UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2003
OR
[ ] 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 0-27646
MATRIXX INITIATIVES, INC.
(Name of registrant as specified in its charter)
DELAWARE 87-0482806
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
2375 EAST CAMELBACK ROAD, SUITE 500
PHOENIX, AZ 85016
(Address of principal executive offices)
(602) 387-5353
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES [ ] NO [X]
There were 9,441,751 shares of the registrant's common stock, $.001 par value,
outstanding as of April 30, 2003.
MATRIXX INITIATIVES, INC.
FORM 10-Q
INDEX
PART I FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Balance Sheet
as of March 31, 2003 and December 31, 2002 1
Condensed Consolidated Statements of
Operations for the three months ended
March 31, 2003 and 2002 3
Condensed Consolidated Statements of
Cash Flows for the three months ended
March 31, 2003 and 2002 4
Notes to Condensed Consolidated
Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
Item 4. Controls and Procedures 20
PART II OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 4 Submission of Matters to a Vote of
Security Holders 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
CERTIFICATIONS 23
Unless otherwise indicated in this quarterly report, "Matrixx," "us," "we,"
"our", "the Company" and similar terms refer to Matrixx Initiatives, Inc. and
its subsidiaries. "Zicam" is a registered trademark of our subsidiary, Zicam,
LLC, and the Matrixx name and logo are trademarks of the Company.
MATRIXX INITIATIVES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
March 31, December 31,
2003 2002
------------ ------------
Current Assets:
Cash and cash equivalents $ 12,222,123 $ 12,010,091
Accounts receivable:
Trade, net allowance for doubtful
accounts of $669,025 and $647,280 4,360,696 7,037,596
Inventories 1,805,692 1,573,034
Prepaid expenses and other 300,903 523,829
Deferred tax asset 995,741 1,073,765
------------ ------------
Total Current Assets 19,685,155 22,218,315
------------ ------------
Property and Equipment, at cost:
Office furniture and equipment 631,356 588,395
Leasehold improvements 37,202 39,314
------------ ------------
668,558 627,709
Less accumulated depreciation (125,978) (89,795)
------------ ------------
Net Property and Equipment 542,580 537,914
------------ ------------
Other Assets:
Deposits 37,697 37,697
Debt issuance costs, net of accumulated
amortization of $29,167 and $20,417 5,833 14,583
Deferred tax asset 8,280,589 8,284,720
Patents, net of accumulated amortization of
$88,470 and $71,700 1,035,130 1,051,900
Goodwill 15,039,836 15,039,836
------------ ------------
Total Other Assets 24,399,085 24,428,736
------------ ------------
Total Assets $ 44,626,820 $ 47,184,965
============ ============
The accompanying notes are an integral part of these
condensed consolidated financial statements.
1
MATRIXX INITIATIVES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, December 31,
2003 2002
------------ ------------
Current Liabilities:
Accounts payable and accrued expenses $ 3,147,944 $ 5,771,407
Sales returns and allowances 941,953 1,004,713
Current portion of long-term debt 5,339,478 5,253,643
------------ ------------
Total Current Liabilities 9,429,375 12,029,763
------------ ------------
Long-Term Debt, net of current portion above:
Financial institutions and other 5,339,478 5,253,643
Less current portion above (5,339,478) (5,253,643)
------------ ------------
Total Long-Term Debt -- --
------------ ------------
Commitments and contingencies -- --
Stockholders' Equity:
Preferred stock: $.001 par value, 2,000,000 shares
authorized, none issued or outstanding -- --
Common stock: $.001 par value, 30,000,000 shares
authorized, 9,441,751 and 9,441,451 shares
issued and outstanding 9,442 9,442
Additional paid in capital 41,527,322 41,524,921
Accumulated deficit (6,199,951) (6,317,305)
------------ ------------
35,336,813 35,217,058
Less common stock held in treasury, at cost
(21,200 and 9,600 shares) (139,368) (61,856)
------------ ------------
Total Stockholders' Equity 35,197,445 35,155,202
------------ ------------
Total Liabilities and Stockholders' Equity $ 44,626,820 $ 47,184,965
------------ ------------
The accompanying notes are an integral part of these
condensed consolidated financial statements.
2
MATRIXX INITIATIVES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended March 31,
----------------------------
2003 2002
----------- -----------
Net sales $ 8,901,675 $ 5,067,511
Cost of sales 2,649,045 1,247,236
----------- -----------
Gross Profit 6,252,630 3,820,275
Operating expenses 5,692,531 2,881,049
Research and development 310,762 26,545
----------- -----------
Income From Operations 249,337 912,681
----------- -----------
Other Income (Expense):
Interest and other income 36,959 113,693
Interest and other expense (85,835) (182,213)
----------- -----------
Total Other Income (Expense) (48,876) (68,520)
----------- -----------
Income Before Provision (Benefit) For Income Taxes 200,461 844,161
Provision (benefit) for income taxes 83,107 (84,702)
----------- -----------
Net Income $ 117,354 $ 928,863
=========== ===========
Net Income Per Share of Common Stock:
Basic:
Weighted Average Number of Common Shares Outstanding 9,429,397 9,422,684
Net Income Per Share of Common Stock $ 0.01 $ 0.10
Diluted:
Weighted Average Number of Common Shares Outstanding 9,435,712 9,424,128
Net Income Per Share of Common Stock $ 0.01 $ 0.10
The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
MATRIXX INITIATIVES, INC. AND SUBSIDIARY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
----------------------------
2003 2002
------------ ------------
Cash Flows From Operating Activities:
Net income $ 117,354 $ 928,863
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 36,183 6,380
Amortization 16,770 16,770
Amortization of imputed interest on notes payable 85,835 166,282
Amortization of debt issuance costs 8,750 --
Deferred income taxes 82,155 --
Loss on disposal of property and equipment -- 17,391
Other 2,401 --
Changes in assets and liabilities:
Restricted cash -- 1,503,150
Accounts receivable 2,676,900 2,904,880
Interest receivable -- (11,383)
Inventories (232,658) 310,960
Prepaid expenses and other 222,926 356,102
Accounts payable and accrued expenses (2,623,463) (4,936,496)
Sales returns and allowances (62,760) (611,218)
------------ ------------
Net Cash Provided By Operating Activities 330,393 651,681
------------ ------------
Cash Flows From Investing Activities:
Maturity of marketable securities -- 10,656,380
Capital expenditures (40,849) (150,581)
Deposits and other -- (31,486)
------------ ------------
Net Cash Provided (Used) By Investing Activities (40,849) 10,474,313
------------ ------------
Cash Flows From Financing Activities:
Purchase of treasury stock (77,512) (9,420)
Principal payments on notes payable -- (1,000,000)
------------ ------------
Net Cash (Used) By Financing Activities (77,512) (1,009,420)
------------ ------------
Net Increase in Cash and Cash Equivalents 212,032 10,116,574
Cash and Cash Equivalents at Beginning of Period 12,010,091 7,342,985
------------ ------------
Cash and Cash Equivalents at End of Period $ 12,222,123 $ 17,459,559
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ -- $ 15,931
Income taxes 950 --
The accompanying notes are an integral part of these
condensed consolidated financial statements.
4
MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying financial information of Matrixx Initiatives, Inc. is
prepared in accordance with the rules prescribed for filing condensed
interim financial statements and, accordingly, does not include all
disclosures that may be necessary for complete financial statements
prepared in accordance with generally accepted accounting principles. The
disclosures presented are sufficient, in management's opinion, to make the
interim information presented not misleading. All adjustments, consisting
of normal recurring adjustments, which are necessary so as to make the
interim information not misleading, have been made. Results of operations
for the three months ended March 31, 2003 are not necessarily indicative of
results of operations that may be expected for the year ending December 31,
2003. It is recommended that this financial information be read with the
complete financial statements included in Matrixx's Annual Report on Form
10-K for the year ended December 31, 2002 previously filed with the
Securities and Exchange Commission.
2. As of December 31, 1997, Matrixx adopted Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings Per Share", which specifies the method
of computation, presentation and disclosure of earnings per share. SFAS No.
128 requires the presentation of two earnings per share amounts, basic and
diluted. Basic earnings per share is calculated using the average number of
common shares outstanding. Diluted earnings per share is computed on the
basis of the average number of common shares outstanding plus the dilutive
effect of outstanding stock options using the "treasury stock" method.
The schedule below summarizes the elements included in the calculation of
basic and diluted net income (loss) per common share for the three months
ended March 31, 2003 and 2002. Options, warrants and other incremental
shares to purchase 379,300 and 632,960 shares of common stock at March 31,
2003 and 2002, respectively, were not included in the computation of
diluted earnings per share because their effect would be anti-dilutive.
Three Months Ended March 31,
----------------------------
2003 2002
---------- ----------
Net income applicable to common shareholders $ 117,354 $ 928,863
========== ==========
Weighted average common shares outstanding:
Weighted average common shares
outstanding - Basic 9,429,397 9,422,684
Dilutive securities 6,315 1,444
---------- ----------
Weighted average common shares
outstanding - Diluted 9,435,712 9,424,128
========== ==========
Net income per common share:
Basic $ 0.01 $ 0.10
Diluted $ 0.01 $ 0.10
5
MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Inventories consisted of the following at March 31, 2003:
Raw materials and packaging $ 756,323
Finished goods 1,121,343
Less reserve for obsolescence (71,974)
-----------
Total $ 1,805,692
===========
4. Stock-Based Compensation
The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 123,
"Accounting for Stock-Based Compensation". The Company will continue to measure
compensation expense for its stock-based employee compensation plans using the
intrinsic value method prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its plans and
does not recognize compensation expense for its stock-based compensation plans
other than for options granted to non-employees. If the Company had elected to
recognize compensation expense based upon the fair value at the grant date for
awards under its stock-based compensation plans consistent with the methodology
prescribed by SFAS No. 123, the Company's net income and earnings per share
would be reduced to the following pro forma amounts:
Three Months Ended
March 31,
----------------------------
2003 2002
------------ ------------
Net income (loss) applicable to common shareholders, as reported $ 117,354 $ 928,863
Less stock based employee compensation expense determined
under fair value based methods for all awards, net of
related tax effects 158,015 113,599
------------ ------------
Pro forma Net Income (Loss) $ (40,661) $ 815,264
============ ============
Net income per share of common stock:
Basic:
As reported $ .01 $ .10
Pro forma $ -- $ .09
Diluted:
As reported $ .01 $ .10
Pro forma $ -- $ .09
6
MATRIXX INITIATIVES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Recent Developments
On April 4, 2003, the Company commenced legal proceedings against Zila Swab
Technologies, Inc. (doing business as Innovative Swab Technologies) ("IST"), the
contract manufacturer of the dry handle swab applicator for Zicam(R) Cold Remedy
Swab products, and its parent, Zila, Inc. The arbitration proceeding is being
conducted in Phoenix, Arizona before the American Arbitration Association. In
its demand for arbitration, the Company has claimed that, among other things,
IST materially breached the manufacturing contract by repeatedly and
consistently failing to meet minimum swab production levels since the contract's
inception in 2002 and by attempting in March 2003 to unilaterally increase the
contract's pricing terms. The Company is claiming $20 million in compensatory
damages plus punitive damages, and is seeking an order of specific performance
requiring IST to satisfy its production obligations under the remaining term of
the contract (which runs until the end of fiscal 2003) at the pricing levels
stated in the contract. On April 21, 2003, the Superior Court of the State of
Arizona denied the Company's request for a temporary restraining order to compel
continued production by IST of swab products under the contract, as described in
the Company's Report on Form 8-K filed April 15, 2003, which has the effect of
deferring resolution of the Company's claims to the arbitration proceedings. In
IST's response to the Company's demand for arbitration, IST has counterclaimed
against the Company alleging negligent misrepresentation and breach of good
faith and fair dealing. The Company believes that IST's counterclaims are
without merit and intends to vigorously defend against them in the arbitration
proceedings.
The Company has elected to pay under protest the difference between the contract
price and the price which IST claims is owed in order to assure continued
deliveries of the swab products pending a negotiated settlement of the dispute
or a final determination by the arbitration panel. Although the Company is
currently paying the disputed amounts, it is not reflecting the impact of these
payments in its financial results until this dispute is settled or determined by
arbitration. If the Company ultimately agrees to a higher price for the swabs or
an adverse decision is rendered in the arbitration, the Company's financial
results will be negatively impacted.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Through our 100%-owned subsidiary, Zicam LLC, we are engaged in the
development, production and sale of over-the-counter pharmaceutical products. As
part of a restructuring effort that began in 2001, we introduced five new Zicam
nasal gel products in 2002, improved package graphics for our entire Zicam
product line and engaged a new sales team to represent our products to
retailers. At our annual meeting of shareholders held on April 30, 2003, we
introduced three new Zicam Cold Remedy products - Oral Mist, Chewables and
RapidMelts - that we intend to ship to retailers in the third quarter of 2003.
We expect earnings in future periods will be significantly affected by the
level of sales, and the timing and amount of our advertising and research and
development expenses. Our expected growth in sales will depend on our success in
securing additional retail distribution of our products, and in particular
additional distribution of the five products that were introduced in 2002 and
the three new products to be introduced in late 2003. In addition, sales in
future periods will be affected by expanding consumer awareness and acceptance
of our entire Zicam brand of products. Expenditures for advertising and research
and development will vary by quarter throughout the year and could be
significantly different from amounts in the same periods in prior years. We
expect advertising expenses to be heaviest in our first and fourth fiscal
quarters.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2003 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2002
Certain information is set forth below for our Zicam operations expressed
in dollars and as a percentage of net sales for the periods indicated:
THREE MONTHS ENDED MARCH 31,
---------------------------------------
2003 2002
----------------- ------------------
Net sales $ 8,901,675 100% $ 5,067,511 100%
Cost of sales 2,649,045 30 1,247,236 25
----------- --- ----------- ---
Gross profit 6,252,630 70 3,820,275 75
Operating expenses 5,692,531 64 2,881,049 57
Research and development 310,762 3 26,545 --
----------- --- ----------- ---
Income from operations 249,337 3 912,681 18
Interest and other income 36,959 -- 113,693 2
Interest expense 85,835 1 182,213 3
----------- --- ----------- ---
Income before income taxes 200,461 2 844,161 17
Provision for income taxes 83,107 1 (84,702) (1)
----------- --- ----------- ---
Net Income $ 117,354 1% $ 928,863 18%
=========== === =========== ===
8
NET SALES. Net Zicam sales for the three months ended March 31, 2003
increased to approximately $8.9 million, or almost 76 % above net sales in the
first quarter of the prior year. Virtually all of the increase in net sales was
attributable to sales of the five new products that we introduced in late 2002,
in particular, sales of Zicam Cold Remedy Swabs - Adult Size and Zicam Extreme
Congestion Relief, and to increased advertising compared to the previous year.
For much of the quarter ended March 31, 2003, we experienced a backorder
for Zicam Cold Remedy Swabs - Adult Size and Kid's Size due to the inability of
our contract manufacturer, IST, to meet its production obligations under our
manufacturing contract. However, with the end of the 2002-2003 cold season, the
backorder situation has been eliminated. We intend to build inventory as much as
possible during the next several months in order to meet expected demand for the
swab products during the 2003-2004 cold season. We cannot be certain that IST
will be able to produce the amount of inventory that we are seeking to acquire
before the commencement of the next cold season. Even if we are able to acquire
this inventory, it is possible that another backlog could occur in the next cold
season as a result of higher product demand.
Demand for our products is highly seasonal which results in significant
fluctuations in our quarterly sales throughout the year. Generally, sales in the
second quarter are weaker than in other quarters of the year. We expect
increases in sales in future periods from continued, albeit lower, growth rates
for our Zicam Cold Remedy -pump and Zicam Allergy Relief products, and increased
sales of the five products we introduced in 2002, as well as the three new
products that we expect to introduce in 2003.
COST OF SALES. Our cost of sales increased to approximately $2.65 million,
or 112% above the first quarter 2002 cost of sales of approximately $1.2
million. Approximately 70% of the increase is due to the higher sales volume and
the remaining 30% is due to the mix of products sold. Our swab products cost
more per unit than our other products. Consequently, an increasing percentage of
sales from swab products results in a higher total unit cost. The unit cost of
goods sold will continue to be affected by the relative mix of products sold.
Our current pricing with IST is fixed by contract until the end of fiscal
2003. In March 2003, IST advised us of an increase in pricing for the balance of
2003. We advised IST of our opposition to this unilaterally-imposed increase on
the basis that it was not permitted under the contract. Based on our inability
to negotiate a resolution of this dispute, on April 4, 2003, we commenced legal
proceedings against IST and its parent company. In our demand for arbitration,
we claimed that, among other things, IST materially breached the manufacturing
contract by repeatedly and consistently failing to meet minimum swab production
levels since the contract's inception in 2002 and by attempting in March 2003 to
unilaterally increase the contract's pricing terms. We are claiming $20 million
in compensatory damages plus punitive damages, as well as an order of specific
performance requiring IST to satisfy its production obligations under the
remaining term of the contract at the pricing levels stated in the contract.
Pending a final decision in the arbitration or a negotiated settlement of
this dispute, we have elected to pay under protest the difference between the
swab product contract price and the new product pricing imposed by IST in order
to assure continued deliveries of the swab products. Although we are currently
paying the disputed pricing amounts, we are not reflecting the impact of these
9
payments in our financial results until this matter is resolved. If we
ultimately agree to a higher price for the swab products or an adverse decision
is rendered in the arbitration, our financial results will be negatively
impacted.
If we are able to negotiate a new supply contract with IST before the end
of 2003, we expect that this new contract will provide for higher product costs
than those provided for under our current contract with IST. We cannot be
certain, however, that we will be able to agree with IST on terms for a new
contract, nor can we determine at this time what the increased costs in any new
contract would be.
GROSS PROFIT. Gross profit for the first quarter of 2003 increased to
approximately $6.3 million, or 64% greater than the first quarter of 2002, due
to the substantial increase in units sold. However, the gross margin on products
sold declined from 75% to 70% due to the higher per unit cost of the swab
products sold in 2003.
OPERATING EXPENSES. Operating expenses for the first quarter of 2003
increased to $5.7 million or more than $2.8 million above the first quarter of
2002. The increase was primarily due to an increase in advertising expenses of
$2.7 million during the first quarter of 2003. Advertising expenses in the first
quarter of 2003 were $3.7 million compared to $1.0 million for the first quarter
of 2002. Also contributing to the increase in operating expenses was an increase
in sales commission expense, resulting from increased sales, of approximately
$280,000. The effect of that increase was offset by the absence of a royalty
payment charge of approximately $296,000 which we incurred in the first quarter
of 2002. We expect that operating expenses in future periods will vary largely
in connection with the level of our advertising expenditures.
RESEARCH AND DEVELOPMENT. Research and development expenses increased from
approximately $27,000 in the first quarter of 2002 to approximately $311,000 in
the first quarter of 2003. The increase reflects our previously announced
commitment to expand our research and development efforts to an amount equal to
approximately 6% of annual net sales in order to establish a continued pipeline
of new product offerings in future periods.
INTEREST AND OTHER INCOME. Interest and other income for the first quarter
of 2003 decreased to $37,000 or approximately $77,000 below the level recorded
in the first quarter of 2002. The decrease is largely due to a decrease in
interest income due to a decline in our invested cash position between the two
periods and a decline in investment interest rates.
INTEREST EXPENSE. Interest expense for the first quarter of 2003 decreased
to approximately $86,000, or $96,000 below the level of the first quarter of
2002. Interest expense for both periods is primarily related to the imputed
interest associated with the note issued by us to Zensano, Inc. in connection
with our acquisition of Zensano's 40% interest in Zicam, LLC (then Gel Tech,
L.L.C.) in December 2001. The imputed interest related to the note decreased due
to our repayment of one-half of the note in 2002. Two final payments of $2.75
million each are due under the note in June and November 2003.
INCOME BEFORE INCOME TAX. Income in the first quarter of 2003 decreased to
$200,000 from $800,000 in the first quarter of 2002 primarily as a result of the
higher level of advertising and research and development expenses, which offset
the higher level of sales. We expect that earnings in future periods will
10
continue to be significantly impacted by the seasonality of our sales, revenues
and expenses associated with new products and the timing and amount of
advertising and research and development expenses.
PROVISION FOR INCOME TAX EXPENSE. In 2003, we recorded a provision for
income tax expense based on an estimate of our effective income tax rate for the
full year. This reflects the determination that we made at the end of fiscal
2002 that we would more likely than not be able to realize the benefit of tax
losses accumulated in prior years to offset taxable income in 2003 and future
years. In the first quarter of 2002, we were not able to make a similar
determination and consequently reflected a valuation allowance on the deferred
tax assets. The reduction in income tax expense recorded in the first quarter of
2002 reflects a refund of a tax payment made in connection with the sale of our
gum assets in late 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our working capital increased slightly from approximately $10.2 million at
December 31, 2002 to approximately $10.3 million at March 31, 2003. During the
three-month period ended March 31, 2003, we experienced an increase in cash from
operating activities of approximately $330,000. The increase in cash from
operations was due primarily to net income of $117,000, various non-cash charges
to income of approximately $230,000, decreases in accounts receivable of $2.7
million and prepaid expense of $200,000. These cash inflows were offset by
decreases in accounts payable of $2.6 million and an increase in inventory of
$200,000.
Investing activities used cash of approximately $41,000 for capital
expenditures while $78,000 of cash was used for financing activities to acquire
Matrixx common stock in the open market.
We have a $2.5 million credit facility with Comerica Bank-California, but
currently do not have any borrowings in place under the facility. The credit
facility would bear interest at a rate of prime plus 1.5%. We expect to extend
the current facility with Comerica, which expires at the end of May 2003, by
another year.
We believe that our existing capital resources and our credit line will be
sufficient to fund our operations and capital requirements for the next 12
months.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our consolidated financial statements and accompanying notes have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods.
We regularly evaluate the accounting policies and estimates that we use to
prepare our consolidated financial statements. In general, management's
estimates are based on historical experience, on information from third party
professionals and on various other assumptions that are believed to be
11
reasonable under the facts and circumstances. Actual results could differ from
those estimates made by management.
We believe that our critical accounting policies and estimates include the
accounting for intangible assets and goodwill, accounting for income taxes, and
accounting for returns and allowances associated with our products.
INTANGIBLE ASSETS AND GOODWILL: We recorded approximately $15.0 million in
goodwill in connection with the 40% Zicam, LLC interest that we acquired from
Zensano, Inc. in December 2001. Under SFAS 142, goodwill must be tested annually
to identify a potential impairment and the amount of any impairment loss.
Factors that could affect this analysis would be significant loss of market
share, a general decline in Zicam product sales, higher than expected increases
in expenses and various other matters. Any change in key assumptions about the
business or prospects of Zicam, LLC, or any change in market conditions or other
externalities affecting Zicam, LLC, could result in an impairment charge, and
such a charge could have a material adverse effect on our financial condition
and results of operations.
ACCOUNTING FOR INCOME TAXES: Due to our significant operating losses prior to
2001, we possess a sizeable tax loss carry-forward which can be used to reduce
our taxable income in future periods. Due to our history of operating losses, we
recorded a deferred tax valuation allowance in 2001 and prior years to offset
the entire deferred tax asset arising from our tax loss carry-forward. However,
due to the significant improvement in our net income in 2002, together with our
expectation of continuing profitability in future years, we have determined that
we are more likely than not to realize the tax benefit associated with our tax
loss carry-forward. Consequently, we reduced the deferred tax valuation
allowance and recorded a large portion of the deferred tax asset in 2002. In
subsequent periods, we will record income tax expense based on our estimated
effective income tax rate for each period. We will continue to evaluate the
deferred tax valuation allowance regularly and adjust the amount to reflect our
expectation of our ability to realize the tax benefit arising from our tax loss
carry-forward on a quarterly basis. Should there be a significant change in our
expectations of future income, the impact of adjusting the deferred tax
valuation allowance could be significant which would negatively impact our
earnings.
ACCOUNTING FOR CUSTOMER RETURNS AND ALLOWANCES. We recognize revenues on the
sale of our products when they are shipped from our warehouse facility, and at
that time record a provision for estimated product returns. The estimate for
product returns is based on our historical experience of sales to retailers and
is reviewed regularly to ensure that it reflects the liability associated with
product returns. To date, our sales returns experience has been consistent with
our estimate for returns, except for returns of outdated products arising from
excessive production during the introduction of Zicam Cold Remedy in the
1999-2000 cold season. Currently, we are recording a provision of 3% of gross
sales for our original Zicam Cold Remedy and Zicam Allergy Relief products for
potential returns and allowances. In establishing the appropriate reserve level
for the five new Zicam products introduced in the third quarter of 2002, we
reviewed the similarities and differences of the five products relative to our
original Zicam Cold Remedy and Zicam Allergy Relief products for which we now
have almost three years of product return experience. Based on that review, we
are recording a 7% provision of gross sales for these new products. We will
12
review the return provision regularly and adjust these reserve amounts as actual
product return experience continues to develop. Should the actual level of
product returns vary significantly from our estimates, our operating and
financial results would be materially affected. In addition, we expect that a
higher sales returns allowance will be recorded in the future for any other new
products that we introduce until such products achieve market acceptance.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
FORWARD-LOOKING STATEMENTS
This Form 10-Q, including documents incorporated herein by reference,
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. The words "believe", "expect", "estimate",
"anticipate", "intend", "may", "might", "will", "would", "could", "project" and
"predict", or similar words and phrases generally identify forward-looking
statements. Forward looking statements contained herein and in documents
incorporated by reference herein include, but are not limited to statements
regarding:
o our expectation of shipping our three new Zicam products to retailers
in late 2003;
o our expectation regarding increases in sales in future periods of our
current and new Zicam products;
o our belief that sales, expense levels and earnings in future periods
will be primarily affected by timing and amounts of advertising,
research and development expenses, costs of introduction of new
products, our success in securing additional retail distribution,
expanding consumer awareness and acceptance of our entire Zicam brand
of products;
o our plan to build our swab product inventory to meet product demand in
the forthcoming 2003-2004 cold season;
o our expectation regarding the seasonality of our quarterly sales, with
the second quarter generally being the weakest;
o our expectation regarding the growth rates for future sales of
products;
o our expectation that expenditures for advertising and research and
development will vary by quarter throughout the year, with advertising
expenses being heaviest in the first and fourth fiscal quarters;
o our expectation that any new swab manufacturing contract that we enter
into with IST will provide for higher product costs than those
provided for under our current contract with IST;
13
o our expectation of extending our current facility with Comerica
Bank-California for another year;
o our expectation of continuing profitability in future years;
o our intention to continue outsourcing all of our product manufacturing
and packaging for the foreseeable future;
o our intention to evaluate our deferred tax valuation allowance
regularly and adjust the amount to reflect our expectation of our
ability to realize the tax benefit arising from our tax loss
carry-forward on a quarterly basis;
o our belief that our current capital resources and credit line are
sufficient to fund the Company for the next 12 months; and
o 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.
We may make additional written or oral forward-looking statements from time
to time in filings with the Securities and Exchange Commission or in public news
releases. Such additional statements may include, but not be limited to,
projections of revenues, income or loss, capital expenditures, acquisitions,
plans for future operations, financing needs or plans, the impact of inflation
and plans relating to our products or services, as well as assumptions relating
to the foregoing. Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in, contemplated
by, or underlying our forward-looking statements.
Statements in this Form 10-Q, including those set forth in the sections
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and under the subheading below entitled "Risk Factors",
describe factors that could contribute to or cause actual results to differ
materially from our expectations. Other such factors include (i) less than
anticipated demand for our current and future products, (ii) lack of market
acceptance for or uncertainties concerning the efficacy of our current and
future products, (iii) difficulties in increasing production or maintaining
sufficient inventories to meet unexpectedly high demand in the short term,
including our inability to resolve product backlog and product pricing issues,
(iv) financial difficulties encountered by one or more of our principal
customers, (v) difficulties in obtaining additional capital for marketing,
research and development, and other expenses, (vi) oversupply of product
inventory to retailers resulting in unsold product returns, and (vii) material
litigation involving patent and contractual claims, product liabilities and
consumer issues.
Forward-looking statements contained in this Form 10-Q speak only as of the
date of this Form 10-Q or, in the case of any document incorporated by
reference, the date of that document. We do not undertake, and we specifically
disclaim any obligation, to publicly update or revise any forward-looking
statement contained in this Form 10-Q or in any document incorporated herein by
reference to reflect changed assumptions, the occurrence of unanticipated events
or changes to future operating results over time.
14
RISK FACTORS
OUR NEW BUSINESS FOCUS MEANS WE HAVE A LIMITED OPERATING HISTORY ON WHICH TO
ASSESS OUR CURRENT AND PROSPECTIVE PERFORMANCE
Although we have been in operations for a number of years, the significant
change of direction and focus in our business that we made in 2001 by exiting
the chewing gum business and refocusing entirely on the development, production
and sale of over-the-counter pharmaceutical products presents a limited
operating history upon which you may evaluate our current and prospective
performance. The possibility of our future success must be considered relative
to the problems, challenges, complications and delays frequently encountered in
connection with the development and operation of a new business, and the
development and marketing of relatively new products such as the Zicam products.
IF OUR ZICAM PRODUCTS DO NOT GAIN WIDESPREAD MARKET ACCEPTANCE, OUR ANTICIPATED
SALES AND RESULTS OF OPERATIONS WILL SUFFER
Although studies have indicated that Zicam Cold Remedy can significantly reduce
the duration and severity of the common cold, we cannot be certain that this
product (including our new swab formats) will achieve widespread acceptance by
the market. To date, Zicam Allergy Relief has not achieved the market success
presently enjoyed by Zicam Cold Remedy. In addition, given their recent
introduction in late 2002, our five new Zicam products have not yet reached the
level of market recognition achieved by the original Zicam Cold Remedy. While we
are working to increase the market presence of Zicam Allergy Relief and our five
new Zicam products, we cannot be certain that demand for these products will
grow. It is too soon to determine how the market will respond to the three new
Zicam products that we plan to begin shipping in late 2003. If any unanticipated
problem arises concerning the efficacy of Zicam Cold Remedy, Zicam Allergy
Relief or any of our other new products, or if any of these products fails to
achieve widespread market acceptance for any other reason, our operating results
and prospects would be materially adversely affected.
UNANTICIPATED PROBLEMS ASSOCIATED WITH PRODUCT DEVELOPMENT AND COMMERCIALIZATION
COULD ADVERSELY AFFECT OUR OPERATING RESULTS
Our successful development of existing and new products is subject to the risks
of failure and delay inherent in the development and commercialization of
products based on innovative technologies. These risks include the possibilities
that:
o we may experience unanticipated or otherwise negative research and
development results;
o existing or proposed products may be found to be ineffective or
unsafe, or may otherwise fail to receive required regulatory
clearances or approvals;
o we may find that existing or proposed products, while effective, are
uneconomical to commercialize or market;
o we may be unable to produce sufficient product inventories to meet
customer demand;
15
o existing or proposed products do not achieve broad market acceptance;
or
o proprietary rights held by third parties preclude us from developing
or marketing existing or proposed products.
Our inability to develop and commercialize our existing products or any new
products on a timely basis and within our financial budgets could have a
material adverse effect on our operating results and future prospects.
OUR INABILITY TO PROVIDE SCIENTIFIC PROOF FOR PRODUCT CLAIMS MAY ADVERSELY
AFFECT OUR SALES
The marketing of our Zicam products involves claims that these products assist
in reducing the duration and severity of the common cold (in the case of Zicam
Cold Remedy and the related Zicam swab products) and controlling allergy
symptoms (in the case of Zicam Allergy Relief). Under FDA and FTC rules, we are
required to obtain scientific data to support any health claims we make
concerning our products. Although we have neither provided nor been requested to
provide any scientific data to the FDA in support of claims regarding our Zicam
products, we have obtained scientific data for all of our products. We cannot be
certain, however, that the scientific data we have obtained in support of our
claims will be deemed acceptable to the FDA or FTC, should either agency request
any such data in the future. If the FDA or the FTC requests any supporting
information, and we are unable to provide support that is acceptable to the FDA
or the FTC, either agency could force us to stop making the claims in question
or restrict us from selling the affected products.
FDA AND OTHER GOVERNMENT REGULATION MAY RESTRICT OUR ABILITY TO SELL OUR
PRODUCTS
We are subject to various federal, state and local laws and regulations
affecting our business. Our Zicam products are subject to regulation by the FDA,
including regulations with respect to labeling of products, approval of
ingredients in products, claims made regarding the products, and disclosure of
product ingredients. If we do not comply with these regulations, the FDA could
force us to stop selling the affected products or require us to incur
substantial costs in adopting measures to maintain compliance with these
regulations. Our advertising claims regarding our products are subject to the
jurisdiction of the FTC as well as the FDA. In both cases we are required to
obtain scientific data to support any advertising or labeling health claims we
make concerning our products, although no pre-clearance or filing is required to
be made with either agency. If we are unable to provide the required support for
such claims, the FTC may stop us from making such claims or require us to stop
selling the affected products.
WE MAY FAIL TO COMPETE EFFECTIVELY, PARTICULARLY AGAINST LARGER, MORE
ESTABLISHED PHARMACEUTICAL AND HEALTH PRODUCTS COMPANIES, CAUSING OUR BUSINESS
AND OPERATING RESULTS TO SUFFER
The consumer health products industry is highly competitive. We compete with
companies in the United States and abroad that are engaged in the development of
both traditional and innovative healthcare products. Many of these companies
have much greater financial and technical resources and production and marketing
capabilities than we do. As well, many of these companies have already achieved
significant product acceptance and brand recognition with respect to products
that compete directly with our Zicam products. Our competitors may successfully
develop and market superior or less expensive products which could render our
Zicam and other future products less valuable or unmarketable.
16
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY OR IF WE INFRINGE THE
INTELLECTUAL PROPERTY OF OTHERS, OUR FINANCIAL CONDITION AND FUTURE PROSPECTS
COULD BE MATERIALLY HARMED
We rely significantly on the protections afforded by patent and trademark
registrations that we routinely seek from the U.S. Patent and Trademark Office
("USPTO") and from similar agencies in foreign countries. We cannot be certain
that any patent or trademark application that we file will be approved by the
USPTO or other foreign agencies. In addition, we cannot be certain that we will
be able to successfully defend any trademark, trade name or patent that we hold
against claims from, or use by, competitors or other third parties. No
consistent policy has emerged from the USPTO or the courts regarding the breadth
of claims allowed or the degree of protection afforded under biotechnology and
similar patents. Our future success will depend on our ability to prevent others
from infringing on our proprietary rights, as well as our ability to operate
without infringing upon the proprietary rights of others. We may be required at
times to take legal action to protect our proprietary rights and, despite our
best efforts, we may be sued for infringing on the patent rights of others.
Patent litigation is costly and, even if we prevail, the cost of such litigation
could adversely affect our financial condition. If we do not prevail, in
addition to any damages we might have to pay, we could be required to stop the
infringing activity or obtain a license. We cannot be certain that any required
license would be available to us on acceptable terms, or at all. If we fail to
obtain a license, our business might be materially adversely affected. In
addition to seeking patent protection, we rely upon a combination of
non-disclosure agreements, other contractual restrictions and trade secrecy laws
to protect proprietary information. There can be no assurance that these steps
will be adequate to prevent misappropriation of our proprietary information or
that our competitors will not independently develop technology or trade secrets
that compete with our proprietary information.
WE MAY INCUR SIGNIFICANT COSTS RESULTING FROM PRODUCT LIABILITY CLAIMS
We are subject to significant liability should use or consumption of our
products cause injury, illness or death. Although we carry product liability
insurance, there can be no assurance that our insurance will be adequate to
protect us against product liability claims or that insurance coverage will
continue to be available on reasonable terms. A product liability claim, even
one without merit or for which we have substantial coverage, could result in
significant legal defense costs, thereby increasing our expenses and lowering
our earnings. Such a claim, whether or not proven to be valid, could have a
material adverse effect on our product branding and goodwill, resulting in
reduced market acceptance of our products. This in turn could materially
adversely affect our results of operations and financial condition.
WE DO NOT HAVE MANUFACTURING CAPABILITIES OF OUR OWN
We currently do not have the physical or human resources to independently
manufacture our Zicam products or any other products that we may develop. We
currently outsource all of our product manufacturing and packaging operations
and intend to continue this outsourcing for the foreseeable future. If we are
unable to enter into cost-effective or otherwise suitable arrangements for
manufacturing of our Zicam products or any other products, or if our third party
contractors fail to adequately perform their manufacturing operations (as has
occurred to date with our new swab products), our sales and related financial
results could be materially adversely affected. If, in the future, we decide to
establish our own manufacturing facilities, we will require substantial
additional funds and significant additional personnel to undertake such
17
operations. We cannot be certain that such funding or a sufficient number of
such qualified persons will be available for such an undertaking.
WE MAY CONTINUE TO EXPERIENCE PRODUCT BACKLOGS
At the end of 2002, we had approximately $1.3 million in backlog of swab orders,
which continued at reduced levels until the end of March 2003. While we are now
working to build up our swab product inventory in order to prevent a similar
backlog from occurring in the 2003-2004 cold season, we cannot be certain that
our efforts, even if executed properly, will be sufficient to prevent a backlog
of these products from repeating itself in the 2003-2004 cold season or that
other product backlogs will not occur in the future. Any such future backlogs
will potentially result in higher production costs, higher freight costs to
expedite shipment of raw materials and finished goods, fines from certain
retailers, cancelled orders and lost opportunity costs. These in turn could
materially affect our results of operations and financial condition.
OUR PRICING DISPUTE WITH IST COULD HARM OUR SWAB PRODUCT SALES
Our current pricing with our swab product supplier, IST, is fixed by contract
until the end of fiscal 2003, at or before which time we will be required to
review and negotiate new pricing terms. In March 2003, IST advised us of an
increase in pricing for the balance of 2003. We advised IST of our opposition to
this pricing increase on the basis that it was not permitted by our contract,
and subsequently initiated legal proceedings to both protect our position under
the contract and seek damages caused by IST's deficient performance under the
contract. In order to ensure a continued supply of swab products from IST we
have elected to pay the disputed price increase under protest pending resolution
of this dispute. Any suspension or termination of swab production by IST would
have a material adverse effect on our product sales and, accordingly, our
results of operations and financial condition. Additionally, a failure to secure
a contract supply agreement beyond 2003 would affect our ability to market the
swab products and negatively impact our results of operations and financial
condition.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR IMMEDIATE AND FUTURE SALES MAY DEPRESS
THE PRICE OF OUR STOCK
Sales of substantial amounts of our common stock in the open market or the
availability of a large number of additional shares for sale could adversely
affect the market price of our common stock. Substantially all of our
outstanding shares of common stock, as well as the shares underlying vested but
as yet unexercised warrants and options, have either been registered for public
sale or may be sold under Rule 144 promulgated under the Securities Act of 1933,
as amended. Therefore, all of these shares may be immediately sold by the
holders. A substantial increase in sales of our common stock could depress the
price of our common stock.
OUR BOARD OF DIRECTORS IS AUTHORIZED TO ISSUE SHARES OF PREFERRED STOCK THAT
COULD HAVE RIGHTS SUPERIOR TO OUR OUTSTANDING SHARES OF COMMON STOCK, AND, IF
ISSUED, COULD ADVERSELY IMPACT THE VALUE OF OUR COMMON STOCK
Our certificate of incorporation permits our board of directors, in its sole
discretion, to issue up to 2,000,000 shares of authorized but unissued preferred
stock. These shares may be issued by our board without further action by our
shareholders, and may include any of the following rights (among others) as our
board may determine, which rights may be superior to the rights of our
outstanding common stock:
18
o voting rights, including the right to vote as a class on particular
matters;
o preferences as to dividends and liquidation rights;
o conversion rights;
o anti-dilution protections; and
o redemption rights.
Since our board of directors has the authority to determine, from time to time,
the terms of our authorized preferred stock, there is no limit on the amount of
common stock that could be issuable upon conversion of any future series of
preferred stock that may be issued. The rights of holders of our common stock
will be subject to, and may be adversely affected by, the rights of the holders
of any series of preferred stock that may be issued in the future. In addition,
the market price of our common stock may be adversely affected by the issuance
of any series of preferred stock with voting or other rights superior to those
of our common stock. The issuance of any series of preferred stock could also
have the effect of making it more difficult for a third party to acquire a
majority of our outstanding common stock.
THE PRICE OF OUR STOCK MAY CONTINUE TO BE VOLATILE
The market price of our common stock, which is quoted for trading on the Nasdaq
National Market, has been highly volatile and may continue to be volatile in the
future. Any or a combination of the following factors could cause the market
value of our common stock to decline quickly: Operating results that differ from
market expectations, negative or other unanticipated results of clinical trials
or other testing, delays in product development, technological innovations or
commercial product introductions by our competitors, changes in government
regulations, developments concerning proprietary rights, including pending or
threatened patent litigation, public concerns regarding the safety of any of our
products and general economic and stock market conditions. Since the Spring of
2000, the stock market has experienced, and it may continue to experience,
significant price and volume fluctuations. These fluctuations have particularly
affected the market prices of equity securities of many small capitalization
companies, like Matrixx, that are not yet profitable or that experience low or
inconsistent earnings. Often, the effect on the price of such securities is
disproportionate to the operating performance of such companies. In our case,
such broad market fluctuations may adversely affect our stockholders' ability to
dispose of their shares of Matrixx at a price equal to or above the price at
which they purchased such shares.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risk exposure relates to our variable rate revolving
line of credit with Comerica Bank-California, which is described in the notes to
our consolidated financial statements contained in this quarterly report. At no
time during the first quarter of fiscal 2003 did we have any outstanding balance
against this line of credit. During fiscal 2002, the average outstanding balance
on our prior line of credit on a daily basis was approximately $100,000.
Assuming future borrowings in line with our average borrowings in 2002, a
hypothetical interest rate change of 1% would increase our interest expense
approximately $1,000 per year from the expense levels that we experienced in
19
2002. Consequently, we believe that moderate interest rate increases will not
have a material adverse impact on our results of operations or financial
position in the foreseeable future.
As of each of March 31, 2003 and December 31, 2002, we did not participate
in any market risk-sensitive commodity instruments for which fair value
disclosure would be required under Statement of Financial Accounting Standards
No. 107. We presently hold approximately $8.0 million in short-term U.S.
treasury securities which are not subject to material risk. We believe that we
are not subject in any material way to other forms of market risk, such as
foreign currency exchange risk or foreign customer purchases (of which there
were none in the first quarter of fiscal 2003 or in any of 2002) or commodity
price risk.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of filing of this quarterly report, we
carried out an evaluation, under the supervision and with the participation of
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of
the design and operation of our disclosure controls and procedures pursuant to
Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company and required to be included in our
periodic SEC filings. There were no significant changes in our internal controls
or other factors that could significantly affect these controls subsequent to
the date of their evaluation and there were no corrective actions taken with
regard to significant deficiencies or material weaknesses in our controls.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 2003, the Company commenced legal proceedings against IST and its
parent company in connection with the Company's swab product manufacturing
contract with IST. The arbitration proceeding is being conducted in Phoenix,
Arizona before the American Arbitration Association. In its demand for
arbitration, the Company has claimed that, among other things, IST materially
breached the manufacturing contract by repeatedly and consistently failing to
meet minimum swab production levels since the contract's inception in 2002 and
by attempting in March 2003 to unilaterally increase the contract's pricing
terms. The Company is claiming $20 million in compensatory damages plus punitive
damages, and is seeking an order of specific performance requiring IST to
satisfy its production obligations under the remaining term of the contract
(which runs until the end of fiscal 2003) at the pricing levels stated in the
contract. On April 21, 2003, the Superior Court of the State of Arizona denied
the Company's request for a temporary restraining order to compel continued
production by IST of swab products under the contract, as described in the
Company's Report on Form 8-K filed April 15, 2003, which has the effect of
deferring resolution of the Company's claims to the arbitration proceedings. In
IST's response to the Company's demand for arbitration, IST has counterclaimed
against the Company alleging negligent misrepresentation and breach of good
20
faith and fair dealing. The Company believes that IST's counterclaims are
without merit and intends to vigorously defend against them in the arbitration
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our 2003 annual meeting of stockholders held on April 30, 2003, our
stockholders elected Edward E. Faber and L. White Matthews, III to our Board of
Directors for terms of three years each. Of the 9,432,051 shares entitled to
vote in such election, the votes cast were as follows:
Director Votes For Votes Withheld
-------- --------- --------------
Edward E. Faber 9,036,391 29,025
L. White Matthews, III 9,037,191 28,225
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
Exhibit No. Title
----------- -----
3.01 Articles of Incorporation and Amendments thereto of the
registrant(1)
3.02 Bylaws of the registrant (1)
4.01 Rights Agreement dated as of July 22, 2002 by and
between the registrant and Corporate Stock Transfer,
Inc. (2)
99.1* Certification pursuant to 18 U.S.C. Section 1350.
99.2* Certification pursuant to 18 U.S.C. Section 1350.
----------
* Filed with this Form 10-Q.
(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 registration statement
on Form 8-A, filed July 23, 2002, file number 000-27646.
B. REPORTS ON FORM 8-K
The registrant did not file any reports on Form 8-K during the first
quarter of fiscal 2003.
On April 15, 2003, the registrant filed a report on Form 8-K announcing the
commencement of arbitration proceedings against IST.
On April 30, 2003, the registrant filed a report on Form 8-K announcing its
preliminary earnings results for the first quarter of fiscal 2003.
On May 1, 2003, the registrant filed a report on Form 8-K announcing the
election of two directors at the registrant's 2003 annual meeting of
shareholders and the introduction at such annual meeting of three new Zicam
products.
21
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Matrixx Initiatives, Inc.
/s/ Carl J. Johnson
----------------------------------------
Carl Johnson
President and
Chief Executive Officer
/s/ William J. Hemelt
----------------------------------------
William J. Hemelt
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
May 15, 2003
22
CERTIFICATION
I, Carl J. Johnson, President and Chief Executive Officer of Matrixx
Initiatives, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Matrixx Initiatives,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Carl J. Johnson
----------------------------------------
Carl J. Johnson
President and Chief Executive Officer
23
CERTIFICATION
I, William J. Hemelt, Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of Matrixx Initiatives, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Matrixx Initiatives,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ William J. Hemelt
----------------------------------------
William J. Hemelt
Executive Vice President, Chief
Financial Officer, Treasurer & Secretary
24