SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549 ––––––––––––  FORM
10–Q  (Mark one)x

  QUARTERLY
  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES
  EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 OR o

  TRANSITION
  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THESECURITIES
  EXCHANGE ACT OF 1934FOR THE TRANSITION PERIOD FROM _____ TO ______  COMMISSION
FILE NO: 0-24567  NATROL, INC. (Exact name of registrant as specified in
its charter)  DELAWARE

  95-3560780(State
  of Incorporation)

  (I.R.S.
  Employer Identification No.)
 21411 PRAIRIE STREET
CHATSWORTH, CALIFORNIA 91311(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(818) 739–6000(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE
BY A CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE
FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE
PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YESxNOo Indicate
the number of shares outstanding of the issuer's common stock, as of the latest
practicable date:  Class

  Outstanding
  as of May 10, 2001Common
  stock, $0.01 par value

  12,736,920
   PART 1
FINANCIAL INFORMATION

ITEM
1. CONSOLIDATED FINANCIAL STATEMENTS



NATROL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)



March
  31,

  December
  31,2001

  2000(Unaudited)AssetsCurrent assets:Cash
  and cash equivalents

  $1,898

  $4,004Accounts
  receivable, net of allowances of $482 and $479 at March 31, 2001 and December
  31, 2000, respectively

  11,136

  9,574Inventories

  11,050

  12,247Deferred
  taxes

  1,076

  1,076Income
  taxes receivable

  3,664

  4,091Prepaid
  expenses and other current assets

  631

  839Total current assets

  29,445

  31,831Property and
  equipment:Building
  and improvements

  15,572

  15,571Machinery and equipment

  5,543

  5,539Furniture and office equipment

  1,903

  1,86323,018

  22,973Accumulated depreciation and amortization

  (4,555)

  (4,215)18,463

  18,758Goodwill,
  net of accumulated amortization of $4,713 and $4,143 at March 31, 2001 and
  December 31, 2000, respectively

  36,694

  37,264Other assets

  66

  68Total assets

  $84,678

  $87,921

See accompanying notes

March
  31,

  December
  31,2001

  2000Liabilities and stockholders equity

  (Unaudited)Current
  liabilities:Line of
  credit

  $3,358

  $8,300Accounts
  payable

  4,319

  4,186Accrued
  expenses

  4,036

  2,967Accrued
  payroll and related liabilities

  615

  723Current
  portion of long–term debt

  256

  256Total
  current liabilities

  12,584

  16,432Deferred
  income taxes, noncurrent

  226

  226Long–term
  debt, less current portion

  8,319

  8,370CommitmentsStockholders equity:Preferred stock, par value of $0.01 per share:Authorized shares  2,000,000Issued and outstanding shares  none

  -

  -Common
  stock, par value of $0.01 per share:Authorized shares  50,000,000Issued and outstanding shares  
  13,658,820 at March 31, 2001 and December 31, 2000, respectively

  137

  137Additional paid–in capital

  61,782

  61,782Retained
  earnings

  4,511

  3,85566,430

  65,774Shares held in treasury, at cost 921,900and625,900 shares at March 31, 2001 and
  December 31, 2000 respectively

  (2,881)

  (2,327)Receivable from stockholder

  -

  (554)Total
  stockholders equity

  63,549

  62,893Total
  liabilities and stockholders equity

  $84,678

  $87,921See accompanying notes


NATROL,
INC.
CONSOLIDATED STATEMENTS OF INCOME(IN THOUSANDS EXCEPT SHARE AND PER SHARE
AMOUNTS)  Three Months EndedMarch 312001

  2000(Unaudited)Net
  sales

  $19,769

  $22,694Cost
  of goods sold

  11,066

  11,919Gross profit

  8,703

  10,775Selling
  and marketing expenses

  4,754

  6,461General
  and administrative expenses

  2,674

  2,898Total
  operating expenses

  7,428

  9,359Operating
  income

  1,275

  1,416Interest
  income

  67

  17Interest
  expense

  (273)

  (263)Income
  before income tax provision

  1,069

  1,170Income tax provision

  412

  434Net
  income

  $657

  $736Basic
  earnings per share

  $0.05

  $0.06Diluted
  earnings per share

  $0.05

  $0.05Weighted
  average shares outstanding - basic

  12,838,867

  13,310,142Weighted average shares outstanding -
  diluted

  12,839,328

  13,559,781  See accompanying notes


NATROL,
INC.CONSOLIDATED
STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE
AMOUNTS)   Three Months EndedMarch 312001

  2000(unaudited)Operating ActivitiesNet income

  $657

  $736Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:Depreciation and amortization

  339

  330Amortization of goodwill

  570

  570Provision
  for bad debts

  134

  34Stock
  issued for services

  -

  126Changes in
  operating assets and liabilities:Accounts receivable

  (1,696)

  (1,900)Inventories

  1,197

  (1,438)Income taxes receivable/payable

  427

  (294)Prepaid expenses and other current assets

  207

  (394)Accounts payable

  133

  267Accrued expenses

  1,069

  (59)Accrued payroll and other related liabilities

  (108)

  (1,014)Net cash provided by (used in) operating activities

  2,929

  (3,036)Investing activitiesPurchases of
  property and equipment

  (45)

  (386)Other Assets

  2

  -Net cash used in investing activities

  (43)

  (386)Financing activitiesProceeds (repayments) from line of credit, net

  (4,942)

  4,450Repayments on long-term debt

  (50)

  (41)Net cash provided by (used in) financing activities

  (4,992)

  4,409Net increase (decrease) in cash and cash equiva­lents

  (2,107)

  987Cash and cash equivalents, beginning of period

  4,004

  485Cash and cash equivalents, end of period

  $1,898

  $1,472Supplemental disclosures of cash flows information:      Cash paid for:         Interest

  $ 273

  $ 263 See
accompanying notes NATROL, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



1.
BASIS OF PRESENTATION

In
the opinion of management, the accompanying unaudited consolidated financial
statements include all necessary adjustments (consisting of normal recurring
accruals) and present fairly in all material respects the consolidated
financial position of Natrol, Inc. and its subsidiaries (collectively, the
"Company" or "Natrol") as of March 31, 2001 and the results
of its operations and its cash flows for the three months ended March 31, 2001
and 2000, in conformity with accounting principles generally accepted in the
United States for interim financial information applied on a consistent basis.
The results of operations for the three months ended March 31, 2001 are not
necessarily indicative of the results to be expected for the full year.

Certain
information and footnote disclosures which are normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been omitted. 
These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in Natrol's
December 31, 2000 audited consolidated financial statements included in the
Company's Form 10-K for the year ended December 31, 2000 as filed with the
Securities and Exchange Commission (file number 000–24567).



2.
INVENTORIES

Inventories
consist of the following:

MARCH
  31,

  DECEMBER
  31,2001

  2000Raw material and
  packaging supplies

  $4,813

  $5,335Finished goods

  6,236

  6,912$11,049

  $12,247

3.
COMPREHENSIVE INCOME

The
Companys comprehensive income items were not material at March 31, 2001 or
December 31, 2000 and therefore no disclosures have been made.

4.
SHIPPING AND HANDLING COSTS

Outbound
shipping and fulfillment costs are classified as selling and marketing expenses
and totaled $736,000 and $734,000 for the three months ended March 31, 2001 and
2000, respectively.

5.
EARNINGS PER SHARE

The
Company calculates earnings per share in accordance with SFAS No. 128
"Earnings per share".  Basic
earnings per share has been computed by dividing net income by the weighted
average number of common shares outstanding. Diluted earnings per share has
been computed by dividing net income by the weighted average of securities or
other contracts to issue Common Stock as if these securities were exercised or
converted to Common Stock.  Common Stock
equivalent shares from stock options representing 2,334,500 shares have been
excluded from the computation of diluted earnings per share because the effect
would be antidilutive.

6.
STOCKHOLDERS' EQUITY

STOCK
OPTIONS

Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen
to continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees. During the three months ended March 31, 2001,
440,000 stock options were granted.

RECEIVABLE
FROM STOCKHOLDER

The
receivable from stockholder represented an interest bearing note from a
stockholder issued by the stockholder to purchase 300,000 shares of the
Companys Common Stock. The note bore interest at 6.60% per year with interest
payments due annually. In February 2001, the Company repurchased the 296,000
remaining shares collateralizing the note by exchanging the outstanding note
for the shares. The closing price of the Companys Common Stock on the date of
the transaction was $1.875 per share, which is the same as the original
purchase price paid by the stockholder, and the Company recorded no gain or
loss on the transaction. The repurchased shares are included in treasury stock
on the accompanying balance sheet.

7.
CREDIT AGREEMENT

In
March 2001, the Company entered into a new credit agreement with its bank which
provides for a revolving line of credit for borrowings up to $10,000,000, based
on a formula, through March 2002. Advances under the credit agreement bear
interest at the banks adjusted LIBOR rate plus 3.00% or the banks prime rate
plus 0.50% at the option of the Company. Further, the credit agreement requires
the Company to comply with certain financial covenants and is collateralized by
the Companys assets.

ITEM
2:

MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CERTAIN
FACTORS THAT MAY AFFECT FUTURE RESULTS

Information
contained or incorporated by reference in this quarterly report on

Form
10–Q and in other SEC filings by the Company contains forward looking
statements.  The Company is including
this statement for the express purpose of availing itself of protections of the
safe harbor provided by the Private Securities Litigation Reform Act of 1995
with respect to all such forward looking statements. Examples of forward looking statements include, but are not limited to,
the use of forward–looking terminology such as "believes,"
"expects," "may," "will," "should",
"intend", "estimate", "assume", "plan"
or "anticipates" or the negative thereof, other variations thereon,
or comparable terminology, or by discussions of strategy that predict or
indicate future events or trends or that are not historical facts. The Company
cannot assure the future results or outcome of the matters described in these
statements; rather, these statements merely reflect its current expectations of
the approximate outcome of the matter discussed. The Company does not undertake
to update any such statements at any time in the future.

The Company's ability to predict results or the effect
of certain events on the Company's operating results is inherently uncertain.
Forward–looking statements should not be relied on since they involve
known and unknown risks, uncertainties and other factors, some of which are
beyond the Company's control. These risks, uncertainties and other factors may
cause actual results, performance or achievements to differ materially from the
anticipated future results, performance or achievements expressed or implied by
such forward–looking statements. Therefore, the Company wishes to caution
each reader of this report to carefully consider the following factors and
certain other factors discussed herein and in other past reports, including but
not limited to the prior year annual reports on Form 10-K filed with the
Securities and Exchange Commission. The factors discussed herein and contained
in that Form 10-K may not be exhaustive. Therefore, the factors contained
herein should be read together with other reports and documents that are filed
by the Company with the SEC from time to time, including Form 10-Q which may
supplement, modify, supersede or update the factors listed in this document.

Factors that could cause or contribute to the Company's
actual results differing materially from those discussed herein or for the
Company's stock price to be affected adversely include, but are not limited to:
(i) industry trends, including a general downturn or slowing of the growth
of the dietary supplement industry which has occurred during the past year and
may continue, (ii) increased competition from current competitors and new
market entrants, (iii) adverse publicity regarding the dietary supplement
industry or the Company's products, (iv) the Company's dependence upon its
ability to develop new products, (v) a continued high rate (or increase in
the rate) of returns of the Company's products, (vi) the Company's ability
to gain or expand distribution within new or existing accounts and new or
existing channels of trade, (vii) an increase in the cost of obtaining and
maintaining shelf space with major national retailers who demand various forms
of incentives from their suppliers such as slotting fees, coop advertising, or
rebates, (viii) adverse changes in government regulation,
(ix) exposure to product liability claims, (x) dependence on
significant customers, (xi) the Company's ability to keep and attract key
management employees, (xii) the Company's inability to manage growth and
execute its business plan, (xiii) the Company's ability to consummate
future acquisitions and its ability to integrate acquired businesses, including
without limitation Prolab Nutrition, Inc. ("Prolab"), acquired
in October, 1999, and to retain key personnel associated with any acquisition,
(xiv) the absence of clinical trials for many of the Company's products,
(xv) the Company's inability to obtain raw materials that are in short
supply including its ability to obtain garlic powders under its supply
agreement with ConAgra for its Essentially Pure Ingredient (EPI) raw material
sales division, (xvi) sales and earnings volatility, (xvii) volatility
of the stock market (xviii) the Company's ability to manufacture its
products efficiently, (xix) the Company's ability to manage inventory or
sell its inventory before such inventory becomes outdated, (xx) the
Company's reliance on independent brokers to sell its products, (xxi) the
inability of the Company to protect its intellectual property,
(xxii) control of the Company by principal shareholders, (xxiii) the
possible sale of large amounts of stock by controlling shareholders, (xxiv) a
general downturn in the national economy as a whole, and (xxv) continued
market acceptance of Natrol supplements, Laci Le Beau teas, Prolab's sports
nutrition products, and Essentially Pure Ingredients' raw material products.

THE
FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS
INCLUDED IN THE RESPONSE TO PART I, ITEM 1 OF THIS REPORT.

THREE
MONTHS ENDED MARCH 31, 2001 AND MARCH 31, 2000

NET
SALES. Sales are recognized at the time product is shipped. Net sales are net
of discounts, allowances, and estimated returns and credits.  Net sales decreased 12.9%, or $2.9 million,
to $19.8 million for the three months ended March 31, 2001 from $22.7 million
for the three months ended March 31, 2000. Approximately 70% of the decline in
net sales was due to the return in the quarter ending March 31, 2001 of product
stemming from inventory realignments at certain large mass market
accounts.  Sales of the Companys sports
nutrition division, Prolab, Inc. also declined by approximately $1.0 million
when compared to the quarter ended March 31, 2000.

GROSS
PROFIT.  Gross profit decreased 19.2%,
or $2.1 million, to $8.7 million for the three months ended March 31, 2001 from
$10.8 million for the three months ended March 31, 2000. Gross margin decreased
to 44.0% for the three months ended March 31, 2001 from 47.5% for the three
months ended March 31, 2000. The decline was due to returns which reduced net
sales without reducing cost of goods sold.

SELLING
AND MARKETING EXPENSES.  Selling and
marketing expenses consist primarily of advertising and promotional expenses,
cost of distribution and related payroll expenses and commissions. Selling and
marketing expenses decreased 26.4%, or $1.7 million to $4.8 million for the
three months ended March 31, 2001 from $6.5 million for the three months ended
March 31, 2000. The reduction was due primarily to reduced spending for
consumer advertising with traditional radio, television and print outlets.

GENERAL
AND ADMINISTRATIVE EXPENSES.  General
and administrative expenses consist primarily of personnel costs related to
general management functions, finance, accounting and information systems,
research and development expenses, as well as professional fees related to
legal, audit and tax matters and depreciation and amortization of goodwill.
General and administrative expenses decreased 7.7%, or $224,000, to $2.7
million for the three months ended March 31, 2001 from $2.9 million for the
three months ended March 31, 2000. The reduction in general and administrative
expense was primarily due to payroll reductions.

INTEREST
INCOME. Interest income for the three months ended March 31, 2001 increased to
$67,000 from $17,000 for the three months ended March 31, 2000.  The increase was due to Companys higher
average cash balances in the quarter ended March 31, 2001 as compared to the
average cash balances maintained in the quarter ended March 31,2000.

INTEREST
EXPENSE.  The Company recorded interest
expense of $273,000 for the three months ended March 31, 2001 as compared to
interest expense of $263,000 for the three months ended March 31, 2000. The
Company pays interest on approximately $8.6 million of long-term mortgage debt
as well as interest on its line of credit. 
In March, the Company reduced its line of credit borrowings from $8.3
million to approximately $3.4 million. 
The Company expects that the amount of borrowing on its line of credit
will fluctuate from time to time depending upon its cash flow needs.

INCOME
TAX PROVISION. The Companys effective tax rate was approximately 38.5% in the
first quarter of 2001 as opposed to 37.1% in the first quarter of 2000.  The change in the income tax provision at
March 31, 2001 from March 31, 2000 is not considered material by the Company
and is due to temporary differences in the makeup of taxable and non-taxable
expenses.

LIQUIDITY AND CAPITAL RESOURCES

At
March 31, 2001, the Company had working capital of $16.9 million, as
compared to $15.4 million in working capital at December 31, 2000.The increase was
primarily due to a decrease in the balance of the Companys line of credit.

Net
cash provided by operating activities was $2.9  million for the three
months ended March 31, 2001 versus net cash used of $3.0 for the three months
ended March 31, 2000. The increase in cash provided by operating activities
during the quarter was primarily due to net income of $657,000, a decrease in
inventory levels of $1.2 million, depreciation and amortization of $909,000, a
decrease of prepaid expenses and income tax receivables of $634,000 and an
increase in trade payables and other accrued expenses of $1.1 million offset by
an increase in accounts receivable of $1.7 million.

Net cash used in
investing activities was $43,000 for the three months ended March 31, 2001 and
$386,000 during the three months ended March 31, 2000. Nearly all of the
investing activity in both periods was in property, plant and equipment.

Net
cash used by financing activities was $5.0 million for the three months ended
March 31, 2001 as opposed to $4.4 million provided by financing activities
during the three months ended March 31, 2000. During the quarter ending March
31, 2001, the Company reduced its line of credit by $4.9 million as opposed to
borrowing $4.5 million from its line of credit during the three months ended
March 31, 2000.  The Company repaid
$50,000 and $41,000 of long-term debt in the quarters ended March 31, 2001 and
2000 respectively.

As
of March 31, 2001, the Company had $11.9 million of outstanding debt.  Of this amount, $3.4 million was from the
Companys $10 million line of credit established with its prime bank, Wells
Fargo, N.A., and the remainder from a mortgage on the Companys
manufacturing/headquarters facility and a mortgage on the Companys shipping
facility.

The
Companys cash balance at March 31, 2000 was approximately $1.9 million. The
Company believes that this amount, together with cash generated from operations
and the cash availability from its line of credit, will be sufficient to fund
its anticipated working capital needs and capital expenditures (other than
financing necessary to complete future acquisitions, if any) for at least the
next 12 months. The Companys line of credit includes restrictions on future
acquisitions and does not permit the Company to pay dividends. Future
borrowings for potential acquisitions or other corporate needs may include
additional restrictive covenants and such financing may not be available. In
addition, there can be no assurance that attractive acquisition opportunities
will be available to the Company or will be available at prices and upon such
other terms that are attractive to the Company. The Company regularly evaluates
the potential acquisition of other businesses, products and product lines and
may hold discussions regarding such potential acquisitions. As a general rule,
the Company will publicly announce such acquisitions only after a definitive
agreement has been signed. The Company currently has no commitments or
agreements with respect to any acquisition. In addition, in order to meet its
long–term liquidity needs or consummate future acquisitions, the Company
may be required to incur additional indebtedness or issue additional equity and
debt securities, subject to market and other conditions. There can be no
assurance that such additional financing will be available on terms acceptable
to the Company or at all. The failure to raise the funds necessary to finance
its future cash requirements or consummate future acquisitions could adversely
affect the Company's ability to pursue its strategy and could negatively affect
its operations in future periods.

Item
3.  QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK

The
following discussion about the Company's market risk disclosures involves
forward–looking statements. Actual results could differ materially from
those projected in the forward–looking statements. The Company is exposed
to market risk related to changes in interest rates. The risks related to
foreign currency exchange rates are immaterial and the Company does not use
derivative financial instruments.

The Company is subject to interest rate market risk
associated with its variable rate line of credit and fixed rate long-term debt.
Given the short-term nature and variable rates on borrowings on the line of
credit, the Company does not believe the risk is significant. Additionally, the
Company does not believe that the risk is significant for its long-term debt
due to the low fixed rates and insignificance of the long-term debt to the
Company's consolidated balance sheet.

PART II
OTHER INFORMATION



ITEM
6: EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibit
10.1, letter of agreement with Vern Brunner(b)      No
current reports on Form 8-K were filed by the Company during the three month
period ended March 31, 2001.SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.

NATROL,
  INC.Date:
  5/11/01

  By:  /s/ Elliott BalbertChairman,
  President and Chief Executive OfficerDate:
  5/11/01

  By:  /s/ Dennis R. JolicoeurChief
  Financial Officer and ExecutiveVice
  President