##### 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 June 30, 2007
 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)
 4742 N. 24 th Street, Suite 455
Phoenix, AZ 85016
 (602) 385-8888
 þ o
  Large accelerated filer
    
    Yes o
    
    No þAccelerated filer
    
    Yes þ
    
    No oNon-accelerated filer
    
    Yes o
    
    No þ
 o þ




---



##### 



MATRIXX INITIATIVES, INC.
FORM 10-Q
INDEX
 PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Balance Sheets as of June 30, 2007 (Unaudited) and March 31, 2007
    
    
    1Condensed Consolidated Statements of Operations for the three months ended June 30, 2007 and 2006 (Unaudited)
    
    
    2Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2007 and 2006 (Unaudited)
    
    
    3Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    10Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    20Item 1A.
    
    Risk Factors
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20Item 6.
    
    Exhibits
    
    
    20SIGNATURES
    
    
    22EX-10.01EX-10.02EX-10.03EX-10.04EX-10.05EX-31.1EX-31.2EX-32.1EX-32.2
   2




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  June 30,
    
    March 31,2007
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    15,523,861
    
    
    $
    16,944,189Accounts receivable:Trade, net of allowance for doubtful accounts of $189,910 and $429,031
    
    
    6,162,435
    
    
    
    8,256,929Other receivable
    
    
    3,797
    
    
    
    Insurance receivable
    
    
    107,500
    
    
    
    2,200,000Inventories
    
    
    18,037,942
    
    
    
    15,458,928Prepaid expenses
    
    
    2,093,944
    
    
    
    584,771Interest receivable
    
    
    82,872
    
    
    
    84,191Income tax receivable
    
    
    1,380,277
    
    
    
    1,370,277Deferred tax asset
    
    
    4,157,721
    
    
    
    3,361,605Total Current Assets
    
    
    47,550,349
    
    
    
    48,260,890Property and Equipment, at cost:Office furniture and computer equipment
    
    
    1,362,159
    
    
    
    1,356,931Machine tooling and manufacturing equipment
    
    
    5,261,320
    
    
    
    5,225,020Laboratory furniture and equipment
    
    
    356,633
    
    
    
    339,343Leasehold improvements
    
    
    354,744
    
    
    
    350,5767,334,856
    
    
    
    7,271,870Less accumulated depreciation
    
    
    (2,233,339
    )
    
    
    (1,925,598
    )Net Property and Equipment
    
    
    5,101,517
    
    
    
    5,346,272Other Assets:Deposits
    
    
    273,172
    
    
    
    221,963Other assets
    
    
    82,770
    
    
    
    82,770Restricted cash
    
    
    500,000
    
    
    
    500,000Debt issuance costs, net of accumulated amortization of $55,232 and $48,061
    
    
    
    
    
    
    7,171Patents, net of accumulated amortization of $478,514 and $446,002
    
    
    1,659,603
    
    
    
    1,692,115Goodwill
    
    
    15,039,836
    
    
    
    15,039,836Total Other Assets
    
    
    17,555,381
    
    
    
    17,543,855Total Assets
    
    $
    70,207,247
    
    
    $
    71,151,017LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    3,141,961
    
    
    $
    2,584,553Accrued expenses
    
    
    3,133,359
    
    
    
    3,162,814Sales commissions
    
    
    120,844
    
    
    
    372,206Sales returns and allowances
    
    
    1,520,833
    
    
    
    2,391,290Legal liability
    
    
    1,031,000
    
    
    
    1,045,000Total Current Liabilities
    
    
    8,947,997
    
    
    
    9,555,863Deferred tax liability
    
    
    1,228,790
    
    
    
    1,160,328Total Liabilities
    
    
    10,176,787
    
    
    
    10,716,191Commitments 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, 10,120,670 and
10,079,317 shares issued
    
    
    10,120
    
    
    
    10,079Additional paid-in capital
    
    
    49,779,904
    
    
    
    49,122,216Retained earnings
    
    
    10,636,740
    
    
    
    11,698,83560,426,764
    
    
    
    60,831,130Less common stock held in treasury, at cost (53,800 shares)
    
    
    (396,304
    )
    
    
    (396,304
    )Total Stockholders Equity
    
    
    60,030,460
    
    
    
    60,434,826Total Liabilities and Stockholders Equity
    
    $
    70,207,247
    
    
    $
    71,151,017
  1




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006
 2007
    
    2006Net sales
    
    $
    8,573,428
    
    
    $
    8,206,133Cost of sales
    
    
    2,835,354
    
    
    
    2,404,707Gross Profit
    
    
    5,738,074
    
    
    
    5,801,426Selling, general and administrative expenses
    
    
    6,256,215
    
    
    
    7,578,412Research and development
    
    
    1,453,053
    
    
    
    1,863,189Loss From Operations
    
    
    (1,971,194
    )
    
    
    (3,640,175
    )Other Income (Expense):Interest and other income
    
    
    246,575
    
    
    
    134,808Interest expense
    
    
    
    
    
    
    Total Other Income
    
    
    246,575
    
    
    
    134,808Loss Before Benefit From Income Taxes
    
    
    (1,724,619
    )
    
    
    (3,505,367
    )Benefit from income taxes
    
    
    (662,523
    )
    
    
    (1,647,570
    )Net Loss
    
    $
    (1,062,096
    )
    
    $
    (1,857,797
    )Net Loss Per Share of Common Stock:Basic:Weighted Average Number of Common Shares
Outstanding
    
    
    9,778,192
    
    
    
    9,658,471Net Loss Per Share of Common Stock
    
    $
    (0.11
    )
    
    $
    (0.19
    )Diluted:Weighted Average Number of Common Shares
Outstanding
    
    
    9,778,192
    
    
    
    9,658,471Net Loss Per Share of Common Stock
    
    $
    (0.11
    )
    
    $
    (0.19
    )
  2




---



##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND 2006
 2007
    
    2006Cash Flows From Operating ActivitiesNet loss
    
    $
    (1,062,096
    )
    
    $
    (1,857,797
    )Adjustments to reconcile net loss to net cash
used in operating activities:Depreciation
    
    
    307,741
    
    
    
    141,115Amortization
    
    
    39,683
    
    
    
    41,552Deferred income taxes
    
    
    (727,654
    )
    
    
    (5,636
    )Common stock issued for compensation
    
    
    399,027
    
    
    
    150,252Changes in assets and liabilities:Accounts receivable
    
    
    2,094,494
    
    
    
    4,860,665Insurance receivable
    
    
    2,092,500
    
    
    
    Interest and other receivables
    
    
    (2,478
    )
    
    
    142,104Income tax receivable
    
    
    (10,000
    )
    
    
    (2,225,547
    )Inventories
    
    
    (2,579,014
    )
    
    
    (4,351,764
    )Prepaid expenses and other
    
    
    (1,509,173
    )
    
    
    (1,057,714
    )Accounts payable
    
    
    557,408
    
    
    
    1,543,940Accrued expenses
    
    
    (280,817
    )
    
    
    (3,378,673
    )Legal liability
    
    
    (14,000
    )
    
    
    (35,000
    )Sales returns and allowances
    
    
    (870,457
    )
    
    
    (511,989
    )Net Cash Used In Operating Activities
    
    
    (1,564,836
    )
    
    
    (6,544,492
    )Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (62,986
    )
    
    
    (506,772
    )Deposits and other
    
    
    (51,209
    )
    
    
    (1,518,420
    )Restricted cash
    
    
    
    
    
    
    4,500,000Net Cash (Used) Provided By Investing Activities
    
    
    (114,195
    )
    
    
    2,474,808Cash Flows From Financing Activities:Debt issuance costs
    
    
    
    
    
    
    (6,442
    )Issuance of common stock
    
    
    258,703
    
    
    
    292,695Net Cash Provided By Financing Activities
    
    
    258,703
    
    
    
    286,253Net Decrease in Cash and Cash Equivalents
    
    
    (1,420,328
    )
    
    
    (3,783,431
    )Cash and Cash Equivalents at Beginning of Period
    
    
    16,944,189
    
    
    
    11,401,441Cash and Cash Equivalents at End of Period
    
    $
    15,523,861
    
    
    $
    7,618,010Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    
    
    
    $
    Income taxes
    
    
    
    
    
    
    683,327
  3




---



##### Table of Contents



MATRIXX INITIATIVES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1.
    
    Financial Statements
  2.
    
    Stock-Based Compensation
 Share-Based Payment Accounting for
Stock-Based Compensation, Accounting for Stock Issued to
Employees.
  2005
    
    2004Risk-free interest rate
    
    
    3.66
    %
    
    
    3.25
    %Expected life
    
    5.00
    years
    
    4.95
    yearsExpected volatility
    
    
    61.40
    %
    
    
    66.44
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
 4




---



##### Table of Contents



MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  3.
    
    Basic and Diluted Loss Per Share
 Earnings Per Share,
  Three Months EndedJune 30,2007
    
    
    2006Net loss applicable to common shareholders
    
    $
    (1,062,096
    )
    
    $
    (1,857,797
    )Weighted average common shares outstanding  Basic
    
    
    9,778,192
    
    
    
    9,658,471Dilutive Securities:Options
    
    
    
    
    
    
    Restricted Stock
    
    
    
    
    
    
    Weighted average common shares outstanding  Diluted
    
    
    9,778,192
    
    
    
    9,658,471Net loss per common share:Basic
    
    $
    (0.11
    )
    
    $
    (0.19
    )Diluted
    
    $
    (0.11
    )
    
    $
    (0.19
    )
 5




---



##### Table of Contents



MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 4.
    
    Inventories
  June 30,
    
    
    March 31,2007
    
    
    2007Raw materials and packaging
    
    $
    4,179,717
    
    
    $
    4,391,903Finished goods
    
    
    13,858,225
    
    
    
    11,067,025Total
    
    $
    18,037,942
    
    
    $
    15,458,928
  5.
    
    Recently Issued Accounting Standards
  Accounting for Uncertainty in Income Taxes Accounting for Income Taxes.
 Fair Value Measurements ,
 Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
 6




---



##### Table of Contents



The Fair Value Option for Financial Assets
and Financial Liabilities: Including an amendment of FASB Statement No. 115
 6.
    
    Insurance Program
  7.
    
    Legal ProceedingsLitigation
   Product Liability Matters
 General.
  December 31, 2005
    
    December 31, 2006
    
    March 31, 2007
    
    July 31, 2007Number of Pending Lawsuits
    
    
    50
    
    
    
    25
    
    
    
    28
    
    
    
    25Number of Plaintiffs
    
    
    427
    
    
    
    36
    
    
    
    40
    
    
    
    36
 7




---



##### Table of Contents



Settlement of Arizona Consolidated Litigation.
 Cases Dismissed Since March 31, 2007 (Federal Courts).
 Date Filed
    
    United States District Court
    
    Named Plaintiff
    
    Date DismissedJune 15, 2004
    
    Northern District of Alabama,
Middle Division
    
    Wyatt
    
    July 19, 2007November 1, 2005
    
    Northern District of Georgia
    
    Abernathy
    
    April 16, 2007November 4, 2005
    
    Eastern District of
Tennessee, Chattanooga
Division
    
    Russell
    
    May 21, 2007December 21, 2005
    
    Eastern District of Michigan
    
    Salden
    
    May 17, 2007April 13, 2006
    
    Southern District of Ohio
    
    Rife
    
    June 25, 2007October 6, 2006
    
    Central District of California
    
    Navas
    
    April 26, 2007November 2, 2006
    
    Northern District of Ohio,
Western Division
    
    Taylor
    
    June 26, 2007
  Cases Dismissed Since March 31, 2007 (State Courts).
 Date Filed
    
    Court
    
    Named Plaintiff
    
    Date DismissedMarch 11, 2004
    
    Maricopa County, Arizona
    
    Abramsen
    
    May 31, 2007June 7, 2006
    
    Superior Court of New
Jersey, Morris County
    
    Stracco
    
    June 20, 2007June 21, 2006
    
    County of Bernalillo,
State of New Mexico
    
    Otero
    
    April 12, 2007
 8




---



##### Table of Contents



Pending Cases as of July 31, 2007 (Federal Courts).
 Date Filed
    
    United States District Court
    
    Named PlaintiffMay 30, 2007
    
    Northern District of Illinois
    
    McGillJune 6, 2007
    
    Eastern District of Tennessee,
Chattanooga Division
    
    Newman
 Pending Cases as of July 31, 2007 (State Courts).
 Date Filed
    
    Court
    
    Named PlaintiffMay 4, 2007
    
    State of Arizona, County of Maricopa
    
    BrierlyJuly 12, 2007
    
    Superior Court of Chelan County, Washington
    
    Ballew
 Potential Claimants.
  Companys Position Regarding the Allegations.
 Scientific Advisory Board.
   9




---



##### Table of Contents



Insurance.
 Litigation Reserves
  Securities Litigation Matters
  
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  10




---



##### Table of Contents



3 Months Ended June 30,$000s
    
    2007
    
    % NS
    
    2006
    
    % NSNet Sales
    
    $
    8,573
    
    
    
    100
    %
    
    $
    8,206
    
    
    
    100
    %Marketing
    
    $
    2,143
    
    
    
    25
    %
    
    $
    1,792
    
    
    
    22
    %Sales
    
    $
    742
    
    
    
    9
    %
    
    $
    446
    
    
    
    5
    %General & Administrative
    
    $
    2,542
    
    
    
    29
    %
    
    $
    3,223
    
    
    
    39
    %Product Liability Litigation
    
    $
    829
    
    
    
    10
    %
    
    $
    2,117
    
    
    
    26
    %Total Selling, General and
Administrative Expenses
    
    $
    6,256
    
    
    
    73
    %
    
    $
    7,578
    
    
    
    92
    %Research & Development
    
    $
    1,453
    
    
    
    17
    %
    
    $
    1,863
    
    
    
    23
    %
     11




---



##### Table of Contents



1)
    
    We compare our year-to-date sales and net income performance against our stated annual
goal for each. For fiscal 2008, our goal is to grow sales 5% to 15% above the $97.6 million
recorded for the trailing twelve months ended March 31, 2007 and to increase net income to
the range of $9.3 million to $10.8 million, compared to $6.5 million for the twelve months
ended March 31, 2007. For the three months ended June 30, 2007, the Company expected net
sales would surpass the level achieved during the comparable period in the prior year and
the seasonal net loss would be reduced. For the three months ended June 30, 2007, we
realized net sales growth of 4% and net loss was reduced approximately $795,000 from the net
loss recorded for the quarter ended June 30, 2006.2)
    
    We monitor our share of the cough and cold market. For the 12 weeks ended June 17,
2007, retail sales of our products (as measured by three outlet syndicated scanner data,
not including our largest customer, Wal-Mart) increased approximately 16% over the
comparable period in the previous year, while the entire cough and cold category increased
approximately 5% over the same period.3)
    
    We measure our ability to maintain strong gross margins on our products. During the
three months ended June 30, 2007, we realized an average gross margin of 67%, which is
below our goal of 70%, and below the average gross margin of 71% realized in the quarter
ended June 30, 2006 (gross margins on our existing products vary between 50% and 80%).
Average gross margins were negatively impacted by the mix of products sold as well as an
increase in promotional spending, which reduced the average selling price per unit sold. We
are beginning to realize margin improvement related to our improved swab and multi-symptom
spoon products.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
June 30, 2007, our selling, general and administrative expenses were approximately 73% of
our net sales compared to 92% in the three months ended June 30, 2006.5)
    
    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 we are informed of any changes that will occur for the upcoming cough
and cold season. We encourage retailers to swap out discontinued items for faster selling
products and we expect our largest customers to add some of our new products (Zicam
Multi-symptom bottles and Zicam Sinus RapidMelts) for the upcoming cold season.
 Critical Accounting Policies and Estimates
    Intangible Assets and Goodwill:
 12




---



##### Table of Contents



Income Taxes: Accounting for Income Taxes
 Revenue Recognition:
 Customer Sales Returns and Allowances:
 Accounts Receivable and Allowance for Doubtful Accounts:
 Insurance Reimbursements:
 Legal Contingencies: Accounting for Contingencies
 Results of Operations for the Three Months Ended June 30, 2007 Compared to the Three Months
Ended June 30, 2006
  13




---



##### Table of Contents



Three Months Ended June 30,2007
    
    
    2006Net sales
    
    $
    8,573,428
    
    
    
    100
    %
    
    $
    8,206,133
    
    
    
    100
    %Cost of sales
    
    
    2,835,354
    
    
    
    33
    
    
    
    2,404,707
    
    
    
    29Gross profit
    
    
    5,738,074
    
    
    
    67
    
    
    
    5,801,426
    
    
    
    71Selling, general and administrative
    
    
    6,256,215
    
    
    
    73
    
    
    
    7,578,412
    
    
    
    92Research & development
    
    
    1,453,053
    
    
    
    17
    
    
    
    1,863,189
    
    
    
    23Loss from operations
    
    
    (1,971,194
    )
    
    
    (23
    )
    
    
    (3,640,175
    )
    
    
    (44
    )Interest and other income
    
    
    246,575
    
    
    
    3
    
    
    
    134,808
    
    
    
    2Interest expense
    
    
    0
    
    
    
    
    
    
    
    0
    
    
    
    Loss before income taxes
    
    
    (1,724,619
    )
    
    
    (20
    )
    
    
    (3,505,367
    )
    
    
    (43
    )Benefit from income taxes
    
    
    (662,523
    )
    
    
    8
    
    
    
    (1,647,570
    )
    
    
    20Net Loss
    
    $
    (1,062,096
    )
    
    
    (12
    )%
    
    $
    (1,857,797
    )
    
    
    (23
    )%
 Net Sales
  Cost of Sales
 ®
 Gross Profit
  Selling, General & Administrative
    14




---



##### Table of Contents



Research and Development
  Interest & Other Income
  Loss Before Benefit from Income Taxes
  Benefit for Income Taxes
  Net Loss
  Off-Balance Sheet Arrangements
  Liquidity and Capital Resources
   15




---



##### Table of Contents



Contractual Obligations
  Contractual Cash Obligations(In thousands of dollars)Payments due by Period as of June 30, 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
    
    
    550
    
    
    
    137
    
    
    
    315
    
    
    
    98
    
    
    
    0Purchase Obligations
    
    
    3,178
    
    
    
    3,178
    
    
    
    0
    
    
    
    0
    
    
    
    0Other Long-Term Liabilities
Reflected on the
Companys Balance Sheet under GAAP
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    3,728
    
    
    $
    3,315
    
    
    $
    315
    
    
    $
    98
    
    
    $
    0
 16




---



##### Table of Contents



CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 Forward Looking Statements
  
    
    Our belief that the reserve for litigation losses will be sufficient to resolve the
remaining product liability cases, exclusive of legal fees;
    
    our expectation of introducing new products during the 2007/2008 cold season;
    
    our expectations regarding fiscal 2008 net sales increasing 5%-15% over the $97.6
million recorded in the trailing twelve months ended March 31, 2007, and net income
increasing to the range of $9.3 million to $10.8 million, compared to $6.5 million for the
twelve months ended March 31, 2007;
    
    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 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 future stock-based compensation;
    
    our expectations regarding seasonality of sales and earnings;
    
    our expectation of higher accounts receivable balances during the cold season;
    
    our belief that working capital requirements will not require any borrowings in the next quarter;
    
    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;
 17




---



##### Table of Contents




    
    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;
    
    our expectation regarding dividends and retained earnings;
    
    our expectation of utilizing our tax loss carryforward;
    
    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.
   18




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
  19




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 4. Submission of Matters to a Vote of Security Holders
  Director
    
    Votes For
    
    Votes Withheld
    
    Abstentions
    
    Broker Non-VotesJohn M. Clayton PhD.
    
    
    8,673,939
    
    
    
    110,211
    
    
    
    0
    
    
    
    0William C. Egan
    
    
    8,673,449
    
    
    
    110,701
    
    
    
    0
    
    
    
    0Michael A. Zeher
    
    
    8,673,039
    
    
    
    111,111
    
    
    
    0
    
    
    
    0
   Votes For
    
    Votes Against
    
    Abstentions
    
    Broker Non-Votes8,728,325
    
    
    44,939
    
    
    
    10,886
    
    
    
    0
 20




---



##### Table of Contents



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)10.01
    
    *Amendment Number Two to Amended and
Restated Credit Agreement dated June 27, 2007 among the
Registrant, Zicam, LLC and Comerica Bank10.02
    
    *Replacement Secured Promissary
Note dated June 27, 2007 among the Registrant, Zicam,
LLC and Comerica Bank10.03
    
    *Security Agreement dated
July 5, 2007 among the
Registrant, Matrixx Oral Care, LLC and Comerica Bank10.04
    
    *Amendment Number One dated as of March 9, 2006 to the Amended and Restated
Credit Agreement, dated as of September 27, 2005 by and among Matrixx Initiatives,
Inc., Zicam, LLC and Comerica Bank10.05
    
    * **Form of Change of Control Agreement31.1*
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2*
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1*
    
    Certification of CEO pursuant to 18 U.S.C. Section 135032.2*
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350
 
 *
    
    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. 21




---



##### Table of Contents



SIGNATURES
  Matrixx Initiatives, Inc./s/ Carl J. Johnson

Carl J. JohnsonPresident andChief Executive OfficerAugust, 8, 2007/s/ William J. Hemelt

William J. HemeltExecutive Vice President andChief Financial OfficerAugust 8, 2007
 22