An annual report fails the smell test. First off, know of my prejudice: I have a friend who, as I understand it, is party to a class-action suit against the maker of Zicam, the cold remedy one shoots up a nostril. My friend claims it destroyed his sense of smell, with all attendant problems. I have no reason to doubt his story. What I do have reason to question is the annual report of Matrixx Initiatives Inc., which fathered Zicam—and, not surprisingly, defender of itself against all comers. And, from what I can determine, there are many—folks who are convinced the nasal spray caused irreparable, lasting harm. Its 10-K filing (which is all its 2003 annual report is, save a gatefold cover) shows net income off year to year—to $3.344 million from a year earlier $4.757 million. But its graph indicates sales soared—to $3.3 million from $1.4 million a year before, after three consecutive loss years. It graphs earnings per share soaring to 35 cents from a year-earlier 14 cents—referred to as 21 cents ("excluding recording of deferred tax assets") in the letter to shareholders. That qualification is footnoted in type small enough to require a magnifying glass to fathom in a graph on an upfront gatefold. Whether there's justification for those figures that don't jibe, and are nigh on impossible to read, it immediately makes me nervous, skittish. In its filing with the Securities and Exchange Commission, Matrixx Initiatives reported, under the heading "Other Events," the "incidence of smell disorders is reported at half of one percent of the population. Reported post-marketing subjective complaints of distortion of sense of smell associated with Zicam are well below national levels," which sounds like lawyers wrote it, not surprisingly. In the letter to shareholders, which lost a point for writing (11.75 fog index, 18.7 average words per sentence), the CEO notes that "when allegations" concerning the product's hazards "first surfaced, (we) immediately began to consult with leading medical and clinical advisors..."—who advised, in essence, "no problem, Chief." What do you bet those "leading medical and clinical advisors" were paid—by the company, of course. Stay tuned. By the way: The report warranted a Cato Positive Index that's a decided negative: -50%. Its score, 22 points, positioned it among the lowest ranking of annuals evaluated so far, beginning my 22nd year at this stand, after a career as an annual report producer for major corporations. It may or may not be guilty, as charged, with destroying one's sense of smell. For sure, its annual report—and its ability to talk straight—emit an unpleasant odor...leave much to be desired by this full-time observer of the world's annual reports to shareholders of publicly held companies. *    *    * In the August issue of my newsletter, I slammed, editorially, one James Montalto—for allowing me to erroneously praise his work on delightfully done, humorous Cognex annual reports last year and this. In fairness, here's his reaction to my editorial criticism: In your August newsletter your assessment of what happened with the Cognex annual reports was nothing short of unfair reporting. You wrote "The books were sent to me...by one James Montalto"—True enough Then you wrote "...gave permission to use his quote—that he thought it would be..." Not so. I did not anticipate, nor did I know, that you were going to use any quote. All you communicated to me was your decision to include the annual reports in your newsletter and news release. However, I did agree to you using this quote: "I was looking for information about annual reports and I found your website. I thought it was just great." But, this is a different quote and matter entirely. Then you wrote that you kept me "apprised...on the quote I was using." Also, not true. Again, all you told me was that coverage of the Cognex annual reports would be in a news release and newsletter, but nothing more. There was no clear detail of what quote you'd be using. However, permission over the quote is not what bothers me. What's unfair is your overall criticism, when you, as reporter, made a mistake for not checking the facts: who produced the annual reports. I never admitted to producing them. You assumed a fact and wrote about it without checking your sources. An error I'm sure you'd be quick to exploit if it was committed by anyone involved in the annual report process. Imagine a CEO assuming in his letter to investors that his/her company was profitable just because the annual report had lots of numbers in it! It's more disheartening to see you using your article as an opportunity to attack the person who tried to correct your error, one I'm sure was inadvertent. Further, your criticism about my delay in responding to you does nothing to bolster your argument. Therefore, it is an irrelevant and needless attack. And shame on you for that. Mr. Cato, sending you the reports was simply an effort to show you some creative examples, nothing more. There was no expectation of coverage, praise or otherwise. Your condescending, biased and faulty reporting, however, makes me wish I had never sent you our reports in the first place. Jim P.S. Only thing I take exception to was my using the article, in my August newsletter, "to attack the person who tried to correct your error..." I have no idea what he's talking about. I'm not aware of any "error" on my part that he attempted to correct, or succeeded in correcting.

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