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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 Form 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2008
 or
 o
    
    FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Commission File No. 001-31404
 Matrixx Initiatives, Inc.
  Delaware
    
    87-0482806(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification No.)
 8515 E. Anderson Drive
Scottsdale, AZ 85255
602-385-8888
 Securities registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Stock, $.001 par value
    
    Nasdaq Global Select Market
 Securities registered pursuant to Section 12(g) of the Act: None
 o þ
 o þ
 þ o
 þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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DOCUMENTS INCORPORATED BY REFERENCE
  Unless otherwise indicated in this Form 10-K , Matrixx, us, we, our, the Company and
similar terms refer to Matrixx Initiatives, Inc. and its subsidiaries. Zicam is a registered
trademark of our subsidiary, Zicam, LLC, and the Matrixx name and logo are trademarks of the
Company.
 2




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##### 



TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    10Item 1B. Unresolved Staff Comments
    
    
    15Item 2. Properties
    
    
    15Item 3. Legal Proceedings
    
    
    16Item 4. Submission of Matters to a Vote of Security Holders
    
    
    20Supplemental Item.Executive Officers of Matrixx
    
    
    20PART IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    21Item 6. Selected Financial Data
    
    
    23Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    24Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 8. Financial Statements and Supplementary Data
    
    
    40Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    40Item 9A. Controls and Procedures
    
    
    40Item 9B. Other Information
    
    
    43PART IIIItem 10. Directors, Executive Officers, and Corporate Governance
    
    
    43Item 11. Executive Compensation
    
    
    43Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    43Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    44Item 14. Principal Accountant Fees and Services
    
    
    44PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    45SIGNATURES
    
    
    72EX-21EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  3




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PART I
 
 ITEM 1. BUSINESS
 Introduction
     Access to Our Filings with the Securities and Exchange Commission
   Markets and Company Products
  4




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st st
 12 months ended
    
    
    
    
    
    
    12 months ended
    
    
    
    
    
    
    12 months ended
    
    
    
    
    
    
    12 months endedProduct Class
    
    March 31, 2008
    
    
    %
    
    
    March 31, 2007
    
    
    %
    
    
    December 31, 2006
    
    
    %
    
    
    December 31, 2005
    
    
    %Cold Remedy
    
    $
    68,225,508
    
    
    
    68
    %
    
    $
    69,093,132
    
    
    
    71
    %
    
    $
    69,046,345
    
    
    
    72
    %
    
    $
    55,292,673
    
    
    
    61
    %Allergy/Sinus/Nasal Comfort
    
    
    17,325,720
    
    
    
    17
    %
    
    
    16,109,489
    
    
    
    17
    %
    
    
    15,468,683
    
    
    
    16
    %
    
    
    20,163,688
    
    
    
    23
    %Cough
    
    
    4,461,208
    
    
    
    4
    %
    
    
    6,143,165
    
    
    
    6
    %
    
    
    6,059,285
    
    
    
    6
    %
    
    
    6,514,769
    
    
    
    7
    %Multi-Symptom Cold/Flu
    
    
    10,607,287
    
    
    
    11
    %
    
    
    6,254,790
    
    
    
    6
    %
    
    
    5,656,467
    
    
    
    6
    %
    
    
    8,489,465
    
    
    
    9
    %Antacid
    
    
    352,661
    
    
    
    0
    %
    
    
    0
    
    
    
    0
    %
    
    
    0
    
    
    
    0
    %
    
    
    0
    
    
    
    0
    %Total Net Sales
    
    $
    100,972,384
    
    
    
    100
    %
    
    $
    97,600,575
    
    
    
    100
    %
    
    $
    96,230,780
    
    
    
    100
    %
    
    $
    90,460,595
    
    
    
    100
    %
 Cold Remedy
    Allergy/Sinus
  5




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Cough
  Multi-Symptom Cold & Flu Relief
  Antacid
  Product Pipeline
  6




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Business Strategy
  Expanding Marketing Efforts for Existing and New Products
 Pursuing Additional Delivery Systems and Expansion into New OTC Categories
 Customers
   Manufacturing and Distribution
  7




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Research and Development
  FDA, FTC and Other Government Regulation
  ®
  8




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Environmental Matters
  Trademarks, Trade Names, and Proprietary Rights
 ® TM ® TM ® ® ® ® ® ® ® ® ® ® TM  ® ® ® ® ® ® ® ®
 Employees
  Seasonality; Change of Fiscal Year
  9




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Backlog
  Competition
    
 ITEM 1A. RISK FACTORS
 We may fail to compete effectively, particularly against larger more established pharmaceutical and
health products companies, or low cost generic drug manufacturers, causing our business and
operating results to suffer.
  10




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Our business is subject to seasonality that may cause our quarterly operating results to fluctuate
materially and cause the market price of our stock to decline.
   We may continue to incur significant costs resulting from product liability claims or securities
litigation.
  Because a significant portion of our business depends substantially on a small group of large
national retailers, our sales, operating margins and income would be adversely affected by any
disruption of our relationship with these retailers, or any other material adverse change in such
retailers businesses.
  11




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Our entry into international operations exposes us to numerous risks.
  We believe that growth in the over-the-counter healthcare products market is driven, in part, by
factors beyond our control, such as media attention, adverse publicity, and regulatory changes. If
the factors currently having a positive impact on this market disappear or diminish, our sales in
this market may suffer.
  Our future growth will depend in part upon our ability to develop and achieve sales of new
products.
  Unanticipated problems associated with product development and commercialization could adversely
affect our operating results.
  
    
    we may experience unanticipated or otherwise negative research and development results;
    
    existing or proposed products may be found to be ineffective or unsafe, or may
otherwise fail to receive required regulatory clearances or approvals;
    
    we may find that existing or proposed products, while effective, are uneconomical to
commercialize or market;
    
    we may be unable to produce sufficient product inventories to meet customer demand;
    
    we may experience adverse publicity from product liability lawsuits that could
materially impact consumer demand;
    
    existing or proposed products do not achieve broad market acceptance;
    
    existing or proposed products do not attain broad distribution or retail shelf space;
or
    
    proprietary rights held by third parties may preclude us from developing or marketing
existing or proposed products.
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The inability to provide scientific proof for product claims may adversely affect our sales.
  FDA and other government regulation may restrict our ability to sell our products or require us to
recall products.
  If we are unable to protect our intellectual property or if we infringe the intellectual property
of others, our financial condition and future prospects could be materially harmed.
  13




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Under our current business model, we do not have manufacturing capabilities of our own.
  We may pursue strategic acquisitions of technologies, products, and/or brands, which involve a
variety of costs, and we may not realize the anticipated benefits of such acquisitions.
  We may experience product backlogs.
  Loss of key personnel could have a material adverse effect on our operations and financial results.
  To protect against various potential liabilities, we maintain a variety of insurance programs.
Significant increases in the cost or decreases in the availability of such insurance could
adversely impact our financial condition.
  Our Board of Directors is authorized to issue shares of preferred stock that could have rights
superior to our outstanding shares of common stock and, if issued, could adversely impact the
value of our common stock.
  14




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
    
    voting rights, including the right to vote as a class on particular matters;
    
    preferences as to dividends and liquidation rights;
    
    conversion rights;
    
    anti-dilution protections; and
    
    redemption rights.
  The price of our stock may continue to be volatile.
  We have agreed to indemnify our officers and directors from liability.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  15




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ITEM 3. LEGAL PROCEEDINGS
 Litigation
   Product Liability Matters
 General.
  Dec. 31, 2005
    
    Dec. 31, 2006
    
    March 31, 2007
    
    May 30, 2008Number of Pending Cases
    
    
    50
    
    
    
    25
    
    
    
    27
    
    
    
    16Number of Plaintiffs
    
    
    427
    
    
    
    36
    
    
    
    41
    
    
    
    29
  Settlement of Arizona Consolidated Litigation.
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Cases Dismissed Subsequent to December 31, 2007 (Federal Courts).
 Date Filed
    
    United States District Court
    
    Named Plaintiff
    
    Date DismissedJune 6, 2007
    
    Eastern District, Tennessee
    
    Newman
    
    February 22, 2008April 27, 2007
    
    West Virginia
    
    Seckman
    
    March 6, 2008January 14, 2005
    
    Oregon
    
    Lusch
    
    May 22, 2008October 29, 2004
    
    Central District,
California, on appeal to
Ninth Circuit Court of
Appeals
    
    OHanlon
    
    June 4, 2008
  Cases Dismissed Subsequent to December 31, 2007 (State Courts).
 Date Filed
    
    Court
    
    Named Plaintiff
    
    Date DismissedJuly 7, 2006
    
    County of San Diego, California
    
    Bruno
    
    April 3, 2008
 Pending Cases as of May 30, 2008 (Federal Courts).
 Date Filed
    
    United States District Court
    
    Named PlaintiffJuly 12, 2007
    
    Eastern District, Washington
    
    BallewApril 25, 2008
    
    Eastern District, Louisiana
    
    EhtheridgeMarch 1, 2007
    
    Middle District, Florida
    
    EvansMay 16, 2007
    
    Western District, Tennessee
    
    RoseFebruary 29, 2008
    
    Middle District of Louisiana
    
    Carter
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Pending Cases as of May 30, 2008 (State Courts).
 Date Filed
    
    Court
    
    Named PlaintiffFebruary 15, 2008
    
    Fairfax County, Virginia
    
    AdlerMay 4, 2007
    
    Maricopa County, Arizona
    
    BrierlyMarch 17, 2008
    
    Broward County, Florida
    
    BuninFebruary 24, 2006
    
    Niagara County, New York
    
    CampbellJanuary 13, 2005
    
    Fresno County, California
    
    CashApril 14, 2004
    
    Broward County, Florida
    
    HoodOctober 31, 2007
    
    Maricopa County, Arizona
    
    MedelJune 5, 2006
    
    Oklahoma County, Oklahoma
    
    StarkNovember 3, 2006
    
    Maricopa County, Arizona
    
    PooleMarch 27, 2007
    
    Cook County, Illinois
    
    SkenderAugust 30, 2006
    
    Los Angeles County, California
    
    Stanley
 Potential Claimants.
  Companys Position Regarding the Allegations.
 Scientific Advisory Board.
   18




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Insurance.
 Litigation Reserves
  Securities Litigation Matters
  19




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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Executive Officers of Matrixx
  President and Chief Executive Officer
  Executive Vice President and Chief Financial Officer
  Vice President of Research & Development
  Vice President of Marketing
  20




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Executive Vice President, Business Development, General Counsel and Secretary
  Vice President of Sales
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
  Market PriceQuarter Ended
    
    High
    
    LowFiscal Year 2006First Quarter
    
    March 31, 2006
    
    $
    26.22
    
    
    $
    19.68Second Quarter
    
    June 30, 2006
    
    $
    23.46
    
    
    $
    12.78Third Quarter
    
    September 30, 2006
    
    $
    19.19
    
    
    $
    14.15Fourth Quarter
    
    December 31, 2006
    
    $
    22.96
    
    
    $
    15.49Transition Period 2007
    
    March 31, 2007
    
    $
    18.89
    
    
    $
    13.89Fiscal Year 2008First Quarter
    
    June 30, 2007
    
    $
    21.07
    
    
    $
    15.89Second Quarter
    
    September 30, 2007
    
    $
    21.50
    
    
    $
    17.83Third Quarter
    
    December 31, 2007
    
    $
    20.43
    
    
    $
    13.78Fourth Quarter
    
    March 31, 2008
    
    $
    16.50
    
    
    $
    10.17
  Dividend Policy
  21




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Stock Performance Graph
  
 PERFORMANCE TABLEDate
    
    Matrixx
    
    Nasdaq
    
    Russell 2000 Growth3/31/2003
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.003/31/2004
    
    
    123.73
    
    
    
    147.60
    
    
    
    163.163/31/2005
    
    
    155.97
    
    
    
    148.59
    
    
    
    164.593/31/2006
    
    
    320.99
    
    
    
    175.22
    
    
    
    210.403/31/2007
    
    
    222.91
    
    
    
    181.75
    
    
    
    213.703/31/2008
    
    
    200.82
    
    
    
    169.51
    
    
    
    238.94
  22




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Issuer Purchases of Equity Securities
  Issuer Purchases of Equity Securities
 Total Number ofShares Purchased as
    
    Maximum Number ofTotal Number
    
    
    
    
    
    Part of Publicly
    
    Shares that May Yet beof Shares
    
    Average Price
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Purchased
    
    Paid per Share
    
    Programs
    
    Plans or Programs1/01/08-1/31/08
    
    
    103,750
    
    
    $
    13.14
    
    
    
    367,844
    
    
    
    632,1562/01/08-2/28/08
    
    
    151,268
    
    
    $
    13.05
    
    
    
    519,112
    
    
    
    480,8883/1/08-3/31/08
    
    
    15,189
    
    
    $
    14.64
    
    
    
    534,301
    
    
    
    465,699Total
    
    
    233,194
    
    
    $
    13.09
    
    
    
    534,301
    
    
    
    465,699
  
 ITEM 6. SELECTED FINANCIAL DATA
  Transition PeriodFiscal Year
    
    Three MonthsEnded March 31,
    
    Ended March 31,
    
    Fiscal Years Ended December 31,(000s, except share data)
    
    2008
    
    2007
    
    2006
    
    2005
    
    2004
    
    2003Net sales
    
    $
    100,972
    
    
    $
    19,046
    
    
    $
    96,231
    
    
    $
    90,461
    
    
    $
    60,231
    
    
    $
    43,496Net income
    
    $
    10,428
    
    
    $
    1,709
    
    
    $
    4,927
    
    
    $
    3,078
    
    
    $
    4,957
    
    
    $
    3,344Net income per share of common stock  basic
    
    $
    1.07
    
    
    $
    0.18
    
    
    $
    0.51
    
    
    $
    0.32
    
    
    $
    0.52
    
    
    $
    0.36Net income per share of common stock  diluted
    
    $
    1.04
    
    
    $
    0.17
    
    
    $
    0.49
    
    
    $
    0.32
    
    
    $
    0.52
    
    
    $
    0.35Dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Shares outstanding at period end
    
    
    10,175
    
    
    
    10,079
    
    
    
    9,948
    
    
    
    9,600
    
    
    
    9,520
    
    
    
    9,475Total assets
    
    $
    78,149
    
    
    $
    71,151
    
    
    $
    85,107
    
    
    $
    86,442
    
    
    $
    60,134
    
    
    $
    50,077Long term obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Stockholders equity
    
    $
    65,552
    
    
    $
    60,435
    
    
    $
    58,087
    
    
    $
    48,110
    
    
    $
    44,126
    
    
    $
    38,790
  23




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Executive Summary
   12 months ended
    
    
    
    
    
    12 months ended
    
    
    
    
    
    12 months ended
    
    
    
    
    
    12 months endedProduct Class
    
    March 31, 2008
    
    %
    
    March 31, 2007
    
    %
    
    December 31, 2006
    
    %
    
    December 31, 2005
    
    %Cold Remedy
    
    $
    68,225,508
    
    
    
    68
    %
    
    $
    69,093,132
    
    
    
    71
    %
    
    $
    69,046,345
    
    
    
    72
    %
    
    $
    55,292,673
    
    
    
    61
    %Allergy/Sinus/Nasal Comfort
    
    
    17,325,720
    
    
    
    17
    %
    
    
    16,109,489
    
    
    
    17
    %
    
    
    15,468,683
    
    
    
    16
    %
    
    
    20,163,688
    
    
    
    23
    %Cough
    
    
    4,461,208
    
    
    
    4
    %
    
    
    6,143,165
    
    
    
    6
    %
    
    
    6,059,285
    
    
    
    6
    %
    
    
    6,514,769
    
    
    
    7
    %Multi-Symptom Cold/Flu
    
    
    10,607,287
    
    
    
    11
    %
    
    
    6,254,790
    
    
    
    6
    %
    
    
    5,656,467
    
    
    
    6
    %
    
    
    8,489,465
    
    
    
    9
    %Antacid
    
    
    352,661
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %Total Net Sales
    
    $
    100,972,384
    
    
    
    100
    %
    
    $
    97,600,575
    
    
    
    100
    %
    
    $
    96,230,780
    
    
    
    100
    %
    
    $
    90,460,595
    
    
    
    100
    %
    24




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##### Table of Contents



1)
    
    We compare our year-to-date sales and net income performance against our stated annual
goal for each. For fiscal 2008, our goal was to grow sales 5% to 15% above the $97.6 million
recorded for the trailing twelve months ended March 31, 2007 ($102.5 million  $112.25
million), and to increase net income to the range of $9.3 million to $10.8 million, compared
to $6.5 million for the twelve months ended March 31, 2007. However, the 2007/2008 cold
season had an unusually slow start and the incidence of colds and flu in the general
population was tracking at the lowest levels since Zicam was introduced in 1999. We believe
the change in inventory management practices by certain customers, the slow start to the
cold season, and the low level of illness is reflected in the lower level of sales growth
(3%) realized during the year. Due to decreased SG&A expense, we realized net income of
$10.4 million in fiscal 2008, which was in line with our original goal.2)
    
    We monitor our share of the cough and cold market. For the 52 weeks ended March 23,
2008, retail sales of our products (as measured by three outlet syndicated scanner data,
not including our largest customer, Wal-Mart) increased approximately 9% over the
comparable period in the previous year, while the entire cough and cold category increased
approximately 4% over the same period. The increased sales of our products for the 52 weeks
ended March 23, 2008 resulted in Zicam products achieving a 2.9% dollar share of the
category versus 2.8% in the prior year period.3)
    
    We measure our ability to maintain strong gross margins on our products. During fiscal
2008, we realized an average gross margin of 66%, comparable to the 66% average gross
margin achieved in the twelve months ended March 31, 2007, but below our goal of 69% to 70%
(gross margins on our existing products vary between 55% and 80%). Average gross margins
were negatively impacted by returns of discontinued items and the mix of products sold,
primarily related to sales of our new multi-symptom products that are sold at prices below
our cold remedy and allergy/sinus products. We are attempting to identify ways to improve
gross margin on the new multi-symptom products in the future. Additionally, average gross
margins were negatively impacted by a $1.1 million increase to our inventory reserve in
excess of our customary amount, to account for expiring products and obsolete components.4)
    
    We evaluate our operating performance by reviewing, over time, our ability to decrease
selling, general and administrative expenses as a percentage of net sales. For the fiscal
year ended March 31, 2008, our operating expenses (excluding R&D and product liability
litigation related charges) were approximately 44% of our net sales compared to 47% in the
twelve months ended March 31, 2007.5)
    
    We review the distribution and mix of our products by key national retailers. Our ten
largest retail customers account for a substantial majority of our annual sales, and we
encourage our largest customers to carry a mix of our highest-selling products. Retailers
generally reset their cough and cold sections during the third calendar quarter of each
year, at which time they add new products. We encourage retailers to replace discontinued
items with new Zicam products.
 Seasonality and Quarterly Results
  25




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Quarterly Results:
 Twelve Months Ended March 31, 2008$000s
    
    Q1 2008
    
    % NS
    
    Q2 2008
    
    % NS
    
    Q3 2008
    
    % NS
    
    Q4 2008
    
    % NS
    
    Twelve Months
    
    % NSNet Sales
    
    $
    8,573
    
    
    
    100
    %
    
    $
    28,576
    
    
    
    100
    %
    
    $
    30,802
    
    
    
    100
    %
    
    $
    33,022
    
    
    
    100
%
    
    $
    100,972
    
    
    
    100
    %Marketing
    
    $
    2,143
    
    
    
    25
    %
    
    $
    3,450
    
    
    
    12
    %
    
    $
    16,177
    
    
    
    53
    %
    
    $
    7,353
    
    
    
    22
    %
    
    $
    29,123
    
    
    
    29
    %Sales Expense
    
    $
    742
    
    
    
    9
    %
    
    $
    872
    
    
    
    3
    %
    
    $
    1,022
    
    
    
    3
    %
    
    $
    1,202
    
    
    
    4
    %
    
    $
    3,838
    
    
    
    4
    %General &
Administrative
    
    $
    2,542
    
    
    
    30
    %
    
    $
    3,089
    
    
    
    11
    %
    
    $
    2,400
    
    
    
    8
    %
    
    $
    2,974
    
    
    
    9
    %
    
    $
    11,005
    
    
    
    11
    %Legal  Product
Liability
    
    $
    829
    
    
    
    10
    %
    
    $
    421
    
    
    
    1
    %
    
    $
    444
    
    
    
    1
    %
    
    $
    860
    
    
    
    3
    %
    
    $
    2,554
    
    
    
    2
    %Total Op Expenses
    
    $
    6,256
    
    
    
    73
    %
    
    $
    7,832
    
    
    
    27
    %
    
    $
    20,043
    
    
    
    65
    %
    
    $
    12,389
    
    
    
    38
    %
    
    $
    46,520
    
    
    
    46
    %R&D
    
    $
    1,453
    
    
    
    17
    %
    
    $
    995
    
    
    
    3
    %
    
    $
    875
    
    
    
    3
    %
    
    $
    785
    
    
    
    2
    %
    
    $
    4,108
    
    
    
    4
    %Twelve Months Ended March 31, 2007$000s
    
    Q1 2007
    
    % NS
    
    Q2 2007
    
    % NS
    
    Q3 2007
    
    % NS
    
    Q4 2007
    
    % NS
    
    Twelve 
Months
    
    % NSNet Sales
    
    $
    8,206
    
    
    
    100
%
    
    $
    34,121
    
    
    
    100
    %
    
    $
    36,227
    
    
    
    100
    %
    
    $
    19,046
    
    
    
    100
    %
    
    $
    97,601
    
    
    
    100
    %Marketing
    
    $
    1,792
    
    
    
    22
    %
    
    $
    4,136
    
    
    
    12
    %
    
    $
    18,912
    
    
    
    52
    %
    
    $
    5,015
    
    
    
    26
    %
    
    $
    29,855
    
    
    
    31
    %Sales Expense
    
    $
    336
    
    
    
    4
    %
    
    $
    1,272
    
    
    
    4
    %
    
    $
    1,126
    
    
    
    3
    %
    
    $
    583
    
    
    
    3
    %
    
    $
    3,317
    
    
    
    3
    %General &
Administrative
    
    $
    3,334
    
    
    
    40
    %
    
    $
    2,925
    
    
    
    9
    %
    
    $
    2,587
    
    
    
    7
    %
    
    $
    3,729
    
    
    
    20
    %
    
    $
    12,575
    
    
    
    13
    %Legal  Product
Liability
    
    $
    2,117
    
    
    
    26
    %
    
    $
    1,576
    
    
    
    5
    %
    
    $
    1,141
    
    
    
    3
    %
    
    $
    (597
    )
    
    
    (3
    )%
    
    $
    4,237
    
    
    
    4
    %Total Op Expenses
    
    $
    7,579
    
    
    
    92
    %
    
    $
    9,909
    
    
    
    29
    %
    
    $
    23,766
    
    
    
    66
    %
    
    $
    8,730
    
    
    
    46
    %
    
    $
    49,984
    
    
    
    51
    %R&D
    
    $
    1,863
    
    
    
    23
    %
    
    $
    1,150
    
    
    
    3
    %
    
    $
    545
    
    
    
    2
    %
    
    $
    1,138
    
    
    
    6
    %
    
    $
    4,696
    
    
    
    5
    %
 26




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##### Table of Contents



Twelve Months Ended March 31, 2006Twelve$000s
    
    Q1 2006
    
    % NS
    
    Q2 2006
    
    % NS
    
    Q3 2006
    
    % NS
    
    Q4 2006
    
    % NS
    
    Months
    
    % NSNet Sales
    
    $
    6,255
    
    
    
    100
    %
    
    $
    25,203
    
    
    
    100
    %
    
    $
    44,022
    
    
    
    100
    %
    
    $
    17,676
    
    
    
    100
    %
    
    $
    93,155
    
    
    
    100
    %Marketing
    
    $
    1,668
    
    
    
    27
    %
    
    $
    1,981
    
    
    
    8
    %
    
    $
    16,284
    
    
    
    37
    %
    
    $
    6,699
    
    
    
    38
    %
    
    $
    26,632
    
    
    
    29
    %Sales Expense
    
    $
    431
    
    
    
    7
    %
    
    $
    1,233
    
    
    
    5
    %
    
    $
    3,038
    
    
    
    7
    %
    
    $
    568
    
    
    
    3
    %
    
    $
    5,270
    
    
    
    6
    %General &
Administrative
    
    $
    1,834
    
    
    
    29
    %
    
    $
    2,277
    
    
    
    9
    %
    
    $
    4,899
    
    
    
    11
    %
    
    $
    2,302
    
    
    
    13
    %
    
    $
    11,312
    
    
    
    12
    %Legal  Product
Liability
    
    $
    596
    
    
    
    10
    %
    
    $
    1,517
    
    
    
    6
    %
    
    $
    9,615
    
    
    
    22
    %
    
    $
    1,123
    
    
    
    6
    %
    
    $
    12,851
    
    
    
    14
    %Total Op Expenses
    
    $
    4,529
    
    
    
    73
    %
    
    $
    7,008
    
    
    
    28
    %
    
    $
    33,836
    
    
    
    77
    %
    
    $
    10,692
    
    
    
    61
    %
    
    $
    56,065
    
    
    
    60
    %R&D
    
    $
    966
    
    
    
    15
    %
    
    $
    784
    
    
    
    3
    %
    
    $
    1,820
    
    
    
    4
    %
    
    $
    1,127
    
    
    
    6
    %
    
    $
    4,697
    
    
    
    5
    %
  Critical Accounting Policies and Estimates
    Intangible Assets and Goodwill:
 Income Taxes: Accounting for Income Taxes
 27




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##### Table of Contents



Revenue Recognition:
 Customer Sales Returns and Allowances:
 Accounts Receivable and Allowance for Doubtful Accounts:
 Insurance Reimbursements:
 Legal Contingencies: Accounting for Contingencies,
 28




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##### Table of Contents



Results Of Operations For The Year Ended March 31, 2008 Compared To The Twelve Months Ended March
31, 2007
  Year Ended March 31,2008
    
    
    2007Net sales
    
    $
    100,972
    
    
    
    100
    %
    
    $
    97,601
    
    
    
    100
    %Cost of sales
    
    
    34,532
    
    
    
    34
    
    
    
    33,628
    
    
    
    34Gross profit
    
    
    66,440
    
    
    
    66
    
    
    
    63,973
    
    
    
    66Selling, general and administrative
    
    
    46,520
    
    
    
    46
    
    
    
    49,984
    
    
    
    51Research & development
    
    
    4,108
    
    
    
    4
    
    
    
    4,696
    
    
    
    5Income from operations
    
    
    15,812
    
    
    
    16
    
    
    
    9,293
    
    
    
    10Interest and other income
    
    
    653
    
    
    
    
    
    
    
    531
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    (117
    )
    
    
    Income before income taxes
    
    
    16,465
    
    
    
    16
    
    
    
    9,707
    
    
    
    10Provision for income taxes
    
    
    6,037
    
    
    
    6
    
    
    
    3,168
    
    
    
    3Net income
    
    $
    10,428
    
    
    
    10
    %
    
    $
    6,539
    
    
    
    7
    %
 Net Sales
  Cost of Sales
  Gross Profit
  29




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##### Table of Contents



Selling, General & Administrative (SG&A)
     Research and Development
  Interest & Other Income
  Income Before Income Taxes
  30




---



##### Table of Contents



Provision for Income Tax Expense
  Net Income
  Results Of Operations For The Three Months Ended March 31, 2007 Compared To The Three Months Ended
March 31, 2006
  Three Months Ended March 31,2007
    
    
    2006Net sales
    
    $
    19,046
    
    
    
    100
    %
    
    $
    17,676
    
    
    
    100
    %Cost of sales
    
    
    7,048
    
    
    
    37
    
    
    
    5,865
    
    
    
    33Gross profit
    
    
    11,998
    
    
    
    63
    
    
    
    11,811
    
    
    
    67Selling, general and administrative
    
    
    8,730
    
    
    
    46
    
    
    
    10,693
    
    
    
    60Research & development
    
    
    1,138
    
    
    
    6
    
    
    
    1,127
    
    
    
    6Income (Loss) from operations
    
    
    2,130
    
    
    
    11
    
    
    
    (9
    )
    
    
    Interest and other income
    
    
    203
    
    
    
    1
    
    
    
    174
    
    
    
    1Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    2,333
    
    
    
    12
    
    
    
    165
    
    
    
    1Provision for income taxes
    
    
    624
    
    
    
    3
    
    
    
    68
    
    
    
    Net income
    
    $
    1,709
    
    
    
    9
    %
    
    $
    97
    
    
    
    1
    %
 Net Sales
  Cost of Sales
  Gross Profit
  31




---



##### Table of Contents



Selling, General and Administrative Expenses
   Research & Development
  Interest & Other Income
  Income Before Income Taxes
  Provision for Income Tax Expense
  Net Income
  32




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##### Table of Contents



Results Of Operations For The Year Ended December 31, 2006 Compared To The Year Ended December 31,
2005
  Years Ended December 31,2006
    
    
    2005Net sales
    
    $
    96,230
    
    
    
    100
    %
    
    $
    90,460
    
    
    
    100
    %Cost of sales
    
    
    32,445
    
    
    
    34
    
    
    
    28,201
    
    
    
    31Gross profit
    
    
    63,785
    
    
    
    66
    
    
    
    62,259
    
    
    
    69Selling, general and administrative
    
    
    51,946
    
    
    
    54
    
    
    
    54,196
    
    
    
    60Research & development
    
    
    4,685
    
    
    
    5
    
    
    
    4,069
    
    
    
    5Income from operations
    
    
    7,154
    
    
    
    7
    
    
    
    3,994
    
    
    
    4Interest and other income
    
    
    502
    
    
    
    1
    
    
    
    417
    
    
    
    Interest expense
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    7,539
    
    
    
    8
    
    
    
    4,411
    
    
    
    4Provision for income taxes
    
    
    2,612
    
    
    
    3
    
    
    
    1,333
    
    
    
    1Net income
    
    $
    4,927
    
    
    
    5
    %
    
    $
    3,078
    
    
    
    3
    %
 Net Sales
  Cost of Sales
  Gross Profit
  Selling, General and Administrative Expenses
  33




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##### Table of Contents



Research & Development
  Interest & Other Income
  Interest Expense
  Income Before Income Taxes
  Provision for Income Tax Expense
  Net Income
  34




---



##### Table of Contents



Liquidity and Capital Resources
      35




---



##### Table of Contents



Contractual Obligations
  Contractual Cash Obligations(In thousands of dollars)Payments due by Period as of March 31, 2008Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-Term Debt Obligations
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Capital Lease Obligations
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Operating Lease Obligations
    
    
    2,570
    
    
    
    416
    
    
    
    1,061
    
    
    
    977
    
    
    
    116Purchase Obligations
    
    
    1,214
    
    
    
    1,214
    
    
    
    0
    
    
    
    0
    
    
    
    0Other Long-Term
Liabilities Reflected on
the Companys Balance
Sheet under GAAP
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    3,784
    
    
    $
    1,630
    
    
    $
    1,061
    
    
    $
    977
    
    
    $
    116
 Recently Issued Accounting Standards
  Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 Fair Value Measurements ,
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 The Fair Value Option for Financial Assets
and Financial Liabilities: Including an amendment of FASB Statement No. 115
 Business Combinations
 36




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##### Table of Contents



Accounting for Costs Associated with Exit or Disposal Activities,
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
 Forward Looking Statements
  
    
    Our belief that the reserve for litigation losses will be sufficient to resolve the
remaining cases;
    
    our expectations regarding a net loss for the first quarter of fiscal 2009;
    
    our expectation of introducing new products during the 2008/2009 cold season;
    
    our expectation regarding continued expansion of the Zicam line of products;
    
    our belief that growth in sales of our products will occur;
    
    our belief that our claims and advertising comply in all material respects with regulatory
requirements;
    
    our belief that advertising approaches and public relations efforts will continue to build
brand awareness;
    
    our anticipation that we will continue to incur approximately $500,000 to $750,000 in legal
expense each quarter as a result of the Zicam Cold Remedy product liability and securities
litigation in which we are engaged;
    
    our intention to vigorously defend the Zicam Cold Remedy product liability and securities
litigation claims, our expectation that additional product liability lawsuits may be filed
against us, and our belief that any
 37




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##### Table of Contents



liability resulting from these or other lawsuits, including any adverse publicity, could
materially impact our financial results;
 
    
    our expectation that we will continue to file for patent and trademark protection for
products that we develop and introduce in the future;
    
    our expectation that the trend of growth in sales in future periods will continue as we
expand consumer awareness and acceptance of our entire Zicam brand of products, increase
distribution, introduce new products, and avoid additional adverse publicity;
    
    our expectation regarding future net income, our belief that expenditures for advertising
and research and development will vary by quarter throughout the year, and our expectation
that advertising expenses will be heaviest in our third and fourth fiscal quarters;
    
    our expectations regarding environmental matters;
    
    our expectation that our mix of products sold will change due to seasonality and varying
growth rates within our four market categories;
    
    our expectation of our 10 largest retailers adding new products;
    
    our anticipation of sales price increases in fiscal 2009;
    
    our expectations regarding retailer inventory management;
    
    our expectation of continuing profitability in future years;
    
    our intention to review our product return reserve provision monthly and adjust the reserve
amounts as actual product return experience continues to develop;
    
    our expectation of making income tax payments at our statutory rates in future years;
    
    our expectation that the average unit cost of goods sold and gross margin will continue to
be affected by the relative mix of products sold;
    
    our expectation that our net income and operating expenses in future periods will vary
largely in connection with the level of our sales, advertising, research and development, and
legal expenses;
    
    our expectation that research and development spending will be 3% to 4% of annual net sales
in subsequent years;
    
    our expectation regarding dividends and retained earnings;
    
    our expectation regarding investments in equipment;
    
    our expectations regarding derivative instruments;
    
    our expectation that earnings in future periods will be significantly impacted by the
seasonality of our sales, the severity of the cold season, the revenues and expenses
associated with new products, and the timing and amount of advertising, research and
development, and legal expenses;
    
    our belief that our existing capital resources and our credit line will be sufficient to
fund our operations and capital requirements for the next 12 months;
    
    our expectation regarding reimbursement for legal expense from our insurance carriers;
 38




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##### Table of Contents




    
    our having no plans to directly manufacture and store our products;
    
    our expectation of introducing products in the Canadian market through a Canadian
distributor in fiscal 2009;
    
    our expectation that our manufacturers will be able to timely produce inventory adequate
for sales of products through the 2008/2009 cough and cold season;
    
    our expectation of achieving a higher gross margin in the future; and
    
    our belief that moderate interest rate increases will not have a material adverse impact on
our results of operations or financial position in the foreseeable future.
    
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   39




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 a) Evaluation of Disclosure Controls and Procedures
  b) Managements Annual Report on Internal Control Over Financial Reporting
  (i)
    
    pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the Company;(ii)
    
    provide reasonable assurance that the transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with the authorizations of management and directors of the Company; and(iii)
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the Companys assets that could have a material effect
of the financial statements.
  40




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##### Table of Contents



41




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##### Table of Contents



REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
    Internal
ControlIntegrated Framework
    
 42




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##### Table of Contents



ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
   
 ITEM 11. EXECUTIVE COMPENSATION
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  Securities Authorized for Issuance Under Equity Compensation Plans
  43




---



##### Table of Contents



Number of SecuritiesRemaining Available forNumber of Securities
    
    Weighted- Average
    
    Future Issuance Underto be Issued Upon
    
    Exercise Price of
    
    EquityExercise of
    
    Outstanding
    
    Compensation PlansOutstanding Options,
    
    Options, Warrants,
    
    (Excluding SecuritiesPlan Category
    
    Warrants, and Rights
    
    and Rights
    
    Reflected in Column (a))(a)
    
    
    
    (b)
    
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    549,134
    
    
    $
    12.27
    
    
    
    337,707Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    549,134
    
    
    $
    12.27
    
    
    
    337,707
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  44




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##### Table of Contents



PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)1. Financial Statements
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Financial Statements
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    46Consolidated Balance Sheets as of March 31, 2008 and 2007
    
    
    47Consolidated Statements of Income for the year ended March 31, 2008,
three months ended March 31, 2007 and 2006 (Unaudited), and the years
ended December 31, 2006 and 2005
    
    
    48Consolidated Statements of Changes in Stockholders Equity for the
year ended March 31, 2008, three months ended March 31, 2007 and
2006, and the years ended December 31, 2006 and 2005
    
    
    49Consolidated Statements of Cash Flows for the year ended March 31,
2008 , three months ended March 31, 2007 and 2006 (Unaudited), and
the years ended December 31, 2006 and 2005
    
    
    52Notes to Consolidated Financial Statements
    
    
    53
 45




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework
 /s/ Mayer Hoffman McCann, P.C.
    46




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 MARCH 31, 2008 AND 2007
 2008
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    27,932,672
    
    
    $
    16,944,189Accounts receivable:Trade, net of allowance for doubtful accounts of $209,377 and $429,031
    
    
    12,051,847
    
    
    
    8,256,929Other receivable
    
    
    39,363
    
    
    
    Insurance receivable
    
    
    75,000
    
    
    
    2,200,000Inventories
    
    
    11,530,060
    
    
    
    15,458,928Prepaid expenses
    
    
    1,743,521
    
    
    
    584,771Interest receivable
    
    
    73,904
    
    
    
    84,191Income tax receivable
    
    
    
    
    
    
    1,370,277Deferred tax asset
    
    
    1,739,490
    
    
    
    3,361,605Total Current Assets
    
    
    55,185,857
    
    
    
    48,260,890Property and Equipment, at cost:Office furniture and computer equipment
    
    
    1,560,403
    
    
    
    1,356,931Machine tooling and manufacturing equipment
    
    
    5,330,728
    
    
    
    5,225,020Laboratory furniture and equipment
    
    
    437,267
    
    
    
    339,343Leasehold improvements
    
    
    514,674
    
    
    
    350,5767,843,072
    
    
    
    7,271,870Less accumulated depreciation
    
    
    (2,753,222
    )
    
    
    (1,925,598
    )Net Property and Equipment
    
    
    5,089,850
    
    
    
    5,346,272Other Assets:Deposits
    
    
    379,205
    
    
    
    221,963Other assets
    
    
    110,034
    
    
    
    82,770Restricted cash
    
    
    500,000
    
    
    
    500,000Debt issuance costs, net of accumulated amortization of $5,398 and $48,061
    
    
    8,997
    
    
    
    7,171Patents, net of accumulated amortization of $582,670 and $446,002
    
    
    1,834,791
    
    
    
    1,692,115Goodwill
    
    
    15,039,836
    
    
    
    15,039,836Total Other Assets
    
    
    17,872,863
    
    
    
    17,543,855Total Assets
    
    $
    78,148,570
    
    
    $
    71,151,017LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    1,307,881
    
    
    $
    2,584,553Accrued expenses
    
    
    4,433,841
    
    
    
    3,162,814Sales commissions
    
    
    533,384
    
    
    
    372,206Sales returns and allowances
    
    
    1,271,791
    
    
    
    2,391,290Legal liability
    
    
    1,100,000
    
    
    
    1,045,000Accrued taxes
    
    
    1,927,025
    
    
    
    Total Current Liabilities
    
    
    10,573,922
    
    
    
    9,555,863Deferred tax liability
    
    
    2,022,427
    
    
    
    1,160,328Total Liabilities
    
    
    12,596,349
    
    
    
    10,716,191Commitments and ContingenciesStockholders Equity:Preferred stock: $.001 par value, 2,000,000 shares authorized, none issued or outstanding
    
    
    
    
    
    
    Common stock: $.001 par value, 30,000,000 shares authorized, 10,175,412 and 10,079,317
shares issued
    
    
    10,175
    
    
    
    10,079Additional paid-in capital
    
    
    50,960,220
    
    
    
    49,122,216Retained earnings
    
    
    22,126,374
    
    
    
    11,698,83573,096,769
    
    
    
    60,831,130Less common stock held in treasury, at cost (547,769 and 53,800 shares)
    
    
    (7,544,548
    )
    
    
    (396,304
    )Total Stockholders Equity
    
    
    65,552,221
    
    
    
    60,434,826Total Liabilities and Stockholders Equity
    
    $
    78,148,570
    
    
    $
    71,151,017
  47




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 FOR THE YEAR ENDED MARCH 31, 2008, THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED),
 AND THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 Year ended
    
    
    Three months ended March 31,
    
    
    Years ended December 31,March 31,
    
    
    
    
    
    
    (Unaudited)2008
    
    
    2007
    
    
    2006
    
    
    2006
    
    
    2005Net sales
    
    $
    100,972,384
    
    
    $
    19,045,754
    
    
    $
    17,675,959
    
    
    $
    96,230,780
    
    
    $
    90,460,595Cost of sales
    
    
    34,532,099
    
    
    
    7,047,655
    
    
    
    5,865,211
    
    
    
    32,445,499
    
    
    
    28,201,154Gross Profit
    
    
    66,440,285
    
    
    
    11,998,099
    
    
    
    11,810,748
    
    
    
    63,785,281
    
    
    
    62,259,441Selling, general and administrative expenses
    
    
    46,520,327
    
    
    
    8,730,650
    
    
    
    10,692,507
    
    
    
    51,946,219
    
    
    
    54,196,370Research and development
    
    
    4,108,354
    
    
    
    1,137,671
    
    
    
    1,126,846
    
    
    
    4,684,837
    
    
    
    4,069,367Income From Operations
    
    
    15,811,604
    
    
    
    2,129,778
    
    
    
    (8,605
    )
    
    
    7,154,225
    
    
    
    3,993,704Other Income (Expense):Interest and other income
    
    
    653,422
    
    
    
    203,374
    
    
    
    173,911
    
    
    
    501,845
    
    
    
    417,724Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (116,639
    )
    
    
    Total Other Income
    
    
    653,422
    
    
    
    203,374
    
    
    
    173,911
    
    
    
    385,206
    
    
    
    417,724Income Before Provision For Income Taxes
    
    
    16,465,026
    
    
    
    2,333,152
    
    
    
    165,306
    
    
    
    7,539,431
    
    
    
    4,411,428Provision for income taxes
    
    
    6,037,487
    
    
    
    623,921
    
    
    
    68,546
    
    
    
    2,612,803
    
    
    
    1,332,936Net Income
    
    $
    10,427,539
    
    
    $
    1,709,231
    
    
    $
    96,760
    
    
    $
    4,926,628
    
    
    $
    3,078,492Net Income Per Share of Common Stock:Basic:Weighted Average Number of Common Shares
Outstanding
    
    
    9,704,579
    
    
    
    9,749,162
    
    
    
    9,565,963
    
    
    
    9,620,362
    
    
    
    9,486,288Net Income Per Share of Common Stock
    
    $
    1.07
    
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.51
    
    
    $
    0.32Diluted:Weighted Average Number of Common Shares
Outstanding
    
    
    10,001,307
    
    
    
    10,031,008
    
    
    
    10,027,666
    
    
    
    9,965,786
    
    
    
    9,769,922Net Income Per Share of Common Stock
    
    $
    1.04
    
    
    $
    0.17
    
    
    $
    0.01
    
    
    $
    0.49
    
    
    $
    0.32
  48




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 FOR THE YEAR ENDED MARCH 31, 2008, THE THREE MONTHS ENDED MARCH 31, 2007 AND THE YEARS ENDED
 DECEMBER 31, 2006 AND 2005
 Series A
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid In
    
    
    Treasury
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    EquityBalance at December 31, 2004
    
    
    
    
    
    $
    
    
    
    
    9,520,198
    
    
    $
    9,520
    
    
    $
    42,527,862
    
    
    $
    (396,304
    )
    
    $
    1,984,484
    
    
    $
    44,125,562Issuance of common stock upon exercise of stock options
    
    
    
    
    
    
    
    
    
    
    23,134
    
    
    
    23
    
    
    
    184,106
    
    
    
    
    
    
    
    
    
    
    
    184,129Issuance of restricted stock pursuant to the Companys
restricted stock bonus program
    
    
    
    
    
    
    
    
    
    
    56,197
    
    
    
    56
    
    
    
    641,052
    
    
    
    
    
    
    
    
    
    
    
    641,108Income tax benefit from the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,344
    
    
    
    
    
    
    
    
    
    
    
    80,344Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,078,492
    
    
    
    3,078,492Balance at December 31, 2005
    
    
    
    
    
    
    
    
    
    
    9,599,529
    
    
    
    9,599
    
    
    
    43,433,364
    
    
    
    (396,304
    )
    
    
    5,062,976
    
    
    
    48,109,635Issuance of common stock upon exercise of stock options
    
    
    
    
    
    
    
    
    
    
    244,965
    
    
    
    245
    
    
    
    2,479,671
    
    
    
    
    
    
    
    
    
    
    
    2,479,916Issuance of restricted stock pursuant to the Companys
restricted stock program
    
    
    
    
    
    
    
    
    
    
    103,258
    
    
    
    104
    
    
    
    1,342,960
    
    
    
    
    
    
    
    
    
    
    
    1,343,064Income tax benefit from the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,077,402
    
    
    
    
    
    
    
    
    
    
    
    1,077,402Stock option expense pursuant to SFAS 123R
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    150,800
    
    
    
    
    
    
    
    
    
    
    
    150,800Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,926,628
    
    
    
    4,926,628Balance at December 31, 2006
    
    
    
    
    
    
    
    
    
    
    9,947,752
    
    
    
    9,948
    
    
    
    48,484,197
    
    
    
    (396,304
    )
    
    
    9,989,604
    
    
    
    58,087,445Issuance of common stock upon exercise of stock options
    
    
    
    
    
    
    
    
    
    
    27,333
    
    
    
    27
    
    
    
    251,790
    
    
    
    
    
    
    
    
    
    
    
    251,817Issuance of restricted stock pursuant to the Companys
restricted stock program
    
    
    
    
    
    
    
    
    
    
    104,232
    
    
    
    104
    
    
    
    287,819
    
    
    
    
    
    
    
    
    
    
    
    287,923Income tax benefit from the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,717
    
    
    
    
    
    
    
    
    
    
    
    80,717Stock option expense pursuant to SFAS 123R
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,693
    
    
    
    
    
    
    
    
    
    
    
    17,693Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,709,231
    
    
    
    1,709,231Balance at March 31, 2007
    
    
    
    
    
    
    
    
    
    
    10,079,317
    
    
    
    10,079
    
    
    
    49,122,216
    
    
    
    (396,304
    )
    
    
    11,698,835
    
    
    
    60,434,826
  49




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE YEAR ENDED MARCH 31, 2008, THE THREE MONTHS ENDED MARCH 31, 2007 AND THE YEARS ENDED
DECEMBER 31, 2006 AND 2005
(CONTINUED)
 Series A
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid In
    
    
    Treasury
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    EquityIssuance of common stock upon exercise of stock options
    
    
    
    
    
    $
    
    
    
    
    59,767
    
    
    $
    60
    
    
    $
    611,083
    
    
    $
    
    
    
    $
    
    
    
    $
    611,143Issuance of restricted stock pursuant to the Companys
restricted stock program
    
    
    
    
    
    
    
    
    
    
    58,760
    
    
    
    58
    
    
    
    1,294,506
    
    
    
    
    
    
    
    
    
    
    
    1,294,564Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,463,393
    )
    
    
    
    
    
    
    (7,463,393
    )Retirement of treasury stock
    
    
    
    
    
    
    
    
    
    
    (22,432
    )
    
    
    (22
    )
    
    
    (315,127
    )
    
    
    315,149
    
    
    
    
    
    
    
    Income tax benefit from the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    231,401
    
    
    
    
    
    
    
    
    
    
    
    231,401Stock option expense pursuant to SFAS 123R
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16,141
    
    
    
    
    
    
    
    
    
    
    
    16,141Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,427,539
    
    
    
    10,427,539Balance at March 31, 2008
    
    
    
    
    
    $
    
    
    
    
    10,175,412
    
    
    $
    10,175
    
    
    $
    50,960,220
    
    
    $
    (7,544,548
    )
    
    $
    22,126,374
    
    
    $
    65,552,221
  50




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2006
(UNAUDITED)
 Series A
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid In
    
    
    Treasury
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    EquityBalance at December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    9,599,529
    
    
    $
    9,599
    
    
    $
    43,433,364
    
    
    $
    (396,304
    )
    
    $
    5,062,976
    
    
    $
    48,109,635Issuance of common stock upon exercise of stock options
    
    
    
    
    
    
    
    
    
    
    117,765
    
    
    
    118
    
    
    
    1,256,264
    
    
    
    
    
    
    
    
    
    
    
    1,256,382Issuance of restricted stock pursuant to the Companys
restricted stock program
    
    
    
    
    
    
    
    
    
    
    100,188
    
    
    
    100
    
    
    
    923,871
    
    
    
    
    
    
    
    
    
    
    
    923,971Stock option expense pursuant to SFAS 123R
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,967
    
    
    
    
    
    
    
    
    
    
    
    54,967Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    96,760
    
    
    
    96,760Balance at March 31, 2006
    
    
    
    
    
    $
    
    
    
    
    9,817,482
    
    
    $
    9,817
    
    
    $
    45,668,466
    
    
    $
    (396,304
    )
    
    $
    5,159,736
    
    
    $
    50,441,715
  51




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEAR ENDED MARCH 31, 2008, THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED),
 AND THE YEARS ENDED DECEMBER 31, 2006 AND 2005
 Year ended
    
    
    Three months ended March 31,
    
    
    Years ended December 31,March 31,
    
    
    
    
    
    
    (Unaudited)2008
    
    
    2007
    
    
    2006
    
    
    2006
    
    
    2005Cash Flows From Operating ActivitiesNet income
    
    $
    10,427,539
    
    
    $
    1,709,231
    
    
    $
    96,760
    
    
    $
    4,926,628
    
    
    $
    3,078,492Adjustments to reconcile net income to net cash provided
(used) by operating activities:Depreciation
    
    
    1,057,299
    
    
    
    491,520
    
    
    
    138,429
    
    
    
    630,599
    
    
    
    345,761Amortization
    
    
    149,130
    
    
    
    40,346
    
    
    
    48,448
    
    
    
    170,691
    
    
    
    83,415Provision for bad debts
    
    
    (219,654
    )
    
    
    18,335
    
    
    
    (277,443
    )
    
    
    (232,219
    )
    
    
    87,675Deferred income taxes
    
    
    2,484,214
    
    
    
    539,333
    
    
    
    (9,348
    )
    
    
    1,540,738
    
    
    
    (88,142
    )Common stock issued for compensation
    
    
    1,542,106
    
    
    
    386,333
    
    
    
    978,938
    
    
    
    2,571,266
    
    
    
    641,108Changes in assets and liabilities:Accounts receivable
    
    
    (3,614,627
    )
    
    
    15,598,763
    
    
    
    20,667,204
    
    
    
    6,312,460
    
    
    
    (17,655,917
    )Insurance receivable
    
    
    2,125,000
    
    
    
    (797,033
    )
    
    
    
    
    
    
    3,397,033
    
    
    
    (4,800,000
    )Interest receivable
    
    
    10,287
    
    
    
    (37,937
    )
    
    
    (43,401
    )
    
    
    78,279
    
    
    
    (66,875
    )Income tax receivable
    
    
    1,370,277
    
    
    
    
    
    
    
    
    
    
    
    (1,370,277
    )
    
    
    Inventories
    
    
    3,928,868
    
    
    
    1,326,416
    
    
    
    (2,723,980
    )
    
    
    (7,982,209
    )
    
    
    (1,561,701
    )Prepaid expenses and other
    
    
    (1,186,014
    )
    
    
    169,532
    
    
    
    81,644
    
    
    
    58,767
    
    
    
    (8,254
    )Accounts payable
    
    
    (1,276,672
    )
    
    
    (12,729,552
    )
    
    
    (4,303,561
    )
    
    
    6,572,454
    
    
    
    4,042,335Accrued expenses
    
    
    3,359,230
    
    
    
    (3,175,957
    )
    
    
    (3,459,475
    )
    
    
    (4,546,972
    )
    
    
    3,471,133Legal liability
    
    
    55,000
    
    
    
    (126,500
    )
    
    
    (12,000,000
    )
    
    
    (12,073,500
    )
    
    
    13,245,000Sales returns and allowances
    
    
    (1,119,499
    )
    
    
    (340,830
    )
    
    
    (1,206,721
    )
    
    
    (1,148,432
    )
    
    
    1,275,292Net Cash Provided (Used) By Operating Activities
    
    
    19,092,484
    
    
    
    3,072,000
    
    
    
    (2,012,506
    )
    
    
    (1,094,694
    )
    
    
    2,089,322Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (800,877
    )
    
    
    (310,750
    )
    
    
    (67,193
    )
    
    
    (4,997,736
    )
    
    
    (1,867,296
    )Deposits and other
    
    
    (436,586
    )
    
    
    (16,500
    )
    
    
    (38,974
    )
    
    
    802,846
    
    
    
    (788,119
    )Restricted cash
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,500,000
    
    
    
    Net Cash Provided (Used) By Investing Activities
    
    
    (1,237,463
    )
    
    
    (327,250
    )
    
    
    (106,167
    )
    
    
    305,110
    
    
    
    (2,655,415
    )Cash Flows From Financing Activities:Proceeds from borrowing
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000,000
    
    
    
    Principal payments on notes payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,000,000
    )
    
    
    Debt issuance costs
    
    
    (14,288
    )
    
    
    
    
    
    
    (2,939
    )
    
    
    (9,381
    )
    
    
    (45,851
    )Issuance of common stock
    
    
    611,143
    
    
    
    251,817
    
    
    
    1,256,382
    
    
    
    2,479,916
    
    
    
    184,129Purchase of treasury stock
    
    
    (7,463,393
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Cash (Used) Provided By Financing Activities
    
    
    (6,866,538
    )
    
    
    251,817
    
    
    
    1,253,443
    
    
    
    2,470,535
    
    
    
    138,278Net Increase (Decrease) in Cash and Cash
Equivalents
    
    
    10,988,483
    
    
    
    2,996,567
    
    
    
    (856,230
    )
    
    
    1,680,951
    
    
    
    (427,815
    )Cash and Cash Equivalents at Beginning of Period
    
    
    16,944,189
    
    
    
    13,947,622
    
    
    
    12,266,671
    
    
    
    12,266,671
    
    
    
    12,694,486Cash and Cash Equivalents at End of Period
    
    $
    27,932,672
    
    
    $
    16,944,189
    
    
    $
    11,401,441
    
    
    $
    13,947,622
    
    
    
    12,266,671Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    115,222
    
    
    $
    Income taxes
    
    
    
    
    
    
    
    
    
    
    860,790
    
    
    
    2,021,243
    
    
    
    814,164Supplemental Disclosure of Noncash Financing Activities:Retirement of treasury stock
    
    $
    315,149
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  52




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Summary of Significant Accounting Policies
 Organization
   Principles of Consolidation
  Change of Fiscal Year
  Cash and Cash Equivalents
  Accounts Receivable and Allowance for Doubtful Accounts
  53




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Inventories
  Property and Equipment
  Classification
    
    Useful Life in YearsMachine tooling and manufacturing equipment
    
    
    3-7Office furniture and computer equipment
    
    
    3-5Laboratory equipment and furniture
    
    
    3-5Leasehold improvements
    
    
    2-5
  Long-Lived Assets
   Intangible Assets
   54




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Revenue Recognition
  Stock-Based Compensation
  , .
   55




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Net income applicable to common shareholders, as reported
    
    $
    3,078,492Add stock-based employee compensation expense included in net
earnings, net of tax
    
    
    Less stock-based employee compensation expense determined under
fair value based methods for all awards, net of related tax
effects
    
    
    1,546,183Proforma Net Income
    
    $
    1,532,309Net income per share of common stock:Basic:As reported
    
    $
    0.32Pro forma
    
    $
    0.16DilutedAs reported
    
    $
    0.32Pro forma
    
    $
    0.16
  2005Risk-free interest rate
    
    
    3.66
    %Expected life
    
    5.00 yearsExpected volatility
    
    
    61.40
    %Expected dividend yield
    
    
    0
    %
  Comprehensive Income
  Shipping and Handling Costs
  Income Taxes
  56




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Research and Development
  Marketing and Advertising
  Net Income Per Share of Common Stock
   Year Ended March 31,
    
    
    Three Months Ended March 31,
    
    
    Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2006
    
    
    2005Net income applicable to common shareholders
    
    $
    10,427,539
    
    
    $
    1,709,231
    
    
    $
    96,760
    
    
    $
    4,926,628
    
    
    $
    3,078,492Weighted average common shares outstanding
 Basic
    
    
    9,704,579
    
    
    
    9,749,162
    
    
    
    9,565,963
    
    
    
    9,620,362
    
    
    
    9,486,288Dilutive securities
    
    
    296,728
    
    
    
    281,846
    
    
    
    461,703
    
    
    
    345,424
    
    
    
    283,634Weighted average common shares outstanding
 Diluted
    
    
    10,001,307
    
    
    
    10,031,008
    
    
    
    10,027,666
    
    
    
    9,965,786
    
    
    
    9,769,922Net Income per common share:Basic
    
    $
    1.07
    
    
    $
    0.18
    
    
    $
    .01
    
    
    $
    0.51
    
    
    $
    0.32Diluted
    
    $
    1.04
    
    
    $
    0.17
    
    
    $
    .01
    
    
    $
    0.49
    
    
    $
    0.32
 Estimates
  Recently Issued Accounting Standards
 Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 57




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Fair Value Measurements ,
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 The Fair Value Option for Financial Assets
and Financial Liabilities: Including an amendment of FASB Statement No. 115
 Business Combinations Accounting for Costs Associated with Exit or Disposal Activities,
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 58




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2. Inventories
  March 31,
    
    
    March 31,2008
    
    
    2007Raw materials and packaging
    
    $
    3,887,906
    
    
    $
    4,391,903Finished goods
    
    
    7,642,154
    
    
    
    11,067,025Total
    
    $
    11,530,060
    
    
    $
    15,458,928
 3. Current Notes Payable
  4. Reserves
  AdditionsBalance at
    
    Charged to
    
    
    
    
    
    Balance atBeginning of
    
    Costs and
    
    
    
    
    
    End ofDescription
    
    Period
    
    Expenses
    
    Deductions
    
    PeriodReserves for Sales Returns and AllowancesDecember 31, 2005
    
    $
    2,605,260
    
    
    $
    11,796,458
    
    
    $
    10,521,166
    
    
    $
    3,880,552December 31, 2006
    
    
    3,880,552
    
    
    
    14,871,924
    
    
    
    16,020,356
    
    
    
    2,732,120March 31, 2007
    
    
    2,732,120
    
    
    
    2,909,400
    
    
    
    3,250,230
    
    
    
    2,391,290March 31, 2008
    
    
    2,391,290
    
    
    
    15,432,925
    
    
    
    16,699,644
    
    
    
    1,124,571AdditionsBalance at
    
    Charged to
    
    
    
    
    
    Balance atBeginning of
    
    Costs and
    
    
    
    
    
    End ofDescription
    
    Period
    
    Expenses
    
    Deductions
    
    PeriodAllowance for Doubtful AccountsDecember 31, 2005
    
    $
    555,240
    
    
    $
    92,568
    
    
    $
    4,893
    
    
    $
    642,915December 31, 2006
    
    
    642,915
    
    
    
    97,286
    
    
    
    329,505
    
    
    
    410,696March 31, 2007
    
    
    410,696
    
    
    
    18,827
    
    
    
    492
    
    
    
    429,031March 31, 2008
    
    
    429,031
    
    
    
    20,676
    
    
    
    240,330
    
    
    
    209,377
 5. Income Taxes
  59




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Year Ended March 31,
    
    
    Three Months Ended March 31,
    
    
    Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2006
    
    
    2005Current:Federal
    
    $
    2,094,047
    
    
    $
    66,041
    
    
    $
    60,281
    
    
    $
    881,511
    
    
    $
    1,107,248State
    
    
    390,167
    
    
    
    18,548
    
    
    
    8,265
    
    
    
    190,554
    
    
    
    394,137Total
    
    
    2,484,214
    
    
    
    84,589
    
    
    
    68,546
    
    
    
    1,072,065
    
    
    
    1,501,385Deferred:Federal
    
    
    3,013,768
    
    
    
    504,901
    
    
    
    
    
    
    
    1,137,312
    
    
    
    131,506State
    
    
    539,505
    
    
    
    34,431
    
    
    
    
    
    
    
    403,426
    
    
    
    36,943Total
    
    
    3,553,273
    
    
    
    539,332
    
    
    
    
    
    
    
    1,540,738
    
    
    
    168,449Total Provision For Income Taxes
    
    $
    6,037,487
    
    
    $
    623,921
    
    
    $
    68,546
    
    
    $
    2,612,803
    
    
    $
    1,332,936
  Year Ended March 31,
    
    
    Three Months Ended March 31,
    
    
    Years Ended December 31,2008
    
    
    2007
    
    
    2006
    
    
    2006
    
    
    2005Federal statutory rate
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %State income taxes, net of federal benefits
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Current period tax credits
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (11
    )Charitable contributions
    
    
    (1
    )
    
    
    (12
    )
    
    
    
    
    
    
    (3
    )
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Net operating loss carryover
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    37
    %
    
    
    27
    %
    
    
    41
    %
    
    
    34
    %
    
    
    30
    %
  2008
    
    
    2007Current deferred tax assetsNet operating loss carryforwards
    
    $
    
    
    
    $
    555,600Reserves and accrued expenses
    
    
    718,800
    
    
    
    1,165,000Charitable contributions carryforward
    
    
    
    
    
    
    1,047,300Accrued legal liabilities
    
    
    423,500
    
    
    
    402,300Reserve for bad debts
    
    
    80,600
    
    
    
    165,200Research and development credit
    
    
    
    
    
    
    140,000Inventory valuation reserve
    
    
    516,590
    
    
    
    733,205Total current deferred tax assets
    
    
    1,739,490
    
    
    
    4,208,600Current deferred tax liabilitiesAccrued receivable
    
    
    
    
    
    
    (847,000
    )Net current deferred tax assets
    
    $
    1,739,490
    
    
    $
    3,361,605Non-current deferred tax assetsRestricted stock compensation
    
    
    828,500
    
    
    
    980,200Other
    
    
    
    
    
    
    18,062Total non-current deferred tax assets
    
    $
    828,500
    
    
    $
    998,262Non-current deferred tax liabilitiesAmortization of intangible assets
    
    
    (2,463,827
    )
    
    
    (2,058,900
    )Depreciation
    
    
    (387,100
    )
    
    
    (99,690
    )Total non-current deferred tax liabilities
    
    
    (2,850,927
    )
    
    
    (2,158,590
    )Net non-current deferred tax liabilities
    
    $
    (2,022,427
    )
    
    $
    (1,160,328
    )
 60




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     6. Preferred Stock
  7. Stockholders Equity
 Stock Repurchase Plan
  Shareholder Rights Plan
   61




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Directors Restricted Stock Purchase Program
  8. Stock Options
 2001 Long-Term Incentive Plan
   Weighted-
    
    
    Weighted-AverageAverage
    
    
    Remaining Contractual
    
    
    Aggregate IntrinsicOptions
    
    Shares
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOptions outstanding at March 31, 2007
    
    
    653,901
    
    
    $
    12.47Granted
    
    
    -Exercised
    
    
    (59,767
    )
    
    
    10.23Cancelled
    
    
    (45,000
    )
    
    
    17.90Options outstanding at March 31, 2008
    
    
    549,134
    
    
    $
    12.27
    
    
    2.88 years
    
    $
    1,881,576Exercisable at March 31, 2008
    
    
    549,134
    
    
    $
    12.27
    
    
    2.88 years
    
    $
    1,881,576
 62




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Weighted-Average Grant-Shares
    
    
    Date Fair ValueNonvested at March 31, 2007
    
    
    260,620
    
    
    $
    16.68Granted
    
    
    61,510
    
    
    
    15.77Vested
    
    
    (118,301
    )
    
    
    14.67Forfeited
    
    
    (2,750
    )
    
    
    20.58Nonvested at March 31, 2008
    
    
    201,079
    
    
    $
    17.45
    Other Stock Option Information
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    WeightedRange of
    
    Number
    
    Contractual Life
    
    Exercise
    
    Number
    
    AverageExercise Prices
    
    Outstanding
    
    in Years
    
    Price
    
    Exercisable
    
    Exercise Price$  7.00  $10.00
    
    
    205,134
    
    
    
    2.36
    
    
    $
    8.39
    
    
    
    205,134
    
    
    $
    8.39$10.00  $13.00
    
    
    167,000
    
    
    
    3.63
    
    
    $
    11.05
    
    
    
    167,000
    
    
    $
    11.05$17.00  $19.00
    
    
    177,000
    
    
    
    2.79
    
    
    $
    17.92
    
    
    
    177,000
    
    
    $
    17.92
 Compensation Expense
 , .
  63




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   9. Commitments and Contingencies
 Leases
  Year EndingMarch 31,
    
    Leases2009
    
    $
    416,1272010
    
    
    523,2572011
    
    
    537,7032012
    
    
    517,3742013
    
    
    459,229Thereafter
    
    
    115,649Total Minimum Lease Payments
    
    $
    2,569,339
  Officer Indemnification
  Litigation
   64




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Product Liability
    Litigation Reserves
  65




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Securities Litigation Matters
  Third-Party
Manufacturers
  10. Employee Benefit Plan
  11. Concentration of Credit Risk and Major Customers
    66




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Year ended
    
    3 months ended
    
    3 months ended
    
    Year ended
    
    Year endedMarch 31, 2008
    
    March 31, 2007
    
    March 31, 2006
    
    December 31, 2006
    
    December 31, 2005Wal-Mart
    
    
    23.5
    %
    
    
    12.1
    %
    
    
    29.9
    %
    
    
    26.3
    %
    
    
    20.5
    %Walgreens
    
    
    13.3
    %
    
    
    *
    
    
    
    *
    
    
    
    12.6
    %
    
    
    14.6
    %CVS
    
    
    11.8
    %
    
    
    11.9
    %
    
    
    *
    
    
    
    12.3
    %
    
    
    *
 
 *
    
    Less than 10% 12. Fair Value of Financial Instruments
  March 31, 2008
    
    March 31, 2007Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair ValueFiancial AssetsCash and cash equivalents
    
    $
    27,932,672
    
    
    $
    27,932,672
    
    
    $
    16,944,189
    
    
    $
    13,947,622Restricted cash
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000Financial LiabilitiesLong-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  13. Selected Quarterly Financial Data (Unaudited)
  Fiscal Year 2008 Quarters Ended:June 30, 2007
    
    Sept. 30, 2007
    
    Dec. 31, 2007
    
    March 31, 2008Net sales
    
    $
    8,573,428
    
    
    $
    28,575,748
    
    
    $
    30,801,567
    
    
    $
    33,021,641Gross profit
    
    
    5,738,074
    
    
    
    18,999,407
    
    
    
    19,741,404
    
    
    
    22,001,400Net income (loss) from operations
    
    
    (1,971,194
    )
    
    
    10,172,715
    
    
    
    (1,176,811
    )
    
    
    8,786,894Net income (loss) per basic share
    
    
    (0.11
    )
    
    
    0.65
    
    
    
    (0.07
    )
    
    
    0.60Net income (loss) per diluted share
    
    
    (0.11
    )
    
    
    0.63
    
    
    
    (0.07
    )
    
    
    0.59Net income (loss)
    
    
    (1,062,906
    )
    
    
    6,409,228
    
    
    
    (635,161
    )
    
    
    5,715,568
 67




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Transition Period 
Ended:March 31, 2007Net sales
    
    $
    19,045,754Gross profit
    
    
    11,998,099Net income (loss) from operations
    
    
    2,129,778Net income (loss) per basic share
    
    
    0.18Net income (loss) per diluted share
    
    
    0.17Net income (loss)
    
    
    1,709,231
 Fiscal Year 2006 Quarters:March 31, 2006
    
    
    June 30, 2006
    
    
    Sept. 30, 2006
    
    
    Dec. 31, 2006Net sales
    
    $
    17,675,959
    
    
    $
    8,206,133
    
    
    $
    34,121,357
    
    
    $
    36,227,332Gross profit
    
    
    11,810,748
    
    
    
    5,801,426
    
    
    
    22,967,447
    
    
    
    23,205,681Net income (loss) from operations
    
    
    (8,606
    )
    
    
    (3,640,175
    )
    
    
    11,908,178
    
    
    
    (1,105,172
    )Net income (loss) per basic share
    
    
    0.01
    
    
    
    (0.19
    )
    
    
    0.74
    
    
    
    (0.05
    )Net income (loss) per diluted share
    
    
    0.01
    
    
    
    (0.19
    )
    
    
    0.72
    
    
    
    (0.05
    )Net income (loss)
    
    
    96,760
    
    
    
    (1,857,796
    )
    
    
    7,150,370
    
    
    
    (462,705
    )
 68




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##### Table of Contents



ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (cont.)
 (a)2. Financial Statement Schedules
  (a)3. Exhibits
 Exhibit No.
    
    Title3.1
    
    Certificate of Incorporation and Amendments thereto of the Registrant (1)3.2
    
    Bylaws of the Registrant (11)4.1
    
    Rights Agreement dated as of July 22, 2002 by and between the Registrant and
Corporate Stock Transfer, Inc. (2)10.1
    
    Confidentiality and Non-Competition Agreement among the Registrant, Gel Tech, L.L.C.
(now Zicam, LLC), Zensano, Inc., Zengen, Inc. and certain other individuals (4)10.2
    
    *2001 Stock Incentive Plan (5)10.2.1
    
    *Form of Matrixx Initiatives, Inc. 2001 Long-Term Incentive Plan Grant of Incentive
Stock Option (7)10.2.2
    
    *Form of Matrixx Initiatives, Inc. 2001 Long-Term Incentive Plan Restricted Stock
Program Agreement (14)10.2.3
    
    Form of Matrixx Initiatives, Inc. 2001 Long-Term Incentive Plan Restricted Stock
Program Agreement (Directors) (13)10.2.4
    
    First Amendment to the Matrixx Initiatives, Inc. 2001 Long-Term Incentive Plan
Restricted Stock Program Agreements between the Registrant and Edward Walsh dated
October 18, 2006 (13)10.2.5
    
    First Amendment to the Matrixx Initiatives, Inc. 2001 Long-Term Incentive Plan
Restricted Stock Program Agreements between the Registrant and Edward Faber dated
October 18, 2006 (13)10.3
    
    *Summary of Matrixx Initiatives, Inc. Director Restricted Stock Purchase Program (3)10.4
    
    Manufacturing Agreement with BioZone Laboratories (6)10.5
    
    Amended and Restated Credit Agreement dated September 27, 2005 among the Registrant,
Zicam, LLC and Comerica Bank (9)10.6.1
    
    Amendment Number One to Amended and Restated Credit Agreement and Waiver dated
March 9, 2006 among the Registrant, Zicam LLC and Comerica Bank (15)10.6.2
    
    Amendment Number Two to Amended and Restated Credit Agreement dated June 27, 2007
among the Registrant, Zicam LLC and Comerica Bank (15)10.6.3
    
    Replacement Secured Promissory Note dated June 27, 2007 among the Registrant, Zicam,
LLC and Comerica Bank (15)10.6.4
    
    Amended and Restated Security Agreement dated September 27, 2005 among the
Registrant, Zicam, LLC and Comerica Bank (9)10.6.5
    
    Security Agreement and Collateral Assignment of Limited Liability Company Interests dated September 27, 2005 between Registrant and
Comerica Bank (9)
 69




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##### Table of Contents



Exhibit No.
    
    Title10.6.6
    
    Amended and Restated Intellectual Property Security Agreement dated September 27, 2005 between Registrant and Comerica Bank (9)10.6.7
    
    Amended and Restated Intellectual Property Security Agreement dated September 27, 2005 between Zicam, LLC and Comerica Bank (9)10.6.8
    
    Security Agreement dated June 27, 2007 between Matrixx Oral Care, LLC and Comerica Bank (15)10.7
    
    Form of Change of Control Agreement between Registrant and Registrants Executive Officers (15)10.8
    
    Asset Purchase Agreement dated as of October 31, 2005 by and among Viridian Packaging Solutions, LLC, Beutlich, L.P., Frederic J. Beutlich
and Zicam Swab Products, LLC (10)10.9
    
    Settlement Agreement dated January 19, 2006 among the Registrant and the various plaintiffs in the consolidated products liability
litigation (12)10.10
    
    *Amended and Restated Employment Agreement dated October 18, 2006 among Registrant and Carl J. Johnson (13)10.11
    
    *Insurance Agreement dated October 18, 2006 between the Registrant and William J. Hemelt (13)21
    
    **Subsidiaries of the Registrant23.1
    
    **Consent of Mayer Hoffman McCann P.C., independent registered public accounting firm31.1
    
    **Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    **Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    ***Certification of CEO pursuant to 18 U.S.C. Section 135032.2
    
    ***Certification of CFO pursuant to 18 U.S.C. Section 1350
 
 *
    
    Indicates management compensatory contract, plan or arrangement.**
    
    Filed with this Form 10-K.***
    
    Furnished with this Form 10-K.(1)
    
    Incorporated by reference to the Registrants Amendment No. 1 to Form 8-A, filed June 18,
2002, file number 000-27646.(2)
    
    Incorporated by reference to the Registrants registration statement on Form 8-A, filed July
23, 2002, file number 000-31404.(3)
    
    Incorporated by reference to the Registrants Report on Form 10-Q for the quarter ended June
30, 2006, file number 001-31404.(4)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed December 14, 2001,
file number 000-27646.(5)
    
    Incorporated by reference to the Registrants definitive proxy statement on Schedule 14A,
filed April 8, 2005, file number 001-31404.(6)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed October 28, 2004, file
number 001-31404. 70




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##### Table of Contents



(7)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed February 11, 2005 file
number 001-31404.(9)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed November 7, 2005, file
number 001-31404.(10)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed November 3, 2005, file
number 001-31404.(11)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed July 25, 2006, file
number 001-31404.(12)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed January 19, 2006, file
number 001-31404.(13)
    
    Incorporated by reference to the Registrants Report on Form 10-Q for the period ended
September 30, 2006, file number 001-31404.(14)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed May 13, 2008, file
number 001-31404.(15)
    
    Incorporated by reference to the Registrants Report on Form 10-Q for the period ended June
30, 2007, file number 001-31404. 71




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##### Table of Contents



SIGNATURES
  MATRIXX INITIATIVES, INC.By:
    /s/ Carl J. JohnsonCarl J. JohnsonPresident and Chief Executive Officer  Signature
    
    Title
    
    Date/s/ Edward E. Faber
    
    Chairman of the Board of Directors
    
    June 12, 2008Edward E. Faber/s/ Carl J. Johnson
    
    President, Chief Executive Officer and Director
    
    June 12, 2008Carl J. Johnson/s/ William C. Egan
    
    Director
    
    June 12, 2008William C. Egan/s/ L. White Matthews, III
    
    Director
    
    June 12, 2008L. White Matthews, III/s/ Michael A. Zeher
    
    Director
    
    June 12, 2008Michael A. Zeher/s/ Samuel C. Cowley
    
    Director, Executive Vice President Business
    
    June 12, 2008Samuel C. Cowley
    
    Development, General Counsel
& Secretary/s/ John M. Clayton
    
    Director
    
    June 12, 2008John M. Clayton/s/ Lori Bush
    
    Director
    
    June 12, 2008Lori Bush/s/ William J. Hemelt
    
    Executive Vice President and Chief
Financial Officer
    
    June 12, 2008William J. Hemelt
    
    (Principal Financial Officer & Principal Accounting Officer)
 72




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##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Title21
    
    **Subsidiaries of the Registrant23.1
    
    **Consent of Mayer Hoffman McCann P.C., independent registered public accounting firm31.1
    
    **Certification of CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    **Certification of CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    **Certification of CEO pursuant to 18 U.S.C. Section 1350.32.2
    
    **Certification of CFO pursuant to 18 U.S.C. Section 1350.
 
 **
    
    Filed with this Form 10-K.***
    
    Furnished with this Form 10-K. 73