Natrol Reports Third Quarter Earnings

14/Nov/2002

Natrol, Inc. (Nasdaq: NTOL News), a manufacturer and distributor of nationally branded dietary supplements, today reported results for the third quarter ended September 30, 2002, announcing a net loss of $282,000 on net sales of $18.0 million.

CHATSWORTH, Calif.--(BUSINESS WIRE )--Nov. 14, 2002 -- Natrol, Inc. (Nasdaq: NTOL News), a manufacturer and distributor of nationally branded dietary supplements, today reported results for the third quarter ended September 30, 2002, announcing a net loss of $282,000 on net sales of $18.0 million. Included in the loss were expenditures of $405,000 which were made by the Company to commence the launch of its new multi-level marketing division, Annasa, Inc. No revenue was generated by Annasa in the third quarter of 2002 and fourth quarter revenue in 2002 from Annasa is expected to be nominal as the multi-level marketing Company prepares to expand nationally in the first quarter of 2003.

Net sales decreased 11.5%, or $2.4 million, to $18.0 million for the three months ended September 30, 2002 from $20.4 million for the three months ended September 30, 2002. Operating income for the third quarter amounted to $88,000 prior to the investment in Annasa. After the investment in Annasa, the Company incurred an operating loss of $317,000 vs. operating income of $1.8 million in the third quarter of the prior year.

Net sales for the nine months ended September 30, 2002 amounted to $53.4 million, 9.0% less than the $58.7 million in net sales reported during the same period in 2001. The Company incurred a net loss of $220,000 for the nine months ended September 30, 2002 as compared to net income of $2.6 million or for the nine months ended September 30, 2001.

"Our quarter to quarter top and bottom lines in 2002 have been relatively stable and our cash flow has been excellent," said Elliott Balbert, Natrol's Chairman and CEO. "Despite having heavily invested in a state-of-the-art SAP computer system and our investment in Annasa we finished the third quarter of 2002 with $5 million more in cash than we began the year and net borrowing has not increased. We believe our investments will reap us significant benefits in the years to come. With respect to our core business, we have been working with our major customers to rationalize our inventory to take better advantage of growth categories such as women's products, heart health and weight loss. As a result, despite the published financial numbers, we feel we are, in many ways, a stronger business than we were at this time last year. Our challenge is to translate that strength into visible earnings improvement."

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, including the factors described above that Natrol may not currently foresee, Natrol'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, 2001 and in the Company's other filings with Securities and Exchange Commission.

Contact: Natrol Inc., Chatsworth
Dennis Jolicoeur, (818) 739-6000

NATROL, INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
			Sept. 30, 2002 _______________ (Unaudited)	Dec. 31, 2001 ______________
Assets
Current assets:
	Cash and cash equivalents		$10,515	$5,485
	Accounts receivable, net of allowances of $620 and $363 at September 30, 2002 and December 31, 2001, respectively		7,223	6,787
	Inventories		7,555	9,743
	Deferred taxes		1,324	1,324
	Income taxes receivable		--	1,408
	Prepaid expenses and other current assets		1,223	1,826
			__________	__________
Total current assets			27,840	26,573
Property and equipment:
	Building and improvements		15,607	15,625
	Machinery and equipment		5,344	5,708
	Furniture and office equipment		2,654	2,019
			_________	_________
			23,605	23,352
	Accumulated depreciation and amortization		(5,765)	(5,606)
			_________	_________
			17,840	17,746
Goodwill, net of accumulated amortization of $24,123 at September 30, 2002 and December 31,2001			8,215	8,215
Intangible assets, net of accumulated amortization of $2,750 and $2,300 at September 30, 2002 and December 31, 2001, respectively			6,319	6,769
Other assets			50	54
			_________	_________
Total assets			$60,264	$59,357
			=========	=========
			Sept. 30, 2002 (Unaudited)	Dec. 31, 2001
Liabilities and stockholders' equity
Current liabilities:
	Accounts payable		5,092	3,372
	Accrued expenses		3,706	4,240
	Accrued payroll and related liabilities		429	494
	Income taxes payable		79	--
	Current portion of long-term debt		277	277
			__________	__________
Total current liabilities			9,583	8,383
Deferred income taxes, noncurrent			251	251
Long-term debt, less current portion			7,874	8,083
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 -- 13,787,750 and 13,712,354 at September 30, 2002 and December 31, 2001, respectively	138	137
	Additional paid-in capital		62,004	61,869
	Accumulated deficit		(16,705)	(16,485)
			__________	__________
			45,437	45,521
	Shares held in treasury, at cost -- 921,900 shares at September 30, 2002 and December 31, 2001		(2,881)	(2,881)
			_________	_________
Total stockholders' equity			42,556	42,640
Total liabilities and stockholders' equity			$60,264	$59,357
			==========	==========

NATROL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
	Three months ended September 30,		Nine months ended September 30,
	2002 _______	2001 _______	2002 _______	2001 _______
	(Unaudited)		(Unaudited)
Net sales	$18,021	$20,374	$53,403	$58,691
Cost of goods sold	11,035	11,113	32,740	33,682
	________	________	________	________
	6,986	9,261	20,663	25,009

Selling and marketing expenses	4,675	4,615	12,758	11,968
General and administrative expenses	2,628	2,800	7,823	8,201
	_______	_______	_______	_______
Total operating expenses	7,303	7,415	20,581	20,169
	_______	_______	_______	_______
Operating income (loss)	(317)	1,846	82	4,840
Interest income	24	32	69	126
Interest expense	(169)	(153)	(510)	(634)
	________	________	________	________
Income (loss) before income tax provision	(462)	1,725	(359)	4,332
Income tax provision (benefit)	(180)	677	(139)	1,707
	_______	_______	_______	_______
Net income (loss)	$(282)	$1,048	$(220)	$2,625
Basic earnings (loss) per share	$(0.02)	$0.08	$(0.02)	$0.21
Diluted earnings (loss) per share	$(0.02)	$0.08	$(0.02)	$0.20
Weighted average shares outstanding -- basic	12,847,397	12,764,768	12,860,577	12,790,393
Weighted average shares outstanding -- diluted	12,847,397	13,455,018	12,860,577	13,202,837
----------------------------	--------------	--------------	----------------	--------------

Contact:
Natrol Inc., Chatsworth
Dennis Jolicoeur, (818) 739-6000