NATROL ANNOUNCES SECOND QUARTER EARNINGS

10/Sep/2004

Natrol, Inc. (NASDAQ: NTOL - news), a manufacturer and distributor of nationally branded dietary supplements, today reported results for the second quarter ended June 30, 2004, announcing net income of $769,000 or $0.05 per diluted share on net sales of $20.7 million.

CHATSWORTH, Calif. - (BUSINESS WIRE)-August 16, 2004 - Natrol, Inc. (NASDAQ: NTOL - news), a manufacturer and distributor of nationally branded dietary supplements, today reported results for the second quarter ended June 30, 2004, announcing net income of $769,000 or $0.05 per diluted share on net sales of $20.7 million. For the six months ended June 30, 2004, the Company recorded net income of $1.2 million or $0.09 per diluted share.

Net sales increased 9.6% or $1.8 million when compared to the second quarter of 2003 when the Company posted $18.9 million in net sales. During the second quarter of 2003, the Company recorded a net loss from continuing operations of $246,000. Losses from discontinued operations in the second quarter of 2003 amounted to $304,000 and the Company recorded a net loss of $550,000 or $0.04 per share.

Net sales for the six months ended June 30, 2004 were $41.1 million, 8.6% more than the $37.9 million in net sales reported during the same period in 2003. The Company posted a net loss from continuing operations for the six months ended June 30, 2003 of $18,000. Losses from discontinued operations for the same period amounted to $656,000 and the Company recorded a net loss of $674,000 or $0.05 per share.

"The engine of growth in 2004 has been the core Natrol brand," noted Elliott Balbert, Natrol's President and Chairman when making the earnings announcement. "Our 2004 plan was to focus on our core business and we have. The consolidation of Prolab operations to the West Coast and continued distribution gains of our weight loss products contributed to our improved profitability. Our balance sheet continues to be strong and our equity at the end of the quarter was a respectable $2.78 per share. As we head into the second half of the year, we are optimistic these assets will continue to assist in the current revitalization of the brand."

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 Companyâs dependence on the introduction of successful new products, the Companyâs 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, 2003 and in the Companyâs other filings with Securities and Exchange Commission.

Contact:
Dennis Jolicoeur
818-739-6000
djolicoeur@natrol.com

Natrol, Inc. and Subsidiaries Consolidated Balance Sheets (In thousands, except share and per share data) (Unaudited)
			June 30,		December 31,
			2004		2003

Assets
	Current assets:
	Cash and cash equivalents		$	3,314	$	2,599

	Accounts receivable, net of allowances of $640 and $635 at June 30, 2004 and December 31, 2003, respectively		9,530		7,698
	Inventory		10,123		9,053
	Income taxes receivable		176		349
	Deferred income taxes		1,110		1,110
	Prepaid expenses and other current assets		773		914
	Net assets of discontinued operations		60		35
Total current assets			25,086		21,758
Property and equipment:
	Building and improvements		15,626		15,612
	Machinery and equipment		5,164		5,215
	Furniture and office equipment		2,964		3,158
			23,754		23,985
Accumulated depreciation			(7,547)		(7,315)
Property and equipment, net			16,207		16,670

Restricted cash			5,000		5,000
Deferred income taxes			3,902		3,902
Goodwill, net of accumulated amortization and impairment charge of $37,381			2,026		4,026
Other assets			244		83
Total assets			$	52,465	$	51,439

Liabilities and stockholders' equity
Current liabilities:
	Accounts payable		$	3,915	$	5,601
	Accrued expenses		2,058		1,732
	Accrued payroll and related liabilities		1,875		772
	Current portion of long-term debt		339		325
Total current liabilities			8,187		8,430
Long-term debt, less current portion			7,277		7,451
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-14,225,959 and 14,054,309 at June 30, 2004 and December 31, 2003, respectively		142		141
	Additional paid-in capital		62,600		62,377
	Accumulated deficit		(22,860)		(24,079)
			39,882		38,439
	Shares held in treasury, at cost-921,900 shares at June 30, 2004 and December 31, 2003		(2,881)		(2,881)
Total stockholders' equity			37,001		35,558
Total liabilities and stockholders' equity			$	52,465	$	51,439

Natrol, Inc. and Subsidiaries Consolidated Statements of Operations (In thousands, except share and per share data) (Unaudited)
	Three months ended June 30,				Six months ended June 30,
	2004		2003		2004		2003

Net sales	$	20,682	$	18,866	$	41,107	$	37,861
Cost of goods sold	11,338		12,262		23,933		23,128
Gross profit	9,344		6,604		17,174		14,733

Selling and marketing expenses	5,643		4,132		10,262		9,101
General and administrative expenses	2,274		2,727		4,599		5,366
Total operating expenses	7,917		6,859		14,861		14,467
Operating income (loss) from continuing operations	1,427		(255)		2,313		266

Interest income	22		4		44		14
Interest expense	(156)		(162)		(314)		(324)
Income (loss) from continuing operations before income taxes	1,293		(413)		2,043		(44)
Income tax provision (benefit)	524		(167)		824		(26)
Income (loss) from continuing operations	769		(246)		1,219		(18)
Discontinued operations:
(Loss) from operations		-		(461)		-		(1,035)
Income tax benefit		-		157		-		379
Loss on discontinued operations		-		(304)		-		(656)
Net Income (loss)	$	769	$	(550)	$	1,219	$	(674)
Basic income (loss) per share:
ÊÊ Income (loss) per share from continuing operations	$	.06	$	(.02)	$	.09	$	.00
ÊÊ Loss per share from discontinued operations	-		(.02)		-		(.05)
ÊÊ Income (loss) per share	$	.06	$	(.04)	$	.09	$	(.05)

Diluted income (loss) per share:
ÊÊ Income (loss) per share from continuing operations	$	.05	$	(.02)	$	.09	$	.00
ÊÊ Loss per share from discontinued operations		-		(.02)		-		(.05)
Income (loss) per share	$	.05	$	(.04)	$	.09	$	(.05)

Weighted-average shares outstanding÷basic and diluted
Basic	13,240,248		12,886,746		13,201,354		12,878,722
Diluted	14,093,944		12,886,746		14,085,885		12,878,722