Net sales for the first quarter of 2009 were $20.2 million, compared to $42.7 million for the same period in 2008. Net loss for the first quarter of 2009 was $(1.7) million, or $(0.13) per diluted common share, compared to net income of $5.0 million, or $0.34 per diluted common share for the first quarter of 2008.

Net cash used in operating activities during the first quarter of 2009 was $0.5 million. As of March 31, 2009, line of credit borrowings net of restricted cash and cash equivalents were $19.3 million. During the first quarter of 2008, net cash provided from operating activities was $4.1 million. As of March 31, 2008, total borrowings net of cash and cash equivalents were $19.9 million.

Ingrid Jackel, Chairwoman and CEO of Physicians Formula stated, "During the first quarter, we experienced a significant disconnect between our reported net sales and our retail sell-through due to the current retail environment. Sell-through of Physicians Formula at our retailer partners only experienced a mid single-digit decline in the first quarter of 2009. As anticipated, our results during the first quarter were adversely impacted by drastic changes in the retail environment compared to the first quarter of last year."

The Company noted several factors that adversely impacted the Company's results in the first quarter of 2009, as compared to the first quarter of 2008:

   1) During the first quarter of 2008, we received large pipeline     orders from space gains at two major U.S. retailers and most of      our Canadian retailers, which were not repeated in 2009;   2) Our drug chain retailers implemented unprecedented tight     inventory control, which has led to destocking that began in the     fourth quarter of 2008, and continued throughout the first     quarter of 2009, which is typically a strong quarter for     Physicians Formula due to the seasonality of our new products     pipelines.  Specifically, our major retailers generally ordered     approximately half of the number of pieces of any given new sku     in the first quarter of 2009 compared to the first quarter of     2008;   3) We decreased our promotional activity as planned, specifically     with respect to large kits that made up a very large proportion     of our promotional sales in 2008. In addition, we are only     selling our promotional programs to each retailer's top volume     stores to reduce the return liability moving forward. 

Ms. Jackel noted, "Although we are disappointed with our first quarter results, we are confident that our strategy of industry-leading new product innovation is the key to our Company's future success. Our core strategic initiatives for 2009 have been successfully implemented and we're beginning to see favorable results. Based on AC Nielsen data for the twelve weeks ended April 18, 2009, our 2009 new items are more productive on a dollar sales per sku basis than our 2008 new items. Our Mineral Wear new items are fulfilling their objective to continue to strengthen our position as the number two masstige mineral face brand with the largest increase in market share among masstige mineral face brands from the 52-week to 12-week period, providing us with the number one market share among all mineral face powder price points in the food, drug and mass channels.

"Our new Organic Wear products are more productive on a dollar sales per sku basis than the previous Organic Wear new product batch with strong performers in new segments. Our new Organic Wear mascara was awarded Best Lash- and Earth-Friendly Mascara in Oprah magazine in April and Best Eco-Friendly mascara in Self magazine in May.

"Finally, our Bronzer initiative has already provided us with the category's top sellers as the number one and number two best-selling new bronzers in the food, drug and mass channels in the 12 weeks ended April 18, 2009, and our new eye makeup products are on the top of our new product charts at every retailer. We have received unprecedented press coverage on this year's innovations with already over 800 press mentions to date in major national and regional publications and websites; a testament to the continued high level of introductions."

Outlook

In April of 2009, one of our largest retailer customers informed the Company of its decision to discontinue selling Physicians Formula products in 2010 as part of a change in strategy affecting its entire chain. This change in strategy includes a reduction in the total space allocated to the entire cosmetics category in its stores in 2010. Despite Physicians Formula's strong performance at this retailer, which includes a compound annual growth rate in shipments of 16% for the past 5 years, the brand was not included in the retailer's new strategic plans. This customer accounted for 16% of the Company's gross sales for the year ended December 31, 2008. This change is expected to have a material negative impact on the Company's net sales beginning in the second quarter of 2009, as this retailer has already begun reducing its inventory levels of Physicians Formula's products.

Ms. Jackel stated, "We are obviously very disappointed with the decision made by this retail partner despite our strong performance and a long-term and very successful relationship.