**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q/A**

 

**(Mark one)**

 

| **ý**                                                                                                                                                                                         |   | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT  OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                               |
| **FOR THE QUARTERLY PERIOD ENDED  JUNE 30, 2004**                                                                                                                                             |
|                                                                                                                                                                                               |
| **OR**                                                                                                                                                                                             |
|                                                                                                                                                                                               |
| **o**                                                                                                                                                                                              |   | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT  OF 1934** |
|                                                                                                                                                                                               |
| **FOR THE TRANSITION PERIOD FROM               TO             ** |
|                                                                                                                                                                                               |
| **COMMISSION FILE NO: 0-24567**                                                                                                                                                                    |

 

**NATROL, INC.**

(Exact name of registrant as specified in itscharter)

 
| **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 ALLREPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIESEXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIODTHAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEENSUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES  ý   NO  o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Exchange Act Rule 12b-2). Yes o No ý

 

Indicate the number of shares outstanding of the issuer’s common stock,as of the latest practicable date:

 

| **Class**                     |   | **August 4,  2004** |
|-------------------------------|--------|--------------------------|
|                          |   |                     |
| Common stock, $0.01 par value |   | 13,345,742               |

 

 

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**Explanatory Note**

 

This 10-Q/A is being filed for the purpose of amending Item 1 of ourQuarterly Report on Form 10-Q for the quarterly period ended June 30, 2004 tocorrect a typographical error made in Note 5 to the Consolidated UnauditedFinancial Statements.  Note 5 statedthat options to purchase 1,322,500 shares were outstanding for the three monthsended June 30, 2003, but considered to be anti-dilutive.  The Note should have stated that options topurchase 1,722,500 shares were outstanding for the three months ended June 30,2003, but considered to be anti-dilutive. This amendment only affects the typographical error in Note 5.  All calculations of Earnings Per Share inthe Consolidated Unaudited Financial Statements were performed using thecorrect number of options to purchase common stock.  All other information in Item 1 remains unchanged by thisamendment.

 

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PART 1. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

 

**Natrol, Inc.and Subsidiaries**

**Consolidated Balance Sheets**

(In thousands, except share and per sharedata)

(Unaudited)

 
|                                                                                                                    |   | **June 30,  2004** |   | **December 31,  2003** |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|--------|-----------------------------|--------|
|                                                                                                                    |   |                    |   |                        |   |
| **Assets**                                                                                                              |   |                    |   |                        |   |
| Current assets:                                                                                                         |   |                    |   |                        |   |
| Cash and cash equivalents                                                                                               |   | $                       | 3,314  |                        | $      | 2,599 |   |
|                                                                                                                    |   |                    |   |                        |   |
| Accounts receivable, net of allowances of  $640 and $635 at June 30, 2004 and December 31, 2003, respectively |   | 9,530                   |   | 7,698                       |   |
| Inventory                                                                                                               |   | 10,123                  |   | 9,053                       |   |
| Income taxes receivable                                                                                                 |   | 176                     |   | 349                         |   |
| Deferred income taxes                                                                                                   |   | 1,110                   |   | 1,110                       |   |
| Prepaid expenses and other current assets                                                                               |   | 773                     |   | 914                         |   |
| Net assets of discontinued operations                                                                                   |   | 60                      |   | 35                          |   |
| Total current assets                                                                                                    |   | 25,086                  |   | 21,758                      |   |
| Property and equipment:                                                                                                 |   |                    |   |                        |   |
| Building and improvements                                                                                               |   | 15,626                  |   | 15,612                      |   |
| Machinery and equipment                                                                                                 |   | 5,164                   |   | 5,215                       |   |
| Furniture and office equipment                                                                                          |   | 2,964                   |   | 3,158                       |   |
|                                                                                                                    |   | 23,754                  |   | 23,985                      |   |
| Accumulated depreciation                                                                                                |   | (7,547                  | )      | (7,315                      | )      |
| Property and equipment, net                                                                                             |   | 16,207                  |   | 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                                                                                                            |   | 244                     |   | 83                          |   |
| Total assets                                                                                                            |   | $                       | 52,465 |                        | $      | 51,439 |   |
|                                                                                                                    |   |                    |   |                        |   |
| **Liabilities and stockholders’ equity**                                                                           |   |                    |   |                        |   |
| Current liabilities:                                                                                                    |   |                    |   |                        |   |
| Accounts payable                                                                                                        |   | $                       | 3,915  |                        | $      | 5,601 |   |
| Accrued expenses                                                                                                        |   | 2,058                   |   | 1,732                       |   |
| Accrued payroll and related liabilities                                                                                 |   | 1,875                   |   | 772                         |   |
| Current portion of long-term debt                                                                                       |   | 339                     |   | 325                         |   |
| Total current liabilities                                                                                               |   | 8,187                   |   | 8,430                       |   |
| Long-term debt, less current portion                                                                                    |   | 7,277                   |   | 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-14,225,959  and 14,054,309 at June 30, 2004 and December 31, 2003, respectively |   | 142                     |   | 141                         |   |
| Additional paid-in capital                                                                                              |   | 62,600                  |   | 62,377                      |   |
| Accumulated deficit                                                                                                     |   | (22,860                 | )      | (24,079                     | )      |
|                                                                                                                    |   | 39,882                  |   | 38,439                      |   |
| Shares held in treasury, at cost-921,900  shares at June 30, 2004 and December 31, 2003                       |   | (2,881                  | )      | (2,881                      | )      |
| Total stockholders’ equity                                                                                         |   | 37,001                  |   | 35,558                      |   |
| Total liabilities and stockholders’ equity                                                                         |   | $                       | 52,465 |                        | $      | 51,439 |   |

 

See accompanying notes

 

2

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**Natrol, Inc.and Subsidiaries**

**Consolidated Statements of Operations**

**(In thousands, except share and per sharedata)**

**(Unaudited)**

 
|                                                          |   | **Three  months ended  June 30,** |   | **Six months  ended  June 30,** |   |
|---------------------------------------------------------------|--------|----------------------------------------|--------|--------------------------------------|--------|
|                                                          |   | **2004**                               |   | **2003**                             |   | **2004** |   | **2003** |   |
|                                                          |   |                                   |   |                                 |   |   |   |   |   |
| Net sales                                                     |   | $                                      | 20,682 |                                 | $      | 18,866 |   | $ | 41,107 |   | $ | 37,861 |   |
| Cost of goods sold                                            |   | 11,338                                 |   | 12,262                               |   | 23,933 |   | 23,128 |   |
| Gross profit                                                  |   | 9,344                                  |   | 6,604                                |   | 17,174 |   | 14,733 |   |
|                                                          |   |                                   |   |                                 |   |   |   |   |   |
| Selling and marketing expenses                                |   | 5,643                                  |   | 4,132                                |   | 10,262 |   | 9,101 |   |
| General and administrative expenses                           |   | 2,274                                  |   | 2,727                                |   | 4,599 |   | 5,366 |   |
| Total operating expenses                                      |   | 7,917                                  |   | 6,859                                |   | 14,861 |   | 14,467 |   |
| Operating income (loss) from continuing  operations           |   | 1,427                                  |   | (255                                 | )      | 2,313 |   | 266 |   |
|                                                          |   |                                   |   |                                 |   |   |   |   |   |
| Interest income                                               |   | 22                                     |   | 4                                    |   | 44 |   | 14 |   |
| Interest expense                                              |   | (156                                   | )      | (162                                 | )      | (314 | ) | (324 | ) |
| Income (loss) from continuing operations  before income taxes |   | 1,293                                  |   | (413                                 | )      | 2,043 |   | (44 | ) |
| Income tax provision (benefit)                                |   | 524                                    |   | (167                                 | )      | 824 |   | (26 | ) |
| Income (loss) from continuing operations                      |   | 769                                    |   | (246                                 | )      | 1,219 |   | (18 | ) |
| Discontinued operations:                                      |   |                                   |   |                                 |   |   |   |   |   |
| (Loss) from operations                                        |   | —                                 |   | (461                                 | )      | — |   | (1,035 | ) |
| Income tax benefit                                            |   | —                                 |   | 157                                  |   | — |   | 379 |   |
| Loss on discontinued operations                               |   | —                                 |   | (304                                 | )      | — |   | (656 | ) |
| Net Income (loss)                                             |   | $                                      | 769    |                                 | $      | (550 | ) | $ | 1,219 |   | $ | (674 | ) |
| Basic income (loss) per share:                                |   |                                   |   |                                 |   |   |   |   |   |
| Income (loss) per share from continuing  operations           |   | $                                      | .06    |                                 | $      | (.02 | ) | $ | .09 |   | $ | .00 |   |
| Loss per share from discontinued operations                   |   | —                                 |   | (.02                                 | )      | — |   | (.05 | ) |
| Income (loss) per share                                       |   | $                                      | .06    |                                 | $      | (.04 | ) | $ | .09 |   | $ | (.05 | ) |
|                                                          |   |                                   |   |                                 |   |   |   |   |   |
| Diluted income (loss) per share:                              |   |                                   |   |                                 |   |   |   |   |   |
| Income (loss) per share from continuing  operations           |   | $                                      | .05    |                                 | $      | (.02 | ) | $ | .09 |   | $ | .00 |   |
| Loss per share from discontinued operations                   |   | —                                 |   | (.02                                 | )      | — |   | (.05 | ) |
| Income (loss) per share                                       |   | $                                      | .05    |                                 | $      | (.04 | ) | $ | .09 |   | $ | (.05 | ) |
|                                                          |   |                                   |   |                                 |   |   |   |   |   |
| Weighted-average shares outstanding—basic  and diluted   |   |                                   |   |                                 |   |   |   |   |   |
| Basic                                                         |   | 13,240,248                             |   | 12,886,746                           |   | 13,201,354 |   | 12,878,722 |   |
| Diluted                                                       |   | 14,093,944                             |   | 12,886,746                           |   | 14,085,885 |   | 12,878,722 |   |

 

See accompanying notes

 

3

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# **Natrol, Inc.and Subsidiaries**

**Consolidated Statements of Cash Flows**

(In thousands)

(Unaudited )

 
|                                                                                                  |   | **Six Months  Ended  June,** |   |
|-------------------------------------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                                                  |   | **2004**                     |   | **2003** |   |
|                                                                                                  |   |                         |   |   |   |
| **Operating activities**                                                                              |   |                         |   |   |   |
| Net Income (loss)                                                                                     |   | $                            | 1,219  |   | $ | (674 | ) |
| Loss from discontinued operations                                                                     |   | —                       |   | 656 |   |
| Income (loss) from continuing operations                                                              |   | 1,219                        |   | (18 | ) |
|                                                                                                  |   |                         |   |   |   |
| Adjustments to reconcile income from  continuing operations to net cash used in operating activities: |   |                         |   |   |   |
| Loss from discontinued operations                                                                     |   | —                       |   | (656 | ) |
| Change in net assets of discontinued  operations                                                      |   | (25                          | )      | (65 | ) |
| Depreciation and amortization                                                                         |   | 642                          |   | 745 |   |
| Loss on disposal of property and equipment                                                            |   | 2                            |   | — |   |
| Provision for bad debts                                                                               |   | 105                          |   | 112 |   |
| Shares issued for services                                                                            |   | —                       |   | 15 |   |
| Changes in operating assets and  liabilities:                                                         |   |                         |   |   |   |
| Accounts receivable                                                                                   |   | (1,937                       | )      | (2,778 | ) |
| Inventory                                                                                             |   | (1,070                       | )      | 745 |   |
| Income taxes receivable/payable                                                                       |   | 173                          |   | (613 | ) |
| Prepaid expenses and other current assets                                                             |   | 141                          |   | 778 |   |
| Accounts payable                                                                                      |   | (1,686                       | )      | 1,753 |   |
| Accrued expenses                                                                                      |   | 326                          |   | (1,124 | ) |
| Accrued payroll and related liabilities                                                               |   | 1,103                        |   | 372 |   |
| Net cash used in operating activities                                                                 |   | (1,007                       | )      | (734 | ) |
|                                                                                                  |   |                         |   |   |   |
| **Investing activities**                                                                              |   |                         |   |   |   |
| Purchases of property and equipment                                                                   |   | (181                         | )      | (127 | ) |
| Reduction in goodwill                                                                                 |   | 2,000                        |   | — |   |
| Other assets                                                                                          |   | (161                         | )      | 7 |   |
| Net cash provided by (used in) investing  activities                                                  |   | 1,658                        |   | (120 | ) |
|                                                                                                  |   |                         |   |   |   |
| **Financing activities**                                                                              |   |                         |   |   |   |
| Repayments on long-term debt                                                                          |   | (160                         | )      | (151 | ) |
| Proceeds from issuance of common stock                                                                |   | 224                          |   | 14 |   |
| Net cash provided by (used in) financing  activities                                                  |   | 64                           |   | (137 | ) |
| Net increase (decrease)  in cash and cash equivalents                                            |   | 715                          |   | (991 | ) |
| Cash and cash equivalents, beginning of  period                                                       |   | 2,599                        |   | 10,077 |   |
| Cash and cash equivalents, end of period                                                              |   | $                            | 3,314  |   | $ | 9,086 |   |

 

See accompanying notes

 

4

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NATROL, INC.NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

 

1. BASIS OF PRESENTATION

 

The accompanyingconsolidated financial statements have been prepared by the Company, pursuantto the rules and regulations of the Securities and Exchange Commission(SEC).  This Report on Form 10-Q should be read in conjunction with theCompany’s annual report on Form 10-K for the year ended December 31,2003.  Certain information and footnote disclosures which are normallyincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States of America have beencondensed or omitted pursuant to SEC rules and regulations.  Theinformation reflects all normal and recurring adjustments which, in the opinionof the Company’s management, are necessary for a fair presentation of thefinancial position of the Company and its results of operations for the interimperiods set forth herein.  The results for the three months and six monthsended June 30, 2004 are not necessarily indicative of the results to be expectedfor the full year or any other future period.

 

2. STOCK BASED COMPENSATION

 

The Company accounts for its employee stock option plan under theintrinsic value method prescribed by Accounting Principles Board Opinion No.25, *Accounting for Stock Issued toEmployees,*and related interpretations.  The Company has a stock-based compensation plan.  The Company’s operating results do notinclude a compensation charge related to this plan, as all options granted hadan exercise price equal to the market value of the underlying common stock onthe date of grant.  The following tableillustrates the effect on the operating results and per share amounts if thefair value recognition provisions of Statement of Financial AccountingStandards No. 123, *Accounting forStock-Based compensation,*had been applied to stock-based employeecompensation:

 
|                                                                                                                                                                        |   | **3 Months  Ended  June 30,** |   | **6 Months  Ended  June 30,** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|
|                                                                                                                                                                        |   | **2004**                           |   | **2003**                           |   | **2004** |   | **2003** |   |
| Income (loss) from continuing operations                                                                                                                                    |   | $                                  | 769    |                               | $      | (246 | ) | $ | 1,219 |   | $ | (18 | ) |
|                                                                                                                                                                        |   |                               |   |                               |   |   |   |   |   |
| Total stock-based employee compensation  expense determined under the fair value-based method for all awards, net of  related tax benefits (“Stock Compensation”) |   | 18                                 |   | 49                                 |   | 34 |   | 90 |   |
| Income (loss) from continuing  operations—pro forma                                                                                                                    |   | $                                  | 751    |                               | $      | (295 | ) | $ | 1,185 |   | $ | (108 | ) |
| Loss from discontinued operations                                                                                                                                           |   | —                             |   | (304                               | )      | — |   | (656 | ) |
| Net Income (loss)—pro forma                                                                                                                                            |   | $                                  | 751    |                               | $      | (599 | ) | $ | 1,185 |   | $ | (764 | ) |
|                                                                                                                                                                        |   |                               |   |                               |   |   |   |   |   |
| Income per share from continuing  operations:                                                                                                                               |   |                               |   |                               |   |   |   |   |   |
| Basic—as reported                                                                                                                                                      |   | $                                  | .06    |                               | $      | (.02 | ) | $ | .09 |   | $ | .00 |   |
| Diluted—as reported                                                                                                                                                    |   | $                                  | .05    |                               | $      | (.02 | ) | $ | .09 |   | $ | .00 |   |
| Basic—pro forma                                                                                                                                                        |   | $                                  | .06    |                               | $      | (.02 | ) | $ | .09 |   | $ | .01 |   |
| Diluted—pro forma                                                                                                                                                      |   | $                                  | .05    |                               | $      | (.02 | ) | $ | .08 |   | $ | .01 |   |
|                                                                                                                                                                        |   |                               |   |                               |   |   |   |   |   |
| Net loss per share:                                                                                                                                                         |   |                               |   |                               |   |   |   |   |   |
| Basic—as reported                                                                                                                                                      |   |                               |   |                               |   |   |   |   |   |
| Diluted—as reported                                                                                                                                                    |   | $                                  | .06    |                               | $      | (.04 | ) | $ | .09 |   | $ | (.05 | ) |
| Basic—pro forma                                                                                                                                                        |   | $                                  | .05    |                               | $      | (.04 | ) | $ | .09 |   | $ | (.05 | ) |
| Diluted—pro forma                                                                                                                                                      |   | $                                  | .06    |                               | $      | (.05 | ) | $ | .09 |   | $ | (.06 | ) |
|                                                                                                                                                                        |   | $                                  | .05    |                               | $      | (.05 | ) | $ | .08 |   | $ | (.06 | ) |

 

Duringthe six months ended June 30, 2004, 60,000 stock options were granted withexercise prices ranging between $2.76 and $3.04 which equaled the fair value ofthe underlying common stock on the date of grant.

 

5

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3. INVENTORY

 

Inventories consist of the following:

 
|                                |   | **June 30,  2004** |   | **December 31,  2003** |   |
|-------------------------------------|--------|-------------------------|--------|-----------------------------|--------|
|                                |   |                    |   |                        |   |
| Raw material and packaging supplies |   | $                       | 4,627  |                        | $      | 3,736 |   |
| Finished goods                      |   | 5,496                   |   | 5,317                       |   |
| Total Inventory                     |   | $                       | 10,123 |                        | $      | 9,053 |   |

 

4. SHIPPING AND HANDLING COSTS

 

TheCompany records all amounts charged to customers for shipping and handling asrevenue. All outbound shipping and fulfillment costs are classified as sellingand marketing expenses and totaled $1,803 and $1,552 for six months endedJune 30, 2004 and 2003 respectively.

 

5. EARNINGS PER SHARE

 

Basic earnings per share has been computed by dividing net income(loss) by the weighted average number of common shares outstanding during theperiod. Diluted earnings per share has been computed by dividing net income(loss) by the weighted average number of common shares and dilutive commonstock equivalents (stock options), when dilutive.  Stock options to purchase 538,750  and 537,500 common shares for the three and six months endedJune 30, 2004, and stock options to purchase 1,722,500 and 1,807,500common shares for the three and six months ended June 30, 2003 wereoutstanding but considered to be anti-dilutive.

 

6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of VariableInterest Entities (“FIN 46”). In December 2003, FIN 46 was replacedby FASB interpretation No. 46(R) “Consolidation of Variable Interest Entities.”FIN 46(R) clarifies the application of Accounting Research Bulletin No. 51,“Consolidated Financial Statements,” to certain entities in which equityinvestors do not have the characteristics of a controlling financial interestor do not have sufficient equity at risk for the entity to finance itsactivities without additional subordinated financial support from other parties.FIN 46(R) requires an enterprise to consolidate a variable interest entity ifthat enterprise will absorb a majority of the entity’s expected losses, isentitled to receive a majority of the entity’s expected residual returns, orboth. FIN 46(R) is effective for entities being evaluated under FIN 46(R) forconsolidation no later than the end of the first reporting period that endsafter March 15, 2004. The Company did not have any variable interestentities that were impacted by adoption of FIN 46(R).

 

7. DISCONTINUED OPERATIONS

 

In December 2003, the Companydiscontinued its Annasa and Tamsol units. Annasa, a subsidiary of Natrol and a multi-level marketer of proprietarynutritional products began operations in 2002. Tamsol, was also formed in 2002, to generate direct-to-consumer salesvia radio, television, direct mail and other non retail venues.  The Company has reclassified its financialstatements to segregate the revenues, direct costs and expenses (excludingallocated costs), assets and liabilities and cash flows of the discontinuedoperations.  The net operating results,net assets and net cash flows of these businesses have been reported as“Discontinued Operations” in the accompanying consolidated financialstatements.

 

6

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Summarized financial information for the discontinued operations is asfollows:

 
|                       |   | **3 Months  Ended  June 30, 2003** |   | **Six Months  Ended  June 30, 2003** |   |
|----------------------------|--------|-----------------------------------------|--------|-------------------------------------------|--------|
| Annasa:                    |   |                                    |   |                                      |   |
| Revenue                    |   | $                                       | 116    |                                      | $      | 266 |   |
| Gross Margin               |   | 77                                      |   | 190                                       |   |
|                       |   |                                    |   |                                      |   |
| Selling and Marketing      |   | 200                                     |   | 454                                       |   |
| General and Administrative |   | 261                                     |   | 629                                       |   |
| Loss From Operations       |   | (384                                    | )      | (893                                      | )      |
| Income Tax Benefit         |   | 126                                     |   | 322                                       |   |
| Net Loss                   |   | $                                       | (258   | )                                         | $      | (571 | ) |
|                       |   |                                    |   |                                      |   |
| Tamsol:                    |   |                                    |   |                                      |   |
| Revenue                    |   | $                                       | 6      |                                      | $      | 28 |   |
| Gross Margin               |   | 6                                       |   | 28                                        |   |
|                       |   |                                    |   |                                      |   |
| Selling and Marketing      |   | 14                                      |   | 33                                        |   |
| General and Administrative |   | 69                                      |   | 137                                       |   |
| Loss From Operations       |   | (77                                     | )      | (142                                      | )      |
| Income Tax Benefit         |   | 31                                      |   | 57                                        |   |
| Net Loss                   |   | $                                       | (46    | )                                         | $      | (85 | ) |

 
|                                   |   | **June 30,  2004** |   | **December 31,  2003** |   |
|----------------------------------------|--------|-------------------------|--------|-----------------------------|--------|
| Net assets of discontinued operations: |   |                    |   |                        |   |
| Current assets                         |   | $                       | 58     |                        | $      | 116 |   |
| Total assets                           |   | 60                      |   | 151                         |   |
| Current liabilities                    |   | 0                       |   | 116                         |   |
| Net assets of discontinued operations  |   | 60                      |   | 35                          |   |
|                                        |        |                         |        |                             |        |  |  |

 

8. LITIGATIONSETTLEMENT

 

During March 2004, the Company settledits litigation with the former owners of Prolab Nutrition, Inc.  The Company received $2 million in cash,which has been reflected as a reduction in goodwill in the accompanyingJune 30, 2004 balance sheet.

 

PART II.  OTHER INFORMATION

 

ITEM 6.  EXHIBITS AND REPORTS ONFORM 8-K

 
| Exhibit 31.1 |   | Certification of Chief Financial Officer |
|--------------|--------|------------------------------------------|
| Exhibit 31.2 |   | Certification of President/CEO/Chairman  |
| Exhibit 32.1 |   | Certification of Chief Financial Officer |
| Exhibit 32.2 |   | Certification of President/CEO/Chairman  |

 

7

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SIGNATURES

 

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

 
|                | NATROL, INC. |
|---------------------|--------------|
|                |         |   |
| Date:  8/25/04 | By:          | /s/ Elliott Balbert |   |
|                |         | Chairman, President and Chief Executive  Officer |
|                |         |   |
| Date:  8/25/04 | By:          | /s/ Dennis R. Jolicoeur |   |
|                |         | Chief Financial Officer and Executive  Vice President |

 

8

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