Natrol Announces Third Quarter 2006 Results

  
    
  
  
    
      Natrol, Inc. (Nasdaq:NTOL), a premier manufacturer and distributor of 
      nationally branded nutritional products, announced that it recorded 
      operating income of $0.2 million and net income of $0.04 million on net 
      sales of $15.7 million for the third quarter ending September 30, 2006.
    
    
      Net sales for the third quarter increased 1.8% compared to net sales of 
      $15.4 million in the third quarter of 2005. In the third quarter of 
      2005, the Company recorded an operating loss of $1.0 million and a net 
      loss of $0.7 million. Gross margin increased to 42.7% for the third 
      quarter compared to 35.8% in the same quarter of 2005.
    
    
      For the nine months ended September 30, 2006, the Company recorded 
      operating income of $0.4 million and net income of $0.2 million on net 
      sales of $49.2 million, compared to an operating loss of $1.3 million 
      and a net loss of $1.0 million on net sales of $52.7 million for the 
      nine months ended September 30, 2005. Gross margin increased to 42.3% 
      for the nine months ended September 30, 2006 compared to 36.6% for the 
      same period in 2005.
    
    
      “We are pleased with the achievement of our 
      third consecutive quarter of positive financial results,” 
      stated Wayne M. Bos, Natrol’s President and 
      Chief Executive Officer. “Our third quarter 
      net sales reflected gains of $2.0 million (18.1%) in Natrol® 
      and Laci Le Beau® product sales compared to 
      2005. However, this increase was offset by a $1.2 million decline in 
      Prolab® product sales. We are taking action to 
      address this situation. The newly-established Natrol UK subsidiary has 
      already made a positive contribution to Prolab sales.”
    
    
      Mr. Bos added, “During the third quarter, we 
      successfully reduced materials costs and improved efficiencies within 
      our manufacturing, planning, and procurement areas. Our improvement in 
      gross margins compared to last year reflects the impact of these 
      efforts. Additionally, since quarter end, we successfully completed 
      strategic acquisitions of the Nu Hair® and 
      Shen Min® brands, acquired U.S. licensing 
      rights to the Promensil® and Trinovin® 
      brands, and entered into an exclusive manufacturing and distribution 
      arrangement for H57™ Hoodia, all of which 
      will strengthen Natrol’s position within the 
      natural products industry.”
    
    
      About Natrol
    
    
      Founded in 1980, Natrol, Inc. (Nasdaq:NTOL) is a diversified nutrition 
      company that manufactures and distributes premium-branded nutritional 
      supplements, herbal teas and sports nutrition products under the Natrol®, 
      Laci Le Beau® and Prolab® 
      brands, respectively. Natrol markets approximately 50 product categories 
      with more than 500 stock-keeping units (SKU’s) 
      designed to meet a wide range of consumer needs. The products are 
      available at thousands of 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, and Section 21E of the Securities Exchange Act of 1934. 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 the Company’s 
      actual results to differ materially from those set forth in the forward 
      looking statements, including without limitation: (i) the Company’s 
      ability to develop and execute its business plans, (ii) the Company’s 
      ability to manage its growth and changing market conditions, (iii) the 
      Company’s ability to consummate and integrate 
      acquisitions, (iv) adverse trends in the dietary supplements industry, 
      (v) increased competition, (vi) adverse effects of unfavorable publicity 
      regarding particular certain products of the Company or the dietary 
      supplement industry, (vii) the introduction of successful new products, 
      (viii) the Company’s ability to gain market 
      share and shelf space in its distribution channels, (ix) the Company’s 
      ability to continue to obtain raw materials for its Ester-C® 
      line of products, (x) the dependence upon certain large customers, and 
      (xi) the Company’s ability to retain and 
      attract talented management and key employees, 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, the Company’s quarterly report on 
      Form 10-Q for the quarter ended September 30, 2006 and in the Company’s 
      other filings with the Securities and Exchange Commission.
    
    
    
    
      
        
          
            Natrol, Inc. and Subsidiaries
          
        
      
      
        
          
            Consolidated Balance Sheets
          
        
      
      
        
          
            (In thousands, except share and per share data)
          
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          September 30,
        
        
        
        
          December 31,
        
      
      
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
        
        
        
        
          (unaudited)
        
        
        
        
        
      
      
        
          Assets
        
        
        
        
        
        
        
        
        
      
      
        
          Current assets:
        
        
        
        
        
        
        
        
        
      
      
        
          Cash
        
        
        
        
          $ 5,101 
        
        
        
        
          $ 3,097 
        
      
      
        
          
            Accounts receivable, net of allowances of $197 and $247 at 
            September 30, 2006 and December 31, 2005, respectively
          
        
        
        
        
          6,681 
        
        
        
        
          6,723 
        
      
      
        
          Inventory
        
        
        
        
          10,047 
        
        
        
        
          11,797 
        
      
      
        
          Income taxes receivable
        
        
        
        
          196 
        
        
        
        
          439 
        
      
      
        
          Deferred income taxes
        
        
        
        
          2,021 
        
        
        
        
          2,021 
        
      
      
        
          Prepaid expenses and other current assets
        
        
        
        
          1,160 
        
        
        
        
          726 
        
      
      
        
          Total current assets
        
        
        
        
          25,206 
        
        
        
        
          24,803 
        
      
      
        
          Property and equipment:
        
        
        
        
        
        
        
        
        
      
      
        
          Building and improvements
        
        
        
        
          14,939 
        
        
        
        
          14,930 
        
      
      
        
          Machinery and equipment
        
        
        
        
          5,771 
        
        
        
        
          5,754 
        
      
      
        
          Furniture and office equipment
        
        
        
        
          3,074 
        
        
        
        
          2,900 
        
      
      
        
        
        
        
        
          23,784 
        
        
        
        
          23,584 
        
      
      
        
          Accumulated depreciation and amortization
        
        
        
        
          (9,657)
        
        
        
        
          (8,684)
        
      
      
        
          Property and equipment, net
        
        
        
        
          14,127 
        
        
        
        
          14,900 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Property held for sale, net
        
        
        
        
          — 
        
        
        
        
          761 
        
      
      
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Restricted cash
        
        
        
        
          5,000 
        
        
        
        
          5,000 
        
      
      
        
          Deferred income taxes
        
        
        
        
          4,072 
        
        
        
        
          3,905 
        
      
      
        
          Goodwill, net of accumulated amortization and impairment charge of 
          $37,381
        
        
        
        
          2,026 
        
        
        
        
          2,026 
        
      
      
        
          Other assets
        
        
        
        
          170 
        
        
        
        
          67 
        
      
      
        
          Total assets
        
        
        
        
          $ 50,601 
        
        
        
        
          $ 51,462 
        
      
      
        
          Liabilities and stockholders’ equity
        
        
        
        
        
        
        
        
        
      
      
        
          Current liabilities:
        
        
        
        
        
        
        
        
        
      
      
        
          Accounts payable
        
        
        
        
          $ 2,716 
        
        
        
        
          $ 4,647 
        
      
      
        
          Accrued expenses
        
        
        
        
          3,481 
        
        
        
        
          2,888 
        
      
      
        
          Accrued payroll and related liabilities
        
        
        
        
          1,351 
        
        
        
        
          826 
        
      
      
        
          Current portion of long-term debt
        
        
        
        
          406 
        
        
        
        
          532 
        
      
      
        
          Total current liabilities
        
        
        
        
          7,954 
        
        
        
        
          8,893 
        
      
      
        
          Long-term debt, less current portion
        
        
        
        
          6,408 
        
        
        
        
          7,165 
        
      
      
        
          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—13,639,148 and 
            13,535,837 at September 30, 2006 and December 31, 2005, 
            respectively
          
        
        
        
        
          136 
        
        
        
        
          135 
        
      
      
        
          Additional paid-in capital
        
        
        
        
          60,729 
        
        
        
        
          60,113 
        
      
      
        
          Accumulated deficit
        
        
        
        
          (24,631)
        
        
        
        
          (24,844)
        
      
      
        
          Accumulated other comprehensive income
        
        
        
        
          5 
        
        
        
        
          — 
        
      
      
        
          Total stockholders’ equity
        
        
        
        
          36,239 
        
        
        
        
          35,404 
        
      
      
        
          Total liabilities and stockholders’ equity
        
        
        
        
          $ 50,601 
        
        
        
        
          $ 51,462 
        
      
    
    
    
    
      
        
          
            Natrol, Inc. and Subsidiaries
          
        
      
      
        
          
            Consolidated Statements of Operations
          
        
      
      
        
          
            (In thousands, except share and per share data)
          
        
      
      
        
          
            (unaudited)
          
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
        
        
        
        
          Three months endedSeptember 30,
        
        
        
        
          Nine months endedSeptember 30,
        
      
      
        
        
        
        
        
          2006 
        
        
        
        
          2005 
        
        
        
        
          2006 
        
        
        
        
          2005 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net sales
        
        
        
        
          $
        
        
          15,660 
        
        
        
        
          $
        
        
          15,390 
        
        
        
        
          $
        
        
          49,171 
        
        
        
        
          $
        
        
          52,663 
        
      
      
        
          Cost of goods sold
        
        
        
        
          8,972 
        
        
        
        
          9,884 
        
        
        
        
          28,395 
        
        
        
        
          33,365 
        
      
      
        
          Gross profit
        
        
        
        
          6,688 
        
        
        
        
          5,506 
        
        
        
        
          20,776 
        
        
        
        
          19,298 
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Selling and marketing expenses
        
        
        
        
          3,848 
        
        
        
        
          4,360 
        
        
        
        
          12,031 
        
        
        
        
          13,405 
        
      
      
        
          General and administrative expenses
        
        
        
        
          2,688 
        
        
        
        
          2,226 
        
        
        
        
          8,337 
        
        
        
        
          7,228 
        
      
      
        
          Total operating expenses
        
        
        
        
          6,536 
        
        
        
        
          6,586 
        
        
        
        
          20,368 
        
        
        
        
          20,633 
        
      
      
        
          Operating income (loss)
        
        
        
        
          152 
        
        
        
        
          (1,080)
        
        
        
        
          408 
        
        
        
        
          (1,335)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Interest income
        
        
        
        
          70 
        
        
        
        
          49 
        
        
        
        
          186 
        
        
        
        
          140 
        
      
      
        
          Interest expense
        
        
        
        
          (149)
        
        
        
        
          (159)
        
        
        
        
          (456)
        
        
        
        
          (480)
        
      
      
        
          Gain on sale of property
        
        
        
        
          — 
        
        
        
        
          — 
        
        
        
        
          230 
        
        
        
        
          — 
        
      
      
        
          Income (loss) before taxes
        
        
        
        
          73 
        
        
        
        
          (1,190)
        
        
        
        
          368 
        
        
        
        
          (1,675)
        
      
      
        
          Income tax provision (benefit)
        
        
        
        
          33 
        
        
        
        
          (448)
        
        
        
        
          155 
        
        
        
        
          (632)
        
      
      
        
          Net Income (loss)
        
        
        
        
          $
        
        
          40 
        
        
        
        
          $
        
        
          (742)
        
        
        
        
          $
        
        
          213 
        
        
        
        
          $
        
        
          (1,043)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Other comprehensive income
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Foreign currency translation adjustment
        
        
        
        
          5 
        
        
        
        
          — 
        
        
        
        
          5 
        
        
        
        
          — 
        
      
      
        
          Comprehensive income
        
        
        
        
          $ 45 
        
        
        
        
          $ (742)
        
        
        
        
          $ 218 
        
        
        
        
          $ (1,043)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Net Income (loss) per share:
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic
        
        
        
        
          $
        
        
          .00 
        
        
        
        
          $
        
        
          (.05)
        
        
        
        
          $
        
        
          .02 
        
        
        
        
          $
        
        
          (.08)
        
      
      
        
          Diluted
        
        
        
        
          $
        
        
          .00 
        
        
        
        
          $
        
        
          (.05)
        
        
        
        
          $
        
        
          .02 
        
        
        
        
          $
        
        
          (.08)
        
      
      
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
           
        
      
      
        
          Weighted-average shares outstanding—basic 
          and diluted
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
        
      
      
        
          Basic
        
        
        
        
          13,604,572 
        
        
        
        
          13,519,317 
        
        
        
        
          13,573,108 
        
        
        
        
          13,452,794 
        
      
      
        
          Diluted
        
        
        
        
          13,711,047 
        
        
        
        
          13,519,317 
        
        
        
        
          13,931,927 
        
        
        
        
          13,452,794 
        
      
    
  
Natrol, Inc. (Nasdaq:NTOL), a premier manufacturer and distributor
of nationally branded nutritional products, announced that it recorded
operating income of $0.2 million and net income of $0.04 million on
net sales of $15.7 million for the third quarter ending September 30,
2006.

   Net sales for the third quarter increased 1.8% compared to net
sales of $15.4 million in the third quarter of 2005. In the third
quarter of 2005, the Company recorded an operating loss of $1.0
million and a net loss of $0.7 million. Gross margin increased to
42.7% for the third quarter compared to 35.8% in the same quarter of
2005.

   For the nine months ended September 30, 2006, the Company recorded
operating income of $0.4 million and net income of $0.2 million on net
sales of $49.2 million, compared to an operating loss of $1.3 million
and a net loss of $1.0 million on net sales of $52.7 million for the
nine months ended September 30, 2005. Gross margin increased to 42.3%
for the nine months ended September 30, 2006 compared to 36.6% for the
same period in 2005.

   "We are pleased with the achievement of our third consecutive
quarter of positive financial results," stated Wayne M. Bos, Natrol's
President and Chief Executive Officer. "Our third quarter net sales
reflected gains of $2.0 million (18.1%) in Natrol(R) and Laci Le
Beau(R) product sales compared to 2005. However, this increase was
offset by a $1.2 million decline in Prolab(R) product sales. We are
taking action to address this situation. The newly-established Natrol
UK subsidiary has already made a positive contribution to Prolab
sales."

   Mr. Bos added, "During the third quarter, we successfully reduced
materials costs and improved efficiencies within our manufacturing,
planning, and procurement areas. Our improvement in gross margins
compared to last year reflects the impact of these efforts.
Additionally, since quarter end, we successfully completed strategic
acquisitions of the Nu Hair(R) and Shen Min(R) brands, acquired U.S.
licensing rights to the Promensil(R) and Trinovin(R) brands, and
entered into an exclusive manufacturing and distribution arrangement
for H57(TM) Hoodia, all of which will strengthen Natrol's position
within the natural products industry."

   About Natrol

   Founded in 1980, Natrol, Inc. (Nasdaq:NTOL) is a diversified
nutrition company that manufactures and distributes premium-branded
nutritional supplements, herbal teas and sports nutrition products
under the Natrol(R), Laci Le Beau(R) and Prolab(R) brands,
respectively. Natrol markets approximately 50 product categories with
more than 500 stock-keeping units (SKU's) designed to meet a wide
range of consumer needs. The products are available at thousands of
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, and Section 21E of the Securities Exchange Act of 1934.
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 the Company's actual
results to differ materially from those set forth in the forward
looking statements, including without limitation: (i) the Company's
ability to develop and execute its business plans, (ii) the Company's
ability to manage its growth and changing market conditions, (iii) the
Company's ability to consummate and integrate acquisitions, (iv)
adverse trends in the dietary supplements industry, (v) increased
competition, (vi) adverse effects of unfavorable publicity regarding
particular certain products of the Company or the dietary supplement
industry, (vii) the introduction of successful new products, (viii)
the Company's ability to gain market share and shelf space in its
distribution channels, (ix) the Company's ability to continue to
obtain raw materials for its Ester-C(R) line of products, (x) the
dependence upon certain large customers, and (xi) the Company's
ability to retain and attract talented management and key employees,
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, the Company's quarterly report on Form 10-Q for the quarter
ended September 30, 2006 and in the Company's other filings with the
Securities and Exchange Commission.


-0-
*T
                    Natrol, Inc. and Subsidiaries
                     Consolidated Balance Sheets
           (In thousands, except share and per share data)

                                            September 30, December 31,
                                                2006         2005
                                            ------------- ------------
                                             (unaudited)
Assets
Current assets:
  Cash                                            $5,101       $3,097
  Accounts receivable, net of allowances of
   $197 and $247 at September 30, 2006 and
   December 31, 2005, respectively                 6,681        6,723
  Inventory                                       10,047       11,797
  Income taxes receivable                            196          439
  Deferred income taxes                            2,021        2,021
  Prepaid expenses and other current assets        1,160          726
                                            ------------- ------------
Total current assets                              25,206       24,803
                                            ------------- ------------
Property and equipment:
  Building and improvements                       14,939       14,930
  Machinery and equipment                          5,771        5,754
  Furniture and office equipment                   3,074        2,900
                                            ------------- ------------
                                                  23,784       23,584
Accumulated depreciation and amortization         (9,657)      (8,684)
                                            ------------- ------------
Property and equipment, net                       14,127       14,900

Property held for sale, net                           --          761

Restricted cash                                    5,000        5,000
Deferred income taxes                              4,072        3,905
Goodwill, net of accumulated amortization
 and impairment charge of $37,381                  2,026        2,026
Other assets                                         170           67
                                            ------------- ------------
Total assets                                     $50,601      $51,462
                                            ============= ============
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                $2,716       $4,647
  Accrued expenses                                 3,481        2,888
  Accrued payroll and related liabilities          1,351          826
  Current portion of long-term debt                  406          532
                                            ------------- ------------
Total current liabilities                          7,954        8,893
                                            ------------- ------------
Long-term debt, less current portion               6,408        7,165
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--13,639,148 and
    13,535,837 at September 30, 2006 and
    December 31, 2005, respectively                  136          135
  Additional paid-in capital                      60,729       60,113
  Accumulated deficit                            (24,631)     (24,844)
  Accumulated other comprehensive income               5           --
                                            ============= ============
Total stockholders' equity                        36,239       35,404
                                            ============= ============
Total liabilities and stockholders' equity       $50,601      $51,462
                                            ============= ============
*T

-0-
*T
                    Natrol, Inc. and Subsidiaries
                Consolidated Statements of Operations
           (In thousands, except share and per share data)
                             (unaudited)

                         Three months ended       Nine months ended
                            September 30,           September 30,
                       ----------------------- -----------------------
                          2006        2005        2006        2005
                       ----------- ----------- ----------- -----------

Net sales                 $15,660     $15,390     $49,171     $52,663
Cost of goods sold          8,972       9,884      28,395      33,365
                       ----------- ----------- ----------- -----------
Gross profit                6,688       5,506      20,776      19,298
                       ----------- ----------- ----------- -----------

Selling and marketing
 expenses                   3,848       4,360      12,031      13,405
General and
 administrative
 expenses                   2,688       2,226       8,337       7,228
                       ----------- ----------- ----------- -----------
Total operating
 expenses                   6,536       6,586      20,368      20,633
                       ----------- ----------- ----------- -----------
Operating income
 (loss)                       152      (1,080)        408      (1,335)

Interest income                70          49         186         140
Interest expense             (149)       (159)       (456)       (480)
Gain on sale of
 property                      --          --         230          --
                       ----------- ----------- ----------- -----------
Income (loss) before
 taxes                         73      (1,190)        368      (1,675)
Income tax provision
 (benefit)                     33        (448)        155        (632)
                       ----------- ----------- ----------- -----------
Net Income (loss)         $    40     $  (742)    $   213     $(1,043)
                       =========== =========== =========== ===========

Other comprehensive
 income
    Foreign currency
     translation
     adjustment                 5          --           5          --
                       ----------- ----------- ----------- -----------
Comprehensive income          $45       $(742)       $218     $(1,043)

Net Income (loss) per
 share:
  Basic                   $   .00     $  (.05)    $   .02     $  (.08)
                       =========== =========== =========== ===========
  Diluted                 $   .00     $  (.05)    $   .02     $  (.08)
                       =========== =========== =========== ===========

Weighted-average
 shares outstanding--
 basic and diluted
  Basic                13,604,572  13,519,317  13,573,108  13,452,794
  Diluted              13,711,047  13,519,317  13,931,927  13,452,794
*T