Back to GetFilings.com





UNITED STATES

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 Period Ended September 30, 2003.


[    ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                EXCHANGE ACT OF 1934.





Commission File Number:   0 - 16612



CNS, INC.

(Exact name of registrant as specified in its charter)


Delaware

41-1580270

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)



7615 Smetana Lane

Eden Prairie, MN  55344

(Address of principal executive offices including zip code)


(952) 229-1500

(Registrant's telephone number, including area code)





Indicate by 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       




Indicated by check mark whether the registration is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



YES  

      

NO    X   




At October 31, 2003, the Company had outstanding 13,666,318 shares of common stock, $.01 par value per share.




CNS, Inc.
FORM 10-Q
For the Period Ended September 30, 2003
Index

       
PART I — FINANCIAL INFORMATION

        Item 1.		  Financial Statements 

        Item 2.		  Management’s Discussion and Analysis of Financial Condition and Results of Operations 

        Item 3.		  Quantitative and Qualitative Disclosures about Market Risk 

        Item 4.		  Controls and Procedures 

PART II — OTHER INFORMATION

        Item 1.		  Legal Proceedings 

        Item 2.		  Change in Securities and Use of Proceeds 

        Item 3.		  Defaults Upon Senior Securities 

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

        Item 5.		  Other Information 

        Item 6.		  Exhibits and Reports on Form 8-K 

SIGNATURES		 


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

CNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)
(in thousands, except per share amounts)

September 30,
2003		 March 31,
2003
ASSETS            
Current assets:  
    Cash and cash equivalents   $ 6,702   $ 16,554  
     Marketable securities ( note 3 )    35,317    25,061  
     Accounts receivable, net    13,458    11,011  
     Inventories ( note 4 )    5,558    3,266  
     Deferred income taxes    1,483    4,660  
     Prepaid expenses and other current assets    2,073    1,035  
          Total current assets    64,591    61,587  
Property and equipment, net    1,629    1,605  
Product rights, net    1,125    1,293  
Deferred income taxes    890    890  
    $ 68,235   $ 65,375  
   
   
LIABILITIES AND STOCKHOLDERS’ EQUITY   
Current liabilities:  
     Accounts payable and accrued expenses   $ 11,561   $ 16,321  
          Total current liabilities    11,561    16,321  
Stockholders’ equity:  
     Preferred stock – authorized 8,484 shares;  
          none issued or outstanding    —    —  
     Common stock – $.01 par value; authorized 50,000 shares;   
          issued 19,295 shares; outstanding 13,587 shares at   
         September 30, 2003 and 13,306 shares at March 31, 2003    193    193  
     Additional paid-in capital    58,891    59,879  
     Treasury shares – at cost; 5,708 at September 30, 2003 and    
        5,989 at March 31, 2003    (24,499 )  (26,694 )
     Retained earnings    21,927    15,472  
     Accumulated other comprehensive income    162    204  
          Total stockholders’ equity    56,674    49,054  
    $ 68,235   $ 65,375  

The accompanying notes are an integral part
of the condensed consolidated financial statements.

CNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)

Three Months Ended
September 30,		  Six Months Ended
September 30,
2003 2002 2003 2002
Net sales     $ 20,621   $ 17,386   $ 38,118   $ 31,910  
Cost of goods sold    6,454    5,912    11,923    11,231  
          Gross profit    14,167    11,474    26,195    20,679  
Operating expenses:  
     Advertising and promotion    4,207    2,881    8,674    6,996  
     Selling, general and administrative    3,422    3,015    6,762    5,778  
          Total operating expenses    7,629    5,896    15,436    12,774  
          Operating income    6,538    5,578    10,759    7,905  
Interest income    183    240    377    468  
     Income before income taxes    6,721    5,818    11,136    8,373  
Income tax expense ( note 9 )    2,486    2,300    4,120    3,300  
     Net income   $ 4,235   $ 3,518   $ 7,016   $ 5,073  
   
Basic net income per share ( note 7 )   $ .31   $ .26   $ .52   $ .37  
Diluted net income per share ( note 7 )   $ .29   $ .25   $ .49   $ .36  
Weighted average number of common  
     shares outstanding    13,549    13,509    13,454    13,532  
Weighted average number of common and    
     assumed conversion shares outstanding    14,627    14,004    14,404    14,093  

The accompanying notes are an integral part
of the condensed consolidated financial statements.

CNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

Six Months Ended
September 30,
2003 2002
Operating activities:            
     Net income   $ 7,016   $ 5,073  
     Adjustments to reconcile net income to net cash  
              from operating activities:  
         Depreciation and amortization    478    634  
         Deferred income taxes    3,177    3,346  
         Changes in operating assets and liabilities:  
            Accounts receivable    (2,447 )  862  
            Inventories    (2,291 )  (329 )
            Prepaid expenses and other current assets    (1,039 )  (54 )
            Accounts payable and accrued expenses    (5,321 )  (161 )
                 Net cash from operating activities    (427 )  9,371  
Investing activities:  
     Purchases of marketable securities    (42,302 )  (25,299 )
     Sales of marketable securities    32,005    19,854  
     Payments for purchases of property and equipment    (282 )  (25 )
     Payments for product rights    (52 )  (223 )
                 Net cash from investing activities    (10,631 )  (5,693 )
Financing activities:  
     Proceeds from issuance of common stock  
          under stock plans    1,206    423  
     Purchase of treasury shares    —    (1,089 )
                  Net cash from financing activities    1,206    (666 )
                  Net change in cash and cash equivalents    (9,852 )  3,012  
Cash and cash equivalents:  
     Beginning of period    16,554    5,553  
     End of period   $ 6,702   $ 8,565  

The accompanying notes are an integral part
of the condensed consolidated financial statements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements as of September 30, 2003 and 2002 and March 31, 2003 are unaudited but, in the opinion of management, include all adjustments (consisting only of normal, recurring accruals) necessary for a fair presentation of results for the periods presented.

Note 1 – Accounting Principles
The accounting principles followed in the preparation of the financial information contained herein are the same as those described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2003 with the exception of the following new pronouncements being adopted during the six month period ended September 30, 2003:

In December 2002, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 148, “Accounting for Stock-Based Compensation”. This statement supercedes SFAS No. 123, “Accounting for Stock-Based Compensation”. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, the statement amends disclosure requirements to require prominent disclosures in annual and interim financial statements about the method of accounting used for stock-based employee compensation and the effect of the method used on reported results. The annual disclosure provisions became effective for the Company for the year ended March 31, 2003. The interim disclosure provisions became effective for the Company for the interim period beginning April 1, 2003.

The Company implemented SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” for financial instruments entered into or modified after May 31, 2003. There was no material impact on the Company’s consolidated financial position or results of operations as the result of implementing this standard.

Refer to the Annual Report on Form 10-K for detailed information on accounting policies.

Note 2 – Stock-Based Compensation
The Company accounts for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and complies with the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation”. Under APB No. 25, compensation cost is determined based on the difference, if any, on the grant date between the fair value of the Company’s stock and the amount an employee must pay to acquire the stock. Accordingly, no compensation expense associated with the fair market value of stock option grants or shares sold to employees under the Employee Stock Purchase Plan has been recognized in the Company’s financial statements.

Had compensation cost for the Company’s stock option plan been determined based on the fair value of options at the grant date, net earnings and earnings per share would have been as follows (in thousands, except per share information):

For the Three Months Ended
September 30,		  For the Six Months Ended
September 30,
2003 2002 2003 2002
 Net income, as reported     $ 4,235   $ 3,518   $ 7,016   $ 5,073  
 Deduct: Total stock-based compensation expense  
 determined under the fair value based method  
 for all awards, net of tax    68    115    166    244  
 Proforma net income   $ 4,167   $ 3,403   $ 6,850   $ 4,829  
Earnings per share:  
     Basic – as reported   $ .31   $ .26   $ .52   $ .37  
     Basic – proforma   $ .31   $ .25   $ .51   $ .36  
     Diluted – as reported   $ .29   $ .25   $ .49   $ .36  
     Diluted – proforma   $ .28   $ .24   $ .48   $ .34  

Note 3 – Marketable Securities
The Company classifies its marketable debt securities as available-for-sale and records these securities at fair market value. Net realized and unrealized gains and losses are determined on the specific identification cost basis. Any unrealized gains and losses, net of deferred income taxes, are included in stockholders’ equity as a separate component of other comprehensive income. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary, results in a charge to operations resulting in the establishment of a new cost basis for the security. Realized securities gains or losses are included in gain (loss) on sales of marketable securities in the consolidated statements of operations.

Note 4 – Inventories
Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or market. Inventory reserves have been established for potential product obsolescence. The components of inventories are as follows (in thousands):

September 30,
2003		 March 31,
2003
Finished goods     $ 3,635   $ 2,225  
Raw materials and component parts    1,923    1,041  
Total inventories   $ 5,558   $ 3,266  

Note 5 – Net sales
Net sales by brand and geographic area are as follows (in thousands):

Three Months Ended
September 30,		  Six Months Ended
September 30,
2003 2002 2003 2002
Domestic – Breathe Right     $16,153   $13,676   $28,622   $24,634  
Domestic – FiberChoice    2,371    1,621    4,386    3,365  
International    1,971    2,039    4,913    3,851  
Domestic – Other    126    50    197    60  
Total net sales   $20,621   $17,386   $38,118   $31,910  

Note 6 – Comprehensive Income
A reconciliation of total comprehensive income is as follows (in thousands):

Three Months Ended
September 30,		  Six Months Ended
September 30,
2003 2002 2003 2002
Net income     $ 4,235   $ 3,518   $ 7,016   $ 5,073  
Unrealized gain(loss) on marketable  
    securities, net of income tax    (42 )  77