##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 Form 10-K
  o
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 or
 þ
    
    FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from January 1, 2007 to March 31, 2007
 Commission File No. 001-31404
 Matrixx Initiatives, Inc.
  Delaware
    
    87-0482806(State or Other Jurisdiction
    
    (I.R.S. Employerof Incorporation or Organization)
    
    Identification No.)
 4742 N. 24th Street
Suite 455
Phoenix, AZ 85016
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
    
    Yes o
    
    No þAccelerated filer
    
    Yes þ
    
    No oNon-accelerated filer
    
    Yes o
    
    No þ
 o þ




---



##### Table of Contents



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




---



##### 



TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    10Item 1B. Unresolved Staff Comments
    
    
    15Item 2. Properties
    
    
    15Item 3. Legal Proceedings
    
    
    15Item 4. Submission of Matters to a Vote of Security Holders
    
    
    19Supplemental
Item.               Executive Officers of Matrixx
    
    
    19PART IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    20Item 6. Selected Financial Data
    
    
    21Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    22Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    37Item 8. Financial Statements and Supplementary Data
    
    
    37Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    37Item 9A. Controls and Procedures
    
    
    37Item 9B. Other Information
    
    
    40PART IIIItem 10. Directors, Executive Officers, and Corporate Governance
    
    
    40Item 11. Executive Compensation
    
    
    40Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    40Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    41Item 14. Principal Accountant Fees and Services
    
    
    41PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    42SIGNATURES
    
    
    67EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  3




---



##### Table of Contents



PART I
 
 ITEM 1. BUSINESS
 Introduction
  Cold Remedy.
 Allergy/Sinus.
 Cough.
 Multi-Symptom Cold/Flu.
   4




---



##### Table of Contents



th
 Markets and Company Products
   3 months ended
    
    
    
    
    
    
    3 months ended
    
    
    
    
    
    
    12 months ended
    
    
    
    
    
    
    12 months endedProduct Class
    
    March 31, 2007
    
    
    %
    
    
    March 31, 2006
    
    
    %
    
    
    December 31, 2006
    
    
    %
    
    
    December 31, 2005
    
    
    %Cold Remedy
    
    $
    11,523,624
    
    
    
    61
    %
    
    $
    11,476,356
    
    
    
    65
    %
    
    $
    69,046,345
    
    
    
    72
    %
    
    $
    55,292,673
    
    
    
    61
    %Allergy/Sinus/Nasal Comfort
    
    
    4,610,560
    
    
    
    24
    %
    
    
    3,971,286
    
    
    
    22
    %
    
    
    15,468,683
    
    
    
    16
    %
    
    
    20,163,688
    
    
    
    23
    %Cough
    
    
    1,135,231
    
    
    
    6
    %
    
    
    1,051,140
    
    
    
    6
    %
    
    
    6,059,285
    
    
    
    6
    %
    
    
    6,514,769
    
    
    
    7
    %Multi-Symptom Cold/Flu
    
    
    1,776,339
    
    
    
    9
    %
    
    
    1,177,177
    
    
    
    7
    %
    
    
    5,656,467
    
    
    
    6
    %
    
    
    8,489,465
    
    
    
    9
    %Total Net Sales
    
    $
    19,045,754
    
    
    
    100
    %
    
    $
    17,675,959
    
    
    
    100
    %
    
    $
    96,230,780
    
    
    
    100
    %
    
    $
    90,460,595
    
    
    
    100
    %
 Cold Remedy
    5




---



##### Table of Contents



Allergy/Sinus
   Cough
  Multi-Symptom Cold & Flu Relief
  6




---



##### Table of Contents



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




---



##### Table of Contents



Research and Development
  FDA, FTC and Other Government Regulation
    8




---



##### Table of Contents



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




---



##### Table of Contents



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.
  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.
   10




---



##### Table of Contents



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.
  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 and adverse publicity. 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.
  11




---



##### Table of Contents



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 preclude us from developing or marketing
existing or proposed products.
  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.
  12




---



##### Table of Contents



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.
  Under
our current business model, we do not have manufacturing capabilities of our own.
  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.
  13




---



##### Table of Contents



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.
  
    
    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.
  14




---



##### Table of Contents



ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
 Litigation
   Product Liability Matters
 General.
  December 31, 2005
    
    December 31, 2006
    
    May 30, 2007Number of Pending Lawsuits
    
    
    50
    
    
    
    25
    
    
    
    27Number of Plaintiffs
    
    
    427
    
    
    
    36
    
    
    
    42
  15




---



##### Table of Contents



Settlement of Arizona Consolidated Litigation.
 Cases Dismissed Since December 31, 2006 (Federal Courts).
 Date Filed
    
    United States District Court
    
    Named Plaintiff
    
    Date DismissedMay 3, 2004
    
    Middle District of Alabama
    
    Benkwith
    
    January 5, 2007June 17, 2004
    
    Northern District of Texas
    
    Hilton
    
    February 20, 2007November 1, 2005
    
    District of Colorado
    
    Chontos
    
    March 14, 2007November 1, 2005
    
    Northern District of Georgia
    
    Abernathy
    
    April 16, 2007November 9, 2005
    
    Eastern District of Michigan,
Northern Division
    
    Johnston
    
    January 12, 2007December 19, 2005
    
    Northern District of Alabama,
Middle Division
    
    Edwards
    
    January 12, 2007December 21, 2005
    
    Eastern District of Michigan
    
    Salden
    
    May, 17 2007April 28, 2006
    
    Southern District of Texas,
Houston Division
    
    Simms
    
    March 23, 2007October 6, 2006
    
    Central District of California
    
    Navas
    
    April 26, 2007
  Cases Dismissed Since December 31, 2006 (State Courts).
 Date Filed
    
    Court
    
    Named Plaintiff
    
    Date DismissedAugust 20, 2004
    
    Maricopa County, Arizona
    
    Akers
    
    March 15, 2007November 17, 2004
    
    Maricopa County, Arizona
    
    Cappy
    
    January 5, 2007November 23, 2005
    
    Maricopa County, Arizona
    
    Allen
    
    January 5, 2007June 21, 2006
    
    County of Bernalillo,
State of New Mexico
    
    Otero
    
    April 12, 2007
 16




---



##### Table of Contents



Pending Cases as of May 30, 2007 (Federal Courts).
 Date Filed
    
    United States District Court
    
    Named PlaintiffSeptember 13, 2004
    
    Western District of Kentucky
    

HansJune 15, 2004
    
    Northern District of Alabama, Southern Division
    
    WyattOctober 29, 2004
    
    Central District of California
    
    OHanlonJanuary 14, 2005
    
    District of Oregon
    
    LuschSeptember 23, 2005
    
    Southern District of Florida
    
    DobsonNovember 1, 2005
    
    District of Minnesota
    
    RyeNovember 14, 2005
    
    Eastern District of Tennessee
    
    RussellFebruary 9, 2006
    
    District of New Jersey
    
    FinderApril 13, 2006
    
    Southern District of Ohio
    
    RifeJuly 18, 2006
    
    Western District of New York
    
    SawyerNovember 2, 2006
    
    Northern District of Ohio, Western Division
    
    TaylorMarch 1, 2007
    
    Middle District of Florida
    
    EvansMarch 27, 2007
    
    Northern District of Illinois
    
    Skender
 Pending Cases as of May 30, 2007 (State Courts).
 Date Filed
    
    Court
    
    Named PlaintiffMarch 8, 2004
    
    Maricopa County, Arizona
    
    AbramsenApril 14, 2004
    
    17th Judicial Circuit in and for Broward County, Florida,General Jurisdiction Division
    
    HoodJanuary 13, 2005
    
    Fresno County, Central Division, California
    
    CashFebruary 24, 2006
    
    County of Niagara, New York
    
    CampbellJune 5, 2006
    
    Oklahoma County, Oklahoma
    
    StarkJune 7, 2006
    
    Morris County, New Jersey
    
    StraccoJuly 7, 2006
    
    County of San Diego, California
    
    BrunoJune 16, 2006
    
    Court of Common Pleas of Fayette County, Pennsylvania
    
    MarvaAugust 30, 2006
    
    Los Angeles Superior Court, California
    
    StanleyNovember 3, 2006
    
    Maricopa County, Arizona
    
    PooleFebruary 9,
2007   (Notice of ClaimNo Complaint)
    
    Commonwealth of Pennsylvania, County of Westmoreland
    
    McHughApril 27, 2007
    
    Kanahwa County, West Virginia
    
    SeckmanMay 2,
2007   (Notice of ClaimNo Complaint)
    
    County of Ramsey, Minnesota
    
    FlomMay 16, 2007
    
    Thirteenth Judicial District at Memphis, Tennessee
    
    Rose
 Potential Claimants.
  17




---



##### Table of Contents



Companys Position Regarding the Allegations.
 Scientific Advisory Board.
   Insurance.
 Litigation Reserves
  18




---



##### Table of Contents



Securities Litigation Matters
  Federal Trade Commission Inquiry
 ®
 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Executive Officers of Matrixx
  President and Chief Executive Officer
  19




---



##### Table of Contents



Executive Vice President, Operations, Chief Financial Officer, and Treasurer
  Vice President of Research & Development
  Vice President of Administration 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
  20




---



##### Table of Contents



Market PriceHigh
    
    LowFiscal Year 2005First Quarter
    
    $
    12.60
    
    
    $
    9.00Second Quarter
    
    $
    12.97
    
    
    $
    9.70Third Quarter
    
    $
    14.87
    
    
    $
    10.83Fourth Quarter
    
    $
    22.65
    
    
    $
    13.91Fiscal Year 2006First Quarter
    
    $
    26.22
    
    
    $
    19.68Second Quarter
    
    $
    23.46
    
    
    $
    12.78Third Quarter
    
    $
    19.19
    
    
    $
    14.15Fourth Quarter
    
    $
    22.96
    
    
    $
    15.49Three Month Transition Period Ended March 31, 2007
    
    $
    18.89
    
    
    $
    13.89
  Dividend Policy
  Issuer Purchases of Equity Securities
  
 ITEM 6. SELECTED FINANCIAL DATA
  Three Months(000s, except share data)
    
    Ended March 31,
    
    Fiscal Years Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003
    
    2002Net sales
    
    $
    19,046
    
    
    $
    96,231
    
    
    $
    90,461
    
    
    $
    60,231
    
    
    $
    43,496
    
    
    $
    23,548Net income
    
    $
    1,709
    
    
    $
    4,927
    
    
    $
    3,078
    
    
    $
    4,957
    
    
    $
    3,344
    
    
    $
    4,757Net income per share of common stock  basic
    
    $
    0.18
    
    
    $
    0.51
    
    
    $
    0.32
    
    
    $
    0.52
    
    
    $
    0.36
    
    
    $
    0.50Net income per share of common stock  diluted
    
    $
    0.17
    
    
    $
    0.49
    
    
    $
    0.32
    
    
    $
    0.52
    
    
    $
    0.35
    
    
    $
    0.50Dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Shares outstanding at period end
    
    
    10,079
    
    
    
    9,948
    
    
    
    9,600
    
    
    
    9,520
    
    
    
    9,475
    
    
    
    9,441Total assets
    
    $
    71,151
    
    
    $
    85,107
    
    
    $
    86,442
    
    
    $
    60,134
    
    
    $
    50,077
    
    
    $
    47,185Long term obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Stockholders equity
    
    $
    60,435
    
    
    $
    58,087
    
    
    $
    48,110
    
    
    $
    44,126
    
    
    $
    38,790
    
    
    $
    35,155
 21




---



##### Table of Contents



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Executive Summary
   3 months ended
    
    
    
    
    
    
    3 months ended
    
    
    
    
    
    
    12 months ended
    
    
    
    
    
    
    12 months endedProduct Class
    
    March 31, 2007
    
    
    %
    
    
    March 31, 2006
    
    
    %
    
    
    December 31, 2006
    
    
    %
    
    
    December 31, 2005
    
    
    %Cold Remedy
    
    $
    11,523,624
    
    
    
    61
    %
    
    $
    11,476,356
    
    
    
    65
    %
    
    $
    69,046,345
    
    
    
    72
    %
    
    $
    55,292,673
    
    
    
    61
    %Allergy/Sinus/Nasal Comfort
    
    
    4,610,560
    
    
    
    24
    %
    
    
    3,971,286
    
    
    
    22
    %
    
    
    15,468,683
    
    
    
    16
    %
    
    
    20,163,688
    
    
    
    23
    %Cough
    
    
    1,135,231
    
    
    
    6
    %
    
    
    1,051,140
    
    
    
    6
    %
    
    
    6,059,285
    
    
    
    6
    %
    
    
    6,514,769
    
    
    
    7
    %Multi-Symptom Cold/Flu
    
    
    1,776,339
    
    
    
    9
    %
    
    
    1,177,177
    
    
    
    7
    %
    
    
    5,656,467
    
    
    
    6
    %
    
    
    8,489,465
    
    
    
    9
    %Total Net Sales
    
    $
    19,045,754
    
    
    
    100
    %
    
    $
    17,675,959
    
    
    
    100
    %
    
    $
    96,230,780
    
    
    
    100
    %
    
    $
    90,460,595
    
    
    
    100
    %
   .
  22




---



##### Table of Contents



1)
    
    We compare our year-to-date sales and net income performance against our stated annual
goal for each. For fiscal 2006, our stated goal was to grow sales 25% to 35% and net income
15% to 25% above the level realized in fiscal 2005 (excluding the impact of an $8.5 million
charge, net of expected recovery from insurance programs, recorded in the fourth quarter of
fiscal 2005 for settling the Arizona litigation and recording a reserve for the remaining
product liability lawsuits). We realized net sales growth of 6% in fiscal 2006. We believe
the lower than expected sales growth is attributable to a slow start to the 2006/2007 cold
season, sales of cough and multi-symptom cold/flu items not achieving expected growth rates,
and low acceptance of Nasal Comfort. The lower than originally anticipated net income growth
was directly related to the lower sales growth we recorded. For the three months ended March
31, 2007 the Company expected net sales and net income would surpass the level achieved
during the comparable period in 2006. For the three months ended March 31, 2007, we realized
net sales growth of 8% and net income increased approximately $1.6 million from the level
realized in the comparable period in the previous year.2)
    
    We monitor our share of the cough and cold market. For the 24 weeks ended March 25,
2007, retail sales of our products (as measured by three outlet syndicated scanner data,
not including our largest customer, Wal-Mart) increased approximately 20% over the
comparable period in the previous year, while the entire cough and cold category increased
approximately 8% over the same period. The increased sales of our products for the 24 weeks
ended March 25, 2007 resulted in Zicam products achieving a 3.6% dollar share of the
category for the 2006/2007 cold season, versus 3.2% in the 2005/2006 season, and 2.6% in
the 2004/2005 period.3)
    
    We measure our ability to maintain strong gross margins on our products. During the
three months ended March 31, 2007, we realized an average gross margin of 63%, which is
below our goal of 70%, and below the average gross margin of 67% realized in the comparable
period in the prior year (gross margins on our existing products vary between 50% and 80%).
Average gross margins were negatively impacted by an $800,000 increase to our inventory
reserve, of which $500,000 was in excess of our customary amount, to account for expiring
products and obsolete components. We also recorded approximately $150,000 for the disposal
of tooling associated with our flu products initial design.4)
    
    We evaluate our operating performance by reviewing, over time, our ability to decrease
administrative and general costs as a percentage of net sales. For the three months ended
March 31, 2007, our selling, general or administrative expenses (excluding R&D and product liability litigation
related charges) were approximately 49% of our net sales compared to 54% in the three
months ended March 31, 2006.5)
    
    We review the distribution of our products by key national retailers. Our ten largest
retail customers (based on 2006 sales) carry, on average, 14 of our products (Zicam & Nasal
Comfort). Those customers accounted for approximately 63% of our net sales in the three
months ended March 31, 2007, and 73% and 69% of our net sales in calendar 2006 and 2005,
respectively. Retailers generally reset their cough and cold sections during the third
calendar quarter of each year, at which time we are informed of any changes that will occur
for the upcoming cough and cold season.
 Seasonality and Quarterly Results
  23




---



##### Table of Contents



Quarterly Results:
 Twelve Months Ended March 31, 2007Twelve$000s
    
    Q2 2006
    
    
    % NS
    
    
    Q3 2006
    
    
    % NS
    
    
    Q4 2006
    
    
    % NS
    
    
    Q1 2007
    
    
    % NS
    
    
    Months
    
    
    % NSNet Sales
    
    $
    8,206
    
    
    
    
    
    
    $
    34,121
    
    
    
    
    
    
    $
    36,227
    
    
    
    
    
    
    $
    19,046
    
    
    
    
    
    
    $
    97,601Marketing
    
    $
    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
    %
  Twelve Months Ended March 31, 2006Twelve$000s
    
    Q2 2005
    
    
    % NS
    
    
    Q3 2005
    
    
    % NS
    
    
    Q4 2005
    
    
    % NS
    
    
    Q1 2006
    
    
    % NS
    
    
    Months
    
    
    % NSNet Sales
    
    $
    6,255
    
    
    
    
    
    
    $
    25,203
    
    
    
    
    
    
    $
    44,022
    
    
    
    
    
    
    $
    17,676
    
    
    
    
    
    
    $
    93,155Marketing
    
    $
    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
    %
  24




---



##### Table of Contents



Twelve Months Ended March 31, 2005Twelve$000s
    
    Q2 2004
    
    
    % NS
    
    
    Q3 2004
    
    
    % NS
    
    
    Q4 2004
    
    
    % NS
    
    
    Q1 2005
    
    
    % NS
    
    
    Months
    
    
    % NSNet Sales
    
    $
    3,392
    
    
    
    
    
    
    $
    16,905
    
    
    
    
    
    
    $
    27,002
    
    
    
    
    
    
    $
    14,982
    
    
    
    
    
    
    $
    68,280Marketing
    
    $
    1,216
    
    
    
    36
    %
    
    $
    1,313
    
    
    
    8
    %
    
    $
    9,426
    
    
    
    35
    %
    
    $
    5,069
    
    
    
    34
    %
    
    $
    17,024
    
    
    
    5
    %Sales Expense
    
    $
    123
    
    
    
    4
    %
    
    $
    862
    
    
    
    5
    %
    
    $
    1,406
    
    
    
    5
    %
    
    $
    614
    
    
    
    4
    %
    
    $
    3,005
    
    
    
    4
    %General &
Administrative
    
    $
    1,377
    
    
    
    41
    %
    
    $
    1,604
    
    
    
    9
    %
    
    $
    3,347
    
    
    
    13
    %
    
    $
    2,232
    
    
    
    15
    %
    
    $
    8,560
    
    
    
    13
    %Legal  Product
Liability
    
    $
    756
    
    
    
    22
    %
    
    $
    1,650
    
    
    
    10
    %
    
    $
    1,365
    
    
    
    5
    %
    
    $
    909
    
    
    
    6
    %
    
    $
    4,680
    
    
    
    7
    %Total Op Expenses
    
    $
    3,472
    
    
    
    102
    %
    
    $
    5,429
    
    
    
    32
    %
    
    $
    15,544
    
    
    
    58
    %
    
    $
    8,824
    
    
    
    59
    %
    
    $
    33,269
    
    
    
    49
    %R&D
    
    $
    521
    
    
    
    15
    %
    
    $
    354
    
    
    
    2
    %
    
    $
    541
    
    
    
    2
    %
    
    $
    499
    
    
    
    3
    %
    
    $
    1,916
    
    
    
    3
    %
  Critical Accounting Policies and Estimates
    Intangible Assets and Goodwill:
 Income Taxes:
 Revenue Recognition:
 25




---



##### Table of Contents



Customer Sales Returns and Allowances
 Legal Contingencies: Accounting for Contingencies
 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
  26




---



##### Table of Contents



Cost of Sales
  Gross Profit
  Selling, General and Administrative Expenses
   Research & Development
  Interest & Other Income
  27




---



##### Table of Contents



Income Before Income Taxes
  Provision for Income Tax Expense
  Net Income
  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
  28




---



##### Table of Contents



Cost of Sales
  Gross Profit
  Selling, General and Administrative Expenses
     Research & Development
  Interest & Other Income
  29




---



##### Table of Contents



Interest Expense
  Income Before Income Taxes
  Provision for Income Tax Expense
  Net Income
  Results Of Operations For The Year Ended December 31, 2005 Compared To The Year Ended December 31,
2004
  Years Ended December 31,2005
    
    
    2004Net sales
    
    $
    90,460
    
    
    
    100
    %
    
    $
    60,231
    
    
    
    100
    %Cost of sales
    
    
    28,201
    
    
    
    31
    
    
    
    18,405
    
    
    
    31Gross profit
    
    
    62,259
    
    
    
    69
    
    
    
    41,826
    
    
    
    69Selling, general and administrative
    
    
    54,196
    
    
    
    60
    
    
    
    31,862
    
    
    
    53Research & development
    
    
    4,069
    
    
    
    5
    
    
    
    1,887
    
    
    
    3Income from operations
    
    
    3,994
    
    
    
    4
    
    
    
    8,077
    
    
    
    13Interest and other income
    
    
    417
    
    
    
    
    
    
    
    370
    
    
    
    1Interest expense
    
    
    
    
    
    
    
    
    
    
    40
    
    
    
    Income before income taxes
    
    
    4,411
    
    
    
    4
    
    
    
    8,407
    
    
    
    14Provision for income taxes
    
    
    1,333
    
    
    
    1
    
    
    
    3,450
    
    
    
    6Net income
    
    $
    3,078
    
    
    
    3
    %
    
    $
    4,957
    
    
    
    8
    %
 Net Sales
  30




---



##### Table of Contents



Cost of Sales
  Gross Profit
  Selling, General and Administrative Expenses
   Research and Development
  Interest & Other Income
  Interest Expense
  31




---



##### Table of Contents



Income Before Income Taxes
  Provision for Income Tax Expense
  Net Income
  Liquidity and Capital Resources
     32




---



##### Table of Contents



Contractual Obligations
  Contractual Cash Obligations(In thousands of dollars)Payments due by Period as of March 31, 2007Less 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
    
    
    596
    
    
    
    209
    
    
    
    315
    
    
    
    72
    
    
    
    0Purchase Obligations
    
    
    2,140
    
    
    
    2,140
    
    
    
    0
    
    
    
    0
    
    
    
    0Other Long-Term Liabilities
Reflected on the Companys
Balance Sheet under GAAP
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    2,736
    
    
    $
    2,349
    
    
    $
    315
    
    
    $
    72
    
    
    $
    0
 Recently Issued Accounting Standards
 Share-Based Payment Accounting for
Stock-Based Compensation, Accounting for Stock Issued to
Employees.
 33




---



##### Table of Contents



Accounting for Uncertainty in Income
Taxes Accounting for Income Taxes.
 Fair Value Measurements ,
   34




---



##### Table of Contents



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 2008;
    
    our expectation of introducing new products during the 2007/2008 cold season;
    
    our belief that growth in sales of the Cough and multi-symptom products will occur;
    
    our belief that new advertising approaches and public relations efforts will continue to
build brand awareness;
    
    our anticipation that we will continue to incur approximately $1.0 to $1.5 million 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 liability resulting from these or other lawsuits,
including any adverse publicity, could materially impact our financial results;
    
    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 expectation of the effect of recently issued accounting standards;
    
    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 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 advertising, research and development, and legal
expenses;
    
    our expectation that research and development spending will be 4% to 5% of annual net sales
in subsequent years;
 
 35




---



##### Table of Contents




    
    our expectation regarding dividends and retained earnings;
    
    our expectation of utilizing our tax loss carryforward;
    
    our expectation regarding the renewal of our credit facility;
    
    our expectations regarding recently issued accounting standards;
    
    our expectation regarding investments in equipment;
    
    our expectation of recognizing additional charges related to stock options;
    
    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;
    
    our having no plans to directly manufacture and store our products;
    
    our expectation that our manufacturers will have produced inventory available for sales of
products through the 2007/2008 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.
   36




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 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
    37




---



##### Table of Contents



b) Managements Transition Period 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.
   
    
    we did not adequately adhere to the designed procedures to review the calculation for
weighted average shares outstanding. This weakness was corrected prior to the finalization
of our consolidated March 31, 2007 transition period financial statements and prior to any
public disclosure of results.
  38




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal ControlIntegrated Framework
     Internal ControlIntegrated
Framework Internal
ControlIntegrated Framework
      
 39




---



##### 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
  40




---



##### 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
    
    
    653,901
    
    
    $
    12.47
    
    
    
    329,285Equity compensation
plans not approved
by security holders
    
    
    
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    653,901
    
    
    $
    12.47
    
    
    
    329,285
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  41




---



##### 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
    
    
    43Consolidated Balance Sheets as of March 31, 2007, December 31, 2006 and 2005
    
    
    44Consolidated Statements of Income for the three months ended March 31, 2007
and 2006 (Unaudited), and the years ended December 31, 2006, 2005, and 2004
    
    
    45Consolidated Statements of Changes in Stockholders Equity for the three
months ended March 31, 2007 and 2006 (Unaudited), and the years ended December 31,
2006, 2005, and 2004
    
    
    46Consolidated Statements of Cash Flows for the three months ended March 31,
2007 and 2006 (Unaudited), and the years ended December 31, 2006, 2005,
2004
    
    
    49Notes to Consolidated Financial Statements
    
    
    50
 42




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Internal ControlIntegrated Framework
 /s/ Mayer Hoffman McCann, P.C.
  Phoenix, Arizona  May 30, 2007
 43




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 MARCH 31, 2007, DECEMBER 31, 2006 AND DECEMBER 31, 2005
 2007
    
    2006
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    16,944,189
    
    $
    13,947,622
    
    $
    12,266,671Accounts receivable:Trade, net of allowance for doubtful accounts of $429,031, $410,696 and $642,915
    
    8,256,929
    
    23,569,252
    
    28,719,382Other receivable
    
    
    
    304,775
    
    1,234,886Insurance receivable
    
    2,200,000
    
    1,402,967
    
    4,800,000Inventories
    
    15,458,928
    
    16,785,344
    
    8,803,135Prepaid expenses
    
    584,771
    
    754,303
    
    837,877Interest receivable
    
    84,191
    
    46,254
    
    124,533Income tax receivable
    
    1,370,277
    
    1,370,277
    
    Deferred tax asset
    
    3,361,605
    
    3,831,188
    
    5,488,704Total Current Assets
    
    48,260,890
    
    62,011,982
    
    62,275,188Property and Equipment, at cost:Office furniture and computer equipment
    
    1,356,931
    
    1,304,627
    
    1,209,233Machine tooling and manufacturing equipment
    
    5,225,020
    
    5,203,526
    
    616,645Laboratory furniture and equipment
    
    339,343
    
    134,889
    
    39,194Leasehold improvements
    
    350,576
    
    318,078
    
    178,7577,271,870
    
    6,961,120
    
    2,043,829Less accumulated depreciation
    
    
    (1,925,598
    )
    
    
    (1,434,078
    )
    
    
    (803,479
    )Net Property and Equipment
    
    5,346,272
    
    5,527,042
    
    1,240,350Other Assets:Deposits
    
    221,963
    
    205,463
    
    1,008,309Other assets
    
    82,770
    
    82,770
    
    57,963Restricted cash
    
    500,000
    
    500,000
    
    5,000,000Debt issuance costs, net of accumulated amortization of $48,061, $40,229 and 29,166
    
    7,171
    
    15,003
    
    46,262Patents, net of accumulated amortization of $446,002, $413,488 and $283,487
    
    1,692,115
    
    1,724,629
    
    1,774,235Goodwill
    
    15,039,836
    
    15,039,836
    
    15,039,836Total Other Assets
    
    17,543,855
    
    17,567,701
    
    22,926,605Total Assets
    
    $
    71,151,017
    
    $
    85,106,725
    
    $
    86,442,143LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    2,584,553
    
    $
    15,314,105
    
    $
    8,741,651Accrued expenses
    
    3,162,814
    
    5,893,542
    
    7,774,871Sales commissions
    
    372,206
    
    817,435
    
    2,600,467Sales returns and allowances
    
    2,391,290
    
    2,732,120
    
    3,880,552Legal liability
    
    1,045,000
    
    1,171,500
    
    13,245,000Accrued taxes
    
    
    
    
    
    882,611Total Current Liabilities
    
    9,555,863
    
    25,928,702
    
    37,125,152Deferred tax liability
    
    1,160,328
    
    1,090,578
    
    1,207,356Total Liabilities
    
    10,716,191
    
    27,019,280
    
    38,332,508Commitments 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, 10,079,317, 9,947,752 and
9,599,529 shares issued
    
    10,079
    
    9,948
    
    9,599Additional paid-in capital
    
    49,122,216
    
    48,484,197
    
    43,433,364Retained earnings
    
    11,698,835
    
    9,989,604
    
    5,062,97660,831,130
    
    58,483,749
    
    48,505,939Less common stock held in treasury, at cost (53,800 shares)
    
    
    (396,304
    )
    
    
    (396,304
    )
    
    
    (396,304
    )Total Stockholders Equity
    
    60,434,826
    
    58,087,445
    
    48,109,635Total Liabilities and Stockholders Equity
    
    $
    71,151,017
    
    $
    85,106,725
    
    $
    86,442,143




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF INCOME
 FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED),
 AND THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 Three months ended March 31,
    
    Years ended December 31,(Unaudited)2007
    
    2006
    
    2006
    
    2005
    
    2004Net sales
    
    $
    19,045,754
    
    
    $
    17,675,959
    
    
    $
    96,230,780
    
    
    $
    90,460,595
    
    
    $
    60,230,935Cost of sales
    
    
    7,047,655
    
    
    
    5,865,211
    
    
    
    32,445,499
    
    
    
    28,201,154
    
    
    
    18,404,822Gross Profit
    
    
    11,998,099
    
    
    
    11,810,748
    
    
    
    63,785,281
    
    
    
    62,259,441
    
    
    
    41,826,113Selling, general and administrative expenses
    
    
    8,730,650
    
    
    
    10,692,507
    
    
    
    51,946,219
    
    
    
    54,196,370
    
    
    
    31,861,745Research and development
    
    
    1,137,671
    
    
    
    1,126,846
    
    
    
    4,684,837
    
    
    
    4,069,367
    
    
    
    1,886,906Income From Operations
    
    
    2,129,778
    
    
    
    (8,605
    )
    
    
    7,154,225
    
    
    
    3,993,704
    
    
    
    8,077,462Other Income (Expense):Interest and other income
    
    
    203,374
    
    
    
    173,911
    
    
    
    501,845
    
    
    
    417,724
    
    
    
    369,412Interest expense
    
    
    
    
    
    
    
    
    
    
    (116,639
    )
    
    
    
    
    
    
    (39,778
    )Total Other Income
    
    
    203,374
    
    
    
    173,911
    
    
    
    385,206
    
    
    
    417,724
    
    
    
    329,634Income Before Provision For Income Taxes
    
    
    2,333,152
    
    
    
    165,306
    
    
    
    7,539,431
    
    
    
    4,411,428
    
    
    
    8,407,096Provision for income taxes
    
    
    623,921
    
    
    
    68,546
    
    
    
    2,612,803
    
    
    
    1,332,936
    
    
    
    3,449,625Net Income
    
    $
    1,709,231
    
    
    $
    96,760
    
    
    $
    4,926,628
    
    
    $
    3,078,492
    
    
    $
    4,957,471Net Income Per Share of Common Stock:Basic:Weighted Average Number of Common Shares
Outstanding
    
    
    9,749,162
    
    
    
    9,565,963
    
    
    
    9,620,362
    
    
    
    9,486,288
    
    
    
    9,494,210Net Income Per Share of Common Stock
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.51
    
    
    $
    0.32
    
    
    $
    0.52Diluted:Weighted Average Number of Common Shares
Outstanding
    
    
    10,031,008
    
    
    
    10,027,666
    
    
    
    9,965,786
    
    
    
    9,769,922
    
    
    
    9,580,765Net Income Per Share of Common Stock
    
    $
    0.17
    
    
    $
    0.01
    
    
    $
    0.49
    
    
    $
    0.32
    
    
    $
    0.52




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 Series A
    
    
    
    
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid In
    
    
    Treasury
    
    
    Retained
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
     Amount
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    EquityBalance at December 31, 2003
    
    
    
    
    
    $
    
    
    
    
    9,474,601
    
    
    $
    9,475
    
    
    $
    41,993,189
    
    
    $
    (239,223
    )
    
    $
    (2,972,987
    )
    
    $
    38,790,454Issuance of common stock upon exercise of stock options
    
    
    
    
    
    
    
    
    
    
    47,334
    
    
    
    47
    
    
    
    503,892
    
    
    
    
    
    
    
    
    
    
    
    503,939Repurchase shares of the Companys common stock (17,900 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157,081
    )
    
    
    
    
    
    
    (157,081
    )Forfeiture of restricted stock pursuant to the Companys
restricted stock bonus program
    
    
    
    
    
    
    
    
    
    
    (1,737
    )
    
    
    (2
    )
    
    
    (23,349
    )
    
    
    
    
    
    
    
    
    
    
    (23,351
    )Income tax benefit from the exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,130
    
    
    
    
    
    
    
    
    
    
    
    54,130Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,957,471
    
    
    
    4,957,471Balance 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




---



##### 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




---



##### Table of Contents



MATRIXX
INITIATIVES, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (UNAUDITED),
AND THE YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
 Three months ended March 31,
    
    Years ended December 31,(Unaudited)2007
    
    2006
    
    2006
    
    2005
    
    2004Cash Flows From Operating ActivitiesNet income
    
    $
    1,709,231
    
    
    $
    96,760
    
    
    $
    4,926,628
    
    
    $
    3,078,492
    
    
    $
    4,957,471Adjustments to reconcile net income to net cash provided
(used) by operating activities:Depreciation
    
    
    491,520
    
    
    
    138,429
    
    
    
    630,599
    
    
    
    345,761
    
    
    
    209,990Amortization
    
    
    40,346
    
    
    
    48,448
    
    
    
    170,691
    
    
    
    83,415
    
    
    
    60,831Provision for bad debts
    
    
    18,335
    
    
    
    (277,443
    )
    
    
    (232,219
    )
    
    
    87,675
    
    
    
    (46,117
    )Deferred income taxes
    
    
    539,333
    
    
    
    (9,348
    )
    
    
    1,540,738
    
    
    
    (88,142
    )
    
    
    3,122,634Common stock issued for compensation
    
    
    386,333
    
    
    
    978,938
    
    
    
    2,571,266
    
    
    
    641,108
    
    
    
    (23,351
    )Changes in assets and liabilities:Accounts receivable
    
    
    15,598,763
    
    
    
    20,667,204
    
    
    
    6,312,460
    
    
    
    (17,655,917
    )
    
    
    (868,398
    )Insurance receivable
    
    
    (797,033
    )
    
    
    
    
    
    
    3,397,033
    
    
    
    (4,800,000
    )
    
    
    Interest receivable
    
    
    (37,937
    )
    
    
    (43,401
    )
    
    
    78,279
    
    
    
    (66,875
    )
    
    
    (57,658
    )Income tax receivable
    
    
    
    
    
    
    
    
    
    
    (1,370,277
    )
    
    
    
    
    
    
    Inventories
    
    
    1,326,416
    
    
    
    (2,723,980
    )
    
    
    (7,982,209
    )
    
    
    (1,561,701
    )
    
    
    (3,973,830
    )Prepaid expenses and other
    
    
    169,532
    
    
    
    81,644
    
    
    
    58,767
    
    
    
    (8,254
    )
    
    
    (271,796
    )Accounts payable
    
    
    (12,729,552
    )
    
    
    (4,303,561
    )
    
    
    6,572,454
    
    
    
    4,042,335
    
    
    
    (1,127,532
    )Accrued expenses
    
    
    (3,175,957
    )
    
    
    (3,459,475
    )
    
    
    (4,546,972
    )
    
    
    3,471,133
    
    
    
    4,061,446Legal liability
    
    
    (126,500
    )
    
    
    (12,000,000
    )
    
    
    (12,073,500
    )
    
    
    13,245,000
    
    
    
    Sales returns and allowances
    
    
    (340,830
    )
    
    
    (1,206,721
    )
    
    
    (1,148,432
    )
    
    
    1,275,292
    
    
    
    870,692Net Cash Provided (Used) By Operating Activities
    
    
    3,072,000
    
    
    
    (2,012,506
    )
    
    
    (1,094,694
    )
    
    
    2,089,322
    
    
    
    6,914,382Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (310,750
    )
    
    
    (67,193
    )
    
    
    (4,997,736
    )
    
    
    (1,867,296
    )
    
    
    (241,875
    )Deposits and other
    
    
    (16,500
    )
    
    
    (38,974
    )
    
    
    802,846
    
    
    
    (788,119
    )
    
    
    (7,493
    )Restricted cash
    
    
    
    
    
    
    
    
    
    
    4,500,000
    
    
    
    
    
    
    
    (5,000,000
    )Net Cash Provided (Used) By Investing Activities
    
    
    (327,250
    )
    
    
    (106,167
    )
    
    
    305,110
    
    
    
    (2,655,415
    )
    
    
    (5,249,368
    )Cash Flows From Financing Activities:Proceeds from borrowing
    
    
    
    
    
    
    
    
    
    
    4,000,000
    
    
    
    
    
    
    
    2,000,000Principal payments on notes payable
    
    
    
    
    
    
    
    
    
    
    (4,000,000
    )
    
    
    
    
    
    
    (2,000,000
    )Debt issuance costs
    
    
    
    
    
    
    (2,939
    )
    
    
    (9,381
    )
    
    
    (45,851
    )
    
    
    Issuance of common stock
    
    
    251,817
    
    
    
    1,256,382
    
    
    
    2,479,916
    
    
    
    184,129
    
    
    
    503,939Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (157,081
    )Net Cash Provided By Financing Activities
    
    
    251,817
    
    
    
    1,253,443
    
    
    
    2,470,535
    
    
    
    138,278
    
    
    
    346,858Net Increase (Decrease) in Cash and Cash
Equivalents
    
    
    2,996,567
    
    
    
    (856,230
    )
    
    
    1,680,951
    
    
    
    (427,815
    )
    
    
    2,011,872Cash and Cash Equivalents at Beginning of Period
    
    
    13,947,622
    
    
    
    12,266,671
    
    
    
    12,266,671
    
    
    
    12,694,486
    
    
    
    10,682,614Cash and Cash Equivalents at End of Period
    
    $
    16,944,189
    
    
    $
    11,401,441
    
    
    $
    13,947,622
    
    
    
    12,266,671
    
    
    $
    12,694,486Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    
    
    
    $
    
    
    
    $
    115,222
    
    
    $
    
    
    
    $
    39,778Income taxes
    
    
    
    
    
    
    860,790
    
    
    
    2,021,243
    
    
    
    814,164
    
    
    
    356,739




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization and Summary of Significant Accounting Policies
 Organization
   Principles of Consolidation
  Cash and Cash Equivalents
  Accounts Receivable and Allowance for Doubtful Accounts
  Inventories
  50




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Marketable Securities
  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
    
    2-3
  Long-Lived Assets
   Intangible Assets
    51




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Revenue Recognition
  Stock-Based Compensation
  , .
   52




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 2005
    
    
    2004Net income applicable to common shareholders, as reported
    
    $
    3,078,492
    
    
    $
    4,957,471Add 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
    
    
    1,546,183
    
    
    
    1,475,313Proforma Net Income
    
    $
    1,532,309
    
    
    $
    3,482,158Net income per share of common stock:Basic:As reported
    
    $
    0.32
    
    
    $
    0.52Pro forma
    
    $
    0.16
    
    
    $
    0.37DilutedAs reported
    
    $
    0.32
    
    
    $
    0.52Pro forma
    
    $
    0.16
    
    
    $
    0.36
  2005
    
    
    2004Risk-free interest rate
    
    
    3.66
    %
    
    
    3.26
    %Expected life
    
    5.00 years
    
    4.95 yearsExpected volatility
    
    
    61.40
    %
    
    
    66.44
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
 Comprehensive Income
  Shipping and Handling Costs
  Income Taxes
  Research and Development
  Advertising
  53




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Net Income Per Share of Common Stock
   Three Months Ended March 31,
    
    
    Years Ended December 31,2007
    
    
    2006
    
    
    2006
    
    
    2005
    
    
    2004Net income applicable
to common shareholders
    
    $
    1,709,231
    
    
    $
    96,760
    
    
    $
    4,926,628
    
    
    $
    3,078,492
    
    
    $
    4,957,471Weighted average common
shares outstanding  Basic
    
    
    9,749,162
    
    
    
    9,565,963
    
    
    
    9,620,362
    
    
    
    9,486,288
    
    
    
    9,494,210Dilutive securities
    
    
    281,846
    
    
    
    461,703
    
    
    
    345,424
    
    
    
    283,634
    
    
    
    86,555Weighted average common
shares outstanding 
Diluted
    
    
    10,031,008
    
    
    
    10,027,666
    
    
    
    9,965,786
    
    
    
    9,769,922
    
    
    
    9,580,765Net Income per common share:Basic
    
    $
    0.18
    
    
    $
    .01
    
    
    $
    0.51
    
    
    $
    0.32
    
    
    $
    0.52Diluted
    
    $
    0.17
    
    
    $
    .01
    
    
    $
    0.49
    
    
    $
    0.32
    
    
    $
    0.52
 Estimates
  Recently Issued Accounting Standards
 .
 ,
  54




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  2. Inventories
  March 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Raw materials and packaging
    
    $
    4,391,903
    
    
    $
    5,209,623
    
    
    $
    3,520,013Finished goods
    
    
    11,067,025
    
    
    
    11,575,721
    
    
    
    5,283,122Total
    
    $
    15,458,928
    
    
    $
    16,785,344
    
    
    $
    8,803,135
 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, 2004
    
    $
    1,734,568
    
    
    $
    8,134,044
    
    
    $
    7,263,352
    
    
    $
    2,605,260December 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
    
    
    
    2,391,290AdditionsBalance at
    
    Charged to
    
    
    
    
    
    Balance atBeginning of
    
    Costs and
    
    
    
    
    
    End ofDescription
    
    Period
    
    Expenses
    
    Deductions
    
    PeriodAllowance for Doubtful AccountsDecember 31, 2004
    
    $
    601,357
    
    
    $
    87,934
    
    
    $
    134,051
    
    
    $
    555,240December 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
    
    
    
    429,031
 55




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 5. Income Taxes
  Three Months Ended March 31,
    
    
    Years Ended December 31,2007
    
    
    2006
    
    
    2006
    
    
    2005
    
    
    2004Current:Federal
    
    $
    66,041
    
    
    $
    60,281
    
    
    $
    881,511
    
    
    $
    1,107,248
    
    
    $
    204,834State
    
    
    18,548
    
    
    
    8,265
    
    
    
    190,554
    
    
    
    394,137
    
    
    
    124,157Total
    
    
    84,589
    
    
    
    68,546
    
    
    
    1,072,065
    
    
    
    1,501,385
    
    
    
    326,991Deferred:Federal
    
    
    504,901
    
    
    
    
    
    
    
    1,137,312
    
    
    
    131,506
    
    
    
    2,779,584State
    
    
    34,431
    
    
    
    
    
    
    
    403,426
    
    
    
    36,943
    
    
    
    343,050Total
    
    
    539,332
    
    
    
    
    
    
    
    1,540,738
    
    
    
    168,449
    
    
    
    3,122,634Total
Provision For
Income Taxes
    
    $
    623,921
    
    
    $
    68,546
    
    
    $
    2,612,803
    
    
    $
    1,332,936
    
    
    $
    3,449,625
  Three Months Ended March 31,
    
    Years Ended December 31.2007
    
    2006
    
    2006
    
    2005
    
    2004Federal statutory rate
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %
    
    
    34
    %State income taxes, net of federal benefits
    
    
    5
    
    
    
    5
    %
    
    
    5
    
    
    
    5
    
    
    
    5Current period tax credits
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (11
    )
    
    
    Charitable contributions
    
    
    (12
    )
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    2Net operating loss carryover
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    27
    %
    
    
    41
    %
    
    
    34
    %
    
    
    30
    %
    
    
    41
    %
  2007
    
    
    2006
    
    
    2005Current deferred tax assetsNet operating loss carryforwards
    
    $
    555,600
    
    
    $
    1,611,100
    
    
    
    Reserves and accrued expenses
    
    
    1,165,000
    
    
    
    1,409,300
    
    
    
    1,779,400Charitable contributions carryforward
    
    
    1,047,300
    
    
    
    463,000
    
    
    
    Accrued legal liabilities
    
    
    402,300
    
    
    
    451,000
    
    
    
    5,099,300Reserve for bad debts
    
    
    165,200
    
    
    
    158,100
    
    
    
    247,500Research and development credit
    
    
    140,000
    
    
    
    140,000
    
    
    
    Inventory valuation reserve
    
    
    733,205
    
    
    
    138,788
    
    
    
    210,504Total current deferred tax assets
    
    
    4,208,605
    
    
    
    4,371,288
    
    
    
    7,336,704Current deferred tax liabilitiesAccrued receivable
    
    
    (847,000
    )
    
    
    (540,100
    )
    
    
    (1,848,000
    )Net current deferred tax assets
    
    $
    3,361,605
    
    
    $
    3,831,188
    
    
    $
    5,488,704Non-current deferred tax assetsRestricted stock compensation
    
    
    980,200
    
    
    
    954,300
    
    
    
    460,644Other
    
    
    18,062
    
    
    
    16,322
    
    
    
    Total non-current deferred tax assets
    
    
    998,262
    
    
    
    970,622
    
    
    
    460,644Non-current deferred tax liabilitiesAmortization of intangible assets
    
    
    (2,058,900
    )
    
    
    (1,979,700
    )
    
    
    (1,590,900
    )Depreciation
    
    
    (99,690
    )
    
    
    (81,500
    )
    
    
    (77,100
    )Total non-current deferred tax liabilities
    
    
    (2,158,590
    )
    
    
    (2,061,200
    )
    
    
    (1,668,000
    )Net non-current deferred tax liabilities
    
    
    (1,160,328
    )
    
    
    (1,090,578
    )
    
    
    (1,207,356
    )
 56




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     6. Preferred Stock
  7. Stockholders Equity
 Stock Repurchase Plan
  Shareholder Rights Plan
  57




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Directors Restricted Stock Purchase Program
  8. Stock Options and Warrants
 2001 Long-Term Incentive Plan
   Weighted-
    
    Weighted-AverageAverage
    
    Remaining Contractual
    
    Aggregate IntrinsicOptions
    
    Shares
    
    Exercise Price
    
    Term
    
    ValueOptions outstanding at December
31, 2006
    
    
    696,235
    
    
    $
    12.25GrantedExercised
    
    
    (27,333
    )
    
    
    9.21Cancelled
    
    
    (15,001
    )
    
    
    8.13Options outstanding at March 31, 2007
    
    
    653,901
    
    
    $
    12.47
    
    
    3.78 years
    
    $
    2,857,283Exercisable at March 31, 2007
    
    
    622,233
    
    
    $
    12.69
    
    
    3.75 years
    
    $
    2,600,139
 58




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Weighted-Average Grant-Shares
    
    Date Fair ValueNonvested at December 31, 2006
    
    
    167,868
    
    
    $
    18.05Granted
    
    
    143,960
    
    
    
    16.51Vested
    
    
    (11,480
    )
    
    
    17.90Forfeited
    
    
    (39,728
    )
    
    
    21.49Nonvested at March 31, 2007
    
    
    260,620
    
    
    $
    16.68
    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
    
    
    241,901
    
    
    
    3.13
    
    
    $
    8.29
    
    
    
    210,233
    
    
    $
    8.31$10.00  $13.00
    
    
    180,000
    
    
    
    4.64
    
    
    $
    11.07
    
    
    
    180,000
    
    
    $
    11.07$17.00  $19.00
    
    
    232,000
    
    
    
    3.79
    
    
    $
    17.92
    
    
    
    232,000
    
    
    $
    17.92
 Compensation Expense
 , .
 59




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Financing Warrants
  9. Commitments and Contingencies
 Leases
  Year EndingMarch 31,
    
    Leases2008
    
    $
    208,8712009
    
    
    107,8682010
    
    
    102,9972011
    
    
    104,8352012
    
    
    71,520Total Minimum Lease Payments
    
    $
    596,091
  Officer Indemnification
  60




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Litigation
   Product Liability
     Litigation Reserves
  61




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Securities Litigation Matters
  10. Employee Benefit Plan
  11. Concentration of Credit Risk and Major Customers
   62




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    3 months ended
    
    3 months ended
    
    Year ended
    
    Year ended
    
    Year endedMarch 31, 2007
    
    March 31, 2006
    
    December 31, 2006
    
    December 31, 2005
    
    December 31, 2004Wal-Mart
    
    
    12.1
    %
    
    
    29.9
    %
    
    
    26.3
    %
    
    
    20.5
    %
    
    
    20.3
    %Walgreens
    
    
    *
    
    
    
    *
    
    
    
    12.6
    %
    
    
    14.6
    %
    
    
    12.9
    %CVS
    
    
    11.9
    %
    
    
    *
    
    
    
    12.3
    %
    
    
    *
    
    
    
    11.7
    %
 
 *
    
    Less than 10% 12. Fair Value of Financial Instruments
  March 31, 2007
    
    December 31, 2006
    
    December 31, 2005Carrying
    
    Estimated
    
    Carrying
    
    Estimated
    
    Carrying
    
    EstimatedAmount
    
    Fair Value
    
    Amount
    
    Fair Value
    
    Amount
    
    Fair ValueFiancial AssetsCash and cash equivalents
    
    $
    16,944,189
    
    
    $
    16,944,189
    
    
    $
    13,947,622
    
    
    $
    13,947,622
    
    
    $
    12,266,671
    
    
    $
    12,266,671Restricted cash
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    500,000
    
    
    $
    5,000,000
    
    
    $
    5,000,000Financial LiabilitiesLong-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  13. Selected Quarterly Financial Data (Unaudited)
  Fiscal Year 2006 Quarters1st
    
    2nd
    
    3rd
    
    4thNet 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
    )
 63




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Fiscal Year 2005 Quarters1st
    
    2nd
    
    3rd
    
    4thNet sales
    
    $
    14,981,590
    
    
    $
    6,254,669
    
    
    $
    25,202,624
    
    
    $
    44,021,712Gross profit
    
    
    10,744,156
    
    
    
    4,569,849
    
    
    
    17,049,046
    
    
    
    29,896,390Net income (loss) from operations
    
    
    1,421,081
    
    
    
    (925,243
    )
    
    
    9,257,141
    
    
    
    (5,759,275
    )Net income (loss) per basic share
    
    
    0.09
    
    
    
    (0.05
    )
    
    
    0.59
    
    
    
    (0.31
    )Net income (loss) per diluted share
    
    
    0.09
    
    
    
    (0.05
    )
    
    
    0.58
    
    
    
    (0.31
    )Net income (loss)
    
    
    895,558
    
    
    
    (504,643
    )
    
    
    5,639,915
    
    
    
    (2,952,338
    )
 64




---



##### 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 (12)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
    
    *Matrixx Initiatives, Inc. 2001 Long-Term Incentive Plan Grant of Incentive Stock Option (8)10.2.2
    
    *Matrixx Initiatives, Inc. 2001 Long-Term Incentive Plan Restricted Stock Program Agreement (8)10.2.3
    
    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 (14)10.2.4
    
    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 (14)10.3
    
    *Summary of Matrixx Initiatives, Inc. Director Restricted Stock Purchase Program (3)10.4
    
    *Summary of Revised Director Compensation Structure for Non-Employee Directors10.5
    
    Manufacturing Agreement with BioZone Laboratories (7)10.6
    
    Manufacturing Agreement with Applied Laboratories, Inc. (9)10.7
    
    Amended and Restated Credit Agreement dated September 27, 2005 among the Registrant, Zicam,
LLC and Comerica Bank (10)10.7.1
    
    Amended and Restated Secured Promissory Note dated September 27, 2005 among the Registrant,
Zicam, LLC and Comerica Bank (10)10.7.2
    
    Amended and Restated Security Agreement dated September 27, 2005 among the Registrant, Zicam,
LLC and Comerica Bank (10)10.7.3
    
    Security Agreement and Collateral Assignment of Limited Liability Company Interests among Registrant and Comerica Bank (10)10.7.4
    
    Amended and Restated Intellectual Property Security Agreement among Registrant and Comerica Bank (10)10.7.5
    
    Amended and Restated Intellectual Property Security Agreement dated September 27, 2005 among Zicam, LLC and Comerica Bank (10)
 65




---



##### Table of Contents



Exhibit No.
    
    Title10.8
    
    Form of Change of Control Agreement between Registrant and Registrants Executive Officers (16)10.9
    
    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 (11)10.10
    
    Settlement Agreement dated January 19, 2006 among the Registrant and the various plaintiffs in the consolidated products liability litigation (13)10.11
    
    Amended and Restated Employment Agreement dated October 18, 2006 among Registrant and Carl J. Johnson (14)10.12
    
    Insurance Agreement dated October 18, 2006 between the Registrant and William J. Hemelt (14)21
    
    Subsidiaries of the Registrant (6)23.1
    
    **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 135099.1
    
    Court order barring opposing party expert testimony for a lack of reliability and scientific
basis in Hans, et al. vs. Matrixx Initiatives, Inc., et al., filed September 13, 2004 in
United States District Court for the Western District of Kentucky (15)99.2
    
    Court order barring opposing party expert testimony for a lack of reliability and scientific
basis in Sutherland vs. Matrixx Initiatives, Inc., et al., filed December 18, 2003 in United
States District Court for the Northern District of Alabama, Middle Division (15)99.3
    
    Court order barring opposing party expert testimony for a lack of reliability and scientific
basis in Benkwith et al. vs. Matrixx Initiatives, Inc., et al., filed May 3, 2004 in United
States District Court for the Northern District of Alabama, Middle Division (15)99.4
    
    Court order barring opposing party expert testimony for a lack of reliability and scientific
basis in OHanlon, et al. vs. Matrixx Initiatives, Inc., et al., filed October 29, 2004 in
United States District Court for the Northern District of Alabama, Middle Division (15)99.5
    
    Press Release Reaffirming Safety of Intranasal Zicam-Cold Remedy Gel (15)
 
 *
    
    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, file No.
000-27646, as filed on June 18, 2002.(2)
    
    Incorporated by reference to the Registrants registration statement on Form 8-A, filed July
23, 2002, file number 000-27646.(3)
    
    Incorporated by reference to the Registrants Report on Form 10-Q for the quarter ended June
30, 2006, file number 001-31404. 66




---



##### Table of Contents



(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 10-K for the fiscal year ended
December 31, 2003, file number 001-31404.(7)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed October 28, 2004, file
number 001-31404.(8)
    
    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 10-Q for the quarter ended
September 9, 2004 file number 001-31404.(10)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed November 7, 2005, file
number 001-31404.(11)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed November 3, 2005, file
number 001-31404.(12)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed July 25, 2006.(13)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed January 19, 2006, file
number 001-31404.(14)
    
    Incorporated by reference to the Registrants Report on Form 10-Q for the period ended
September 30, 2006, file number 001-31404.(15)
    
    Incorporated by reference to the Registrants Report on Form 8-K filed January 26, 2007, file
number 001-31404.(16)
    
    Incorporated by reference to the Registrants Report on Form 10-K for the period ended
December 31, 2005, file number 001-31404. 
 67




---



##### 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

Edward E. Faber
    
    Chairman of the Board of Directors
    
    May 30 , 2007/s/ Carl J. Johnson

Carl J. Johnson
    
    President, Chief Executive Officer and
Director
    
    May 30, 2007/s/ William C. Egan

William C. Egan
    
    Director
    
    May 30, 2007/s/ L. White Matthews, III

L. White Matthews, III
    
    Director
    
    May 30, 2007/s/ Michael A. Zeher

Michael A. Zeher
    
    Director
    
    May 30, 2007/s/ Samuel C. Cowley

Samuel C. Cowley
    
    Director
    
    May 30, 2007/s/ John M. Clayton

John M. Clayton
    
    Director
    
    May 30, 2007/s/ Lori Bush

Lori Bush
    
    Director
    
    May 30, 2007/s/ William J. Hemelt

William J. Hemelt
    
    Executive Vice President, Chief Financial
Officer (Principal Financial Officer &
Principal Accounting Officer), and
Treasurer
    
    May 30, 2007
 68




---



##### Table of Contents



Exhibit Index
 Exhibit No.
    
    Title23.1
    
    **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. 
 69