SECURITIES AND EXCHANGE COMMISSION
                           WASHINGTON, D.C. 20549-1004

                                   ----------

                                    FORM 10-K

(Mark One)
[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                   For the fiscal year ended December 31, 2002

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934

               For the transaction period from _______ to ________

                           Commission File No. 0-27646

                            MATRIXX INITIATIVES, INC.
                    (Name of business issuer in its charter)

            DELAWARE                                              87-0482806
  (State or Other Jurisdiction                                 (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)

                        2375 E. Camelback Road, Suite 500
                                Phoenix, AZ 85016
                                 (602) 387-5353
                    (Address of principal executive offices,
                 Issuer's Telephone Number, Including Area Code)

        Securities registered pursuant to Section 12(b) of the Act: None

          Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class                    Name of Each Exchange on Which Registered
- -------------------                    -----------------------------------------
Common Stock, $.001 par value                     Nasdaq National Market

     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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K, is not to be contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

     Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). YES [ ] NO [X]

     As of March 20, 2003, 9,441,651 shares of the Registrant's Common Stock
were outstanding. As of March 20, 2003, the market value of the Registrant's
Common Stock (based on the closing price of the shares on the Nasdaq National
Market), excluding shares held by affiliates, was approximately $71 million.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Registrant's definitive proxy statement prepared in
connection with the Registrant's 2003 annual meeting of stockholders are
incorporated by reference into Part III, Items 10, 11, 12 and 13 of this Form
10-K.

                                TABLE OF CONTENTS

                                                                            PAGE

PART I .....................................................................   1

  ITEM 1. BUSINESS..........................................................   1
  ITEM 2. DESCRIPTION OF PROPERTY...........................................   6
  ITEM 3. LEGAL PROCEEDINGS.................................................   6
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............   6
  EXECUTIVE OFFICERS OF MATRIXX.............................................   6

PART II ....................................................................   7

  ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..........   7
  ITEM 6. SELECTED FINANCIAL DATA...........................................   8
  ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
            RESULTS OF OPERATIONS ..........................................   9
  CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS AND
    RISK FACTORS ...........................................................  16
  ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......  22
  ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......................  22
  ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
            AND FINANCIAL DISCLOSURE .......................................  22

PART III ...................................................................  22

  ITEM 10. INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS..........  22
  ITEM 11. EXECUTIVE COMPENSATION...........................................  23
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...  23
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................  24
  ITEM 14. CONTROLS AND PROCEDURES..........................................  24
  ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..  24

SIGNATURES .................................................................  56

CERTIFICATIONS .............................................................  57

     Unless otherwise indicated in this Form 10-K, "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.

                                      -i-

                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

     We develop, produce, market and sell innovative, over-the-counter (OTC)
pharmaceutical products with an emphasis on those which utilize unique or novel
delivery systems. Through our subsidiary, Zicam, LLC, we produce, market and
sell seven different products under the Zicam(R) brand: Zicam Cold Remedy nasal
gel, a patented, homeopathic remedy that has been clinically proven to
significantly reduce the duration and severity of the common cold; two related
nasal swab cold remedy products - Zicam Cold Remedy Swabs and Zicam Cold Remedy
Swabs - Kids Size; Zicam Allergy Relief, a homeopathic nasal gel formula
designed to control allergy symptoms for sufferers of hay fever and other upper
respiratory allergies; Zicam Extreme Congestion Relief, a nasal gel formula
designed to provide fast-acting, long-lasting relief of nasal congestion; Zicam
Sinus Relief, a nasal gel formula that enhances the benefits of Extreme
Congestion Relief with menthol and eucalyptus for improved feeling of sinus
pressure relief; and Zicam Nasal Moisturizer, a non-medicated nasal moisturizer.

     We were incorporated in Utah in 1991. Prior to July 2001, as Gum Tech
International, Inc., our principal business was the development, manufacture and
sale of nutritional and healthcare-related chewing gum products. In 1999, we
formed Gel Tech, L.L.C. with another company, with our ownership interest in Gel
Tech being 60%. The business of Gel Tech was to develop and produce homeopathic
nasal gel products based on a proprietary zincum gluconicum delivery system. In
July 2001, we exited the chewing gum business with the sale of substantially all
of our chewing gum assets and business to the Wm. Wrigley Jr. Company
("Wrigley"). In December 2001, we acquired the remaining 40% of Gel Tech and
changed its name to Zicam, LLC. On June 18, 2002, we reincorporated in Delaware
and changed our name from Gum Tech International, Inc. to Matrixx Initiatives,
Inc.

     Our principal executive offices are located at 2375 E. Camelback Road,
Suite 500, Phoenix, Arizona 85016 and our telephone number is (602) 387-5353.

MARKETS AND COMPANY PRODUCTS

     All seven of our Zicam products are targeted at the cough and cold market
category. That market, which is estimated at more than $3 billion annually in
retail sales in the United States, includes a wide variety of tablets, liquids,
nasal sprays and syrups that provide relief and/or remedy to cold, allergy and
sinus congestion sufferers. The largest sub-segment of that category includes
products formulated to relieve symptoms associated with the common cold. It is
estimated that more than one billion common colds occur in the United States
each year, with over 100 million of these colds resulting in lost days of school
or work, or some level of restricted activity. Colds are estimated to occur at a
rate of two to five per person (six to eight per child) each year. The market
for allergy relief products covers a much smaller segment of the population,
estimated at 35 million people in the United States. However, allergy sufferers
are more likely to require medication for a much longer period of time to
relieve allergy symptoms.

     The most significant of our seven products, Zicam Cold Remedy, a
homeopathic nasal gel product, is based on our patented zincum gluconicum
delivery system. The original product in a nasal pump bottle was introduced in
1999. Together with two nasal swab versions of the product which were introduced
in 2002, Zicam Cold Remedy Swabs and Zicam Cold Remedy Swabs - Kids Size, Zicam
Cold Remedy accounted for more than 70% of our net sales in 2002. Zicam Cold
Remedy was formulated to reduce the duration and severity of the common cold. In
a study published in the October 2000 issue of the ENT- Ear, Nose & Throat
Journal, Zicam Cold Remedy was shown to reduce the duration of the common cold
when taken at the onset of symptoms. In a separate study published in the
January 2003 issue of QJM: An International Journal of Medicine, zincum
gluconicum nasal gel (Zicam Cold Remedy) was shown to reduce the duration and
symptoms of the common cold when treatment was started as late as the second day

of illness. We believe Zicam Cold Remedy is unique in the cough and cold market
category in which we compete due to the claims that we are able to make
regarding the product's ability to reduce the duration of the common cold. To
our knowledge, only one other product in the cough and cold category (including
competing generic copies of that product) is able to make a similar claim.

     Sales of Zicam Cold Remedy have grown steadily since its introduction in
1999 as customer awareness of the product has increased as a result of our
marketing and public relations efforts, and word-of-mouth experience by
consumers. Zicam Cold Remedy Swabs and Zicam Cold Remedy Swabs - Kids Size
contain the same ingredients as Zicam Cold Remedy, and were introduced in late
2002 to appeal to consumers who dislike nasal sprays. Both of these swab
products have been well received by the retail trade, though we have been
limited in meeting consumer demand particularly for the adult swab product due
to production constraints of our supplier. We expect that our current backlog,
which is described below in further detail, will be alleviated within the next
few months as the demand from the current cold season decreases, which will
enable us to build up inventory prior to the 2003-2004 cold season.

     Zicam Allergy Relief, also a homeopathic nasal gel formula, was introduced
in 2000. Zicam Allergy Relief is designed to control allergy symptoms for
sufferers of hay fever and other upper respiratory allergies. An initial
double-blind scientific study indicated that Zicam Allergy Relief reduced the
severity of symptoms resulting from these types of allergies. We believe Zicam
Allergy Relief is distinctive from most allergy products available in the market
due to the absence of side effects, such as drowsiness or jitters. Zicam Allergy
Relief contributed almost 20% of total net sales for 2002.

     Three other Zicam nasal gel products were introduced in late 2002 --
Extreme Congestion Relief, Sinus Relief and Nasal Moisturizer. Zicam Extreme
Congestion Relief is a nasal gel that combines the active ingredient
oxymetazoline hydrochloride into our gel matrix and soothing aloe vera to
provide fast-acting, long-lasting relief of nasal congestion and sinus pressure.
Zicam Sinus Relief provides all of the benefits of the Extreme product with the
aromatic strength of a cooling menthol/eucalyptus blend. Zicam Nasal Moisturizer
is a non-medicated moisturizer that suspends aloe and eight other moisturizers
in the gel matrix to help ensure constant, soothing relief from irritated nasal
membranes. While greater retail distribution opportunities exist, these three
products contributed approximately 7% of total 2002 net sales. Continued growth
in sales from these three products is dependent on achieving much wider
distribution among retailers, and in particular, among large nation-wide food,
drug and mass marketers.

BUSINESS STRATEGY

     Our objective is to become a recognized leader in providing OTC
pharmaceutical products which utilize innovative and proprietary alternative
delivery systems. To achieve our objective, the key elements of our business
strategy include the following:

     EXPANDING MARKETING EFFORTS FOR EXISTING PRODUCTS: We intend to continue to
develop and refine our sales and marketing efforts to increase market
penetration of our Zicam products in U.S. households. Such efforts include
improving the timing and consistency of marketing activities compared to
previous years, executing effective trial generating programs, implementing
programs with retailers to enhance consumer awareness of our products and
seeking to increase recommendations from healthcare professionals. We are also
implementing new, creative advertising approaches and public relations efforts.
We believe these efforts will continue to build brand awareness, trial and sales
of our products.

     CAPITALIZING ON OUR NASAL GEL TECHNOLOGY AND KNOW-HOW: We intend to
leverage our nasal gel technology and know-how to develop additional gel
delivery system product offerings that complement the current Zicam products.
Additional gel technology products may include over-the-counter pharmaceutical
ingredients that can be effectively delivered through our nasal gel delivery
system. We believe extending the Zicam product line in this way will bring
additional consumer awareness and expand our product presence and support from
retailers.

                                       2

     PURSUING ADDITIONAL DELIVERY SYSTEMS: Our success in expanding consumer
acceptance of our nasal gel delivery system and growing the Zicam franchise
indicates to us that opportunities exist to pursue development of other unique
and proprietary consumer healthcare product delivery systems. We are seeking to
identify, through internal research and development efforts and through
consideration of external opportunities, other growth opportunities for Matrixx.

     EXTENDING SALES INTO NEW MARKETS: International markets represent an
important growth opportunity for Matrixx. We continue to explore expanding sales
into appropriate international markets where sales prospects are favorable.
Because of the complex and multiple regulatory environments, languages, customs,
logistics and working capital requirements involved in developing these markets,
we are exploring possible relationships with multi-national business
organizations and established international distributors capable of introducing
products and competing in international markets. We believe this approach could
provide significant sales growth opportunities for our current and future
products. However, we do not expect to be able to finalize any agreement soon
and do not anticipate any revenue or income impact in the near future.

CUSTOMERS

     We sell our products directly to major food, drug, mass market (e.g.
Wal-Mart, Target) and wholesale warehouse retailers throughout the United
States, and to distributors that sell to smaller retail establishments. Although
Zicam Cold Remedy and Zicam Allergy Relief are sold in virtually every major
retail outlet in the country, the products we introduced in late 2002 have not
yet achieved that same level of distribution. We are highly dependent on a small
group of large national retailers for our product distribution, such that 10
customers accounted for more than 70% of our total sales in 2002, and two
customers, Wal-Mart and CVS, each accounted for more than 10% of our sales in
2002. Our agreements with our customers generally provide for their ability to
return unsaleable merchandise, including damaged product, excessive overstock or
out-of-date product. We provide in our financial results as an offset against
sales, an estimate for expected returns. Due to the continuing growth and
success of the Zicam products, we have not experienced unusual or excessive
amounts of product returns, other than that which occurred in connection with
the initial introduction of Zicam Cold Remedy in late 1999 and early 2000, which
resulted in overstock and out-of-date situations with a few retailers. To the
extent that any of our largest customers were to stop carrying our products for
any reason, or were to fail to pay us for our products, our sales or financial
results could be negatively impacted.

MANUFACTURING AND DISTRIBUTION

     The original Zicam Cold Remedy and Zicam Allergy Relief products are
manufactured for us by Botanical Laboratories, Inc. ("Botanical") in Ferndale,
Washington. Zicam Cold Remedy swabs are manufactured by Innovative Swab
Technologies, Inc. ("IST") in Antioch, Illinois. Zicam Extreme Congestion
Relief, Sinus Relief and Nasal Moisturizer are manufactured by BioZone
Laboratories, Inc. in Pittsburgh, California. Each of these manufacturers is
registered with the federal Food and Drug Administration (FDA) and has confirmed
to us that it adheres to current Good Manufacturing Practices (cGMP's) in its
production processes and procedures. Each is responsible for sourcing all raw
materials used in its production of our products from third party suppliers,
which are widely available. We are currently operating under a contract with IST
that should supply our expected needs for swab products in 2003, but rely on
individual production orders to meet our needs from our two other suppliers. We
have identified other suppliers that we believe are capable of meeting our
current production requirements for each of our products. However, we may be
limited in our ability in securing an alternative supplier for the swab products
due to proprietary technology employed by IST in the manufacture of the swab
products.

     We source all packaging materials, including the bottles and sprayers for
our pump products from third parties. Each manufacturer of our products is
responsible for all other aspects of the production process, including
formulating and producing product mixtures, filling bottles, assembling finished
product and packing finished product in master cases. Botanical supplies the
nasal gel formula in bulk containers to IST for the production of the swab

                                       3

products. Generally, finished products are shipped to an independent warehouse
in Phoenix for storage prior to shipment to our customers. However, in order to
expedite shipments of swab products, we have been making direct shipments from
IST to our customers.

     At the end of 2002, had an approximately $1.3 million backlog of swab
orders which has continued into the first quarter of 2003. We expect this
backlog to continue until the end of the current cold season in late March or
early April 2003. The back order situation has affected us in many ways,
including 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. We are evaluating a variety of options to ensure
that we avoid a similar shortfall in the upcoming 2003-2004 cold season. We plan
to build an inventory of the swab products in coming months, which we were
unable to do prior to the current cold season due to our introduction of these
products late in 2002. We cannot be certain that IST, which manufactures the
swab products for us, will be able to produce the amount of inventory that we
are seeking to acquire before the commencement of the next cough and cold
season. Even if we are able to acquire this inventory, it is possible that
another backlog could occur in the next season as a result of unanticipated
factors, including higher than expected product demand.

     Our current pricing with IST is fixed by contract until the end of fiscal
2003, at which time we will be required to review and negotiate new pricing
terms. In the first quarter of 2003, IST advised us of an increase in pricing
for the balance of 2003. We have advised IST of our opposition to this pricing
increase on the basis that it is not permitted by our contract, and we are
presently examining options to resolve this issue. In order to prevent a
suspension in swab production while this issue is being dealt with, we may elect
to pay this increased pricing under protest. If we are forced to accept this
increased pricing, our cost of sales will increase.

RESEARCH AND DEVELOPMENT

     Research and development is an important part of our business. Expenditures
in 2002 reflect costs associated with the five products that we introduced in
that year. We expect to significantly increase our expenditures on research and
development in 2003 to approximately 6% of net sales in order to develop new
products and the support necessary for the products to be successful in the
marketplace.

FDA AND OTHER GOVERNMENT REGULATION

     We are subject to various federal, state and local laws and regulations
affecting our business. All of our products are subject to regulation by the
FDA, including regulations with respect to the approval of manufacturing
processes and procedures, ingredients in the products, labeling and claims made.
The Zicam Cold Remedy products, including the two swab products, and Zicam
Allergy Relief, are further subject to the requirements of the Homeopathic
Pharmacopeia of the United States, and Zicam Extreme Congestion Relief and Zicam
Sinus Relief are subject to the requirements of the FDA as allopathic drugs. All
of our claims and advertising are subject to the rules of the Federal Trade
Commission (FTC). Although we believe that our products and claims comply in all
material respects with all regulatory requirements, if the FDA or FTC were to
determine that we are in violation of any such requirement, either agency could
restrict our ability to market the products, change the claims that we make or
cause us to remove the products from the market.

ENVIRONMENTAL MATTERS

     Compliance with environmental rules and regulations did not significantly
affect our earnings or competitive position during 2002. All of our Zicam
product manufacturing and warehousing are currently outsourced to third party
contractors and as a result, we do not incur any direct expenses related to
environmental monitoring and regulatory compliance. With our continued
outsourcing of Zicam product manufacturing and storage, and no present plans to
return to direct manufacturing or storage of products, we expect these expenses
to remain low in the foreseeable future.

                                       4

TRADEMARKS, TRADE NAMES, AND PROPRIETARY RIGHTS

     We have been issued two patents (#6,080,783 and #6,365,624) from the U.S.
Patent and Trademark Office for the Zicam Cold Remedy technology. We believe
these patents, which are expected to be effective until 2018, afford significant
protection from competitors that may wish to sell similar cold remedy products.
We have filed applications for similar patents for Zicam Cold Remedy in several
other countries, including Canada, Mexico, the European Union, Hong Kong, Japan,
Korea, China, Brazil and India, as well as additional applications in the United
States. We have also filed applications for patents in the United States for
compositions and methods relating to Zicam Nasal Moisturizer, Zicam Extreme
Congestion Relief, Zicam Sinus Relief and Zicam products dispensed with the swab
system, while preserving our rights to file applications in other foreign
countries at a later date. We hold a registered trademark for "Zicam" in the
United States, the European Union, Japan and Australia and have applied for
similar trademark protection in other countries, including Mexico, China, Taiwan
and Brazil. We anticipate that we will continue to file for patent and trademark
protection for the other products that we expect to develop and introduce in the
future. There can be no assurance, however, that our existing patents, or any
additional patents that we may secure in the future, will be adequate to protect
the Company's intellectual property from a competitor's actions. Further, patent
litigation can be very time-consuming and costly. Even if we prevail in such
litigation, the cost of litigation could adversely affect our operating results
and financial condition.

EMPLOYEES

     As of December 31, 2002, we employed 14 people in our Phoenix, Arizona
headquarters office. The 14 employees in Phoenix consist of two executive
officers and individuals responsible for administrative, operations, marketing,
sales, research and development, regulatory compliance, investor relations and
accounting. We closed our California office at the end of February 2002 and
moved the administrative and marketing functions previously handled in that
office to our Phoenix office.

SEASONALITY

     Sales of Zicam products to end-use consumers are highly seasonal, with most
sales occurring during the cold and allergy seasons. The cold season generally
runs from September through April, while the allergy season runs from April
through October. Both of these seasons vary in intensity and duration from year
to year. Our sales to retailers generally mirror this pattern of consumer
demand, but are impacted by the level of promotional support that we commit to
with retailers and by their inventory management practices.

BACKLOG

     Except as described above regarding the backlog we experienced in 2002 and
continue to experience in early 2003 in respect of our new swab products, we did
not experience any other product backlog in 2002. As of our 2001 fiscal
year-end, we had no product backlog.

COMPETITION

     All of the Zicam products compete in the highly competitive cough and cold
and allergy markets with a vast number of well-established brands marketed by
large pharmaceutical and consumer products companies. Participants in the cough
and cold and allergy markets compete primarily on the basis of price, quality of
product and consumer awareness. Most of our competitors have substantially
greater financial, marketing and other resources, longer operating histories,
larger product portfolios and greater brand recognition than we do. With our
limited resources, we are aiming to succeed in this category by emphasizing the
unique claims regarding our products. Specifically, regarding Zicam Cold Remedy,
our flagship product, we emphasize its ability to reduce the duration and
severity of the common cold. Only one other product in the category (including
competing generic copies of that product) is able to make a similar claim.

                                       5

ITEM 2. DESCRIPTION OF PROPERTY

     We have leased office space at 2375 E. Camelback Road in Phoenix, Arizona
through February 2004 to house our corporate offices. We will be evaluating in
late 2003, whether to extend our current lease. Warehouse storage of our
finished goods, including shipping services, is provided by a contract warehouse
in Phoenix through a month to month agreement. We consider our existing
facilities to be adequate and suitable for their intended use.

ITEM 3. LEGAL PROCEEDINGS

     On June 2, 1999, we filed a complaint in the Superior Court of Maricopa
County, Arizona against DJ Ltd. ("DJ"). Our complaint sought a declaratory
judgment that DJ was not owed any fee under an agreement entered into between us
pursuant to which DJ was to act as our financial advisor. DJ removed the case to
the United States District Court for the District of Arizona and filed a
counterclaim. In its counterclaim, DJ alleged that we breached the contract and
that we had been unjustly enriched. DJ sought damages in the amount of $480,000,
plus costs, expenses and warrants to purchase 50,000 shares of our common stock,
which an expert valued at an additional $200,000- $400,000. DJ also sought a
declaratory judgment confirming its version of its rights under the agreement.
In order to avoid the significant cost of pursuing the litigation and the
potential liability associated with an adverse jury decision, we entered into a
settlement with DJ in early 2003 which provided for a payment to DJ at that time
of $250,000.

     We are not involved as a party in any other legal proceeding other than
various claims and lawsuits arising in the normal course of business, none of
which, in the opinion of our management, is individually or collectively
material to our business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matter was submitted to a vote of our security holders during the fourth
quarter of fiscal 2002, through the solicitation of proxies or otherwise.

EXECUTIVE OFFICERS OF MATRIXX

     The names, ages, positions and business experience of each of our executive
officers are listed below. Each executive officer is appointed by our board of
directors to hold his office until his successor is appointed and qualified or
until such earlier time as such officer may resign or be removed by the board.

                                       6

Carl J. Johnson, 54           Mr. Johnson joined Matrixx in July 2001 as
President and Chief           President and Chief Executive Officer and as a
Executive Officer             member of the board of directors. Mr. Johnson's
                              professional experience spans 20 years in the
                              product development, marketing, and sales arenas
                              with several large pharmaceutical and consumer
                              goods companies. From 1993 to 2001, Mr. Johnson
                              was Vice President, Commercial Development with
                              Perrigo Company, a public company and leading
                              manufacturer of over-the-counter pharmaceutical
                              and nutritional products for the store brand
                              market. In that capacity he was responsible for
                              procuring new products and technologies and
                              contract manufacturing services emphasizing
                              Abbreviated New Drug Applications (ANDA) products.
                              Mr. Johnson also worked at Johnson & Johnson from
                              1973 to 1989 where he held a number of high level
                              marketing and sales positions, including
                              responsibility for the national launch of the
                              Acuvue(R) disposable contact lens product. Mr.
                              Johnson also provided marketing leadership for a
                              special team tasked to re-engineer Johnson &
                              Johnson's sales, administrative and operational
                              functions. Mr. Johnson earned a Master of Business
                              Administration - Marketing from the Fairleigh
                              Dickinson University and a Bachelor of Science in
                              Economics from Wagner College.

William J. Hemelt, 49         Mr. Hemelt joined Matrixx in June 1998 as our
Executive Vice President,     Chief Financial Officer, Treasurer, and Secretary.
Operations, Chief Financial   The additional title of Executive Vice President,
Officer, Treasurer and        Operations was added in 2001. From 1980 to 1997,
Secretary                     Mr. Hemelt held a variety of financial positions
                              with Arizona Public Service Company, Arizona's
                              largest utility, including six years as Treasurer
                              and four years as Controller. Mr. Hemelt earned a
                              Master of Business Administration and a Bachelor
                              of Science in Electrical Engineering from Lehigh
                              University.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Our common stock has been quoted for trading on the Nasdaq National Market
since April 24, 1996. From this inception date until June 19, 2002, our stock
traded under the symbol "GUMM". Effective on June 20, 2002, in connection with
our name change to Matrixx Initiatives, Inc., our stock trading symbol changed
to "MTXX". The following table sets forth, for the quarters indicated, the range
of high and low closing prices of our common stock as reported by the Nasdaq
National Market.

                                       7

                                                            MARKET PRICE
                                                        -------------------
                                                         HIGH         LOW
                                                        -------     -------
     FISCAL YEAR 2001
     First Quarter ................................     $ 9.875     $6.9688
     Second Quarter ...............................     $  9.70     $  7.13
     Third Quarter ................................     $  8.25     $  6.60
     Fourth Quarter ...............................     $  7.99     $  6.40

     FISCAL YEAR 2002
     First Quarter ................................     $  8.64     $  6.52
     Second Quarter ...............................     $ 10.55     $  8.00
     Third Quarter ................................     $ 10.66     $  9.50
     Fourth Quarter ...............................     $ 10.00     $  7.80

     FISCAL YEAR 2003
     First Quarter (through March 21, 2003) .......     $  8.75     $  6.56

     As of March 21, 2003, we had approximately 4,600 record and beneficial
stockholders.

DIVIDEND POLICY

     Since our initial public offering in 1996, we have not paid dividends on
our common stock and do not expect to pay dividends in the foreseeable future.
We intend to retain any earnings to fund the expansion of our business. The
amount of future dividends, if any, will be determined by the board of directors
based upon our earnings, financial condition, capital requirements and other
factors, including any contractual or statutory restrictions on our ability to
pay dividends. In addition, under the terms of our credit facility with Comerica
Bank-California, as long as we have any outstanding loan balance or other
obligations under the credit facility, we cannot pay any dividend without
Comerica Bank-California's consent.

ITEM 6. SELECTED FINANCIAL DATA

     The following table sets forth selected historical financial data for
Matrixx for each of the years in the five-year period ended December 31, 2002,
and where appropriate reflects results on a continuing and discontinued
operations basis. The financial data presented below is derived from Matrixx's
financial statements audited by independent auditors. We report Matrixx's and
Zicam, LLC's financial results on a consolidated basis. On July 20, 2001, we
sold substantially all of our chewing gum assets and business to Wrigley. Our
financial results reflect our former chewing gum operations as discontinued
operations. On December 5, 2001, we acquired the remaining 40% of Gel Tech,
L.L.C., making it a wholly-owned subsidiary of Matrixx. (In July 2002, the name
of Gel Tech, L.L.C. was changed to Zicam, LLC). For additional information, see
the financial statements of Matrixx and the notes thereto included elsewhere in
this report. The following table should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and is qualified by reference thereto and to Matrixx's financial
statements and notes thereto.

                                       8



   (000's, except per share data)           2002        2001        2000        1999        1998
                                          --------    --------    --------    --------    --------
                                                                           
Net sales                                 $ 23,548    $ 16,072    $ 10,817    $  9,593    $      0
Net income (loss)
    -- Continuing Operations              $  4,757    $ (4,799)   $ (6,166)   $   (172)   $      0
    -- Discontinued Operations            $     --    $ 17,412    $ (1,971)   $   (601)   $ (6,261)
Net income (loss) per basic and diluted
   share of common stock
    -- Continuing Operations              $    .50    $  (0.52)   $  (0.69)   $  (0.06)   $      0
    -- Discontinued Operations            $     --    $   1.88    $  (0.22)   $  (0.08)   $  (0.97)
Dividends per share                       $      0    $      0    $      0    $      0    $      0
Shares outstanding at year end               9,441       9,432       9,047       8,321       6,858
Total assets                              $ 47,185    $ 42,507    $ 16,981    $ 20,028    $  7,900
Long term obligations                     $      0    $  5,254    $      0    $  2,241    $  2,380
Stockholders' equity                      $ 35,155    $ 24,369    $ 10,448    $ 12,702    $  3,718


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

OVERVIEW

     In Fiscal 2001 we undertook a significant change in our strategic plan and
related business operations by exiting the chewing gum business and refocusing
entirely on the development, production and sale of over-the-counter
pharmaceutical products. In July 2001, we sold substantially all of our assets
and business related to our chewing gum operations to Wrigley. In December 2001,
we acquired the remaining 40% of Gel Tech, making it a wholly-owned subsidiary
of Matrixx. (In July 2002, the name of Gel Tech, L.L.C. was changed to Zicam,
LLC). Our financial results reflect our former chewing gum operations as
discontinued operations, and consequently these operations are not reflected in
the following discussion and analysis. We report Zicam, LLC's financial results
on a consolidated basis. We owned 60% of Zicam prior to December 5, 2001 and
100% on and subsequent to that date.

     Our restructuring process continued in 2002 as we reincorporated in
Delaware, changed our name to Matrixx Initiatives, Inc. and consolidated our
operations in our Phoenix office. Moreover, as part of our focus on
over-the-counter pharmaceutical products, we introduced five new Zicam nasal gel
products during the year, improved package graphics for the entire Zicam product
line and engaged a new sales team to represent our products to retailers.

     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. 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 earlier years. For 2003, we anticipate spending
substantially more for both of these items in the first quarter, compared to the
first quarter of 2002.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2001

     Certain information is set forth below for our operations expressed in
dollars and as a percentage of net sales for the periods indicated:

                                       9

                                            YEARS ENDED DECEMBER 31,
                                   -------------------------------------------
                                           2002                   2001
                                   -------------------    --------------------
Net sales                          $ 23,548        100%   $ 16,072         100%
Cost of sales                         6,752         29       4,215          26
                                   --------   --------    --------    --------

Gross profit                         16,796         71      11,857          74
Operating expenses                   15,544         66      16,964         106
Research and development                294          1         716           4
                                   --------   --------    --------    --------

Income (loss) from operations           958          4      (5,823)        (36)
Interest and other income - net         681          3         174           1
Interest expense                        592          3         163           1
                                   --------   --------    --------    --------

Income (loss) from continuing
operations before income tax
    and minority interest          $  1,047          4%   $ (5,812)        (36)%
                                   ========   ========    ========    ========

NET SALES

     Net sales for 2002 increased to approximately $23.5 million, or 47% above
the 2001 sales level. Approximately one third of the $7.5 million increase in
net sales is attributable to increases in sales of Zicam Cold Remedy and Allergy
Relief, and the remaining two-thirds to sales of the five new Zicam products
introduced in late 2002. Sales of Zicam Cold Remedy and Allergy Relief increased
due primarily to increased sales to end-use customers, and additionally, with
respect to sales of the Cold Remedy product, to the addition of sales to two
major club warehouse outlets.

     We introduced five new Zicam products in the third quarter of 2002: Cold
Remedy Swabs, Cold Remedy Swabs - Kids Size, Extreme Congestion Relief, Sinus
Relief and Nasal Moisturizer. Although we are generally pleased with the retail
and consumer acceptance of these new products, the retail distribution has yet
to achieve levels comparable to our original Zicam products. Our principal sales
focus is to secure additional retail acceptance, particularly among the major
national drug, food and mass market retailers of all five of these new products.
The swab products have been in a back order situation due to the inability of
our supplier to increase production, and to higher than expected demand for the
adult swab product. We estimate the swab back order at the end of 2002 to be
greater than $1.0 million in net sales. We expect the back order to continue
until the end of the current cold season (late March or early April 2003) when
the normal seasonal reduction in demand from customers will allow us to build
inventory of the swab products. We are evaluating a variety of options to ensure
that we avoid a similar shortfall in the upcoming 2003-2004 cold season. We plan
to build an inventory of the swab products in coming months, which we were
unable to do prior to the current cold season due to our introduction of these
products late in 2002. We cannot be certain that our supplier will be able to
produce the amount of inventory that we are seeking to acquire before the
commencement of the next cough and cold season. Even if we are able to acquire
this inventory, it is possible that another backlog could occur in the next
season as a result of unanticipated factors, including higher than expected
product demand.

     We expect sales increases in future periods from continued, albeit lower,
growth rates for our original Zicam Cold Remedy and Zicam Allergy Relief
products, and from increased sales of our five new products due to increased
retail distribution, greater customer acceptance and the planned elimination of
the swab product back order. We plan on introducing additional products in late
2003 which we believe will further add to our sales increases.

COST OF SALES

     The cost of sales for 2002 increased approximately $2.5 million or 60% over
2001. The increase was primarily due to a 45% increase in unit sales. The higher
per unit cost of the swab products and premium production cost associated with

                                       10

the two swab products contributed to the increase in cost of sales. A decrease
in manufacturing costs of Zicam Cold Remedy and Zicam Allergy Relief partially
offset this increase from the swab products.

     Our current pricing with our swab product supplier, IST, is fixed by
contract until the end of fiscal 2003, at which time we will be required to
review and negotiate new pricing terms. In the first quarter of 2003, IST
advised us of an increase in pricing for the balance of 2003. We have advised
IST of our opposition to this pricing increase on the basis that it is not
permitted by our contract, and we are presently examining options to resolve
this issue. In order to prevent a suspension in swab production while this issue
is being dealt with, we may elect to pay this increased pricing under protest.
If we are forced to accept this increased pricing, our cost of sales will
increase and our results of operations for 2003 will be negatively impacted.

     Assuming we are able to negotiate a new supply contract with IST at the end
of 2003, we expect that this new contract may 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 entail.

GROSS PROFIT

     Gross profit for 2002 increased to approximately $16.8 million, or 42%
above the 2001 level, due to the higher sales level. Offsetting the higher sales
was the higher unit cost of sales, primarily due to the new swab products, which
is reflected in a decrease in gross profit percentage of sales to 71% in 2002
from 74% in 2001.

OPERATING EXPENSES

     Operating expenses decreased from approximately $17.0 million in 2001 to
$15.5 million in 2002. The decrease is largely due to the settlement and legal
expenses of $2.0 million that we incurred in 2001 related to a patent
infringement lawsuit filed against the Company by The Quigley Corporation. Our
royalty obligations to Quigley, which formed part of the settlement, ended in
March 2002. A decrease in advertising and public relations expenses of
approximately $0.6 million between the two years also contributed to our lower
operating expenses in 2002. Offsetting these decreases were increased sales
commission expense of $252,000 related to the higher level of sales, an increase
of quality control expenses primarily due to the new product analysis, an
increase in total labor expense of $223,000, higher rent expense of $169,000
reflecting a full year at our new corporate office location and higher
depreciation and amortization of $141,000. We believe that expense levels in
future periods will be primarily affected by the timing and amount of
advertising expenses and costs associated with new product introductions.

RESEARCH AND DEVELOPMENT

     Research and development expense amounted to $294,000 for 2002, reflecting
costs associated with the five new Zicam products that were introduced in the
year. Expenses in 2001 primarily reflect costs associated with our nicotine gum
development which we undertook in conjunction with Swedish Match AB ("Swedish
Match"). This development was terminated in the third quarter of 2001 following
our exit from the gum business. We expect to increase our research and
development expenses significantly in 2003 to approximately 6% of net sales as
we undertake further work on our Zicam products, including additional product
line extensions, and explore other product opportunities.

INTEREST AND OTHER INCOME - NET

     Interest and other income for 2002 amounted to approximately $681,000 or
approximately $507,000 above 2001. Approximately $391,000 of the 2002 amount is
royalty income and the remainder is largely interest income on our invested
cash. Virtually all of the 2001 income was interest income reduced by a $250,000

                                       11

write-down of an investment in a company that Matrixx had evaluated and rejected
as a possible acquisition candidate.

     Our interest income is largely due to the Company's invested cash position
arising from the sale of our gum business in July 2001 to Wrigley, reduced in
2002 by payments made in conjunction with our acquisition of the remaining 40%
interest in Zicam, LLC.

     Royalty income is from a dental gum product sold by Wrigley. We entered
into the royalty agreement with Wrigley in conjunction with the sale of our gum
assets in July 2001. We are unable to predict the success or future sales of the
Wrigley gum product, and therefore, cannot estimate the amount or timing of any
future royalty payments.

INTEREST EXPENSE

     Interest expense increased to approximately $592,000 for 2002 from
approximately $163,000 in 2001. The increase is entirely attributable to imputed
interest accrued under the note that we issued to Zensano, Inc. (now Zengen,
Inc.) in connection with our acquisition of Zensano's 40% interest in Zicam, LLC
in December 2001. Two additional payments of $2.75 million each are due under
the note in late June and late November 2003.

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX AND MINORITY INTEREST

     Our income before income taxes and minority interest in 2002 was
approximately $1.0 million, an increase of more than $6.8 million from the net
loss of $5.8 million reported for 2001. The increase is due to a higher gross
profit resulting from higher net sales and a decrease in operating expenses. We
expect that earnings in future periods will be significantly impacted by the
success of our seven current products, new product introductions (including new
products that we plan to introduce in 2003) and year-over-year changes in our
advertising and research and development budgets.

PROVISION FOR INCOME TAX EXPENSE

     Due to the income we recorded in 2002 and our expectation of net income in
future periods, we concluded that, more likely than not, we will be able to
utilize the accumulated tax loss carry-forward that had been generated in prior
years but not reflected as an asset. Based on this determination, we recorded a
decrease in the provision for income taxes of almost $3.4 million in 2002.
Income tax expense was further reduced in the period by an income tax refund of
approximately $325,000 related to a change in tax laws in 2002.

RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2001 COMPARED TO THE YEAR
ENDED DECEMBER 31, 2000

         Certain information is set forth below for our operations  expressed in
dollars and as a percentage of net sales for the periods indicated:

                                       12

                                             YEARS ENDED DECEMBER 31,
                                  --------------------------------------------
                                          2001                    2000
                                  -------------------     --------------------
Net sales                         $ 16,072        100%    $ 10,817         100%
Cost of sales                        4,215         26        3,411          32
                                  --------    -------     --------    --------

Gross profit                        11,857         74        7,406          68
Operating expenses                  16,964        106       15,657         145
Research and development               716          4          433           4
                                  --------    -------     --------    --------

Income (loss) from operations       (5,823)       (36)      (8,684)        (81)
Interest and other income - net        174          1          284           3
Interest expense                       163          1          433           4
                                  --------    -------     --------    --------

Income (loss) from continuing
operations before income tax
    and minority interest         $ (5,812)       (36)%   $ (8,833)        (82)%
                                  ========    =======     ========    ========

NET SALES

     For 2001, net sales of Zicam Cold Remedy and Zicam Allergy Relief increased
to $16.1 million or approximately 49% above the 2000 level. Unit sales of Zicam
Cold Remedy in 2001 increased more than 60% over the prior year due primarily to
increased sales to end-use consumers due to increased consumer awareness of the
product and the introduction in 2001 of a twin-pack Cold Remedy product, which
was well received in the marketplace. Sales of Zicam Cold Remedy accounted for
approximately 70% of net sales in 2001. The sales comparison to 2000 is also
affected by relatively low sales in 2000 due to a high level of inventory held
by retailers at the start of the 2000-2001 cold season as a result of initial
purchases made in connection with introduction of the product in the prior year.

     Zicam Allergy Relief was introduced in March 2000. Unit sales of Zicam
Allergy Relief increased more than 30% in 2001 over the prior year due to
increased sales to end-use customers and a greater level of retail distribution.

COST OF SALES

     Cost of sales increased in 2001 from the prior year by approximately
$800,000, reflecting the higher level of sales, but decreased as a percentage of
sales from 32% in 2000 to 26% in 2001 due to higher freight costs experienced in
early 2000 during the introduction of Zicam Cold Remedy and a decrease in
manufacturing costs in 2001.

GROSS PROFIT

     Gross profit increased from $7.4 million in 2000 to $11.9 million in 2001
as a result of the higher sales level and decreases in the cost of sales.

OPERATING EXPENSES

     Operating expenses increased from $15.7 million in 2000 to $17.0 million in
2001 due to the amount of the settlement that we paid and legal expenses that we
incurred in connection with The Quigley Corporation's lawsuit against the
Company. The combined settlement amount and expenses amounted to nearly $2.5
million. That increase was partially offset by a small decrease in marketing
expenses between the two periods.

                                       13

RESEARCH AND DEVELOPMENT

     The increase in research and development expense in 2001 was attributable
to costs associated with our nicotine gum project that were incurred subsequent
to the termination of our joint venture with Swedish Match. After termination of
the joint venture, Swedish Match no longer reimbursed us for research and
development expenses related to nicotine gum. We terminated the nicotine gum
project in the third quarter of 2001.

INTEREST AND OTHER INCOME - NET

     Interest and other income principally reflects interest income on our cash
investments. We invested our cash, which increased significantly as a result of
receipt of the proceeds from the sale of substantially all of our chewing gum
business assets and 200,000 shares of our common stock to Wrigley in July 2001,
in relatively low yielding U.S. Treasury securities. Offsetting this income in
2001, was a write-down in the amount of $250,000 for an investment in a company
that Matrixx had evaluated and rejected as a possible acquisition candidate.

INTEREST EXPENSE

     Interest expense decreased from $433,000 in 2000 to $163,000 in 2001 due to
our repayment in early 2000 of debt and lease financings.

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX AND MINORITY INTEREST

     The loss from continuing operations before income taxes and minority
interest improved in 2001 by approximately $3.0 million over 2000 due to the
higher sales levels, offset in part by the higher expenses resulting from the
Quigley lawsuit.

LIQUIDITY AND CAPITAL RESOURCES

     Our working capital decreased $3.2 million to approximately $10.2 million
at December 31, 2002 from approximately $13.4 million at December 31, 2001, due
primarily to the reclassification of our $5.3 million note obligations incurred
in connection with our acquisition of the remaining 40% of Zicam, LLC. from
long-term debt to current debt. The impact of this reclassification on working
capital was offset by our profitability in 2002 and the recognition of a current
deferred tax asset.

     During 2002, we experienced an increase in cash from operations of $339,000
due to an increase in net income of $1.4 million (net of deferred income tax
expense), a decrease in restricted cash of $1.5 million, amortization of
interest on notes payable of $0.6 million and other non-cash charges to income
of $0.5 million. These increases to cash were offset by an increase in accounts
receivable of $2.8 million and a decrease in accounts payable of $0.8 million.

     Investing activities provided cash of approximately $10.3 million due
largely to the maturity of marketable securities that were reinvested in
securities that are classified as cash equivalents of $10.7 million, offset in
part by capital expenditures of approximately $0.6 million for a new corporate
information system.

     Cash flows from financing activities used $5.9 million of cash due to our
payments of $5.5 million to Zengen, Inc. under the above-described note, and the
repayment in February 2002 of borrowings under our $1.0 million bank credit
facility. We expanded our bank credit arrangement in May 2002 with Comerica Bank
- - California to provide for an increase in our direct borrowing capacity to $2.5
million with more favorable borrowing rates and terms. We do not currently have
any borrowings outstanding under the facility and, due to our cash position, do
not anticipate borrowing under the facility to meet our immediate working
capital requirements. We are in compliance with the earnings and financial
covenants contained in our credit agreement.

                                       14

     We believe that our existing capital resources and our credit line are
sufficient to fund our operations and capital requirements for the next twelve
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
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. The effect of this change was a decrease in our income tax
expense of approximately $3.4 million in 2002. In future periods, we will record
income tax expense based on our estimated effective income tax rate for each
period. In addition, 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

                                       15

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 Zicam
Cold Remedy and Zicam Allergy Relief 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 products. We will 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-K, 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 document
incorporated by reference herein include, but are not limited to statements
regarding:

     *    our ability and intention to further develop and expand the market
          presence of our existing Zicam products, and our plans to bring new
          products to market, including our belief that the development of such
          new products will provide us with growth opportunities and increase
          our sales;

     *    our plan to significantly increase our research and development, and
          anticipated expenditures related to such activities;

     *    market acceptance and profitability of, and future consumer and
          retailer demand for, our products;

     *    anticipated expansion into international markets for our Zicam
          products and our belief that such international markets could provide
          significant sales growth opportunities;

     *    our expectation that we will not be able to finalize any arrangement
          for international expansion soon, and that there will not be any
          revenue or income impact on the Company in the near future;

     *    our belief that our expansion of the Zicam product line will expand
          our support from retailers;

     *    our belief that our marketing efforts will continue to build brand
          awareness and increase product sales;

     *    our expectation that sales will increase as a result of our new
          products;

     *    our belief that future Company expense levels will be primarily
          affected by advertising and new product introduction costs;

     *    our expectation that environmental compliance-related expenses will
          remain low for the foreseeable future;

                                       16

     *    our expectation as to the future expiration dates for our two United
          States patents, and our intention to continue to file patent and
          trademark applications in the United States and in jurisdictions
          outside the United States to protect the Company's products;

     *    our belief that a moderate interest rate increase will not have a
          material adverse impact on the Company;

     *    our ongoing relationship with our product suppliers including, their
          ability to meet our production needs in the future;

     *    our plans to resolve our pricing dispute with our swab product
          supplier, IST, and our intention to negotiate a new supply contract
          with IST at the end of 2003.

     *    our plan to build our swab product inventory, and our expectations
          regarding the removal of the swab product backlog and that no other
          product backlog will occur in 2003;

     *    our having no plans to directly manufacture and store our products;

     *    our expectation of net income in future periods;

     *    the effects of interest rate changes on our financial position;

     *    our expectation that we will not pay dividends in the foreseeable
          future;

     *    our belief that we will not need to borrow on our credit facility; and

     *    our belief that our current capital resources and credit line are
          sufficient to fund the Company for the next 12 months.

     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-K, including those set forth in the sections
entitled "Business" and "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-K speak only as of the
date of this Form 10-K 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-K or in any document incorporated herein by

                                       17

reference to reflect changed assumptions, the occurrence of unanticipated events
or changes to future operating results over time.

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. 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:

     *    we may experience unanticipated or otherwise negative research and
          development results;

     *    existing or proposed products may be found to be ineffective or
          unsafe, or may otherwise fail to receive required regulatory
          clearances or approvals;

     *    we may find that existing or proposed products, while effective, are
          uneconomical to commercialize or market;

     *    we may be unable to produce sufficient product inventories to meet
          customer demand;

     *    existing or proposed products do not achieve broad market acceptance;
          or

     *    proprietary rights held by third parties preclude us from developing
          or marketing existing or proposed products.

                                       18

     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.

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

                                       19

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
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. We expect this backlog to continue until the end of the current cold
season in late March or early April 2003. While we have plans in place to
build-up our swab product inventory at the end of the current cold season in
order to prevent future backlogs of these products, we cannot be certain that
these plans, even if executed properly, will be sufficient to prevent future
backlog of these products 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 which time we will be required to
review and negotiate new pricing terms. In the first quarter of 2003, IST
advised us of an increase in pricing for the balance of 2003. We have advised
IST of our opposition to this pricing increase on the basis that it is not

                                       20

permitted by our contract, and we are presently examining options to resolve
this issue. While we intend to act in a manner that will not trigger an
interruption in IST's supply to us of the swab products, which may include our
paying the disputed price increase under protest pending resolution of this
issue, it is possible that IST could suspend or terminate swab production, or
threaten to do so, in an effort to force our acceptance of its new terms. Any
such suspension or termination of swab production would have a material adverse
effect on our product sales and, accordingly, 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:

     *    voting rights, including the right to vote as a class on particular
          matters;

     *    preferences as to dividends and liquidation rights;

     *    conversion rights;

     *    anti-dilution protections; and

     *    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

                                       21

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 7A. 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 Form 10-K. As of the
fiscal year ended December 31, 2002, we did not 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
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 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 2002) or commodity price
risk.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Independent Auditors' Report and Consolidated Financial Statements of
Matrixx, including the Notes to those statements, are included in Part III, Item
15 of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     We have had no disagreements with our independent accountants with respect
to accounting and financial disclosure.

     On November 12, 2002, we filed a Current Report on Form 8-K with the
Securities and Exchange Commission regarding a change of our independent auditor
and certifying accountant from Angell & Deering, Certified Public Accountants to
Mayer Hoffman McCann P.C.

                                    PART III

ITEM 10. INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS

     The information required by this Item for our directors and executive
officers is set forth in Part I of this Form 10-K under the heading "Executive
Officers of Matrixx" and in our Proxy Statement relating to our 2003 annual
meeting of stockholders to be held on April 30, 2003 (the "2003 Proxy
Statement"), under the headings, "Proposal No. 1 - Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance", and is incorporated
herein by this reference as if set forth in full.

                                       22

ITEM 11. EXECUTIVE COMPENSATION

     The information required by this Item for our executive officers is set
forth in the 2003 Proxy Statement, under the heading, "Executive Compensation",
and is incorporated herein by this reference as if set forth in full. The
information set forth in the 2003 Proxy Statement under the headings, "Report of
the Audit Committee" and "Report of the Compensation Committee" is not
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by this section of this Item for certain of
our  beneficial  owners  is set  forth in the 2003  Proxy  Statement,  under the
heading,  "Security Ownership of Certain Beneficial Owners", and is incorporated
herein by this reference as if set forth in full.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

     The following table sets forth information as of December 31, 2002 with
respect to our compensation plans and individual compensation arrangements under
which our equity securities were authorized for issuance to directors, officers,
employees, consultants and certain other persons and entities in exchange for
the provision to us of goods or services.




                                                                                  NUMBER OF SECURITIES REMAINING
                         NUMBER OF SECURITIES TO     WEIGHTED-AVERAGE EXERCISE     AVAILABLE FOR FUTURE ISSUANCE
                         BE ISSUED UPON EXERCISE        PRICE OF OUTSTANDING         UNDER EQUITY COMPENSATION
                         OF OUTSTANDING OPTIONS,       OPTIONS, WARRANTS AND        PLANS (EXCLUDING SECURITIES
    PLAN CATEGORY          WARRANTS AND RIGHTS                 RIGHTS                REFLECTED IN COLUMN (A))
    -------------          -------------------                 ------                ------------------------
                                   (a)                           (b)                            (c)
                                                                                    
Equity compensation
plans approved by
security holders                 402,800                       $ 9.70                        1,046,950

Equity compensation
plans not approved by
security holders                 145,000                       $11.37                                0

         Total                   547,800                       $10.14                        1,046,950


     The 145,000 securities (all of which are shares of our common stock)
referred to in column (a) of the above table were issuable as of December 31,
2002 under the following individual compensation arrangements:

     *    10,000 shares issuable upon exercise of stock options issued to Edward
          E. Faber in September 2000 as board member compensation, with an
          exercise price of $14.31 per share;

     *    10,000 shares issuable upon exercise of stock options issued to Edward
          J. Walsh in September 2000 as board member compensation, with an
          exercise price of $14.31 per share;

     *    30,000 shares issuable upon exercise of warrants issued to C.J.B.
          Consulting, Inc. and Next Millennium Capital Holdings, LLC in June
          1999 in connection with financing activities undertaken by the Company
          at that time, which warrants have an exercise price of $15.00 per
          share and expire in June 2004; and

                                       23

     *    95,000 shares issuable upon exercise of options issued to two of
          Zicam, LLC's former principal founders in January 1999, which options
          have an exercise price of $9.61 per share and expire in March 2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item is set forth in the 2003 Proxy
Statement, under the headings, "Compensation Committee Interlocks and Insider
Participation" and "Certain Relationships and Related Transactions" and is
incorporated herein by this referenced as if set forth in full.

ITEM 14. CONTROLS AND PROCEDURES

     Within the 90 days prior to the date of filing of this annual 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.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FINANCIAL STATEMENTS                                                        PAGE
- --------------------                                                        ----

Independent Auditors' Report                                                  25

Consolidated Balance Sheets as of December 31,
  2002 and 2001                                                               27

Consolidated Statements of Operations for the
  years ended December 31, 2002, 2001 and 2000                                29

Consolidated Statements of Changes in Stockholders'
  Equity for the years ended December 31, 2002, 2001
  and 2000                                                                    31

Consolidated Statements of Cash Flows for the years
  ended December 31, 2002, 2001 and 2000                                      33

Notes To Consolidated Financial Statements                                    35

                                       24

                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors
Matrixx Initiatives, Inc.

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Matrixx
Initiatives,  Inc. (formerly Gum Tech International,  Inc.) and Subsidiary as of
December 31, 2002 and the related consolidated statements of operations, changes
in stockholders'  equity and cash flows for the year then ended. These financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Matrixx Initiatives,  Inc. and
Subsidiary as of December 31, 2002 and the results of their operations and their
cash  flows for the year then ended in  conformity  with  accounting  principles
generally accepted in the United States of America.


                                        Mayer Hoffman McCann P.C.
                                        Certified Public Accountants

Phoenix, Arizona
January 24, 2003

                                       25

                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors
Matrixx Initiatives, Inc.

We  have  audited  the  accompanying   consolidated  balance  sheet  of  Matrixx
Initiatives,  Inc. (formerly Gum Tech International,  Inc.) and Subsidiary as of
December 31, 2001 and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for the years ended December 31, 2001 and
2000.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Matrixx Initiatives,  Inc. and
Subsidiary as of December 31, 2001 and the results of their operations and their
cash flows for the years ended  December  31, 2001 and 2000 in  conformity  with
accounting principles generally accepted in the United States of America.


                                        Angell & Deering
                                        Certified Public Accountants

Denver, Colorado
February 8, 2002

                                       26

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001

                                     ASSETS



                                                              2002            2001
                                                          ------------    ------------
                                                                    
Current Assets:
   Cash and cash equivalents                              $ 12,010,091    $  7,342,985
   Restricted cash                                                  --       1,503,150
   Accounts receivable:
     Trade, net of allowance for doubtful
     accounts of $647,280 and $468,389                       7,037,596       4,461,156
   Inventories                                               1,573,034       1,580,912
   Marketable securities                                            --      10,656,380
   Prepaid expenses                                            523,829         508,462
   Notes receivable                                                 --         200,000
   Deferred tax asset                                        1,073,765              --
                                                          ------------    ------------

         Total Current Assets                               22,218,315      26,253,045
                                                          ------------    ------------

Property and Equipment, at cost:
   Office furniture and equipment                              588,395          94,277
   Leasehold improvements                                       39,314           2,112
                                                          ------------    ------------
                                                               627,709          96,389
   Less accumulated depreciation                               (89,795)        (33,245)
                                                          ------------    ------------

         Net Property and Equipment                            537,914          63,144
                                                          ------------    ------------

Other Assets:
   Deposits                                                     37,697          32,400
   Debt issuance costs, net of accumulated amortization
     of $20,417                                                 14,583              --
   Deferred tax asset                                        8,284,720              --
   Patents, net of accumulated amortization of $71,700
     and $4,619                                              1,051,900       1,118,981
   Goodwill                                                 15,039,836      15,039,836
                                                          ------------    ------------

         Total Other Assets                                 24,428,736      16,191,217
                                                          ------------    ------------

         Total Assets                                     $ 47,184,965    $ 42,507,406
                                                          ============    ============


                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                       27

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                           CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 2002 AND 2001
                                   (CONTINUED)


                      LIABILITIES AND STOCKHOLDERS' EQUITY



                                                              2002            2001
                                                          ------------    ------------
                                                                    
Current Liabilities:
   Accounts payable and accrued expenses                  $  5,771,407    $  5,928,985
   Sales returns and allowances                              1,004,713       1,031,897
   Notes payable                                                    --       1,000,000
   Current portion of long-term debt                         5,253,643       4,923,882
                                                          ------------    ------------

         Total Current Liabilities                          12,029,763      12,884,764
                                                          ------------    ------------

Long-Term Debt, net of current portion above:
   Financial institutions and other                          5,253,643      10,177,525
   Less current portion above                               (5,253,643)     (4,923,882)
                                                          ------------    ------------

         Total Long-Term Debt                                       --       5,253,643
                                                          ------------    ------------

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, 9,441,451 and 9,432,251 shares
     issued and outstanding                                      9,442           9,432
   Additional paid in capital                               41,524,921      35,485,963
   Accumulated deficit                                      (6,317,305)    (11,073,960)
                                                          ------------    ------------
                                                            35,217,058      24,421,435
Less common stock held in treasury, at cost
   (9,600 and 8,100 shares)                                    (61,856)        (52,436)
                                                          ------------    ------------

         Total Stockholders' Equity                         35,155,202      24,368,999
                                                          ------------    ------------

         Total Liabilities and Stockholders' Equity       $ 47,184,965    $ 42,507,406
                                                          ============    ============


                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                       28

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                          2002            2001            2000
                                                      ------------    ------------    ------------
                                                                             
Net sales                                             $ 23,547,636    $ 16,072,162    $ 10,817,286
Cost of sales                                            6,752,041       4,214,812       3,410,904
                                                      ------------    ------------    ------------

     Gross Profit                                       16,795,595      11,857,350       7,406,382

Operating expenses                                      15,543,890      16,963,958      15,656,697
Research and development                                   293,486         716,390         433,560
                                                      ------------    ------------    ------------

     Income (Loss) From Operations                         958,219      (5,822,998)     (8,683,875)
                                                      ------------    ------------    ------------

Other Income (Expense):
   Interest and other income, net                          680,544         174,023         283,504
   Interest expense                                       (592,055)       (162,882)       (433,237)
                                                      ------------    ------------    ------------

     Total Other Income (Expense)                           88,489          11,141        (149,733)
                                                      ------------    ------------    ------------

Income (Loss) Before Provision (Benefit) For
   Income Taxes and Minority Interest                    1,046,708      (5,811,857)     (8,833,608)

Provision (benefit) for income taxes                    (3,709,947)             --              --
Minority interest in earnings of
   consolidated affiliate                                       --       1,012,543       2,667,165
                                                      ------------    ------------    ------------

Net Income (Loss) From Continuing Operations             4,756,655      (4,799,314)     (6,166,443)
                                                      ------------    ------------    ------------

Discontinued Operations:
   Loss from discontinued operations                            --        (305,415)     (1,970,637)
   Gain on disposal of gum operations, net of
   income taxes of $325,000                                     --      17,717,362              --
                                                      ------------    ------------    ------------

     Total Gain (Loss) From Discontinued Operations             --      17,411,947      (1,970,637)
                                                      ------------    ------------    ------------

Net Income (Loss)                                        4,756,655      12,612,633      (8,137,080)
Preferred stock dividends                                       --              --          12,005
                                                      ------------    ------------    ------------

Net Income (Loss) Applicable to
   Common Shareholders                                $  4,756,655    $ 12,612,633    $ (8,149,085)
                                                      ============    ============    ============


                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                       29

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                   (CONTINUED)



                                                             2002            2001             2000
                                                        -------------   -------------    -------------
                                                                                
Net Income (Loss) Per Share of Common Stock:
   Basic:
     Weighted Average Number of Common Shares
       Outstanding                                          9,422,873       9,284,234        8,906,635
         Net Income (Loss) Per Share of Common Stock:
           Continuing operations                        $         .50   $        (.52)   $        (.69)
           Discontinued operations                                 --            1.88             (.22)
                                                        -------------   -------------    -------------

           Net Income (Loss)                            $         .50   $        1.36    $        (.91)
                                                        =============   =============    =============

   Diluted:
     Weighted Average Number of Common Shares
       Outstanding                                          9,455,403       9,284,234        8,906,635
         Net Income (Loss) Per Share of Common Stock:
           Continuing operations                        $         .50   $        (.52)   $        (.69)
           Discontinued operations                                 --            1.88             (.22)
                                                        -------------   -------------    -------------

           Net Income (Loss)                            $         .50   $        1.36    $        (.91)
                                                        =============   =============    =============


                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                       30

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                    Series A
                                                 Preferred Stock         Common Stock     Additional
                                                -----------------       ---------------     Paid In     Treasury    Accumulated
                                                Shares     Amount       Shares   Amount     Capital       Stock       Deficit
                                                ------     ------       ------   ------     -------      ------       -------
                                                                                              
Balance at December 31, 1999                    1,000   $ 1,000,000   8,320,705  $8,321  $ 27,231,024   $     --   $(15,537,508)

Issuance of common stock upon exercise
  of stock options and warrants                    --            --     532,895     533     3,771,250         --             --

Issuance of common stock for repayment of
  senior notes                                     --            --     145,395     145     1,999,855         --             --

Issuance of common stock for redemption of
  Series A preferred stock                     (1,000)   (1,000,000)     48,052      48       999,952         --             --

Compensation from issuance of stock options        --            --          --      --       123,933         --             --

Payment of Series A preferred stock dividends      --            --          --      --            --         --        (12,005)

Net loss                                           --            --          --      --            --         --     (8,137,080)
                                               ------   -----------   ---------  ------  ------------   --------   ------------

Balance at December 31, 2000                       --            --   9,047,047   9,047    34,126,014         --    (23,686,593)

Issuance of common stock upon exercise of
  stock options and warrants                       --            --     185,204     185     1,159,228         --             --

Issuance of common stock for cash                  --            --     200,000     200     1,501,676         --             --

Compensation from issuance of stock options        --            --          --      --        25,830         --             --

Repurchase shares of the Company's common
  stock (8,100 shares)                             --            --          --      --            --    (52,436)            --

Acquisition of subsidiary                          --            --          --      --    (1,326,785)        --             --

Net income                                         --            --          --      --            --         --     12,612,633
                                               ------   -----------   ---------  ------  ------------   --------   ------------

Balance at December 31, 2001                       --            --   9,432,251   9,432    35,485,963    (52,436)   (11,073,960)


                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                       31

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                   (CONTINUED)



                                                    Series A
                                                 Preferred Stock         Common Stock     Additional
                                                -----------------       ---------------     Paid In     Treasury    Accumulated
                                                Shares     Amount       Shares   Amount     Capital       Stock       Deficit
                                                ------     ------       ------   ------     -------      ------       -------
                                                                                              
Issuance of common stock for services              --            --         700      --         6,683         --             --

Repurchase shares of the Company's common
  stock (1,500 shares)                             --            --          --      --            --     (9,420)            --

Issuance of restricted stock pursuant to
  the Company's restricted stock bonus
  program                                          --            --       8,500      10        71,476         --             --

Income tax benefit from stock options              --            --          --      --     5,960,799         --             --

Net income                                         --            --          --      --            --         --      4,756,655
                                               ------   -----------   ---------  ------  ------------   --------   ------------

Balance at December 31, 2002                       --   $        --   9,441,451  $9,442  $ 41,524,921   $(61,856)  $ (6,317,305)
                                               ======   ===========   =========  ======  ============   ========   ============


                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                       32

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000



                                                                     2002            2001           2000
                                                                 ------------    ------------    -----------
                                                                                        
Cash Flows From Operating Activities:
   Net income (loss)                                             $  4,756,655    $ 12,612,633    $(8,137,080)
   Adjustments to reconcile net income (loss) to net
     cash (used) by operating activities:
       Depreciation                                                    78,770         225,853        460,702
       Amortization                                                    87,498           4,619        160,659
       Amortization of discount on notes payable                      576,118          46,906        212,500
       Provision for bad debts                                        209,912         450,115        448,645
       Deferred income taxes                                       (3,397,686)             --             --
       Loss on disposal of assets                                      20,104             530          8,017
       Impairment of investment                                            --         250,000             --
       Gain on disposal of gum operations                                  --     (17,717,362)            --
       Compensation from forgiveness of note receivable                    --              --        209,753
       Compensation from issuance of stock options                         --          25,830        123,933
       Common stock issued for compensation                            78,169              --             --
       Minority interest in earnings of consolidated affiliate             --      (1,012,543)    (2,667,165)
       Changes in assets and liabilities:
         Restricted cash                                            1,503,150        (316,036)      (916,236)
         Accounts receivable                                       (2,786,352)       (712,540)     3,549,804
         Employee receivables                                              --             911         55,326
         Inventories                                                    7,878         869,518     (1,089,963)
         Prepaid expenses and other                                   (15,367)       (397,418)        35,566
         Interest receivable                                               --        (111,912)            --
         Accounts payable and accrued expenses                       (752,263)      2,148,721      1,701,906
         Customer deposits                                                 --         (64,862)        54,362
         Sales returns and allowances                                 (27,184)        176,137       (346,340)
         Deferred revenue                                                  --        (936,141)       936,141
                                                                 ------------    ------------    -----------

           Net Cash Provided (Used) By Operating Activities           339,402      (4,457,041)    (5,199,470)
                                                                 ------------    ------------    -----------

Cash Flows From Investing Activities:
   Capital expenditures                                              (573,679)     (1,190,871)    (1,050,449)
   Proceeds from sale of gum operations                                    --      25,000,000             --
   Costs of sale of gum operations                                         --      (1,527,922)            --
   Notes receivable                                                   200,000        (200,000)      (359,753)
   Cash paid for purchase of Zicam                                         --      (6,239,512)            --
   Deposits and other                                                  (5,297)        661,698       (574,932)
   Purchase of marketable securities                                       --     (17,543,105)            --
   Maturity of marketable securities                               10,656,380       6,998,637             --
   Investment in corporation                                               --        (250,000)            --
                                                                 ------------    ------------    -----------

           Net Cash Provided (Used) By Investing Activities        10,277,404       5,708,925     (1,985,134)
                                                                 ------------    ------------    -----------


                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                       33

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
                                   (CONTINUED)



                                                                    2002            2001           2000
                                                                ------------    ------------    -----------
                                                                                       
Cash Flows From Financing Activities:
   Proceeds from borrowing                                      $         --    $    600,000    $ 1,000,000
   Principal payments on notes payable                            (5,905,280)       (602,956)      (870,546)
   Debt issuance costs                                               (35,000)             --             --
   Issuance of common stock                                               --       2,661,289      3,771,783
   Dividend distribution of subsidiary                                    --              --       (814,499)
   Capital contribution of minority interest                              --              --      2,000,000
   Dividends paid on preferred stock                                      --              --        (12,005)
   Purchase of treasury stock                                         (9,420)        (52,436)            --
                                                                ------------    ------------    -----------

         Net Cash Provided (Used) By Financing Activities         (5,949,700)      2,605,897      5,074,733
                                                                ------------    ------------    -----------

         Net Increase (Decrease) in Cash and Cash Equivalents      4,667,106       3,857,781     (2,109,871)

         Cash and Cash Equivalents at Beginning of Year            7,342,985       3,485,204      5,595,075
                                                                ------------    ------------    -----------

         Cash and Cash Equivalents at End of Year               $ 12,010,091    $  7,342,985    $ 3,485,204
                                                                ============    ============    ===========

Supplemental Disclosure of Cash Flow Information:
   Cash paid during the year for:
     Interest                                                   $    610,657    $    136,492    $    64,985
     Income taxes                                                     12,740         336,127          8,735

Supplemental Disclosure of Non-cash Investing
   and Financing Activities:
     Issuance of common stock to repay senior notes and
       redeem preferred stock                                   $         --    $         --    $ 3,000,000
     Note payable incurred in connection with purchase
       of 40% interest in Zicam                                           --      10,130,619             --


                     The accompanying notes are an integral
                part of these consolidated financial statements.

                                      34

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   ORGANIZATION

     Gum Tech  International,  Inc. (the "Company") was  incorporated in Utah on
     February 4, 1991 to develop,  market and distribute  specialty  chewing gum
     products  for  branded  and private  label  customers,  as well as products
     marketed under the Company's  brand. The Company sold its gum operations in
     July 2001 (Note 3). On June 18, 2002, the Company  completed its previously
     announced plans to reincorporate in Delaware and change its name to Matrixx
     Initiatives,  Inc.  ("Matrixx" or the "Company").  The  reincorporation and
     name change,  were  effectuated  through a merger of the Company  (then Gum
     Tech  International,   Inc.)  with  and  into  its  wholly-owned   Delaware
     subsidiary,  Matrixx Initiatives,  Inc. The timing of the merger (including
     the resulting  reincorporation  and name change)  immediately  followed the
     receipt  of  approval  of  the  Company's  shareholders  at  its  regularly
     scheduled annual meeting held on such date. The authorized capital stock of
     Matrixx consists of (i) 30,000,000 shares of common stock, $.001 par value,
     ("common  stock") and (ii)  2,000,000  shares of preferred  stock $.001 par
     value.  Upon  the  effectiveness  of the  merger,  each  share  of Gum Tech
     International,  Inc. common stock issued and outstanding immediately before
     the merger,  was extinguished and converted into one issued and outstanding
     share of Matrixx common stock.  All dollar amounts have been  retroactively
     restated for the change in the capital structure.

     The  Company's  sole  business  segment  in 2001  and  2002 is  developing,
     marketing  and  selling  over the  counter  products  utilizing a nasal gel
     technology  through  a wholly  owned  subsidiary,  Gel Tech,  L.L.C.  ("Gel
     Tech").  On July  12,  2002,  Gel  Tech  changed  its  name to  Zicam,  LLC
     ("Zicam").

   PRINCIPLES OF CONSOLIDATION

     The consolidated  financial  statements include the accounts of the Company
     and its majority owned  subsidiary,  Zicam.  All  significant  intercompany
     accounts and transactions have been eliminated.

   INVENTORIES

     Inventories  are stated at the lower of cost or market.  Cost is determined
     using the first-in, first-out pricing method.

   MARKETABLE SECURITIES

     Management determines the appropriate  classification of its investments in
     marketable  debt and equity  securities  at the time of each  purchase  and
     re-evaluates such determination at each balance sheet date. At December 31,
     2001 the  Company's  investment  portfolio  consisted  of  marketable  debt
     securities classified as held-to-maturity and is carried at amortized cost,
     which approximates fair value.

   PROPERTY AND EQUIPMENT

     Depreciation of the primary asset  classifications  is calculated  based on
     the following estimated useful lives using the straight-line method.

           Classification                          Useful Life in Years
           --------------                          --------------------
     Machinery and equipment                              5-30
     Office furniture and equipment                       3-5
     Leasehold improvements                               2-10

     Depreciation  of property and equipment  charged to operations was $78,770,
     $225,853 and $460,702 for the years ended December 31, 2002, 2001 and 2000,
     respectively.

                                       35

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   INTANGIBLE ASSETS

     Debt issuance costs are being amortized using the straight-line method over
     the term of the notes.

     The  patent is being  amortized  using the  straight-line  method  over the
     remaining  term of the patent at the date of purchase of 16.75  years.  The
     estimated  aggregate  amortization  expense  for the  Company's  patent  is
     $67,081 on an annual basis for each of the next five years.

     Goodwill is considered to have an indefinite life, and therefore, it is not
     amortized, but instead is tested for impairment at least annually.

   REVENUE RECOGNITION

     The Company  recognizes  revenue from product  sales when earned,  that is,
     when the risks and rewards of ownership  have  transferred to the customer,
     which is considered to have occurred upon shipment of the finished project.
     Sales  incentives,  and returns are estimated and recognized at the date of
     shipment  based  upon  historical  activity  and  current  agreements  with
     customers.  The Company  evaluates  these  estimates on a regular basis and
     revises them as necessary.

   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  stock-based  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:



                                                                      2002            2001             2000
                                                                  ------------    ------------     ------------
                                                                                          
          Net income (loss) applicable to common shareholders,
            as reported                                           $  4,756,655    $ 12,612,633     $ (8,149,085)

          Less stock based employee compensation expense
            determined under fair value based methods for
            all awards, net of tax                                     715,409         154,821        1,512,000
                                                                  ------------    ------------     ------------

          Proforma net income (loss)                              $  4,041,246    $ 12,457,812     $ (9,661,085)
                                                                  ============    ============     ============
          Net income (loss) per share of common stock:
            Basic:
              As reported                                         $        .50    $       1.36     $       (.91)
              Pro forma                                           $        .43    $       1.34     $      (1.08)

            Diluted:
              As reported                                         $        .50    $       1.36     $       (.91)
              Pro forma                                           $        .43    $       1.34     $      (1.08)
     

     The fair value for these  options was  estimated at the date of grant using
     the Black-Scholes  option pricing model with the following  assumptions for
     the years ended December 31, 2002, 2001 and 2000.

                                            2002         2001         2000
                                          -------      -------      -------
     Risk-free interest rate                3.80%        4.22%        6.19%
     Expected life                       3.66 years   3.13 years   2.16 years
     Expected volatility                   63.80%       66.29%       69.96%
     Expected dividend yield                 0%           0%           0%

     The  Black-Scholes   option  valuation  model  was  developed  for  use  in
     estimating  the  fair  value  of  traded  options  which  have  no  vesting
     restrictions  and are fully  transferable.  In addition,  option  valuation
     models  require the input of highly  subjective  assumptions  including the
     expected  stock price  volatility.  Because the  Company's  employee  stock
     options have characteristics  significantly  different from those of traded
     options, and because changes in subjective input assumptions can materially
     affect the fair value  estimates,  in  management's  opinion,  the existing
     models do not  necessarily  provide a reliable  single  measure of the fair
     value of its employee stock-based compensation plans.

   LONG-LIVED ASSETS

     When facts and  circumstances  indicate that the cost of long-lived  assets
     may be  impaired,  an  evaluation  of the  recoverability  is  performed by
     comparing the carrying  value of the assets to the  estimated  undiscounted
     future cash flows. A forecast  showing lack of long-term  profitability,  a
     significant decline in market share, and a current period operating or cash
     flow loss  combined  with a history of  operating  or cash flow  losses are
     conditions,  among others,  that would trigger an impairment  assessment of
     the carrying amount of enterprise goodwill.

     Upon  indication  that  the  carrying  value  of  such  assets  may  not be
     recoverable,  the Company recognizes an impairment loss by a charge against
     current operations.  If there is an impairment,  an impairment charge would
     be  determined  by  comparing  the  carrying  amount  of the  assets to the
     applicable estimated future cash flows,  discounted at a risk-adjusted rate
     or market appraisals.  In addition,  the remaining  amortization period for
     the impaired asset would be reassessed and revised if necessary.

   COMPREHENSIVE INCOME

     Comprehensive  income  consists  of net income  (loss) and other  gains and
     losses affecting  stockholders'  equity that,  under accounting  principles
     generally  accepted in the United  States of America are excluded  from net
     income (loss).  Such items consist primarily of unrealized gains and losses
     on marketable equity  securities and foreign  translation gains and losses.
     The  Company  has not had any such  items in the  prior  three  years  and,
     consequently,  net income  (loss) and  comprehensive  income (loss) are the
     same.

                                       36

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   SHIPPING AND HANDLING COSTS

     The Company includes shipping and handling costs in cost of sales.

   INCOME TAXES

     Deferred  income taxes are provided for temporary  differences  between the
     financial  reporting and tax basis of assets and liabilities  using enacted
     tax laws and rates for the  years  when the  differences  are  expected  to
     reverse.

   RESEARCH AND DEVELOPMENT

     Research  and  development  costs are  expensed as  incurred.  Research and
     development costs were $293,486,  $974,447 and $782,383 for the years ended
     December 31, 2002, 2001 and 2000, respectively.  The portion of these costs
     associated  with the Company's gum operations  that were sold, are included
     in discontinued operations.

   ADVERTISING

     The Company advertises primarily through television, radio and print media.
     The Company's policy is to expense advertising costs,  including production
     costs,  as incurred.  Advertising  expense was  $7,736,982,  $8,867,239 and
     $10,008,274  for  the  years  ended  December  31,  2002,  2001  and  2000,
     respectively.

   NET INCOME (LOSS) PER SHARE OF COMMON STOCK

     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 basic  and  diluted  earnings  per share are the same for 2001 and 2000
     since the Company  had a net loss from  continuing  operations  in 2001 and
     2000 and the inclusion of stock options and other incremental  shares would
     be  anti-dilutive.  The schedule below summarizes the elements  included in
     the calculation of basic and diluted net income (loss) per common share for
     the years ended  December 31, 2002,  2001 and 2000.  Options,  warrants and
     other incremental shares to purchase 389,500, 654,960 and 945,310 shares of
     common  stock at  December  31,  2002,  2001 and  2000,  respectively  were
     excluded from the  computation of diluted  earnings per share because their
     effect would be anti-dilutive.



                                                      Year Ended December 31,
                                             ------------------------------------------
                                                2002            2001            2000
                                             ----------     -----------     -----------
                                                                   
     Net income (loss) applicable to
       common shareholders                   $4,756,655     $12,612,633     $(8,149,805)
                                             ==========     ===========     ===========

     Weighted average common shares
        outstanding - Basic                   9,422,873       9,284,234       8,906,635
     Dilutive securities                         32,530              --              --
                                             ----------     -----------     -----------

     Weighted average common shares
        outstanding - Diluted                 9,455,403       9,284,234       8,906,635
                                             ==========     ===========     ===========

     Net income (loss) per common share:
        Basic                                $      .50     $      1.36     $      (.91)
        Diluted                              $      .50     $      1.36     $      (.91)


                                       37

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   CASH AND CASH EQUIVALENTS

     For purposes of the  statements  of cash flows,  the Company  considers all
     highly  liquid  investments  with a maturity of three months or less at the
     date of purchase to be cash equivalents.

   ESTIMATES

     The  preparation of the Company's  financial  statements in conformity with
     accounting  principles  generally  accepted in the United States of America
     requires the Company's  management to make estimates and  assumptions  that
     affect the reported  amounts of assets and  liabilities  and  disclosure of
     contingent  assets and liabilities at the date of the financial  statements
     and the  reported  amount of revenues  and  expenses  during the  reporting
     period. Actual results could differ from those estimates.

   RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
     No. 141,  "Business  Combinations",  and SFAS No. 142,  "Goodwill and Other
     Intangible Assets". SFAS No. 141 requires business  combinations  initiated
     after  June 30,  2001 to be  accounted  for  using the  purchase  method of
     accounting.  It also specifies the types of acquired intangible assets that
     are required to be recognized and reported  separately from goodwill.  SFAS
     No.  142  requires  that  goodwill  and  certain  intangibles  no longer be
     amortized,  but instead tested for impairment at least  annually.  SFAS No.
     142 is required to be applied  starting with fiscal years  beginning  after
     December  15,  2001.  The Company  adopted  SFAS No. 142 on January 1, 2002
     which did not result in any  impairment  of  goodwill  or other  intangible
     assets upon adoption.

     In  August  2001,  the FASB  issued  SFAS No.  143,  "Accounting  for Asset
     Retirement Obligations".  SFAS No. 143 establishes accounting standards for
     recognition  and  measurement  of  a  liability  for  the  costs  of  asset
     retirement obligations.  Under SFAS No. 143, the costs of retiring an asset
     are recorded as a liability when the retirement obligation arises, and will
     be  amortized to expense  over the life of the asset.  The Company  adopted
     SFAS No.  143 on  January 1, 2002 which did not result in any impact on the
     Company's financial position or results of operations.

     In  October  2001,  the FASB  issued  SFAS  No.  144,  "Accounting  for the
     Impairment  or  Disposal  of  Long-Lived  Assets".  SFAS No. 144  addresses
     financial  accounting  and  reporting  for the  impairment  or  disposal of
     long-lived assets and discontinued operations. The Company adopted SFAS No.
     144 on January 1, 2002 which did not result in any impact on the  Company's
     financial position or results of operations.

     In July  2002,  the  FASB  issued  SFAS  No.  146,  "Accounting  for  Costs
     Associated  with Exit or  Disposal  Activities,"  which  replaces  Emerging
     Issues Task Force  ("EITF")  Issue No.  94-3,  "Liability  Recognition  for
     Certain Employee  Termination  Benefits and Other Costs to Exit an Activity
     (Including  Certain Costs Incurred in a  Restructuring)."  The new standard
     requires  companies to  recognize  costs  associated  with exit or disposal
     activities  when they are incurred  rather than at the date of a commitment
     to an exit or disposal plan.  The statement is to be applied  prospectively
     to exit or disposal  activities  initiated  after  December 31,  2002.  The
     Company  does not expect that the adoption of this  standard  will have any
     impact on the Company's financial position or results of operations.

                                       38

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

   RECLASSIFICATIONS

     Certain  prior period  amounts have been  reclassified  to conform with the
     current period  presentation.  The results of the Company's  operations for
     all periods presented have been restated for the discontinued operations of
     the Company's gum operations.

2. ACQUISITION

     On December  5, 2001 the Company  entered  into a Purchase  Agreement  (the
     "Agreement")  to acquire  the 40%  interest  in Zicam  previously  owned by
     Zensano.  The Company  now owns 100% of Zicam.  The  Company  acquired  the
     remaining  portion  of Zicam so as to gain  full  operating  and  strategic
     control of Zicam in order to develop and capitalize on the growth potential
     that management believes is inherent in the Zicam products and product line
     extensions.  Under the terms of the Agreement,  the Company paid $6,120,000
     in cash  at  closing  and  will  make  four  subsequent  cash  payments  of
     $2,750,000 each over a two year period,  for a total cash purchase price of
     $17,120,000  less the imputed  interest  on the note  payable to Zensano of
     $869,381 resulting in a net purchase price of $16,250,619. The Company also
     incurred  legal,  accounting,  appraisal  and other costs of  approximately
     $119,512 in connection with the transaction.

     The  acquisition  of the 40%  interest  by the  Company  is  recorded  as a
     purchase.  The cost of Zicam's  assets and  liabilities  approximates  fair
     value except for the value assigned to Zicam's patent and goodwill.

     The following  table  summarizes  the  estimated  fair values of the assets
     acquired and liabilities assumed at the date of acquisition.

     Current assets                                           $  2,626,114
     Property and equipment                                          8,788
     Intangible assets                                           1,123,600
     Goodwill                                                   15,039,836
                                                              ------------

        Total Assets Acquired                                   18,798,338
                                                              ------------

     Current liabilities                                        (2,428,207)
                                                              ------------

        Total Liabilities Assumed                               (2,428,207)
                                                              ------------

        Net Assets Acquired                                   $ 16,370,131
                                                              ============

     The $1,123,600  assigned to patents is amortized over the remaining life of
     the patent of 16.75 years.  The  $15,039,836  of goodwill is expected to be
     deductible for tax purposes.

                                       39

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


3. DISCONTINUED OPERATIONS

   SALE OF GUM OPERATIONS

     On July 20, 2001, the Company sold  substantially all of its assets related
     to  its  gum  operations  to  Wm.  Wrigley  Jr.  Company  ("Wrigley"),  for
     $25,000,000 in cash and other  consideration.  The Company retained certain
     assets, including cash, accounts receivable,  its 60% interest in Zicam and
     its 49% interest in a joint  venture  with  Swedish  Match AB. In addition,
     Wrigley  purchased  200,000 shares of the Company's common stock at a price
     of $7.50938 per share, or approximately $1,501,876.

     The results of operations for all periods  presented have been restated for
     the discontinued gum operations,  which are summarized  below. In addition,
     the Company  recorded an after-tax gain of  approximately  $17,717,362 as a
     result of the asset sale in 2001.

     Summary of Operating Results of Discontinued Operations:

                                                 Year Ended December 31,
                                              ----------------------------
                                                  2001             2000
                                              -----------      -----------
     Net sales                                $ 2,064,457      $ 2,560,603
     Cost of sales                              2,233,272        3,740,999
                                              -----------      -----------

     Gross profit                                (168,815)      (1,180,396)
     Operating expenses                           814,684        1,105,054
     Research and development                     258,057          348,823
                                              -----------      -----------

     Income (loss) from operations             (1,241,556)      (2,634,273)
     Other income (expense)                       936,141          663,636
                                              -----------      -----------

     Net Income (Loss)                        $  (305,415)     $(1,970,637)
                                              ===========      ===========

4. RESTRICTED CASH

     Cash of $1,503,150  at December 31, 2001,  was held as collateral by a bank
     for  letters  of credit  issued to a vendor  of the  Company's  advertising
     campaign. The unused letter of credit at December 31, 2002 was $1,500,000.

5. INVENTORIES

     Inventories consist of the following:

                                                    2002            2001
                                                 ----------      ----------
     Raw materials and packaging                 $  506,823      $  466,520
     Finished goods                               1,066,211       1,114,392
                                                 ----------      ----------

        Total                                    $1,573,034      $1,580,912
                                                 ==========      ==========

                                       40

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


6. MARKETABLE SECURITIES

     At December 31, 2001, all marketable  debt  securities  were  classified as
     held-to-maturity and are carried at amortized cost.  Investments  consisted
     entirely of U.S. government securities. At December 31, 2001, the estimated
     fair  value  of  each  investment   approximated  its  amortized  cost  and
     therefore, there were no significant unrealized gains or losses.

7. CURRENT NOTES PAYABLE



     BANK                                                      2002           2001
     ----                                                   ----------    -----------
                                                                   
     $1,000,000  line of credit  due in 2001  which was
     extended  until  March 2002,  with  interest at 3%
     above  prime  (or  7.75% at  December  31,  2001),
     collateralized  by  Zicam's  accounts  receivable,
     inventory,  property and equipment and  intangible
     assets.  Advances  under  the line of  credit  are
     limited  to  50%  of  Zicam's  eligible   accounts
     receivable plus cash on deposit with the bank. The
     loan also  contains  various  financial  covenants
     regarding  liquidity  percentages and Zicam,  must
     maintain a profit on a quarterly  basis.  The bank
     waived  the net  income  covenant  of Zicam,  on a
     quarterly basis in 2001.                               $       --    $ 1,000,000

     $2,500,000   line  of  credit  due  in  2003  with
     interest at 1.5% above prime (or 5.75% at December
     31, 2002),  collateralized by accounts receivable,
     inventory,  property  and  equipment,   intangible
     assets and other assets of the  Company.  Advances
     under the line of credit  are  limited  to certain
     percentages  of the  Company's  eligible  accounts
     receivable and  inventory.  The loan also contains
     various financial covenants  regarding  liquidity,
     tangible net worth, and other financial ratios and
     minimum  amounts of net income or maximum  amounts
     of net loss on a quarterly  basis. The bank waived
     the net income  covenant for the second quarter of
     2002. The Company is also  restricted  from paying
     dividends  without  the  consent of the  Company's
     lender.                                                        --             --
                                                            ----------    -----------

             Total Current Notes Payable                    $       --    $ 1,000,000
                                                            ==========    ===========


8. LONG-TERM DEBT

     Long-term debt consists of the following:



     FINANCIAL INSTITUTIONS AND OTHER
                                                        
     Non-interest bearing installment note with imputed
     interest  at 6.5%  due in  2003,  payable  in four
     installments  of  $2,750,000  on  June  30,  2002,
     November 30, 2002,  June 30, 2003 and November 30,
     2003.  Collateralized  by forty percent  ownership
     interest in Zicam.                                     $5,253,643    $10,177,525
                                                            ----------    -----------


                                       41

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


8. LONG-TERM DEBT (CONTINUED)

                                                         2002           2001
                                                      ----------    -----------
     Total Long-Term Debt                             $ 5,253,643   $10,177,525

     Less current portion of long-term debt            (5,253,643)   (4,923,882)
                                                      -----------   -----------

     Long-Term Debt                                   $        --   $ 5,253,643
                                                      ===========   ===========

     Installments due on debt principal at December 31, 2002 are as follows:

                 Year Ending
                December 31,
                ------------
                    2003                                             $5,253,643
                                                                     ----------

                    Total                                            $5,253,643
                                                                     ==========

9. INCOME TAXES

     The components of the provision (benefit) for income taxes are as follows:

                                                2002           2001       2000
                                             -----------    -----------   -----
     Current:
       Federal                               $  (325,000)   $   325,000   $  --
       State                                      12,740             --      --
                                             -----------    -----------   -----

          Total                                 (312,260)       325,000      --
                                             -----------    -----------   -----

     Deferred:
       Federal                                (3,208,806)            --      --
       State                                    (188,881)            --      --
                                             -----------    -----------   -----

          Total                               (3,397,687)            --      --
                                             -----------    -----------   -----

          Total Provision (Benefit)
            For Income Taxes                 $(3,709,947)   $   325,000   $  --
                                             ===========    ===========   =====

     The provision  (benefit) for income taxes reconciles to the amount computed
     by  applying  the federal  statutory  rate to income  before the  provision
     (benefit) for income taxes as follows:

                                                     2002       2001      2000
                                                     ----       ----      ----

     Federal statutory rate                            34%        34%      (34)%
     State income taxes, net of federal benefits        5          5        (5)
     Valuation allowance                             (324)        --        39
     Other                                            (31)        --        --
     Net operating loss carryover                     (38)       (39)       --
                                                     ----       ----      ----

     Total                                           (354)%       --%       --%
                                                     ====       ====      ====

                                       42

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. INCOME TAXES (CONTINUED)

     The following is a  reconciliation  of the  provision  (benefit) for income
     taxes to income before  provision for income taxes  computed at the federal
     statutory rate of 34%.



                                                       2002           2001           2000
                                                   -----------    -----------    -----------
                                                                        
     Income taxes at the federal statutory rate    $   355,881    $ 4,288,295    $(2,763,688)
     State income taxes, net of federal benefits        52,335        630,632       (406,425)
     Nondeductible expenses                              2,836          4,231          4,465
     Net operating loss carryover                     (398,312)    (4,598,158)            --
     Other                                            (325,000)            --             --
     Valuation allowance                            (3,397,687)            --      3,165,648
                                                   -----------    -----------    -----------

     Total                                         $(3,709,947)   $   325,000    $        --
                                                   ===========    ===========    ===========


     The income  taxes for the year ended  December  31, 2001 was  comprised  of
     federal alternative minimum tax that was due as a result of the gain on the
     sale of the Company's gum operations.

     Significant components of deferred income taxes as of December 31, 2002 and
     2001 are as follows:

                                                  2002            2001
                                              ------------    ------------
     Net operating loss carryforwards         $  9,435,500    $ 10,115,000
     Reserve for bad debts                         265,200         192,000
     Inventory valuation reserve                    36,700              --
     Reserves and accrued expenses                 513,400              --
     Other                                          29,300              --
     Valuation allowance                          (400,100)     (4,302,900)
                                              ------------    ------------

     Total Deferred Tax Asset                    9,880,000       6,004,100
                                              ------------    ------------

     Amortization of intangible assets            (448,900)        (34,900)
     Depreciation                                  (72,600)         (3,700)
     Stock option compensation                          --      (5,965,500)
                                              ------------    ------------

     Total Deferred Tax Liability                 (521,500)     (6,004,100)
                                              ------------    ------------

     Net Deferred Tax Asset                   $  9,358,500    $         --
                                              ============    ============

     The Company records a valuation allowance for certain temporary differences
     for which it is more likely  than not that it will not  receive  future tax
     benefits.  The Company assesses its past earnings history and trends, sales
     backlog  and  projections  of future net  income.  The  Company  recorded a
     valuation allowance for the entire amount of the net deferred asset in 2000
     and  2001 as it had  determined  that it was more  likely  than not that no
     deferred tax assets would be realized. In 2002, the Company determined that
     it is more  likely than not that the  deferred  tax assets will be realized
     and the valuation allowance has been reduced to $400,100. The net change in
     the  valuation  allowance  for  deferred  tax  assets  was  a  decrease  of
     $3,902,800. The Company will continue to review this valuation allowance on
     a quarterly basis and make adjustments as appropriate.

                                       43

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. INCOME TAXES (CONTINUED)

     The tax benefits  associated with employee exercises of non-qualified stock
     options and  disqualifying  dispositions  of stock  acquired with incentive
     stock options reduces income taxes currently payable.  However, no benefits
     were recorded to additional  paid in capital in 2000 and 2001 because their
     realization  was not more  likely  than not to occur  and  consequently,  a
     valuation  allowance was recorded against the entire benefit.  In 2002, the
     Company  determined  that it is more likely than not that the amounts would
     be realized and has recorded a benefit that is charged to  additional  paid
     in capital of $5,960,799.

     At December 31, 2002,  the Company had federal and state net operating loss
     carryforwards of approximately  $23,000,000 and $22,000,000,  respectively.
     Such  carryforwards  expire in the years 2018 through 2020 and 2003 through
     2005 for federal and state purposes, respectively.

10. PREFERRED STOCK

     The authorized preferred stock of the Company consists of 2,000,000 shares,
     $.001 par value.  The preferred stock may be issued in separate series from
     time to time as the Board of  Directors  of the  Company may  determine  by
     resolution,  unless the nature of a particular  transaction  and applicable
     statutes  require  shareholder  approval.   The  rights,   preferences  and
     limitations of each series of preferred stock may differ, including without
     limitation,  the  rate of  dividends,  method  and  nature  of  payment  of
     dividends,  terms of redemption,  amounts payable on  liquidation,  sinking
     fund provisions (if any), conversion rights (if any), and voting rights.

     In June 1999, the Company designated a new class of preferred stock "Series
     A Preferred  Stock" and the number of shares  constituting  such series was
     2,000 shares with no par value. The new series was authorized in connection
     with a Securities  Purchase  Agreement for the sale of $4,000,000 of senior
     notes and  $2,000,000 of Series A preferred  stock.  Each  preferred  share
     bears  dividends at a rate of 14% per year,  and are payable on a quarterly
     basis.  Redemptions of the preferred shares were accompanied by a repayment
     of the  Company's  senior notes on a prorata  basis of one third  preferred
     stock and two-thirds senior notes. Redemptions of the preferred stock prior
     to June 2, 2001 were based on 95% of the  average of the  closing bid price
     of the  Company's  common  stock  for  the 20  days  prior  to the  date of
     redemption. The Company redeemed all of the outstanding preferred shares in
     January and February 2000 through the issuance of common stock.

11. STOCKHOLDERS' EQUITY

    STOCK REPURCHASE PLAN

     In September 2001, the Company began  acquiring  shares of its common stock
     in connection  with its stock  repurchase  plan approved in August 2001 and
     expired in August 2002. The plan authorizes the Company to repurchase up to
     1,000,000  outstanding  common shares.  During 2001, the Company  purchased
     8,100 shares of common stock at an aggregate cost of $52,436.  During 2002,
     the Company  purchased 1,500 shares of common stock at an aggregate cost of
     $9,420.

     In December  2002,  the  Company's  Board of Directors  authorized a Common
     Stock  Repurchase  Program for up to 250,000 shares of the Company's common
     stock.  The  common  stock may be  repurchased  from  time to time,  at the
     discretion of the Company, at any time until December 31, 2003.

                                       44

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11. STOCKHOLDERS' EQUITY (CONTINUED)

    STOCKHOLDER RIGHTS PLAN

     On July  12,  2002,  the  Board  of  Directors  of the  Company  adopted  a
     shareholder  rights plan in the form of a Rights Agreement dated as of July
     22, 2002 by and between the Company and Corporate Stock Transfer,  Inc., as
     Rights  Agent (the  "Rights  Agreement").  On July 12,  2002,  the Board of
     Directors  of the  Company  declared  a  dividend  of one  preferred  share
     purchase right (a "Right") for each outstanding  share of common stock. The
     dividend was paid on July 22, 2002 to the Company's  stockholders of record
     on that  date.  The  Rights  also  apply to, and will be issued in the same
     proportion in connection  with, all future common stock issuances until the
     Distribution  Date (defined below) or the expiration or earlier  redemption
     or exchange of the Rights. Each Right permits the registered holder thereof
     to purchase from the Company,  at any time after the Distribution Date, one
     one-thousandth  of a share of the Company's  Series A Junior  Participating
     Preferred Stock for a purchase price of $50.79 per such one  one-thousandth
     of a share,  subject to certain  possible  adjustments  provided for in the
     Rights Agreement.  The Board of Directors of the Company has authorized the
     issuance of up to 20,000 shares of Series A Junior Participating  Preferred
     Stock upon the exercise of Rights.

     Initially  the Rights  will be attached  to all  certificates  representing
     shares  of  common  stock  then   outstanding,   and  no  separate   Rights
     certificates will be distributed.  The Rights will separate from the common
     stock  upon  the  earlier  to  occur  of  (i)  10  days  after  the  public
     announcement  of a person's or group of affiliated  or  associated  persons
     having  acquired  beneficial  ownership  of 15% or more of the  outstanding
     common stock (such person or group being an "Acquiring Person"), or (ii) 10
     business  days (or such later date as the  Company's  Board may  determine)
     following the  commencement  of, or announcement of an intention to make, a
     tender offer or exchange offer for the common stock,  the  consummation  of
     which would result in a person or group's becoming an Acquiring Person (the
     earlier of such dates being the  "Distribution  Date").  The Rights are not
     exercisable  until  the  Distribution  Date.  If any  person  (or  group of
     persons) becomes an Acquiring Person,  except in a tender or exchange offer
     which is for all  outstanding  common stock at a price and on terms which a
     majority of the Company's  Board  determines to be adequate and in the best
     interests   of  the   Company,   its   shareholders   and  other   relevant
     constituencies  (other  than such  Acquiring  Person,  its  affiliates  and
     associates), each holder of a Right will thereafter be entitled to acquire,
     for each  Right so held,  one share of common  stock for a  purchase  price
     equal to 50% of the then  current  market  price  for such  share of common
     stock. All Rights beneficially owed by an Acquiring Person or any affiliate
     or associate thereof will be null and void and not exercisable.  The Rights
     expire  on July 22,  2012  provided  that,  prior to a person  (or group of
     persons)  becoming an Acquiring  Person,  the Company may redeem the Rights
     for $0.01 per Right.  All of the provisions of the Rights  Agreement may be
     amended  before  the  Distribution  Date by the Board of  Directors  of the
     Company for any reason it deems  appropriate.  After the Distribution Date,
     the provisions of the Rights Agreement may be amended by the Board in order
     to cure any ambiguity,  defect or  inconsistency,  to make changes which do
     not adversely affect the interest of Rights  (excluding the interest of any
     Acquiring  Person)  or,  subject  to  certain  limitations,  to  shorten or
     lengthen any time period under the Rights Agreement.

                                       45

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11. STOCKHOLDERS' EQUITY (CONTINUED)

    DIRECTORS RESTRICTED STOCK PURCHASE PROGRAM

     In 2002,  the Company  established  a Director  Restricted  Stock  Purchase
     Program  (the  "Program").  Under the Program the number of shares to which
     the Director will be entitled is equal to the cash portion of  compensation
     payable to him for Directors fees by the Company that he wishes to apply to
     the  purchase  of shares  under the  Program  divided by 80% of the closing
     price of the Company's stock price on the date the cash consideration would
     be paid.  Shares issued under the Program are restricted until the first to
     occur of (i) the  expiration  of three  years  from the date the shares are
     issued,  (ii) a change in control of the Company,  and (iii) the  Directors
     death or disability.

12. STOCK OPTIONS AND WARRANTS

    1995 STOCK OPTION PLAN

     In March 1995,  the Company  adopted a stock  option plan (the "1995 Plan")
     which  provides  for  the  grant  of  both  incentive   stock  options  and
     non-qualified  options.  A total of  2,000,000  shares of common stock have
     been reserved for issuance under the 1995 Plan.

     Options  under  the  Company's  1995  Plan are  issuable  only to  eligible
     officers, directors, key employees and consultants of the Company. The 1995
     Plan is  administered  by a committee  selected by the Board of  Directors,
     which  determines  those  individuals who shall receive  options,  the time
     period during which the options may be  exercised,  the number of shares of
     common stock that may be purchased under each option, and the option price.
     Unless  sooner  terminated,  the 1995 Plan  shall  remain  in effect  until
     January 1, 2005.

     The per share  exercise  price of the common stock may not be less than the
     fair  market  value of the common  stock on the date the option is granted.
     The aggregate  fair market value  (determined  as of the date the option is
     granted) of the common stock that any employee may purchase in any calendar
     year  pursuant to the  exercise of incentive  stock  options may not exceed
     $100,000.  No person who owns,  directly or indirectly,  at the time of the
     granting of an incentive  stock  option to him,  more than 10% of the total
     combined  voting  power of all  classes  of stock of the  Company  shall be
     eligible to receive any incentive  stock options under the 1995 Plan unless
     the option  price is at least 110% of the fair  market  value of the common
     stock subject to the option, determined on the date of grant.

     All  options  granted  under the 1995 Plan  provide  for the payment of the
     exercise  price in cash or, with the prior written  consent of the Company,
     by delivery to the Company of shares of common stock  already  owned by the
     optionee  having a fair  market  value equal to the  exercise  price of the
     options being exercised, or by a combination of such methods of payment.

                                       46

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. STOCK OPTIONS AND WARRANTS (CONTINUED)

    1995 STOCK OPTION PLAN (CONTINUED)

     The following  table  contains  information  on the stock options under the
     Company's 1995 Plan for the years ended  December 31, 2000,  2001 and 2002.
     The outstanding options expire from March 2003 to July 2006.

                                                   Number of    Weighted Average
                                                    Shares       Exercise Price
                                                    ------       --------------
     Options outstanding at December 31, 1999       664,500          $ 8.85
       Granted                                      120,000           13.40
       Exercised                                   (148,000)           5.63
       Cancelled                                    (45,000)          12.00
                                                   --------          ------

     Options outstanding at December 31, 2000       591,500           10.34
       Granted                                       95,000            7.94
       Exercised                                   (158,500)           5.96
       Cancelled                                   (205,000)          11.43
                                                   --------          ------

     Options outstanding at December 31, 2001       323,000           11.10
       Granted                                           --              --
       Exercised                                         --              --
       Cancelled                                   (111,000)          12.12
                                                   --------          ------

     Options outstanding at December 31, 2002       212,000          $10.57
                                                   ========          ======

    2001 LONG-TERM INCENTIVE PLAN

     In November  2001, the Company  adopted the 2001  Long-Term  Incentive Plan
     (the "2001 Plan").  The 2001 Plan provides for the grant of incentive stock
     options,  non-qualified options, restricted common stock, performance based
     awards, tandem awards and substitute awards. A total of 1,000,000 shares of
     common stock have been reserved for issuance under the 2001 Plan.

     The following  table  contains  information  on the stock options under the
     Company's  2001 Plan for the years ended  December  31, 2001 and 2002.  The
     outstanding options expire from March 2003 to December 2009.

                                                   Number of    Weighted Average
                                                    Shares       Exercise Price
                                                    ------       --------------
     Options outstanding at December 31, 2000            --          $  --
       Granted                                       12,000           6.90
       Exercised                                         --             --
       Cancelled                                         --             --
                                                    -------          -----

     Options outstanding at December 31, 2001        12,000           6.90
       Granted                                      178,800           8.86
       Exercised                                         --             --
       Cancelled                                         --             --
                                                    -------          -----

     Options outstanding at December 31, 2002       190,800          $8.74
                                                    =======          =====

                                       47

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. STOCK OPTIONS AND WARRANTS (CONTINUED)

    OTHER STOCK OPTIONS

     The  Company  has  granted  non-qualified  stock  options  to  consultants,
     distributors  and other  individuals.  The outstanding  options expire from
     March 2003 to September 2004.

     The following table contains  information on all of the Company's  non-plan
     stock options for the years ended December 31, 2000, 2001 and 2002.

                                                   Number of    Weighted Average
                                                    Shares       Exercise Price
                                                    ------       --------------
     Options outstanding at December 31, 1999       240,000          $ 9.82
       Granted                                       20,000           14.31
       Exercised                                    (77,314)           9.91
       Cancelled                                     (5,900)           9.61
                                                   --------          ------

     Options outstanding at December 31, 2000       176,786           10.12
       Granted                                       10,000            8.88
       Exercised                                         --              --
       Cancelled                                    (14,286)          11.44
                                                   --------          ------

     Options outstanding at December 31, 2001       172,500           10.11
       Granted                                           --              --
       Exercised                                         --              --
       Cancelled                                    (57,500)           9.48
                                                   --------          ------

     Options outstanding at December 31, 2002       115,000          $10.43
                                                   ========          ======

                                      48

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. STOCK OPTIONS AND WARRANTS (CONTINUED)

    OTHER STOCK OPTION INFORMATION

     The weighted  average fair value price of options granted was $4.14,  $3.61
     and $5.72 in 2002, 2001 and 2000, respectively.

     The  following  table  summarizes   information  about  the  Company's  two
     stock-based compensation plans outstanding at December 31, 2002:

     Options Outstanding and Exercisable by Price Range as of December 31, 2002:



                                  Options Outstanding                  Options Exercisable
                     -------------------------------------------     ------------------------
                                        Weighted
                                         Average        Weighted                     Weighted
        Range of                        Remaining        Average                      Average
        Exercise        Number         Contractual      Exercise        Number       Exercise
         Prices      Outstanding      Life in Years       Price      Exercisable       Price
         ------      -----------      -------------       -----      -----------       -----
                                                                   
      $ 6.90-9.00      168,300            4.52          $  7.68         72,300       $  7.70
      $9.01-16.13      234,500            2.52           $11.14        173,500        $11.73
      -----------      -------            ----           ------        -------        ------

      $6.90-16.13      402,800            3.36          $  9.70        245,800        $10.55
      ===========      =======            ====          =======        =======        ======


    COMPENSATION EXPENSE

     The Company recorded compensation expense of $--, $25,830, and $123,933 for
     the years ended  December 31,  2002,  2001 and 2000,  respectively  for the
     value of certain  options  granted to  non-employees  of the  Company.  The
     valuation of the options and warrants  granted to employees is based on the
     difference  between the exercise price and the market value of the stock on
     the measurement date. The valuation of the options granted to non-employees
     is estimated using the Black-Scholes option pricing model.

                                       49

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. STOCK OPTIONS AND WARRANTS (CONTINUED)

    COMPENSATION EXPENSE (CONTINUED)

     The Company issued 8,500 shares of its restricted common stock to employees
     in 2002  pursuant to the  Company's  restricted  stock bonus  program.  The
     Company  recorded  compensation  expense  of  $71,486  for the value of the
     shares issued.  The weighted  average fair value of the  restricted  common
     stock at the date of grant was $8.41 per share.

    FINANCING WARRANTS

     In connection with the Company's Securities Purchase Agreement for the sale
     of senior notes and Series A preferred  stock in 1999,  the Company  issued
     warrants to the lenders. The Company issued a total of 300,000 common stock
     purchase warrants. Each warrant is exercisable to purchase one share of the
     Company's  common stock at $12.44 per share at anytime  until June 1, 2002.
     In 2000,  212,540  warrants  were  exercised  and 87,460  warrants  expired
     unexercised in 2002.

     The Company also issued a total of 60,000 common stock purchase warrants as
     a  finder's  fee  in  connection  with  the  financing.   Each  warrant  is
     exercisable to purchase one share of the Company's common stock,  30,000 at
     $11.70  per  share  through  June 1, 2002 and  30,000  at $15.00  per share
     through  June 1,  2004.  As of  December  31,  2002,  30,000  warrants  are
     outstanding and 30,000 warrants expired unexercised in 2002.

13. COMMITMENTS AND CONTINGENCIES

    LEASES

     The  Company  leases  its  office  facilities  under  a  long-term  leasing
     arrangement.  The following is a schedule of future  minimum lease payments
     at December 31, 2002 under the Company's operating leases that have initial
     or remaining noncancellable lease terms in excess of one year:

     Year Ending
     December 31,                                            Facilities
     ------------                                            ----------
         2003                                                 $190,080
         2004                                                   15,840
                                                              --------

     Total Minimum Lease Payments                             $205,920
                                                              ========

     Rental expense  charged to operations  was $256,804,  $280,838 and $330,134
     for the years ended December 31, 2002, 2001 and 2000, respectively.

    LITIGATION

     On November 9, 1999, The Quigley Corporation  ("Quigley") commenced a civil
     action  against the  Company in the United  States  District  Court for the
     Eastern District of Pennsylvania. The complaint alleged that Zicam(TM) Cold
     Remedy  infringed on a patent  licensed to Quigley and sought  compensatory
     damages and injunctive relief.

     Without admitting guilt, the Company agreed to settle the case in June 2001
     to avoid the potential  adverse  consequences  of an  unfavorable  outcome,
     including  potential  damages  that may have been awarded to Quigley or the
     entry of an order for  injunctive  relief.  The  settlement  provided for a
     payment  of  $1,000,000   on  August  1,  2001,   $137,500  in  four  equal
     installments  through April 2002 and a royalty payment of 5.5% of net sales
     of Zicam Cold Remedy,  but not less than $500,000,  for the period April 1,
     2001 through March 5, 2002, payable on a quarterly basis.

                                       50

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13. COMMITMENTS AND CONTINGENCIES (CONTINUED)

    LITIGATION (CONTINUED)

     On June 2, 1999,  the  Company  filed a complaint  against DJ Ltd.  ("DJ").
     Following a private  placement the Company  completed in June 1999, DJ sent
     the  Company a letter  demanding  a  placement  fee  based on an  agreement
     between the parties dated December 1996. The Company's  complaint  sought a
     declaratory  judgment that DJ was not owed any fee under the agreement.  DJ
     filed a counterclaim  against the Company that alleged the Company breached
     the  contract  between the  parties and that the Company had been  unjustly
     enriched. DJ sought damages in the amount of $480,000, plus costs, expenses
     and warrants to purchase 50,000 shares of the Company's  common stock.  The
     Company  and DJ agreed to settle the case in January  2003 for a payment by
     the Company of $250,000.  The amount is recorded as of December 31, 2002 as
     a charge to operating expenses.

14. RELATED PARTY TRANSACTIONS

     In 2000,  the Company loaned  $200,000 to its former  Chairman of the Board
     and $150,000 to the Company's former President. The notes included interest
     at 10% per annum. The Company wrote off the note receivable from its former
     Chairman  of the  Board of  $209,753,  which  included  $9,753  of  accrued
     interest in 2000. The $150,000 note  receivable  from the Company's  former
     President  plus  accrued  interest  of  $8,671  was  forgiven  in  2001  in
     connection with the sale of the Company's gum operations in 2001.

15. EMPLOYEE BENEFIT PLAN

     Effective  September  1,  1997,  the  Company  adopted a Simple  Retirement
     Account Plan for employees.  The Company shall make a matching contribution
     for each employee in an amount equal to each  employees'  Salary  Reduction
     Contributions  for the Plan year of up to 3% of the employees  compensation
     for the Plan year.  The Company  made  matching  contributions  of $20,539,
     $32,988 and $31,198 for the years ended  December 31, 2002,  2001 and 2000,
     respectively.  Each  employee  shall be fully  vested  at all  times in his
     contribution and the Company's matching contributions.

16. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS

     Financial   instruments   which   potentially   subject   the   Company  to
     concentrations  of  credit  risk  consist  principally  of  temporary  cash
     investments   and  accounts   receivable.   The  Company  places  its  cash
     equivalents with high credit quality financial  institutions and limits its
     credit exposure with any one financial  institution.  The Company's cash in
     its banks exceeds the federally insured limits. The Company provides credit
     in the normal  course of business to many of the  nation's  top drug stores
     and mass  merchandisers.  The Company's  accounts  receivable  are due from
     customers  located  throughout  the United  States.  The  Company  performs
     periodic  credit  evaluations  of its  customers'  financial  condition and
     generally  requires no  collateral.  The  Company  maintains  reserves  for
     potential  credit  losses,  and such losses have not exceeded  management's
     expectations.

     The Company's sales are from seven products  marketed under the Zicam brand
     name, with a majority of its sales attributable to its Cold Remedy product,
     which subjects the Company to  significant  financial  exposure.  If future
     sales of  these  products  decrease,  and in  particular  sales of its Cold
     Remedy  formula,  the Company's  operations  could be materially  adversely
     affected.

     The Company  currently  relies on three different  manufacturers to produce
     its seven products,  but has identified  alternative  suppliers for each of
     the products.  However,  the Company has not made any purchases  from these
     suppliers and its ability to secure  supply of its swab  products  could be
     limited  by  the   proprietary   technology   possessed   by  the   current
     manufacturer.

                                       51

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS (CONTINUED)

     Sales to major customers, which comprised 10% or more of net sales, for the
     years ended December 31, 2002, 2001 and 2000 were as follows:

                                           2002        2001      2000
                                           ----        ----      ----
     Customer A                            18.2%      10.6%        *
     Customer B                               *%      10.3%     13.0%
     Customer C                            11.0%         *         *

     *    Less than 10%

17. FAIR VALUE OF FINANCIAL INSTRUMENTS

     Disclosures  about Fair Value of Financial  Instruments  for the  Company's
     financial  instruments are presented in the table below. These calculations
     are subjective in nature and involve  uncertainties and significant matters
     of judgment and do not include income tax  considerations.  Therefore,  the
     results cannot be determined with precision and cannot be  substantiated by
     comparison to  independent  market values and may not be realized in actual
     sale or settlement of the instruments.  There may be inherent weaknesses in
     any calculation  technique,  and changes in the underlying assumptions used
     could  significantly  affect the results.  The following  table  presents a
     summary of the Company's financial  instruments as of December 31, 2002 and
     2001:



                                                2002                            2001
                                     ---------------------------     ---------------------------
                                       Carrying       Estimated        Carrying       Estimated
                                        Amount       Fair Value         Amount       Fair Value
                                        ------       ----------         ------       ----------
                                                                         
     Financial Assets:
       Cash and cash equivalents     $12,010,091     $12,010,091     $ 7,342,985     $ 7,342,985
       Restricted cash                        --              --       1,503,150       1,503,150
       Marketable securities                  --              --      10,656,380      10,656,380

     Financial Liabilities:
       Notes payable                          --              --       1,000,000       1,000,000
       Long-term debt                  5,253,643       5,253,643      10,177,525      10,177,525


     The carrying amounts for cash and cash equivalents,  receivables,  accounts
     payable and accrued  expenses  approximate  fair value because of the short
     maturities of these instruments. The fair value of marketable securities is
     determined  by the  most  recently  traded  price of each  security  at the
     balance sheet date. The fair value of notes payable approximates fair value
     because of the market rate of interest on the notes  payable.  The carrying
     value  of  long-term  debt  approximates  fair  value  because  the note is
     non-interest  bearing and has been  recorded by the Company on a discounted
     basis using a market rate of interest.

                                       52

                    MATRIXX INITIATIVES, INC. AND SUBSIDIARY
                     (formerly Gum Tech International, Inc.)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

     Selected unaudited quarterly financial data for the years 2002 and 2001 are
     summarized below:



                                                    Fiscal Year 2002 Quarters
                                -----------------------------------------------------------------
                                      1st              2nd              3rd               4th              Total
                                ------------     ------------      ------------      ------------      ------------
                                                                                        
     Net sales                  $  5,067,511     $  1,825,696      $  5,078,596      $ 11,575,833      $ 23,547,636
     Gross profit                  3,820,275        1,300,809         3,410,443         8,264,068        16,795,595

     Net income (loss) from
      continuing operations          928,863         (871,394)        1,022,734         3,676,452         4,756,655

     Net income (loss) per
      basic share from
      continuing operations              .10             (.09)              .11               .39               .50

     Net income (loss) per
      diluted share from
      continuing operations              .10             (.09)              .11               .39               .50


     Net income (loss)               928,863         (871,394)        1,022,734         3,676,452         4,756,655


                                                    Fiscal Year 2001 Quarters
                                -----------------------------------------------------------------
                                      1st              2nd              3rd               4th              Total
                                ------------     ------------      ------------      ------------      ------------
     Net sales                  $  6,472,190     $  1,373,330      $  2,718,194      $  5,508,448      $ 16,072,162
     Gross profit                  4,858,870          890,959         1,966,792         4,140,729        11,857,350

     Net income (loss) from
      continuing operations          102,098       (1,934,022)         (101,254)       (2,866,136)       (4,799,314)

     Net income (loss) per
      basic share from
      continuing operations              .01             (.21)             (.01)             (.30)             (.52)

     Net income (loss) per
      diluted share from
      continuing operations              .01             (.21)             (.01)             (.30)             (.52)


     Net income (loss)               346,053       (2,302,029)       17,332,438        (2,763,829)       12,612,633


     (1)  Net income (loss) per common share is computed  individually  for each
          of the quarters  presented,  therefore,  the sum of the  quarterly net
          income  (loss) per share may not  necessarily  equal the total for the
          year.

     (2)  In  the  second  quarter  of  2001,  the  Company  reflected  the  gum
          operations,  which  was  sold  on July  20,  2001,  as a  discontinued
          operation  and  recorded a gain on the  disposal  of such  business of
          $17,717,362.  All prior periods  presented  have been restated for the
          discontinued operations.

                                       53

(a)  2. FINANCIAL STATEMENT SCHEDULES

     Financial statement schedules have been omitted because either they are not
required or are not applicable, or because the information has been included in
the consolidated financial statements or notes thereto contained in this Form
10-K.

(a)  3. 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        Registration Rights Agreement dated July 20, 2001 by and
                    between the Registrant and Wm. Wrigley Jr. Company (2)

        4.02        Rights Agreement dated as of July 22, 2002 by and between
                    the Registrant and Corporate Stock Transfer, Inc. (3)

        10.01       Consulting Agreement between the Registrant and Gary S.
                    Kehoe (4)

        10.02       *1995 Stock Option Plan (5)

        10.03       *Amendment to 1995 Stock Option Plan (5)

        10.04       Credit Agreement among the Registrant, Gel Tech, L.L.C. (now
                    Zicam, LLC) and Comerica Bank-California (6)

        10.05       Asset Purchase Agreement between the Registrant and Wm.
                    Wrigley Jr. Company (10)

        10.06       Purchase Agreement among the Registrant, Zensano, Inc. and
                    Zengen, Inc. for the Registrant's acquisition of 40%
                    interest in Gel Tech, L.L.C. (now Zicam, LLC) (7)

        10.07       Security Agreement between the Registrant and Zensano, Inc.
                    (7)

        10.08       Confidentiality and Non-Competition Agreement among the
                    Registrant, Gel Tech, L.L.C. (now Zicam, LLC), Zensano,
                    Inc., Zengen, Inc. and certain other individuals (7)

        10.09       *Employment Agreement between the Registrant and Carl J.
                    Johnson (8)

        10.10       *First Amendment to Employment Agreement between the
                    Registrant and Carl J. Johnson (2)

        10.11       *2001 Stock Incentive Plan (9)

        10.12       *Summary of Matrixx Initiatives, Inc. Director Restricted
                    Stock Purchase Program (6)

                                       54

        23.1        **Consent of Mayer Hoffman McCann P.C., independent auditor
                    of the Company

        23.2        **Consent of Angell & Deering, Certified Public Accountants,
                    former independent auditor of the Company.

        99.1        **Certification pursuant to 18 U.S.C. Section 1350.

        99.2        **Certification pursuant to 18 U.S.C. Section 1350.

*    Indicates management compensatory contract, plan or arrangement.

**   Filed with this Form 10-K.

(1)  Incorporated by reference to the Registrant's Amendment No.1 to Form 8-A,
     file No. 000-27646, as filed on June 18, 2002.

(2)  Incorporated by reference to the Registrants Report on Form 10-K for the
     fiscal year ended December 31, 2001, file number 000-27646.

(3)  Incorporated by reference to the Registrant's registration statement on
     Form 8-A, filed July 23, 2002, file number 000-27646.

(4)  Incorporated by reference to the Registrant's Report on Form 10-Q for the
     quarter ended June 30, 2000, file number 000-27646.

(5)  Incorporated by reference to the Registrant's Registration Statement on
     Form SB-2 declared effective by the Commission on April 24, 1996, file
     number 333-870.

(6)  Incorporated by reference to the Registrant's Report on Form 10-Q for the
     quarter ended June 30, 2002, file number 000-27646.

(7)  Incorporated by reference to the Registrant's Report on Form 8-K filed
     December 14, 2001, file number 000-27646.

(8)  Incorporated by reference to the Registrant's Report on Form 10-Q for the
     quarter ended June 30, 2001, file number 000-27646.

(9)  Incorporated by reference to the Registrant's definitive proxy statement on
     Schedule 14A, filed October 17, 2001, file number 000-27646.

(10) Incorporated by reference to the Registrant's Report on Form 10-K/A, filed
     June 7, 2001, file number 000-27646.

(b)  REPORTS ON FORM 8-K

     On November 12, 2002, we filed a Current Report on Form 8-K with the SEC
regarding a change of our independent auditor and certifying accountant from
Angell & Deering, Certified Public Accountants to Mayer Hoffman McCann P.C. This
change occurred solely as a result of the partners of Angell & Deering joining
Mayer Hoffman McCann P.C.

                                       55

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Phoenix, Arizona,
on March 26, 2003.


                                       MATRIXX INITIATIVES, INC.


                                       By: /s/ Carl J. Johnson
                                           -------------------------------------
                                           Carl J. Johnson
                                           President and Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated:

Signature                                Title                         Date
- ---------                                -----                         ----

/s/ Edward E. Faber         Chairman of the Board of Directors    March 26, 2003
- -----------------------
Edward E. Faber

/s/ Carl J. Johnson         President, Chief Executive Officer    March 26, 2003
- -----------------------     and Director
Carl J. Johnson

/s/ William C. Egan         Director                              March 26, 2003
- -----------------------
William C. Egan

/s/ Edward J. Walsh         Director                              March 26, 2003
- -----------------------
Edward J. Walsh

/s/ William A. Yuan         Director                              March 26, 2003
- -----------------------
William A. Yuan

/s/ Michael A. Zeher        Director                              March 26, 2003
- -----------------------
Michael A. Zeher

/s/  William J. Hemelt      Executive Vice President, Chief       March 26, 2003
- -----------------------     Financial Officer (Principal
William J. Hemelt           Financial Officer & Principal
                            Accounting Officer), Treasurer
                            and Secretary

                                       56

                                 CERTIFICATIONS


I, Carl J. Johnson, President and Chief Executive Officer of Matrixx
Initiatives, Inc., certify that:

1.   I have reviewed this annual report on Form 10-K of Matrixx Initiatives,
     Inc.;

2.   Based on my knowledge, this annual 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 annual report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this annual 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 annual 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 annual 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 annual report (the "Evaluation Date"); and

     c)   presented in this annual 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
     annual 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: March 26, 2003

                                           /s/ Carl J. Johnson
                                           -------------------------------------
                                           Carl J. Johnson
                                           President and Chief Executive Officer

                                       57

                                 CERTIFICATIONS


I, William J. Hemelt, Executive Vice President, Chief Financial Officer,
Treasurer and Secretary of Matrixx Initiatives, Inc., certify that:

     1.   I have reviewed this annual report on Form 10-K of Matrixx
          Initiatives, Inc.;

     2.   Based on my knowledge, this annual 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 annual report;

     3.   Based on my knowledge, the financial statements, and other financial
          information included in this annual 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 annual 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
               annual 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 annual report (the "Evaluation Date"); and

          c)   presented in this annual 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 annual 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: March 26, 2003

                                       /s/ William J. Hemelt
                                       -----------------------------------------
                                       William J. Hemelt
                                       Executive Vice President, Chief Financial
                                       Officer, Treasurer & Secretary

                                       58