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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, 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
(State or other jurisdiction 
of incorporation or organization)
    
    87-0482806
(I.R.S. Employer
Identification Number)
 4742 N. 24 th Street, Suite 455  Phoenix, AZ 85016
 (602) 385-8888
 þ 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, 2007 (Unaudited) and March 31, 2007
    
    
    1Condensed Consolidated Statements of
Operations for the three months ended
December 31, 2007 and 2006 (Unaudited)
    
    
    2Condensed Consolidated Statements of
Income for the nine months ended
December 31, 2007 and 2006 (Unaudited)
    
    
    3Condensed Consolidated Statements of
Cash Flows for the nine months ended
December 31, 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 6. Exhibits
    
    
    24SIGNATURES
    
    
    25EX-31.1EX-31.2EX-32.1EX-32.2




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 December 31,
    
    March 31,2007
    
    2007ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    13,166,427
    
    
    $
    16,944,189Accounts receivable:Trade, net of allowance for doubtful accounts of $197,721 and $429,031
    
    
    23,280,388
    
    
    
    8,256,929Insurance receivable
    
    
    150,000
    
    
    
    2,200,000Inventories
    
    
    17,420,510
    
    
    
    15,458,928Prepaid expenses
    
    
    1,400,633
    
    
    
    584,771Interest receivable
    
    
    70,001
    
    
    
    84,191Income tax receivable
    
    
    213,006
    
    
    
    1,370,277Deferred tax asset
    
    
    2,576,449
    
    
    
    3,361,605Total Current Assets
    
    
    58,277,414
    
    
    
    48,260,890Property and Equipment, at cost:Office furniture and computer equipment
    
    
    1,395,380
    
    
    
    1,356,931Machine tooling and manufacturing equipment
    
    
    5,351,523
    
    
    
    5,225,020Laboratory furniture and equipment
    
    
    410,114
    
    
    
    339,343Leasehold improvements
    
    
    354,744
    
    
    
    350,5767,511,761
    
    
    
    7,271,870Less accumulated depreciation
    
    
    (2,754,484
    )
    
    
    (1,925,598
    )Net Property and Equipment
    
    
    4,757,277
    
    
    
    5,346,272Other Assets:Deposits
    
    
    297,346
    
    
    
    221,963Other assets
    
    
    82,770
    
    
    
    82,770Restricted cash
    
    
    500,000
    
    
    
    500,000Debt issuance costs, net of accumulated amortization of $3,599 and $48,061
    
    
    10,796
    
    
    
    7,171Patents, net of accumulated amortization of $546,849 and $446,002
    
    
    1,870,612
    
    
    
    1,692,115Goodwill
    
    
    15,039,836
    
    
    
    15,039,836Total Other Assets
    
    
    17,801,360
    
    
    
    17,543,855Total Assets
    
    $
    80,836,051
    
    
    $
    71,151,017LIABILITIES AND STOCKHOLDERS EQUITYCurrent Liabilities:Accounts payable
    
    $
    8,252,680
    
    
    $
    2,584,553Accrued expenses
    
    
    4,921,921
    
    
    
    3,162,814Income tax payable
    
    
    598,977
    
    
    
    Sales commissions
    
    
    378,189
    
    
    
    372,206Sales returns and allowances
    
    
    1,476,433
    
    
    
    2,391,290Legal liability
    
    
    990,650
    
    
    
    1,045,000Total Current Liabilities
    
    
    16,618,850
    
    
    
    9,555,863Deferred tax liability
    
    
    1,215,389
    
    
    
    1,160,328Total Liabilities
    
    
    17,834,239
    
    
    
    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, 10,160,853 and
10,079,317 shares issued
    
    
    10,161
    
    
    
    10,079Additional paid-in capital
    
    
    50,881,338
    
    
    
    49,122,216Retained earnings
    
    
    16,410,806
    
    
    
    11,698,83567,302,305
    
    
    
    60,831,130Less common stock held in treasury, at cost (299,994 and 53,800 shares)
    
    
    (4,300,493
    )
    
    
    (396,304
    )Total Stockholders Equity
    
    
    63,001,812
    
    
    
    60,434,826Total Liabilities and Stockholders Equity
    
    $
    80,836,051
    
    
    $
    71,151,017
  1




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MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006
 2007
    
    2006Net sales
    
    $
    30,801,567
    
    
    $
    36,227,332Cost of sales
    
    
    11,060,163
    
    
    
    13,021,671Gross Profit
    
    
    19,741,404
    
    
    
    23,205,661Selling, general and administrative expenses
    
    
    20,043,066
    
    
    
    23,765,510Research and development
    
    
    875,149
    
    
    
    545,323Loss From Operations
    
    
    (1,176,811
    )
    
    
    (1,105,172
    )Other Income (Expense):Interest and other income
    
    
    130,926
    
    
    
    116,490Interest expense
    
    
    
    
    
    
    (52,417
    )Total Other Income
    
    
    130,926
    
    
    
    64,073Loss Before Benefit From Income Taxes
    
    
    (1,045,885
    )
    
    
    (1,041,099
    )Benefit from income taxes
    
    
    (410,724
    )
    
    
    (578,394
    )Net Loss
    
    $
    (635,161
    )
    
    $
    (462,705
    )Net Loss Per Share of Common Stock:Basic and Diluted:Weighted
Average Number of Common Shares Outstanding
    
    
    9,740,909
    
    
    
    9,692,585Net Loss Per Share of Common Stock
    
    $
    (0.07
    )
    
    $
    (0.05
    )
  2




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006
 2007
    
    2006Net sales
    
    $
    67,950,743
    
    
    $
    78,554,821Cost of sales
    
    
    23,471,858
    
    
    
    26,580,288Gross Profit
    
    
    44,478,885
    
    
    
    51,974,533Selling, general and administrative expenses
    
    
    34,131,341
    
    
    
    41,253,712Research and development
    
    
    3,322,834
    
    
    
    3,557,991Income From Operations
    
    
    7,024,710
    
    
    
    7,162,830Other Income (Expense):Interest and other income
    
    
    523,174
    
    
    
    327,934Interest expense
    
    
    
    
    
    
    (116,639
    )Total Other Income
    
    
    523,174
    
    
    
    211,295Income Before Provision For Income Taxes
    
    
    7,547,884
    
    
    
    7,374,125Provision for income taxes
    
    
    2,835,913
    
    
    
    2,544,257Net Income
    
    $
    4,711,971
    
    
    $
    4,829,868Net Income Per Share of Common Stock:Basic:Weighted Average Number of Common Shares
Outstanding
    
    
    9,779,153
    
    
    
    9,649,915Net Income Per Share of Common Stock
    
    $
    0.48
    
    
    $
    0.50Diluted:Weighted Average Number of Common Shares
Outstanding
    
    
    10,095,293
    
    
    
    9,962,175Net Income Per Share of Common Stock
    
    $
    0.47
    
    
    $
    0.48
  3




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##### Table of Contents



MATRIXX INITIATIVES, INC. AND SUBSIDIARIES
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006
 2007
    
    2006Cash Flows From Operating ActivitiesNet income
    
    $
    4,711,971
    
    
    $
    4,829,868Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    828,886
    
    
    
    492,170Amortization
    
    
    111,510
    
    
    
    122,243Deferred income taxes
    
    
    840,217
    
    
    
    1,550,086Common stock issued for compensation
    
    
    1,148,060
    
    
    
    1,592,328Changes in assets and liabilities:Accounts receivable
    
    
    (15,023,459
    )
    
    
    (14,309,520
    )Insurance receivable
    
    
    2,050,000
    
    
    
    3,397,033Interest and other receivables
    
    
    14,190
    
    
    
    121,680Income tax receivable
    
    
    1,157,271
    
    
    
    (1,370,277
    )Inventories
    
    
    (1,961,582
    )
    
    
    (5,258,229
    )Prepaid expenses and other
    
    
    (815,862
    )
    
    
    (22,877
    )Accounts payable
    
    
    5,668,127
    
    
    
    10,876,.015Accrued expenses
    
    
    2,364,067
    
    
    
    (1,087,497
    )Legal liability
    
    
    (54,350
    )
    
    
    (73,500
    )Sales returns and allowances
    
    
    (914,857
    )
    
    
    58,289Net Cash Provided By Operating Activities
    
    
    124,189
    
    
    
    917,812Cash Flows From Investing ActivitiesCapital expenditures
    
    
    (239,891
    )
    
    
    (4,930,543
    )Deposits and other
    
    
    (354,727
    )
    
    
    4,500,000Restricted cash
    
    
    
    
    
    
    841,820Net Cash (Used) Provided By Investing Activities
    
    
    (594,618
    )
    
    
    411,277Cash Flows From Financing Activities:Debt issuance costs
    
    
    (14,288
    )
    
    
    (6,442
    )Proceeds from borrowings
    
    
    
    
    
    
    4,000,000Repayments of borrowings
    
    
    
    
    
    
    (4,000,000
    )Purchase of treasury stock
    
    
    (3,904,189
    )
    
    
    Issuance of common stock
    
    
    611,144
    
    
    
    1,223,534Net Cash (Used) Provided By Financing Activities
    
    
    (3,307,333
    )
    
    
    1,217,092Net (Decrease) Increase in Cash and Cash Equivalents
    
    
    (3,777,762
    )
    
    
    2,546,181Cash and Cash Equivalents at Beginning of Period
    
    
    16,944,189
    
    
    
    11,401,441Cash and Cash Equivalents at End of Period
    
    $
    13,166,427
    
    
    $
    13,947,622Supplemental Disclosure of Cash Flow Information:Cash paid during the period for:Interest
    
    $
    
    
    
    $
    115,222Income taxes
    
    
    
    
    
    
    1,160,453
  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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##### Table of Contents



MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   Earnings Per Share,
   Three Months Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss) applicable to common shareholders
    
    $
    (635,161
    )
    
    $
    (462,705
    )
    
    $
    4,711,971
    
    
    $
    4,829,868Weighted average common shares outstanding  Basic
    
    
    9,740,909
    
    
    
    9,692,585
    
    
    
    9,779,153
    
    
    
    9,649,915Dilutive Securities:Options
    
    
    
    
    
    
    
    
    
    
    177,582
    
    
    
    212,552Restricted Stock
    
    
    
    
    
    
    
    
    
    
    138,558
    
    
    
    99,708Weighted average common shares outstanding  Diluted
    
    
    9,740,909
    
    
    
    9,692,585
    
    
    
    10,095,293
    
    
    
    9,962,175Net income (loss) per common share:Basic
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    0.48
    
    
    $
    0.50Diluted
    
    $
    (0.07
    )
    
    $
    (0.05
    )
    
    $
    0.47
    
    
    $
    0.48
 6




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##### Table of Contents



MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
   December 31,
    
    
    March 31,2007
    
    
    2007Raw materials and packaging
    
    $
    3,001,286
    
    
    $
    4,391,903Finished goods
    
    
    14,419,224
    
    
    
    11,067,025Total
    
    $
    17,420,510
    
    
    $
    15,458,928
    The Fair Value Option for Financial Assets
and Financial Liabilities: Including an amendment of FASB Statement No. 115
 Business Combinations
  7




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Litigation
   Product Liability Matters
 General.
  Dec. 31, 2005
    
    Dec. 31, 2006
    
    March 31, 2007
    
    Sept. 30, 2007
    
    Dec. 31, 2007Number of Pending
    
    
    50
    
    
    
    25
    
    
    
    28
    
    
    
    22
    
    
    
    19Number of Plaintiffs
    
    
    427
    
    
    
    36
    
    
    
    40
    
    
    
    36
    
    
    
    32
  Settlement of Arizona Consolidated Litigation.
 8




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##### Table of Contents



Cases Dismissed Since September 30, 2007 (Federal Courts).
 Date Filed
    
    United States District Court
    
    Named Plaintiff
    
    Date DismissedJuly 18, 2006
    
    Western District of New York
    
    Sawyer
    
    October 19, 2007September 23, 2005
    
    Southern District of Florida
    
    Dobson
    
    October 23, 2007May 30, 2007
    
    Northern District of Illinois
    
    McGill
    
    November 15, 2007
  Cases Dismissed Since September 30, 2007 (State Courts).
 Pending
Cases as of January 31, 2008 (Federal Courts).
 Pending
Cases as of January 31, 2008 (State Courts).
 Potential Claimants.
  9




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##### Table of Contents



Companys Position Regarding the Allegations.
 Scientific Advisory Board.
   Insurance.
 Litigation Reserves
  Securities Litigation Matters
  10




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##### Table of Contents



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
 ® ®
   3 Months Ended December 31,
    
    Nine Months Ended December 31,$000s
    
    2007
    
    % NS
    
    2006
    
    % NS
    
    2007
    
    % NS
    
    2006
    
    % NSNet Sales
    
    $
    30,802
    
    
    
    100
    %
    
    $
    36,227
    
    
    
    100
    %
    
    $
    67,951
    
    
    
    100
    %
    
    $
    78,555
    
    
    
    100
    %Marketing
    
    $
    16,177
    
    
    
    53
    %
    
    $
    18,912
    
    
    
    52
    %
    
    $
    21,770
    
    
    
    32
    %
    
    $
    24,840
    
    
    
    32
    %Sales
    
    $
    1,022
    
    
    
    3
    %
    
    $
    1,126
    
    
    
    3
    %
    
    $
    2,636
    
    
    
    4
    %
    
    $
    2,734
    
    
    
    3
    %General & Administrative
    
    $
    2,400
    
    
    
    8
    %
    
    $
    2,587
    
    
    
    7
    %
    
    $
    8,031
    
    
    
    12
    %
    
    $
    8,846
    
    
    
    11
    %Product Liability Litigation
    
    $
    444
    
    
    
    1
    %
    
    $
    1,141
    
    
    
    3
    %
    
    $
    1,694
    
    
    
    2
    %
    
    $
    4,834
    
    
    
    6
    %Total Selling, General, and
Administrative
    
    $
    20,043
    
    
    
    65
    %
    
    $
    23,766
    
    
    
    66
    %
    
    $
    34,131
    
    
    
    50
    %
    
    $
    41,254
    
    
    
    53
    %Research & Development
    
    $
    875
    
    
    
    3
    %
    
    $
    545
    
    
    
    2
    %
    
    $
    3,323
    
    
    
    5
    %
    
    $
    3,558
    
    
    
    5
    %
 11




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##### Table of Contents



1)
    
    We compare our year-to-date sales and net income performance against our stated annual
goal for each. For fiscal 2008, our goal was 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. However, the 2007/2008 cold
season is off to a slow start and the incidence of colds and flu in the general population
for the quarter ended December 31, 2007, was tracking at the lowest levels since Zicam was
introduced in 1999. The low level of illness is reflected in the lower level of sales
realized during the quarter ended December 31, 2007. In accordance with the slow start to
the cold season, recent ordering trends, and cold season illness levels, we announced on
January 16, 2008, that we anticipate fiscal 2008 net sales will be equal to or up to 5%
above the $97.6 million recorded in the twelve months ended March 31, 2007, and net income
will be between $9.0 million and $10.0 million, or $0.90 to $1.00 per share for that same
period.2)
    
    We monitor our share of the cough and cold market. For the 12 weeks ended December 30,
2007, retail sales of our products (as measured by three outlet syndicated scanner data,
not including our largest customer, Wal-Mart) decreased approximately 7% over the
comparable period in the previous year, while the entire cough and cold category decreased
approximately 5% over the same period.3)
    
    We measure our ability to maintain strong gross margins on our products. During the
nine months ended December 31, 2007, we realized an average gross margin of 65%, which is
below our goal of 70%, and below the average gross margin of 66% realized in the nine
months ended December 31, 2006 (gross
 12




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##### Table of Contents



margins on our existing products vary between 55% and 80%). Average gross margins were
negatively impacted by returns of discontinued items and the mix of products sold, primarily
related to 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 nine
months ended December 31, 2007, our SG&A expenses were approximately 50% of our net sales
compared to 53% in the nine months ended December 31, 2006. The decrease in SG&A expenses
was primarily due to a decrease in product liability legal expense and lower marketing
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 with our new products
and all of our largest customers added at least one of our new Zicam multi-symptom products
to their shelves for the current cold season.
 Critical Accounting Policies and Estimates
    Intangible Assets and Goodwill:
 Income Taxes: Accounting for Income Taxes
 Revenue Recognition:
 13




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##### Table of Contents



Customer Sales Returns and Allowances:
 Accounts Receivable and Allowance for Doubtful Accounts:
 Insurance Reimbursements:
 Legal Contingencies: Accounting for Contingencies,
 Results of Operations for the Three Months Ended December 31, 2007 Compared to the Three Months
Ended December 31, 2006
  Three Months Ended December 31,2007
    
    
    2006Net sales
    
    $
    30,801,567
    
    
    
    100
    %
    
    $
    36,227,332
    
    
    
    100
    %Cost of sales
    
    
    11,060,163
    
    
    
    36
    
    
    
    13,021,671
    
    
    
    36Gross profit
    
    
    19,741,404
    
    
    
    64
    
    
    
    23,205,661
    
    
    
    64Selling, general and administrative
    
    
    20,043,066
    
    
    
    65
    
    
    
    23,765,510
    
    
    
    66Research & development
    
    
    875,149
    
    
    
    3
    
    
    
    545,323
    
    
    
    1Loss from operations
    
    
    (1,176,811
    )
    
    
    (4
    )
    
    
    (1,105,172
    )
    
    
    (3
    )Interest and other income
    
    
    130,926
    
    
    
    1
    
    
    
    116,490
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    (52,417
    )
    
    
    Loss before income taxes
    
    
    (1,045,885
    )
    
    
    (3
    )
    
    
    (1,041,099
    )
    
    
    (3
    )Benefit from
income taxes
    
    
    (410,724
    )
    
    
    1
    
    
    
    (578,394
    )
    
    
    2Net Loss
    
    $
    (635,161
    )
    
    
    (2
    )%
    
    $
    (462,705
    )
    
    
    (1
    )%
 14




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##### Table of Contents



Net Sales
  Cost of Sales
  Gross Profit
  Selling, General & Administrative (SG&A)
   Research and Development
  15




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##### Table of Contents



Interest & Other Income
  Loss Before Income Taxes
  Benefit for Income Tax Expense
  Net Loss
  Off-Balance Sheet Arrangements
  Results of Operations for the Nine Months Ended December 31, 2007 Compared to the Nine Months Ended
December 31, 2006
  Nine Months Ended December 31,2007
    
    
    2006Net sales
    
    $
    67,950,743
    
    
    
    100
    %
    
    $
    78,554,821
    
    
    
    100
    %Cost of sales
    
    
    23,471,858
    
    
    
    35
    
    
    
    26,580,288
    
    
    
    34Gross profit
    
    
    44,478,885
    
    
    
    65
    
    
    
    51,974,533
    
    
    
    66Selling, general and administrative
    
    
    34,131,341
    
    
    
    50
    
    
    
    41,253,712
    
    
    
    53Research & development
    
    
    3,322,834
    
    
    
    5
    
    
    
    3,557,991
    
    
    
    4Income from operations
    
    
    7,024,710
    
    
    
    10
    
    
    
    7,162,830
    
    
    
    9Interest and other income
    
    
    523,174
    
    
    
    1
    
    
    
    327,934
    
    
    
    Interest expense
    
    
    
    
    
    
    
    
    
    
    (116,639
    )
    
    
    Income before income taxes
    
    
    7,547,884
    
    
    
    11
    
    
    
    7,374,125
    
    
    
    9Provision for income taxes
    
    
    2,835,913
    
    
    
    4
    
    
    
    2,544,257
    
    
    
    3Net Income
    
    $
    4,711,971
    
    
    
    7
    %
    
    $
    4,829,868
    
    
    
    6
    %
 16




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##### Table of Contents



Net Sales
  Cost of Sales
  Gross Profit
  Selling, General & Administrative (SG&A)
     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
  Liquidity and Capital Resources
    18




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19




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##### Table of Contents



Contractual Obligations
  Contractual Cash Obligations(In thousands of dollars)Payments due by Period as of December 31, 2007Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsLong-Term Debt Obligations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital Lease Obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating Lease Obligations
    
    
    2,695
    
    
    
    364
    
    
    
    1,060
    
    
    
    1,001
    
    
    
    270Purchase Obligations
    
    
    942
    
    
    
    942
    
    
    
    
    
    
    
    
    
    
    
    Other Long-Term Liabilities Reflected on the
Companys Balance Sheet under GAAP
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    3,637
    
    
    $
    1,306
    
    
    $
    1,060
    
    
    $
    1,001
    
    
    $
    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 being equal to or up to 5% above the $97.6
million recorded in the trailing twelve months ended March 31, 2007, and net income
increasing to the range of $9.0 million to $10.0 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 expectations regarding the current cold season;
    
    our expectations regarding new sales personnel;
    
    our belief that retailers seasonal buying patterns have changed;
    
    our expectations regarding the introduction of our new antacid products;
    
    our belief that that the Companys tax positions will be sustained;
    
    our anticipation that we will continue to incur approximately $750,000 in legal expense
each quarter as a result of the Zicam Cold Remedy product liability and securities litigation
in which we are engaged;
    
    our intention to vigorously defend the Zicam Cold Remedy product liability and securities
litigation claims, our expectation that additional product liability lawsuits may be filed
against us, and our belief that any liability resulting from these or other lawsuits,
including any adverse publicity, could materially impact our financial results;
    
    our expectation that the trend of growth in sales in future periods will continue as we
expand consumer awareness and acceptance of our entire Zicam brand of products, increase
distribution, introduce new products, and avoid additional adverse publicity;
    
    our expectation regarding future net income, our belief that expenditures for advertising
and research and development will vary by quarter throughout the year, and our expectation
that advertising expenses will be heaviest in our third and fourth fiscal quarters;
    
    our expectation of the effect of recently issued accounting standards;
    
    our expectation that our mix of products sold will change due to seasonality and varying
growth rates within our four market categories;
    
    our expectation of our 10 largest retailers adding new products;
 20




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##### Table of Contents




    
    our expectation of future stock-based compensation;
    
    our expectations regarding seasonality of sales and earnings;
    
    our expectations regarding increases in advertising expenses;
    
    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 approximately 4% of annual
net sales;
    
    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 Programs10/01/07-10/31/07
    
    
    25,200
    
    
    $
    16.93
    
    
    
    25,200
    
    
    
    943,90011/01/07-11/30/07
    
    
    100,439
    
    
    $
    15.90
    
    
    
    100,439
    
    
    
    843,46112/1/07-12/31/07
    
    
    107,555
    
    
    $
    15.22
    
    
    
    107,555
    
    
    
    735,906Total
    
    
    233,194
    
    
    $
    15.70
    
    
    
    233,194
    
    
    
    735,906
   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. Johnson
President and
Chief Executive Officer
February 6, 2008/s/ William J. HemeltWilliam J. Hemelt
Executive Vice President and
Chief Financial Officer
February 6, 2008
 25




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##### Table of Contents



EXHIBIT INDEX
 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.