NTOL Natrol (MM)

Natrol, Inc. (Nasdaq:NTOL), a leading manufacturer and marketer of nationally branded nutritional products, today announced operating results for the period ended June 30, 2007. Sales during the quarter rose 17.8% to $19.5 million compared to $16.6 million in the year-ago quarter. The Company attributed the sales increase to a strong performance from new products which more than offset a $0.9 million decline that results from the planned discontinuation of Ester-C. At the same time, the Company saw significant improvement in gross margin, which rose 410 basis points to 47.5% versus 43.4% in the year-ago quarter. The Company noted that while core expenses showed leverage as costs were controlled, it also invested in building platforms for growth in both the United Kingdom and in the Far East. Even with this investment spending, the company saw a sharp increase in operating income, which rose 172.9% to $737,000 versus $270,000 in the second quarter of 2006. Earnings per share for the second quarter were $0.25 per diluted share versus $0.01 per diluted share in the year-ago quarter. The Company noted that during the quarter, it booked a $6.1 million one-time gain on the sale of its corporate facilities which had the effect of increasing reported earnings by $0.22 per share. Wayne Bos, President and CEO of Natrol, commented, �We are very pleased by the progress we made this past quarter. In addition to good financial results, we made excellent strategic progress with our business. The acquisition of MRI closed late in the quarter and further diversified our business. MRI provides not only a premium brand but contributes a strong, science-based pipeline for further penetration and market development of higher-growth areas of the nutraceutical business. The sale and lease back transaction we completed has given us ready access to capital and the ability to continue to enter into strategic transactions to leverage the considerable platform we are building with a balance sheet that is essentially debt free.� Mr. Bos concluded, �We are confident of our solid and sustainable turnaround in the business of Natrol. Our brand portfolio, which targets several important tiers of distribution, is reliable and growing. We are positioned well to enter the international marketplace. The enhancement of our strategic vision by MRI positions Natrol to again be a company with genuine growth. We believe that we are well positioned to continue our growth trajectory and drive significant value to our shareholders.� Natrol,�Inc. and Subsidiaries Consolidated Condensed Balance Sheets (In thousands, except share and per share data) � June 30 December 31 2007 2006 (unaudited) Assets Current assets: Cash and cash equivalents $ 8,640 $ 1,003 Accounts receivable, net of allowances of $241 and $181 at June 30, 2007 and December 31, 2006, respectively 11,274 6,485 Inventory 20,057 11,788 Income taxes receivable � 375 Deferred income taxes 1,635 1,630 Prepaid expenses and other current assets � 1,164 � 1,743 Total current assets 42,770 23,024 Property and equipment: Building and improvements � 14,953 Machinery and equipment 6,122 5,757 Furniture and office equipment � 3,038 � 3,013 9,160 23,723 Accumulated depreciation and amortization � (7,343 ) � (9,912 ) Property and equipment, net 1,817 13,811 � Restricted cash 5,250 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 � 1,047 � 744 Total assets $ 62,905 $ 54,600 � Liabilities and stockholders� equity Current liabilities: Line of credit $ � $ 3,694 Accounts payable 8,039 3,058 Accrued expenses 3,081 2,558 Accrued payroll and related liabilities 1,364 1,185 Income taxes payable 2,850 � Current portion of long-term debt � 12 � 414 Total current liabilities 15,346 10,909 � Long-term debt, less current portion 31 6,301 Deferred benefit from sale leaseback 5,280 � � 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 June 30, 2007 and December 31, 2006, respectively 142 141 Additional paid-in capital 61,965 61,638 Accumulated deficit (19,896 ) (24,409 ) Accumulated other comprehensive income � 37 � 20 Total stockholders� equity � 42,248 � 37,390 Total liabilities and stockholders� equity $ 62,905 $ 54,600 Natrol,�Inc. and Subsidiaries � Consolidated Condensed Statements of Income (In thousands, except share and per share data) (unaudited) � Three months ended Six months ended June 30, June 30, 2007 2006 2007 2006 � Net sales $ 19,547 $ 16,587 $ 38,254 $ 33,511 Cost of goods sold 10,263 9,394 20,184 19,423 Gross profit 9,284 7,193 18,070 14,088 � Selling and marketing expenses 5,549 4,092 10,575 8,183 General and administrative expenses 2,998 2,831 6,015 5,649 Total operating expenses 8,547 6,923 16,590 13,832 Operating income 737 270 1,480 256 � Interest income 151 60 184 116 Interest expense (70) (153) (291) (307) Other (Loss) (35) � (35) � Gain on sale of property 6,062 � 6,062 230 Income before taxes 6,845 177 7,400 295 Income tax provision 2,672 77 2,887 122 Net income $ 4,173 $ 100 $ 4,513 $ 173 � Income per share: Basic $ 0.29 $ 0.01 $ 0.32 $ 0.01 Diluted $ 0.25 $ 0.01 $ 0.28 $ 0.01 � Weighted-average shares outstanding�basic and diluted � Basic 14,153,601 13,563,747 14,149,355 13,557,115 Diluted 16,763,440 13,914,763 16,093,514 13,865,531 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�, Prolab�, Laci Le Beau�, Promensil�, Trinovin�, Nu Hair�,Shen Min� ,and MRI�. 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. 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.