by the continuing efforts of government payors to contain or reduce the costs of health care, including competitive bidding initiatives, measures that impose quality standards as a prerequisite to payment, policies reducing certain HME payment rates and restricting coverage and payment for inhalation drugs, and refinements to payments for oxygen and oxygen equipment.

(1) Competitive Bidding Program for HME. On April 2, 2007, CMS issued its final rule implementing a competitive bidding program for certain HME products under Medicare Part B. This nationwide competitive bidding program is designed to replace the existing fee schedule payment methodology. Under the competitive bidding program, suppliers compete for the right to provide items to beneficiaries in a defined region. CMS selects contract suppliers that agree to receive as payment the “single payment amount” calculated by CMS after bids are submitted. Round one of the competitive bidding program began on July 1, 2008 in ten high-population competitive bidding areas (CBAs). On July 15, 2008, Congress enacted the MIPPA legislation which retroactively delayed the implementation of competitive bidding and reduced Medicare prices nationwide by 9.5% beginning in 2009 for the product categories, including oxygen, that were initially included in competitive bidding. As a result of the delay, CMS cancelled all contract awards retroactively to June 30, 2008. In 2009, CMS reinstituted the bidding process in the nine largest MSA markets. Reimbursement rates from the re-bidding process were publicly released by CMS on June 30, 2010. CMS announced average savings of approximately 32% off the current payment rates in effect for the product categories included in competitive bidding. These payment rates are now in effect in the nine markets only, as of January 1, 2011. CMS will undertake a second round of competitive

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bidding in up to 91 additional markets, with contracts expected to be effective as of January 1, 2013. It is not certain at this time whether CMS intends to implement competitive bidding in all 91 markets simultaneously, or whether the program will be phased in over several years. The PPACA legislation requires CMS to expand competitive bidding further to all geographic markets (certain markets may be excluded at the discretion of CMS) or to use competitive bid pricing information to adjust the payment amounts otherwise in effect for areas that are not competitive acquisition areas by January 1, 2016. We will continue to monitor developments regarding the implementation of the competitive bidding program. While we cannot predict the outcome of the competitive bidding program on our business when fully implemented nor the Medicare payment rates that will be in effect in future years for the items subjected to competitive bidding, it is likely that the program will materially adversely affect our financial position and operating results.

On July 15, 2008, Congress enacted the MIPPA legislation which reduced Medicare payment rates nationwide for certain DME items, including oxygen equipment, by 9.5% beginning in 2009. In addition to the 9.5% reduction, CMS subjected the monthly payment amount for stationary oxygen equipment to additional cuts of 2.3% in 2009, thereby reducing the monthly payment rate from $199.28 in 2008 to $175.79 in 2009. The monthly payment amount was reduced by 1.5% in 2010, to $173.17. We estimate that this reduction negatively impacted our revenues in 2010. The stationary oxygen payment rate for 2011 has been established by CMS at $173.31 per month, an increase of 0.1%.

(2) Certain Clinical Conditions, Accreditation Requirements and Quality Standards. The MMA required establishment and implementation of new clinical conditions of coverage for HME products and quality standards for HME suppliers. Some clinical conditions have been implemented, such as the requirement for a face-to-face visit by treating physicians for beneficiaries seeking power mobility devices. CMS published its quality standards and criteria for accrediting organizations for HME suppliers in 2006 and revised some of these standards in October 2008. As an entity that bills Medicare and receives payment from the program, we are subject to these standards. We have revised our policies and procedures to ensure compliance in all material respects with the quality standards. These standards, which are applied by independent accreditation organizations, include business-related standards, such as financial and human resources management requirements, which would be applicable to all HME suppliers, and product-specific quality standards, which focus on product specialization and service standards. The product specific standards address several of our products, including oxygen and oxygen equipment, CPAP and power and manual wheelchairs and other mobility equipment.

Currently, we are accredited by the Accreditation Commission for Health Care, Inc. (ACHC) for Medical Supply Provider Services. The ACHC is a CMS recognized accrediting organization. Round one competitive bid suppliers will now be required to be accredited by September 30, 2009.

On January 25, 2008, CMS published a proposed rule to clarify, expand and add to the existing enrollment requirements that Durable Medical Equipment and Prosthetics, Orthotics, and Supplies (DMEPOS) suppliers must satisfy to establish and maintain billing privileges in the Medicare program. Included in the proposed rule are revised or clarified requirements regarding contracting with an individual or entity to provide licensed services, record retention, clarification of the term “appropriate site” as set forth in the regulation (which may be expanded to include a minimum square footage requirement), use of cell phones and beepers/pagers as a method of receiving calls from the public or beneficiaries, comprehensive liability insurance, patient solicitation, maintenance of ordering and referring documentation, sharing of a practice location with another Medicare provider, and minimum operating hours. At this time, we cannot predict the impact that this proposed rule, if implemented, would have on our business.

On January 2, 2009, CMS published its final rule on surety bond requirements for DMEPOS suppliers, effective March 3, 2009. The amount of the surety bond has been set at $50,000 and must be obtained for each National Provider Identifier (NPI) number subject to Medicare billing privileges. We are required to have our own NPI number. There may be an upward adjustment for suppliers that have had adverse legal actions imposed on them in the past. DMEPOS suppliers already enrolled in Medicare must obtain a surety bond by October 2, 2009, and newly enrolled suppliers or those changing ownership will be subject to the provisions of the new rule on May 4, 2009. We obtained a surety bond on October 2, 2009 and still currently maintaining such surety bond.

(3) Reduction in Payments for HME and Inhalation Drugs. The MMA changes also included a reduction in reimbursement rates beginning in January 2005 for oxygen equipment and certain other items of home medical equipment (including wheelchairs, nebulizers, hospital beds and air mattresses) based on the percentage difference between the amount of payment otherwise determined for 2002 and the 2002 median reimbursement amount under the Federal Employee Health Benefits Program (FEHBP) as determined by the Office of the Inspector General of the DHHS. The FEHBP adjusted payments remained “frozen” through 2008. With limited exceptions, items that were not included in competitive bidding received a 5% update for 2009. As discussed above, for 2009, MIPPA included a 9.5% nationwide reduction in reimbursement for the product categories included in competitive bidding, as a budget neutrality offset for the eighteen month delay.

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(4) Reductions in Payments for Oxygen and Oxygen Equipment. The DRA which was signed into law on February 8, 2006, has made certain changes to the way Medicare Part B pays for certain of our HME products, including oxygen and oxygen equipment. For oxygen equipment, prior to the DRA, Medicare made monthly rental payments indefinitely, provided medical need continued. The DRA capped the Medicare rental period for oxygen equipment at 36 months of continuous use, after which time ownership of the equipment would transfer to the beneficiary. For purposes of this cap, the DRA provides for a new 36-month rental period that began January 1, 2006 for all oxygen equipment. In addition to the changes in the duration of the rental period for capped rental items and oxygen equipment, the DRA permits payments for servicing and maintenance of the products after ownership transfers to the beneficiary.

On November 1, 2006, CMS released a final rule to implement the DRA changes, which went into effect January 1, 2007. Under the rule, CMS clarified the DRA’s 36-month rental cap on oxygen equipment. CMS also revised categories and payment amounts for the oxygen equipment and contents during the rental period and for oxygen contents after equipment ownership by the beneficiary as described below. With the passage of MIPPA on July 15, 2008, transfer of title to oxygen equipment at the end of the 36-month rental cap was repealed, although the rental cap remained in place. Effective January 1, 2009, after the 36th continuous month during which payment is made for the oxygen equipment, the equipment is to continue to be furnished during any period of medical need for the remainder of the reasonable useful lifetime of the equipment. After the 36-month rental cap, payment is made only for oxygen contents and for certain reasonable and necessary maintenance and servicing (for parts and labor not covered by the supplier’s or manufacturer’s warranty)

In its November 1, 2006 final rule, CMS also acknowledged certain other payments after the 36-month rental cap, including payment for supplies such as tubing and masks. In addition, CMS detailed several requirements regarding a supplier’s responsibility to maintain and service capped rental items and provided for a general maintenance and servicing payment for certain oxygen-generating equipment beginning six months after the 36-month rental cap. On October 30, 2008, CMS issued new oxygen payment rules and supplier responsibilities to address changes to the transfer of title under MIPPA. In the final rule, CMS determined that for liquid or gaseous oxygen (stationary or portable), after the 36-month rental cap, there will be no additional Medicare payment for the maintenance and servicing of such equipment for the remainder of the useful lifetime of the equipment. CMS also determined that for 2009 only, Medicare will pay for in-home, maintenance and servicing visits for oxygen concentrators and transfilling equipment every six months, beginning six months after the end of the 36-month rental cap. This payment will be made if the supplier visits the beneficiary’s home, performs any necessary maintenance and servicing, and inspects the equipment to ensure that it will function safely for the next six months. CMS also solicited public comments on whether to continue such maintenance and servicing payments after 2009. Finally, CMS clarified that though it retains title to the equipment, a supplier is required to continue to furnish needed oxygen equipment and contents for liquid or gaseous equipment after the 36-month rental cap until the end of the equipment’s reasonable useful lifetime. CMS determined the reasonable useful lifetime for oxygen equipment to be five years provided there are no breaks in service due to medical necessity, computed based on the date the equipment is delivered to the beneficiary. On January 27, 2009, CMS posted further instructions on the implementation of the 36-month rental cap, including guidance on payment for oxygen contents after month 36 and the replacement of oxygen equipment that has been in continuous use by the patient for the equipment’s reasonable useful lifetime (as defined above). In accordance with these instructions, and consistent with the final rule published on October 30, 2008, suppliers may bill for oxygen contents on a monthly basis after the 36-month rental cap, and the supplier can deliver up to a maximum of three months of oxygen contents at one time. Additionally, in accordance with these instructions, and consistent with the final rule published on October 30, 2008, we now provide replacement equipment to our patients that exceed five years of continuous use.

The financial impact of the 36-month rental cap will depend upon a number of variables, including, (i) the number of Medicare oxygen customers reaching 36 months of continuous service, (ii) the number of patients receiving oxygen contents beyond the 36-month rental period and the coverage and billing requirements established by CMS for suppliers to receive payment for such oxygen contents, (iii) the mortality rates of patients on service beyond 36 months, (iv) the incidence of patients with equipment deemed to be beyond its reasonable useful life that may be eligible for new equipment and therefore a new rental episode and the coverage and billing requirements established by CMS for suppliers to receive payment for a new rental period, (v) any breaks in continuous use due to medical necessity, and (vi) payment amounts established by CMS to reimburse suppliers for maintenance of oxygen equipment. We cannot predict the impact that any future rulemaking by CMS will have on our business. If payment amounts for oxygen equipment and contents are further reduced in the future, this could have an adverse effect on our revenues, profit margins, profitability, operating cash flows and results of operations.

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Results of Operations

The following table provides an overview of certain key factors of our results of operations for the three and nine months ended September 30, 2011 as compared to September 30, 2010:


	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Net Revenues	$	3,113,836		$	3,356,644		$	9,553,022		$	9,443,631
Cost of sales		1,883,919			2,368,880			5,868,842			6,408,729
Operating Expenses:
Marketing and selling		91,591			29,925			134,779			59,532
Depreciation		106,736			58,949			208,864			176,849
General and administrative		871,112			1,208,686			3,030,673			3,401,911
Total operating expenses		1,069,439			1.297,560			3,374,316			3,638,292
Income (loss) from operations		160,478			(309,796	)		309,864			(603,390	)
Total other income (expense)		(69,031	)		(100,732	)		(56,792	)		(156,425	)
Provision for income taxes		—			15,846			—			(15,846	)
Net income (loss)	$	91,447		$	(426,373	)	$	253,072		$	(775,660	)

Other Key Indicators:


	Three months ended September 30,		Nine months ended September 30,
	2011	2010	2011	2010
Cost of sales as a percentage of revenues	60.5%	70.6%	61.4%	67.9%
Gross profit margin	39.5%	29.4%	38.6%	32.1%
General and administrative expenses as a percentage of revenues	28.0%	36.0%	31.7%	36.0%
Total operating expenses as a percentage of revenues	34.3%	38.7%	35.3%	38.5%

The following table provides comparative data regarding the source of our net revenues in each of these periods:


	Three months ended September 30,					Nine months ended September 30,
	2011		2010			2011		2010
Product Sales	$	2,637,064	$	3,364,125		$	8,279,291	$	8,230,392
Rental Revenue		476,772		(7,481	)		1,273,731		1,213,239
Total Net Revenues:	$	3,113,836	$	3,356,644		$	9,553,022	$	9,443,631


	Three months ended September 30,		Nine months ended September 30,
Gross profit as a Percentage of Net Revenues	2011	2010	2011	2010
Product sales	84.7%	100.2 %	86.7%	87.2%
Rental Revenue	15.3%	(.2)%	12.3%	12.8%

Nine Month Period ended September 30, 2011 and 2010

Net Revenues

For the nine months ended September 30, 2011, we reported revenues of $9,553,022 as compared to revenues of $9,443,631 for the nine months ended September 30, 2010, an increase of $109,391 or approximately 1.2 % Product sales for the nine months ended September 30, 2011 increased by $48,899 or approximately .6 % as compared to the nine months ended September 30, 2010. Rental revenue for the nine months ended September 30, 2011 increased by $60,492 or approximately 5.0% as compared to the nine months ended September 30, 2010. The overall decrease of product sales and rental revenue is due to the impact of the 9.5% MIPAA reduction, lower reimbursement rates from third party payors and lower hospital census levels.

- 23 -

Cost of Sales

Our cost of sales consists of the depreciation of rental assets and products purchased for resale. For the nine months ended September 30, 2011, cost of sales was $5,868,842 or approximately 61.4% of revenues, compared to $6,408,729, or approximately 67.9% of revenues, for the nine months ended September 30, 2010. During the nine months ended September 30, 2010, cost of sales decreased due to decreased revenues as compared to the nine months ended September 30, 2009. During the nine months ended September 30, 2011, cost of sales as a percentage of net revenues decreased due to an improved product mix as compared to the nine months ended September 30, 2010.

Gross Profit

During the nine months ended September 30, 2011, our gross profit for our product sale as a percentage of net revenues decreased by approximately .5% as compared to the nine months ended September 30, 2010.

During the nine months ended September 30, 2011, our gross profit for our rental revenue as a percentage of net revenues decreased by approximately .5% as compared to the nine months ended September 30, 2010.

Total Operating Expenses

Our total operating expenses decreased slightly at approximately 1% to $3,374,316 for the nine months ended September 30, 2011 as compared to $3,638,292 for the nine months ended September 30, 2010. These changes include:

• Marketing and Selling. For the nine months ended September 30, 2011, marketing and selling costs were $134,779 as compared to $59,532 for the nine months ended September 30, 2010, an increase of $75,247. The increase was due to marketing, advertising and print advertising programs initiatives that have resulted in revenue growth.

• Depreciation and amortization expense. For the nine months ended September 30, 2011, depreciation expense amounted to $208,864 as compared to $176,849 for the nine months ended September 30, 2010, an increase of $32,015 or 18.1% due to an increase in rental van & rental equipment purchases.

• General and administrative expense. For the nine months ended September 30, 2011, general and administrative expenses were $3,030,673 as compared to $3,401,911 for the nine months ended September 30, 2010, a decrease of $371,238 or 10.9%. For the nine months ended September 30, 2011 and 2010 general and administrative expenses consisted of the following:


	Nine Months Ended September 30, Fiscal Q3
	2011		2010
Rent	$	195,847	$	147,734
Employee compensation		2,011,503		1,881,177
Professional fees		189,605		227,501
Internet/Phone		61,164		57,015
Travel/Entertainment		64,746		58,776
Bad debt expense		-42,546		203,620
Insurance		176,506		178,263
Management fee		0		270,000
Other general and administrative		373,737		377,825
	$	3,030,562	$	3,401,911


	•	For the nine months ended September 30, 2011, Rent expense increased by $48,113 or 27.1% over the same period in 2010. The increase is due to the market leases on the Mobility Freedom locations

	•	For the nine months ended September 30, 2011, employee compensation, related taxes and stock-based compensation expenses was $2,011,503, an increase of $130,326 or 6.9% over 2010. The increase relates to the addition of several key positions in anticipation of the Mobility Freedom acquisition.

	•	For the nine months ended September 30, 2011, professional fees increased to $195,847 as compared to $227,501 a decrease of $37,896 or 16.7%. The increase is primarily related to increase in audit and accounting fees related to the Mobility Freedom acquisition.

- 24 -


	•	For the nine months ended September 30, 2011, internet/telephone expense slightly increased to $61,164 as compared to $57,015, an increase of $4,149 or less than 1%.

	•	For the nine months ended September 30, 2011, travel and entertainment expense increased to $64,746 as compared to $58,776 for the same period in 2010. An increase of $5,970 or 10.2%.

	•	For the nine months ended September 30, 2011 bad debt expense was reduced by $42,546 as compared to $203,620 for the nine months ended September 30, 2010, a decrease of $246,166. The decrease was due to a detailed review of Accounts Receivable aging by senior management, which determined that the provision for bad debt was overstated.

	•	For the nine months ended September 30, 2011 Insurance expense increased to $176,506 as compared to $178,263 for the nine months ended September 30, 2010, a slight decrease.

	•	For the nine months ended September 30, 2011 Management fee expense was 0 as compared to $270,000 for the nine months ended September30, 2010. In January 2011, in consultation with Senior Management, the Chairman & principal investor voluntarily chose to forego contractual binding management fees.

	•	For the nine months ended September 30, 2011 other general and administrative expense decreased slightly to $373,737 as compared to $377,825 for the nine months ended September 30, 2010.

INCOME (LOSS) FROM OPERATIONS

We reported income from operations of $309,864 for the nine months ended September 30, 2011 as compared to a loss from operations of $(603,390) for the nine months ended September 30, 2010.

OTHER INCOME (EXPENSES)

Interest expense for the nine months ended September 30, 2011 amounted to $136,884 as compared to $131,922 for the nine months ended September 30, 2010, an increase of $4,962 or 3.8%.

NET INCOME (LOSS)

Our net income was $253,072 for the nine months ended September 30, 2011 compared to net loss of $(775,660) for the nine months ended September 30, 2010.

Three Month Period ended September 30, 2011 and 2010

Net Revenues

For the three months ended September 30, 2011, we reported revenues of $3,113,836 as compared to revenues of $3,356,644 for the three months ended September 30, 2010, a decrease of $242,808 or approximately 7.2%. Product sales for the three months ended September 30, 2011decreased by $727,061 or approximately 21.6% as compared to three months ended September 30, 2010. Rental revenue for the three months ended September 30, 2011 increased by $484,253 as compared to the three months ended September 30, 2010. The product revenues decrease in 2011 are directly attributable to decreased van sales at Mobility Freedom in September due to the change in the auto allowance from the VA.

Cost of Sales

Our cost of sales consists of the depreciation of rental assets and products purchased for resale. For the three months ended September 30, 2011, cost of sales was $1,883,919, or approximately 60.5% of revenues, compared to $2,368,880, or approximately 70.6% of revenues, for the three months ended September 30, 2010. During the three months ended September 30, 2011, cost of sales decreased due to decreased revenues as compared to the three months ended September 30, 2010. During the three months ended September 30, 2011, cost of sales as a percentage of net revenues increased due to the revenue mix as compared to the three months ended September 30, 2010.

- 25 -

Total Operating Expenses

Our total operating expenses decreased by $228,121 or 17.6% to $1,069,439 for the three months ended September 30, 2011 as compared to $1,297,560 for the three months ended September 30, 2010. These changes include:

• Marketing and Selling. For the three months ended September 30, 2011, marketing and selling costs were $91,591 as compared to $29,925 for the three months ended September 30, 2010, an increase of $61,666. The increase was due to marketing, advertising and print advertising programs initiated during the three months ended September 30, 2011.

• Depreciation and amortization expense. For the three months ended September 30, 2011, depreciation expense amounted to $106,736 as compared to $58,949 for the three months ended September 30, 2010.

• General and administrative expense. For the three months ended September 30, 2011, general and administrative expenses were $871,112 as compared to $1,208,686 for the three months ended September 30, 2010, a decrease of $337,574 or 27.9%. For the three months ended September 30, 2011 and 2010 general and administrative expenses consisted of the following:


	Three Months Ended September 30, Fiscal Q1
	2011		2010
Rent	$	67,272	$	49,228
Employee compensation		670,020		639,225
Professional fees		282		109,999
Internet/Phone		18,818		18,446
Travel/Entertainment		25,669		20,514
Bad debt expense		496		61,446
Insurance		51,125		97,697
Management fee		0		90,000
Other general and administrative		37,430		122,131
	$	871,112	$	1.208,686


	•	For the three months ended September 30, 2011, Rent expense increased to $67,272 as compared to $49,228 for the three months ended September 30, 2010 . The change relates to new leases on the Mobility Freedom locations.

	•	For the three months ended September 30, 2011, employee compensation, related taxes and stock-based compensation expenses increased to $670,020 as compared to $639,225 for the three months ended September 30, 2010, an increase of $30,795 or 4.8%. The increase reflects Senior Management additions in anticipation of the acquisition of Mobility Freedom.

	•	For the three months ended September 30, 2011, professional fees were immaterial as to $109,999 for the three months ended September 30, 2010.

	•	For the three months ended September 30, 2011, internet/telephone expense slightly increased to $18,818 as compared to $18,446 for the three months ended September 30, 2010, essentially no change.

	•	For the three months ended September 30, 2011, travel and entertainment expense increased to $25,669 as compared to $20,514 for the three months ended September 30, 2010. The $5,155 or 25.1% increase is primarily due to the Mobility Freedom acquisition.

	•	For the three months ended September 30, 2011 bad debt expense was reduced by $496 as compared to a provision of $61,446 for the three months ended September 30, 2010, a decrease of $60,950. The decrease was due to a detailed review of Accounts Receivable aging by senior management, which determined that the provision for bad debt was overstated.

	•	For the three months ended September 30, 2011 Insurance expense decreased to $51,125 as compared to $97,697 for the three months ended September 30, 2010.

	•	For the three months ended September 30, 2011 other general and administrative expense decreased $87,701 or 71.8% to $37,430 as compared to $122,131 for the three months ended September 30, 2010. The decrease is primarily attributable to Sr. Management’s decision to reduce unnecessary costs.

- 26 -

INCOME FROM OPERATIONS

We reported income from operations of $160,478 for the three months ended September 30, 2011 as compared to a loss from operations of $(309,796) for the three months ended September 30, 2010.

NET INCOME

Net income was $91,447 for the three months ended September 30, 2011 compared to a net loss of $(426,373) for the three months ended September 30, 2010.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise operate on an ongoing basis. The following table provides an overview of certain selected balance sheet comparisons between September 30, 2011 and December 31, 2010:


	September 30, 2011		December 31, 2010		$ Change

Working capital surplus (deficit)	2,151,577		(356,324	)	2,507,901

Cash	187,895		423		187,472
Accounts receivable, net	906,874		254,362		652,512
Inventory	3,066,094		76,356		2,989,738
Total current assets	4,346,918		349,986		3,996,932
Property and equipment, net	778,084		147,769		630,315
Total assets	7,190,053		498,175		6,691,878

Accounts payable and accrued liabilities	1,545,542		612,282		933,260
Notes payable-current	328,651		18,005		310,646
Total current liabilities	2,195,241		706,310		1,488,931
Notes payable-long term	4,697,304		152,509		4,544,795
Total liabilities	6,892,645		858,819		6,033,826
Accumulated deficit	(4,071,611	)	(4,324,683	)	(253,072	)
Stockholders’ equity (deficit)	297,408		(360,644	)	658,052

Net cash used in operating activities was $1,067,370 for the nine months ended September 30, 2011 as compared to net cash provided by operating activities of $109,205 for the nine months ended September 30, 2010, a decrease of $1,176,575, primarily attributable to the acquisition in the current quarter. For the nine months ended September 30, 2011, we had net income of $253,072 offset by non-cash items such as depreciation and amortization expense of $285,261 and stock-based compensation of $17,880 and decreases from changes in assets and liabilities of $1,623,583. During the nine months ended September 30, 2011.

Net cash used in investing activities for the nine months ended September 30, 2011 was $137,699 as compared to net cash used in investing activities of $374,383 for the nine months ended September 30, 2010. During the nine months ended September 30, 2011 and 2010, we used cash for property and equipment purchases.

Net cash provided by financing activities for the nine months ended September 30, 2011 was $1,392,541 as compared to net cash provided of $353,083 for the nine months ended September 30, 2010.

At September 30, 2011 we had a working capital surplus of $2,151,577 and accumulated deficit of $(4,071,611).

- 27 -

Contractual Obligations and Off-Balance Sheet Arrangements

Contractual Obligations

The following tables summarize our contractual obligations as of September 30, 2011.


	Payments Due by Period
	Total		Less than 1 year		1-3 Years		3-5 Years		5 Years +
Contractual Obligations :
Operating Lease	$	643,870	$	72,655	$	520,552	$	50,663	$	—

Line of Credit		601,906		601,906		—		—		—
Notes payable		463,651		463,651		—		—		—
Notes payable – related party		3,960,398		203,380		526,672		586,067		2,644,279

Total Contractual Obligations:	$	5,669,825	$	1,341,592	$	1,047,224	$	636,730	$	2,644,279

Off-balance Sheet Arrangements

We have not entered into any other financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

Recently Issued Accounting Pronouncements


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

Our management, including Hal Compton, Jr., our chief executive officer, and James C. Thomas, our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2011.

Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

Management conducted its evaluation of disclosure controls and procedures under the supervision of our chief executive officer and our chief financial officer. Based on that evaluation, our management, including Mr. Compton and Mr. Thomas, concluded that because of the significant deficiencies in internal control over financial reporting described below, our disclosure controls and procedures were not effective as of September 30, 2011.

- 28 -

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(F) and 15d-15(F) under the Securities Exchange Act. Our management is also required to assess and report on the effectiveness of our internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”) on an annual basis. As previously reported on our Form 10-K for the year ended December 31, 2010, management identified significant deficiencies related to (i) our internal audit functions and (ii) a lack of segregation of duties within accounting functions.

Management has determined that our internal audit function is significantly deficient due to insufficient qualified resources to perform internal audit functions.

Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, we will implement procedures to assure that the initiation of transactions, the custody of assets and the recording of transactions will be performed by separate individuals.

We believe that the foregoing steps will remediate the material weaknesses identified above, and we will continue to monitor the effectiveness of these steps and make any changes that our management deems appropriate. Due to the nature of these material weaknesses in our internal control over financial reporting, there is more than a remote likelihood that misstatements which could be material to our annual or interim financial statements could occur that would not be prevented or detected.

Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION


Item 1.	Legal Proceedings

None.


Item 1A.	Risk Factors

Not required for smaller reporting companies.


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

None.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Submission of Matters to a Vote of Security Holders

None.


Item 5.	Other Information

None.

- 29 -


Item 6.	Exhibits


Exhibit Number	Description

31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
101	Interactive Data Files of Financial Statements and Notes contained in this Quarterly Report on Form 10-Q.**

* Filed herein

** In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed "furnished" and not "filed."

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	HASCO MEDICAL, INC.

	By: /s/ Hal Compton, Jr.
November 14, 2011	Hal Compton, Jr.,
	Chief Executive Officer, principal executive officer

	By: /s/ James C. Thomas
November 14, 2011	James C. Thomas
	Chief Financial Officer, principal financial and accounting officer

- 30 -


Florida	65-0924471
(State or other jurisdiction of	(I.R.S. Employer
incorporation of organization)	Identification No.)


Large accelerated filer	[ ]	Accelerated filer	[ ]

Non-accelerated filer (Do not check if smaller reporting company)	[ ]	Smaller reporting company	[√]


	For the Nine Months Ended September 30,
	2011			2010

Cash Flows from Operating Activities:
Net income (loss)	$	253,072		$	(775,660	)
Adjustment to reconcile Net Income to net cash provided by operations:
Depreciation and amortization		285,261			176,849
Issuance of stock in settlement of services		17,880			30,991
Changes in assets and liabilities:
Accounts receivable		(652,512	)		51,449
Inventory		(1,982,246	)		(148,359	)
Prepaid expenses		(167,210	)		(1,718	)
Accounts payable		933,260			636,637
Accrued expenses		(19,817	)		128,436
Customer deposits and deferred revenue		264,942			8,319
Decrease (increase) in other liabilities		0			2,261
Net Cash (Used) Provided by Operating Activities		(1,067,370	)		109,205

Cash Flows from Investing Activities:
Purchase of property and equipment		(100,100	)		(374,383	)
Decrease (increase) in other assets		(37,599	)		—
Net Cash (Used) by Investing Activities		(137,699	)		(374,383	)

Cash Flows from Financing Activities:
Proceeds from issuance of stock		387,100			281,328
Proceeds from issuance of note payable		61,978			71,755
Repayments of notes payable		(209,852	)		—
Related party advances		1,153,315			—
Net Cash (Used) Provided by Financing Activities		1,392,541			353,083


Net increase/decrease in Cash		187,472			87,905

Cash at beginning of period		423			28,217

Cash at end of period	$	187,895		$	116,122


Part I.	Financial Information
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets as of September 30, 2011 (Unaudited) and as of December 31, 2010 (Audited)	3
		Consolidated Statements of Operations for the three months ended September 30, 2011 and 2010 (Unaudited)	4
		Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010 (Unaudited)	5
		Notes to Unaudited Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
	Item 4.	Controls and Procedures	28

Part II.	Other Information
	Item 1.	Legal Proceedings	29
	Item 1A.	Risk Factors	29
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
	Item 3.	Defaults Upon Senior Securities	29
	Item 4.	Submission of Matters to a Vote of Security Holders	29
	Item 5.	Other Information	29
	Item 6.	Exhibits	30


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2011			2010			2011			2010

Revenues, net	$	3,113,836		$	3,356,644		$	9,553,022		$	9,443,631
Cost of sales		1,883,919			2,368,880			5,868,842			6,408,729
Gross Profit		1,229,917			987,764			3,684,180			3,034,902

Operating expenses:
General and administrative		962,703			1,238,611			3,165,452			3,461,443
Amortization and depreciation		106,736			58,949			208,864			176,849
Total operating expenses		1,069,439			1,297,560			3,374,316			3,638,292

Income from operations		160,478			(309,796	)		309,864			(603,390	)

Other income (expense):
Other income		20			(24,503	)		80,092			(24,503	)
Interest expenses		(69,051	)		(76,229	)		(136,884	)		(131,922	)
Total other income (expense)		(69,031	)		(100,732	)		(56,792	)		(156,425	)

Loss from operations before income taxes		91,447			(410,528	)		253,072			(759,815	)

Provision for income taxes		—			15,845			—			15,845

Net income	$	91,447		$	(426,373	)	$	253,072		$	(775,660	)

Earnings per share:
Basic and dilutive	$	0.00		$	(0.00	)	$	0.00		$	(0.00	)

Weighted average shares outstanding
Basic and dilutive		757,586,909			739,265,687			753,330,197			547,626,732


Item 1.	Financial Statements