##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 Form 10-Q
 (Mark One)
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarter ended September 30, 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 
of incorporation or organization)
    
    (I.R.S. Employer
Identification Number)
 742 N. 24th 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
September 30, 2007 (Unaudited) and March 31, 2007
    
    
    1Condensed Consolidated Statements of
Income for the three months ended
September 30, 2007 and 2006 (Unaudited)
    
    
    2Condensed Consolidated Statements of
Income for the six months ended
September 30, 2007 and 2006 (Unaudited)
    
    
    3Condensed Consolidated Statements of
Cash Flows for the six months ended
September 30, 2007 and 2006 (Unaudited)
    
    
    4Notes to Condensed Consolidated
Financial Statements (Unaudited)
    
    
    5Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures
About Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    22Item 1A.
    
    Risk Factors
    
    
    23Item 2.
    
    Change in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities
    
    
    23Item 5.
    
    Other Information
    
    
    23Item 6.
    
    Exhibits
    
    
    23SIGNATURES
    
    
    
    
    
    
    24EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 September 30,
    
    
    March 31,2007
    
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    9,777,888
    
    
    $
    16,944,189Accounts receivable:Trade, net of allowance for doubtful accounts of $194,775 and $429,031
    
    
    24,072,219
    
    
    
    8,256,929Insurance receivable
    
    
    75,000
    
    
    
    2,200,000Inventories
    
    
    20,247,054
    
    
    
    15,458,928Prepaid expenses
    
    
    1,923,910
    
    
    
    584,771Interest receivable
    
    
    52,055
    
    
    
    84,191Income tax receivable
    
    
    136,614
    
    
    
    1,370,277Deferred tax asset
    
    
    2,701,062
    
    
    
    3,361,605Total Current Assets
    
    
    58,985,802
    
    
    
    48,260,890Property and Equipment, at cost:Office furniture and computer equipment
    
    
    1,381,674
    
    
    
    1,356,931Machine tooling and manufacturing equipment
    
    
    5,322,466
    
    
    
    5,225,020Laboratory furniture and equipment
    
    
    387,003
    
    
    
    339,343Leasehold improvements
    
    
    354,744
    
    
    
    350,5767,445,887
    
    
    
    7,271,870Less accumulated depreciation
    
    
    (2,478,873
    )
    
    
    (1,925,598
    )Net Property and Equipment
    
    
    4,967,014
    
    
    
    5,346,272Other Assets:Deposits
    
    
    286,840
    
    
    
    221,963Other assets
    
    
    82,770
    
    
    
    82,770Restricted cash
    
    
    500,000
    
    
    
    500,000Debt issuance costs, net of accumulated amortization of $2,331 and $48,061
    
    
    16,320
    
    
    
    7,171Patents, net of accumulated amortization of $511,027 and $446,002
    
    
    1,726,584
    
    
    
    1,692,115Goodwill
    
    
    15,039,836
    
    
    
    15,039,836Total Other Assets
    
    
    17,652,350
    
    
    
    17,543,855Total Assets
    
    $
    81,605,166
    
    
    $
    71,151,017LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    4,536,754
    
    
    $
    2,584,553Accrued expenses
    
    
    4,768,249
    
    
    
    3,162,814Income tax payable
    
    
    1,088,732
    
    
    
    Sales commissions
    
    
    419,163
    
    
    
    372,206Sales returns and allowances
    
    
    1,678,525
    
    
    
    2,391,290Legal liability
    
    
    990,650
    
    
    
    1,045,000Total Current Liabilities
    
    
    13,482,073
    
    
    
    9,555,863Deferred tax liability
    
    
    1,225,959
    
    
    
    1,160,328Total Liabilities
    
    
    14,708,032
    
    
    
    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, 10,149,483 and
10,079,317 shares issued
    
    
    10,149
    
    
    
    10,079Additional paid-in capital
    
    
    50,475,781
    
    
    
    49,122,216Retained earnings
    
    
    17,045,692
    
    
    
    11,698,83567,531,622
    
    
    
    60,831,130Less common stock held in treasury, at cost (66,800 and 53,800 shares)
    
    
    (634,488
    )
    
    
    (396,304
    )Total Stockholders Equity
    
    
    66,897,134
    
    
    
    60,434,826Total Liabilities and Stockholders Equity
    
    $
    81,605,166
    
    
    $
    71,151,017
  1




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 2007
    
    2006Net sales
    
    $
    28,575,748
    
    
    $
    34,121,356Cost of sales
    
    
    9,576,341
    
    
    
    11,153,910Gross Profit
    
    
    18,999,407
    
    
    
    22,967,446Selling, general and administrative expenses
    
    
    7,832,060
    
    
    
    9,909,790Research and development
    
    
    994,632
    
    
    
    1,149,479Income From Operations
    
    
    10,172,715
    
    
    
    11,908,177Other Income (Expense):Interest and other income
    
    
    145,673
    
    
    
    76,636Interest expense
    
    
    
    
    
    
    (64,222
    )Total Other Income
    
    
    145,673
    
    
    
    12,414Income Before Provision For Income Taxes
    
    
    10,318,388
    
    
    
    11,920,591Provision for income taxes
    
    
    3,909,160
    
    
    
    4,770,221Net Income
    
    $
    6,409,228
    
    
    $
    7,150,370Net Income Per Share of Common Stock:Basic:Weighted Average Number of Common Shares
Outstanding
    
    
    9,818,349
    
    
    
    9,671,264Net Income Per Share of Common Stock
    
    $
    0.65
    
    
    $
    0.74Diluted:Weighted Average Number of Common Shares
Outstanding
    
    
    10,158,593
    
    
    
    9,971,383Net Income Per Share of Common Stock
    
    $
    0.63
    
    
    $
    0.72
  2




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 2007
    
    2006Net sales
    
    $
    37,149,176
    
    
    $
    42,327,489Cost of sales
    
    
    12,411,695
    
    
    
    13,558,617Gross Profit
    
    
    24,737,481
    
    
    
    28,768,872Selling, general and administrative expenses
    
    
    14,088,275
    
    
    
    17,488,202Research and development
    
    
    2,447,685
    
    
    
    3,012,668Income From Operations
    
    
    8,201,521
    
    
    
    8,268,002Other Income (Expense):Interest and other income
    
    
    392,248
    
    
    
    211,444Interest expense
    
    
    
    
    
    
    (64,222
    )Total Other Income
    
    
    392,248
    
    
    
    147,222Income Before Provision For Income Taxes
    
    
    8,593,769
    
    
    
    8,415,224Provision for income taxes
    
    
    3,246,637
    
    
    
    3,122,651Net Income
    
    $
    5,347,132
    
    
    $
    5,292,573Net Income Per Share of Common Stock:Basic:Weighted Average Number of Common Shares
Outstanding
    
    
    9,798,380
    
    
    
    9,629,002Net Income Per Share of Common Stock
    
    $
    0.55
    
    
    $
    0.55Diluted:Weighted Average Number of Common Shares
Outstanding
    
    
    10,128,064
    
    
    
    9,929,101Net Income Per Share of Common Stock
    
    $
    0.53
    
    
    $
    0.53
  3




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2007 AND 2006
 2007
    
    2006Cash Flows From Operating ActivitiesNet income
    
    $
    5,347,132
    
    
    $
    5,292,573Adjustments to reconcile net income to net cash
used in operating activities:Depreciation
    
    
    553,275
    
    
    
    289,098Amortization
    
    
    74,527
    
    
    
    81,898Deferred income taxes
    
    
    726,174
    
    
    
    3,367,528Common stock issued for compensation
    
    
    814,216
    
    
    
    312,628Changes in assets and liabilities:Accounts receivable
    
    
    (15,815,290
    )
    
    
    (14,956,697
    )Insurance receivable
    
    
    2,125,000
    
    
    
    Interest and other receivables
    
    
    32,136
    
    
    
    140,235Income tax receivable
    
    
    2,322,395
    
    
    
    (1,167,257
    )Inventories
    
    
    (4,788,126
    )
    
    
    (7,893,046
    )Prepaid expenses and other
    
    
    (1,339,139
    )
    
    
    (900,867
    )Accounts payable
    
    
    1,952,201
    
    
    
    7,233,948Accrued expenses
    
    
    1,652,392
    
    
    
    (2,344,895
    )Legal liability
    
    
    (54,350
    )
    
    
    (58,500
    )Sales returns and allowances
    
    
    (712,765
    )
    
    
    (528,164
    )Net Cash Used In Operating Activities
    
    
    (7,110,222
    )
    
    
    (11,131,518
    )Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (174,017
    )
    
    
    (586,299
    )Deposits and other
    
    
    (164,371
    )
    
    
    (2,641,388
    )Restricted cash
    
    
    
    
    
    
    4,500,000Net Cash (Used) Provided By Investing Activities
    
    
    (338,388
    )
    
    
    1,272,313Cash Flows From Financing Activities:Debt issuance costs
    
    
    (18,651
    )
    
    
    (6,442
    )Proceeds from borrowing
    
    
    
    
    
    
    4,000,000Purchase of treasury stock
    
    
    (238,184
    )
    
    
    Issuance of common stock
    
    
    539,144
    
    
    
    292,695Net Cash Provided By Financing Activities
    
    
    282,309
    
    
    
    4,286,253Net Decrease in Cash and Cash Equivalents
    
    
    (7,166,301
    )
    
    
    (5,572,952
    )Cash and Cash Equivalents at Beginning of Period
    
    
    16,944,189
    
    
    
    11,401,441Cash and Cash Equivalents at End of Period
    
    $
    9,777,888
    
    
    $
    5,828,489Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    
    
    
    $
    35,889Income taxes
    
    
    
    
    
    
    1,022,095
  4




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




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Earnings Per Share,
   Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income applicable to common shareholders
    
    $
    6,409,228
    
    
    $
    7,150,370
    
    
    $
    5,347,132
    
    
    $
    5,292,573Weighted average common shares outstanding  Basic
    
    
    9,818,349
    
    
    
    9,671,264
    
    
    
    9,798,380
    
    
    
    9,629,002Dilutive Securities:Options
    
    
    198,969
    
    
    
    200,661
    
    
    
    194,836
    
    
    
    201,147Restricted Stock
    
    
    141,275
    
    
    
    99,458
    
    
    
    134,848
    
    
    
    98,952Weighted average common shares outstanding  Diluted
    
    
    10,158,593
    
    
    
    9,971,383
    
    
    
    10,128,064
    
    
    
    9,929,101Net income per common share:Basic
    
    $
    0.65
    
    
    $
    0.74
    
    
    $
    0.55
    
    
    $
    0.55Diluted
    
    $
    0.63
    
    
    $
    0.72
    
    
    $
    0.53
    
    
    $
    0.53
 6




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MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   September 30,
    
    
    March 31,2007
    
    
    2007Raw materials and packaging
    
    $
    3,487,273
    
    
    $
    4,391,903Finished goods
    
    
    16,759,781
    
    
    
    11,067,025Total
    
    $
    20,247,054
    
    
    $
    15,458,928
    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
 The Fair Value Option for Financial Assets
and Financial Liabilities: Including an amendment of FASB Statement No. 115
 7




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Litigation
   Product Liability Matters
 General.
  December 31, 2005
    
    December 31, 2006
    
    March 31, 2007
    
    June 30, 2007
    
    October 31, 2007Number of Pending
Lawsuits
    
    50
    
    25
    
    28
    
    25
    
    
    20Number of Plaintiffs
    
    427
    
    36
    
    40
    
    38
    
    
    33
 8




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##### Table of Contents



Settlement of Arizona Consolidated Litigation.
 Cases Dismissed Since June 30, 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 11, 2005
    
    District of Minnesota
    
    Rye
    
    August 24, 2007September 13, 2004
    
    Western District of Kentucky
    
    Hans
    
    September 5, 2007February 9, 2005
    
    District of New Jersey
    
    Finder
    
    September 19, 2007July 18, 2006
    
    Western District of New York
    
    Sawyer
    
    October 19, 2007September 23, 2005
    
    Southern District of Florida
    
    Dobson
    
    October 23, 2007
  Cases Dismissed Since June 30, 2007 (State Courts).
 Date Filed
    
    Court
    
    Named Plaintiff
    
    Date DismissedJune 20, 2006
    
    Court of Common Pleas, State of Pennsylvania, City of Fayette
    
    Marva
    
    July 31, 2007
 Pending Cases as of October 31, 2007 (Federal Courts).
 9




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Date Filed
    
    United States District Court
    
    Named PlaintiffJune 12, 2007
    
    Western District of Tennessee
    
    RoseJuly 5, 2007
    
    Southern District of West Virginia, Charleston Division
    
    SeckmanAugust 17, 2007
    
    Eastern District of Washington
    
    Ballew
 Pending Cases as of October 31, 2007 (State Courts).
 Date Filed
    
    Court
    
    Named PlaintiffOctober 31, 2007
    
    State of Arizona, County of Maricopa
    
    Medel
 Potential Claimants.
  Companys Position Regarding the Allegations.
 Scientific Advisory Board.
   Insurance.
 10




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##### Table of Contents



Litigation Reserves
  Securities Litigation Matters
  
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
 ®
  11




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3 Months Ended September 30,
    
    
    Six Months Ended September 30,$000s
    
    2007
    
    % NS
    
    2006
    
    % NS
    
    
    2007
    
    % NS
    
    2006
    
    % NSNet Sales
    
    $
    28,576
    
    
    
    100
    %
    
    $
    34,121
    
    
    
    100
    %
    
    
    $
    37,149
    
    
    
    100
    %
    
    $
    42,327
    
    
    
    100
    %Marketing
    
    $
    3,450
    
    
    
    12
    %
    
    $
    4,136
    
    
    
    12
    %
    
    
    $
    5,593
    
    
    
    15
    %
    
    $
    5,928
    
    
    
    14
    %Sales
    
    $
    872
    
    
    
    3
    %
    
    $
    1,272
    
    
    
    4
    %
    
    
    $
    1,614
    
    
    
    4
    %
    
    $
    1,608
    
    
    
    4
    %General & Administrative
    
    $
    3,089
    
    
    
    11
    %
    
    $
    2,902
    
    
    
    8
    %
    
    
    $
    5,631
    
    
    
    15
    %
    
    $
    6,258
    
    
    
    15
    %Product Liability Litigation
    
    $
    421
    
    
    
    1
    %
    
    $
    1,600
    
    
    
    5
    %
    
    
    $
    1,250
    
    
    
    3
    %
    
    $
    3,694
    
    
    
    8
    %Total Selling, General, and
Administrative
    
    $
    7,832
    
    
    
    27
    %
    
    $
    9,910
    
    
    
    29
    %
    
    
    $
    14,088
    
    
    
    38
    %
    
    $
    17,488
    
    
    
    41
    %Research & Development
    
    $
    995
    
    
    
    3
    %
    
    $
    1,149
    
    
    
    3
    %
    
    
    $
    2,448
    
    
    
    7
    %
    
    $
    3,013
    
    
    
    7
    %
     12




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##### Table of Contents



1)
    
    We compare our year-to-date sales and net income performance against our stated annual
goal for each. For fiscal 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 ($102.5 million  $112.25 million), 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. Generally, sales during the second half of the fiscal year have
accounted for 65% to 68% of our annual sales. Based on that historical trend, our year-to-date
results are in line with our annual expectations.2)
    
    We monitor our share of the cough and cold market. For the 12 weeks ended September 9,
2007, retail sales of our products (as measured by three outlet syndicated scanner data,
not including our largest customer, Wal-Mart) increased approximately 15% over the
comparable period in the previous year, while the entire cough and cold category increased
approximately 6% over the same period.3)
    
    We measure our ability to maintain strong gross margins on our products. During the six
months ended September 30, 2007, we realized an average gross margin of 67%, which is below
our goal of 70%, and below the average gross margin of 68% realized in the six months ended
September 30, 2006 (gross margins on our existing products vary between 60% and 80%).
Average gross margins were negatively impacted by returns of discontinued items and the mix
of products sold, primarily related to the initial sales of our new multi-symptom products
that are sold at prices below our cold remedy and allergy/sinus products. We are
identifying ways to improve gross margin on the new multi-symptom products in the future.4)
    
    We evaluate our operating performance by reviewing, over time, our ability to decrease
selling, general and administrative (SG&A) costs as a percentage of net sales. For the six
months ended September 30, 2007, our SG&A expenses were approximately 38% of our net sales
compared to 41% in the six months ended September 30, 2006. The decrease in SG&A expenses
was primarily due to a decrease in product liability legal expense.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 replace discontinued items for new products and
all of our largest customers added at least one of our new Zicam multi-symptom products to
their shelves for the upcoming cold season.
 Critical Accounting Policies and Estimates
    Intangible Assets and Goodwill:
 13




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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,
 14




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Results of Operations for the Three Months Ended September 30, 2007 Compared to the Three Months
Ended September 30, 2006
  Three Months Ended September 30,2007
    
    
    2006Net sales
    
    $
    28,575,748
    
    
    
    100
    %
    
    $
    34,121,356
    
    
    
    100
    %Cost of sales
    
    
    9,576,341
    
    
    
    34
    
    
    
    11,153,910
    
    
    
    33Gross profit
    
    
    18,999,407
    
    
    
    66
    
    
    
    22,967,446
    
    
    
    67Selling, general and administrative
    
    
    7,832,060
    
    
    
    27
    
    
    
    9,909,790
    
    
    
    29Research & development
    
    
    994,632
    
    
    
    3
    
    
    
    1,149,479
    
    
    
    3Income from operations
    
    
    10,172,715
    
    
    
    36
    
    
    
    11,908,177
    
    
    
    35Interest and other income
    
    
    145,673
    
    
    
    1
    
    
    
    76,636
    
    
    
    Interest expense
    
    
    0
    
    
    
    
    
    
    
    64,222
    
    
    
    Income before income taxes
    
    
    10,318,388
    
    
    
    36
    
    
    
    11,920,591
    
    
    
    35Provision for income taxes
    
    
    3,909,160
    
    
    
    14
    
    
    
    4,770,221
    
    
    
    14Net Income
    
    $
    6,409,228
    
    
    
    22
    %
    
    $
    7,150,370
    
    
    
    21
    %
 Net Sales
  Cost of Sales
  Gross Profit
  Selling, General & Administrative
  15




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##### Table of Contents



Research and Development
  Interest & Other Income
  Income Before Income Taxes
  Provision for Income Tax Expense
  Net Income
  Off-Balance Sheet Arrangements
  16




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##### Table of Contents



Results of Operations for the Six Months Ended September 30, 2007 Compared to the Six Months Ended
September 30, 2006
  Six Months Ended September 30,2007
    
    
    2006Net sales
    
    $
    37,149,176
    
    
    
    100
    %
    
    $
    42,327,489
    
    
    
    100
    %Cost of sales
    
    
    12,411,695
    
    
    
    33
    
    
    
    13,558,617
    
    
    
    32Gross profit
    
    
    24,737,481
    
    
    
    67
    
    
    
    28,768,872
    
    
    
    68Selling, general and administrative
    
    
    14,088,275
    
    
    
    38
    
    
    
    17,488,202
    
    
    
    41Research & development
    
    
    2,447,685
    
    
    
    7
    
    
    
    3,012,668
    
    
    
    7Income from operations
    
    
    8,201,521
    
    
    
    22
    
    
    
    8,268,002
    
    
    
    20Interest and other income
    
    
    392,248
    
    
    
    1
    
    
    
    211,444
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    64,222
    
    
    
    Income before income taxes
    
    
    8,593,769
    
    
    
    23
    
    
    
    8,415,224
    
    
    
    20Provision for income taxes
    
    
    3,246,637
    
    
    
    9
    
    
    
    3,122,651
    
    
    
    7Net Income
    
    $
    5,347,132
    
    
    
    14
    %
    
    $
    5,292,573
    
    
    
    13
    %
 Net Sales
  Cost of Sales
  Gross Profit
  Selling, General & Administrative
  17




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##### Table of Contents



Research and Development
  Interest & Other Income
  Income Before Income Taxes
  Provision for Income Tax Expense
  Net Income
 18




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##### Table of Contents



Liquidity and Capital Resources
        19




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##### Table of Contents



Contractual Obligations
  Contractual Cash Obligations(In thousands of dollars)Payments due by Period as of September 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
    
    
    482
    
    
    
    140
    
    
    
    324
    
    
    
    18
    
    
    
    0Purchase Obligations
    
    
    5,830
    
    
    
    5,830
    
    
    
    0
    
    
    
    0
    
    
    
    0Other Long-Term Liabilities Reflected on the
Companys Balance Sheet under GAAP
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Total
    
    $
    6,312
    
    
    $
    5,970
    
    
    $
    324
    
    
    $
    18
    
    
    $
    0
 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;
    
    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 belief that retailers seasonal buying patterns have changed;
    
    our belief that that the Companys tax positions will be sustained;
    
    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;
 20




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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 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 regarding SG&A expenses;
    
    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;
    
    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 sales expense will be approximately 4% of annual net sales;
    
    our expectation that research and development spending will be 4% to 5% of annual net sales
in subsequent years;
    
    our expectation of converting receivables to cash;
    
    our expectation regarding investments in equipment;
    
    our expectation regarding investments in a new office facility;
    
    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 belief that our allowance for doubtful accounts is adequate;
    
    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.
   21




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk
   
 Item 4. Controls and Procedures
  
 PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings
  22




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##### Table of Contents



Item 1A. Risk Factors
  
 Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities
  Issuer Purchases of Equity Securities
 (c)Total Number of
    
    (d)(a)
    
    
    
    
    
    Shares Purchased as
    
    Maximum Number ofTotal Number
    
    (b)
    
    Part of Publicly
    
    Shares that May Yet beof Shares
    
    Average Price
    
    Announced Plans or
    
    Purchased Under thePeriod
    
    Purchased
    
    Paid per Share
    
    Programs
    
    Plans or Programs7/01/07-7/31/07
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    982,1008/01/07-8/31/07
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    982,1009/1/07-9/30/07
    
    
    13,000
    
    
    $
    18.30
    
    
    
    13,000
    
    
    
    969,100Total
    
    
    13,000
    
    
    $
    18.30
    
    
    
    13,000
    
    
    
    969,100
   
 Item 5. Other Information
   23




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##### 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)31.1*
    
    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. 24




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##### Table of Contents



SIGNATURES
  Matrixx Initiatives, Inc./s/ Carl J. JohnsonCarl J. JohnsonPresident and Chief Executive OfficerNovember 6, 2007/s/ William J. HemeltWilliam J. HemeltExecutive Vice President and Chief Financial OfficerNovember 6, 2007
 25




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##### Table of Contents



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)31.1*
    
    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. 26