On December 18, 2012, Matrixx Initiatives initiated a voluntary recall of one lot of Zicam ® Extreme Congestion Relief nasal gel that we
manufactured on their behalf (the “Product Recall”). Matrixx took this step after we informed Matrixx that we found a small amount of
Burkholderia cepacia in a single sample of the product taken from the affected lot. Burkholderia cepacia poses little medical risk to healthy
individuals. However, Burkholderia cepacia in a nasal spray could cause upper airway colonization and secondarily lead to respiratory
infections in individuals with a compromised immune system or those with chronic lung conditions, such as cystic fibrosis. The organism is
resistant to many antibiotics and may be difficult to eradicate in this sensitive population if an infection occurs. To our knowledge, Matrixx has
not received any reports of illness.
On January 3, 2013, Matrixx sent BioZone Labs a Notice of Default under the Supply Agreement dated May 8, 2009 by and between BioZone
and Zicam, LLC to formally notify BioZone Labs that Matrixx is handling the Product Recall and will require BioZone Labs to reimburse
Matrixx for all costs and expenses related to the Product Recall. Preliminary estimates of the damages related to the Product Recall range from
$1 million to $3 million.
We recorded a charge of $2,000,000 for the cost of reimbursing Matrixx for the expense of the Product Recall. We have paid Matrixx a total of
$579,197, the balance remains due and owing.
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