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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 December 31, 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
December 31, 2008 (Unaudited) and March 31, 2008
    
    
    3Condensed Consolidated Statements of
Income for the three months ended
December 31, 2008 and 2007 (Unaudited)
    
    
    4Condensed Consolidated Statements of
Income for the nine months ended
December 31, 2008 and 2007 (Unaudited)
    
    
    5Condensed Consolidated Statements of
Cash Flows for the nine months ended
December 31, 2008 and 2007 (Unaudited)
    
    
    6Notes to Condensed Consolidated
Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    25PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Securities and Use of Proceeds
    
    
    25Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    28EX-10.1EX-10.2EX-31.1EX-32.1
   2




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
  December 31,
    
    March 31,2008
    
    2008ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    30,666,041
    
    
    $
    27,932,672Accounts receivable:Trade, net of allowance for doubtful accounts of $223,079 and $209,377
    
    
    25,084,482
    
    
    
    12,051,847Other receivable
    
    
    
    
    
    
    39,363Insurance receivable
    
    
    55,185
    
    
    
    75,000Inventories
    
    
    10,456,388
    
    
    
    11,530,060Prepaid expenses
    
    
    2,125,981
    
    
    
    1,743,521Interest receivable
    
    
    5,580
    
    
    
    73,904Income tax receivable
    
    
    292,230
    
    
    
    Deferred tax asset
    
    
    1,751,348
    
    
    
    1,739,490Total Current Assets
    
    
    70,437,235
    
    
    
    55,185,857Property and Equipment, at cost:Office furniture and computer equipment
    
    
    1,712,616
    
    
    
    1,560,403Machine tooling and manufacturing equipment
    
    
    4,753,835
    
    
    
    5,330,728Laboratory furniture and equipment
    
    
    472,841
    
    
    
    437,267Leasehold improvements
    
    
    544,211
    
    
    
    514,6747,483,503
    
    
    
    7,843,072Less accumulated depreciation
    
    
    (2,964,076
    )
    
    
    (2,753,222
    )Net Property and Equipment
    
    
    4,519,427
    
    
    
    5,089,850Other Assets:Deposits
    
    
    393,669
    
    
    
    379,205Other assets
    
    
    110,034
    
    
    
    110,034Restricted cash
    
    
    
    
    
    
    500,000Debt issuance costs, net of accumulated amortization of $10,796 and $5,398
    
    
    3,599
    
    
    
    8,997Patents, net of accumulated amortization of $690,135 and $582,670
    
    
    1,727,326
    
    
    
    1,834,791Goodwill
    
    
    15,039,836
    
    
    
    15,039,836Total Other Assets
    
    
    17,274,464
    
    
    
    17,872,863Total Assets
    
    $
    92,231,126
    
    
    $
    78,148,570LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    6,251,290
    
    
    $
    1,307,881Accrued expenses
    
    
    7,017,632
    
    
    
    4,433,841Sales commissions
    
    
    538,759
    
    
    
    533,384Sales returns and allowances
    
    
    1,722,213
    
    
    
    1,271,791Legal liability
    
    
    1,065,000
    
    
    
    1,100,000Income tax payable
    
    
    1,146,438
    
    
    
    1,927,025Total Current Liabilities
    
    
    17,741,332
    
    
    
    10,573,922Deferred tax liability
    
    
    2,094,420
    
    
    
    2,022,427Total Liabilities
    
    
    19,835,752
    
    
    
    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, 9,876,536 and
10,175,412 shares issued
    
    
    9,876
    
    
    
    10,175Additional paid-in capital
    
    
    46,212,745
    
    
    
    50,960,220Retained earnings
    
    
    32,853,844
    
    
    
    22,126,37479,076,465
    
    
    
    73,096,769Less common stock held in treasury, at cost (419,546 and 547,769 shares)
    
    
    (6,681,091
    )
    
    
    (7,544,548
    )Total Stockholders Equity
    
    
    72,395,374
    
    
    
    65,552,221Total Liabilities and Stockholders Equity
    
    $
    92,231,126
    
    
    $
    78,148,570
  3




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2008 AND 2007
 2008
    
    2007Net sales
    
    $
    38,702,412
    
    
    $
    30,801,567Cost of sales
    
    
    11,204,657
    
    
    
    11,060,163Gross Profit
    
    
    27,497,755
    
    
    
    19,741,404Selling, general and administrative expenses
    
    
    18,869,536
    
    
    
    20,043,066Research and development
    
    
    796,996
    
    
    
    875,149Income (Loss) From Operations
    
    
    7,831,223
    
    
    
    (1,176,811
    )Interest and other income
    
    
    47,929
    
    
    
    130,926Income (Loss) Before Provision (Benefit) For Income Taxes
    
    
    7,879,152
    
    
    
    (1,045,885
    )Provision (Benefit) for income taxes
    
    
    3,127,707
    
    
    
    (410,724
    )Net Income (Loss)
    
    $
    4,751,445
    
    
    $
    (635,161
    )Net Income (Loss) Per Share of Common Stock:Basic:Weighted Average Number of Common Shares
Outstanding
    
    
    9,179,232
    
    
    
    9,740,909Net Income (Loss) Per Share of Common Stock
    
    $
    0.52
    
    
    $
    (0.07
    )Diluted:Weighted Average Number of Common Shares
Outstanding
    
    
    9,471,944
    
    
    
    9,740,909Net Income (Loss) Per Share of Common Stock
    
    $
    0.50
    
    
    $
    (0.07
    )
  4




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED DECEMBER 31, 2008 AND 2007
 2008
    
    2007Net sales
    
    $
    80,842,362
    
    
    $
    67,950,743Cost of sales
    
    
    24,777,855
    
    
    
    23,471,858Gross Profit
    
    
    56,064,507
    
    
    
    44,478,885Selling, general and administrative expenses
    
    
    36,168,540
    
    
    
    34,131,341Research and development
    
    
    2,550,505
    
    
    
    3,322,834Income From Operations
    
    
    17,345,462
    
    
    
    7,024,710Interest and other income
    
    
    239,915
    
    
    
    523,174Income Before Provision For Income Taxes
    
    
    17,585,377
    
    
    
    7,547,884Provision for income taxes
    
    
    6,857,907
    
    
    
    2,835,913Net Income
    
    $
    10,727,470
    
    
    $
    4,711,971Net Income Per Share of Common Stock:Basic:Weighted Average Number of Common Shares
Outstanding
    
    
    9,277,560
    
    
    
    9,779,153Net Income Per Share of Common Stock
    
    $
    1.16
    
    
    $
    0.48Diluted:Weighted Average Number of Common Shares
Outstanding
    
    
    9,564,561
    
    
    
    10,095,293Net Income Per Share of Common Stock
    
    $
    1.12
    
    
    $
    0.47
  5




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2008 AND 2007
 2008
    
    2007Cash Flows From Operating ActivitiesNet income
    
    $
    10,727,470
    
    
    $
    4,711,971Adjustments to reconcile net income to net cash
used by operating activities:Depreciation
    
    
    1,017,754
    
    
    
    828,886Amortization
    
    
    112,863
    
    
    
    111,510Deferred income taxes
    
    
    60,135
    
    
    
    840,217Common stock issued for compensation
    
    
    1,764,123
    
    
    
    1,148,060Changes in assets and liabilities:Accounts receivable
    
    
    (12,993,272
    )
    
    
    (15,023,459
    )Insurance receivable
    
    
    19,815
    
    
    
    2,050,000Interest and other receivables
    
    
    68,324
    
    
    
    14,190Income taxes
    
    
    (1,072,817
    )
    
    
    1,157,271Inventories
    
    
    1,073,672
    
    
    
    (1,961,582
    )Prepaid expenses and other
    
    
    (382,460
    )
    
    
    (815,862
    )Accounts payable
    
    
    4,943,409
    
    
    
    5,668,127Accrued expenses
    
    
    2,589,166
    
    
    
    2,364,067Legal liability
    
    
    (35,000
    )
    
    
    (54,350
    )Sales returns and allowances
    
    
    450,422
    
    
    
    (914,857
    )Net Cash Provided By Operating Activities
    
    
    8,343,604
    
    
    
    124,189Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (447,331
    )
    
    
    (239,891
    )Deposits and other
    
    
    (14,464
    )
    
    
    (354,727
    )Restricted cash
    
    
    500,000
    
    
    
    Net Cash Provided (Used) By Investing Activities
    
    
    38,205
    
    
    
    (594,618
    )Cash Flows From Financing Activities:Debt issuance costs
    
    
    
    
    
    
    (14,288
    )Issuance of common stock
    
    
    1,138,157
    
    
    
    611,144Purchase of treasury stock
    
    
    (6,786,597
    )
    
    
    (3,904,189
    )Net Cash Used By Financing Activities
    
    
    (5,648,440
    )
    
    
    (3,307,333
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    2,733,369
    
    
    
    (3,777,762
    )Cash and Cash Equivalents at Beginning of Period
    
    
    27,932,672
    
    
    
    16,944,189Cash and Cash Equivalents at End of Period
    
    $
    30,666,041
    
    
    $
    13,166,427Supplemental Disclosure of Cash Flow Information:Cash paid for income taxes
    
    $
    7,588,795
    
    
    $
    Supplemental Disclosure of Noncash Financing Activities:Retirement of treasury stock
    
    $
    7,650,054
    
    
    $
    
  6




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MATRIXX INITIATIVES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    Share-Based Payment
   7




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Earnings Per Share,
  Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2008
    
    
    2007
    
    
    2008
    
    
    2007Net income (loss) applicable to common shareholders
    
    $
    4,751,445
    
    
    $
    (635,161
    )
    
    $
    10,727,470
    
    
    $
    4,711,971Weighted average common shares outstanding  Basic
    
    
    9,179,232
    
    
    
    9,740,909
    
    
    
    9,277,560
    
    
    
    9,779,153Dilutive Securities:Options
    
    
    109,754
    
    
    
    
    
    
    
    126,243
    
    
    
    177,582Restricted Stock
    
    
    182,958
    
    
    
    
    
    
    
    160,758
    
    
    
    138,558Weighted average common shares outstanding  Diluted
    
    
    9,471,944
    
    
    
    9,740,909
    
    
    
    9,564,561
    
    
    
    10,095,293Net income (loss) per common share:Basic
    
    $
    0.52
    
    
    $
    (0.07
    )
    
    $
    1.16
    
    
    $
    0.48Diluted
    
    $
    0.50
    
    
    $
    (0.07
    )
    
    $
    1.12
    
    
    $
    0.47
   December 31,
    
    
    March 31,2008
    
    
    2008Raw materials and packaging
    
    $
    3,279,077
    
    
    $
    3,887,906Finished goods
    
    
    7,177,311
    
    
    
    7,642,154Total
    
    $
    10,456,388
    
    
    $
    11,530,060
 8




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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
   9




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Litigation
   Product Liability Matters
 General.
   Potential Claimants.
  10




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Companys Position Regarding the
Allegations.
 Product Liability Litigation Reserves
  Product Recall
   11




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  Intellectual Property Protection
    
 Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
   12




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3 Months Ended December 31,
    
    9 Months Ended December 31,$000s
    
    2008
    
    % NS
    
    2007
    
    % NS
    
    2008
    
    % NS
    
    2007
    
    % NSNet Sales
    
    $
    38,702
    
    
    
    100
    %
    
    $
    30,802
    
    
    
    100
    %
    
    $
    80,842
    
    
    
    100
    %
    
    $
    67,951
    
    
    
    100
    %Marketing
    
    $
    13,209
    
    
    
    34
    %
    
    $
    16,177
    
    
    
    53
    %
    
    $
    19,840
    
    
    
    25
    %
    
    $
    21,770
    
    
    
    32
    %Sales
    
    $
    1,025
    
    
    
    3
    %
    
    $
    1,022
    
    
    
    3
    %
    
    $
    2,913
    
    
    
    4
    %
    
    $
    2,636
    
    
    
    4
    %General &
Administrative
    
    $
    4,257
    
    
    
    11
    %
    
    $
    2400
    
    
    
    8
    %
    
    $
    11,537
    
    
    
    14
    %
    
    $
    8,031
    
    
    
    12
    %Product Liability
Litigation
    
    $
    379
    
    
    
    1
    %
    
    $
    444
    
    
    
    1
    %
    
    $
    1,878
    
    
    
    2
    %
    
    $
    1,694
    
    
    
    2
    %Total Selling,
General, and
Administrative
    
    $
    18,870
    
    
    
    49
    %
    
    $
    20,043
    
    
    
    65
    %
    
    $
    36,168
    
    
    
    45
    %
    
    $
    34,131
    
    
    
    50
    %Research &
Development
    
    $
    797
    
    
    
    2
    %
    
    $
    875
    
    
    
    3
    %
    
    $
    2,551
    
    
    
    3
    %
    
    $
    3,323
    
    
    
    5
    %
   13




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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  $13.6 million). For the nine months ended December 31, 2008, net sales have
increased 19% compared to the prior year, and net income has increased 127%. As previously
reported, in June 2008 we notified our retail customers about a voluntary recall of certain
products. See Product Recall in Note 7 for additional information. 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 the incidence of colds increases during the cold season and we achieve
increased consumer awareness of our products.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 December 28, 2008,
retail unit sales of our products (as measured by three outlet syndicated scanner data, not
including Wal-Mart and club stores) decreased approximately 3% over the comparable period
in the previous year, while unit sales in the entire cough and cold category decreased
approximately 1% over the same period. However, when including Wal-Mart and club stores,
retail unit sales of Zicam products increased during this period.3)
    
    We measure our ability to maintain strong gross margins on our products. During the
quarter ended December 31, 2008, we realized an average gross margin of 71%, compared to
the 64% average gross margin achieved in the quarter ended December 31, 2007. Gross margins
on our existing products vary between 55% and 80%. Average gross margins in the quarter
ended December 31, 2008, improved due to a more favorable mix of higher margin products
sold during the quarter, a previously implemented price increase on certain Cold Remedy and
Allergy/Sinus products, and cost reductions achieved on several of our products. In
addition, gross margin in the fiscal third quarter of the prior year (ended December 31,
2007) was impacted by a $1.2 million increase to the returns reserve in excess of our
customary 3.5% of gross sales. Gross margin for the nine months ended December 31, 2008
increased to 69%, four percentage points higher than the gross margin realized for the nine
months ended December 31, 2007.4)
    
    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 nine months ended December 31, 2008, our SG&A
expenses (which do not include R&D expenses) were approximately 45% of net sales, compared
to 50% for the nine months ended December 31, 2007. SG&A expense for the nine months ended
December 31, 2008 includes $2.0 million of recall-related charges, or approximately 2.5% of
net sales.
 
 14




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##### Table of Contents



5)
    
    We review the distribution and mix of our products by key national retailers. Our ten
largest retail customers account for approximately 75% 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 have
increased the net number of Zicam products that they carry for the 2008/2009 cold season.
 Critical Accounting Policies and Estimates
    Intangible Assets and Goodwill:
 Income Taxes: Accounting for Income Taxes
 Revenue Recognition:
 Customer Sales Returns and Allowances:
 15




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Accounts Receivable and Allowance for Doubtful Accounts:
 Legal Contingencies: Accounting for Contingencies,
 Results of Operations for the Three Months Ended December 31, 2008 Compared to the Three Months
Ended December 31, 2007
  Three Months Ended December 31,2008
    
    
    2007Net sales
    
    $
    38,702,412
    
    
    
    100
    %
    
    $
    30,801,567
    
    
    
    100
    %Cost of sales
    
    
    11,204,657
    
    
    
    29
    
    
    
    11,060,163
    
    
    
    36Gross profit
    
    
    27,497,755
    
    
    
    71
    
    
    
    19,741,404
    
    
    
    64Selling, general and administrative
    
    
    18,869,536
    
    
    
    49
    
    
    
    20,043,066
    
    
    
    65Research & development
    
    
    796,996
    
    
    
    2
    
    
    
    875,149
    
    
    
    3Income from operations
    
    
    7,831,223
    
    
    
    20
    
    
    
    (1,176,811
    )
    
    
    (4
    )Interest and other income
    
    
    47,929
    
    
    
    
    
    
    
    130,926
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    7,879,152
    
    
    
    20
    
    
    
    (1,045,885
    )
    
    
    (3
    )Provision for income taxes
    
    
    3,127,707
    
    
    
    8
    
    
    
    (410,724
    )
    
    
    1Net Income
    
    $
    4,751,445
    
    
    
    12
    %
    
    $
    (635,161
    )
    
    
    (2)
    %
 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
  Off-Balance Sheet Arrangements
  Results of Operations for the Nine Months Ended December 31, 2008 Compared to the Nine Months Ended
December 31, 2007
  Nine Months Ended December 31,2008
    
    
    2007Net sales
    
    $
    80,842,362
    
    
    
    100
    %
    
    $
    67,950,743
    
    
    
    100
    %Cost of sales
    
    
    24,777,855
    
    
    
    31
    
    
    
    23,471,858
    
    
    
    35Gross profit
    
    
    56,064,507
    
    
    
    69
    
    
    
    44,478,885
    
    
    
    65Selling, general and administrative
    
    
    36,168,540
    
    
    
    45
    
    
    
    34,131,341
    
    
    
    50Research & development
    
    
    2,550,505
    
    
    
    3
    
    
    
    3,322,834
    
    
    
    5Income from operations
    
    
    17,345,462
    
    
    
    21
    
    
    
    7,024,710
    
    
    
    10Interest and other income
    
    
    239,915
    
    
    
    
    
    
    
    523,174
    
    
    
    1Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    17,585,377
    
    
    
    22
    
    
    
    7,547,884
    
    
    
    11Provision for income taxes
    
    
    6,857,907
    
    
    
    8
    
    
    
    2,835,913
    
    
    
    4Net Income
    
    $
    10,727,470
    
    
    
    13
    %
    
    $
    4,711,971
    
    
    
    7
    %
 18




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##### Table of Contents



Net Sales
  Sales
  Gross Profit
  Selling, General & Administrative (SG&A)
   Research and Development
  19




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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
   20




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21




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##### Table of Contents



Contractual Obligations
  Contractual Cash Obligations(In thousands of dollars)Payments due by Period as of December 31, 2008Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-Term Debt Obligations
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0Capital Lease Obligations
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Operating Lease Obligations
    
    
    2,032
    
    
    
    472
    
    
    
    873
    
    
    
    687
    
    
    
    0Purchase Obligations
    
    
    602
    
    
    
    602
    
    
    
    0
    
    
    
    0
    
    
    
    0Other Long-Term Liabilities Reflected on the
Companys Balance Sheet under GAAP
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    2,634
    
    
    $
    1,074
    
    
    $
    873
    
    
    $
    687
    
    
    $
    0
 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 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 expectations regarding equity compensation;
    
    our belief that our bad debt allowance is sufficient;
    
    our anticipation that we will 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 intention to defend our intellectual property;
    
    our expectations regarding recovery of recall-related cots and associated litigation;
    
    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;
 
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##### Table of Contents




    
    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;
    
    our expectation that SG&A expenses will vary largely in relation to the level of our
advertising and legal expenditures;
    
    our expectations regarding the new swab manufacturing line;
    
    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 and changes in product sales price and
costs that may occur;
    
    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 approximately 3% 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 expectation that our shift of some advertising spending from our fiscal third
quarter to the fiscal fourth quarter will coincide with a higher incidence of colds and flu
in the U.S. population;
    
    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;
    
    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 expectations regarding the impact of the recall on demand for Zicam products;
    
    our expectations that additional reimbursements from insurance carriers will be
minimal;
    
    our expectations regarding the conversion of receivables to cash;
    
    our belief that achievement of the annual bonus compensation goal is probable;
 
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##### Table of Contents




    
    our belief that the manufacturer of the recalled products is 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.
    
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
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##### Table of Contents



Item 4. Controls and Procedures
  
 PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Securities and Use of Proceeds
  25




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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 Programs10/01/08-10/31/08
    
    
    92,194
    
    
    $
    16.22
    
    
    
    855,067
    
    
    
    144,93311/01/08-11/30/08
    
    
    40,948
    
    
    $
    15.28
    
    
    
    896,015
    
    
    
    103,98512/1/08-12/31/08
    
    
    35,400
    
    
    $
    15.13
    
    
    
    931,415
    
    
    
    68,585Total
    
    
    168,542
    
    
    $
    15.76
    
    
    
    931,415
    
    
    
    68,585
   
 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* **
    
    Separation Agreement between Carl Johnson and the registrant, dated December 8, 200810.2* **
    
    Settlement Agreement and Mutual Release between Carl Johnson and the registrant, dated December 8, 200831.1*
    
    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
 26




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##### Table of Contents



*
    
    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. 27




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SIGNATURES
  Matrixx Initiatives, Inc./s/ William J. HemeltWilliam J. HemeltActing President, Chief Operating Officerand Chief Financial OfficerFebruary 6, 2009
 28