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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-Q
  þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarter ended December 31, 2010
 or
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Commission File number 001-31404
 Matrixx Initiatives, Inc.
  Delaware
(State or other jurisdiction
of incorporation or organization)
    
    87-0482806
(I.R.S. Employer
Identification Number)
 8515 E. Anderson Drive
Scottsdale, AZ 85255
 (602) 385-8888
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



MATRIXX INITIATIVES, INC.
FORM 10-Q
INDEX
 PagePART I FINANCIAL INFORMATIONItem 1. Condensed Consolidated Balance Sheets as of
December 31, 2010 (Unaudited) and March 31, 2010
    
    
    1Condensed Consolidated Statements of
Operations for the three months ended
December 31, 2010 and 2009 (Unaudited)
    
    
    2Condensed Consolidated Statements of
Operations for the nine months ended
December 31, 2010 and 2009 (Unaudited)
    
    
    3Condensed Consolidated Statements of
Cash Flows for the nine months ended
December 31, 2010 and 2009 (Unaudited)
    
    
    4Notes to Condensed Consolidated
Financial Statements (Unaudited)
    
    
    5Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    18Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    31Item 4. Controls and Procedures
    
    
    31PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    31Item 6. Exhibits
    
    
    33SIGNATURES
    
    
    34EX-10.01EX-31.1EX-32.1
   2




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS  (Unaudited)
 December 31,
    
    
    March 31,2010
    
    
    2010ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    23,530,326
    
    
    $
    26,482,499Certificates of deposit
    
    
    
    
    
    
    3,736,525Accounts receivable:Trade, net of allowance for doubtful accounts of $188,548 and $169,720
    
    
    9,385,091
    
    
    
    5,386,044Insurance receivable
    
    
    65,000
    
    
    
    Inventories
    
    
    8,076,350
    
    
    
    6,166,809Prepaid expenses
    
    
    877,376
    
    
    
    2,230,116Interest receivable
    
    
    831
    
    
    
    3,443Income tax receivable
    
    
    
    
    
    
    5,661,554Current deferred tax asset
    
    
    11,215,725
    
    
    
    5,071,475Total Current Assets
    
    
    53,150,699
    
    
    
    54,738,465Property and Equipment, at cost:Office furniture and computer equipment
    
    
    1,584,246
    
    
    
    1,722,176Machine tooling and manufacturing equipment
    
    
    4,865,248
    
    
    
    4,415,352Laboratory furniture and equipment
    
    
    381,079
    
    
    
    486,459Leasehold improvements
    
    
    423,442
    
    
    
    562,7387,254,015
    
    
    
    7,186,725Less accumulated depreciation
    
    
    (4,238,791
    )
    
    
    (3,865,302
    )Net Property and Equipment
    
    
    3,015,224
    
    
    
    3,321,423Other Assets:Restricted cash
    
    
    11,500,000
    
    
    
    Deposits
    
    
    215,912
    
    
    
    636,924Other assets
    
    
    40,043
    
    
    
    40,043Patents, net of accumulated amortization of $368,363 and $311,209
    
    
    736,653
    
    
    
    793,807Non-current deferred tax asset
    
    
    1,566,943
    
    
    
    1,934,686Total Other Assets
    
    
    14,059,551
    
    
    
    3,405,460Total Assets
    
    $
    70,225,474
    
    
    $
    61,465,348LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    1,444,448
    
    
    $
    1,007,886Accrued expenses
    
    
    5,483,261
    
    
    
    7,026,708Sales commissions
    
    
    251,494
    
    
    
    188,433Sales returns and allowances
    
    
    2,023,023
    
    
    
    1,420,600Legal liability
    
    
    17,725,000
    
    
    
    740,000Total Current Liabilities
    
    
    26,927,226
    
    
    
    10,383,627Total Liabilities
    
    
    26,927,226
    
    
    
    10,383,627Commitments 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, 9,398,590 and 9,455,623 shares issued
and outstanding
    
    
    9,399
    
    
    
    9,455Additional paid-in capital
    
    
    39,296,170
    
    
    
    38,657,444Retained earnings
    
    
    3,992,679
    
    
    
    12,414,822Total Stockholders Equity
    
    
    43,298,248
    
    
    
    51,081,721Total Liabilities and Stockholders Equity
    
    $
    70,225,474
    
    
    $
    61,465,348




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009  (Unaudited)
 2010
    2009Net sales
    
    $
    20,288,756
    
    
    $
    28,462,685Cost of sales
    
    
    5,947,948
    
    
    
    7,649,820Gross Profit
    
    
    14,340,808
    
    
    
    20,812,865Selling, general and administrative expenses
    
    
    32,332,941
    
    
    
    14,067,533Research and development
    
    
    338,085
    
    
    
    543,478Income (Loss) From Operations
    
    
    (18,330,218
    )
    
    
    6,201,854Interest and other income
    
    
    5,148
    
    
    
    33,553Income (Loss) Before Income Taxes
    
    
    (18,325,070
    )
    
    
    6,235,407Income taxes
    
    
    (7,045,000
    )
    
    
    2,409,024Net Income (Loss)
    
    $
    (11,280,070
    )
    
    $
    3,826,383Net Income (Loss) Per Share of Common Stock:Basic and Diluted:Weighted Average Number of Common SharesOutstanding
    
    
    9,301,924
    
    
    
    9,228,970Net Income (Loss) Per Share of Common Stock
    
    $
    (1.21
    )
    
    $
    0.41




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 AND 2009  (Unaudited)
 2010
    2009Net sales
    
    $
    44,807,114
    
    
    $
    61,005,711Cost of sales
    
    
    12,870,602
    
    
    
    17,272,795Gross Profit
    
    
    31,936,512
    
    
    
    43,732,916Selling, general and administrative expenses
    
    
    44,411,158
    
    
    
    40,706,579Research and development
    
    
    1,222,570
    
    
    
    1,896,620Goodwill impairment
    
    
    
    
    
    
    15,039,836Asset impairments
    
    
    
    
    
    
    8,827,322Loss From Operations
    
    
    (13,697,216
    )
    
    
    (22,737,411
    )Interest and other income
    
    
    27,973
    
    
    
    119,023Loss Before Income Taxes
    
    
    (13,669,243
    )
    
    
    (22,618,418
    )Income taxes
    
    
    (5,247,100
    )
    
    
    (8,690,936
    )Net Loss
    
    $
    (8,422,143
    )
    
    $
    (13,927,482
    )Net Loss Per Share of Common Stock:Basic and Diluted:Weighted Average Number of Common SharesOutstanding
    
    
    9,297,177
    
    
    
    9,209,400Net Loss Per Share of Common Stock
    
    $
    (0.91
    )
    
    $
    (1.51
    )




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  FOR THE NINE MONTHS ENDED DECEMBER 31, 2010 AND 2009  (Unaudited)
 2010
    
    
    2009Cash Flows From Operating ActivitiesNet loss
    
    $
    (8,422,143
    )
    
    $
    (13,927,482
    )Adjustments to reconcile net loss to net cash provided (used) by operating activities:Depreciation
    
    
    800,474
    
    
    
    579,557Amortization
    
    
    57,154
    
    
    
    75,723Deferred income taxes
    
    
    (5,776,507
    )
    
    
    (9,116,701
    )Common stock issued for compensation
    
    
    792,490
    
    
    
    1,964,705Asset impairments and abandonments
    
    
    
    
    
    
    24,287,130Changes in assets and liabilities:Accounts receivable
    
    
    (3,999,047
    )
    
    
    (1,017,479
    )Insurance receivable
    
    
    (65,000
    )
    
    
    (25,386
    )Interest and other receivables
    
    
    2,612
    
    
    
    (305,681
    )Income tax receivable
    
    
    5,661,554
    
    
    
    (123,377
    )Inventories
    
    
    (1,909,541
    )
    
    
    (1,527,632
    )Prepaid expenses and other
    
    
    1,352,740
    
    
    
    (2,340,522
    )Accounts payable
    
    
    436,562
    
    
    
    (651,516
    )Accrued expenses
    
    
    (1,480,386
    )
    
    
    (2,227,798
    )Legal liability
    
    
    16,985,000
    
    
    
    (45,000
    )Sales returns and allowances
    
    
    602,423
    
    
    
    (305,560
    )Net Cash Provided (Used) By Operating Activities
    
    
    5,038,385
    
    
    
    (4,707,019
    )Cash Flows From Investing ActivitiesPurchases of certificates of deposit
    
    
    
    
    
    
    (3,736,525
    )Maturities of certificates of deposit
    
    
    3,736,525
    
    
    
    11,121,439Restricted cash
    
    
    (11,500,000
    )
    
    
    Capital expenditures
    
    
    (50,157
    )
    
    
    (24,912
    )Deposits and other
    
    
    (23,106
    )
    
    
    (2,187,194
    )Net Cash Provided (Used) By Investing Activities
    
    
    (7,836,738
    )
    
    
    5,172,808Cash Flows From Financing Activities:Issuance of common stock
    
    
    
    
    
    
    1,362,219Purchase of treasury stock
    
    
    (153,820
    )
    
    
    (1,187,906
    )Net Cash Provided (Used) By Financing Activities
    
    
    (153,820
    )
    
    
    174,313Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (2,952,173
    )
    
    
    640,102Cash and Cash Equivalents at Beginning of Period
    
    
    26,482,499
    
    
    
    25,144,088Cash and Cash Equivalents at End of Period
    
    $
    23,530,326
    
    
    $
    25,784,190Supplemental Disclosure of Cash Flow Information:Cash paid for income taxes
    
    $
    
    
    
    $
    8,000Supplemental Disclosure of Non-cash Financing Activities:Retirement of treasury stock
    
    $
    153,820
    
    
    $
    1,187,906Manufacturing equipment placed in service
    
    
    444,118
    
    
    
    




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MATRIXX INITIATIVES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   ®
     5




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
          6




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss) applicable to common shareholders
    
    $
    (11,280,070
    )
    
    $
    3,826,383
    
    
    $
    (8,422,143
    )
    
    $
    (13,927,482
    )Weighted average common shares outstanding  Basic
    
    
    9,301,924
    
    
    
    9,228,970
    
    
    
    9,297,177
    
    
    
    9,209,400Dilutive Securities:Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average common shares outstanding  Diluted
    
    
    9,301,924
    
    
    
    9,228,970
    
    
    
    9,297,177
    
    
    
    9,209,400Net income (loss) per common share:Basic
    
    $
    (1.21
    )
    
    $
    0.41
    
    
    $
    (0.91
    )
    
    $
    (1.51
    )Diluted
    
    $
    (1.21
    )
    
    $
    0.41
    
    
    $
    (0.91
    )
    
    $
    (1.51
    )
   December 31,
    
    
    March 31,2010
    
    
    2010Raw materials and packaging
    
    $
    755,018
    
    
    $
    623,808Finished goods
    
    
    7,321,332
    
    
    
    5,543,001Total
    
    $
    8,076,350
    
    
    $
    6,166,809
  Zicam Cold Remedy Nasal Gel and Cold Remedy Gel Swabs Recall
   7




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
     Product Liability Matters
 General.
  8




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##### Table of Contents



MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Our Position and Our Response
 Product Safety
   Product Effectiveness
 Total Pending Product Liability Lawsuits
 9




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Cases filed since September 30, 2010 (Pending in Federal Courts)
 Personal Injury:
 Date Filed
    
    United States District Court
    
    Named Plaintiff10/1/2010
    
    Arizona
    
    Tompkins, S.10/1/2010
    
    Arizona
    
    Anderson, N.10/8/2010
    
    Arizona
    
    Burns, J.10/15/2010
    
    Arizona
    
    Cossette, S.10/18/2010
    
    Arizona
    
    Johnson, R.10/22/2010
    
    Arizona
    
    Hine, C.10/25/2010
    
    Arizona
    
    Artrip, M.10/25/2010
    
    Arizona
    
    Hall, J.10/27/2010
    
    Arizona
    
    Davis, R.10/27/2010
    
    Arizona
    
    Neuffer, J.10/28/2010
    
    Arizona
    
    Weiss, A.10/29/2010
    
    Arizona
    
    Erovick, M.10/29/2010
    
    Arizona
    
    Crawford, J.11/2/2010
    
    Arizona
    
    Mast, S.11/5/2010
    
    Arizona
    
    Ruska, H.11/5/2010
    
    Arizona
    
    Tetrick, S.11/5/2010
    
    Arizona
    
    English, S.11/9/2010
    
    Arizona
    
    Sears, R.11/16/2010
    
    Arizona
    
    Stevenson, B.11/19/2010
    
    Arizona
    
    Manning, B.11/30/2010
    
    Arizona
    
    Redden, J.11/30/2010
    
    Arizona
    
    Sokol, T.11/30/2010
    
    Arizona
    
    Dedecker, N.12/3/2010
    
    Arizona
    
    Weber, S.12/10/2010
    
    Arizona
    
    Grabemeyer, P.12/21/2010
    
    Arizona
    
    Morales, D.1/27/2011
    
    Western District, Texas
    
    Cathey, G.
 Putative Class Actions for Economic Injury:
 Multi-District Litigation Matters.
 10




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
  Cases filed since September 30, 2010 (Pending in State Courts).
 Personal Injury:
 Date Filed
    
    Court
    
    Named Plaintiff10/4/2010
    
    Maricopa County, AZ
    
    Ellison, G.10/15/2010
    
    Maricopa County, AZ
    
    Allen, S.11/18/2010
    
    Bingham County, ID
    
    Hulse, J.11/24/2010
    
    San Francisco County, CA
    
    Shoub, L.11/29/2010
    
    Maricopa County, AZ
    
    Varone, T.12/2/2010
    
    Maricopa County, AZ
    
    James, A.12/3/2010
    
    Broward County, FL
    
    Henriques, J.12/9/2010
    
    San Francisco County, CA
    
    Hironymous, M.12/9/2010
    
    San Francisco County, CA
    
    Hobbs, V.12/9/2010
    
    San Francisco County, FL
    
    Hackett, R.12/23/2010
    
    Travis County, TX
    
    Pumphrey, C.1/20/2011
    
    San Francisco County, CA
    
    Reese, S.
 Putative Class Actions for Economic Injury:
 Cases Dismissed Subsequent to September 30, 2010 (Federal Courts).
 Date Filed
    
    United States District Court
    
    Named Plaintiff
    
    Date Dismissed4/9/2010
    
    Arizona
    
    Gardner, C.
    
    11/18/201012/16/2009
    
    Arizona
    
    Davis, S.
    
    12/10/2010
 Cases dismissed Subsequent to September 30, 2010 (State Courts)
 Date Filed
    
    Court
    
    Named Plaintiff
    
    Date Dismissed6/30/2009
    
    St. Louis County, MO
    
    West, G.
    
    10/4/2010
 11




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Economic Injury Claims  Settlement Status MOU
     Personal Injury Claims  Settlement with Certain Claimants.
 12




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Personal Injury Claims  Settlement Agreement
    Litigation Reserves
 13




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Securities Litigation Matters
    14




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Shareholder Derivative Lawsuits
     15




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Related Legal Matters  Informal Inquiries
  Legal Expense
     16




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
       Cash, cash equivalents, accounts payable and accounts receivable
 Certificates of Deposit:
 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
     Proposed Merger
   18




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Our Business
  3 Months Ended December 31,
    
    
    9 Months Ended December 31,$000s
    
    2010
    
    
    % NS
    
    
    2009
    
    
    % NS
    
    
    2010
    
    
    % NS
    
    
    2009
    
    
    % NSNet Sales
    
    $
    20,289
    
    
    
    100
    %
    
    $
    28,463
    
    
    
    100
    %
    
    $
    44,807
    
    
    
    100
    %
    
    $
    61,006
    
    
    
    100
    %Marketing
    
    $
    9,323
    
    
    
    46
    %
    
    $
    8,643
    
    
    
    30
    %
    
    $
    14,068
    
    
    
    31
    %
    
    $
    14,473
    
    
    
    24
    %Sales
    
    $
    700
    
    
    
    3
    %
    
    $
    1,374
    
    
    
    5
    %
    
    $
    2,136
    
    
    
    5
    %
    
    $
    2,847
    
    
    
    5
    %General & Administrative
    
    $
    3,835
    
    
    
    19
    %
    
    $
    2,293
    
    
    
    8
    %
    
    $
    9,012
    
    
    
    20
    %
    
    $
    18,659
    
    
    
    31
    %Legal -Product
Liability & Regulatory
    
    $
    18,475
    
    
    
    91
    %
    
    $
    1,758
    
    
    
    6
    %
    
    $
    19,195
    
    
    
    43
    %
    
    $
    4,727
    
    
    
    8
    %Total Selling, General
and Administrative
    
    $
    32,333
    
    
    
    159
    %
    
    $
    14,068
    
    
    
    49
    %
    
    $
    44,411
    
    
    
    99
    %
    
    $
    40,706
    
    
    
    67
    %Research & Development
    
    $
    338
    
    
    
    2
    %
    
    $
    543
    
    
    
    2
    %
    
    $
    1,223
    
    
    
    3
    %
    
    $
    1,897
    
    
    
    3
    %Goodwill & Asset
Impairments
    
    $
    0
    
    
    
    0
    %
    
    $
    0
    
    
    
    0
    %
    
    $
    0
    
    
    
    0
    %
    
    $
    23,867
    
    
    
    39
    %
 19




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##### Table of Contents



1)
    
    We review sales and net income performance against our annual goals. In fiscal 2011,
the Company is focusing on growing sales in our core Cold Remedy and Allergy/Sinus
franchise and offsetting declines in our symptom relief and other cough/cold products. Oral
Cold Remedy product sales account for more than 70% of our overall sales. For fiscal 2011,
the Company anticipates revenue increasing 3% to 5% above the $67.3 million achieved in
fiscal 2010. We expect sales in the fourth quarter ending March 31, 2011 will be
significantly higher than sales in the quarter ended March 31, 2010. Due to the expense
associated with settlement of the bulk of the personal injury product liability claims, and
the reserve for settlement of the economic injury lawsuits, the Company will incur a net
loss for the fiscal year ending March 31, 2011.
 2)
    
    We monitor sales of our products at retail because increased consumer purchases of our
products are an indicator of growth. For the 12 weeks ended December 26, 2010, retail unit
sales (as measured by three outlet syndicated scanner data, not including Wal-Mart) of our
oral Cold Remedy products decreased approximately 2% while sales of our allergy and
congestion products declined approximately 12% versus the comparable period in the previous
year, while the entire cough and cold category declined approximately 5%. We began to see
increases in consumer purchases of our products during the last half of our fiscal third
quarter as new advertising commenced and the incidence of illness surpassed last years
illness level. For the four weeks ended December 26, 2010, retail unit sales (three-outlet
syndicated scanner data, not including
Wal-Mart or club stores) of Zicam Cold Remedy oral delivery products increased approximately
30%, while the total cough/cold category increased approximately 5% compared to the prior
year.
 3)
    
    We measure our ability to maintain strong gross margins on our products. During the
quarter ended December 31, 2010, we realized an average gross margin of 71%, compared to
the 73% average gross margin achieved in the prior year. Gross margin in the quarter ended
December 31, 2010 was
 20




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affected by an increased level of sales allowances per unit sold and
a higher cost per unit sold. Gross margins on our individual products generally vary
between 65% and 80%.
 4)
    
    We evaluate our operating performance by reviewing, over time, our ability to decrease
operating expenses as a percentage of net sales. We evaluate our ability to control
operating expenses on an annual basis due to the seasonal fluctuations in quarterly net
sales. We anticipate fiscal 2011 operating expenses will decline as a percentage of sales
compared to the prior fiscal year (exclusive of legal settlements and recall-related
charges).
 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. Our ten largest retailers had a net
increase in Zicam oral Cold Remedy products on shelf during this years cold season.
Although retailers are increasing the number of our products they sell, they are also
increasing the number of store brand products that directly compete with our Zicam
offerings. Store brand products are generally sold at a substantial discount to branded
products. Store brand versions of our products may adversely affect the number of our
products sold at retail as well as our sales levels.
 Critical Accounting Policies and Estimates
    Legal Contingencies.
 Intangible Assets and Goodwill.
 21




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Income Taxes.
 Revenue Recognition.
 Sales Adjustments.
  22




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Accounts Receivable and Allowance for Doubtful Accounts.
 Product Recalls.
  Results of Operations for the Three Months Ended December 31, 2010 Compared to the Three
Months Ended December 31, 2009
  Three Months Ended December 31,2010
    
    
    2009Net sales
    
    $
    20,289
    
    
    
    100
    %
    
    $
    28,463
    
    
    
    100
    %Cost of sales
    
    
    5,948
    
    
    
    29
    
    
    
    7,650
    
    
    
    27Gross profit
    
    
    14,341
    
    
    
    71
    
    
    
    20,813
    
    
    
    73Selling, general and administrative
    
    
    32,333
    
    
    
    159
    
    
    
    14,068
    
    
    
    49Research & development
    
    
    338
    
    
    
    2
    
    
    
    543
    
    
    
    2Income (Loss) from Operations
    
    
    (18,330
    )
    
    
    (90
    )
    
    
    6,202
    
    
    
    22Interest and other income
    
    
    5
    
    
    
    
    
    
    
    33
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (Loss) before income taxes
    
    
    (18,325
    )
    
    
    (90
    )
    
    
    6,235
    
    
    
    22Income taxes
    
    
    (7,045
    )
    
    
    (35
    )
    
    
    2,409
    
    
    
    8Net Income (Loss)
    
    $
    (11,280
    )
    
    
    (56
    )%
    
    $
    3,826
    
    
    
    13
    %
 Net Sales
  23




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Cost of Sales
  Gross Profit
  Selling, General & Administrative (SG&A)
   Research and Development
  Interest & Other Income
  Income (Loss) Before Income Taxes
  24




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Income Taxes (Benefit)
  Net Income (loss)
  Results of Operations for the Nine months ended December 31, 2010 Compared to the Nine months
ended December 31, 2009
  Nine months ended December 31,2010
    
    
    2009Net sales
    
    $
    44,807
    
    
    
    100
    %
    
    $
    61,006
    
    
    
    100
    %Cost of sales
    
    
    12,870
    
    
    
    29
    
    
    
    17,273
    
    
    
    28Gross profit
    
    
    31,937
    
    
    
    71
    
    
    
    43,733
    
    
    
    72Selling, general and administrative
    
    
    44,411
    
    
    
    99
    
    
    
    40,706
    
    
    
    67Research & development
    
    
    1,223
    
    
    
    3
    
    
    
    1,897
    
    
    
    3Goodwill Impairment
    
    
    
    
    
    
    
    
    
    
    15,040
    
    
    
    25Asset Impairments
    
    
    
    
    
    
    
    
    
    
    8,827
    
    
    
    14Income (Loss) From Operations
    
    
    (13,697
    )
    
    
    (31
    )
    
    
    (22,737
    )
    
    
    (37
    )Interest and other income
    
    
    28
    
    
    
    
    
    
    
    119
    
    
    
    Income (Loss) before income taxes
    
    
    (13,669
    )
    
    
    (31
    )
    
    
    (22,618
    )
    
    
    (37
    )Income taxes (Benefit)
    
    
    (5,247
    )
    
    
    (12
    )
    
    
    (8,691
    )
    
    
    (14
    )Net Income (Loss)
    
    $
    (8,422
    )
    
    
    (19
    )%
    
    $
    (13,927
    )
    
    
    (23
    )%
 Net Sales
   Cost of Sales
  25




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Gross Profit
  Selling, General & Administrative (SG&A)
    Research and Development
  Goodwill and Asset Impairments
  Interest & Other Income
  26




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Income (Loss) Before Income Taxes
   Income Taxes (Benefit)
  Net Loss
  Liquidity and Capital Resources
    27




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Contractual Obligations
  28




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Contractual Cash Obligations(In thousands of dollars)Payments due by Period as of December 31, 2010Less 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
    
    
    1,130
    
    
    
    443
    
    
    
    687
    
    
    
    0
    
    
    
    0Purchase Obligations
    
    
    234
    
    
    
    234
    
    
    
    0
    
    
    
    0
    
    
    
    0Other Long-Term Liabilities Reflected on the
Companys Balance Sheet under GAAP
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    1,364
    
    
    $
    677
    
    
    $
    687
    
    
    $
    0
    
    
    $
    0
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 Forward Looking Statements
  
    
    our belief that any additional recall charges will be immaterial;
 
    
    our belief that settlement for the bulk of the personal injury product liability claims
will be finalized;
 
    
    our belief that reserves for customer programs are adequate and proper;
 
    
    our expectation regarding continued expansion of the Zicam line of products;
 
    
    our expectation of achieving fiscal 2011 revenue in the $69.3 million to $70.7 million
range;
 
    
    our expectation of a net loss in fiscal 2011;
 
    
    our belief that our allowance for uncollectible accounts is adequate;
 
    
    our expectation that ongoing legal expense will decline;
 
    
    our intention to continue vigorously defending the Zicam Cold Remedy product liability
claims and the securities litigation claims, our belief that we have substantial defenses
in these matters, 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 expectations regarding litigation reserves;
 
    
    our belief regarding the impact of our agreement in principal with certain district
attorneys with respect to enforcement of certain consumer protection statutes;
 
    
    our expectation of utilizing deferred tax assets;
 29




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##### Table of Contents




    
    our expectation that sales in future periods will be affected by the recall of our
nasal Cold Remedy products;
 
    
    our expectation of increased sales in the fourth quarter ending March 31, 2011 versus
the quarter ended March 31, 2010;
 
    
    our expectations regarding the effect of accounting standard updates;
 
    
    our expectations regarding store brand competition;
 
    
    our intention to review our product return reserve provision regularly and adjust the
reserve amounts if actual product returns differ materially from our reserve estimates;
 
    
    our expectation of making income tax payments at our statutory rates in future years;
 
    
    our expectation that operating expenses in fiscal 2011 will decline as a percentage of
sales compared to fiscal 2010 (exclusive of settlement and recall-related charges);
 
    
    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 with 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 we will not repurchase shares of common stock in the open market;
 
    
    our expectations regarding the amount of advertising expense and that advertising
expense will be highest in our third and fourth fiscal quarters;
 
    
    our intention of focusing promotional and marketing support on Zicam oral Cold Remedy
products;
 
    
    our belief that focusing on consumer consumption of our oral Cold Remedy products will
allow us to grow the Zicam brand;
 
    
    our belief that our existing capital resources are sufficient to fund our operations
and capital requirements for the next 12 months;
 
    
    our expectations regarding our manufacturers ability to timely produce inventory
adequate for sales of products through the 2010/2011 cough and cold season; and
 
    
    our belief that moderate interest rate increases and current uncertainties regarding
the availability of credit will not have a material adverse impact on our results of
operations or financial position in the foreseeable future and that we are not subject in
any material way to other forms of market risk.
   30




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Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4.
    
    Controls and Procedures
  
 PART II
OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  31




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##### Table of Contents



Item 1A.
    
    Risk Factors
  If the Proposed Merger Does Not Occur, We Will Have Incurred Significant Expense and May Need to
Pay a Termination Fee.
    The Market Price of our Common Stock Has Been, and May Continue to Be, Materially Affected by the
Offer and the Proposed Merger.
  Uncertainties Associated with the Offer and Proposed Merger May Cause a Loss of Employees and May
Otherwise Materially Adversely Affect our Business Operations.
  32




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##### Table of Contents



The Merger Agreement Contains Restrictive Covenants that May Limit our Ability to Respond to
Changes in Market Conditions or Pursue Business Opportunities.
  In connection with the Offer and Proposed Merger, a Lawsuit Has Been Filed Against Us and Our Board
of Directors.
  
 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)4.02
    
    Amendment to the Rights Agreement dated as of December 14, 2010 by and
between the Registrant and Corporate Stock Transfer, Inc. (4)4.03
    
    Amendment No. 2 to Rights Agreement dated January 11, 2011 by and between the
Registrant and Registrar and Transfer Company (5)
 33




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##### Table of Contents



Exhibit No.
    
    Title10.01*
    
    Settlement Agreement dated December 14, 2010 among the Registrant and counsel for
various product liability plaintiffs and claimants10.02
    
    Agreement and Plan of Merger, dated as of December 14, 2010, among the
Registrant, Wonder Holdings Acquisition Corp. and Wonder Holdings, Inc.(6)31.1*
    
    Certification of CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley
Act of 200232.1*
    
    Certification of CEO 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.(4)
    
    Incorporated by reference to Exhibit 4.1 of the Registrants Report on Form
8-K, filed December 14, 2010, file number 001-31404.(5)
    
    Incorporated by reference to Exhibit 4.2 of the Registrants Report on Form
8-K, filed January 18, 2011, file number 001-31404.(6)
    
    Incorporated by reference to the Registrants Report on Form 8-K, filed
December 14, 2010, file number 001-31404. 34




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SIGNATURES
  Matrixx Initiatives, Inc./s/  William J. HemeltWilliam HemeltChief Executive Officer and
Principal Financial OfficerFebruary 7, 2011 35