**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark one)**

 
| **ý** | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
|------------|------------|----------------------------------------------------------------------------------------------------------|

 

**FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,2005**

 

**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 STREETCHATSWORTH, CALIFORNIA 91311**

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

 

**(818) 739-6000**

(REGISTRANT’S TELEPHONE NUMBER, INCLUDINGAREA CODE)

 

INDICATE BY A CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALLREPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THESECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCHSHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HASBEEN SUBJECT 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 by check mark whether the registrant is a shell company (asdefined 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**                     | ** ** | **November 13,  2005** |
|-------------------------------|------------|-----------------------------|
|                          |       |                        |
| Common stock, $0.01 par value |       | 13,535,837                  |

 

 

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PART 1.FINANCIAL INFORMATION

ITEM1. CONSOLIDATED FINANCIAL STATEMENTS

 

**Natrol, Inc.and Subsidiaries**

**Consolidated Balance Sheets**

(In thousands, except share and per share data)

 
| ** **                                                                                                                    | ** ** | **September 30,  2005** | ** ** | **December 31,   2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                                                                                    | ** ** | **(Unaudited)**              | ** ** | ** **                   | ** ** |
| **Assets**                                                                                                                    |       |                         |       |                         |       |
| Current assets:                                                                                                               |       |                         |       |                         |       |
| Cash and cash equivalents                                                                                                     |       | $                            | 3,998      |                         | $          | 6,022 |   |
|                                                                                                                          |       |                         |       |                         |       |
| Accounts receivable, net of allowances of  $203 and $421 at September 30, 2005 and December 31, 2004,  respectively |       | 7,365                        |       | 7,431                        |       |
| Inventory                                                                                                                     |       | 12,101                       |       | 9,723                        |       |
| Income taxes receivable                                                                                                       |       | 1,225                        |       | 956                          |       |
| Deferred income taxes                                                                                                         |       | 814                          |       | 814                          |       |
| Prepaid expenses and other current assets                                                                                     |       | 970                          |       | 793                          |       |
| Total current assets                                                                                                          |       | 26,473                       |       | 25,739                       |       |
| Property and equipment:                                                                                                       |       |                         |       |                         |       |
| Land, building and improvements                                                                                               |       | 15,891                       |       | 15,891                       |       |
| Machinery and equipment                                                                                                       |       | 5,880                        |       | 5,332                        |       |
| Furniture and office equipment                                                                                                |       | 3,207                        |       | 3,112                        |       |
|                                                                                                                          |       | 24,978                       |       | 24,335                       |       |
| Accumulated depreciation                                                                                                      |       | (9,002                       | )          | (8,022                       | )          |
| Property and equipment, net                                                                                                   |       | 15,976                       |       | 16,313                       |       |
|                                                                                                                          |       |                         |       |                         |       |
| Restricted cash                                                                                                               |       | 5,000                        |       | 5,000                        |       |
| Deferred income taxes                                                                                                         |       | 3,628                        |       | 3,628                        |       |
| Goodwill, net of accumulated amortization and impairment charge of  $37,381                                                   |       | 2,026                        |       | 2,026                        |       |
| Other assets                                                                                                                  |       | 170                          |       | 218                          |       |
| Total assets                                                                                                                  |       | $                            | 53,273     |                         | $          | 52,924 |   |
|                                                                                                                          |       |                         |       |                         |       |
| **Liabilities and stockholders’ equity**                                                                                 |       |                         |       |                         |       |
| Current liabilities:                                                                                                          |       |                         |       |                         |       |
| Accounts payable                                                                                                              |       | $                            | 3,473      |                         | $          | 2,904 |   |
| Accrued expenses                                                                                                              |       | 3,823                        |       | 2,483                        |       |
| Accrued payroll and related liabilities                                                                                       |       | 1,158                        |       | 1,589                        |       |
| Current portion of long-term debt                                                                                             |       | 525                          |       | 503                          |       |
| Total current liabilities                                                                                                     |       | 8,979                        |       | 7,479                        |       |
| Long-term debt, less current portion                                                                                          |       | 7,302                        |       | 7,685                        |       |
| 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-14,456,137  and 14,281,928 at September 30, 2005 and December 31, 2004,  respectively |       | 144                          |       | 143                          |       |
| Additional paid-in capital                                                                                                    |       | 62,982                       |       | 62,709                       |       |
| Accumulated deficit                                                                                                           |       | (23,253                      | )          | (22,211                      | )          |
|                                                                                                                          |       | 39,873                       |       | 40,641                       |       |
| Shares held in treasury, at cost-921,900  shares at September 30, 2005 and December 31, 2004                        |       | (2,881                       | )          | (2,881                       | )          |
| Total stockholders’ equity                                                                                               |       | 36,992                       |       | 37,760                       |       |
| Total liabilities and stockholders’ equity                                                                               |       | $                            | 53,273     |                         | $          | 52,924 |   |

 

See accompanying notes

 

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**Natrol, Inc.and Subsidiaries**

**Consolidated Statements of Operations**

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

**(Unaudited)**

 
| ** **                                                  | ** ** | **Three months ended  September 30,** | ** ** | **Nine months ended  September 30,** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                  | ** ** | **2005**                                   | ** ** | **2004**                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Net sales                                                   |       | $                                          | 15,390     |                                      | $          | 20,879 |   | $ | 52,663 |   | $ | 61,986 |   |
| Cost of goods sold                                          |       | 9,884                                      |       | 12,214                                    |       | 33,365 |   | 36,147 |   |
| Gross profit                                                |       | 5,506                                      |       | 8,665                                     |       | 19,298 |   | 25,839 |   |
|                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Selling and marketing expenses                              |       | 4,360                                      |       | 5,349                                     |       | 13,405 |   | 15,610 |   |
| General and administrative expenses                         |       | 2,226                                      |       | 2,539                                     |       | 7,228 |   | 7,139 |   |
| Total operating expenses                                    |       | 6,586                                      |       | 7,888                                     |       | 20,633 |   | 22,749 |   |
| Operating income (loss)                                     |       | (1,080                                     | )     | 777                                       |       | (1,335 | )  | 3,090 |   |
|                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Interest income                                             |       | 49                                         |       | 25                                        |       | 140 |   | 69 |   |
| Interest expense                                            |       | (159                                       | )          | (156                                      | )          | (480 | ) | (470 | ) |
| Income (loss) before taxes                                  |       | (1,190                                     | )     | 646                                       |       | (1,675 | )  | 2,689 |   |
| Income tax provision (benefit)                              |       | (448                                       | )     | 262                                       |       | (632 | )  | 1,086 |   |
| Net Income (loss)                                           |       | $                                          | (742       | )                                    | $          | 384 |   | $ | (1,043 | ) | $ | 1,603 |   |
| Income (loss) per share:                                    |       |                                       |       |                                      |       |   |   |   |   |
| Basic                                                       |       | $                                          | (.05       | )                                    | $          | .03 |   | $ | (.08 | )  | $ | .12 |   |
| Diluted                                                     |       | $                                          | (.05       | )                                    | $          | .03 |   | $ | (.08 | )  | $ | .11 |   |
|                                                        |       |                                       |       |                                      |       |   |   |   |   |
| Weighted-average shares outstanding—basic  and diluted |       |                                       |       |                                      |       |   |   |   |   |
| Basic                                                       |       | 13,519,317                                 |       | 13,343,954                                |       | 13,452,794 |   | 13,248,797 |   |
| Diluted                                                     |       | 13,519,317                                 |       | 14,059,462                                |       | 13,452,794 |   | 14,063,781 |   |

 

See accompanying notes

 

3

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# **Natrol, Inc.and Subsidiaries**

**Consolidated Statements of Cash Flows**

(In thousands)

(Unaudited)

 
| ** **                                                                        | ** ** | **Nine Months Ended   September,** | ** ** |
|-----------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                           | ** ** | **2004** | ** ** |
|                                                                              |       |                               |       |   |   |
| **Operating activities**                                                          |       |                               |       |   |   |
| Net Income (loss)                                                                 |       | $                                  | (1,043     | ) | $ | 1,603 |   |
|                                                                              |       |                               |       |   |   |
| Adjustments to reconcile income (loss) to net cash used in operating  activities: |       |                               |       |   |   |
| Change in net assets of discontinued operations                                   |       | —                             |       | 35 |   |
| Depreciation and amortization                                                     |       | 982                                |       | 975 |   |
| Loss on disposal of property and equipment                                        |       | —                             |       | (1 | ) |
| Provision for bad debts                                                           |       | 218                                |       | 76 |   |
| Shares issued for services                                                        |       | —                             |       | 2 |   |
| Changes in operating assets and  liabilities:                                     |       |                               |       |   |   |
| Accounts receivable                                                               |       | (152                               | )          | (1,291 | ) |
| Inventory                                                                         |       | (2,378                             | )          | (1,636 | ) |
| Income taxes receivable/payable                                                   |       | (269                               | )          | (65 | ) |
| Prepaid expenses and other current assets                                         |       | (175                               | )          | 8 |   |
| Accounts payable                                                                  |       | 569                                |       | (798 | ) |
| Accrued expenses                                                                  |       | 1,339                              |       | 109 |   |
| Accrued payroll and related liabilities                                           |       | (430                               | )          | 949 |   |
| Net cash used in operating activities                                             |       | (1,339                             | )          | (34 | ) |
|                                                                              |       |                               |       |   |   |
| **Investing activities**                                                          |       |                               |       |   |   |
| Purchases of property and equipment                                               |       | (644                               | )          | (745 | ) |
| Reduction in goodwill                                                             |       | —                             |       | 2,000 |   |
| Other assets                                                                      |       | 47                                 |       | (207 | ) |
| Net cash provided by (used in) investing activities                               |       | (597                               | )          | 1,048 |   |
|                                                                              |       |                               |       |   |   |
| **Financing activities**                                                          |       |                               |       |   |   |
| Repayments on long-term debt                                                      |       | (362                               | )          | (241 | ) |
| Proceeds from issuance of common stock                                            |       | 274                                |       | 322 |   |
| Net cash provided by (used in) financing activities                               |       | (88                                | )          | 81 |   |
| Net increase (decrease) in cash and cash equivalents                              |       | (2,024                             | )          | 1,095 |   |
| Cash and cash equivalents, beginning of period                                    |       | 6,022                              |       | 2,599 |   |
| Cash and cash equivalents, end of period                                          |       | $                                  | 3,998      |   | $ | 3,694 |   |
|                                                                              |       |                               |       |   |   |
| **Supplemental  Cash Flow Information**                                           |       |                               |       |   |   |
| Cash paid during the year for:                                                    |       |                               |       |   |   |
| Interest                                                                          |       | $                                  | 480        |   | $ | 472 |   |
| Income taxes                                                                      |       | $                                  | 145        |   | $ | 1,128 |   |

 

See accompanying notes

 

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

 

1. BASIS OF PRESENTATION

 

Theaccompanying unaudited consolidated financial statements have been prepared bythe Company, pursuant to the rules and regulations of the Securities andExchange Commission (SEC).  This Report on Form 10-Q should be readin conjunction with the Company’s annual report on Form 10-K for the yearended December 31, 2004.  Certain information and footnotedisclosures which are normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been condensed or omitted pursuant to SEC rules andregulations.  The information reflects all normal and recurringadjustments which, in the opinion of the Company’s management, are necessaryfor a fair presentation of the financial position of the Company and itsresults of operations for the interim periods set forth herein.  Theresults for the three months and nine months ended September 30, 2005 arenot necessarily indicative of the results to be expected for the full year orany 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 to Employees,*andrelated interpretations.  The Company hasa stock-based compensation plan.  TheCompany’s operating results do not include a compensation charge related tothis plan, as all options granted had an exercise price equal to the marketvalue of the underlying common stock on the date of grant.  The following table illustrates the effect onthe operating results and per share amounts if the fair value recognitionprovisions of Statement of Financial Accounting Standards No. 123, *Accounting for Stock-Based compensation,*hadbeen applied to stock-based employee compensation:

 
| ** **                                                                                                                                                                  | ** ** | **3 Months Ended   September 30,** | ** ** | **9 Months Ended   September  30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                                                                                                  | ** ** | **2005**                                | ** ** | **2004**                                      | ** ** | **2005** | ** ** | **2004** | ** ** |
| Net Income (loss)                                                                                                                                                           |       | $                                       | (742       | )                                             | $          | 384 |   | $ | (1,043 | ) | $ | 1,603 |   |
|                                                                                                                                                                        |       |                                    |       |                                          |       |   |   |   |   |
| Total stock-based employee compensation  expense determined under the fair value-based method for all awards, net of  related tax benefits (“Stock Compensation”) |       | 23                                      |       | 23                                            |       | 41 |   | 51 |   |
| Net Income (loss) — pro forma                                                                                                                                          |       | $                                       | (765       | )                                             | $          | 361 |   | $ | (1,084 | ) | $ | 1552 |   |
|                                                                                                                                                                        |       |                                    |       |                                          |       |   |   |   |   |
| Net Income (loss) per share:                                                                                                                                                |       |                                    |       |                                          |       |   |   |   |   |
| Basic—as reported                                                                                                                                                      |       | $                                       | (.05       | )                                             | $          | .03 |   | $ | (.08 | ) | $ | .12 |   |
| Diluted—as reported                                                                                                                                                    |       | $                                       | (.05       | )                                             | $          | .03 |   | $ | (.08 | ) | $ | .11 |   |
| Basic—pro forma                                                                                                                                                        |       | $                                       | (.06       | )                                             | $          | .03 |   | $ | (.08 | ) | $ | .12 |   |
| Diluted—pro forma                                                                                                                                                      |       | $                                       | (.06       | )                                             | $          | .03 |   | $ | (.08 | ) | $ | .11 |   |

 

During the nine monthsended September 30, 2005, 50,000 stock options were granted to employees with an average exercise price of$3.02 which equaled the fair market value of the underlying common stock on thedates of grant.

 

The fair value of the options isestimated using a Black-Scholes option-pricing model with the followingweighted-average assumptions for grants:

 
| ** **                      | ** ** | **Nine Months  Ended September 30,** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|
| ** **                      | ** ** | **2005**                                  | ** ** | **2004** | ** ** |
|                            |       |                                      |       |   |   |
| Expected dividend yield         |       | 0.0                                       | %          | 0.0 | % |
| Expected stock price volatility |       | 61.34                                     |       | 65.87 |   |
| Risk free interest rate         |       | 3.72                                      | %          | 3.56 | % |
| Expected life of options        |       | 5 years                                   |       | 5 years |   |

 

These assumptions resulted in weighted-average fair valuesof $1.71, and $1.66 for each stock option granted in the nine months ended September 30,2005 and 2004, respectively.

 

In December 2004,the FASB issued a revised version of FASB Statement No. 123, “*Accounting for Stock-Based Compensation*.”  The statement requires a public entity tomeasure the cost of employee services received in exchange for an award ofequity

 

5

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instruments based on thegrant-date fair value of the award.  Forpublic entities, the revised statement indicated an effective date as of thebeginning of the first interim or annual reporting period that begins after June 15,2005.  However, the SEC announced on April 14,2005 a new rule which allows companies to implement FASB Statement No. 123at the beginning of the next fiscal year. The Company intends to adopt Statement No. 123 in compliance withthe revised implementation date on January 1, 2006.

 

6

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3. INVENTORY

 

Inventories consist of the following:

 
| ** **                          | ** ** | **September 30,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                |       |                         |       |                        |       |
| Raw material and packaging supplies |       | $                            | 7,312      |                        | $          | 5,357 |   |
| Finished goods                      |       | 4,789                        |       | 4,366                       |       |
| Total Inventory                     |       | $                            | 12,101     |                        | $          | 9,723 |   |

 

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 $2,400 and $2,763 for the nine months ended September 30,2005 and 2004 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  2,302,420 common shares for thethree and nine months ended September 30, 2005, and stock options topurchase 557,500  and 532,500 commonshares for the three and nine months ended September 30, 2004 wereoutstanding but considered to be anti-dilutive.

 

During the nine months and quarter ended September 30, 2005, theCompany respectively issued 174,209 and 41,322 shares of stock.  Of the total 174,209 shares issued, 28.533shares were issued in conjunction with the terms of the Company’s EmployeeStock Purchase program and 145,676 were issued to complete the exercise ofoutstanding stock options.

 

6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

In March 2005, the FASB issuedFASB Interpretation No. 47, “Accounting for Conditional Asset RetirementObligations” (“FIN 47”). FIN 47 provides guidance relating to theidentification of and financial reporting for legal obligations to perform anasset retirement activity. The Interpretation requiresrecognition of a liability for the fair value of a conditional asset retirementobligation when incurred if the liability’s fair value can be reasonablyestimated. FIN 47 also defines when an entity would have sufficient informationto reasonably estimate the fair value of an asset retirement obligation. Theprovision is effective no later than the end of fiscal years ending after December 15,2005. The Company will adopt FIN 47 beginning the first quarter of fiscal year2006 and does not believe the adoption will have a material impact on itsconsolidated financial position or results of operations or cash flows. 

 

InMay 2005, the FASB issued FASB Statement No. 154,***AccountingChanges and Error Corrections.* This newstandard replaces APB Opinion No. 20,***AccountingChanges,* and FASB Statement No. 3,***ReportingAccounting Changes in Interim Financial Statements*, and represents another step in theFASB’s goal to converge its standards with those issued by the IASB. Amongother changes, Statement 154 requires that a voluntary change in accountingprinciple be applied retrospectively with all prior period financial statementspresented on the new accounting principle, unless it is impracticable to do so.Statement 154 also provides that (1) a change in method of depreciating oramortizing a long-lived nonfinancial asset be accounted for as a change inestimate (prospectively) that was effected by a change in accounting principle,and (2) correction of errors in previously issued financial statementsshould be termed a “restatement.” The new standard is effective for accountingchanges and correction of errors made in fiscal years beginning after December 15,2005. Early adoption of this standard is permitted for accounting changes andcorrection of errors made in fiscal years beginning after June 1, 2005.

 

In March 2005, the SEC released Staff Accounting Bulletin No. 107,“Share-Based Payment” (“SAB 107”), which provides interpretive guidance relatedto the interaction between SFAS 123(R) and certain SEC rules and regulations.  It also provides the SEC staff’s viewsregarding valuation of share-based payment arrangements.  In April 2005, the SEC amended thecompliance dates for SFAS 123(R), to allow companies to implement the standardat the beginning of their next fiscal year, instead of the next reportingperiod beginning after June 15, 2005. Management is currently evaluating the impact SAB 107 will have on ourconsolidated financial statements.

 

7

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**ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

Thisreport contains “forward looking statements.” Natrol, Inc., a Delawarecorporation organized in 1980, the “Company” or “Natrol”, is including thisstatement for the express purpose of availing itself of protections of the safeharbor provided by the Private Securities Litigation Reform Act of 1995 withrespect to all such forward looking statements. Examples of forward lookingstatements include, but are not limited to, the use of forward-lookingterminology such as “believes,” “expects,” “may,” “will,” “should,” “intend,” “estimate,”“assume,” “plan,” or “anticipates” or the negative thereof, other variationsthereon, or comparable terminology, or by discussions of strategy that predictor indicate future events or trends or that are not historical facts. TheCompany cannot assure the future results or outcome of the matters described inthese statements; rather, these statements merely reflect its currentexpectations of the approximate outcome of the matter discussed. The Companydoes not undertake any obligation and does not currently intend to update anysuch statements at any time in the future.

 

TheCompany’s ability to predict results or the effect of certain events on theCompany’s operating results is inherently uncertain. Forward-looking statementsshould not be unduly relied on since they involve known and unknown risks,uncertainties and other factors, some of which are beyond the Company’scontrol. These risks, uncertainties and other factors may cause actual results,performance or achievements to differ materially from the anticipated futureresults, performance or achievements expressed or implied by suchforward-looking statements. Therefore, the Company wishes to caution eachreader of this report to carefully consider the following factors and factorsdiscussed in other past reports. The factors discussed herein may not beexhaustive. Therefore, the factors contained herein should be read togetherwith other reports and documents that are filed by the Company with the SECfrom time to time, which may supplement, modify, supersede or update thefactors listed in this document.

 

Factorsthat could cause or contribute to the Company’s actual results differing materiallyfrom those discussed herein or for the Company’s stock price to be affectedadversely include, but are not limited to: (i) industry trends, includinga general downturn or slowing of the growth of the dietary supplement industry;(ii) increased competition from current competitors and new marketentrants including but not limited to increased competition from private labelhouse brands supported by retailers seeking to increase the market share oftheir proprietary house brands. Private label brands control the largest shareof the vitamin, mineral and supplement (VMS) sector; (iii) adversepublicity regarding the dietary supplement industry or the Company’s products; (iv) exposureto product liability claims, in particular because the Company has chosen toself-insure against product liability claims due to the high price of productliability insurance, the inability to secure occurrence based coverage, as wellas the limited amount of coverage provided by insurers willing to provideinsurance at high prices; (v) exposure to and the expense of defending andresolving potential product liability claims that are left uncovered byinsurance as well as the expense of defending and resolving other litigationwhich may or may not be covered by insurance; (vi) the Company’sdependence upon its ability to develop new products; (vii)  returns of theCompany’s products which may be returned by customers at any time due to lackof sell through to consumers or because competitors have convinced the Company’scustomers that Natrol’s products should be replaced with competitor products; (viii) theCompany’s ability to manage inventory or sell its inventory before suchinventory becomes outdated, (ix) the Company’s ability to gain or expandor maintain distribution within new or existing customers and new or existingchannels of trade; (x) an increase in the cost of obtaining andmaintaining shelf space with major national retailers who demand various formsof incentives from their suppliers such as slotting fees, coop advertising, orrebates; (xi) adverse changes in government regulation or changes in localor national laws; (xii) dependence on significant customers;(xiii) the Company’s ability to keep and attract key management employees;(xiv) the Company’s inability to manage growth and execute its businessplan, or the Company’s ability to modify its business plan in response tomarket conditions, including, but not limited to, its ability to enter into newbusinesses and capitalize upon new business opportunities or to divest itselfof businesses that are not profitable or do not deliver sufficient profit tomeet that Company’s goals; (xv) the Company’s ability to consummate futureacquisitions and its ability to integrate acquired businesses; (xvi) theabsence of conclusive clinical studies for many of the Company’s products;(xvii) the Company’s inability to obtain raw materials that are in shortsupply (xviii) sales and earnings volatility, (xix) volatility of thestock market; (xx) the Company’s ability to manufacture its productsefficiently; (xxi) the Company’s reliance on independent brokers to sellits products; (xxii) the inability of the Company to protect itsintellectual property; (xxiii) control of the Company by principalshareholders, (xxiv) the possible sale of large amounts of stock bycontrolling stockholders; (xxv) a general downturn in the national economyas a whole; (xxvi) continued market acceptance of Natrol supplements, LaciLe Beau teas, Prolab’s sports nutrition products, and EPI’s raw materialproducts, (xxvii) increases in the cost of borrowings; (xxviii)  theunavailability of additional debt or equity capital; (xix) legal actionsbrought forth by federal, state and local governmental and private parties; and(xxx) the introduction of new federal, state, local or foreign legislation orregulation or adverse determinations by regulators anywhere in the world(including the banning of products).

 

**OVERVIEW**

 

TheCompany’s business plan has been to focus on its core Natrol, Prolab sportsnutrition and Laci Le Beau tea brands. The Natrol and Laci Le Beau brands are sold in health food stores, inmass-market drug, food and retail chains as well as club stores.   Prolab products are sold throughdistributors who in turn service retail accounts.  Prolab’s distributor network focuses onhealth food stores, health clubs and fitness facilities that cater to bodybuilders and other individuals seeking a high level of fitness.   Historically, more than 40% of Prolab salesare to distributors who sell Prolab products outside the United States.  The Company is continually seeking to expandthe distribution of its best selling items to additional retail outlets and tocreate promotional opportunities for its products within its existing customerbase.

 

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TheCompany provides contract manufacturing services to other supplement companies.However, contract manufacturing is not a prime focus of the Company and isincidental to the Company’s operations.

 

Keyissues for the Company’s management include product development, productintroductions, inventory management, the cost and availability of rawmaterials, competition from companies which are substantially larger than theCompany and controlling the cost of doing business in its various channels oftrade.

 

Thenutritional supplement business is dependent upon new product introductions forboth growth and to replace volume lost by products reaching the end of theirproduct life cycles.  As such, theCompany is continually researching potential new products for placement intothe marketplace. Developing a single new product can be a multi-year effortdepending upon the complexity of the product and the amount of testing thatmust be completed to validate the product concept.

 

Productintroductions do not come without risk. Product launches can require substantial marketing support. Oftentimesretailers demand slotting fees or other up front expenditures. If a productlaunch is not as successful as anticipated, additional promotional expendituresmay be needed to sustain sales and reduce possible returns.  Most vendors retain certain rights as theyrelate to product returns. A broad product launch, one in which a new productis introduced into thousands of retail outlets, can cause a strain on corporateresources since inventories must be produced and delivered.  The resulting sales increase also leads to anincrease in accounts receivable with customers.

 

Successfulproducts can, at times, become unpopular almost overnight.  For example, the Company’s Carb Interceptproduct successfully grew its business through 2003 and 2004 before losing itspopularity quickly in 2005 after low-carbohydrate diets fell out of favor.  During the first nine months of 2005, sales ofCarb Intercept were $8.0 million less than in the first nine months of2004.  Historically, such sharp declinesdo not happen often.  However, when theydo, the Company’s resources can be affected in a number of ways.  For example, additional promotional dollarsmay be required to support falling demand and to prevent returns fromcustomers.  In addition, inventory, whichwas previously considered good, may be scrapped because sales outlets cannot befound.  Products do not generally failcompletely.  For example, in the case ofCarb Intercept, although sales have been sharply reduced, shipments of CarbIntercept amounted to $1.3 million during the first nine months of 2005.  Moreover, consumer take-away at the Company’slarger customers who carry Carb Intercept have been improving and sales of CarbIntercept during the third quarter of 2005 were higher than in the secondquarter of 2005.

 

Nutritionalsupplements must maintain potency levels during their selling life.  As a result, products must be stamped with anexpiration date and retailers will not accept product with limited shelf lifeinto their warehouses.  Shelf life issuesrequire a high degree of supply chain management of raw materials andfinished goods to ensure that shelf life is maximized and that the out-of-dateinventory is minimized.

 

The competition for shelf space at retailers is intense. Natrol hasongoing discussions with its retail customers with regards to the allocation ofshelf space and the level of promotional support for products.  Retailers look to their vendors forpromotional support for the products on their shelves in order to maximizesales.  Vendors such as Natrol look toretailers for advantageous placement of their products and promotion of theirproducts within stores and within a retailer’s promotional media such asnewspaper advertisements placed by retailers. The cost of promotions and support to the retailer on the part ofvendors such as Natrol can be very high and management must continually reviewits promotional efforts with retailers to ensure that sales are profitable.

 

A continuing issue is the ability of the Company’s largest customers tomanage their own inventories.  At times,major retailers, in an effort to increase their own cash flow and workingcapital, will make decisions to reduce the levels of inventory they carry evenif this may create out-of-stock conditions at some of their outlets.  During such efforts to lower inventorybalances, retailers may cease ordering product for periods of time or evenreturn product in order to further lower inventory balances.

 

Future challenges include the development of new, innovative productsand delivery systems that will capture the support of consumers and allow theCompany to grow regardless of the product life cycle of any one product.

 

The Company continues to believe that additional opportunities forgrowth exist as it seeks to improve its position with retailers and consumers.Management seeks to capitalize on these opportunities in what remains a verycompetitive marketplace.

 

**RESULTS OF OPERATIONS**

 

The following discussion of the results of operations and the financialcondition of the Company should be read in conjunction with the response to Part 1Item 1 of this report.

 

## **THREEMONTHS ENDED SEPTEMBER 30, 2005 AND SEPTEMBER 30, 2004**

## ** **

NET SALES. The Company recognizes revenue from sales only after productis shipped and title is transferred. Net sales represent

 

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product shipped less actual and estimated future returns, spoilageallowances, allowances for product deemed to be unsaleable by customers, andslotting fees, rebates and other expenditures which, using Generally AcceptedAccounting Principles (GAAP) should be accounted for as reductions of revenue.Estimates and allowances are based upon known claims and an estimate ofadditional returns, however, the amount of future returns can be reasonablyestimated.

 

Net sales decreased 26.3%, or $5.5 million, to $15.4 million for thethird quarter of 2005 from $20.9 million in the third quarter of 2004.  The most significant reason for the decreasein net sales was a decline in consumer demand for the Natrol brand’s CarbIntercept product.  Sales of this productwere $3.0 million less during the third quarter of 2005 than in the thirdquarter of 2004. 

 

Sales of the Company’s Prolab sports nutrition brand were $1.2 millionless in the third quarter of 2005 than in the third quarter of 2004 and the netrevenue of the Company’s Essentially Pure Ingredients (EPI) division, which sellsraw materials and contract manufacturing services, fell $500,000 when comparingthe third quarter of 2005 with the third quarter of 2004. 

 

The Company believes the decline in the Carb Intercept productparalleled that of the entire industry when Carb products fell out of favortowards the end of 2004. 

 

Gross shipments of Natrol brand products (including Laci LeBeau) fell14.6% or $2.4 million when comparing the third quarter of 2005 with the thirdquarter of 2004.  As previously noted,the loss of $3.0 million in Carb Intercept shipments was the primary cause ofthe decline.  Net revenue of the Natrolbrand fell $3.8 million because the Company discounted heavily during thequarter and several of the Company’s larger mass market customers returned productat rates that were higher than anticipated. The net result is that deductions from gross shipments (the differencebetween gross shipments and net revenue) increased  $1.4 million, from $1.9 million in the thirdquarter of 2004 to $3.3 million in the third quarter of 2005.  Of the $3.3 million in deductions, $1.5 wasfor returns with the balance being for payment discounts, promotional activity,price rollbacks and miscellaneous billing adjustments.

 

Approximately 60% of the decline in Prolab sales was due to a sharpfall off in sales to the Company’s Canadian distributor.  The Company is in contractual discussionswith the distributor but, while the Company continues to negotiate issuessurrounding the volume of sales to the Canadian distributor, there can be noguarantee that a favorable resolution is forthcoming.  More than half of Prolab’s products includedairy based whey powder.  The price ofwhey has risen substantially in 2005. This has caused the Company to increase the price of Prolab’s leadingproducts. It is possible that the price increases have affected Prolab’svolume. However, the Company is constantly reviewing its pricing strategy inthe marketplace, a strategy which takes into consideration cost as well asmarket share and other competitive factors.

 

The decrease in net revenue for the EPI division was primarily due tothe Company choosing to not continue to contract manufacture product for acustomer that was not profitable for the Company.

 

GROSS PROFIT.  Gross profitdecreased 36.5%, or $3.2 million, to $5.5 million for the three months ended September 30,2005 from $8.7 million for the three months ended September 30, 2004.Gross margin decreased to 35.8% for the three months ended September 30,2005 from 41.5% for the three months ended September 30, 2004. 

 

As a percentage of gross shipments, cost of goods sold were less thatone percent different in the third quarter of 2005 than in the third quarter of2004. The reason for the reduced gross margin in 2005 is that deductions fromgross shipments, which include invoice discounts, various forms of retailerincentives, returns, payment discounts and other miscellaneous discounts,amounted to 19.3% of gross shipments in the third quarter of 2005 as opposed to9.8% in the third quarter of 2004. Returns were 

 

SELLING AND MARKETING EXPENSES.  Selling and marketing expenses consistprimarily of advertising and promotional expenses, cost of distribution, andrelated payroll expenses and commissions. Selling and marketing expensesdecreased 18.5%, or $1.0 million, to $4.4 million for the three months ended September 30,2005 from $5.4 million for the three months ended September 30, 2004. Ofthe total decrease in expenditures, approximately $128,000 was due to lowershipping expenses during the third quarter of 2005 than the third quarter of2004.  Sales and marketing payroll,payroll related and brokerage expenditures were $474,000 less during the thirdquarter of 2005 than in the third quarter of 2004. Cooperative advertising programs cost the Company $367,000 lessduring the third quarter of 2005 than the third quarter of 2004. 

 

GENERAL AND ADMINISTRATIVE EXPENSES.  General and administrative expenses consistprimarily of personnel costs related to general management functions, finance, accountingand information systems, as well as insurance costs, professional fees relatedto legal, audit and tax matters and depreciation. General and administrativeexpenses decreased 12.4%, or approximately $314,000 to $2.2 million for thethree months ended September 30, 2005 from $2.5 million for the threemonths ended September 30, 2004. Due to the Company’s profit performance, $195,000 less was accrued foremployee bonuses during the third quarter of 2005 than during the third quarterof 2004. Legal expenses were $426,000 less for the three months ended September 30,2005 than the three months ended September 30, 2004. These savings werepartially offset by $114,000 of additional research and developmentexpenditures and additional personnel expenditures.

 

INTEREST EXPENSE. Interest expense was$160,000 for the three months ended September 30, 2005 as compared to$156,000 for

 

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the three months ended September 30,2004.

 

INCOME TAX PROVISION. For the three monthsended September 30, 2005 the Company’s effective tax rate wasapproximately 37.7%.  For the threemonths ended September 30, 2004 the Company’s effective tax rate was40.6%.

 

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**NINE MONTHS ENDED SEPTEMBER 30, 2005 ANDSEPTEMBER 30, 2004**

 

NET SALES Net sales decreased 15.0%, or $9.3 million, to $52.7 millionfor the nine months ended September 30, 2005 from $62.0 million for thenine months ended September 30, 2004. The most significant reason for thedecrease in net sales was a decline in consumer demand for the Natrol brand’sCarb Intercept product.  Sales of thisproduct were $8.0 million less during the nine months ended September 30,2005 than during the nine months ended September 30, 2004. Sales of theCompany’s Prolab sports nutrition products fell $3.0 million and sales of theCompany’s EPI division which sells ingredients and contract manufacturingservices fell approximately $1.1 million when comparing the first nine monthsof 2005 with the first nine months of 2004. Partially offsetting these declines were sales of new products as wellas growth in other Natrol products.

 

Gross shipments for the Company fell 12.1%, falling less in percentageterms than the 15.0% decrease in net sales revenue.  The decrease in net sales revenue was moresevere because offsets to revenue which consist primarily of invoice discounts,various forms of retailer incentives, returns, payment discounts, pricerollbacks and other miscellaneous discounts amounted to 13.7% of grossshipments during the first nine months of 2005 as opposed to 10.7% of grossshipments during the first nine months of 2004. The result was $893,000 more indeductions in this period of 2005 than in 2004.

 

Approximately 47% of the decline in Prolab sales was due to a sharpfall off in sales to the Company’s Canadian distributor.  The Company is in contractual discussionswith the distributor but, while the Company continues to negotiate issuessurrounding the volume of sales to the Canadian distributor, there can be noguarantee that a favorable resolution is forthcoming. More than half ofProlab’s products include dairy based whey powder. The price of whey has risensubstantially in 2005. This has caused the Company to increase the price ofProlab’s leading products. It is possible that the price increases haveaffected Prolab’s volume. However, the Company is constantly reviewing itspricing strategy in the marketplace, a strategy which takes into considerationcost as well as market share and other competitive factors.

 

The decrease in net revenue for the EPI division was primarily due tothe Company choosing to not continue to contract manufacture product for acustomer that was not profitable.

 

GROSS PROFIT.  Gross profitdecreased 25.3%, or $6.5 million, to $19.3 million for the nine months ended September 30,2005 from $25.8 million for the nine months ended September 30, 2004.Gross margin decreased to 36.6% for the nine months ended September 30,2005 from 41.7% for the nine months ended September 30, 2004.  

 

Cost of goods sold as a percentage of gross shipments were 2.6% higherduring the first nine months of 2005 than the first nine months of 2004.  Approximately 20% of this increase was due toinventory write downs, primarily due to Carb Intercept, that were $461,000larger during the first nine months of 2005 than during the first nine monthsof 2004.  It is the Company’s policy toevaluate its inventory on a monthly basis taking into consideration suchfactors as shelf life and the velocity of sales.  The precipitous decline in the sales of CarbIntercept caused the Company to write down its Carb Intercept inventory. Otherfactors included product mix and increases in the cost of raw materials,primarily whey for the Prolab brand Prolab and increases in the cost ofCo-Enzyme Q10 for the Natrol brand.

 

SELLING AND MARKETING EXPENSES. Selling and marketing expenses decreased 14.1%, or $2.2 million, toapproximately $13.4 million for the nine months ended September 30, 2005from $15.6 million for the nine months ended September 30, 2004. Of thetotal decrease in expenditures, approximately $363,000 was due to lowershipping expenses during first nine months of 2005 than during the first ninemonths of 2004.  Sales and marketingpayroll, payroll related expenditures and brokerage fees were $1.1 million lessduring the first nine months of 2005 than during the first nine months of2004.  The balance of the decrease wasdue to less media spending.

 

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist primarily of personnel costsrelated to general management functions, finance, accounting and informationsystems, as well as insurance costs and professional fees related to legal,audit and tax matters and depreciation. General and administrative expensesincreased 1.3%, or $90,000 to $7.2 million for the nine months ended September 30,2005 from $7.1 million for the nine months ended September 30, 2004.  Legal expenses were $187,000 more during thefirst nine months of 2005 when compared to the first nine months of 2004.  The increase was due to the timing oflitigation and accruals related to a legal settlement.  The Company also spent $263,000 more duringthe first nine months of 2005 on its Sarbanes-Oxley Compliance efforts than itdid during the first nine months of 2004. Research and development expenditureswere $217,000 more in the first nine months of 2005 than the first nine monthsof 2004. Partially offsetting these increases was a $628,000 reduction in theCompany’s accrual for management incentives during the first nine months of2005 when compared to the first nine months of 2004.  The accrual was reduced due to the Company’sprofit performance.

 

INTEREST EXPENSE.  Interest expense was $480,000 for the ninemonths ended September 30, 2005 as compared to $469,000 for the ninemonths ended September 30, 2004. 

 

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INCOME TAX PROVISION. For the nine months ended September 30, 2005the Company’s effective tax rate was approximately 37.8%.  For the nine months ended September 30,2004 the Company’s effective tax rate was 40.4%.  

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

As of September 30, 2005, the Company had working capital of $17.5million as compared to $18.3 million in working capital at December 31,2004. The Company’s cash balance at September 30, 2005 was approximately$4.0 million.  

 

Net cash used by operating activities was $1.3 million for the ninemonths ended September 30, 2005 versus net cash used  of $34,000 for the nine months ended September 30,2004. Cash used by operating activities during the nine months ended September 30,2005  consisted primarily of cashprovided by non-cash charges of $1.2 million offset by changes in operatingassets and liabilities of $1.5 million and the Company’s loss of $1.0 million.Cash used by operating assets and liabilities consisted primarily of anincrease in accounts receivable of $0.2 million, an increase in inventory of$2.4 million, an increase in income taxes receivable of $0.3 million, anincrease in prepaid expenses of $0.2 million and a decrease in payroll andrelated liabilities of $0.4 million.  Theincreased inventory was due to an increase in raw material inventory.  The Company is carrying larger inventories ofcertain raw material ingredients such as CoEnzyme-Q10 that have been in shortsupply and the Company has also purchased additional raw materials to takeadvantage of favorable pricing opportunities. The decrease in payrollliabilities is due to the payment of incentive bonuses during the first quarterof 2005 that were accrued as an expense in the year ended December 31,2004.  Offsetting these uses of cash wasan increase in accrued expenses of $1.3 million, an increase in income and anincrease in trade payables of $0.6 million.

 

Net cash used in investing activities was $0.6 million for the ninemonths ended September 30, 2005 versus net cash provided of approximately$1.0 million during the nine months ended September 30, 2004. During thenine months ended September 30, 2005, the Company invested $0.6 million inproperty and equipment. 

 

Net cash used in financing activities was approximately $88,000 for thenine months ended September 30, 2005 as opposed to approximately $81,000provided by financing activities during the nine months ended September 30,2004. During the nine months ended September 30, 2005, the Company madeprincipal payments of $362,000 on its long-term debt and received $274,000 fromthe exercise of stock options and the purchase of stock through the Company’sEmployee Stock Purchase Plan.  

 

As of September 30, 2005, the Company had $7.8 million ofoutstanding debt. The company has a $3.0 million line of credit in place,which, as of the end of the quarter, was unused.

 

The Company believes that its cash balance together with cash generatedfrom operations and its line of credit should be sufficient to fund itsanticipated working capital needs and planned capital expenditures for the nexttwelve months. However, if the Company fails to meet certain covenantsrelated to its line of credit, the line of credit may not be available to fundthe Company’s future needs.

 

In order to meet its long-term liquidity needs, the Company may berequired to incur additional indebtedness or issue additional equity and debtsecurities, subject to market and other conditions. There can be no assurancethat such additional financing will be available on terms acceptable to theCompany or at all. The failure to raise the funds necessary to finance its futurecash requirements or consummate future acquisitions could adversely affect theCompany’s ability to pursue new acquisitions and could negatively affect itsoperations in future periods.

 

## **CRITICALACCOUNTING POLICIES**

## ** **

Management’s beliefs regarding significantaccounting policies have not changed significantly from those discussed in Item7 of the Company’s Annual Report on Form 10-K for the year ended December 31,2004.

 

**CONTRACTUAL OBLIGATIONS**

 

Contractual obligations have not changedsignificantly from those discussed in Item 7 of the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2004.

 

## **ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

## ** **

There has been no material change during the three months ended September 30,2005 from the disclosures about market risk provided in Item 7a of the Company’sAnnual Report on Form 10-K for the year ended December 31, 2004.

 

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**ITEM 4. CONTROLS AND PROCEDURES**

 

## **An evaluation was conducted under the supervisionand with the participation of the Company’s management, including the ChiefExecutive Officer and Chief Financial Officer, of the effectiveness of theCompany’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934) as of September 30,2005.  Based on this evaluation, ourChief Executive Officer and Chief Financial Officer have concluded that theCompany’s disclosure controls and procedures are, to the best of theirknowledge, effective to ensure that information required to be disclosed by theCompany in reports that it files or submits under the Exchange Act is recorded,processed, summarized and reported within the time periods specified in Securitiesand Exchange Commission rules and forms. There were no significant changesin the Company’s internal control over financial reporting that occurred duringthe fiscal quarter covered by this report that have materially affected or arereasonably likely to materially affect the Company’s internal control overfinancial reporting.**

## ** **

**PART II**

 

## **OTHER INFORMATION**

## ** **

**ITEM1.  LEGAL PROCEEDINGS**

 

None

 

## **ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS AND ISSUERPURCHASES OF EQUITY SECURITIES.**

## ** **

None

 

## **ITEM 3. DEFAULTS UPON SENIOR SECURITIES.**

## ** **

None

 

## **ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.**

## ** **

None

 

## **ITEM 5.  OTHERINFORMATION.**

## ** **

During the third quarter of 2005, the Company consolidated all of theProlab shipping functions, formerly located in Bloomfield, Ct., into itsChatsworth, California shipping facility. The Prolab shipping facility, a building which is approximately 25,000sq. ft.  in size, is unoccupied and isbeing offered for sale.

 

## **ITEM 6. EXHIBITS**

 
| Exhibit 10.1     |       | Change  of Control Bonus Plan for Five Senior Executives. |
|-----------------------|------------|-----------------------------------------------------------|
| Exhibit 31.1     |       | Certification  of President/CEO/Chairman                  |
| **Exhibit 31.2** | ** ** | **Certification of Chief Financial Officer**              |
| **Exhibit 32.1** | ** ** | **Certification of President/CEO/Chairman**               |
| Exhibit 32.2     |       | Certification  of Chief Financial Officer                 |

 

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 theundersigned thereunto duly authorized.

 
|                         | NATROL, INC. |
|------------------------------|--------------|
|                         |         |   |
| Date: November 14, 2005 | By:          | /s/ Elliott Balbert |   |
|                         |         | Chairman, President and Chief Executive  Officer |
|                         |         |   |
| Date: November 14, 2005 | By:          | /s/ Dennis R. Jolicoeur |   |
|                         |         | Chief Financial Officer and Executive  Vice President |

 

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