<PAGE>
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                          SECURITIES AND EXCHANGE COMMISSION
                                WASHINGTON, D.C. 20549

                                     ------------


                                      FORM 10-Q
     (Mark one)

     /X/       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
               SECURITIES EXCHANGE ACT OF 1934

               FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998

                                                                       OR

     / /        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:
                                               ---------

                                     NATROL, INC.

                (Exact name of registrant as specified in its charter)

               DELAWARE                                95-3560780
     ( State of Incorporation )            (I.R.S. Employer Identification No.)

                                 21411 PRAIRIE STREET
                             CHATSWORTH, CALIFORNIA 91311
                       (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
                                    (818) 739-6000
                 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


     INDICATE BY A CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.

YES   X     NO
    -----     -----

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


            Class                    Outstanding as of September 30,1998
            -----                    -----------------------------------
     Common stock, $0.01 par value                            13,295,500


<PAGE>




                                        PART 1
                                FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS


                                     NATROL, INC.
                             CONSOLIDATED BALANCE SHEETS

                  (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)





<TABLE>
<CAPTION>


                                                                                SEPTEMBER 30,     DECEMBER 31,
                                                                                    1998              1997
                                                                                ------------------------------
                                                                                 (Unaudited)
 ASSETS
 Current assets:
  <S>                                                                             <C>               <C>
  Cash and cash equivalents ...................................................   $ 32,101          $  1,800
  Accounts receivable, net of allowances of
   $304 and $262 at September 30, 1998 and December
   31, 1997 ...................................................................     13,136             5,397
  Inventories .................................................................     11,839             6,934
  Deferred taxes ..............................................................        554               554
  Prepaid expenses and other current assets ...................................        393               341
                                                                                  --------------------------
 Total current assets .........................................................     58,023            15,026

 Equipment and leasehold improvements:
  Furniture and office equipment ..............................................      1,190               871
  Machinery and equipment .....................................................      3,297             2,804
  Leasehold improvements ......................................................      1,860             1,876
                                                                                  --------------------------
                                                                                     6,347             5,551
 Accumulated depreciation and amortization ....................................     (1,496)             (923)
                                                                                  --------------------------
                                                                                     4,851             4,628
 Other assets:
  Goodwill ....................................................................      8,719               --
  Deposits ....................................................................         43                43
  Trademarks and patents, net .................................................         16                19
                                                                                  --------------------------
                                                                                     8,778                62
                                                                                  --------------------------
 Total assets .................................................................   $ 71,652          $ 19,716
                                                                                  --------------------------
                                                                                  --------------------------

 LIABILITIES AND STOCKHOLDERS' EQUITY
 Current liabilities:
  Accounts payable ............................................................   $  8,844          $  3,867 
  Accrued expenses ............................................................      3,526               899 
  Accrued payroll and related liabilities .....................................      1,049               414 
  Income taxes payable ........................................................        780               422 
  Current portion of long-term debt ...........................................         --               999 
                                                                                  --------------------------
 Total current liabilities ....................................................     14,199             6,601 

</TABLE>

<PAGE>

<TABLE>

<S>                                                                               <C>               <C>
Deferred income taxes, noncurrent .............................................         73                73
Long-term debt, less current portion ..........................................         --             2,606
Convertible participating preferred stock, $0.01 par value per share, 27,000
  shares authorized, -0- and 27,000 shares issued and outstanding as of
  September 30, 1998 and December 31, 1997;
  liquidation preference of $12,000,000 .......................................         --            12,000

Stockholders' equity (deficit): 
  Common stock, par value of $.01 per share:
    Authorized shares - 50,000,000
    Issued and outstanding shares - 13,295,500  ...............................        133                71 
Additional paid-in capital ....................................................     60,172               560
Retained earnings (deficit) ...................................................     (2,362)           (1,632)
                                                                                  --------------------------
                                                                                    57,943            (1,001)
 Receivable from stockholder ..................................................       (563)             (563)
                                                                                  --------------------------
 Total stockholders' equity (deficit) .........................................     57,380            (1,564)
                                                                                  --------------------------
 Total liabilities and stockholders' equity ...................................   $ 71,652          $ 19,716
                                                                                  --------------------------
                                                                                  --------------------------
                              See accompanying notes.

</TABLE>

<PAGE>


                                     NATROL, INC.
                               CONSOLIDATED STATEMENTS OF INCOME

                        (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                      THREE MONTHS ENDED           NINE MONTHS ENDED
                                                                         SEPTEMBER 30,                SEPTEMBER 30,
                                                                      1998           1997          1998           1997
                                                                 ---------------------------------------------------------
                                                                          (UNAUDITED)                  (UNAUDITED)
<S>                                                              <C>             <C>           <C>             <C>
Net sales ....................................................   $     19,501    $    11,392   $     48,907    $    29,492
Cost of goods sold ...........................................          9,327          5,368         23,581         13,658
                                                                 ---------------------------------------------------------
   Gross profit ..............................................         10,174          6,024         25,326         15,834
                                                                 ---------------------------------------------------------
Selling and marketing expenses ...............................          4,591          2,670         12,322          8,485
General and administrative expenses ..........................          1,732          1,067          4,234          3,168
                                                                 ---------------------------------------------------------
   Total operating expenses ..................................          6,323          3,737         16,556         11,653
                                                                 ---------------------------------------------------------
Operating income .............................................          3,851          2,287          8,770          4,181
Interest income ..............................................           (238)            --           (281)            --
Interest expense .............................................             32             74            407            149
                                                                 ---------------------------------------------------------
Income before income tax provision ...........................          4,057          2,213          8,644          4,032
Income tax provision .........................................          1,540            889          3,374          1,620
                                                                 ---------------------------------------------------------
Net income ...................................................   $      2,517    $     1,324   $      5,270    $     2,412
                                                                 ---------------------------------------------------------
Basic earnings per share .....................................   $       0.21    $      0.19   $       0.61    $      0.34
                                                                 ---------------------------------------------------------
Diluted earnings per share ...................................   $       0.20    $      0.13   $       0.47    $      0.23
                                                                 ---------------------------------------------------------
Weighted average shares
      outstanding - Basic ....................................     11,842,446      7,100,000      8,694,945      7,100,000
                                                                 ---------------------------------------------------------
Weighted average shares
      outstanding - Diluted ..................................     12,904,382     10,272,859     11,311,938     10,272,859
                                                                 ---------------------------------------------------------

</TABLE>

                            See accompanying notes


<PAGE>



                                     NATROL, INC.
                PRO-FORMA UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

                  (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)




<TABLE>
<CAPTION>

                                                         NATROL, INC.      PURE-GAR L.P.                       NINE MONTHS
                                                         NINE MONTHS        NINE MONTHS                          ENDED
                                                            ENDED              ENDED                          SEPTEMBER 30,
                                                        SEPTEMBER 30,      SEPTEMBER 30,    BUSINESS              1998
                                                            1998               1998        COMBINATION          PRO-FORMA
                                                           ACTUAL             ACTUAL       ADJUSTMENTS           COMBINED
                                                        ------------------------------------------------------------------
<S>                                                        <C>                <C>            <C>                 <C>
Net sales                                               $   40,739            $8,168                          $   48,907
Cost of goods sold                                          19,821             3,760                              23,581
                                                        ----------------------------                          ----------
   Gross Profit                                             20,918             4,408                              25,326
                                                        ----------------------------                          ----------
Selling and marketing expense                               10,715             1,607                              12,322
General and administrative expenses                          3,411               823         100 (1)               4,334
                                                        ----------------------------                          ----------
Total operating expense                                     14,126             2,430                              16,656
                                                        ----------------------------                          ----------
Operating income                                             6,792             1,978                               8,670
Interest income                                               (281)               --                                (281)
Interest expense                                               306               101         136 (2)                 543
                                                        ----------------------------                          ----------
Income before provision for income
    taxes                                                    6,767             1,877                               8,408
Income tax provision                                         3,374                --         (93)(3)               3,281
                                                        ----------------------------                          ----------
Net income                                              $    3,393            $1,877                          $    5,127
                                                        ----------------------------                          ----------

Basic earnings per share                                $     0.24                                            $     0.59
                                                        ----------------------------                          ----------
                                                        ----------------------------                          ----------
Diluted earnings per share                              $     0.16                                            $     0.45
                                                        ----------------------------                          ----------
                                                        ----------------------------                          ----------
Weighted average shares
    Outstanding - basic                                  8,694,945                                             8,694,945
                                                        ----------------------------                          ----------
                                                        ----------------------------                          ----------
Weighted average shares
    Outstanding - diluted                               11,311,938                                            11,311,938
                                                        ----------------------------                          ----------
                                                        ----------------------------                          --------------
</TABLE>
------------------------------
(1)  Gives effect to the amortization of goodwill of $450,000, as if the
     acquisition of the Pure-Gar L.P. business (the "Pure-Gar Acquisition") had
     taken place on January 1, 1998, net of recorded goodwill amortization of
     $350,000.

(2)  Gives effect to pro forma interest expense of $289,000 offset by actual
     interest expense of $160,000, as if the debt incurred in the Pure-Gar
     Acquisition was incurred on January 1, 1998. Pro forma interest expense is
     based on a term note (8.5% interest rate) and line of credit (8.5% to
     7.69%) interest rate with principal balances of $8.9 million and $5.5
     million, respectively.

(3)  Gives effect to taxes for adjustments described in footnotes 1 and 2, such
     that the pro forma income tax provision is at the statutory rate for the
     period presented.



<PAGE>



                                    NATROL, INC.
                       CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>

                                                  NINE MONTHS ENDED     SEPTEMBER 30,
                                                        1998                1997
                                                  -----------------------------------

OPERATING ACTIVITIES
<S>                                                   <C>                <C> 
Net income                                            $  5,270           $  2,411
Adjustments to reconcile net income to net cash                     
   provided by (used in) operating activities:                      
   Depreciation and amortization                           576                124
   Amortization of goodwill                                350                 --
   Provision for bad debts                                  41                 (4)
   Changes in operating assets and liabilities:                     
     Accounts receivable                                (5,720)            (2,557)
     Inventories                                        (3,182)              (964)
     Prepaid expenses and other assets                     (51)                10
     Income taxes receivable/payable                       359                149
     Accounts payable                                    3,079               (477)
     Accrued expenses                                    2,626                548
     Accrued payroll and other related liabilities         635                 91
                                                      ---------------------------
Net cash provided by (used in) operating activities      3,983               (669)

INVESTING ACTIVITIES
Assets purchased, net of liabilities assumed
   in connection with Pure-Gar Acquisition             (11,104)                --
Purchases of equipment and leasehold improvements         (647)            (2,743)
                                                      ---------------------------
Net cash used in investing activities                  (11,751)            (2,743)
                                                                     
FINANCING ACTIVITIES                                                 
Borrowings under line of credit agreement                    -                350
Proceeds from long-term debt                             9,000              3,500
Repayments on long-term debt                           (12,605)              (253)
Stock dividends paid                                        --               (400)
Proceeds from initial public stock offering, net        47,674                 --
Redemption of preferred stock                           (6,000)                --
                                                      ---------------------------
Net cash provided by financing activities               38,069              3,197
                                                      ---------------------------
Net increase (decrease) in cash and cash equivalents    30,301               (215)
Cash and cash equivalents, beginning of period           1,800                285
                                                      ---------------------------
Cash and cash equivalents, end of period              $ 32,101           $     70
                                                      ---------------------------
                                                      ---------------------------
Supplemental disclosures of cash flows information: 
   Cash paid during the year for:
     Interest                                         $    407           $    151
     Income Taxes                                     $  3,015           $  1,555

</TABLE>
                            See accompanying notes



<PAGE>







                                    NATROL, INC.
                NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

            (ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


1. BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited consolidated 
financial statements include all necessary adjustments (consisting of normal 
recurring accruals) and present fairly the consolidated financial position of 
Natrol, Inc. and its subsidiary (collectively, the "Company" or "Natrol") as 
of September 30, 1998, and the results of its operations for the three and 
nine months ended September 30, 1998 and 1997 and cash flows for the nine 
months ended September 30, 1998 and 1997, in conformity with generally 
accepted accounting principles for the interim financial information applied 
on a consistent basis. The results of operations for the three months and 
nine months ended September 30, 1998 are not necessarily indicative of the 
results to be expected for the full year.

Certain information and footnote disclosures which are normally included in 
financial statements prepared in accordance with generally accepted 
accounting principles have been omitted. These financial statements should be 
read in conjunction with the audited consolidated financial statements and 
notes thereto included in Natrol's December 31, 1997 audited consolidated 
financial statements included in the Company's prospectus dated July 22, 1998 
as filed with the Securities and Exchange Commission (file No. 333-52109).

2. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>

                                                 SEPTEMBER 30,  DECEMBER 31,
                                                     1998          1997
                                                 ---------------------------
          <S>                                      <C>            <C>
          Raw material and packaging supplies      $ 8,998        $3,838
          Finished goods                             2,841         3,096
                                                   ---------------------
                                                   $11,939        $6,934
                                                   ---------------------
                                                   ---------------------
</TABLE>

3. COMPREHENSIVE INCOME

In September 1997, the Financial Accounting Standards Board issued Statement 
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" 
(SFAS No. 130). This statement establishes standards for reporting and 
display of comprehensive income and its components. Components of 
comprehensive income are net income and all other non-owner changes in equity 
such as unrealized gains on available-for-sale securities that are not 
included in net income. This statement requires that an enterprise: (a) 
classify items of other comprehensive income by their nature in a financial 
statement and (b) display the accumulated balance of other comprehensive 
income separately from retained earnings in the equity section of the balance 
sheet. While SFAS No. 130 is effective for financial statements issued for 
the periods beginning after December 15, 1997, and therefore was adopted in 
the year ended December 31, 1998, there were no items of comprehensive income 
and no impact on the Company's results of operations or related disclosures 
for the three or nine months ended September 30, 1998.

<PAGE>

4. EARNINGS PER SHARE

The Company calculates earnings per share in accordance with SFAS No. 128 
"Earnings per share". Basic earnings per common share were calculated based 
upon the weighted average number of common shares outstanding during the 
respective periods. Diluted earnings per share were calculated based upon the 
weighted number of common shares outstanding and included the equivalent 
shares for dilutive options outstanding during the respective periods.

The weighted average common shares outstanding for the computation of basic 
earnings per share for the three and nine months ended September 30, 1998 
were 11,842,446 and 8,694,945 respectively. Additionally, 1,061,936 and 
2,616,993 of equivalent common shares were included for the three and nine 
months ended September 30, 1998, respectively, for the diluted calculation.

5. STOCKHOLDERS' EQUITY

STOCK OPTIONS

SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does 
not require, companies to record compensation cost for stock-based employee 
compensation plans at fair value. The Company has chosen to continue to 
account for stock-based compensation using the intrinsic value method 
prescribed in Accounting Principles Board Opinion (APB) No. 25, "Accounting 
for Stock Issued to Employees." Please refer to Natrol's prospectus dated 
July 22, 1998 with the Securities and Exchange Commission for detail on the 
Company's Amended and Restated 1996 Stock Option and Grant Plan ("the Stock 
Option Plan") and the related disclosures. During the three months ended 
September 30, 1998, no stock options were granted. See "Subsequent Events" 
for stock options granted after September 30, 1998.

6. INITIAL PUBLIC OFFERING

On July 27, 1998, the Company completed its initial public offering ("IPO") 
of 3,940,000 shares of its common stock priced at $15.00 per share. Of the 
total shares offered, 3.2 million shares were sold by the Company. The 
Company sold an additional 295,500 shares of common stock on August 6, 1998, 
pursuant to the underwriters' exercise of the overallotment option granted in 
the IPO. The net proceeds to the Company were $48.8 million (less $1 million 
of expenses due to the offering) including the shares sold pursuant to the 
underwriters' exercise of the overallotment option. Of the net proceeds to 
the Company, $8.375 million was used to pay off all long-term debt, including 
accrued and unpaid interest. As more fully described in Natrol's prospectus 
dated July 22, 1998, the total of 27,000 shares of convertible participating 
preferred stock purchased by certain investors in September 1996 were 
converted into 2,700,000 shares of Common Stock of the Company and shares of 
redeemable preferred stock which were immediately redeemed for a total of 
$6.0 million. The redemption price of the redeemable preferred stock was 
funded from the proceeds of the IPO.

7. SUBSEQUENT EVENTS

Acquisition.

On October 1, 1998, the Company completed the acquisition of certain of the 
assets of the Laci Le Beau Tea Company of Fresno, Ca. which consists of Laci 
Le Beau, Inc., a California corporation as well as certain related companies 
("Laci Le Beau"). The total purchase price for the acquisition was $7.5 
million in cash. Laci Le Beau is a formulator, packager and distributor of 
specialty teas 

<PAGE>

sold through the health channel of distribution as well as in food stores, 
drug stores and mass market merchandisers. These channels of distribution are 
essentially the same as the Company's channels of distribution. During the 12 
months prior to the acquisition date, Laci Le Beau's revenues were 
approximately $7.2 million. Under the terms of the acquisition agreement, the 
Company acquired no accounts receivable, nor did it assume any liabilities of 
Laci Le Beau. The acquisition is being accounted for using the purchase 
method, and, accordingly, the assets acquired are recorded at their estimated 
fair values. The excess of the cost of the acquisition over the fair value of 
the assets purchased amounts to approximately $5 million and will be 
amortized over 15 years.

Stock Option Grants

On October 26, 1998 incentive based stock options for 125,000 shares of 
common stock were granted to key employees at an exercise price of $11.25 per 
share, the closing price of the stock on that day. The shares vest over a 
four year period and were granted pursuant to provisions of the Company's 
Stock Option Plan. Please refer to Natrol's prospectus dated July 22, 1998 
with the Securities and Exchange Commission for a description of the Stock 
Option Plan.

<PAGE>

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

Information contained or incorporated by reference in this periodic report on 
Form 10-Q and in other SEC filings by the Company contains "forward-looking 
statements" within the meaning of the Private Securities Litigation Reform 
Act of 1995 which can be identified by the use of forward-looking terminology 
such as "believes," "expects," "may," "will," "should" or "anticipates" or 
the negative thereof, other variations thereon, or comparable terminology, or 
by discussions of strategy. The Company's actual results could differ 
materially from those discussed herein. Important risk factors that could 
cause or contribute to such differences include (i) the effect of unfavorable 
publicity regarding the Company's products or the dietary supplements 
industry generally, (ii) the Company's inability to successfully introduce 
and market new products, (iii) the risk of increased governmental regulations 
of the Company's products, (iv) the risk of exposure to product liability 
claims in the event the use of the Company's products results in injury and 
(v) the loss of a significant number of the Company's major customers as well 
as those factors discussed in the Company's Prospectus, dated July 22, 1998, 
filed with the Securities Exchange Commission.

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

THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997

NET SALES. Sales are recognized at the time product is shipped. Net sales are 
net of discounts, allowances, and estimated returns and credits.  Net sales 
increased 71.2%, or $8.1 million, to $19.5 million for the three months ended 
September 30, 1998 from $11.4 million for the three months ended September, 
1997. Of the $8.1 million increase in net sales, $2.5 million, or 30.9%, was 
attributable to net sales of Pure-Gar L.P., acquired in late February 1998 
(the "Pure-Gar Acquisition"), with the remainder due to increases in net 
sales of the Company's other dietary supplement products. A combination of 
new product introductions, increased sales of existing products and increased 
penetration in the mass market and health food channels of distribution 
contributed to the Company's net sales growth during the three month period 
ended September 30, 1998.

GROSS PROFIT.  Gross profit increased 68.9%, or $4.2 million, to $10.2 
million for the three months ended September 30, 1998 from $6.0 million for 
the three months ended September 30, 1997. Gross margin decreased to 52.2% 
for the three months ended September 30, 1998 from 52.9% for the three months 
ended September 30, 1997. The decline was primarily due to a shift in product 
mix and discounts related to promotional activity.

SELLING AND MARKETING EXPENSES.  Selling and marketing expenses consist 
primarily of advertising and promotional expenses, cost of distribution, and 
related payroll expenses and commissions. Selling and marketing expenses 
increased 71.9%, or $1.9 million to $4.6 million for the three months ended 
September 30, 1998 from $2.7 million for the three months ended September 30, 
1997. The increase was primarily due to additional advertising as well as 
promotional and payroll expenses to support increased net sales.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses 
consist primarily of personnel costs related to general management functions, 

<PAGE>

finance, accounting and information systems, research and development 
expenses, as well as professional fees related to legal, audit and tax 
matters and depreciation and amortization. General and administrative 
expenses increased 62.3%, or $665,000, to $1.7 million for the three months 
ended September 30, 1998 from $1.1 million for the three months ended 
September 30, 1997. This increase was primarily attributable to building the 
infrastructure to support and manage the Company's growth, as well as 
$150,000 of amortization of goodwill associated with the Pure-Gar Acquisition.

INTEREST EXPENSE. Interest expense decreased $42,000 to $32,000 for the three 
months ended September 30, 1998 from $74,000 for the three months ended 
September 30, 1997. The decrease was a result of the Company's use of cash 
generated from the Company's IPO concluded on July 27, 1998 to eliminate all 
outstanding indebtedness relating to capital expenditures and to the 
financing of the Pure-Gar Acquisition. See "--Liquidity and Capital 
Resources."

INTEREST INCOME. Interest income for the three months ended September 30, 
1998 amounted to $238,000. There was no interest income earned for the three 
months ended September 30, 1997. Interest income was earned on funds received 
in connection with the Company's IPO which are maintained in the Company's 
cash management accounts.

NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997

NET SALES. Net sales increased 65.8%, or $19.4 million, to $48.9 million for 
the nine months ended September 30, 1998 from $29.5 million for the nine 
months ended September 30, 1997. Of the $19.4 million increase, $6.3 million, 
or 32.5%, was attributable to net sales of Pure-Gar, acquired in late 
February 1998. The remainder of the increase in net sales resulted from 
increases in net sales of the Company's other dietary supplement products. A 
combination of new product introductions, increased sales of existing 
products and increased penetration in the mass market and health food 
channels of distribution contributed to the Company's net sales growth during 
the nine-month period ending September 30, 1998.

GROSS PROFIT.  Gross profit increased 60.1%, or $9.5 million, to $25.3 
million for the nine months ended September 30, 1998 from $15.8 million for 
the nine months ended September 30, 1997. Gross margin decreased to 51.7% for 
the nine months ended September 30, 1998 from 53.6% for the nine months ended 
September 30, 1997. The decline was primarily due to a shift in product mix. 
Based on its current product mix the Company expects that gross margins over 
the near term will be generally consistent with the gross margins for the 
nine months ended September 30, 1998.

SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased 
45.2%, or $3.8 million, to $12.3 million for the nine months ended September 
30, 1998 from $8.5 million for the nine months ended September 30, 1997. The 
increase was primarily due to additional advertising, promotional and payroll 
expenses to support increased net sales.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses 
increased 33.6%, or $1.1 million to $4.2 million for the nine months ended 
September 30, 1998 from $3.2 million for the nine months ended September 30, 
1997. This increase was primarily attributable to building the infrastructure 
to support and manage the Company's growth, as well as $350,000 of 
amortization of goodwill associated with the Pure-Gar Acquisition.

INTEREST EXPENSE.  Interest expense increased $258,000 to $407,000 for the 
nine months ended September 30, 1998 from $149,000 for the nine months ended 
September 30, 1997. The increase was a result of increased outstanding 

<PAGE>

indebtedness relating to the financing of the Pure-Gar Acquisition and 
capital expenditures. The Company used a portion of the cash generated from 
the its IPO to eliminate all outstanding indebtedness relating to capital 
expenditures and to the financing of the Pure-Gar Acquisition. 
See "--Liquidity and Capital Resources."

INTEREST INCOME. Interest income for the nine months ended September 30, 1998 
amounted to $281,000. There was no interest income earned for the nine months 
ended September 30, 1997. Interest income was primarily earned on funds 
received in connection with the Company's IPO which are maintained in the 
Company's cash management accounts.

LIQUIDITY AND CAPITAL RESOURCES

         The Company has historically financed its operations and capital 
requirements primarily through funds from operations and, to a lesser extent, 
borrowings. At September 30, 1998, the Company had working capital of $43.8 
million, as compared to $8.4 million in working capital at December 31, 1997. 
The increase was primarily due to cash raised from the Company's IPO.

         On July 27, 1998, the Company completed its initial public offering 
("IPO") of 3,940,000 shares of its common stock priced at $15.00 per share. 
Of the total shares offered, 3.2 million shares were sold by the Company. The 
Company sold an additional 295,500 shares of common stock on August 6, 1998, 
pursuant to the underwriters' exercise of the overallotment option granted in 
the IPO. The net proceeds to the Company from the IPO were $48.8 million 
including the shares sold pursuant to the underwriters' exercise of the 
overallotment option. Of the net proceeds to the Company, $8.375 million was 
used to pay off all long-term debt, including accrued and unpaid interest. As 
more fully described in Natrol's prospectus dated July 22, 1998, all of the 
27,000 shares of convertible participating preferred stock purchased by 
certain investors in September, 1996 were converted into 2,700,000 shares of 
Common Stock of the Company and shares of redeemable preferred stock, which 
were immediately redeemed for a total of $6.0 million. The redemption price 
of the redeemable preferred stock was funded from the proceeds of the IPO.

         Net cash provided by operating activities was $3.9 million for the 
nine months ended September 30, 1998 as compared to $669,000 of net cash used 
during the nine months ended September 30, 1997. The increase in net cash 
provided by operating activities in 1998 compared to 1997 was primarily due 
to an increase in net income and reflects higher levels of accounts payable, 
accrued expenses, depreciation and amortization of goodwill which were 
partially offset by increases in trade receivables and inventory balances.

         Inventory levels grew during the nine months ending September 30, 
1998 due to an increase in inventory levels necessary to support the 
Company's higher volume of business as well as the stocking of certain raw 
materials that are in short supply, including in particular, kava root.

     Net cash used in investing activities was $11.7 million for the nine 
months ended September 30, 1998 and $2.7 million during the nine months ended 
September 30, 1997. Of the net cash used in investing activities in the nine 
months ended September 30, 1998, the Company used $11.1 million to consummate 
the Pure-Gar Acquisition and invested $647,000 in property and equipment. 
Substantially all net cash used in investing activities in 1997 constituted 
capital expenditures made in connection with the build-out of the Company's 
manufacturing facility/headquarters which the Company occupied at the end of 
March, 1997.

     Net cash provided by financing activities was $38.1 million for the nine 
months ended September 30, 1998 and $3.1 million during the nine months ended 

<PAGE>

September 30, 1997. Net cash provided by financing activities in the nine 
months ended September 30, 1998 consisted of net proceeds of $47.7 million 
from the Company's IPO which was completed on July 27, 1998 as well as $9 
million of borrowings to finance the Pure-Gar Acquisition in late February, 
1998. This inflow of funds was offset by the repayment $4.2 million of debt 
prior to the IPO as well as the repayment of all of the Company's outstanding 
debt of $8.375 million, and the redemption of $6.0 million of redeemable 
preferred stock as described above using the proceeds of the IPO.

         Net cash provided by financing activities in 1997 was comprised of 
net borrowings of $3.6 million to finance capital expenditures made in 
connection with the build-out and equipping of the Company's manufacturing 
facility, which was partially offset by $400,000 used to pay dividends to 
stockholders declared in 1996.

     As of September 30, 1998, the Company had no outstanding debt. All 
outstanding borrowings were repaid on July 27, 1998 from proceeds received 
from the IPO and the outstanding revolving line of credit was terminated.

     The Company completed the acquisition of certain assets of Laci Le Beau, 
Inc. and certain related entities on October 1, 1998 for $7.5 million in 
cash. This cash investment is not reflected in the September 30, 1998 balance 
(see "Financial Information - Subsequent Events").

     The Company believes that the remaining net proceeds from its IPO, 
together with cash generated from operations will be sufficient to fund its 
anticipated working capital needs and capital expenditures (other than 
financing necessary to complete future acquisitions, if any) for at least the 
next 12 months.

     One of the Company's business strategies is to pursue acquisition 
opportunities, including product line acquisitions, that complement its 
existing products, expand its distribution channels or are compatible with 
its business philosophy and strategic goals. The Company regularly evaluates 
the potential acquisition of other businesses, products and product lines and 
may hold discussions regarding such potential acquisitions. As a general 
rule, the Company will publicly announce such acquisitions only after a 
definitive agreement has been signed. Future acquisitions, if any, could be 
financed by current cash on hand, funds from operations, bank borrowings, 
public offerings or private placements of equity or debt securities, or a 
combination of the foregoing. There can be no assurance that such additional 
financing will be available on terms acceptable to the Company or at all. The 
failure to raise the funds necessary to finance its future cash requirements 
or consummate future acquisitions could adversely affect the Company's 
ability to pursue its strategy and could negatively affect its operations in 
future periods.

IMPACT OF INFLATION

     Generally, inflation has not had a material impact on the Company's 
historical operations or profitability.

YEAR 2000 READINESS DISCLOSURE

         The statements in the following section include "Year 200 readiness 
disclosure" within the meaning of the Year 2000 Information and Readiness 
Disclosure Act.

         Many existing computer programs and databases use two digits to 
identify a year in the date field (i.e., 98 would represent 1998). These 
programs and 

<PAGE>

databases were designed and developed without considering the impact of the 
upcoming millennium. If not corrected, many computer systems could fail or 
create erroneous results relating to the year 2000. If the Company, its 
significant customers, or suppliers fail to make necessary modifications and 
conversions on a timely basis, the year 2000 issue could have a material 
adverse effect on Company operations. However, the impact cannot be 
quantified at this time. The Company believes that its competitors face a 
similar risk.

         The Company has developed plans to address the possible exposures 
related to the impact on its computer systems of the year 2000 issue. Key 
financial, information and operational systems, including equipment with 
embedded microprocessors, have been or are currently being inventoried and 
assessed, and detailed plans have been or are currently being developed for 
the required systems modifications or replacements. Progress against these 
plans is monitored and reported to management on a regular basis. 
Implementation of required changes to critical systems is expected to be 
completed during fiscal 1999. The Company is also focusing on major customers 
and suppliers to assess their compliance. The Company has received assurances 
from customers that such customers expect to be Year 2000 compliant and is 
seeking such assurances from its other material customers and suppliers. 
Nevertheless, there can be no assurance that there will not be a material 
adverse effect on the Company if third party governmental or business 
entities do not convert or replace their systems in a timely manner and in a 
way that is compatible with the Company's systems. In the event a material 
customer or supplier is not Year 2000 compliant, the Company's business, 
financial condition and results of operations could be materially and 
adversely affected.

         The costs incurred to date related to these programs have not been 
material and the Company does not expect its future costs related to these 
programs to be material. Such costs have been and will continue to be funded 
through operating cash flows. The Company presently believes that the total 
cost of achieving year 2000 compliant systems is not expected to be material 
to its financial condition, liquidity, or results of operations.

         Time and cost estimates are based on currently available 
information. Developments that could affect estimates include, but are not 
limited to, the availability and cost of trained personnel; the ability to 
locate and correct all relevant computer code and systems; and remediation 
success of the Company's customers and suppliers.

         The preceding "Year 2000 Readiness Disclosure" contains various 
forward-looking statements within the meaning of Section 21E of the 
Securities Exchange Act of 1934 and the Section 27A Securities Act of 1933. 
These forward-looking statements represent the Company's beliefs or 
expectations regarding future events. When used in the "Year 2000 Readiness 
Disclosure", the words "believes," "expects," "estimates" and similar 
expressions are intended to identify forward-looking statements. 
Forward-looking statements include, without limitation, the Company's 
expectations as to when it will complete the modification and testing phases 
of its Year 2000 project plan as well as its Year 2000 contingency plans; its 
estimated cost of achieving Year 2000 readiness; and the Company's belief 
that its internal systems will be Year 2000 compliant in a timely manner. All 
forward-looking statements involve a number of risks and uncertainties that 
could cause the actual results to differ materially from the projected 
results. Factors that may cause these differences include, but are not 
limited to, the availability of qualified personnel and other information 
technology resources; the ability to identify and remediate all date 
sensitive lines of computer code or to replace embedded computer chips in 
affected systems or equipment; and the actions of governmental agencies or 
other third parties with respect to Year 2000 problems.

<PAGE>


PART II
                                 OTHER INFORMATION

Item 2.   Changes in Securities and Use of Proceeds

     (a)  On June 19, 1998, the Company effected a one hundred-for-one stock
          split with respect to its Common Stock. On July 27, 1998, the
          Company's Convertible Preferred Stock was converted into Redeemable
          Preferred Stock and Common Stock, in each case in accordance with the
          terms of these securities and in conjunction with the closing of the
          IPO.


     (b)  The Company completed the IPO of its Common Stock in July 1998. The
          IPO was effected pursuant to a Registration Statement on Form S-1,
          originally filed with the Commission on May 8, 1998, as amended
          (Commission File No. 333-52109), which registration statement became
          effective on July 21, 1998. The IPO commenced on July 22, 1998 and
          terminated shortly thereafter after the sale into the public market of
          all of the registered shares of Common Stock and, 1,035,500 shares
          were registered for the account of stockholders of the Company.  The
          Company did not receive any of the proceeds from the sale of the
          selling stockholders' shares.

     The shares of Common Stock sold in the IPO were offered for sale by a 
syndicate of underwriters represented by Adams, Harkness & Hill, Inc., 
NationsBanc Montgomery Securities LLC and Piper Jaffray Inc.

     The Company registered an aggregate of 4,531,000 shares of Common Stock 
(including 591,000 shares issued upon the exercise of the underwriters' 
overallotment option) for sale in the IPO at a per share price of $15.00, for 
an aggregate offering price of $67,965,000. Of such shares, 3,495,500 were 
sold for the Company's account. As stated above, all of such shares were sold 
shortly after the commencement of the offering.

The Company incurred the following expenses in connection with the IPO (in 
millions):

<TABLE>

<S>                                                                   <C>
Underwriting discounts and commissions..............................  $3.7
Other expenses......................................................   1.0
                                                                      ----
Total expenses.....................................................   $4.7

</TABLE>


     After deducting the expenses set forth above, the Company received 
approximately $47.7 million in net proceeds of the IPO. The Company used 
$8.375 million of the proceeds to repay the borrowings under the Company's 
then existing senior credit facility with Wells Fargo Bank and $6.0 million 
of the net proceeds to redeem outstanding shares of Redeemable Preferred 
Stock held by investment funds associated with TA Associates, Inc. P. Andrews 
McLane, a director of the Company, is a Senior Managing Director of TA 
Associates, Inc. Mr. McLane disclaims beneficial ownership of all such shares 
of Redeemable Preferred Stock and proceeds of such redemption other than with 
respect to $10,237.78, in which he holds a pecuniary interest.

         The Company has invested the remaining proceeds in short-term 
investments pending use thereof.

<PAGE>

Item 4.   Submission of Matters to a Vote of Security Holders

None

ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:
     27.1 Financial Data Schedule

(b)  REPORTS ON FORM 8-K:

No Form 8-K was filed by the Company during the three month period ended 
September 30, 1998.

                                     SIGNATURES

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

          NATROL, INC.




Date: 11/01/98                By: /s/ Elliott Balbert
                              Chairman, President and Chief Executive Officer



Date: 11/01/98                By: /s/ Dennis R. Jolicoeur
                              Chief Financial Officer and Executive
                              Vice President