##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarter ended September 30, 2008
or
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to
 Commission File number 001-31404
 Matrixx Initiatives, Inc.
  Delaware
    
    87-0482806(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)
 8515 E. Anderson Drive
Scottsdale, AZ 85255
 (602) 385-8888
 þ o
  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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##### 



MATRIXX INITIATIVES, INC.
FORM 10-Q
INDEX
 PagePART I FINANCIAL INFORMATIONItem 1. Condensed Consolidated Balance Sheets as of
September 30, 2008 (Unaudited) and March 31, 2008
    
    
    1Condensed Consolidated Statements of
Income for the three months ended
September 30, 2008 and 2007 (Unaudited)
    
    
    2Condensed Consolidated Statements of
Income for the six months ended
September 30, 2008 and 2007 (Unaudited)
    
    
    3Condensed Consolidated Statements of
Cash Flows for the six months ended
September 30, 2008 and 2007 (Unaudited)
    
    
    4Notes to Condensed Consolidated
Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    10Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    22Item 4. Controls and Procedures
    
    
    22PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Securities and Use of Proceeds
    
    
    23Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    25SIGNATURES
    
    
    26EX-10.1EX-10.2EX-10.3EX-10.4EX-31.1EX-32.1
  2




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
  CONDENSED CONSOLIDATED BALANCE SHEETS
  September 30,
    
    March 31,2008
    
    2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    19,723,565
    
    
    $
    27,932,672Accounts receivable:Trade, net of allowance for doubtful accounts of $215,853 and $209,377
    
    
    29,971,259
    
    
    
    12,051,847Other receivable
    
    
    
    
    
    
    39,363Insurance receivable
    
    
    90,000
    
    
    
    75,000Inventories
    
    
    12,210,283
    
    
    
    11,530,060Prepaid expenses
    
    
    3,722,004
    
    
    
    1,743,521Interest receivable
    
    
    18,638
    
    
    
    73,904Deferred tax asset
    
    
    2,049,893
    
    
    
    1,739,490Total Current Assets
    
    
    67,785,642
    
    
    
    55,185,857Property and Equipment, at cost:Office furniture and computer equipment
    
    
    1,684,459
    
    
    
    1,560,403Machine tooling and manufacturing equipment
    
    
    4,851,916
    
    
    
    5,330,728Laboratory furniture and equipment
    
    
    464,405
    
    
    
    437,267Leasehold improvements
    
    
    544,211
    
    
    
    514,6747,544,991
    
    
    
    7,843,072Less accumulated depreciation
    
    
    (2,836,279
    )
    
    
    (2,753,222
    )Net Property and Equipment
    
    
    4,708,712
    
    
    
    5,089,850Other Assets:Deposits
    
    
    366,513
    
    
    
    379,205Other assets
    
    
    110,034
    
    
    
    110,034Restricted cash
    
    
    
    
    
    
    500,000Debt issuance costs, net of accumulated amortization of $8,997 and $5,398
    
    
    5,398
    
    
    
    8,997Patents, net of accumulated amortization of $654,313 and $582,670
    
    
    1,763,148
    
    
    
    1,834,791Goodwill
    
    
    15,039,836
    
    
    
    15,039,836Total Other Assets
    
    
    17,284,929
    
    
    
    17,872,863Total Assets
    
    $
    89,779,283
    
    
    $
    78,148,570LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    5,067,544
    
    
    $
    1,307,881Accrued expenses
    
    
    5,505,677
    
    
    
    4,433,841Sales commissions
    
    
    627,242
    
    
    
    533,384Sales returns and allowances
    
    
    2,059,932
    
    
    
    1,271,791Legal liability
    
    
    1,065,000
    
    
    
    1,100,000Income taxes
    
    
    3,445,238
    
    
    
    1,927,025Total Current Liabilities
    
    
    17,770,633
    
    
    
    10,573,922Deferred tax liability
    
    
    2,016,793
    
    
    
    2,022,427Total Liabilities
    
    
    19,787,426
    
    
    
    12,596,349Commitments and ContingenciesStockholders Equity:Preferred stock: $.001 par value, 2,000,000 shares authorized, none issued
    
    
    
    
    
    
    Common stock: $.001 par value, 30,000,000 shares authorized, 9,871,165 and
10,175,412 shares issued
    
    
    9,871
    
    
    
    10,175Additional paid-in capital
    
    
    45,900,033
    
    
    
    50,960,220Retained earnings
    
    
    28,102,399
    
    
    
    22,126,37474,012,303
    
    
    
    73,096,769Less common stock held in treasury, at cost (251,004 and 547,769 shares)
    
    
    (4,020,446
    )
    
    
    (7,544,548
    )Total Stockholders Equity
    
    
    69,991,857
    
    
    
    65,552,221Total Liabilities and Stockholders Equity
    
    $
    89,779,283
    
    
    $
    78,148,570




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
  2008
    
    2007Net sales
    
    $
    33,631,906
    
    
    $
    28,575,748Cost of sales
    
    
    10,378,915
    
    
    
    9,576,341Gross Profit
    
    
    23,252,991
    
    
    
    18,999,407Selling, general and administrative expenses
    
    
    8,836,878
    
    
    
    7,832,060Research and development
    
    
    1,143,214
    
    
    
    994,632Income From Operations
    
    
    13,272,899
    
    
    
    10,172,715Interest and other income
    
    
    84,752
    
    
    
    145,673Income Before Provision For Income Taxes
    
    
    13,357,651
    
    
    
    10,318,388Provision for income taxes
    
    
    5,115,769
    
    
    
    3,909,160Net Income
    
    $
    8,241,882
    
    
    $
    6,409,228Net Income Per Share of Common Stock:Basic:Weighted Average Number of Common SharesOutstanding
    
    
    9,287,871
    
    
    
    9,818,349Net Income Per Share of Common Stock
    
    $
    0.89
    
    
    $
    0.65Diluted:Weighted Average Number of Common SharesOutstanding
    
    
    9,582,672
    
    
    
    10,158,593Net Income Per Share of Common Stock
    
    $
    0.86
    
    
    $
    0.63




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
  2008
    
    2007Net sales
    
    $
    42,139,950
    
    
    $
    37,149,176Cost of sales
    
    
    13,573,198
    
    
    
    12,411,695Gross Profit
    
    
    28,566,752
    
    
    
    24,737,481Selling, general and administrative expenses
    
    
    17,299,004
    
    
    
    14,088,275Research and development
    
    
    1,753,509
    
    
    
    2,447,685Income From Operations
    
    
    9,514,239
    
    
    
    8,201,521Interest and other income
    
    
    191,986
    
    
    
    392,248Income Before Provision For Income Taxes
    
    
    9,706,225
    
    
    
    8,593,769Provision for income taxes
    
    
    3,730,200
    
    
    
    3,246,637Net Income
    
    $
    5,976,025
    
    
    $
    5,347,132Net Income Per Share of Common Stock:Basic:Weighted Average Number of Common SharesOutstanding
    
    
    9,326,993
    
    
    
    9,798,380Net Income Per Share of Common Stock
    
    $
    0.64
    
    
    $
    0.55Diluted:Weighted Average Number of Common SharesOutstanding
    
    
    9,599,826
    
    
    
    10,128,064Net Income Per Share of Common Stock
    
    $
    0.62
    
    
    $
    0.53




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
  2008
    
    2007Cash Flows From Operating ActivitiesNet income
    
    $
    5,976,025
    
    
    $
    5,347,132Adjustments to reconcile net income to net cash
used by operating activities:Depreciation
    
    
    586,657
    
    
    
    553,275Amortization
    
    
    75,242
    
    
    
    74,527Deferred income taxes
    
    
    (316,037
    )
    
    
    726,174Common stock issued for compensation
    
    
    1,482,784
    
    
    
    814,216Changes in assets and liabilities:Accounts receivable
    
    
    (17,895,049
    )
    
    
    (15,815,290
    )Insurance receivable
    
    
    
    
    
    
    2,125,000Interest and other receivables
    
    
    55,266
    
    
    
    32,136Income taxes
    
    
    1,518,213
    
    
    
    2,322,395Inventories
    
    
    (680,223
    )
    
    
    (4,788,126
    )Prepaid expenses and other
    
    
    (1,978,483
    )
    
    
    (1,339,139
    )Accounts payable
    
    
    3,759,663
    
    
    
    1,952,201Accrued expenses
    
    
    1,165,694
    
    
    
    1,652,392Legal liability
    
    
    (35,000
    )
    
    
    (54,350
    )Sales returns and allowances
    
    
    788,141
    
    
    
    (712,765
    )Net Cash Used By Operating Activities
    
    
    (5,497,107
    )
    
    
    (7,110,222
    )Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (205,519
    )
    
    
    (174,017
    )Deposits and other
    
    
    12,692
    
    
    
    (164,371
    )Restricted cash
    
    
    500,000
    
    
    
    Net Cash Provided (Used) By Investing Activities
    
    
    307,173
    
    
    
    (338,388
    )Cash Flows From Financing Activities:Debt issuance costs
    
    
    
    
    
    
    (18,651
    )Issuance of common stock
    
    
    1,023,157
    
    
    
    539,144Purchase of treasury stock
    
    
    (4,042,330
    )
    
    
    (238,184
    )Net Cash Provided (Used) By Financing Activities
    
    
    (3,019,173
    )
    
    
    282,309Net Decrease in Cash and Cash Equivalents
    
    
    (8,209,107
    )
    
    
    (7,166,301
    )Cash and Cash Equivalents at Beginning of Period
    
    
    27,932,672
    
    
    
    16,944,189Cash and Cash Equivalents at End of Period
    
    $
    19,723,565
    
    
    $
    9,777,888Supplemental Disclosure of Cash Flow Information:Cash paid for income taxes
    
    $
    2,268,000
    
    
    $
    Supplemental Disclosure of Noncash Financing Activities:Retirement of treasury stock
    
    $
    7,566,432
    
    
    $
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MATRIXX INITIATIVES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     Share-Based Payment
   5




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Earnings Per Share,
  Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income applicable to common shareholders
    
    $
    8,241,882
    
    
    $
    6,409,228
    
    
    $
    5,976,025
    
    
    $
    5,347,132Weighted average common shares outstanding  Basic
    
    
    9,287,871
    
    
    
    9,818,349
    
    
    
    9,326,993
    
    
    
    9,798,380Dilutive Securities:Options
    
    
    138,410
    
    
    
    198,969
    
    
    
    134,560
    
    
    
    194,836Restricted Stock
    
    
    156,391
    
    
    
    141,275
    
    
    
    138,273
    
    
    
    134,848Weighted average common shares outstanding  Diluted
    
    
    9,582,672
    
    
    
    10,158,593
    
    
    
    9,599,826
    
    
    
    10,128,064Net income per common share:Basic
    
    $
    0.89
    
    
    $
    0.65
    
    
    $
    0.64
    
    
    $
    0.55Diluted
    
    $
    0.86
    
    
    $
    0.63
    
    
    $
    0.62
    
    
    $
    0.53
   September 30,
    
    
    March 31,2008
    
    
    2008Raw materials and packaging
    
    $
    3,273,166
    
    
    $
    3,887,906Finished goods
    
    
    8,937,117
    
    
    
    7,642,154Total
    
    $
    12,210,283
    
    
    $
    11,530,060
 6




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  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
 The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles
   7




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Litigation
   Product Liability Matters
 General.
    Dec. 31, 2005
    
    Dec. 31, 2006
    
    March 31, 2007
    
    October 31, 008Number of Pending Cases
    
    
    50
    
    
    
    25
    
    
    
    27
    
    
    
    16Number of Plaintiffs
    
    
    427
    
    
    
    36
    
    
    
    41
    
    
    
    28
 8




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Potential Claimants.
  Companys Position Regarding the Allegations.
 Litigation Reserves
   ®
 9




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
 ®
  10




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3 Months Ended September 30,
    
    
    6 Months Ended September 30,$000s
    
    2008
    
    % NS
    
    2007
    
    % NS
    
    
    2008
    
    % NS
    
    2007
    
    % NSNet Sales
    
    $
    33,632
    
    
    
    100
    %
    
    $
    28,576
    
    
    
    100
    %
    
    
    $
    42,140
    
    
    
    100
    %
    
    $
    37,149
    
    
    
    100
    %Marketing
    
    $
    3,709
    
    
    
    11
    %
    
    $
    3,450
    
    
    
    12
    %
    
    
    $
    6,631
    
    
    
    16
    %
    
    $
    5,593
    
    
    
    15
    %Sales
    
    $
    1,238
    
    
    
    4
    %
    
    $
    872
    
    
    
    3
    %
    
    
    $
    1,888
    
    
    
    4
    %
    
    $
    1,614
    
    
    
    4
    %General &
Administrative
    
    $
    3,134
    
    
    
    9
    %
    
    $
    3,089
    
    
    
    11
    %
    
    
    $
    7,281
    
    
    
    17
    %
    
    $
    5,631
    
    
    
    15
    %Product Liability
Litigation
    
    $
    756
    
    
    
    2
    %
    
    $
    421
    
    
    
    1
    %
    
    
    $
    1,499
    
    
    
    4
    %
    
    $
    1,250
    
    
    
    3
    %Total Selling,
General, and
Administrative
    
    $
    8,837
    
    
    
    26
    %
    
    $
    7,832
    
    
    
    27
    %
    
    
    $
    17,299
    
    
    
    41
    %
    
    $
    14,088
    
    
    
    38
    %Research &
Development
    
    $
    1,143
    
    
    
    3
    %
    
    $
    995
    
    
    
    3
    %
    
    
    $
    1,754
    
    
    
    4
    %
    
    $
    2,448
    
    
    
    7
    %
      11




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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 2009, our goal is to grow sales 5% to 10% above the $101.0
million recorded for the fiscal year ended March 31, 2008 (resulting in revenue in the
range of $106.0 million  $111.1 million), and to increase net income 20% to 30% above the
$10.4 million realized in fiscal 2008 (resulting in net income in the range of $12.5
million  $13.5 million). For the six months ended September 30, 2008, net sales have
increased 13% compared to the prior year, and net income has increased 12%. As previously
reported, we notified our retail customers about a voluntary recall of certain products. We
do not anticipate that the recall will prevent us from achieving our fiscal 2009 sales and
income goals. Barring additional changes in the economic environment, we expect the Zicam
brand will continue to grow as we increase consumer awareness of our products and introduce
new items.2)
    
    We monitor our share of the cough and cold market because increased consumer purchases
of our products are an indicator of growth. For the 12 weeks ended October 5, 2008, retail
unit sales of our products (as measured by three outlet syndicated scanner data, not
including Wal-Mart) increased approximately 7% over the comparable period in the previous
year, while unit sales in the entire cough and cold category decreased approximately 4%
over the same period.3)
    
    We measure our ability to maintain strong gross margins on our products. During the
quarter ended September 30, 2008, we realized an average gross margin of 69%, compared to
the 66% average gross margin achieved in the quarter ended September 30, 2007. Gross
margins on our existing products vary between 55% and 80%. Average gross margins, in the
quarter ended September 30, 2008, were improved due to a more favorable mix of higher
margin products sold during the quarter and to a lesser degree a price increase on certain
Cold Remedy and Allergy/Sinus products. The fiscal second quarter margin was also improved
compared to the prior year due to a $1.0 million increase to the returns reserve in the
quarter ended September 30, 2007 (in excess of our customary 3.5% of gross sales). Gross
margin for the six months ended September 30, 2008 increased to 68%, one percentage point
higher than the gross margin realized for the six months ended September 30, 2007. The
higher gross margin is due to a more favorable mix of higher margin products sold during
the first half of fiscal 2009.4)
    
    We evaluate our operating performance by reviewing, over time, our ability to decrease
selling, general and administrative (SG&A) expenses as a percentage of net sales. We
evaluate our ability to reduce SG&A expense on an annual basis due to the seasonal
fluctuations in quarterly net sales. For the six months ended September 30, 2008, our SG&A
expenses (which does not include R&D expenses) were approximately 41% of net sales,
compared to 38% for the six months ended September 30, 2007. SG&A expense for the six
months ended September 30, 2008 includes $1.9 million of recall-related charges, or
approximately 4.5% of net sales.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 or discontinue products. After accounting for additions of new
products and certain discontinuations, our ten largest customers have net SKU (stock
keeping unit) additions of Zicam products entering the 2008/2009 cold season.
 12




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Critical Accounting Policies and Estimates
    Intangible Assets and Goodwill:
 Income Taxes: Accounting for Income Taxes
 Revenue Recognition:
 Customer Sales Returns and Allowances:
 Accounts Receivable and Allowance for Doubtful Accounts:
 13




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Legal Contingencies: Accounting for
Contingencies,
 Results of Operations for the Three Months Ended September 30, 2008 Compared to the Three Months
Ended September 30, 2007
  Three Months Ended September 30,2008
    
    
    2007Net sales
    
    $
    33,631,906
    
    
    
    100
    %
    
    $
    28,575,748
    
    
    
    100
    %Cost of sales
    
    
    10,378,915
    
    
    
    31
    
    
    
    9,576,341
    
    
    
    34Gross profit
    
    
    23,252,991
    
    
    
    69
    
    
    
    18,999,407
    
    
    
    66Selling, general and
administrative
    
    
    8,836,878
    
    
    
    26
    
    
    
    7,832,060
    
    
    
    27Research & development
    
    
    1,143,214
    
    
    
    3
    
    
    
    994,632
    
    
    
    3Income from operations
    
    
    13,272,899
    
    
    
    39
    
    
    
    10,172,715
    
    
    
    36Interest and other income
    
    
    84,752
    
    
    
    
    
    
    
    145,673
    
    
    
    1Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    13,357,651
    
    
    
    40
    
    
    
    10,318,388
    
    
    
    36Provision for income taxes
    
    
    5,115,769
    
    
    
    15
    
    
    
    3,909,160
    
    
    
    14Net Income
    
    $
    8,241,882
    
    
    
    25
    %
    
    $
    6,409,228
    
    
    
    22
    %
 Net Sales
  Sales
  14




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Gross Profit
  Selling, General & Administrative (SG&A)
   Research and Development
  Interest & Other Income
  Income Before Provision for Income Taxes
 15




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Income Tax Expense
  Net Income
  Off-Balance Sheet Arrangements
  Results of Operations for the Six Months Ended September 30, 2008 Compared to the Six Months Ended
September 30, 2007
  Six Months Ended September 30,2008
    
    
    2007Net sales
    
    $
    42,139,950
    
    
    
    100
    %
    
    $
    37,149,176
    
    
    
    100
    %Cost of sales
    
    
    13,573,198
    
    
    
    32
    
    
    
    12,411,695
    
    
    
    33Gross profit
    
    
    28,566,752
    
    
    
    68
    
    
    
    24,737,481
    
    
    
    67Selling, general and
administrative
    
    
    17,299,004
    
    
    
    41
    
    
    
    14,088,275
    
    
    
    38Research & development
    
    
    1,753,509
    
    
    
    4
    
    
    
    2,447,685
    
    
    
    7Income from operations
    
    
    9,514,239
    
    
    
    23
    
    
    
    8,201,521
    
    
    
    22Interest and other income
    
    
    191,986
    
    
    
    
    
    
    
    392,248
    
    
    
    1Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    9,706,225
    
    
    
    23
    
    
    
    8,593,769
    
    
    
    23Provision for income taxes
    
    
    3,730,200
    
    
    
    9
    
    
    
    3,246,637
    
    
    
    9Net Income
    
    $
    5,976,025
    
    
    
    14
    %
    
    $
    5,347,132
    
    
    
    14
    %
 Net Sales
  16




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##### Table of Contents



Sales
  Gross Profit
  Selling, General & Administrative (SG&A)
   Research and Development
  17




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##### Table of Contents



Interest & Other Income
  Income Before Provision for Income Taxes
  Income Tax Expense
  Net Income
  Liquidity and Capital Resources
   18




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##### Table of Contents



Contractual Obligations
  Contractual Cash Obligations(In thousands of dollars)Payments due by Period as of September 30, 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
    
    
    2,414
    
    
    
    521
    
    
    
    1,076
    
    
    
    817
    
    
    
    0Purchase Obligations
    
    
    3,439
    
    
    
    3,43
    
    
    
    9              0
    
    
    
    0
    
    
    
    0Other Long-Term Liabilities
Reflected on the
Companys Balance Sheet
under GAAP
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    5,853
    
    
    $
    3,960
    
    
    $
    1,076
    
    
    $
    817
    
    
    $
    0
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##### Table of Contents



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 Forward Looking Statements
  
    
    our expectations regarding the costs of the product recall and our belief that the
reserve for recall costs will be sufficient;
    
    our belief that the recall will not affect consumer demand for our products;
    
    our expectations regarding returns of discontinued products;
    
    our expectation regarding continued expansion of the Zicam line of products;
    
    our expectation of achieving our fiscal 2009 sales and income goals;
    
    our belief that growth in sales of our products will occur;
    
    our expectations regarding equity compensation;
    
    our belief that our bad debt allowance is sufficient;
    
    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
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, and introduce new products;
    
    our expectations regarding 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 the market groups;
    
    our expectations regarding retailer inventory management;
    
    our expectation that sales to retailers will more closely match retailer sales of our
products to consumers;
    
    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;
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##### Table of Contents




    
    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 we will not receive additional sizeable reimbursements from our
insurance carriers;
    
    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 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 expectation that advertising expense will be highest in our third and fourth fiscal
quarters;
    
    our expectations regarding marketing programs;
    
    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 expectations regarding product sales in the Canadian market through a Canadian
distributor, and the introduction of several additional Zicam products in Canada in fiscal
2009;
    
    our belief that our exposure to currency exchange risk is minimal;
    
    our expectations regarding our manufacturers ability 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;
    
    our expectations regarding the impact of the recall on demand for Zicam products and
that the manufacturer of the recalled products will be responsible for recall-related
costs;
    
    our expectations regarding future borrowings; and
    
    our belief that moderate interest rate increases and the current economic uncertainties
regarding available credit will not have a material adverse impact on our results of
operations or financial position in the foreseeable future.
   21




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
 Item 4. Controls and Procedures
  22




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##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  We face increasing competition from lower-priced, private label and branded over-the-counter
products.
 ® ® ®
  
 Item 2. Unregistered Sales of Securities and Use of Proceeds
  23




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##### Table of Contents



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 Programs7/01/08-7/31/08
    
    
    1,308
    
    
    $
    16.73
    
    
    
    697,109
    
    
    
    302,8918/01/08-8/31/08
    
    
    34,075
    
    
    $
    17.24
    
    
    
    731,184
    
    
    
    268,8169/1/08-9/30/08
    
    
    55,429
    
    
    $
    17.16
    
    
    
    786,613
    
    
    
    213,387Total
    
    
    90,812
    
    
    $
    16.96
    
    
    
    786,613
    
    
    
    213,387
   
 Item 4. Submission of Matters to a Vote of Security Holders
  Director
    
    Votes For
    
    Votes Withheld
    
    Abstentions
    
    Broker Non-VotesLori H. Bush
    
    
    7,995,194
    
    
    
    223,449
    
    
    
    0
    
    
    
    0Carl J. Johnson
    
    
    8,089,170
    
    
    
    129,473
    
    
    
    0
    
    
    
    0
  24




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##### Table of Contents



Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes8,167,962
    
    23,609
    
    27,072
    
    0
  Item 5. Other Information
   Item 6. Exhibits
 Exhibit No.
    
    Title3.01
    
    Articles of Incorporation and Amendments thereto of the registrant (1)3.02
    
    Bylaws of the registrant (2)4.01
    
    Rights Agreement dated as of July 22, 2002 by and between the registrant and
Corporate Stock Transfer, Inc. (3)10.1*
    
    Form of Amended and Restated Change of Control Agreement by and between the
registrant and certain officers10.2*
    
    Restricted Stock Award Agreement dated November
4, 2008 by and between
the registrant and Samuel C. Cowley10.3*
    
    Summary of Chairmans Fee Arrangement, approved October 21, 200810.4*
    
    Summary of 2009 Cash Incentive Award Opportunity for William Hemelt31.1*
    
    Certification of Acting President and CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1*
    
    Certification of Acting President and CFO pursuant to 18 U.S.C. Section 1350
  *
    
    Filed with this Report on Form 10-Q.**
    
    Indicates management compensatory contract, plan or arrangement.(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 Report on Form 8-K, filed July
25, 2006, file number 001-31404.(3)
    
    Incorporated by reference to the Registrants Registration Statement on Form
8-A, filed July 23, 2002, file number 001-31404. 25




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##### Table of Contents



SIGNATURES
  Matrixx Initiatives, Inc./s/ William J. HemeltWilliam J. HemeltActing President and Chief Operating Officerand Chief Financial OfficerNovember 5, 2008
 26