Natrol Announces Second Quarter Earnings

CHATSWORTH, Calif.--(BUSINESS WIRE)--Aug. 14, 2003--Natrol, Inc. (Nasdaq:NTOL), a manufacturer and distributor of nationally branded dietary supplements, today reported results for the second quarter ended June 30, 2003, announcing a loss of $550,000 on net sales of $19.0 million.

Net sales increased 6.4% when compared to the second quarter of 2002, when the Company posted $17.9 million in net sales. Net income for the second quarter of 2002 amounted to $130,000.

Net sales for the six months ended June 30, 2003, were $38.2 million, 7.8% more than the $35.4 million in net sales reported during the same period in 2002. The Company posted a net loss for the six months ended June 30, 2003 of $674,000 as compared to net income before cumulative effect of a change in accounting principle of $251,000 for the six months ended June 30, 2002. In the first quarter of 2002, the Company took a $6.8 million charge against earnings as a cumulative change in accounting principle. The charge was related to the write down of goodwill associated with prior Company acquisitions.

"There are bright spots as well as disappointment in our performance during the first half of this year," noted Elliott Balbert, the Company's Chairman and President, when making the earnings announcement. "Most importantly, net sales revenue and operating income related to our core Natrol segment were stronger during the first six months of 2003 than they were during the first six months of 2002. Net sales revenue for the Natrol segment grew 9.1% to $27.7 million in 2003 from $25.4 million and operating earnings for the segment more than doubled, growing from $600,000 during the first six months of 2002 to approximately $1.3 million during the first six months of this year. Our progress at Natrol was tempered by results from our Prolab unit. Net sales revenue at Prolab increased 2% to $10.2 million for the six months ending June 30, 2003 from $10.0 million for the same six month period in 2002. But, due to sales and marketing expenditures as well as inventory adjustments, the Prolab segment suffered a loss from operations of approximately $1.2 million during the first half of this year as opposed to $277,000 of income from operations posted during the first half of 2002. This was a sharp disappointment. However, our balance sheet remains strong. We invested nearly $500,000 in Annasa during the first half of this year. Even so, our working capital at the end of June was $18.5 million, nearly equal to the $18.7 million recorded at the end of 2002. We have much to do to reach the levels of profitability we desire. Fortunately our core engine, Natrol, is strengthening as we address those segments of our business that need assistance."

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 the Company may not currently foresee, 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 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, 2002 and in the Company's other filings with Securities and Exchange Commission.

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