Natrol Announces Fourth Quarter, Full Year 2005 Results

Natrol, Inc. (NASDAQ:NTOL), a leading manufacturer and
distributor of nationally branded nutritional products, today
announced financial results for its fourth quarter and fiscal year
periods ending December 31, 2005.
   The net loss for the three months ending December 31, 2005 was
$1.6 million, or $0.12 per diluted share. This compares to net income
of $265,000 or $0.02 per diluted share for the three months ended
December 31, 2004. For the three months ending December 31, 2005, net
sales decreased 14.0%, or $2.4 million, to $14.9 million, from $17.3
million for the same quarter in 2004.
   For the year ended December 31, 2005, the Company reported a net
loss of $2.6 million, or $0.20 per share, versus net income of $1.9
million or $0.13 per diluted share for the prior year. Net sales in
2005 decreased 14.8%, or $11.7 million, to $67.5 million, from $79.2
million in 2004.
   Wayne Bos, Natrol's President and CEO, stated, "In 2005 we saw a
$9.2 million decline in sales of our Carb Intercept(R) product after
the low-carbohydrate diet sales trend peaked in 2004. Sales of our
contract manufacturing business declined $1.8 million as a result of
our emphasis on profitability over volume in that segment. Due to the
merger of two of our major customers, we also incurred product returns
of approximately $900,000. However, the remainder of our core branded
product lines generated sales at levels similar to 2004; this business
forms the base from which we plan to build going forward."
   Natrol's profitability in 2005 was affected not only by lower
revenues but also by tighter gross margins due to increases in raw
material prices. In particular, the Company lost $2.5 million of gross
profit margin because of increases in the cost of coQ10 and whey,
important components in the manufacture of selected products.
   "As Natrol moves into 2006," added Mr. Bos, "our core business is
intact, with many areas showing promise. Our key customer
relationships across all retail channels are strong. Our margins are
already improving. Our balance sheet is solid. We have new Board
representation joining Executive Chairman and Founder Elliott Balbert,
a new team of senior executives, and other seasoned managers in place
in critical positions within the Company. With this foundation as
support for our defined strategic focus, we are confident about growth
prospects in new and existing markets worldwide."

   About Natrol

   Founded in 1980, Natrol, Inc. (NASDAQ:NTOL) is a diversified
nutrition company that manufactures and markets premium-branded
nutritional products, functional teas and sports fitness products
under the Natrol(R), Laci Le Beau(R) Tea and Prolab(R) Sports
Nutrition labels. Natrol markets more than 200 nutritional products
designed to meet a wide range of consumer needs. The products are
available at more than 54,000 food, drug, mass market and independent
health food stores, catalogs and Internet sites, gyms and specialty
stores nationally and in select foreign countries. For more
information, visit www.natrol.com.

   The statements made in this press release which are not historical
facts including statements regarding expectations for future growth of
revenue and profits and trends concerning net sales, are
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. As a result of a number of factors,
the Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might
cause Natrol's actual results to differ materially from those set
forth in the forward-looking statements include adverse trends in the
dietary supplements industry, intense competition, adverse effects of
unfavorable publicity regarding particular products or the Company's
industry generally, the Company's dependence on the introduction of
successful new products, the Company's ability to gain market share
and shelf space in each of its distribution channels, the Company
experiencing high rates of product returns, and adverse government
regulation, as well as those factors set forth under the heading "Risk
Factors" in the Company's Annual Report on Form 10-K for the year
ended December 31, 2005 and in the Company's other filings with
Securities and Exchange Commission.
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                     Natrol, Inc. and Subsidiaries
                 Consolidated Statements of Operations
            (in thousands, except share and per share data)

                                              Years Ended December 31,
                                               -----------------------
                                                  2005        2004
                                               ----------  ----------
Net sales                                         $67,530     $79,269
Cost of goods sold                                 44,107      46,820
                                               ----------  ----------
Gross profit                                       23,423      32,449
                                               ----------  ----------
Selling and marketing expenses                     18,000      19,560
General and administrative expenses                 9,525       9,348
                                               ----------  ----------
Total operating expenses                           27,525      28,908
                                               ----------  ----------
Operating income (loss)                            (4,102)      3,541
Interest income                                       189         101
Interest expense                                     (638)       (630)
                                               ----------  ----------
Income (loss) before income taxes                  (4,551)      3,012
Income tax provision (benefit)                     (1,918)      1,144
                                               ----------  ----------
Net income (loss)                                 $(2,633)    $ 1,868
                                               ==========  ==========
Basic income (loss) per share:
  Income per share from continuing operations     $ (0.20)    $  0.14
  Loss per share from discontinued operations          --          --
                                               ----------  ----------
  Income (loss) per share                         $ (0.20)    $  0.14
                                               ==========  ==========

Diluted income (loss) per share:
  Income per share from continuing operations     $ (0.20)    $  0.13
  Loss per share from discontinued operations          --          --
                                               ----------  ----------
  Income (loss) per share                         $ (0.20)    $  0.13
                                               ==========  ==========

Weighted-average shares outstanding:
  Basic                                        13,473,647  13,276,618
  Diluted                                      13,473,647  14,112,965


                     Natrol, Inc. and Subsidiaries
                      Consolidated Balance Sheets
            (in thousands, except share and per share data)

                                                       December 31,
                                                     ----------------
                                                      2005     2004
                                                     -------  -------
Assets
Current assets:
  Cash                                               $ 3,097  $ 6,022
  Accounts receivable, net of allowances of $247 and
   $421 at December 31, 2005 and 2004, respectively    6,723    7,431
  Inventory                                           11,797    9,723
  Income taxes receivable                                439      956
  Deferred income taxes                                2,021      814
  Prepaid expenses and other current assets              726      793
                                                     -------  -------
Total current assets                                  24,803   25,739
                                                     -------  -------
Property and equipment:
  Building and improvements                           14,930   15,891
  Machinery and equipment                              5,754    5,332
  Furniture and office equipment                       2,900    3,112
                                                     -------  -------
                                                      23,584   24,335
Accumulated depreciation and amortization             (8,684)  (8,022)
                                                     -------  -------
Property and equipment, net                           14,900   16,313

Property held for sale, net                              761       --

Restricted cash                                        5,000    5,000
Deferred income taxes                                  3,905    3,628
Goodwill, net of accumulated amortization and
 impairment charge of $37,381                          2,026    2,026
Other assets                                              67      218
                                                     -------  -------
Total assets                                         $51,462  $52,924
                                                     =======  =======

Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                   $ 4,647  $ 2,904
  Accrued expenses                                     2,888    2,483
  Accrued payroll and related liabilities                826    1,589
  Current portion of long-term debt                      532      503
                                                     -------  -------
Total current liabilities                              8,893    7,479
                                                     -------  -------
Long-term debt, less current portion                   7,165    7,685
Commitments and contingencies
Stockholders' equity:
  Preferred stock, par value of $0.01 per share:
   Authorized shares -- 2,000,000; Issued and
   outstanding shares-none
  Common stock, par value of $0.01 per share:
   Authorized shares -- 50,000,000
   Issued and outstanding shares -- 14,457,737 and
   14,281,928 at December 31, 2005 and 2004,
   respectively                                          145      143
  Additional paid-in capital                          62,984   62,709
  Accumulated deficit                                (24,844) (22,211)
                                                     -------  -------
                                                      38,285   40,641
  Shares held in treasury, at cost -- 921,900 shares
   at December 31, 2005 and 2004                      (2,881)  (2,881)
                                                     -------  -------
Total stockholders' equity                            35,404   37,760
                                                     -------  -------
Total liabilities and stockholders' equity           $51,462  $52,924
                                                     =======  =======
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