NATROL ANNOUNCES THIRD QUARTER EARNINGS

15/Nov/2004

Natrol, Inc. (NASDAQ: NTOL - news), a manufacturer and distributor of nationally branded dietary supplements, today reported results for the third quarter ended September 30, 2004, announcing net income of $384,000 or $0.03 per diluted share on net sales of $20.9 million.

CHATSWORTH, Calif. - (BUSINESS WIRE)-November 15, 2004 - Natrol, Inc. (NASDAQ: NTOL - news), a manufacturer and distributor of nationally branded dietary supplements, today reported results for the third quarter ended September 30, 2004, announcing net income of $384,000 or $0.03 per diluted share on net sales of $20.9 million. For the nine months ended September 30, 2004, the Company recorded net income of $1.6 million or $0.11 per diluted share on net sales of $62.0 million.

Net sales increased 20.0% or $3.5 million when compared to the third quarter of 2003 when the Company posted $17.4 million in net sales. During the third quarter of 2003, the Company recorded net income from continuing operations of $25,000, net loss from discontinued operations of $417,000 and consolidated net loss of $392,000 or $0.03 per share.

Net sales for the nine months ended September 30, 2004 increased 12.2% or $6.7 million compared to the nine months ended September 30, 2003 when the Company posted $55.3 million in net sales. The Company recorded net income from continuing operations for the nine months ended September 30, 2003 of $7,000, net loss from discontinued operations of $1.1 million and consolidated net loss of $1.1 million or $0.08 per share.

"The Natrol brand has performed well throughout 2004," noted Elliott Balbert, Natrol's President and Chairman when making the earnings announcement. "While legal expenses for the first nine months of 2004 are in line with those recorded in 2003, the third quarter was adversely affected by approximately $448,000 in legal expenses when compared to the third quarter of 2003 due to a legal settlement as well as related and other costs of litigation. Regardless, this is our third successive quarter of $20 million plus performance at the top line and this is our third consecutive quarter of profits. We are pleased with our progress year-over-year and will continue to work hard to sustain the momentum we have built."

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 Companyâs 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, 2003 and in the Company's 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)
			September 30, 2004		December 31, 2003

Assets
Current assets:
	Cash and cash equivalents		$	3,694	$	2,599

	Accounts receivable, net of allowances of $611 and $635 at September 30, 2004 and December 31, 2003, respectively		8,913		7,698
	Inventory		10,689		9,053
	Income taxes receivable		414		349
	Deferred income taxes		1,110		1,110
	Prepaid expenses and other current assets		906		914
	Net assets of discontinued operations		—		35
Total current assets			25,726		21,758
Property and equipment:
	Building and improvements		15,848		15,612
	Machinery and equipment		5,282		5,215
	Furniture and office equipment		3,150		3,158
			24,280		23,985
Accumulated depreciation			(7,839)		(7,315)
Property and equipment, net			16,441		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			290		83
Total assets			$	53,385	$	51,439

Liabilities and stockholders' equity
Current liabilities:
	Accounts payable		$	4,803	$	5,601
	Accrued expenses		1,841		1,732
	Accrued payroll and related liabilities		1,721		772
	Current portion of long-term debt		346		325
Total current liabilities			8,711		8,430
Long-term debt, less current portion			7,189		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- 14,275,607 and 14,054,309 at September 30, 2004 and December 31, 2003, respectively		143		141
	Additional paid-in capital		62,699		62,377
	Accumulated deficit		(22,476)		(24,079)
			40,366		38,439
	Shares held in treasury, at cost-921,900 shares at September 30, 2004 and December 31, 2003		(2,881)		(2,881)
Total stockholders' equity			37,485		35,558
Total liabilities and stockholders' equity			$	53,385	$	51,439

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

Net sales		$	20,879	$	17,398	$	61,986	$	55,259
Cost of goods sold		12,214		10,588		36,147		33,716
Gross profit		8,665		6,810		25,839		21,543

Selling and marketing expenses		5,349		4,122		15,610		13,223
General and administrative expenses		2,539		2,461		7,139		7,827
Total operating expenses		7,888		6,583		22,749		21,050
Operating income from continuing operations		777		227		3,090		493

Interest income		25		2		69		16
Interest expense		(156)		(162)		(470)		(486)
Income from continuing operations before income taxes		646		67		2,689		23
Income tax provision		262		42		1,086		16
Income from continuing operations		384		25		1,603		7
Discontinued operations:
	Loss from operations		—		(641)		—		(1,675)
	Income tax benefit		—		224		—		602
	Loss on discontinued operations		—		(417)		—		(1,073)
Net Income (loss)		$	384	$	(392)	$	1,603	$	(1,066)
Basic income (loss) per share:
	Income per share from continuing operations	$	.03	$	.00	$	.12	$	.00
	Loss per share from discontinued operations	—		(.03)		—		(.08)
	Income (loss) per share	$	.03	$	(.03)	$	.12	$	(.08)

Diluted income (loss) per share:
	Income per share from continuing operations	$	.03	$	.00	$	.11	$	.00
	Loss per share from discontinued operations		—		(.03)		—		(.08)
Income (loss) per share		$	.03	$	(.03)	$	.11	$	(.08)

Weighted-average shares outstanding÷basic and diluted
	Basic	13,343,954		12,915,285		13,248,797		12,892,196
	Diluted	14,059,462		12,915,285		14,063,781		12,892,196