Natrol Reports Third Quarter Results

14/Nov/2007

Natrol, Inc. (Nasdaq: NTOL), a leading manufacturer and marketer of nationally branded nutritional products, today announced operating results for the period ended September 30, 2007.

CHATSWORTH, CA, November 14, 2007 – Natrol, Inc. (Nasdaq: NTOL), a leading manufacturer and marketer of nationally branded nutritional products, today announced operating results for the period ended September 30, 2007. Net sales in the third quarter were $19.2 million, up 22.3% versus $15.7 million a year ago. Due to several uncommon costs and special charges, the company reported a net loss per share of $0.22 for the third quarter.

The company noted that during the third quarter it took approximately $3.3 million of charges that affected the gross margin. The charges were primarily associated with a strategic decision to reduce exposure to the H57 Hoodia product line and to adjust reserves in connection with a major customer. As reported, the company’s third quarter gross margin was 31.5%; excluding the charges, gross margin would have been reported as 44.4%, compared to 42.7% last year.

The company also incurred unusual SG&A expenses during the third quarter, including $750,000 in legal costs related to a settlement of the company’s last unresolved suit for Ephedrine-related products as well as some costs incurred due to ongoing strategic transactions. Additionally, the discontinuation of its H57 Hoodia business carried a special SG&A impact of $620,000. SG&A expenses amounted to $11.0 million in the quarter versus $6.5 million in the third quarter of 2006. Approximately $2.3 million of the increase was due to the Company’s NuHair, Shen Min, Promensil and MRI acquisitions and $0.8 million was due to increased sales and marketing of the Company’s core Natrol brand with the remainder being due to the charges above.

Wayne Bos, Chairman and Chief Executive Officer of Natrol, Inc., commented, “Our strategic and operational turnaround of this business remains intact and in progress. While the decisions we made this past quarter have an obvious impact on our third quarter financials, we believe that this kind of housekeeping activity is an essential part of repositioning our business.

“What is not readily apparent in our reported numbers is that our gross shipments in the third quarter increased 47%, year on year. This kind of performance is one reason why we remain confident about the future. Our NuHair, Shen Min, Promensil and MRI brands are all performing well. Natrol too, once we adjust for the Ester-C issue, continues to improve and Laci LeBeau is stable and profitable. Finally, it is great to see Prolab also showing growth prospects. Our brands remain strong, our growth opportunities continue to be compelling and we are optimistic about our market position and the strategic opportunities that are available to us.”

Mr. Bos continued, “Over the past two years, we have successfully diversified our business, strengthened our market position, and streamlined our operations. We will continue to push for growth, both organically, and through additional acquisitions. The combination of a strong trend toward health and wellness and a highly fragmented industry to serve that trend places us in an excellent strategic position to develop our business and drive value to our shareholders.”

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

			September 30 2007	December 31 2006
			(unaudited)
Assets
Current assets:
	Cash and cash equivalents		$5,891	$1,003
	Accounts receivable, net of allowances of $244 and $181 at September 30, 2007 and December 31, 2006, respectively		7,494	6,485
	Inventory		18,593	11,788
	Income taxes receivable		2,345	375
	Deferred income taxes		1,636	1,630
	Prepaid expenses and other current assets		603	1,743
Total current assets			36,562	23,024
Property and equipment:
	Building and improvements		—	14,953
	Machinery and equipment		6,142	5,757
	Furniture and office equipment		3,042	3,013
			9,184	23,723
Accumulated depreciation and amortization			(7,576)	(9,912)
Property and equipment, net			1,608	13,811

Restricted cash			5,337	5,000
Deferred income taxes			4,265	4,265
Goodwill, net of accumulated amortization and impairment charge			2,026	2,026
Trademarks			5,730	5,730
Other assets			984	744
Total assets			$56,512	$54,600

Liabilities and stockholders’ equity
Current liabilities:
	Line of credit		$—	$3,694
	Accounts payable		5,608	3,058
	Accrued expenses		4,888	2,558
	Accrued payroll and related liabilities		1,608	1,185
	Current portion of long-term debt		11	414
Total current liabilities			12,115	10,909

Long-term debt, less current portion			30	6,301
Deferred benefit from sale leaseback<			5,003	—

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—14,155,544 and 14,116,148 at September 30, 2007 and December 31, 2006, respectively	143	141
	Additional paid-in capital		62,219	61,638
	Accumulated deficit		(23,061)	(24,409)
	Accumulated other comprehensive income		63	20
Total stockholders’ equity			39,364	37,390
Total liabilities and stockholders’ equity			$56,512	$54,600

Natrol, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
(In thousands, except share and per share data)
(unaudited)

		Three months ended September 30,		Nine months ended September 30,
		2007	2006	2007	2006
Net sales		$19,206	$15,660	$57,460	$49,171
Cost of goods sold		13,156	8,972	33,340	28,395
Gross profit		6,050	6,688	24,120	20,776

Selling and marketing expenses		5,951	3,848	16,527	12,031
General and administrative expenses		5,050	2,688	11,064	8,337
Total operating expenses		11,001	6,536	27,591	20,368
Operating income (loss)		(4,951)	152	(3,471)	408

Interest income		113	70	296	186
Interest expense		(18)	(149)	(309)	(456)
Other		(26)	—	(60)	—
Gain on sale of property		—	—	6,062	230
Income (loss) before taxes		(4,882)	73	2,518	368
Income tax provision (benefit)		(1,717)	33	1,171	155
Net income (loss)		$(3,165)	$40	$1,347	$213

Net income (loss) per share:
	Basic	$(.22)	$.00	$.10	$.02
	Diluted	$(.22)	$.00	$.08	$.02

Weighted-average shares outstanding—basic and diluted
	Basic	14,160,244	13,604,572	14,171,714	13,573,108
	Diluted	14,160,244	13,711,047	16,598,985	13,931,927

About Natrol - Nourishing the Potential of Mind and Body^SM
Natrol, Inc. (Nasdaq: NTOL), headquartered in Chatsworth, CA, has a portfolio of health and wellness brands representing quality nutritional supplements, functional herbal teas, and sports nutrition products. Established in 1980, Natrol’s portfolio of brands includes: Natrol®, MRI, Prolab®, Laci Le Beau®, Promensil®, Trinovin®, Nu Hair® and Shen Min®. The company also manufactures supplements for its own brands and on behalf of third parties.

Natrol distributes products nationally through more than 54,000 retailers, as well as internationally in over 40 other countries through distribution partners and subsidiaries in the UK and Hong Kong. Natrol’s dedication to quality is evidenced by its commitment to high manufacturing standards, earning the company an “A” rating from the Natural Products Association's Good Manufacturing Practices (“GMP”) Certification Program—a designation achieved by less than ten percent of U.S. nutrition companies. 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, our actual results could differ materially from those set forth in the forward-looking statements. Certain factors that might cause our actual results to differ materially from those in the forward-looking statements include, without limitation: (i) our ability to develop and execute our business plans, (ii) our ability to respond to competitive challenges and changing consumer preferences, (iii) our ability to consummate and integrate acquisitions, (iv) increased competition, (v) unfavorable publicity about dietary supplements in general or regarding our products or similar products sold by others, (vi) our exposure to product liability claims, our dependence upon certain large customers, and (vii) our ability to retain and attract talented management and other key employees, as well as those factors set forth under the heading "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2006, and in our other filings with the Securities and Exchange Commission.

Company Contact:
Natrol, Inc.
Wayne Bos
818-739-6000

Investor Relations Contact:
ICR
James Palczynski
203-682-8200