10-K405

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2000

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 NUMBER: 0-16612

CNS, INC.
(Exact name of registrant as specified in its charter)

Delaware	41-1580270
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

P.O. Box 39802
Minneapolis, MN 55439
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code: (952) 229-1500

Securities registered pursuant to section 12(b) of the Act: None

Securities registered pursuant to section 12(g) of the Act:

Title of each class
Common Stock, par value of $.01 per share
Preferred Stock purchase rights

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       

Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |X|

As of March 15, 2001, assuming as market value the price of $4.375 per share, the closing sale price of the Company’s Common Stock on the Nasdaq National Market, the aggregate market value of shares held by non-affiliates was approximately $49,000,000.

As of March 15, 2001, the Company had outstanding 14,126,269 shares of Common Stock of $.01 par value per share.

Documents Incorporated by Reference: Portions of the Company’s Proxy Statement for its Annual Meeting of Stockholders to be held on May 23, 2001, are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I

Item 1.          Business.......................................................................     3
Item 2.          Properties.....................................................................    17
Item 3.          Legal Proceedings..............................................................    17
Item 4.          Submission of Matters to a Vote of Security Holders............................    17


PART II

Item 5.           Market for Registrant's Common Equity and Related Stockholder Matters.........    18
Item 6.           Selected Financial Data.......................................................    19
Item 7.           Management's Discussion and Analysis of Financial Condition
                     and Results of Operations..................................................    20
Item 7A.          Quantitative and Qualitative Disclosures about Market Risk....................    26
Item 8.           Financial Statements and Supplementary Data...................................    26
Item 9.           Changes in and Disagreements with Accountants on Accounting and
                     Financial Disclosure.......................................................    26


PART III

Item 10.          Directors and Executive Officers of the Registrant............................    27
Item 11.          Executive Compensation........................................................    27
Item 12.          Security Ownership of Certain Beneficial Owners and Management................    27
Item 13.          Certain Relationships and Related Transactions................................    27


PART IV

Item 14.          Exhibits, Financial Statement Schedules, and
                     Reports on Form 8-K........................................................    28

SIGNATURES......................................................................................    29
EXHIBIT INDEX...................................................................................    31
FINANCIAL STATEMENTS............................................................................   F-1

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Forward-Looking Statements

        Certain statements contained in this Annual Report on Form 10-K and other written and oral statements made from time to time by the Company do not relate strictly to historical or current facts but provide current expectations or forecasts of future events. As such, they are considered “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties that could cause actual results to differ materially from those presently anticipated or projected. Such forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expect,” “plan,” “intend,” “anticipate,” “estimate,” or “continue” or similar words or expressions. It is not possible to foresee or identify all factors affecting the Company’s forward-looking statements and investors therefore should not consider any list of factors to be an exhaustive statement of all risks, uncertainties or potentially inaccurate assumptions. Factors that could cause actual results to differ from the results discussed in the forward-looking statements include, but are not limited to, the following factors: (i) the Company’s revenue and profitability is reliant on sales of Breathe Right® nasal strips; (ii) the Company’s success and future growth will depend significantly on its ability to effectively market Breathe Right nasal strips and upon its ability to develop and achieve markets for additional products; (iii) the Company’s competitive position will, to some extent, be dependent on the enforceability and comprehensiveness of the patents on its Breathe Right nasal strip technology which have been, and in the future may be, the subject of litigation and could be narrowed as a result of the outcome of the reexamination of one such patent by the United States Patent and Trademark Office (see Item 1, “Patents, Trademarks and Proprietary Rights” and Item 3, “Litigation”); (iv) the Company has faced and will continue to face challenges in successfully developing and introducing new products; (v) the Company operates in competitive markets where recent and potential entrants into the nasal dilator segment pose competitive challenges (see Item 1, “Competition”); (vi) the Company is dependent upon contract manufacturers for the production of substantially all of its products; and (vii) the Company currently purchases most of its major components for its nasal strip products from different contract manufacturers that obtain the raw materials from a single supplier that has the right to discontinue the production and sale of the materials at any time (see Item 1, “Manufacturing and Operations”).

PART I

Item 1. BUSINESS

General

        CNS, Inc. (the “Company”) is in the business of developing and marketing consumer health care products, including the Breathe Right® nasal strip. The Breathe Right nasal strip improves breathing by reducing nasal airflow resistence. It can be effective in providing temporary relief for nasal congestion, reducing snoring and reducing breathing difficulties due to a deviated nasal septum. In 2000, the Company expanded its Breathe Right product line to include nasal strips for colds with Vicks® mentholated vapors that are sized for the entire family, and nasal strips for children that are available in multiple colors.

        The Company introduced its new FiberChoice® chewable fiber tablets in the second quarter of 2000. The FiberChoice product is an orange-flavored, chewable fiber tablet that offers consumers an effective, convenient and good-tasting way to supplement their daily intake of dietary fiber. In the fourth quarter of 1999, the Company introduced a product for race horses called the FLAIR™ equine nasal strip. Invented by two veterinarians, the FLAIR equine nasal strip is a patented, drug-free product that enables horses to breathe more easily during strenuous exercise.

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        In addition to expanding the Breathe Right brand and introducing other new products, the Company is exploring possibilities for acquiring new consumer health care products or companies that have established consumer brands. The Company is also considering opportunities for licensing new products and technologies.

Management

        The Company’s management structure is organized into strategic business teams in order to expand the platform for building the Breathe Right brand and develop and launch new products: Breathe Right Brand Team; FiberChoice Team; International Team; FLAIR Team; and Business Development Team. The Company believes that its team focus enables the Company to more effectively implement its business strategies and position itself to become a large, multi-product consumer products company with a significant international presence.

        Breathe Right Brand Team. The Company’s Breathe Right Brand Team is responsible for the strategic development and management of the Breathe Right nasal strip business and other non-nasal strip products that seek to leverage the Breathe Right brand name. Breathe Right nasal strip products currently represent the cornerstone of the Company’s business. The Company intends to exploit new markets and opportunities that it believes exist for its current nasal strip products and plans to commercialize potential new Breathe Right brand products. The Company introduced two new products during the fall of 2000 to coincide with the cough/cold season, nasal strips for colds with Vicks mentholated vapors for the entire family and nasal strips for children.

        FiberChoice Team. The Company introduced its FiberChoice chewable fiber tablets during the second quarter of 2000. The FiberChoice Product Team is responsible for the strategic development and management of the FiberChoice chewable fiber supplement business and leads the Company’s launch of the product.

        International Team. The Company began shipping Breathe Right nasal strips to new distributor partners in Europe, Australia and Japan during the second and third quarters of 2000. The International Team is responsible for developing and managing the Company’s overseas business and its relationships with distributors and representatives in international markets. See Item 1, “International Distribution.”

        FLAIR Team. The Company introduced the FLAIR equine nasal strip during the fourth quarter of 1999. The Company's FLAIR Product Team is responsible for the strategic development and management of the FLAIR equine nasal strip business.

        Business Development Team. The Business Development Team is committed to the expansion of the Company’s product base through the acquisition or licensing of promising consumer health care products that have significant market potential. The Business Development Team is responsible for identifying and evaluating potential new products, inventions and other business prospects that will enable the Company to achieve its long-term growth and profit objectives, including opportunities for the acquisition of companies that have established product lines.

Products

        Breathe Right Nasal Strips. The Breathe Right nasal strip is a nonprescription, single-use disposable device that improves breathing by opening the nasal passages. The Company has 510(k) clearance from the United States Food and Drug Administration (“FDA”) to market the Breathe Right nasal strip for improvement of nasal breathing, temporary relief of nasal congestion, elimination or reduction of snoring and temporary relief of breathing difficulties due to a deviated nasal septum. See Item 1, “Government Regulation.” The Breathe Right nasal strip comes in tan, clear, mentholated and stars for kid’s varieties.

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        The Breathe Right nasal strip includes two embedded plastic strips. When folded down onto the sides of the nose, the Breathe Right nasal strip lifts the side walls of the nose outward to open the nasal passages. The product improves nasal breathing upon application and does not include any medication, thereby avoiding any medicinal side effects. The Breathe Right nasal strip is offered in three sizes (kid’s, small/medium and large) to accommodate the range of nose sizes. The Breathe Right nasal strip is packaged for the consumer market in various quantities ranging between 8 to 38 strips per box. The Company believes that the Breathe Right nasal strip is priced comparably to medicinal decongestants on a daily or nightly dosage basis at suggested retail prices ranging between $3.99 and $11.99 per box.

        The Company expanded the Breathe Right nasal strip line with the introduction of the Breathe Right nasal strip with Vicks mentholated vapors and the Breathe Right nasal strip for kids in the second half of 2000. The Company has licensed the Vicks trademark from The Proctor & Gamble Company for use with the new mentholated nasal strip product. The Vicks mentholated nasal strip uses traditional Breathe Right strip technology but contains a soothing mentholated aroma for additional relief. The mentholated vapors are released when the strip surface is rubbed. Research has suggested that the mentholated nasal strip product could increase the Company’s customer base for nasal strip products by more clearly communicating that Breathe Right nasal strips can ease the congestion associated with the common cold. The Kid’s Strips are sized specifically to fit children and include a brightly colored version and a mentholated version.

        Breathe Right Brand Products. The Breathe Right saline nasal spray is a non-habit forming, drug-free product that restores moisture to comfort and soothe dry, irritated nasal passages due to colds, allergies, dry air (low humidity), air pollution and the overuse of nasal decongestants. The Company intends to introduce additional non-nasal strip products in the future that carry the Breathe Right brand name and to extend the product line.

        FiberChoice Chewable Fiber Tablets. The Company introduced nationally its FiberChoice chewable fiber tablets in the second quarter of 2000. FiberChoice is an orange-flavored, chewable tablet that offers consumers an effective, convenient, good-tasting way to supplement their daily intake of dietary fiber. The active ingredient in FiberChoice tablets is fructan, a natural fiber source. Fructan is a prebiotic that helps promote the growth of healthy intestinal tract bacteria. The FiberChoice tablets can be taken without water and have been clinically proven to be as effective as powder alternatives. The product is available in both regular and sugar-free varieties and packaged in 160-count and 90-count bottles and 10-count rolls.

        FLAIR Equine Nasal Strips. The FLAIR equine nasal strip is a product for horses that capitalizes on the Company’s current nasal strip technology. Invented by two veterinarians, the FLAIR equine nasal strip is a patented, drug-free product that enables horses to breathe more easily during strenuous exercise. Results from several clinical trials indicate that the equine nasal strip product also reduces a bleeding condition in horses called exercise-induced pulmonary hemorrhaging (“EIPH”) that often occurs during and after races, high performance events and strenuous workouts. The FLAIR equine nasal strip holds open the nasal passages of the horses, which can breathe only through their noses, and reduces the effort required to breathe.

        The FLAIR equine nasal strip was introduced for the first time during the Breeder’s Cup in November of 1999 at Gulfstream Park in Hallandale, Florida. Currently, FLAIR equine nasal strips are being sold in tack shops and equine supply stores and through equine catalogs. The Company’s FLAIR product remains a developing business but is not expected to have a material impact on the Company’s revenues. The Company is in the process of exploring strategic alternatives for the FLAIR equine nasal strip business.

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Markets

        Breathe Right Brand Product Line. The Breathe Right brand of products includes the Breathe Right nasal strip and the Breathe Right saline nasal spray.

        Air impedance in the nose accounts for approximately one-half of the total airway resistance involved in the respiratory system (i.e., one-half of the energy required for breathing). If the effort to breathe through the nose during sleep is excessive, the person will resort to mouth breathing, promoting snoring, dry mouth, sore throat and mini-awakenings which disrupt sleep. In addition, nasal breathing difficulties during sleep are often caused by nasal congestion found in people who have a common cold, allergies and sinusitis and by those who experience nasal obstruction due to a deviated nasal septum. The Company believes that people with chronic conditions such as snoring or allergies or with structural problems such as deviated septa may be more predisposed to use Breathe Right products on a regular or daily basis, while seasonal sufferers are likely to use Breathe Right products as needed. These conditions are aggravated when people have nasal congestion, thus increasing the opportunity for usage and consumer trial during the cough/cold season. People suffering from these conditions are currently the primary users of the Company’s Breathe Right products and are the main targets of its advertising.

        In 1999, the Company began to emphasize the Breathe Right nasal strip position as a product that provides instant, drug-free relief for those suffering from nasal congestion and other symptoms due to the common cold, allergies and sinusitis. The Company’s advertising emphasizes the ability of Breathe Right nasal strips to provide immediate relief from nasal congestion due to colds.

        The Company’s marketing efforts capitalize on the benefits of Breathe Right products to consumers in various, and often overlapping, consumer market segments:

• Nasal Congestion Relief. Most Americans suffer some nasal congestion annually as a result of the common cold, while nasal congestion as a result of allergies affects approximately 35 million Americans. The Company believes that the Breathe Right nasal strip is often used as either an alternative or as an adjunct to decongestant drugs (including nasal sprays and oral decongestants). This broad cough/cold market represents a significant potential for the Breathe Right nasal strip. Prior to 1999, the product had not been marketed directly to the cough/cold consumer in any significant respect. In 1999, the Company commenced marketing efforts aimed at repositioning the Breathe Right nasal strip as a product that provides relief for the common cold. In the fall of 2000, this repositioning as a product for colds was reinforced by the introduction of Breathe Right nasal strips with Vicks mentholated vapors. At the same time, the product line was extended into kid sizes, with a brightly colored “stars” strip and a Kid Strip with Vicks mentholated vapors.

• Snoring Relief. Breathe Right nasal strips were effective in reducing snoring loudness in approximately 75% of the participants in a clinical study. Snoring relief was one of the Company’s key advertising messages prior to 1999. This market remains very important to the Company since approximately 37 million people snore regularly, while another 50 million people snore occasionally. The Company believes that snorers can be targeted effectively and directly through relationship marketing efforts as well as through broad-based advertising.

• Improved Breathing for Consumers with Deviated Septa. Approximately 12 million people in the United States suffer from a deviated septum, a bend in the cartilage or bone that divides the nostrils. Breathe Right nasal strips were cleared by the Food and Drug Administration in 1996 to provide temporary relief from breathing difficulties associated with a deviated septum.

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• Athletic Market. The Company believes that the Breathe Right nasal strip may make nasal breathing more comfortable and may improve endurance during athletic activity, particularly when a mouth guard is used. An exercise physiology study published in peer-reviewed medical literature in 1997 concluded that the Breathe Right nasal strip provided physiologic advantages in ventilation and heart rate during mid-level exercise. Other exercise physiology studies have been conducted and add to the substantiation of the positive effects of the Breathe Right nasal strip during exercise. The Company continues to use athletes to endorse the Breathe Right nasal strip to increase the visibility of the product, which thereby leads to greater awareness of the product and the Breathe Right brand.

        FiberChoice Chewable Fiber Tablets. Approximately 10 million U.S. households annually purchase bulk fiber products, primarily to promote regularity and improve digestive health. The bulk fiber category represents approximately $325 million in U.S. retail sales. The Company believes there is a significant opportunity to expand this category due to both the aging of the baby-boomer generation and the marketing of a better consumer solution to existing dietary fiber products–FiberChoice chewable fiber tablets. As people age, they frequently develop digestive problems. People over 55 years old are three times more likely to purchase a bulk fiber supplement than those younger than 55. The first year the baby-boom generation will turn 55 is in 2001. This generation is generally more active and demanding than their parents. These consumers will be searching for solutions that do not hamper their active lifestyles. The Company believes that its FiberChoice chewable fiber tablet represents such a solution in that it provides an effective, convenient and good-tasting alternative for supplementing dietary fiber intake. The tablets can be taken anytime and anywhere, with or without water.

        FLAIR Equine Nasal Strips. The FLAIR equine nasal strip is similar in concept to the human Breathe Right nasal strip adjusted to the unique anatomy and size of a horse. A horse breathes only through its nose, not through its mouth. During strenuous exercise, large amounts of air are inhaled and exhaled during which soft tissue on the side of the nose can collapse. The equine nasal strip supports those soft tissues so they do not collapse, which allows a horse to breathe more easily with less stress developing in the lungs. Results from several clinical trials indicate that horses wearing the FLAIR equine nasal strip use less energy to breathe and that the product reduces a bleeding condition in horses called exercise-induced pulmonary hemorrhaging (“EIPH”) that often occurs during races, high-performance events and strenuous workouts.

        The FLAIR equine nasal strip could be used any time a horse is engaged in strenuous exercise. The Company estimates that in the U.S. there are approximately 1.3 million individual horse starts in racing competitions and over 1 million individual horse starts in non-racing competitions. Horses can benefit from the use of the FLAIR equine nasal strip in training as well as competition.

Business Strategies

        The Company’s business strategy includes attempting to increase sales of its Breathe Right nasal strip and other Breathe Right brand products through advertising, expanding its Breathe Right product line with value added line extensions like Breathe Right nasal strips for colds with Vicks mentholated vapors and children’s nasal strips, maximizing the potential of recently introduced products and successfully introducing new products.

        Increasing New Consumer Product Trial and Increasing Product Usage. The Company uses a combination of advertising, sampling, promotions, public relations and celebrity endorsements to increase consumer awareness and to encourage consumer trial of the Breathe Right nasal strip. In 1999, the Company began to emphasize the position of the Breathe Right nasal strip as a product that provides instant, drug-free

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relief for those suffering from nasal congestion and other symptoms due to the common cold, allergies and sinusitis. The Company’s new advertising introduced the Breathe Right nasal stip for the common cold with Vicks mentholated vapors, emphasizing the ability of Breathe right nasal strips to provide instant, drug-free relief from nasal congestion.

        Marketing New Breathe Right Brand Products. The Company believes that the Breathe Right brand name is one of its most valuable assets. In 1998, the Company introduced the Breathe Right saline nasal spray. The Company has also expanded the Breathe Right product line to include nasal strips for colds with Vicks mentholated vapors and nasal strips for children, both of which were introduced during the fall of 2000 in order to coincide with the cough/cold season.

        Expanding Company Presence in International Markets. The Company believes that there is a significant market potential for its products outside the United States. The Company is devoting significant resources to the development of its international business. During 2000, the Company entered into agreements with new distributors and representatives for the distribution of the Company’s nasal strip products in Japan, Australia and a number of major markets in Europe. The Company is currently in negotiations with additional distributors and representatives for distribution of the its nasal strip products in international markets. The Company believes that the network that it has established for the international distribution of Breathe Right nasal strips will also enable the Company to build its international marketing and distribution capacity for other products. See Item 1, “International Distribution.” During 2001, the Company intends to launch its Breathe Right nasal strips with Vicks mentholated vapors in international markets in conjunction with each market’s cough/cold season.

        Acquiring, Developing and Marketing New Products. The Company plans to take advantage of its marketing and distribution strengths by acquiring or licensing the rights to new products that it believes have merit and bring them to market. The FiberChoice chewable fiber tablet was launched in the second quarter of 2000 and the FLAIR equine nasal strip was introduced in the fourth quarter of 1999. See Item 1, “Marketing Strategies.” In addition, the Company is evaluating opportunities for licensing new products and acquiring companies or product lines that have an established base of consumer acceptance.

Marketing Strategies

        Breathe Right Nasal Strips. The Company’s marketing efforts for Breathe Right products are directed to different consumer markets–the nasal congestion market and the snoring market. The Company has primarily used television and magazine advertising to market its products. The Company’s advertising focuses on the Breathe Right brand benefit of providing instant, drug-free relief from nasal congestion. The Company also uses product promotion programs, such as sampling, coupons, public relations activities and joint promotional programs with Vicks products, to encourage product trial and repeat purchases. Introduction of the new Breathe Right nasal strips for colds with Vicks mentholated vapors has aided in expanding the Company’s penetration into this significant market. Marketing communications are generally designed to promote trial of Breathe Right brand products by increasing consumer awareness of the benefits of each product.

        Marketing efforts for Breathe Right nasal strips as an aid in the prevention of snoring were also extended in 2000 into direct mail sampling and sampling through direct response television. In both programs, self-identified snorers were sent a sample of Breathe Right nasal strips along with a brochure explaining the causes of snoring and how the Company’s Breathe Right products can alleviate the condition.

        Because the Breathe Right nasal strip is sold as a consumer product, sales of the product will depend in part upon the degree to which the consumer is aware of the product and is satisfied with its use, which also influences repeat usage and word of mouth referrals. The most recent research data collected by a nationally

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recognized consumer market research firm indicated that approximately 35% of those in the United States who had purchased Breathe Right nasal strips have purchased additional product in the same year.

        FiberChoice Chewable Fiber Tablets. The Company’s marketing efforts for FiberChoice chewable fiber tablets has concentrated on advertising through television and magazines to consumers who are 55 or more years old. In addition, the Company has distributed samples of the product and coupons to current users of bulk fiber products. The Company believes that direct response television is an efficient sampling vehicle. In these advertisements, consumers are invited to call a toll-free number to receive a free 10-count sample of FiberChoice fiber tablets. This risk-free trial has led to a high conversion rate among both existing users of fiber products and those new to the fiber category.

        FLAIR Equine Nasal Strips. The Company’s marketing communications for FLAIR equine nasal strips focus on the health benefits of using the product identified in clinical studies. Marketing efforts have included advertising in influential equine magazines and public relations activities surrounding high profile races and events in order to create awareness in the racing and non-racing segments of the market. The Company has also used top horse trainers and competitors to endorse the FLAIR equine nasal strip. FLAIR remains a developing business, but is not expected to have a material impact on the Company’s revenues. The Company is in the process of exploring strategic alternatives for the FLAIR equine nasal strip.

New Products Strategy

        The Company is committed to the future expansion of its product base through the acquisition and development of unique consumer health care products and technologies that have good market potential. The Company routinely evaluates the merit of product concepts and acquisition opportunities and, from time to time, may acquire or license the rights to products which it believes could successfully be sold through the Company’s established distribution channels. For example, the Company has licensed the Vicks trademarks from The Proctor & Gamble Company for use with its new product, Breathe Right nasal strips for colds with Vicks mentholated vapors. The Company has also licensed the intellectual property that enabled recent introductions of the FiberChoice dietary fiber supplement and the FLAIR equine nasal strip.

        Most, if not all, of the Company’s current products are regulated to varying degrees by the FDA and other regulatory bodies. See Item 1, “Government Regulation.” Products that the Company may acquire or develop in the future could also be subject to a variety of regulatory requirements. Some products will require extensive clinical studies and regulatory approvals prior to marketing and sale. There can be no assurance that any required regulatory approvals will be obtained or that the Company will market or sell any of these products.

Domestic Distribution

        The Breathe Right nasal strip, the Breathe Right saline nasal spray and the FiberChoice chewable fiber tablets are sold primarily as consumer products in mass merchant chain stores, drug stores, grocery stores, warehouse clubs and military base stores in the United States. The Company sells its products through a direct sales force that concentrates on serving certain key retail accounts as well as through a network of independent sales representatives referred to in the industry as non-food general merchandise brokers. The Company uses direct sales people and broker groups who call on the mass merchant, chain drug, and grocery accounts and the wholesalers who serve primarily the independent drug stores and many of the grocery stores in the United States.

        The Breathe Right nasal strip is typically positioned in the cough, cold and allergy section of stores because it provides benefits similar to those obtained with other decongestant products. The Breathe Right

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saline nasal spray is also usually positioned in the same section of the store as the Breathe Right nasal strip since the products are typically used by those suffering from congestion, allergies and colds. FiberChoice chewable tablets are positioned in the bulk fiber and laxative sections of stores.

        The Company’s retail customers include national chains of mass merchants, drug stores and grocery stores such as Wal-Mart, Kmart, Target, Eckerd, Walgreens, RiteAid, CVS, and Albertson’s and warehouse clubs such as Sam’s Club and Price Costco, as well as regional and independent stores in the same store categories. In 2000, one retail chain accounted for approximately 19% of sales. The loss of this customer or any other large retailer would require the Company to replace the lost sales through other retail outlets and could disrupt distribution of the Company’s products.

        The FLAIR equine nasal strip is sold primarily to trainers and owners in the horse racing industry through tack shops, equine catalogs, veterinarians and equine supply stores.

International Distribution

        From August of 1995 through September of 1999, The 3M Company (“3M”) was the exclusive distributor of the Company’s Breathe Right nasal strip products outside the United States and Canada. The contractual relationship with 3M produced less than anticipated results in international markets. On September 30, 1999, the Company and 3M agreed to terminate the existing distribution agreement in a manner that enabled the Company to take a direct and immediate role in the sale, marketing and distribution of its nasal strip products in international markets. Under the agreement, 3M had the right to sell its existing stock of the Company’s nasal strip products outside the United States and Canada until June 30, 2000. As part of the agreement, 3M also agreed not sell any nasal dilator devices for a period of two years.

        The Company is optimistic about the prospects for generating increased sales of nasal strips outside the United States and believes that international markets require an increased level of focus, advertising and promotion to reach their potential. In 2000, the Company established a broad-ranging international distribution system for the Breathe Right nasal strip business that consists of both sales representatives and reselling distributors. The Company has established relationships with distributors in Canada, Australia, Japan and most of the major markets in Europe. The Company is also pursuing additional distribution opportunities. Sales are supervised by the Company from its Minnesota headquarters and by CNS International, Inc., a wholly-owned domestic subsidiary with one business manager in Europe. The business manager supervises and coordinates the activities of the distributors and sales representatives in Europe. Distributors are appointed largely on an exclusive basis, with territories consisting of one or more countries, and it is expected that this pattern will continue. The Company retains control over the packaging and advertising in all territories. Most shipments are made in bulk, either to reselling distributors who package for the local market, or to warehouse facilities abroad, where final packaging is arranged by the Company directly before shipment to retailers.

Manufacturing and Operations

        The Company currently subcontracts with multiple manufacturers to produce Breathe Right nasal strips, Breathe Right saline nasal spray, FiberChoice chewable fiber tablets and FLAIR equine nasal strips. The Company does no in-house product production itself. These contract manufacturers are capable of providing full turnkey service and shipping product to the Company that is completely packaged ready to be sold to retailers or providing semi-finished goods to the Company that require final packaging. With respect to the Breathe Right nasal strip, the Company has the ability to wrap individual strips in the paper sleeve in-house and subcontracts the final packaging out to qualified packaging subcontractors.

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        Each of the manufacturers builds the product to the Company’s specifications using materials specified by the Company. The contract manufacturers have all entered into confidentiality agreements with the Company to protect the Company’s intellectual property rights. Company quality control and operations personnel periodically visit the contract manufacturers in order to observe processes and procedures. Finished goods are inspected to ensure that they meet quality requirements. The Company inspects its contract manufacturers on a regular basis in an attempt to ensure compliance with FDA Good Manufacturing Practice Standards. The Company works closely with its material vendors and contract manufacturers to reduce scrap and waste, improve efficiency and improve yields to reduce the manufacturing costs of the product. The Company has received certification that it has established and maintains a quality system which meets the requirements of ISO 9001/EN 46001.

        To ensure consistent quality, the Company contracts with converters that currently purchase most of the major components for the Breathe Right nasal strips directly from 3M. Although similar materials are currently available from other suppliers, the Company has historically utilized 3M components in its products. While the Company does not expect 3M to do so, 3M has the right to discontinue its production or sale of the materials used in its nasal strip products at any time. The inability to obtain sufficient quantities of these components or the need to develop alternative sources in a timely and cost-effective manner could adversely affect the Company’s operations until new sources of these components become available, if at all.

Competition

        Breathe Right Nasal Strips. The Company believes that the market for decongestant products is highly competitive. The Company’s competition in the consumer market for decongestant products and other cold, allergy and sinus relief products consists primarily of pharmaceutical products, other nasal sprays and external nasal dilators, while competition in the snoring remedies market also consists primarily of nasal dilators, throat sprays, herbs, supplements and homeopathic remedies. Although the Company is currently the leading manufacturer of external nasal dilation products, Schering Plough Corp. entered the market in the fourth quarter of 1998 with an external nasal dilation device. Other companies have also recently entered the nasal dilation market with private label products. Many of the companies that compete with the Breathe Right nasal strip and other Breathe Right products, including Schering Plough, have significantly greater financial and operating resources than the Company. The Company has developed and implemented marketing strategies aimed at minimizing the impact of competitive products. As a result, the Breathe Right nasal strip has maintained approximately 90% of the nasal dilator market despite the entry of other competitors into the market place.

        The patents licensed by the Company on the Breathe Right nasal strip will limit the ability of others to introduce competitive external nasal dilator products similar to the Breathe Right nasal strip in the United States. The Company intends to aggressively enforce the patents it has licensed covering the Breathe Right nasal strip and has engaged in significant litigation to protect its patent rights. See Item 3, “Legal Proceedings.”

        There can be no assurance that potential competitors will not be able to develop nasal dilation products which circumvent the Company’s patents. In addition, external nasal dilator products compete in the consumer markets with decongestant and sinus relief products and snoring remedies in many international markets where the Company does not yet have patent protection on the Breathe Right nasal strip.

        FiberChoice Chewable Fiber Tablet. The market for dietary fiber supplements is highly competitive and dominated by large companies with resources greater than the Company’s and established brands, such as Metamucil, Citrucel and FiberCon. The Company believes that its FiberChoice chewable fiber tablet is a unique product with significant market potential that offers consumers an effective, convenient and good-tasting alternative to existing products.

11

        FLAIR Equine Nasal Strip. As an alternative to controversial drug therapies, the FLAIR equine nasal strip is a unique product which currently has no direct competition. The only competitive product currently available is the drug Furosemide (“Lasix”). Lasix is intended to alleviate a bleeding condition in the lungs of horses called exercise-induced pulmonary hemorrhaging (“EIPH”) that often occurs during races, high-performance events and strenuous workouts. Unlike Lasix, however, the FLAIR equine nasal strip has not been shown to be a race-day, performance enhancing product.

Government Regulation

        As a manufacturer and marketer of medical devices, the Company is subject to regulation by, among other governmental entities, the FDA and the corresponding agencies of the states and foreign countries in which the Company sells its products. The Company must comply with a variety of regulations, including the FDA’s Good Manufacturing Practice regulations, and is subject to periodic inspections by the FDA and applicable state and foreign agencies. If the FDA believes that its regulations have not been fulfilled, it may implement extensive enforcement powers, including the ability to ban products from the market, prohibit the operation of manufacturing facilities and effect recalls of products from customer locations. The Company believes that it is currently in compliance with applicable FDA regulations.

        FDA regulations classify medical devices into three categories that determine the degree of regulatory control to which the manufacturer of the device is subject. In general, Class I devices involve compliance with labeling and record keeping requirements and are subject to other general controls. Class II devices are subject to performance standards in addition to general controls. Class III devices are those devices, usually invasive, for which pre-market approval (as distinct from pre-market notification) is required before commercial marketing to assure product safety and effectiveness.

        Before a new medical device can be introduced into the market, the manufacturer generally must obtain FDA clearance through either a 510(k) pre-market notification or a pre-market approval application (“PMA”). A 510(k) clearance will be granted if the submitted data establish that the proposed device is “substantially equivalent” to a legally marketed Class I or II medical device, or to a Class III medical device for which the FDA has not called for PMAs. The PMA process can be expensive, uncertain and lengthy, frequently requiring from one to several years from the date the PMA is accepted. In addition to requiring clearance for new products, FDA rules may require a filing and waiting period prior to marketing modifications of existing products. The Company has received 510(k) approvals to market the Breathe Right nasal strip as a device that can (i) temporarily relieve the symptoms of nasal congestion and stuffy nose, (ii) eliminate or reduce snoring, (iii) improve nasal breathing by reducing nasal airflow resistance, and (iv) temporarily relieve breathing difficulties due to a deviated nasal septum. Nasal dilators have been classified by the FDA as Class I devices and exempt from pre-market notification.

        The Company’s FiberChoice product is considered to be a dietary supplement and is regulated under the Federal Food, Drug, and Cosmetic Act as amended by the Dietary Supplement Health and Education Act “DSHEA” of 1994, and under the Fair Packaging and Labeling Act. There is generally no requirement that a company obtain a license or approval from FDA before marketing dietary supplements in the United States. The FDA is developing implementing regulations for certain provisions of the DSHEA which will be published as final rules in the Federal Register.

        There is no national regulatory body for horse racing. Consequently, approval from state horse racing commissions must be obtained on a state-by-state basis before the Company’s FLAIR equine nasal strip can be used during horse racing events. The Company has been working with state racing commissions to gain approval for the use of the FLAIR equine nasal strip in competition. To date, the FLAIR equine nasal strip can be used in horse races in most states, including the leading racing states of Kentucky, California and Florida,

12

and most of the provinces in Canada. The product has not, however, been approved for racing in New York or New Jersey.

        Sales of the Company’s products outside the United States are subject to regulatory requirements that vary widely from country to country. The Company has selected a third party to act as an “Authorized Representative” in the European Union. The Company believes that it has the necessary documentation to support affixing the “CE” mark, an international symbol of quality and compliance with applicable European medical device directives, to the Company’s Breathe Right nasal strips in Europe. Regulatory approvals have also been obtained for the Breathe Right nasal strip in Australia and additional approvals in other jurisdictions will be sought by the Company as needed for all of its products.

        No assurance can be given that the FDA or state or foreign regulatory agencies will give on a timely basis, if at all, the requisite approvals or clearances for additional applications for the Breathe Right nasal strip or for any of the other Company’s products. Moreover, after clearance is given, the Company is required to advise the FDA and these other regulatory agencies of modifications to its products. These agencies have the power to withdraw the clearance or require the Company to change the device or its manufacturing process or labeling, to supply additional proof of its safety and effectiveness or to recall, repair, replace or refund the cost of the medical device if it is shown to be hazardous or defective. The process of obtaining clearance to market products is costly and time-consuming and can delay the marketing and sale of the Company’s products. Furthermore, federal, state and foreign regulations regarding the manufacture and sale of medical devices and other products are subject to future change. The Company cannot predict what impact, if any, such changes might have on its business.

        The Company is also subject to substantial federal, state and local regulation regarding occupational health and safety, environmental protection, hazardous substance control and waste management and disposal, among others.

Patents, Trademarks and Proprietary Rights

        The Company has registered trademarks, owns a patent and pending patent application, and has a number of patents under licenses which are used in connection with its business. Some of these patents and licenses cover significant product formulations, methods and designs for the Company’s current and possible future products. The Company believes its trademarks are important as protection for the Company’s image in the marketplace. The Company’s success is and will continue to be dependent upon the existence of and ability to protect its patents, trademarks and those under its licenses and the Company intends to take such steps as are necessary to protect its intellectual property rights.

        There can be no assurance that the Company’s technology and proprietary rights will not be challenged on the grounds that its products infringe on patents, copyrights or other proprietary information owned or claimed by others, or that others will not successfully utilize part or all of the Company’s technology without compensation to the Company. Nor can there be any assurance that others will not attempt to challenge the validity or enforceability of the Company’s patents and licensed patents on the basis of prior art or introduce competitive products. In addition to seeking patent protection for its products, the Company also intends to protect its proprietary technologies and proprietary information as trade secrets.

        The Company entered into license agreements pursuant to which the Company acquired from the licensors the exclusive rights to manufacture and sell the Breathe Right nasal strip, the FiberChoice chewable fiber tablet and the FLAIR equine nasal strip. Specifically, the Company has the exclusive right pursuant to those license agreements to manufacture, sell and otherwise practice any invention claimed in the licensors’ patents issued in any country, including those that issue on pending applications. The Company is obligated

13

to pay royalties to the licensors based on sales of the products including certain minimum royalty amounts in order to maintain its exclusivity.

        The licensor of the Breathe Right nasal strip has filed patent applications with the U.S. Patent and Trademark Office seeking patent protection for different aspects of the Breathe Right nasal strip technology. Six of these patent applications have resulted in issued patents in the United States, including one with claims that cover the single-body construction of the Breathe Right nasal strip. The licensor of the Breathe Right nasal strip also has one patent application which is currently pending. In addition, that licensor has obtained patent protection on the Breathe Right nasal strip in several foreign countries and has various applications pending which seek further patent protection in these and a number of additional countries. The Company has one patent and one patent application pending in the U.S. and has filed a corresponding patent application seeking protection in several foreign countries of rights to nasal dilation technology that it acquired.

        The licensor of the FiberChoice chewable fiber tablet has filed two patent applications with the U.S. Patent and Trademark Office seeking patent protection for different aspects of this product which remain pending. The licensor of the Breathe Right aromatic nasal strip has filed at least four patent applications with the U.S. Patent and Trademark Office resulting in one issued patent so far. Eight patent applications for the FLAIR equine nasal strip have also been filed by the licensor thereof in the U.S. Patent and Trademark Office which have resulted in three issued U.S. patents. Each of these licensors has filed corresponding patent applications for acquiring patent protection in several foreign countries on the licensed products.

        Although the Company believes that its licensed patents on the Breathe Right nasal strip will limit the ability of others to introduce competitive external nasal dilator products in the United States, there can be no assurance that the patents on the Breathe Right nasal strip, or any additional patents on this or other products that may be issued in the future, if any, will effectively foreclose the development of competitive products. The Company does, however, intend to aggressively enforce the patents covering the Breathe Right nasal strip and its other products. In order to enforce any patents issued covering the Breathe Right nasal strip or any of its other products, the Company may have to engage in litigation, which may result in substantial cost to the Company and counterclaims against the Company. Any adverse outcome of such litigation could have a negative impact on the Company’s business.

        The Company has engaged in litigation to enforce its patent rights relating to the Breathe Right nasal strip. In 1999, the Company brought a suit in federal district court to enforce one of the licensed nasal strip patents containing the broadest claims and providing the most comprehensive protection. See Item 3, “Legal Proceedings.” In the course of this suit, the defendant requested reexamination in the U.S. Patent and Trademark Office (the “Patent Office”) of the Company’s primary licensed patent. On September 29, 2000, the Patent Office issued an Office Action in Reexamination and rejected certain of the claims. Other claims that were not subject to reexamination remain in effect. The Company has joined the licensor in the exercise of its right to contest the action of the Patent Office and has provided reasons that it believes establish that the claims should not have been rejected. The Company and its licensor are also seeking to amend certain claims to provide the Company with additional protection under the patent. The final outcome of the reexamination by the Patent Office is therefore uncertain. Although an adverse ruling from the Patent Office could narrow the range of protection available for nasal dilators and limit the breadth of the Company’s patent protection, the Company believes that its current portfolio of both pending patent applications and issued patents will enable it to maintain significant patent protection for its nasal strip products.

        The Company has registered its Breathe Right and FiberChoice trademarks in the United States and in several foreign countries and is seeking further registration of those trademarks and other trademarks. The Company has also licensed the right to a U.S. trademark registration for the FLAIR equine nasal strip product.

14

Employees

        At March 15, 2001, the Company had 80 full-time employees and 1 part-time employee, of whom 19 were engaged in operations, 32 in general administration, 25 in marketing and sales and 5 in product development. There are no unions representing Company employees. Relations with its employees are believed to be positive and there are no pending or threatened labor employment disputes or work interruptions.

EXECUTIVE OFFICERS OF THE COMPANY

        The following table sets forth the names and ages of the Company’s Executive Officers together with all positions and offices held with the Company by such executive officers. Officers are appointed to serve until the meeting of the Board of Directors following the next Annual Meeting of Stockholders and until their successors have been elected and have qualified.

Name and Age	Office
Daniel E. Cohen (48)	Chairman of the Board, Chief Executive Officer and Director
Marti Morfitt (43)	President, Chief Operating Officer and Director
M. W. Anderson, Ph.D (50)	Vice President of Product Development and Regulatory Affairs
David J. Byrd (47)	Vice President of Finance, Chief Financial Officer and Treasurer
Kirk P. Hodgdon (41)	Vice President of Business Development
John J. Keppeler (39)	Vice President of Worldwide Sales
Larry R. Muma (50)	Vice President of Operations
Teri P. Osgood (37)	Vice President of U.S. Marketing
Carol J. Watzke (53)	Vice President of Consumer Strategy

        Daniel E. Cohen has served as the Company’s Chairman of the Board since 1993, its Chief Executive Officer since 1989 and a director since 1982. He also served as the Company’s Treasurer from 1982 to March of 1999. Mr. Cohen, a founder of the Company, is a medical doctor and board-certified neurologist.

        Marti Morfitt has served as the Company’s President and Chief Operating Officer and a director since March 1998. From September of 1982 through February of 1998, Ms. Morfitt served in a series of positions of increasing responsibility with The Pillsbury Company, a Minneapolis-based manufacturer and distributor of food products, most recently serving from May of 1997 to February of 1998 as Vice-President, Meals, and from February 1994 to May 1997 as Vice-President, Green Giant Brands. She also serves as a director of Graco, Inc., a Minneapolis-based manufacturer of fluid handling systems.

15

        M. W. Anderson, Ph.D has served as the Company’s Vice President of Product Development and Regulatory Affairs since 1998,Vice President of Clinical and Regulatory Affairs from 1994 to 1998, and Vice President of Research and Development from 1990 to 1994. He has served in various other capacities since joining the Company in 1984, including Director of Applications Research and Director of Research and Development. Prior to joining the Company in 1984, Dr. Anderson was an Assistant Professor at the University of Minnesota’s College of Pharmacy.

        David J. Byrd served as the Company's Vice President of Finance and Chief Financial Officer since February of 1996 and its Treasurer since March of 1999. Prior to joining the Company, Mr. Byrd was Chief Financial Officer and Treasurer of Medisys, Inc., a health care services company, since 1991. From 1975 to 1991, Mr. Byrd was employed by Coopers & Lybrand, where he was a partner from 1986 to 1991. Mr. Byrd is a certified public accountant.

        Kirk P. Hodgdon has served as the Company’s Vice President of Business Development since April of 1999, and has served as the Company’s Vice President of Breathe Right Brand from 1998 to 1999 and as Vice President of Marketing from 1994 to 1998. Prior to joining the Company, Mr. Hodgdon served as: Vice President-Management Supervisor at Gage Marketing Communications, a marketing services company, from 1993 to 1994; Vice President – Account Supervisor at U.S. Communications, a marketing agency, from 1989 to 1993; and Marketing Manager at Land O’Lakes, Inc., a consumer foods cooperative, from 1988 to 1989.

        John J. Keppeler has served as the Company’s Vice President of Worldwide Sales since August of 1999, and has served as the Company’s Vice President of Sales from 1998 to 1999. From November of 1986 to June of 1998, Mr. Keppeler served in a series of sales and marketing positions of increasing responsibility with The Pillsbury Company, a Minneapolis-based manufacturer and distributor of food products, most recently serving as Director of Category & Customer Development for the Green Giant and Progresso Business.

        Larry R. Muma has served as the Company’s Vice President of Operations since January of 2001. From May of 2000 to December of 2000, Mr. Muma served as Director of Supply Chain for Novartis, Inc., a worldwide manufacturer and distributor of health care and pharmaceutical products. From February of 1992 to April of 2000, Mr. Muma served in various operations positions of increasing responsibility with The Pillsbury Company, a Minneapolis-based manufacturer and distributor of food products, serving from February 1994 to April of 1999 as Vice President of Operations for Pillsbury North America and most recently from April of 1999 to April of 2000 as Vice President of Operations Frozen Division.

        Teri P. Osgood has served as the Company’s Vice President of U.S. Marketing since December of 1999, of the Breathe Right Brand from April to December of 1999, and has served as the Company’s Vice President of New Business Commercialization from 1998 to April of 1999. From August of 1990 to July of 1998, Ms. Osgood served in a series of positions of increasing responsibility with The Pillsbury Company, a Minneapolis- based manufacturer and distributor of food products, most recently serving from May of 1997 to July of 1998 as Business Team Leader for Old El Paso, and from October of 1995 to May of 1997 as Business Team Leader for Pizza Snacks. Prior to joining Pillsbury, Ms. Osgood was employed in marketing by the Kimberly Clark Corp., from 1988 to 1990.

        Carol J. Watzke has served as the Company’s Vice President of Consumer Strategy since July of 1998. Prior to joining the Company, Ms. Watzke served in a series of positions of increasing responsibility since 1974 with The Pillsbury Company, a Minneapolis-based manufacturer and distributor of food products, most recently serving as Consumer Insights Director from May of 1997 to July of 1998 and as Market Research Director, Green Giant Brands, from 1994 to 1997.

16

Item 2. PROPERTIES

        The Company leases approximately 73,000 square feet of office, manufacturing and warehouse space in Eden Prairie, Minnesota. The lease expires in November of 2010 and contains a renewal option.

Item 3. LEGAL PROCEEDINGS

        On July 20, 1999, the Company commenced a civil action in the United States District Court for the District of Minnesota, Case No. 99-CV-111 JMR/JGL, against JMS Labs Limited (USA), LLC, a/k/a/ JMS Labs Limited, asserting claims of patent infringement and Lanham Act violations. The Company contended that nasals strips manufactured, sold and/or offered for sale by JMS infringed the Company's licensed United States Patent No. 5,533,499 (the "499 Patent"), and that JMS made false and/or misleading statements concerning the characteristics and qualities of its own products and the Company's products. JMS filed an answer and counterclaim, denying the Company's claims and asserting a counterclaim for declaratory judgment that the 499 Patent was invalid, unenforceable and not infringed, and that the complained of statements were not false and misleading. JMS also moved before the United States Patent and Trademark Office (the "Patent Office") for reexamination of the 499 Patent.

        On August 14, 2000, the United States District Court for the District of Minnesota approved a Stipulation and Order of Dismissal without prejudice in the above-referenced matter. The case was dismissed without prejudice based on the pendency of the reexamination proceeding concerning the 499 Patent. As previously reported, certain of the claims relating to the Company's 499 Patent that were pending in reexamination were rejected by the Patent Office. Other claims that were not subject to reexamination remain in effect. The Company has joined the licensor in the exercise of its right to contest the action of the Patent Office, and has provided reasons that it believes that the claims should not have been rejected and is seeking to amend certain claims to provide additional protection under the 499 Patent. Although an adverse ruling from the Patent Office could narrow the range of protection available for nasal dilators and limit the breadth of the Company's patent protection, the Company believes that its current portfolio of both pending and issued patents will enable it to maintain significant patent protection for its nasal strip products. See Item 1, "Patents, Trademarks and Proprietary Rights."

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

17

PART II

Item 5.    MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

Market Information

        The Company's Common Stock has been traded on The Nasdaq Stock Market under the symbol "CNXS" since April 8, 1994. The following table sets forth the high and low last sale prices of the Company's Common Stock for the period indicated.

 FISCAL YEAR ENDED DECEMBER 31, 2000                         HIGH      LOW
                                                             ----      ---
 First Quarter...............................................7.109     3.938
 Second Quarter..............................................5.000     3.500
 Third Quarter...............................................5.500     3.906
 Fourth Quarter..............................................4.125     3.125

 FISCAL YEAR ENDED DECEMBER 31, 1999                         HIGH      LOW
                                                             ----      ---
 First Quarter...............................................4.063     3.000
 Second Quarter..............................................3.469     2.813
 Third Quarter...............................................4.188     3.469
 Fourth Quarter..............................................7.188     3.625

        On March 15, 2001, the last sale price of the Common Stock was $4.375 per share.

Shareholders

        As of March 15, 2001, there were approximately 750 owners of record of Common Stock and an estimated 8,000 beneficial holders whose shares were registered in the names of nominees.

Dividends

        The Company has never paid any dividends on its Common Stock. The Company currently intends to retain any earnings for use in its operations and does not anticipate paying cash dividends in the foreseeable future. The payment of dividends, if any, in the future will be at the discretion of the Board of Directors and will depend upon, among other things, future earnings, capital requirements, restrictions in future financing agreements, the general financial condition of the Company and general business considerations.

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Item 6.    SELECTED FINANCIAL DATA

        The following selected financial data should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto together with the "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which are included elsewhere in this Report. The Consolidated Statements of Operations and Balance Sheet data presented below as of and for the Years Ended December 31, 1998 through December 31, 2000 have been derived from the Company's Consolidated Financial Statements included elsewhere in this Report, which have been audited by KPMG LLP, independent certified public accountants.

                              FINANCIAL HIGHLIGHTS
                    (In thousands, except per share amounts)

                                                        Years ended December 31,
                                         2000         1999         1998        1997         1996
                                      ------------------------------------------------------------

Net sales                              $ 68,892     $ 46,050     $ 53,623    $ 66,957    $ 85,866
Operating income (loss)                 (17,843)     (18,696)         701       9,644      21,743
Net income (loss)                       (15,660)     (13,756)       2,982       8,770      15,522
Diluted net income (loss) per share       (1.09)       (0.89)        0.16        0.44        0.78

Working capital                        $ 32,507     $ 50,183     $ 72,025    $ 76,919    $ 78,403
Total assets                             56,344       65,337       84,963      88,495      89,409
Stockholders' equity                     36,937       53,584       75,866      80,645      79,775

19

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        The following discussion of the financial condition and results of operations should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto appearing elsewhere in this Annual Report. In the opinion of the Company’s management, the quarterly unaudited information set forth below has been prepared on the same basis as the audited financial information, and includes all adjustments (consisting only of normal, recurring adjustments) necessary to present this information fairly when read in conjunction with the Company’s consolidated financial statements and notes thereto.

Overview

        The Company was founded in 1982. From 1987 until 1995, the Company designed, manufactured and marketed computer-based diagnostic devices for sleep disorders. In 1995, the Company divested itself of the assets related to its sleep disorders business to focus on the Breathe Right® nasal strip. In 2000, the Company launched FiberChoice® chewable fiber tablets.

        The Company obtained the exclusive license to manufacture and sell the Breathe Right nasal strip in 1992 and received FDA clearance in October 1993 to market the Breathe Right nasal strip as a product that improves nasal breathing. The Company has also received FDA clearance to market the Breathe Right nasal strip for the reduction or elimination of snoring, for the temporary relief of nasal congestion and for the temporary relief of breathing difficulties due to a deviated nasal septum.

        In August 1995, the Company signed an exclusive international distribution agreement with the 3M Company (“3M”) to market Breathe Right nasal strips outside the U.S. and Canada. On September 30, 1999, the Company and 3M amended the distribution agreement in a manner that enabled the Company to regain control of the marketing, sales and distribution of Breathe Right nasal strips in international markets. In exchange for the one-time contract termination fee noted below, the international distribution agreement with 3M terminated on June 30, 2000. During 2000, the Company added distributors who have reintroduced nasal strips in Europe, Japan and Australia.

        In July 1996, U.S. Utility Patents were issued covering the basic invention of the Breathe Right nasal strip and additional elements incorporated in the product. During 1997, the Company became aware of a foreign reference to a nasal dilator, not commercially available. During 2000, the U.S. Patent and Trademark Office (“Patent Office”) reexamined the Company's primary licensed patent and rejected certain claims. The Company has joined its licensor in the exercise of its right to contest the action of the Patent Office. The Company and its licensor are also seeking to amend certain claims to provide the Company with additional protection under the patent. The final outcome of the reexamination is therefore uncertain. Although an adverse ruling could narrow the range of protection available for nasal dilators and limit the breadth of the Company’s patent protection, the Company believes that its current portfolio of both pending patent applications and issued patents will enable it to maintain significant patent protection for its nasal strip products.

        During 1998, the Company strengthened its management team to add consumer packaged goods and new products experience and organized into focused business teams. The Company completed positioning research work to expand the Breathe Right brand and developed

20

a road map for new product development. During 1999 and 2000, the Company invested aggressively in marketing, selling and product development expenses to build the Breathe Right brand and launch additional products.

        During 2000, the Company launched FiberChoice chewable fiber tablets. The tablets are positioned in the bulk fiber supplement market and give the Company an entry into the digestive health products market. FiberChoice tablets can be taken without water and have been clinically proven to be as effective as powder alternatives.

Operating Results

        The tables below set forth certain selected financial information of the Company and the percentage of net sales represented by certain items included in the Company’s statements of income for the periods indicated.

                                                     Three Months Ended                         Year
                                      ----------------------------------------------------      Ended
                                        Mar 31,      Jun 30,       Sep 30,        Dec 31,      Dec 31,
                                         2000          2000         2000           2000         2000
                                      ----------     ---------    ----------     ---------   -----------
                                                                  (In thousands)
Domestic net sales                      $ 14,338      $ 12,697      $ 16,618      $ 19,082      $ 62,735
International net sales                      296           606         2,603         2,652         6,157
                                      ----------     ---------    ----------     ---------   -----------
      Net sales                           14,634        13,303        19,221        21,734        68,892
Cost of goods sold                         4,846         5,110         6,875         8,076        24,907
                                      ----------     ---------    ----------     ---------   -----------
           Gross profit                    9,788         8,193        12,346        13,658        43,985
                                      ----------     ---------    ----------     ---------   -----------
Operating expenses:
      Marketing and selling               14,312         7,876        11,606        21,487        55,281
      General and administrative           1,173         1,178         1,237         1,237         4,825
      Product development                    488           414           403           417         1,722
      Contract termination fee                 0             0             0             0             0
                                      ----------     ---------    ----------     ---------   -----------
           Total operating expenses       15,973         9,468        13,246        23,141        61,828
                                      ----------     ---------    ----------     ---------   -----------
           Operating loss                 (6,185)       (1,275)         (900)       (9,483)      (17,843)
Investment income                            498           566           507           612         2,183
                                      ----------     ---------    ----------     ---------   -----------
           Loss before income taxes     $ (5,687)     $   (709)     $   (393)     $ (8,871)     $(15,660)
                                      ==========     =========    ==========     =========   ===========

[WIDE TABLE CONTINUED FROM ABOVE]

                                                     Three Months Ended                    Year
                                     ------------------------------------------------      Ended
                                       Mar 31,      Jun 30,      Sep 30,      Dec 31,      Dec 31,
                                        2000         2000         2000         2000         2000
                                     ---------     --------     --------    ---------     --------

Domestic net sales
International net sales

      Net sales                          100.0%       100.0%       100.0%       100.0%       100.0%
Cost of goods sold                        33.1         38.4         35.8         37.2         36.2
                                     ---------     --------     --------    ---------     --------
           Gross profit                   66.9         61.6         64.2         62.8         63.8
                                     ---------     --------     --------    ---------     --------
Operating expenses:
      Marketing and selling               97.8         59.2         60.4         98.9         80.2
      General and administrative           8.0          8.9          6.4          5.7          7.0
      Product development                  3.3          3.1          2.1          1.9          2.5
      Contract termination fee             0.0          0.0          0.0          0.0          0.0
                                     ---------     --------     --------    ---------     --------
           Total operating expenses      109.1         71.2         68.9        106.5         89.7
                                     ---------     --------     --------    ---------     --------
           Operating loss                (42.3)        (9.6)        (4.7)       (43.6)       (25.9)
Investment income                          3.4          4.3          2.6          2.8          3.2
                                     ---------     --------     --------    ---------     --------
           Loss before income taxes      (38.9)%       (5.3)%       (2.0)%      (40.8)%      (22.7)%
                                     =========     ========     ========    =========     ========





                                                      Three Months Ended                       Year
                                      ---------------------------------------------------      Ended
                                        Mar 31,      Jun 30,       Sep 30,        Dec 31,      Dec 31,
                                         1999          1999         1999           1999         1999
                                      ----------     ---------    ----------     ---------   -----------
                                                                (In thousands)
Domestic net sales                      $ 11,811      $  7,994      $ 10,151      $ 15,106      $ 45,062
International net sales                      123           191           312           362           988
                                      ----------     ---------    ----------     ---------   -----------
      Net sales                           11,934         8,185        10,463        15,468        46,050
Cost of goods sold                         4,688         3,629         3,992         6,049        18,358
                                      ----------     ---------    ----------     ---------   -----------
           Gross profit                    7,246         4,556         6,471         9,419        27,692
                                      ----------     ---------    ----------     ---------   -----------
Operating expenses:
      Marketing and selling               11,430         4,361         4,644        12,918        33,353
      General and administrative             803           824           941           815         3,383
      Product development                    979           843           782           702         3,306
      Contract termination fee                 0             0         6,345             0         6,345
                                      ----------     ---------    ----------     ---------   -----------
           Total operating expenses       13,212         6,028        12,712        14,435        46,387
                                      ----------     ---------    ----------     ---------   -----------
           Operating loss                 (5,966)       (1,472)       (6,241)       (5,016)      (18,695)
Investment income                            899           698           643           598         2,838
                                      ----------     ---------    ----------     ---------   -----------
           Loss before income taxes     $ (5,067)     $   (774)     $ (5,598)     $ (4,418)     $(15,857)
                                      ==========     =========    ==========     =========   ===========

[WIDE TABLE CONTINUED FROM ABOVE]

                                                  Three Months Ended                  Year
                                    ------------------------------------------------  Ended
                                      Mar 31,     Jun 30,     Sep 30,     Dec 31,     Dec 31,
                                       1999        1999        1999        1999        1999
                                    ---------    --------    --------   ---------    --------
Domestic net sales
International net sales

      Net sales                         100.0%      100.0%      100.0%      100.0%      100.0%
Cost of goods sold                       39.3        44.3        38.2        39.1        39.9
                                    ---------    --------    --------   ---------    --------
           Gross profit                  60.7        55.7        61.8        60.9        60.1
                                    ---------    --------    --------   ---------    --------
Operating expenses:
      Marketing and selling              95.8        53.3        44.4        83.5        72.4
      General and administrative          6.7        10.1         9.0         5.3         7.3
      Product development                 8.2        10.3         7.5         4.5         7.2
      Contract termination fee            0.0         0.0        60.6         0.0        13.8
                                    ---------    --------    --------   ---------    --------
           Total operating expenses     110.7        73.6       121.5        93.3       100.7
                                    ---------    --------    --------   ---------    --------
           Operating loss               (50.0)      (18.0)      (59.6)      (32.4)      (40.6)
Investment income                         7.5         8.5         6.1         3.9         6.2
                                    ---------    --------    --------   ---------    --------
           Loss before income taxes     (42.5)%      (9.5)%     (53.5)%     (28.6)%     (34.4)%
                                    =========    ========    ========   =========    ========






                                                               Three Months Ended                     Year
                                               --------------------------------------------------     Ended
                                                 Mar 31,       Jun 30,     Sep 30,        Dec 31,     Dec 31,
                                                  1998          1998        1998           1998       1998
                                               ----------     ---------   ----------    ---------  -----------
                                                                         (In thousands)
Domestic net sales                               $ 13,354      $ 11,789     $ 12,581     $ 14,130     $ 51,854
International net sales                             1,127           168          168          305        1,768
                                               ----------     ---------   ----------    ---------  -----------
      Net sales                                    14,481        11,957       12,749       14,435       53,622
Cost of goods sold                                  4,470         4,454        4,242        5,320       18,486
                                               ----------     ---------   ----------    ---------  -----------
           Gross profit                            10,011         7,503        8,507        9,115       35,136
                                               ----------     ---------   ----------    ---------  -----------
Operating expenses:
      Marketing and selling                         9,694         5,581        7,032        6,470       28,777
      General and administrative                    1,047         1,167          810          596        3,620
      Product development                             395           589          540          515        2,039
                                               ----------     ---------   ----------    ---------  -----------
           Total operating expenses                11,136         7,337        8,382        7,581       34,436
                                               ----------     ---------   ----------    ---------  -----------
           Operating income (loss)                 (1,125)          166          125        1,534          700
Investment income                                     690           730          712          660        2,792
                                               ----------     ---------   ----------    ---------  -----------
           Income (loss) before income taxes     $   (435)     $    896     $    837     $  2,194     $  3,492
                                               ==========     =========   ==========    =========  ===========

[WIDE TABLE CONTINUED FROM ABOVE]

                                                          Three Months Ended                Year
                                            ---------------------------------------------   Ended
                                              Mar 31,     Jun 30,     Sep 30,     Dec 31,   Dec 31,
                                               1999        1999        1999        1999       1999
                                             ---------    --------   --------  ---------   --------
Domestic net sales
International net sales

      Net sales                                  100.0%      100.0%     100.0%     100.0%     100.0%
Cost of goods sold                                30.9        37.3       33.3       36.9       34.5
                                             ---------    --------   --------  ---------   --------
           Gross profit                           69.1        62.7       66.7       63.1       65.5
                                             ---------    --------   --------  ---------   --------
Operating expenses:
      Marketing and selling                       66.9        46.7       55.2       44.8       53.7
      General and administrative                   7.2         9.8        6.4        4.1        6.8
      Product development                          2.7         4.9        4.2        3.6        3.8
                                             ---------    --------   --------  ---------   --------
           Total operating expenses               76.9        61.4       65.7       52.5       64.2
                                             ---------    --------   --------  ---------   --------
           Operating income (loss)                (7.8)        1.4        1.0       10.6        1.3
Investment income                                  4.8         6.1        5.6        4.6        5.2
                                             ---------    --------   --------  ---------   --------
           Income (loss) before income taxes      (3.0)%       7.5%       6.6%      15.2%       6.5%
                                             =========    ========   ========  =========   ========

21

2000 Compared to 1999

        Net Sales. Net sales were $68.9 million for 2000 compared to $46.1 million for 1999. Sales increased by 49.6% for the year due to increased advertising expenditures and new product introductions. For the year 2000, domestic sales increased to $62.7 million from $45.1 for 1999. The increase reflects increased Breathe Right nasal strip sales and shipments of FiberChoice chewable tablets. Breathe Right strip sales grew due to initial shipments of the Company’s new mentholated and kids strips and the growth of the core Breathe Right nasal strip business. In addition, 1999 sales were reduced by reserves for returns of product in connection with the introduction of new packaging that year.

        International sales increased to $6.2 million for 2000 from $988,000 for 1999. The higher level of sales reflects the reintroduction of Breathe Right nasal strips through the Company’s new international distributors in Japan, Europe and Australia. The distribution agreement with the Company’s previous international distributor was terminated effective June 30, 2000.

        The Company has experienced in the past, and expects that it will continue to experience in the future, quarterly fluctuations in both domestic and international sales and earnings. These fluctuations are due in part to advertising levels and seasonality of sales as described below, as well as increases and decreases in purchases by distributors and retailers in anticipation of future demand by consumers.

        Gross Profit. Gross profit was $44.0 million for 2000 compared to $27.7 million for 1999. Gross profit as a percentage of net sales was 63.8% for 2000 compared to 60.1% for 1999. Gross profit in 2000 was unfavorably impacted by the lower gross profit on FiberChoice chewable tablets, especially the 10-count trial size tubes. The Company also disposed of an excess inventory of pillow covers and incurred higher costs associated with expediting inventory purchases and deliveries. During the third and early fourth quarters, customer orders exceeded forecasts, resulting in additional costs to meet customer delivery schedules. Margins should improve 2 to 4% during 2001. The gross profit percentage was lower in 1999, primarily due to costs for the transition of Breathe Right nasal strips to new product packaging.

22

        Marketing and Selling Expenses. Marketing and selling expenses were $55.3 million for 2000 compared to $33.4 million for 1999. Marketing and selling expenses as a percentage of net sales increased to 80.2% in 2000 from 72.4% in 1999, reflecting the planned investment in advertising needed to return the Breathe Right brand to growth, relaunch Breathe Right nasal strips in key international markets and launch FiberChoice tablets.

        General and Administrative Expenses. General and administrative expenses were $4.8 million for 2000 compared to $3.4 million for 1999. This increase was primarily from infrastructure to support the growing business and business development expenses to identify future product opportunities. General and administrative expenses as a percentage of net sales decreased to 7.0% in 2000 from 7.3% in 1999 as a result of the higher level of sales in 2000.

        Product Development Expenses. Product development expenses were $1.7 million for 2000 compared to $3.3 million for 1999. Product development expenses as a percentage of net sales decreased to 2.5% in 2000 from 7.2% in 1999. This decrease represents the substantial completion of development expenses for new products the Company introduced in 2000 and a shift in emphasis to business development efforts.

        Investment Income. Investment income was $2.2 million for 2000 compared to $2.8 million for 1999. The decrease was primarily the result of a decrease in investments.

        Income Tax Benefit (Expense). There was no income tax provision for 2000 due to tax loss carryforwards.

1999 Compared to 1998

        Net Sales. Net sales were $46.1 million for 1999 compared to $53.6 million for 1998. While sales were down for the year, fourth quarter sales increased to $15.5 million for 1999 from $14.4 million for 1998 due to increased advertising expenditures. For the year 1999, domestic sales declined to $45.1 million from $51.9 for 1998. Slower sales for 1999 reflect both a lower level of advertising during the previous cough/cold season and the presence of competition. Retailer returns of product in conjunction with our introduction of new packaging also reduced sales.

        International sales decreased to $988,000 for 1999 from $1.8 million for 1998. The lower level of international sales for 1999 is attributable in large part to disappointing marketing results and continued high inventory levels at the Company’s international distributor 3M. The distribution agreement with 3M was terminated effective June 30, 2000.

        Gross Profit. Gross profit was $27.7 million for 1999 compared to $35.1 million for 1998. Gross profit as a percentage of net sales was 60.1% for 1999 compared to 65.5% for 1998. The lower gross profit as a percentage of net sales was primarily due to costs of the transition to new product packaging, lower sales and product mix.

        Marketing and Selling Expenses. Marketing and selling expenses were $33.4 million for 1999 compared to $28.8 million for 1998. This increase resulted primarily from a resumption in national television advertising during 1999 after no significant advertising in the fourth quarter of 1998. Marketing and selling expenses as a percentage of net sales increased to 72.4% in 1999

23

from 53.7% in 1998 reflecting the planned investment in advertising needed to return the Breathe Right brand to growth in the fourth quarter of 1999.

        General and Administrative Expenses. General and administrative expenses were $3.4 million for 1999 comparable to $3.6 million for 1998. General and administrative expenses as a percentage of net sales increased to 7.3% in 1999 from 6.7% in 1998 primarily as a result of the lower level of sales in 1999.

        Product Development Expenses. Product development expenses were $3.3 million for 1999 compared to $2.0 million for 1998. This increase resulted primarily from costs related to evaluation and testing of potential new products, including FiberChoice chewable fiber tablets and FLAIR equine nasal strips. Product development expenses as a percentage of net sales increased to 7.2% in 1999 from 3.8% in 1998.

        Contract Termination Fee. Contract termination fee of $6.3 million represents a one-time payment to 3M, the Company’s international distributor, to terminate the international distribution agreement. The amount paid was negotiated, and is less than the amount called for in the original contract. The agreement allowed the Company to regain control of the international business on a phased schedule that was completed June 30, 2000.

        Investment Income. Investment income was $2.8 million for 1999 and 1998.

        Income Tax Benefit (Expense). Income tax provision for 1999 was a benefit of $2.1 million compared to an expense of $510,000 for 1998. Due to tax loss carryforwards the income tax benefit for 1999 represents the remaining tax benefit available from carrying back current year losses, offset by a reserve against net deferred income tax assets. A high level of tax-exempt interest income impacted the effective income tax rate in 1998.

Seasonality

        The Company believes that a portion of Breathe Right nasal strip use is for the temporary relief of nasal congestion and congestion-related snoring. Sales of nasal congestion remedies are higher during the fall and winter seasons because of increased use during the cold and allergy seasons.

Liquidity and Capital Resources

        At December 31, 2000, the Company had cash, cash equivalents and marketable securities of $31.3 million and working capital of $32.5 million.

        Operating Activities. The Company used cash in operations of approximately $4.4 million in 2000 primarily due to the net loss for the year offset by an increase in operating liabilities. The Company used cash in operations of $12.1 million in 1999 compared to cash provided of $9.3 million in 1998. The decreased cash flow in 1999 was primarily due to the net loss for the year.

        Investing Activities. Sales and maturities of marketable securities exceeded purchases by $9.2 million in 2000. Net proceeds were used to fund the cash used in operations, purchases of property and equipment and purchase treasury shares. Sales and maturities of marketable

24

securities exceeded purchases by $21.1 million in 1999. Net proceeds were used to fund the cash used in operations and purchase treasury shares. Marketable securities purchased consisted of cash equivalents, corporate bonds, U.S. Government obligations and municipal bonds.

        The Company purchased $2.0 million of property and equipment in 2000, primarily associated with the Company’s move to different facilities, and $331,000 in 1999, primarily associated with the upgrade of management information systems.

        Financing Activities. The Company purchased 396,000 shares of its common stock for $1.5 million in 2000 and purchased 2.3 million shares for $8.6 million in 1999. These treasury shares are to be used to meet the Company’s obligations under its employee stock ownership plan and stock option plans, and for possible future acquisitions. The Company received $103,000 in 2000 and $499,000 in 1999 from the exercise of stock options and issuance of stock under the employee stock purchase plan.

        The Company believes that its existing funds will be sufficient to support its planned operations for the foreseeable future.

Recent Accounting Pronouncements

        In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities (as amended by SFAS No. 137 with respect to the effective date and SFAS No. 138 with respect to certain interpretations). SFAS No. 133 establishes new standards for recognizing all derivatives as either assets or liabilities, and measuring those instruments at fair value. The Company adopted the new standard on January 1, 2001. Adoption of this standard had no impact of the Company’s financial position or results of operations.

        In December 1999, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”). SAB 101 summarizes certain SEC staff views in applying accounting principals generally accepted in the United States of America to revenue recognition in financials. SAB 101 was adopted by the Company in the fourth quarter of 2000 and had no impact on the results of operations.

        In 2000, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-14, “Accounting for Certain Sales Incentives”. This EITF requires companies to present in their statements of operations, certain sales incentives as sales allowances, resulting in a reduction of net sales. The Company currently records sales incentives covered by this EITF as operating expenses. The Company will be required to adopt this EITF beginning with the quarter ending June 30. 2001. If the Company would have applied the presentation set forth in this issue in 2000, 1999 and 1998, net sales would have been reduced by $1,527,000, $3,126,000 and $1,263,000, respectively. Operating expenses would have also been reduced by the same amounts in the corresponding years. This issue does not impact operating income (loss) for any of these years.

25

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company's market risk exposure is primarily interest rate risk related to its cash and cash equivalents and investments in marketable securities. The Company has investment guidelines which limit the types of securities in which it may invest as well as the length of maturities. No investment may exceed 36 months in maturity and the weighted average life of the portfolio may not exceed 18 months.

        The table below provides information about the Company's cash and cash equivalents and marketable securities as of December 31, 2000:

                                                             (In thousands)

                                                       COST            FAIR VALUE
                                                       ----            ----------

                  Due within one year                $17,829             $17,812
                  Due after one year
                     through three years              13,394              13,511
                                                     -------             -------
                                                     $31,223             $31,323
                                                     =======             =======

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The Consolidated Balance Sheets of the Company as of December 31, 2000 and 1999, and the related Consolidated Statements of Operations, Stockholders' Equity and Comprehensive Income (Loss), and Cash Flows for each of the years in the three-year period ended December 31, 2000, the Notes to the Consolidated Financial Statements and the Report of KPMG LLP, independent certified public accountants, are listed under Item 14 of this Report.

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

26

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Certain information required under this Item with respect to directors is contained in the Section “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2001 (the “2001 Proxy Statement”), a definitive copy of which will be filed with the Commission within 120 days of the close of the last fiscal year, and is incorporated herein by reference.

        Information concerning executive officers is set forth in the Section entitled “Executive Officers of the Company” in Part I of this Form 10-K pursuant to Instruction 3 to paragraph (b) of Item 401 of Regulation S-K.

Item 11. EXECUTIVE COMPENSATION

        Information required under this item is contained in the section entitled “Executive Compensation” in the Company's 2001 Proxy Statement and is incorporated herein by reference.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        Information required under this item is contained in the section entitled “Security Ownership of Principal Stockholders and Management” in the Company's 2001 Proxy Statement and is incorporated herein by reference.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Not Applicable.

27

PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)       Documents filed as part of this Report:

                                                                                  FORM 10-K
                                                                                PAGE REFERENCE
                                                                                --------------

 1.     Financial Statements.

        Independent Auditors' Report.................................................F-1
        Consolidated Statements of Operations for the Years Ended
           December 31, 2000, 1999 and 1998..........................................F-2
        Consolidated Balance Sheets as of December 31, 2000 and 1999.................F-3
        Consolidated Statements of Stockholders' Equity and Comprehensive
           Income (Loss) for the Years Ended December 31, 2000, 1999 and 1998........F-4
        Consolidated Statements of Cash Flows for the Years Ended
           December 31, 2000, 1999 and 1998..........................................F-5
        Notes to Consolidated Financial Statements...................................F-6

 2.     Financial Statement Schedules.

        None.

 3.     Exhibits.

        See "Exhibit Index" on the page following the Signature Page.

(b)       Reports on Form 8-K.

           The Company did not file a report on Form 8-K during the fourth quarter ended December 31, 2000.

28

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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.

	CNS, INC. ("Registrant")
Dated: March 26, 2001	By /s/ Daniel E. Cohen Daniel E. Cohen Chairman of the Board, Chief Executive Officer and Director

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on March 26, 2001 on behalf of the Registrant in the capacities indicated.

(Power of Attorney and Signatures)

        Each person whose signature appears below constitutes and appoints DANIEL E. COHEN and PATRICK DELANEY as his or her true and lawful attorneys-in-fact and agents, each acting alone, with the full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments to this Annual Report on Form 10-K and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, each acting alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

/s/ Daniel E. Cohen
Daniel E. Cohen Chairman of the Board, Chief Executive Officer
and Director
(Principal Executive Officer)

/s/ Marti Morfitt
Marti Morfitt
President, Chief Operating Officer and Director

/s/ David J. Byrd
David J. Byrd
Vice President of Finance, Chief
Financial Officer and Treasurer
(Principal Financial and Accounting Officer)

29

/s/ Patrick Delaney
Patrick Delaney
Director

/s/ H. Robert Hawthorne
H. Robert Hawthorne
Director

/s/ R. Hunt Greene
R. Hunt Greene
Director

/s/ Andrew J. Greenshields
Andrew J. Greenshields
Director

/s/ Richard W. Perkins
Richard W. Perkins
Director

30

CNS, INC.
EXHIBIT INDEX

Exhibit No.           Description

3.1       Company's Certificate of Incorporation as amended to date (incorporated by reference to
          Exhibit 3.1 to the Company's Annual Report on Form 10-K for the year ended December
          31, 1995 (the "1995 Form 10-K")).

3.2       Company's Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the
          Company's Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999 Form
          10-K)).

10.1*     CNS, Inc. 1987 Employee Incentive Stock Option Plan (incorporated by reference to
          Exhibit 10.1 to the Company's Registration Statement on Form S-8, File No. 33-14052C).

10.2*     CNS, Inc. 1989 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.9
          to the Company's Registration Statement on Form S-8, File No. 33-29454).

10.3*     CNS, Inc. 1990 Stock Plan (incorporated by reference to Exhibit 10.11 to the Company's
          Annual Report on Form 10-K for the year ended December 31, 1990).

10.4*     CNS, Inc. 1994 Amended Stock Plan (incorporated by reference to Exhibit 10.5 to the
          Company's Annual Report on Form 10-K for the year ended December 31, 1997).

10.5*     CNS, Inc. 2000 Stock Option Plan (incorporated by reference to Exhibit A of the Definitive
          Proxy Statement for the Company's Annual Meeting of Stockholders that was held on May
          3, 2000).

10.6**    License Agreement dated January 30, 1992 between the Company and Creative Integration
          and Design, Inc. (incorporated by reference to Exhibit 10.11 to the Company's Registration
          Statement on Form S-2, File No. 33-46120).

10.7**    License Agreement dated November 10, 1997 between the Company and Onesta Nutrition,
          Inc. (incorporated by reference to Exhibit 10.9 to the 1999 Form 10-K).

10.8**    License Agreement dated March 12, 1999 between the Company and WinEase LLC
          (incorporated by reference to Exhibit 10.10 of the 1999 Form 10-K).

10.9**    License Agreement dated June 21, 1999 between the Company and Peter Cronk and Kristen
          Cronk (incorporated by reference to Exhibit 10.11 of the 1999 Form 10-K).

10.10**   License Agreement dated March 1, 2000 between the Company and The Procter & Gamble
          (the "P&G" License Agreement).

10.11**   Distributor Agreement dated August 1, 2000 between the Company and Eisai Co., Ltd.

10.12**   Repackaging Agreement dated August 1, 2000 between the Company and Herusu, Co., Ltd.

31

10.13*    Employment Agreement between the Company and Daniel E. Cohen dated February 12,
          1999 (incorporated by referenced to Exhibit 10.9 to the Company's Annual Report on Form
          10-K for the year ended December 31, 1998 (the "1998 Form 10-K")).

10.14*    Employment Agreement between the Company and Marti Morfitt dated February 12,
          1999 (incorporated by referenced to Exhibit 10.10 to the 1998 Form 10-K).

10.15*    Employment Agreement between the Company and Kirk P. Hodgdon dated February 12,
          1999 (incorporated by referenced to Exhibit 10.11 to the 1998 Form 10-K).

10.16*    Employment Agreement between the Company and David J. Byrd dated February 12, 1999
          (incorporated by referenced to Exhibit 10.12 to the 1998 Form 10-K).

10.17*    Employment Agreement between the Company and John J. Keppeler dated February 12,
          1999 (incorporated by referenced to Exhibit 10.13 to the 1998 Form 10-K).

10.18*    Employment Agreement between the Company and Teri P. Osgood dated February 12,
          1999 (incorporated by referenced to Exhibit 10.14 to the 1998 Form 10-K).

10.19*    Employment Agreement between the Company and Carol J. Watzke dated February 12,
          1999 (incorporated by referenced to Exhibit 10.15 to the 1998 Form 10-K).

10.20*    Employment Agreement between the Company and M. W. Anderson dated February 12,
          1999 (incorporated by referenced to Exhibit 10.17 to the 1998 Form 10-K).

10.21*    Employment Agreement between the Company and Larry R. Muma dated January 2, 2001.

21.1      Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the 1999 Form
          10-K).

23.1      Consent of KPMG LLP.

24.1      Powers of Attorney (included on the signature page hereof).

__________

*Indicates Compensatory Agreement.

**Certain portions of this Exhibit have been deleted and filed separately with the Commission pursuant to a request for confidential treatment under Rule 24b-2. Spaces corresponding to the deleted portions are represented by brackets with asterisks.

32

Independent Auditors’Report

The Board of Directors and Stockholders
CNS, Inc.:

We have audited the accompanying consolidated balance sheets of CNS, Inc. and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNS, Inc. and subsidiaries as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Minneapolis, Minnesota
January 18, 2001

F-1

CNS, INC.
Consolidated Statements of Operations
Years ended December 2000, 1999 and 1998
(in thousands, except per share amounts)

                                                                2000         1999          1998
- -------------------------------------------------------------------------------------------------

Net sales                                                     $ 68,892     $ 46,050      $ 53,623
Cost of goods sold                                              24,907       18,358        18,485
- -------------------------------------------------------------------------------------------------
                 Gross profit                                   43,985       27,692        35,138
- -------------------------------------------------------------------------------------------------

Operating expenses:
     Marketing and selling                                      55,281       33,354        28,777
     General and administrative                                  4,825        3,383         3,621
     Product development                                         1,722        3,306         2,039
     Contract termination fee                                        0        6,345             0
- -------------------------------------------------------------------------------------------------
                 Total operating expenses                       61,828       46,388        34,437
- -------------------------------------------------------------------------------------------------

                 Operating income (loss)                       (17,843)     (18,696)          701

Interest income                                                  2,234        2,596         2,791
Gain (loss) on sales of marketable securities                      (51)         243             0
- -------------------------------------------------------------------------------------------------

                 Income (loss) before income taxes             (15,660)     (15,857)        3,492

Income tax benefit (expense)                                         0        2,101          (510)
- -------------------------------------------------------------------------------------------------

                 Net income (loss)                            $(15,660)    $(13,756)     $  2,982
=================================================================================================


Basic net income (loss) per share                             $  (1.09)    $   (.89)     $    .16
=================================================================================================

Weighted average number of common shares outstanding            14,372       15,435        18,079
=================================================================================================


Diluted net income (loss) per share                           $  (1.09)    $   (.89)     $    .16
=================================================================================================
Weighted average number of common
     and assumed conversion shares outstanding                  14,372       15,435        18,249
=================================================================================================

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

F-2

CNS, INC.
Consolidated Balance Sheets
December 31, 2000 and 1999
(in thousands, except per share amounts)

                            Assets                                       2000          1999
- ---------------------------------------------------------------------------------------------

Current assets:
     Cash and cash equivalents                                         $  2,079      $    860
     Marketable securities                                               29,244        37,998
     Accounts receivable, net of allowance for doubtful accounts
         of $300 in 2000 and $280 in 1999                                12,582        11,370
     Income taxes receivable                                                  0         3,178
     Inventories                                                          4,752         4,905
     Prepaid expenses and other current assets                            3,257         3,625
- ---------------------------------------------------------------------------------------------
                    Total current assets                                 51,914        61,936

Property and equipment, net                                               3,201         2,010
Product rights, net                                                       1,229         1,391
- ---------------------------------------------------------------------------------------------

                                                                       $ 56,344      $ 65,337
=============================================================================================


                  Liabilities and Stockholders' Equity

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

Current liabilities:
     Accounts payable                                                  $ 12,600      $  5,422
     Accrued expenses                                                     6,251         6,331
     Accrued income taxes                                                   556             0
- ---------------------------------------------------------------------------------------------
                    Total current liabilities                            19,407        11,753
- ---------------------------------------------------------------------------------------------

Stockholders' equity:
     Preferred stock - authorized 8,484 shares;
         none issued or outstanding                                           0             0
     Common stock - $.01 par value; authorized 50,000 shares;
         issued and outstanding 19,295 shares in 2000 and 1999              193           193
     Additional paid-in capital                                          61,182        61,531
     Treasury shares -  at cost; 5,179 shares in 2000
         and 4,838 shares in 1999                                       (23,279)      (22,221)
     Retained earnings (deficit)                                         (1,259)       14,401
     Accumulated other comprehensive income (loss)                          100          (320)
- ---------------------------------------------------------------------------------------------
                    Total stockholders' equity                           36,937        53,584

Commitments (notes 9 and 10)
- ---------------------------------------------------------------------------------------------

                                                                       $ 56,344      $ 65,337
=============================================================================================

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

F-3

CNS, INC.
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
Years ended December 31, 2000, 1999 and 1998
(in thousands)

                                                          Common stock                        Treasury shares
                                                      ---------------------   Additional  -------------------------
                                                         Number       Par       paid-in       Number
                                                        of shares     value     capital     of shares      Cost
- ----------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1997                              19,295 $     193      $   63,496       961      $  (8,220)

      Stock issued in connection with
           Employee Stock Purchase Plan                        0         0             (25)       (5)            43
      Stock options exercised                                  0         0          (1,538)     (172)         1,777
      Treasury shares purchased                                0         0               0     1,908         (8,270)
      Comprehensive income:
           Net income for the year                             0         0               0         0              0
           Unrealized gains on marketable securities
                net of income tax effect of $154               0         0               0         0              0

                     Total comprehensive income
- ----------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1998                              19,295       193          61,933     2,692        (14,670)

      Stock issued in connection with
           Employee Stock Purchase Plan                        0         0             (98)      (18)           151
      Stock options exercised                                  0         0            (414)     (108)           860
      Warrants issued                                          0         0             110         0              0
      Treasury shares purchased                                0         0               0     2,272         (8,562)
      Comprehensive loss:
           Net loss for the year                               0         0               0         0              0
           Unrealized losses on marketable securities
                net of income tax effect of $154               0         0               0         0              0

                     Total comprehensive loss
- ----------------------------------------------------------------------------------------------------------------------

Balance at December 31, 1999                              19,295       193          61,531     4,838        (22,221)

      Stock issued in connection with
           Employee Stock Purchase Plan                        0         0            (131)      (26)           214
      Stock options exercised                                  0         0            (218)      (29)           238
      Treasury shares purchased                                0         0               0       396         (1,510)
      Comprehensive loss:
           Net loss for the year                               0         0               0         0              0
           Unrealized gains on marketable securities
                net of income tax effect of $0                 0         0               0         0              0

                     Total comprehensive loss
- ----------------------------------------------------------------------------------------------------------------------

Balance at December 31, 2000                              19,295 $     193      $   61,182     5,179      $ (23,279)
======================================================================================================================




[WIDE TABLE CONTINUED FROM ABOVE]


                                                                                 Accumulated
                                                             Retained                other             Total
                                                             earnings             comprehensive    stockholders'
                                                            (deficit)               income (loss)     equity
- -------------------------------------------------------------------------------------------------------------

Balance at December 31, 1997                                 $  25,175          $        0   $        80,644

      Stock issued in connection with
           Employee Stock Purchase Plan                              0                   0                18
      Stock options exercised                                        0                   0               239
      Treasury shares purchased                                      0                   0            (8,270)
      Comprehensive income:
           Net income for the year                               2,982                   0             2,982
           Unrealized gains on marketable securities
                net of income tax effect of $154                     0                 253               253
                                                                                              ---------------
                     Total comprehensive income                                                        3,235
- -------------------------------------------------------------------------------------------------------------

Balance at December 31, 1998                                    28,157                 253            75,866

      Stock issued in connection with
           Employee Stock Purchase Plan                              0                   0                53
      Stock options exercised                                        0                   0               446
      Warrants issued                                                0                   0               110
      Treasury shares purchased                                      0                   0            (8,562)
      Comprehensive loss:
           Net loss for the year                               (13,756)                  0           (13,756)
           Unrealized losses on marketable securities
                net of income tax effect of $154                     0                (573)             (573)
                                                                                              ---------------
                     Total comprehensive loss                                                        (14,329)
- -------------------------------------------------------------------------------------------------------------

Balance at December 31, 1999                                    14,401                (320)           53,584

      Stock issued in connection with
           Employee Stock Purchase Plan                              0                   0                83
      Stock options exercised                                        0                   0                20
      Treasury shares purchased                                      0                   0            (1,510)
      Comprehensive loss:
           Net loss for the year                               (15,660)                  0           (15,660)
           Unrealized gains on marketable securities
                net of income tax effect of $0                       0                 420               420
                                                                                              ---------------
                     Total comprehensive loss                                                        (15,240)
- -------------------------------------------------------------------------------------------------------------

Balance at December 31, 2000                                 $  (1,259)         $      100   $        36,937
=============================================================================================================

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

F-4

CNS, INC.
Consolidated Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
(in thousands)

                                                                                      2000            1999          1998
- ---------------------------------------------------------------------------------------------------------------------------

Operating activities:
      Net income (loss)                                                             $ (15,660)     $ (13,756)     $   2,982
      Adjustments to reconcile net income (loss) to net cash
          provided by (used in) operating activities:
               Depreciation and amortization                                            1,051          1,029            855
               Net loss on disposal of property and equipment                              81              0              0
               Warrants issued                                                              0            110              0
               Deferred income taxes                                                        0          1,486            284
               Changes in operating assets and liabilities:
                   Accounts receivable                                                 (1,212)        (3,579)         3,601
                   Inventories                                                            153          3,918           (199)
                   Prepaid expenses and other current assets                            3,546         (4,009)           500
                   Accounts payable and accrued expenses                                7,654          2,655          1,247
- ---------------------------------------------------------------------------------------------------------------------------

                            Net cash provided by (used in) operating activities        (4,387)       (12,146)         9,270
- ---------------------------------------------------------------------------------------------------------------------------

Investing activities:
      Purchases of marketable securities                                              (63,151)       (97,157)       (43,429)
      Sales and maturities of marketable securities                                    72,324        118,230         43,497
      Payments for purchases of property and equipment                                 (2,019)          (330)        (1,101)
      Payments for product rights                                                        (141)          (259)          (229)
      Redemption of certificate of deposit, restricted                                      0              0            360
- ---------------------------------------------------------------------------------------------------------------------------

                            Net cash provided by (used in) investing activities         7,013         20,484           (902)
- ---------------------------------------------------------------------------------------------------------------------------

Financing activities:
      Proceeds from the issuance of common stock
          under Employee Stock Purchase Plan                                               83             53             18
      Proceeds from the exercise of stock options                                          20            446            239
      Purchase of treasury shares                                                      (1,510)        (8,562)        (8,270)
- ---------------------------------------------------------------------------------------------------------------------------

                            Net cash used in financing activities                      (1,407)        (8,063)        (8,013)
- ---------------------------------------------------------------------------------------------------------------------------

                            Net increase in cash and cash equivalents                   1,219            275            355

Cash and cash equivalents:
      Beginning of year                                                                   860            585            230
- ---------------------------------------------------------------------------------------------------------------------------

      End of year                                                                   $   2,079      $     860      $     585
===========================================================================================================================

Supplemental disclosure of cash flow information:

      Cash paid during the year for interest                                        $       0      $       0      $       0
      Cash paid during the year for income taxes                                            0            344            700
===========================================================================================================================

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

F-5

CNS, INC.
Notes to Consolidated Financial Statements
December 31, 2000, 1999 and 1998

(1)   Summary of Significant Accounting Policies

Principles of Consolidation  The accompanying consolidated financial statements include the accounts of CNS, Inc. and its subsidiaries (“the Company”). All material intercompany accounts and transactions have been eliminated in consolidation.

Business   The Company designs, manufactures and markets consumer products, including Breathe Right®nasal strips and FiberChoice®tablets. The Company’s products are sold over-the-counter in retail outlets, including mass merchant, drug, grocery and club stores. The Company primarily uses international distributors to market Breathe Right nasal strips outside the U.S.

Revenue Recognition  Revenue from sales is recognized at the time products are shipped.

Accounting Estimates   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments  All financial instruments are carried at amounts that approximate fair value.

        Cash Equivalents   Cash equivalents consist primarily of money market funds.

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 are reflected as a separate component of stockholders’ equity. 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.

Inventories  Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or market.

Property and Equipment    Property and equipment are stated at cost. Equipment is depreciated using the straight-line method over five years. Leasehold improvements are amortized over the lesser of the estimated useful life of the improvement or the term of the lease.

Product Rights   Product rights, consisting of patents, trademarks and other product rights, are stated at cost and are amortized over three to seven years using the straight-line method.

Stock Based Compensation    The Company follows the disclosure requirements for employee stock based compensation plans and, accordingly, no compensation expense has been recognized.

Foreign Sales   Foreign sales are made primarily in U.S. dollars.

F-6

Advertising    The Company capitalizes the production costs of advertising and expenses these costs the first time the advertising runs.

Income Taxes   Deferred tax assets and liabilities and the resultant provision for income taxes are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

Net Income Per Share    Basic net income (loss) per share and diluted net income (loss) per share have been computed based upon the weighted average number of common shares outstanding during the year. Assumed conversion shares were excluded from the net loss per share computation as their effect is antidilutive. Common stock options could potentially dilute basic earnings per share in future periods if the Company generates net income. Diluted net income per share has been computed based upon the weighted average number of common and assumed conversion shares outstanding during the year.

Comprehensive Income (Loss)   Comprehensive income (loss) consists of the Company’s net income (loss) and unrealized gains (losses) on marketable securities and is presented in the consolidated statements of stockholders’ equity and comprehensive income (loss).

New Accounting Standards    In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities (as amended by SFAS No. 137 with respect to the effective date and SFAS No. 138 with respect to certain interpretations). SFAS No. 133 establishes new standards for recognizing all derivatives as either assets or liabilities, and measuring those instruments at fair value. The Company adopted the new standard on January 1, 2001. Adoption of this standard had no impact of the Company’s financial position or results of operations.

In December 1999, the Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”). SAB 101 summarizes certain SEC staff views in applying accounting principals generally accepted in the United States of America to revenue recognition in financials. SAB 101 was adopted by the Company in the fourth quarter of 2000 and had no impact on the results of operations.

In 2000, the Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 00-14, “Accounting for Certain Sales Incentives”. This EITF requires companies to present in their statements of operations, certain sales incentives as sales allowances, resulting in a reduction of net sales. The Company currently records sales incentives covered by this EITF as operating expenses. The Company will be required to adopt this EITF beginning with the quarter ending June 30. 2001. If the Company would have applied the presentation set forth in this issue in 2000, 1999 and 1998, net sales would have been reduced by $1,527,000, $3,126,000 and $1,263,000, respectively. Operating expenses would have also been reduced by the same amounts in the corresponding years. This issue does not impact operating income (loss) for any of these years.

F-7

(2)   Marketable Securities

Marketable securities, including estimated fair value based on quoted market prices or valuation models, are summarized as follows (in thousands):

                                                     December 31
                                       -------------------------------------
                                               2000              1999
                                       -------------------  ----------------
                                          Cost  Fair Value  Cost  Fair Value
- ----------------------------------------------------------------------------

Cash equivalents                        $ 2,166  $ 2,166  $   659  $   659
Certificates of deposit                       0        0    5,500    5,493
Corporate bonds                          24,308   24,413   24,088   23,879
U.S. Government obligations               2,670    2,665    8,070    7,967
- ---------------------------------------------------------------------------

     Total marketable securities        $29,144  $29,244  $38,317  $37,998
==========================================================================

        Maturities of marketable securities at December 31, 2000 are as follows (in thousands):

                                        Cost     Fair Value
- ----------------------------------------------------------------

Due within one year                        $ 15,750   $  15,733
Due after one year through three years       13,394      13,511
- ----------------------------------------------------------------

          Total marketable securities      $ 29,144   $  29,244
================================================================

There were realized losses of $51,000 during 2000, realized gains of $243,000 during 1999 and no realized gains or losses in 1998.

(3)   Advertising

At December 31, 2000 and 1999, $1,924,000 and $1,762,000, respectively, of advertising costs were reported as assets. Advertising expense was $36,221,000 in 2000, $18,024,000 in 1999, and $15,431,000 in 1998.

(4) Details of Selected Balance Sheet Accounts

        Details of selected balance sheet accounts are as follows (in thousands):

                                             2000   1999   1998
- -----------------------------------------------------------------------

Allowance for doubtful accounts:
    Balance beginning of year                    $ 280  $ 210   $ 210
    Plus provision for doubtful accounts            26     96      43
    Less charge offs                                 6     26      43
- -----------------------------------------------------------------------

          Balance end of year                    $ 300  $ 280   $ 210
=======================================================================


                                                                   December 31
                                                              -------------------
                                                                 2000      1999
- ---------------------------------------------------------------------------------

Inventories:
    Finished goods                                             $ 2,139   $ 2,935
    Raw materials and component parts                            2,613     1,970
- ---------------------------------------------------------------------------------

          Total inventories                                    $ 4,752   $ 4,905
=================================================================================

Property and equipment:
    Production equipment                                       $   556   $   408
    Office equipment and information systems                     3,623     3,330
    Leasehold improvements                                       1,022         0
- ---------------------------------------------------------------------------------
                                                                 5,201     3,738
    Less accumulated depreciation                                2,000     1,728
- ---------------------------------------------------------------------------------

             Property and equipment, net                       $ 3,201   $ 2,010
=================================================================================

Product rights:
    Product rights                                             $ 2,548   $ 2,407
    Less accumulated amortization                                1,319     1,016
- ---------------------------------------------------------------------------------

             Product rights, net                               $ 1,229   $ 1,391
=================================================================================

Accrued expenses:
    Promotions and allowances                                  $ 3,085   $ 3,106
    Royalties and commissions                                      954       678
    Salaries, incentives and paid time off                       2,000       991
     Packaging transition                                            0     1,426
    Other                                                          212       130
- ---------------------------------------------------------------------------------
             Total accrued expenses                            $ 6,251   $ 6,331
=================================================================================

F-8

(5)   Stockholders’Equity

Stock Options The Company’s stock option plans allow for the grant of options to officers, directors, and employees to purchase up to 3,650,000 shares of common stock at exercise prices not less than 100% of fair market value on the dates of grant. The term of the options may not exceed ten years and options vest in increments over 1 to 5 years from the grant date. The plans allow for the grant of shares of restricted common stock. No shares of restricted common stock have been granted under these plans as of December 31, 2000.

        Stock option activity under these plans is summarized as follows:

                           Weighted-average                Shares
                                Exercise Price     Shares      Available
                                   Per Share    Outstanding    For Grant
- ------------------------------------------------------------------------

Balance at December 31, 1997       $  5.29       1,357,300      765,350
    Granted                           4.92         634,700     (634,700)
    Exercised                         1.39        (171,500)           0
    Canceled                         10.71        (240,000)     240,000
- ------------------------------------------------------------------------

Balance at December 31, 1998          4.74       1,580,500      370,650
    Granted                           3.05         353,000     (353,000)
    Exercised                         4.16        (115,010)           0
    Canceled                          4.00         (47,100)      47,100
- ------------------------------------------------------------------------

Balance at December 31, 1999          4.47       1,771,390       64,750
    New 2000 Plan                                               700,000
    Granted                           4.01         358,400     (358,400)
    Exercised                         4.18         (69,690)           0
    Canceled                          5.18        (168,100)     168,100
- ------------------------------------------------------------------------

Balance at December 31, 2000       $  4.33       1,892,000      574,450
========================================================================

Information on outstanding and currently exercisable options by price range as of December 31, 2000, is summarized as follows:

                                Weighted-average Weighted-average  Exercisable Weighted-average
     Price Range    Total Number Remaining Life      Exercise       Number of       Exercise
      Per Share       of Shares     (Years)           Price          Shares           Price
- -----------------------------------------------------------------------------------------------
   $ 2.13 - 2.81       257,900        7.9          $   2.78          100,700       $  2.73
     3.10 - 4.00       722,800        6.5              3.56          390,400          3.23
     4.13 - 5.00       328,600        7.7              4.65          199,932          4.74
     5.44 - 5.94       482,700        5.1              5.49          418,700          5.49
        7.25           100,000        6.6              7.25           97,500          7.25
                     ---------                                     ---------
                     1,892,000                                     1,207,232
                     =========                                     =========

At December 31, 2000, the weighted-average remaining contractual life of outstanding options was 6.6 years. At December 31, 2000, 1999 and 1998, currently exercisable options aggregated 1,207,232, 1,091,156 and 1,051,800 shares of common stock, respectively and the weighted-average exercise price of those options was $4.55, $4.73 and $4.62, respectively.

The per share weighted-average fair value of stock options granted during 2000, 1999 and 1998 is estimated as $2.60, $1.98 and $3.20, respectively on the date of grant using the Black-Scholes option pricing model with the following assumptions: volatility of 65%; risk-free interest rate of 6.50% in 2000, 6.00% in 1999 and 6.25% in 1998; and an expected life of 6 years.

The Company applies APB No. 25, Accounting for Stock Issued to Employees, and related interpretations in accounting for its stock compensation plans. Accordingly, no compensation expense has been recognized for its stock-based compensation plans. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, Accounting for Stock-Based Compensation, the Company’s net income and diluted earnings per share would have been reduced by approximately $900,000, or $.06 per share in 2000, $950,000, or $.06 per share in 1999 and $1,300,000, or $.07 per share in 1998.

Pro forma net income reflects only options granted since 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net income amounts presented because compensation cost is reflected over the options’ vesting period and compensation cost for options granted prior to January 1, 1995 is not considered.

Employee Stock Purchase Plan The Employee Stock Purchase Plan allows eligible employees to purchase shares of the Company’s common stock through payroll deductions. The purchase price is the lower of 85% of the fair market value of the stock on the first or last day of each six-month period during which an employee participated in the plan. The Company has reserved 200,000 shares under the plan of which employees as of December 31, 2000 have purchased 188,507 shares.

Warrants In connection with agreements to license certain intellectual property rights to potential products, licensers were issued warrants. During 1999, warrants were issued to purchase 50,000 shares of the Company’s common stock exercisable at a price of $3.44 per share exercisable evenly over three years and for a period of 10 years. The issuance of the warrants resulted in an expense of $110,000. Warrants were issued during 1997 to purchase 25,000 shares at a price of $8.00 per share exercisable in 2000 and for a period of five years. Of these warrants, 31,667 hares are currently exercisable.

F-9

Preferred Stock At December 31, 2000, the Company is authorized to issue 1,000,000 shares of Series A Junior Participating Preferred Stock upon a triggering event under the Company’s stockholders’ rights plan and is authorized to issue up to an additional 7,483,589 shares of undesignated preferred stock.

(6)   Income Taxes

        Income tax expense (benefit) for the three years ended December 31, 2000, is as follows (in thousands):

                                            Current   Deferred    Total
- ------------------------------------------------------------------------------
2000:
   Federal                                       $      0   $     0  $      0
   State                                                0         0         0
- ------------------------------------------------------------------------------

                  Income tax expense (benefit)   $      0   $     0  $      0
==============================================================================

1999:
   Federal                                       $(3,917)   $ 1,816  $(2,101)
   State                                                0         0         0
- ------------------------------------------------------------------------------

                  Income tax expense (benefit)   $(3,917)   $ 1,816  $(2,101)
==============================================================================

1998:
   Federal                                       $    128   $   184  $    312
   State                                               98       100       198
- ------------------------------------------------------------------------------

                       Income tax expense        $    226   $   284  $    510
==============================================================================

F-10

Income tax expense (benefit) differed from the amounts computed by applying the U.S. federal income tax rate of 35% as a result of the following (in thousands):

                                                   2000      1999      1998
- -----------------------------------------------------------------------------

Computed tax expense (benefit)                   $(5,481)  $(5,550)   $1,222
State taxes, net of federal benefit                 (554)     (431)       64
Tax exempt interest                                     0     (178)    (789)
Change in deferred tax valuation allowance          6,018     3,932        0
Other                                                  17       126       13
- -----------------------------------------------------------------------------

          Actual tax expense (benefit)           $      0  $(2,101)   $  510
=============================================================================

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities for 2000 and 1999 are presented below (in thousands):

                                                            December 31
                                                       ---------------------------
                                                             2000         1999
- ----------------------------------------------------------------------------------

Deferred tax assets:
   Inventory items                                      $      795   $      677
   Accounts receivable allowance                               111          104
   Product rights                                              246          181
   Accrued expenses                                          1,580        1,835
   Net operating loss and credit carryforwards               7,445        1.124
   Unrealized loss on marketable securities                      0          122
- ----------------------------------------------------------------------------------
                                                            10,177        4,043
Less valuation allowance                                     9,950        3,932
- ----------------------------------------------------------------------------------
                                                               227          111
- ----------------------------------------------------------------------------------

Deferred tax liabilities:
   Unrealized gains on marketable securities                  (35)            0
   Property and equipment                                    (192)        (111)
- ----------------------------------------------------------------------------------
                                                             (227)        (111)
- ----------------------------------------------------------------------------------

          Net deferred tax assets                       $        0   $        0
==================================================================================

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based on the level on historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management does not believe that it is more likely than not the Company will realize the benefits of these deductible differences. Accordingly, the Company has provided a valuation allowance against the net deferred assets as of December 31, 2000.

As of December 31, 2000, the Company has reported federal net operating loss carryforwards of approximately $17,700,000. The federal net operating loss carryforwards expire in 2019 and 2020. The Company also has approximately $327,000 of credits for alternative minimum tax that have no expiration date.

(7)   Sales

The Company had one significant customer who accounted for approximately 19%, 24% and 20% of net sales in 2000, 1999 and 1998, respectively. Accounts receivable from this customer as of December 31, 2000 and 1999 were $2,274,000 and $4,330,000, respectively. Net sales by geographic area are as follows (in thousands):

                                  2000           1999          1998
- ------------------------------------------------------------------------

Domestic                    $       62,735  $      45,062 $      51,855
International                        6,157            988         1,768
- ------------------------------------------------------------------------

          Net sales         $       68,892 $      46,050  $      53,623
========================================================================

F-11

(8)   Contract Termination Fee

On September 30, 1999, the Company and the 3M Company (“3M”) amended an exclusive international distribution agreement in a manner that allowed the Company to regain control of the marketing, sales and distribution of Breathe Right nasal strips in international markets. In exchange for a one-time contract termination fee of $6,345,000 paid in 1999, the international distribution agreement with 3M terminated on June 30, 2000.

(9)   License Agreements

The Company has agreements to exclusively license intellectual property rights to certain products. Royalties due under these agreements are based on various percentages of net sales. To maintain the Company’s licenses, it must make minimum royalty payments of $1,330,000 each year until patents for the products expire. Royalty expense was approximately $2,692,000 in 2000, $1,477,000 in 1999 and $1,509,000 in 1998.

(10)   Operating Leases

The Company leases equipment and office space under noncancelable operating leases that have initial or noncancelable lease terms in excess of one year. Future minimum lease payments due in accordance with these leases as of December 31, 2000 are as follows (in thousands):

Year ending December 31,                             Amount
- ---------------------------------------------------------------

2001                                            $          718
2002                                                       732
2003                                                       742
2004                                                       727
2005                                                       740
Later years                                              3,859
- ---------------------------------------------------------------

         Future minimum lease payments          $        7,518
===============================================================

        Total rental expense for operating leases was $559,000 in 2000, $555,000 in 1999, and $564,000 in 1998.

(11)   Net Income (Loss) Per Share

        A reconciliation of basic and diluted weighted average common shares outstanding is as follows (in thousands):

                                                      2000          1999          1998
- ----------------------------------------------------------------------------------------

Weighted average common shares outstanding            14,372        15,435       18,079
Assumed conversion of stock options                        0             0          170
- ----------------------------------------------------------------------------------------
Average common and assumed conversion shares          14,372        15,435       18,249
========================================================================================

Options and warrants to purchase 1,967,000 shares of common stock with a range of exercise prices from $2.13 to $8.00 per share were outstanding during 2000 but were not included in the computation of 2000 diluted earnings per share because the effect would be anti-dilutive. The options expire from 2001 to 2010.

F-12

EX-10

CERTAIN INFORMATION HAS BEEN DELETED FROM THIS EXHIBIT AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 24b-2.

                                                                   EXHIBIT 10.10






                           TRADEMARK LICENSE AGREEMENT

                                     BETWEEN

                          THE PROCTER & GAMBLE COMPANY

                                       AND

                                    CNS INC.








                                TABLE OF CONTENTS


                                                                            PAGE
                                                                            ----

1.  LICENSE....................................................................1
     (a) Manufacturing.........................................................2
     (b) Labeling and Packaging................................................2
     (c) Sale..................................................................2
     (d) Use of the Licensed Marks.............................................2
     (e) Use of P&G's Name.....................................................2

2.  CNS' OBLIGATIONS...........................................................3
      (a) Warranties...........................................................3
      (b) Compliance with Laws.................................................3
      (c) Import/Export........................................................3
      (d) Samples..............................................................4
      (e) Artwork..............................................................4
      (f) Copy Review..........................................................5
      (g) Product Preview Meetings.............................................5
      (h) Improper Use.........................................................6
      (i) Development of Product...............................................6
      (j) Prohibition on Sales.................................................6
      (k) Other Approvals......................................................7

3.  CNS' COVENANTS.............................................................7
      (a) Authorization........................................................7
      (b) Conflicts............................................................7
      (c) Plant(s) Where Product is Manufactured...............................7
      (d) Quality Control Sampling.............................................7
      (e) Sub-Standard Product.................................................8
      (f) Non-Competition......................................................8

4.  P&G'S RIGHTS & OBLIGATIONS.................................................9
      (a) Ownership of Licensed Marks..........................................9
      (b) Cooperation.........................................................10
      (c) Actions.............................................................10
      (d) P&G Materials.......................................................11
      (e) Use of Names........................................................11
      (f) Limitations.........................................................12




5.  P&G'S COVENANTS...........................................................12
      (a) Authorization.......................................................12
      (b) Conflicts...........................................................12
      (c) Enforceable License.................................................12
      (d) Non-Competition.....................................................12

6.  INDEMNIFICATION AND INSURANCE.............................................13
      (a) Indemnification of P&G..............................................13
      (b) Insurance...........................................................14
      (c) Indemnification of CNS..............................................15
      (d) Promotions..........................................................15

7.  LICENSE FEES..............................................................15
      (a) Calculation of Royalties............................................15
      (b) Minimum Royalties...................................................16
      (c) Reports.............................................................16
      (d) Payment Terms.......................................................16
      (e) Tax Withholding.....................................................16

8.  CNS' RECORDS..............................................................17
      (a) Records.............................................................17
      (b) Audit Right.........................................................17
      (c) Corrections.........................................................18

9.  PROMOTION.................................................................18

10.  TERM AND TERMINATION.....................................................19
      (a) Extension and Non-Renewal...........................................19
      (b) Termination by P&G..................................................19
      (c) Termination for CNS Bankruptcy......................................20
      (d) Termination by CNS..................................................20
      (e) Change of Control...................................................21
      (f) Consequences of Expiration and Termination..........................21

11.  CONFIDENTIALITY..........................................................22
      (a) P&G Trade Secrets...................................................22
      (b) CNS Trade Secrets...................................................22
      (c) Nondisclosure.......................................................23
      (d) Press Releases......................................................23

12.  MARKING..................................................................23

13.  FORCE MAJEURE............................................................24




14.  MISCELLANEOUS............................................................24
      (a) First Line Goods....................................................24
      (b) Use of Mark as Names................................................24
      (c) Notice..............................................................25
      (d) Relationship Between the Parties....................................25
      (e) Entire Agreement....................................................26
      (f) Interpretation......................................................26
      (g) Waiver..............................................................26
      (h) Dispute Resolution..................................................26
      (i) Assignment..........................................................26
      (j) Other Licenses......................................................27




                           TRADEMARK LICENSE AGREEMENT

         THIS AGREEMENT (the "Agreement") is made effective as of the ______ day
of _____________, 2000 by and between The Procter & Gamble Company, an Ohio
Corporation with a place of business at One P&G Plaza, Cincinnati, Ohio 45202
and its affiliates and subsidiaries (collectively, "P&G"), and CNS Inc., a
Delaware corporation with a place of business at 4400 West 78th Street,
Minneapolis, MN 55435, ("CNS"). WHEREAS, P&G has the right to use and to license
others to use the VICKS(R) trademark and the triangle design trademark which are
well-known and famous marks owned and used by P&G in association with its
advertising and marketing of cough and cold products; and WHEREAS, CNS
recognizes the benefits to be derived from utilizing the VICKS(R) trademark and
the triangle design trademark and desires to utilize said trademarks upon and in
connection with the manufacture, sale, and distribution of Breathe Right(R)
nasal strips; NOW, THEREFORE, the parties agree as follows:

1.       LICENSE.
Subject to the terms of this Agreement, P&G hereby grants to CNS a
non-transferable and exclusive license to use the Licensed Marks listed on
Schedule 1 (the "Licensed Marks"), on the Product listed on Schedule 2 (the
"Product"), in the countries listed in Schedule 3 (the "Area") and subject to
the restrictions outlined in Schedule 4. Schedules 1, 2, 3, 4 and 5 may be
amended at any time upon agreement by the parties in writing. Notwithstanding
anything in Schedules 1, 2, 3 or 4 to the contrary, P&G has the right to not
approve the launch of any Product in any country for the reasons pursuant to the
process set forth in Section 3 hereto and, if P&G does not approve any launch,
then CNS shall not launch such Product as set forth in Section 3 hereof. Unless
otherwise agreed to in writing by the parties, CNS shall have the right to do
the following:




     (a) Manufacturing. To manufacture (or have manufactured by a contract
manufacturer), in a manner and quality that is consistent with Product specimens
approved by


                                       2



P&G prior to the date of this Agreement, the Product for distribution and sale
under the grant given in 1(c).
         (b) Labeling and Packaging. To label and package Product manufactured
under the grant given in Section 1(a), using labeling and packaging that is
consistent in form and quality with labeling and packaging specimens approved by
P&G prior to the date of this Agreement, for distribution and sale under the
grant given in Section 1(c).
         (c) Sale. To distribute and sell the Product manufactured, labeled and
packaged under the grants in Sections 1 (a) and (b) solely within the Area. CNS
shall use commercially reasonable efforts to maximize sales of the Product in
the Area, consistent with the terms and conditions of this Agreement. It is
acknowledged that CNS will roll out the Product in phases over time.
         (d) Use of the Licensed Marks. To use the Licensed Marks in such form
and manner as approved by P&G, which may include displaying the Licensed Marks
on CNS vehicles, stationery, advertising and promotional materials used in
connection with the sale of the Product, subject to compliance with all other
provisions set forth herein.
         (e) Use of P&G Name. To use the words "The Vicks(R)trademark is used
under license from The Procter & Gamble Company, Cincinnati, Ohio" or such other
entity as P&G shall designate, or the equivalent of such language approved by
P&G on labels or packaging for Product manufactured and packed under the grants
in Sections 1 (a) and (b).

2.       CNS OBLIGATIONS.

         (a) Warranties. CNS warrants that the Product shall be free of
impurities or defects and will be produced, packaged and distributed in
compliance with all applicable laws and regulations of the country or countries
in which the Product is sold or distributed. CNS hereby agrees to use best
efforts to ensure that each shipment or other delivery of the Product now or
hereafter made by CNS shall, as of the date of such shipment or other delivery,
conform to all the above requirements. CNS warrants that the manufacture, use,
sale, offer for sale, or importation of the Product will not infringe the rights
of third parties, including (without limitation) patent, trademark and
copyrights. CNS expressly disclaims any implied warranties, including the
implied warranties of merchantability and fitness for a particular purpose.


                                       3



         (b) Compliance with Laws. CNS warrants that the Product will conform to
all hazardous substance laws, consumer product safety laws, trade laws and any
other applicable laws of the country or countries in which the Product is sold
or distributed. CNS hereby agrees to use best efforts to ensure that each
shipment or other delivery of the Product now or hereafter made by CNS shall, as
of the date of such shipment or other delivery, conform to all the above
requirements. CNS warrants that it will obtain all necessary health licenses or
other regulatory approvals for the Product in each country or countries.
         (c) Import/Export. If the Product is to be imported into any region or
country for sale, CNS agrees that CNS or a CNS distributor shall be the importer
of record and shall pay all duties and information costs in connection with the
importation of the Product into such region or country. CNS shall be liable for
all customs duties accruing at the time of such importation or at any time
thereafter and that P&G shall not appear as importer nor as the "account party"
on any documents submitted for purposes of customs procedures. Neither CNS nor
any agent of CNS shall submit any documents of any kind to any customs agency or
authority that reflect that the Product in question are to be imported for the
account of P&G without the prior written consent of P&G.
         (d) Samples. Prior to the first shipment by CNS or a contract
manufacturer of the Product to a distributor, licensee or customer in each
country in the Area, and at least once each calendar year thereafter during the
Term, CNS shall provide to P&G the reasonable number of pre-production samples
requested (only once prior to first shipment) and the reasonable number of
production samples of such Product requested. Each of the foregoing items shall
be sent to the person and location designated by P&G's Marketing Director, North
America, Respiratory. P&G shall examine any such samples of the Product pursuant
to the foregoing to determine the nature and quality of the Product. P&G
designee shall review and respond in writing with regard to its approval (needed
for initial samples only) or non-approval of such samples within ten (10) of
P&G's business days after receipt of such samples from CNS. Neither CNS nor any
contract manufacturer shall make any first shipment of Product to a distributor,
licensee or customer in a region or a country in the Area unless and until CNS
has received P&G's written approval of the production samples of the Product for
such country. CNS shall immediately cease any and all


                                       4



shipments of Product by CNS or by a contract manufacturer to distributors,
licensees and/or customers in any region or country if CNS receives P&G written
disapproval of the provided production samples of such Product. In view of the
substantial tooling and other costs which will be incurred by CNS prior to its
delivery to P&G of the representative production samples, P&G agrees that it
will not unreasonably withhold its approval of such samples. CNS shall not ship
Product which has not been approved by P&G to trade customers.
         (e) Artwork. Prior to the first public release of any artwork or other
materials which incorporate or otherwise include the Licensed Marks, or which
otherwise relate to the Product, in any country in the Area, CNS shall provide
to P&G the reasonable number of copies of the rough artwork requested and the
reasonable number of copies of the final artwork for each such piece of material
(together with English translations if needed) requested. Each of the foregoing
items shall be sent to the person and location designated by P&G's Marketing
Director, North America, Respiratory. P&G shall examine any such materials
received from CNS pursuant to the foregoing. P&G's designee shall review and
respond in writing with regard to its approval or non-approval of such materials
within ten (10) of P&G's business days after receipt of such materials from CNS.
Such approval will not be unreasonably withheld. CNS shall not make any first
release of such material in a region or country in the Area unless and until CNS
has received P&G's written approval of the final artwork for such material. If
either party fails to respond in writing in ten (10) days in accordance with the
above, such party will pay any late charges arising from the delay that may be
incurred by the submitting party.
         (f) Copy Review. Both parties shall submit all printed materials,
advertising and promotional copy (and English translations thereof) (including
but not limited to audio and video materials) pertaining to Product and
Promotion outlined in Section 9 to the other party for written approval prior to
any release of such materials to the general public. Each of the foregoing items
shall be sent to the person and location designated by each party. Each party's
designee shall review and respond in writing with regard to its approval or
non-approval of such materials within ten (10) business days after receipt of
such materials from the other party. Approval of the submitted materials will
not be unreasonably withheld. If either party fails to respond in


                                       5



writing in ten (10) days in accordance with the above, such party will pay any
late charges arising from the delay that may be incurred by the submitting
party.
         (g) Product Preview Meetings. In order to facilitate review and
approval of samples, artwork and copy, CNS and P&G shall meet at least once per
year to review plans for the next year. Such review shall include, but shall not
be limited to, new registrations and/or changes to existing registrations, new
product launches, product and packaging changes and planned copy that is related
to the Product. CNS shall propose the timing for these meetings and shall
coordinate them with P&G's Marketing Director, North America, Respiratory or
his/her designee.
         (h) Improper Use. Notwithstanding anything herein to the contrary, if
at any time CNS is using the Licensed Marks on the Product, or on labels or tags
or in advertising in any country in the Area in a manner not consistent with
this Agreement, or if the standard of quality of the Products in any country in
the Area does not conform to the standards set by P&G or is not of a quality at
least equal to similar "first line" products manufactured by CNS, then P&G may
give CNS written notice to that effect, identifying in such notice the situation
to which it objects. CNS shall have fifteen (15) days after receipt of any such
notice to notify P&G of the means by which CNS intends to correct the situation
to which P&G has objected, and, notwithstanding Sections 1 or 10 thereof, if CNS
fails to complete such corrective action within a reasonable time, then P&G may
by further written notice to CNS cancel this Agreement forthwith with respect to
the country(ies) affected. If P&G so cancels, then CNS shall immediately
discontinue use of the Licensed Marks in such country(ies) and shall not
thereafter adopt any conflicting or confusingly similar mark or symbol for use
on any goods. CNS shall bear all costs of any corrective action.
         (i) Development of Product. Subject to the right of approval by P&G
under Paragraph 1(a) and the other rights to P&G under this Agreement, CNS shall
have sole responsibility for research, development and design of the Product(s)
sold under this Agreement.
         (j) Prohibition on Sales. The parties hereto shall cooperate to avoid
and resolve conflicts. If P&G is prohibited from selling any goods under the
Licensed Marks in any country because CNS is selling the Product, then P&G shall
give CNS at least 180 days notice of P&G's


                                       6



desire to sell goods in such country. Upon receipt of such notice, CNS shall
cease selling the Product in such country as soon as is reasonably commercially
possible, but in no event later than 180 days from the date of such notice, and
shall take all steps necessary to enable P&G to sell goods under the Licensed
Marks in that country. Subject to the preceding, P&G shall use commercially
reasonable efforts to cooperate with CNS in a phase out plan to sell out
finished goods of the Product and any unique materials specifically identified
to the manufacture of the Product for such country.
         (k) Other Approvals. In addition, CNS shall submit the Product to a
testing laboratory identified by P&G for tests reasonably requested by P&G. P&G
may withhold final approval of the Product pending P&G's reasonable satisfaction
with said test results, such approval not to be unreasonably withheld. All costs
of such testing will be borne by CNS.
3.       CNS COVENANTS
         With regard to its actions hereunder, CNS expressly covenants as
follows:
         (a) Authorization. CNS is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Delaware and is
duly authorized to do business therein, with full corporate power to enter into
this Agreement.
         (b) Conflicts. To the knowledge of CNS, the execution and delivery of
this Agreement does not violate any law, rule or regulation or order, judgment,
or decree within the Area binding on either party and will not result in a
breach of any contract, agreement or other instrument to which either CNS is a
party.
         (c) Plant(s) Where Product is Manufactured. CNS and its contract
manufacturer(s) (if any) shall maintain and operate a plant or plants with
manufacturing and packaging equipment adequate to produce and supply Product in
quantities adequate to meet reasonably anticipated consumer demand. CNS agrees
that in the manufacturing, packaging, distributing and selling of Product, it
shall, and CNS will use best efforts to determine that all contract
manufacturers it utilizes shall, comply with all applicable laws, regulations
and ordinances pertaining to the operation of its plants and will maintain such
plant(s) at all times in a clean, wholesome and sanitary condition consistent
with the laws of the country or countries in which the plants are located.


                                       7



         (d) Quality Control Sampling. P&G representatives shall be permitted to
enter and inspect, at reasonable times during business hours and with at least
forty-eight (48) hours' prior notice, CNS's plants and warehouses where Product
is being manufactured or stored and the plants and warehouses of CNS's contract
manufacturer(s) (if any) where Product is being manufactured or stored.
         (e) Sub-Standard Product.
                  (i) CNS covenants, warrants and guarantees that none of the
Product will be in violation of the drug, medical device or other laws of the
United States or any applicable country, and that the Product will not be
produced or shipped in violation of any applicable laws of the United States or
other country; provided, however, that CNS does not covenant, warrant or
guarantee against the Product becoming violative within the meaning of the
applicable drug, medical device, health or consumer product safety laws after
shipment by reason of causes beyond CNS's control.
                  (ii) If CNS learns that it has manufactured or has in its
possession or control or has shipped or sold Product which is in violation of
drug, medical device, health or other applicable laws, then CNS agrees to notify
P&G of such fact promptly and in writing. Upon notice to P&G from CNS, or upon
notice given by P&G to CNS of the existence of this Substandard Product, CNS
will promptly take whatever action is reasonably necessary to correct this
situation. If requested by P&G, CNS shall, solely at CNS's expense, promptly
retrieve from CNS's warehouse or plant and from all trade customers all such
Substandard Product. CNS must seek and receive P&G consent as to its proposed
handling of the retrieved Substandard Product. In the event of any consumer
recall, however or by whomever the recall is initiated, CNS shall, solely at
CNS's expense, promptly retrieve all such Substandard Product and CNS must seek
and receive P&G's consent as to its proposed handling of the retrieved
Substandard Product.
         (f) Non-Competition. During the Term of this Agreement and in the event
that P&G has Terminated this Agreement or if CNS has determined not to renew
this Agreement upon the Expiration of its Term, then for [* * *] after such
Termination or Expiration of this Agreement CNS shall not manufacture,
distribute or sell, directly or indirectly (whether for its own account or as
agent for any other party), within the Area, any products marketed for
cough/cold symptom


                                       8



relief that are substantially similar, in the reasonable opinion of P&G, to the
Product, if such products are produced by CNS under license from another
manufacturer or distributor of cough/cold products, for example, but not limited
to, manufacturers/distributors of Tylenol, Robitussin, Contac, Sudafed, Comtrex,
Dristan, Alka Seltzer, Drixoral, Bayer, Tavist, Dimetapp, Benedryl, Benalyn,
Ricola, Ludens, Nice, Halls, Sucrets or TheraPatch. However, the preceding
provisions of this paragraph shall not apply to prevent CNS from continuing to
distribute or sell any product which, on the date of this Agreement, it is then
selling or distributing. For clarification, the above non-competition provision
does not apply if CNS Terminates the Agreement or if P&G determines not to renew
this Agreement upon the Expiration of its Term.
         During the Term of this Agreement, CNS will not manufacture, distribute
or sell, directly, within the Area, its own products for cough/cold symptom
relief that are substantially similar to the Product. Notwithstanding the above,
CNS may manufacture, distribute or sell, directly, within the Area, its own
products for cough/cold symptom relief that are not substantially similar to the
Product. In addition, upon any Termination of Expiration of this Agreement, CNS
may manufacture, distribute or sell, directly, within the Area, its own products
for cough/cold symptom relief that are substantially similar to the Product.

4.       P&G RIGHTS & OBLIGATIONS

         (a) Ownership of Licensed Marks. CNS agrees and acknowledges that all
use of the Licensed Marks by CNS will inure to the benefit of P&G for purposes
of trademark registration and establishment of trademark rights. CNS will at any
time, whether during or after the term of this Agreement, execute any documents
reasonably required by P&G to confirm P&G ownership rights. Rights in the
Licensed Marks other than those specifically granted in this Agreement are
reserved by P&G for its own use and benefit. Rights to the Product (including
without limitation design rights and other intellectual property rights), other
than those specifically granted to P&G, are retained by CNS for its own use.
         P&G warrants to CNS that P&G is the owner of all rights, titles and
interests in and to the Licensed Marks with respect to cough and cold products
in the Area (except for those regions and/or countries where P&G does not market
or sell cough/cold products). Sales by CNS shall be deemed to have been made by
P&G for purposes of trademark registration and all uses of the


                                       9



Licensed Marks by CNS shall inure to the benefit of P&G for purposes of
trademark registration and establishment of trademark rights.
         (b) Cooperation. CNS will cooperate with P&G in the execution, filing
and prosecution of any trademark applications relating to the Product that P&G
may desire to file at its own expense, and for that purpose CNS will supply to
P&G from time to time such samples, containers, labels and similar material as
may reasonably be required.
         (c) Actions. CNS hereby agrees that it will not acquire any copyright,
trademark, or other right in the Licensed Marks. CNS agrees that it will not
contest or assist any other party in contesting the validity of or P&G's
ownership of the Licensed Marks. CNS agrees to give P&G prompt notice of any
apparent infringement of the Licensed Marks which comes to the attention of CNS.
When requested by CNS, P&G agrees to file applications to register the Licensed
Marks for use with the Product in any region or country where required.
                  (i) P&G, at its sole cost and expense and in its own name, may
in its sole discretion prosecute and/or defend any action or proceeding which
P&G deems necessary or desirable to protect the Licensed Marks including but not
limited to actions or proceedings involving infringement of the Licensed Marks.
CNS shall cooperate with P&G in any such action or proceeding and upon written
request by P&G, shall join P&G in any such action or proceeding at P&G sole
cost. CNS may prosecute and defend at its sole cost and expense and in its own
name any action or proceeding to protect its own designs, styles, trademarks and
other intellectual property rights.
                  (ii) CNS shall not commence any action or proceeding alleging
infringement of the Licensed Marks without the prior written consent of P&G. Any
and all damages recovered in any action or proceeding commenced by P&G shall
belong solely and exclusively to P&G, but P&G shall have no liability to CNS or
to any other person for any damages awarded or recovered against CNS or such
other person, including but not limited to any action or proceeding alleging any
violation of any antitrust, trade regulation or similar statute, or unfair
competition, unless arising out of breach by P&G of its warranties and covenants
hereunder.
                  (iii) CNS shall indemnify and hold harmless P&G from any claim
of trademark infringement, unfair competition, passing off, etc. arising from
CNS use of the Licensed Marks


                                       10



on the Product. All Costs associated with such a claim shall be exclusively CNS
although P&G will cooperate as reasonably necessary.
                  (iv) CNS shall be responsible for submitting this Agreement to
the respective trademark office or authorities in the country or countries which
require it as proof of use of the Licensed Marks.
         (d) P&G Materials. P&G shall have the right, without payment or
obligation to CNS, to produce and distribute catalogs, promotional brochures or
inserts, point of sale displays or other advertising matter displaying the
Product in conjunction with other products of P&G and/or others subject to the
other provisions of this Agreement and subject to the written approval of CNS.
         (e) Use of Names. Both CNS and P&G shall have the right, but not the
obligation, to use the name of the other party in programs without any payment
or obligation to the other party whatsoever subject to the other provisions of
this Agreement. P&G and CNS agree that such publicity will be in good taste in
accordance with industry standards.
         (f) Limitations. P&G specifically makes no representations or
warranties with respect to the availability and/or registrability of the
Licensed Marks for the Product to be marketed or sold in the Area, but P&G shall
use commercially reasonable efforts to obtain rights to the Licensed Marks for
the Product in the Area, including registration of the Licensed Marks where
necessary.

5.       P&G COVENANTS

         With regard to its actions hereunder, P&G expressly covenants as
follows:
         (a) Authorization. P&G is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Ohio and is duly
authorized to do business therein, with full corporate power to enter into this
Agreement.
         (b) Conflicts. To the knowledge of P&G, the execution and delivery of
this Agreement does not violate any law, rule or regulation or order, judgment,
or decree within the Area binding on either party and will not result in a
breach of any contract, agreement or other instrument to which either P&G is a
party. P&G is under a contractual obligation to offer a right


                                       11



of first refusal for use of the Licensed Marks on healthcare appliances or
devices associated with the field of cough/cold; such right of first refusal has
been offered and not exercised.
         (c) Enforceable License. To the knowledge of P&G, this is a valid and
enforceable License Agreement.
         (d) Non-Competition. During the Term of this Agreement and in the event
that CNS has Terminated this Agreement or if P&G has determined not to renew
this Agreement upon the Expiration of its Term, then for [ * * * ] after
such Termination or Expiration of the Term of this Agreement P&G shall not use,
or offer or grant to any other party any right to use the Licensed Marks on any
other item or good which is substantially similar to the Product. For
clarification, the above noncompetition provision does not apply if P&G
Terminates the Agreement or if CNS determines not to renew this Agreement upon
the Expiration of its Term.

6.       INDEMNIFICATION AND INSURANCE

         (a) Indemnification of P&G. CNS shall indemnify and save harmless P&G,
Its subordinates and affiliated companies, and any of their agents, servants,
officers, directors and employees from and against any liability, claim,
administrative action, cause of action, suit, damages, and expenses (including
reasonable attorney fees and costs), including but not limited to any damages
for personal injuries, including death, and property damage, which:
                  (i) result from Product which is sold, shipped, manufactured
or distributed in violation of any applicable law; or
                  (ii) result from any disputes with the trade resulting from
CNS dealings or relations therewith; or
                  (iii) result from any advertising, promotion, or other actions
or inactions by CNS in furtherance of its rights under this Agreement; or
                  (iv) are due to CNS breach of any warranty, covenant or
agreement by CNS contained herein; or
                  (v) result from any consumer's use or possession of the
Product; or
                  (vi) arise from or by reason of any acts, whether of omission
or commission, that may be committed by CNS or any of its servants, agents,
employees, sub licensees, distributors or customers in connection with CNS
performance under this Agreement, or which


                                       12



arise from or by reason of the importation, manufacture, sale and/or other
transfer or disposition by CNS of the Product. P&G and its affiliated companies
and their agents, officers, directors and employees shall have no liability
whatsoever to CNS or any other firm, corporation, organization or person for or
on account of any injury, loss, damage of any kind or nature, cost or expense
incurred by or imposed upon CNS or any other firm, corporation, organization or
person arising out of or in connection with or resulting from CNS performance of
this Agreement, including, without limitation, (a) the production, use, sale,
transfer or other disposition of any Product; or (b) any labeling, packaging,
advertising or promotion activities with respect to any of the foregoing; or
                  (vii) result from any governmental action, I.E., federal,
state or local.
         (b) Insurance. In furtherance of CNS covenants contained in the
preceding subparagraph, CNS agrees to carry product liability insurance with
respect to the Product with a limit of liability of at least Five Million US
Dollars (US $5,000,000) per occurrence and this insurance policy shall endorse
P&G as an additional insured party. Such insurance may be obtained in
conjunction with a policy of product liability insurance which covers goods
other than the Product, and shall provide for at least thirty (30) days prior
written notice to P&G of the cancellation or material modification thereof. CNS
shall deliver to P&G a certificate evidencing the existence of such insurance
policies within thirty (30) days of signing this Agreement.
         CNS agrees and covenants to maintain such insurance, including the
endorsement of P&G as an additional insured party, in full force and effect from
the effective date of this Agreement until three (3) years after the eventual
Expiration or Termination of any license hereunder. CNS may not remove P&G as an
additional insured party from CNS insurance policy without written consent from
P&G. All costs associated with CNS insurance policy, including the endorsement
of P&G as an additional insured party, will be borne by CNS.
         (c) Indemnification of CNS. P&G shall indemnify and save harmless CNS,
its affiliated companies and any of their agents, servants, officers, directors
and employees from and against any liability, claim, administrative action,
cause of action, suit, damages and expenses (including reasonable attorney fees
and costs), including but not limited to any damages for personal injuries,
including death, and property damage, which are due to P&G breach of any


                                       13



warranty, covenant or agreement by P&G contained herein or which arise from P&G
production, use, sale or other disposition of its own products or any labeling,
packaging, advertising or promotion activities of its own products in connection
with or arising from any promotional activities outlined herein. Notwithstanding
the above, CNS obligations of indemnification for its Product under section 6(a)
shall apply to any sample Product that may be provided pursuant to any
promotional agreements contained herein, unless such loss or damage is caused by
the action or inaction of P&G.
         (d) Promotions. For clarification, the aforementioned indemnification
provisions shall extend to any promotional efforts or activities conducted by
either party pursuant to Section 9 and any Scheduled promotional activities.
7.       LICENSE FEES
         (a) Calculation of Royalties. CNS agrees to pay to P&G royalties as
shown in Schedule 5, such payment to be in United States dollars determined by
the quarterly average exchange rate for the previous quarter as published by the
International Monetary Fund in International Financial Statistics (or nearest
equivalent). As used herein, Net Sales means gross sales, less discounts,
standard promotional allowances, returns and credits specific to the Product
less overseas freight and duties paid by CNS and billed to the customer. As used
herein, the term standard promotional allowances means costs incurred for
promotional events which: (i) provide payment to the trade for specific trade
performance; (ii) pay for display materials or wall components; or (iii) grant
temporary price reductions.
         (b) Minimum Royalties. CNS agrees to pay minimum royalties for each
region as set forth in Schedule 6. Minimum royalty payments, if applicable,
shall be made in the final quarter of each calendar year.
         (c) Reports. On or before the thirtieth (30th) day following the end of
each calendar quarter during the Term, CNS shall furnish to P&G complete and
accurate statements certified to be accurate by an officer of CNS showing, for
each country in which CNS distributed and/or sold the Product during the
preceding calendar quarter, the description and number of units of the Product
sold, the gross sales price, net sales price of the Product covered by this
Agreement and the royalty due under this Agreement. Such statement shall be
furnished to P&G whether or not


                                       14



any of the Product was sold during the preceding calendar quarter. The statement
should be sent to The Procter & Gamble Company, Attention: Finance Manager,
Personal Health Care, One Procter & Gamble Plaza, Cincinnati, OH 45202.
         (d) Payment Terms. All royalty amounts in this Agreement are stated in
United States dollars, and all royalty statements shall be made in United States
dollars. There shall be no deductions for the transfer of funds or royalties or
the conversion of currency into United States dollars. Payments should be sent
quarterly via wire transfer to an account specified by P&G on or before the 30th
day following the end of each calendar quarter during the Term. The receipt or
acceptance by P&G of any of the statements furnished pursuant to this Agreement
or of any royalties paid hereunder (or the cashing of any royalty checks paid
hereunder) shall not preclude P&G from questioning the accuracy, completeness or
sufficiency thereof at any time, and in the event that any inconsistencies or
mistakes are discovered in such statements or payments, they shall immediately
be rectified and the appropriate payment made by CNS.
         (e) Tax Withholding. CNS shall be responsible for the payment of any
foreign taxes, fees or assessments with regard to the Product sold by CNS or by
an Affiliate or Subcontractor of CNS. If taxes or other fees are required to be
withheld on any payments due P&G, CNS shall pay such tax or similar fee on
behalf of P&G with a corresponding reduction in royalties due P&G. If CNS does
not withhold such taxes or other fees and P&G is subsequently found liable for
payment of such taxes or other fees by any governmental jurisdiction, CNS will
reimburse P&G for any amounts P&G is liable to pay. To the extent a withholding
tax or other fee is deducted with respect to any payment between CNS and P&G,
the amount of tax or other fee withheld shall be for the account of P&G. CNS
will provide to P&G certified copies of all receipts from any governmental or
taxing authority evidencing payment of such taxes and will assist P&G in
claiming relief from double taxation.
8.       CNS RECORDS
         (a) Records. CNS shall keep and maintain at its regular place of
business complete books and records of all business transacted by CNS in
connection with the Product, including but not limited to books and records
relating to shipments, orders, and sales of the Product. Such


                                       15



records shall be retained by CNS for at least five (5) years following the year
to which they pertain.
         (b) Audit Right. P&G, or its duly authorized agents or representatives,
shall have the right to inspect said books and records at CNS premises during
regular business hours, provided that P&G shall give to CNS at least ten (10)
days' advance written notice of its intention to do so. CNS shall pay to P&G the
amount of any underpayment of royalties with interest within fifteen (15)
business days after the determination of the amount of such underpayment. CNS
shall credit the amount of any overpayment of royalties made by CNS to the next
royalty payment due after the determination of the amount of such overpayment.
In the event of any dispute between the parties as to the amount of any
underpayment or overpayment of royalties, the parties shall select an
independent third party auditor who shall inspect the parties' books and records
relating to any alleged underpayment or overpayment of royalties and whose
determination with respect hereto shall be determinative and final.
         (c) Corrections. If the auditor selected pursuant to Section 8(b) above
determines that there was a net underpayment or overpayment of royalties, then
CNS shall either pay to P&G the amount of any such underpayment or shall credit
the amount of any such overpayment as set forth in 8(b) above. If such auditor
accepts P&G calculations of royalties due and owing, then CNS shall bear the
costs and fees of such auditor; if such auditor accepts CNS calculations of
royalties due and owing, then P&G shall bear the costs and fees of such auditor.
If such auditor does not accept either party's calculations, then the parties'
shall share equally the costs and fees of such auditor.

9.       PROMOTION

         Because the Product carries the Licensed Marks, P&G agrees to treat the
Product as a member of the Vicks(R) family of products. P&G will use
commercially reasonable efforts to include the Product in trade and consumer
communications where the Vicks(R) family of products is featured. P&G agrees to
expend efforts similar to the efforts P&G has taken on other products licensed
under the Vicks(R) trademark. In regions where such activities are possible,
examples of such efforts may include, but are not limited to:


                                       16



         (a) Trade communications such as annual respiratory/cough-cold retail
sales presentations, planograms, end-aisle display recommendations and suggested
shelving structure, and retail buyer, pharmacy and physician education
advertising.
         (b) Consumer communications such as TV, radio and print advertising
when the Vicks(R) family is featured and website inclusion with a link to
BreatheRight.com. From time to time the parties may choose to collaborate on
additional joint Promotional events. The parties will coordinate the execution
and cost to each party of the Promotion on a case-by-case basis. Both P&G and
CNS must provide their approval of any such Promotion before it is commenced,
such approval not to be unreasonably withheld. Both parties shall conduct any
promotion described herein in conformity with all federal, state and local
statutes and regulations as such laws are interpreted and enforced as of the
date any promotion detailed above is first introduced to the public. Both
parties shall file all bonds, guarantees, and/or duties that may be required and
shall obtain all necessary federal, state, and local authorizations and/or
approvals that may be required to conduct the promotion described herein. An
agreed upon promotion for the United States is set forth in Schedule 7.
10.      TERM AND TERMINATION
The term of this Agreement (the "Term") shall commence on the date of this
Agreement and shall Expire, unless otherwise Terminated earlier pursuant hereto,
at the end of the Initial Term (as defined herein) or, if the Term has been
extended beyond the end of the Initial Term, at the end of the last extension
period. As used herein, the Initial Term means the period of three (3) years
from the date of this Agreement.
         (a) Extension and Non-Renewal. On each anniversary of the date of this
Agreement, the Term shall be automatically extended for a period of one (1)
year, so that the remainder of the Term shall be three (3) years from such
anniversary date (unless the Term is otherwise terminated earlier pursuant
hereto). At any time, either party may give the other written notice hereunder
that it does not wish to extend the Term pursuant hereto. If either party gives
such notice to the other, then this Agreement shall not be further extended and
at the conclusion of the remaining period of time will be deemed Expired.


                                       17



         (b) Termination by P&G. If any one or more of the following events
occurs, and CNS fails to remedy such condition within thirty (30) days after
receipt of written notice to CNS from P&G of such condition, then P&G may
terminate this Agreement by written notice:
                  (i) If CNS shall commit any material breach of any obligation,
warranty, covenant or agreement contained herein; or
                  (ii) if CNS ceases to do business; or
                  (iii) if CNS ceases to sell the Product for [* * *]
consecutive months; or
                  (iv) if CNS shall not have begun the bona fide national sale
and distribution of the Product in at least [* * *] of the Area by January 1,
2001; or
                  (v) if CNS fails to make any payments required by the
Agreement on the date specified unless such failure is inadvertent or
unavoidable; or
                  (vi) if CNS knowingly makes any false report under paragraph
7(c); or
                  (vii) if CNS fails to sell at least [* * *] package units of
Product worldwide in any calendar year beginning January 1, 2001.
         (c) Termination for CNS Bankruptcy. This Agreement and all the rights
of CNS hereunder shall forthwith terminate automatically if a bankruptcy
petition is filed against CNS, if CNS becomes insolvent or goes into
receivership, or if CNS makes an assignment for the benefit of creditors, or
files a petition for a reorganization or rearrangement under the Bankruptcy
Code.
         (d) Termination by CNS. If any of the following conditions occurs, and
P&G shall fail to remedy such condition within thirty (30) days after written
notice to P&G by CNS of such condition, CNS may terminate this Agreement by
written notice:
                  (i) If P&G shall commit any breach of any obligation,
warranty, covenant or agreement contained herein; or
                  (ii) If P&G ceases to do business.
         (e) Change of Control. Either party may terminate this Agreement at any
time upon six (6) months written notice if there shall be, directly or
indirectly, a change in the ownership or control of the other party and/or the
other party's business relating to the Product; provided, however, that P&G
shall consider a request by CNS to consent to such change in ownership or
control; such consent shall not be unreasonably withheld.


                                       18



         (f) Consequences of Expiration and Termination. Upon any Expiration or
Termination of this Agreement:
                  (i) Except as permitted under paragraph 10(f)(iv), CNS shall
not use any of the written, printed, or graphic material on the package carton
or inserts for any purpose without first obtaining the written consent of P&G,
which consent may be withheld at P&G sole discretion;
                  (ii) Unless otherwise notified by P&G, CNS will immediately
discontinue use of the Licensed Marks and shall not manufacture or import, nor
sell, distribute or otherwise transfer, nor permit to be manufactured or
imported, nor sold, distributed or otherwise transferred, the Product or other
items bearing the Licensed Marks, except as permitted under paragraph 10(f)(iv);
                  (iii) CNS shall use its best efforts to execute any and all
documents necessary to terminate of record any of CNS rights hereunder or to
transfer such rights to P&G or P&G designee, which documents shall be prepared
by P&G at its expense;
                  (iv) CNS shall immediately destroy, and return to P&G
according to P&G directions, all material associated with any Promotion as
contemplated in Section 9 that has not already been affixed to or inserted into
the Product packaging and P&G shall have the option of buying existing packaged
Product at CNS cost. If P&G does not exercise this option and the Agreement has
Expired or has been Terminated, then CNS may sell its existing inventory of
packaged Product at a discount off CNS best published price for a period not to
exceed twelve (12) months after the Expiration or Termination of this Agreement.

11.      CONFIDENTIALITY

         (a) P&G Trade Secrets. The parties agree that any of P&G trade secrets
which may be disclosed to or acquired by CNS pursuant to this Agreement are to
be used solely in connection with CNS performance under the terms of this
Agreement and are not to be disclosed to any persons other than employees or
agents of CNS. CNS shall use the same standard of care protecting against
publication or dissemination of P&G trade secrets by CNS and its directors,
officers, employees and agents as CNS uses with respect to information as to its
own business which it desires not to have published or disseminated and will so
inform and direct its directors,


                                       19



officers, employees and agents receiving such trade secrets. Any memoranda or
papers containing trade secrets of P&G which CNS may receive in connection
herewith are to be returned at P&G request. However, the above requirement shall
not apply to information which is, or subsequently may become, within the public
domain or the knowledge of the general public through no fault of CNS. CNS
obligations and duties hereunder shall survive for five years after Termination
or Expiration of this Agreement.
         (b) CNS Trade Secrets. The parties agree that any of CNS trade secrets
which may be disclosed to or acquired by P&G pursuant to this Agreement are to
be used solely in connection with P&G performance under the terms of this
Agreement and are not to be disclosed to any persons other than employees or
agents of P&G. P&G will use the same standard of care protecting against
publication or dissemination of CNS trade secrets by P&G and its directors,
officers, employees and agents as P&G uses with respect to information as to its
own business which it desires not to have published or disseminated and will so
inform and direct its directors, officers, employees and agents receiving such
trade secrets. Any memoranda or papers containing trade secrets of CNS which P&G
may receive in connection herewith are to be returned at CNS request. However,
the above requirement shall not apply to information which is, or subsequently
may become, within the public domain or the knowledge of the general public
through no fault of P&G. P&G obligations and duties hereunder shall survive for
five years after Termination or Expiration of this Agreement.
         (c) Nondisclosure. CNS and P&G agree not to divulge, permit or cause
their officers, directors, employees or agents to divulge this document or the
specific details of this Agreement except to their representatives and attorneys
in the course of any legal proceeding to which either of the parties hereto is a
party for the purpose of securing compliance with this Agreement.
Notwithstanding the above, either party may disclose the existence of this
Trademark License Agreement and the names of the Licensed Marks and Product that
are the subject of said Agreement. Upon Termination or Expiration of this
Agreement, at P&G request, CNS shall return within thirty (30) days to P&G all
materials furnished by P&G to CNS in connection with the program and at CNS
request, P&G shall return within thirty (30) days to CNS all materials furnished
by CNS to P&G in connection with the program.


                                       20



         (d) Press Releases. Neither party shall make any press release with
respect to this Agreement or any matter arising from this agreement without
first obtaining the other party's prior written approval, such approval shall
not be unreasonably withheld. Such press releases shall be submitted to the
person designated by each party. Each party's designee shall review and respond
in writing with regard to its approval or non-approval of such materials within
three (3) business days after receipt of such materials from the other party.
Approval of the submitted materials will not be unreasonably withheld.

12.      MARKING

CNS shall affix permanently to the Product or its container the legend "The
Vicks(R) trademark is used under license from The Procter & Gamble Company,
Cincinnati, Ohio" or such other entity as P&G shall designate, or the equivalent
such language approved by P&G.

13.      FORCE MAJEURE

Neither P&G nor CNS shall be liable to the other for any failure to comply with
any terms of the Agreement to the extent any such failure is caused directly or
indirectly by fire, strike, union disturbance, injunction or other labor
problems, war (whether or not declared), riots, insurrection, government
restrictions or other government acts, or other causes beyond the control of or
without fault on the part of either P&G or CNS. However, CNS shall continue to
be obligated to pay P&G when due any and all amounts which it shall have duly
become obligated to pay in accordance with the terms of this Agreement. Upon the
occurrence of any event of the type referred to in this Section, the party
affected thereby shall give prompt notice thereof to the other party, together
with a description of such event and the duration for which such party expects
its ability to comply with the provisions of this Agreement to be affected
thereby. The party affected shall thereafter devote reasonable efforts to remedy
to the extent possible the condition giving rise to such event and to resume
performance of its obligations hereunder as promptly as possible.

14.      MISCELLANEOUS

         (a) First-Line Goods. It is the essence of this Agreement that only
first-line goods shall be sold by CNS under the Licensed Marks. No factory
damaged, seconds, or goods not of first quality shall be sold by CNS pursuant to
this Agreement without first removing or


                                       21



obliterating any and all labels, tags, decals, or other material (including
promotional inserts and trademark imprints) bearing the Licensed Marks.
         (b) Use of Mark as Names. CNS will not use the Licensed Marks as all or
a portion of a corporate name or as all or a portion of any trade name or other
designation used by it to identify its business. CNS employees will not
represent themselves as being representatives of or otherwise employed by P&G.
         (c) Notice. Any notice, inquiries, or other communication in connection
with this Agreement shall be in writing and sent by certified mail, return
receipt requested, postage prepaid and addressed to the respective parties as
follows:

                  To CNS:     CNS Incorporated
                              4400 West 78th Street
                              Minneapolis, Minnesota 55435
                              Attn: Vice President Business Development

                  Copy to:    Patrick Delaney
                              Lindquist & Vennum
                              4200 IDS Center
                              Minneapolis, Minnesota 55402

                  To P&G:     The Procter & Gamble Company
                              One Procter & Gamble Plaza
                              Cincinnati, Ohio 45202
                              Attn: Marketing Director, North America,
                                    Respiratory

                  Copy to:    The Procter & Gamble Company
                              Legal Division
                              One Procter & Gamble Plaza
                              Cincinnati, Ohio 45202
                              Attn: Associate General Counsel, Health Care

or such other addresses as shall be designated by written notice.
         (d) Relationship Between the Parties. This Agreement does not
constitute CNS as the agent or legal representative of P&G or P&G as the agent
or legal representative of CNS for any purpose whatsoever. CNS is not granted
any right or authority to assume or to create any obligation or responsibility,
expressed or implied, on behalf of or in the name of P&G or to bind P&G in any
manner or thing whatsoever; nor is P&G granted any right or authority to assume
or


                                       22



create any obligation or responsibility, expressed or implied, on behalf of or
in the name of CNS or to bind CNS in any manner or thing whatsoever. No joint
venture or partnership between CNS and P&G is intended or shall be inferred.
         (e) Entire Agreement. This writing contains the entire agreement
between the Parties with respect to the subject matter hereof. This Agreement
supersedes any prior verbal or written agreements with CNS. This Agreement
between the parties may not be altered except by an instrument in writing signed
by authorized representatives of the parties.
         (f) Interpretation. Any provision of this Agreement which shall be, or
shall be determined to be, invalid shall be ineffective, but such invalidity
shall not affect the remaining provisions hereof. The titles to sections hereof
are for convenience only and have no substantive effect.
         (g) Waiver. If either party shall at any time waive any of its rights
under this Agreement or the performance by the other party of any of its
obligations hereunder, such waiver shall not be construed as a continuing waiver
of the same rights or obligations or a waiver of any other rights or
obligations.
         (h) Dispute Resolution. If P&G or CNS shall commence any action or
proceeding against the other by reason of any breach or claimed breach of the
performance of any of the terms and conditions of this Agreement, or to seek a
judicial declaration of rights hereunder, the prevailing party in such action or
proceeding shall be entitled to reasonable attorney fees to be fixed by the
trial court. Any legal action or proceeding of any sort commenced or instituted
against either party (or its assignee in any of the countries in the Area) by or
on behalf of either party shall be brought in a court of competent jurisdiction
in the State of Ohio. In any legal action or proceeding brought in which any
right(s) arising from this Agreement shall be issued, the law applicable thereto
shall be the law of the State of Ohio.
         (i) Assignment. This Agreement is entered into because of P&G reliance
upon the knowledge, experience, skill and integrity of CNS and is personal to
CNS. This Agreement, the License and any rights hereunder granted to CNS and/or
any duties to be performed by CNS hereunder may not be assigned, transferred,
hypothecated, sub-licensed, encumbered or otherwise disposed of without first
obtaining the consent in writing of P&G. If P&G shall grant


                                       23



such consent, any and all future assignments, transfers, hypothecations,
sublicenses, encumberments or other disposals of any new party's rights and/or
duties under this Agreement shall not occur without written consent from P&G,
which consent may be withheld in P&G sole discretion. P&G reserves the right to
assign this Agreement to any third party whether or not affiliated with P&G.
Notwithstanding the foregoing, transfer of CNS rights and duties in the case of
a change of control shall be governed by paragraph 10(e).
         (j) Other Licenses. CNS understands that this License may not
constitute all the consents or licenses required in order to manufacture,
import, and/or sell the Product, and expressly covenants to obtain all other
such licenses or consents that may be so required. IN WITNESS WHEREOF, the
parties hereto have duly executed this Agreement.


For The Procter & Gamble Company         For CNS Incorporated

/s/  Thomas C. Blinn                     /s/ Daniel Cohen
- --------------------------------------   ---------------------------------------
Title: V.P. Personal Health Care         Title: CEO
      --------------------------------         ---------------------------------
Date: 3-1-00                             Date: 2-28-00
     ---------------------------------        ----------------------------------

P&G approvals:

Form:     /s/ Paul Franz
         -----------------------------
         Counsel

Finance:
        ------------------------------

Execution: /s/ Richard A. Armstrong
          ----------------------------

          Associate Director for Heathcare Alliances


                                       24



                                   SCHEDULE 1

Vicks(R)
Vicks triangle design mark



                                       25



                                   SCHEDULE 2

Breathe Right(R) mentholated vapor nasal strips



                                       26



                                   SCHEDULE 3


REGIONS                         COUNTRIES
North America                   United States
                                Canada

Latin America                   Argentina
                                Brazil
                                Chile



                                       27



                                   SCHEDULE 4

In all regions/countries of the world the Licensed Mark "Vicks" must be used on
all packages with the well known triangle design Licensed Mark and may not be
used as the primary brand name.



                                       28



                                   SCHEDULE 5


COUNTRY                                 ROYALTY AS % OF CNS

                                       NET SALES OF PRODUCTS

                                 WHICH INCLUDE THE LICENSED MARKS


United States                                [* * *]
Canada                                       [* * *]

Argentina                                    [* * *]
Brazil                                       [* * *]
Chile                                        [* * *]



                                       29



                                   SCHEDULE 6


REGION                                 MINIMUM ROYALTY OBLIGATION
- ------                                 --------------------------

North America                          [* * *] per calendar year in which
                                       Product is offered for sale for at least
                                       [* * *] months

Any Region Outside North America

    Introductory Year 1                [* * *] per Introductory calendar year
                                       in which Product is offered for sale
                                       for fewer than [* * *] months

    Calendar Year 2                    [* * *] per calendar year in which
                                       Product is offered for sale for at least
                                       [* * *] months

    Calendar years 3 and beyond        [* * *] per calendar year in which
                                       Product is offered for sale for at least
                                       [* * *] months



                                       30



                                   SCHEDULE 7


P&G and CNS agree to jointly collaborate on the following marketing effort
(hereinafter the "Promotion") within the United States for the 2000/2001 Rollout
year for the Product:

1.       SAMPLING.

(a)      P&G agrees to distribute samples of the Product on or in packages of
         specified Sample Vehicles. P&G agrees to make available a combination
         of the following products to carry the Product samples: Vicks(R)Sinex,
         Vicks(R)4 oz. Children's NyQuil(R)and Vicks(R) twin 10 oz. NyQuil(R),
         in the quantities and for the sampling costs listed in Table 1 for the
         samples of the Product to be carried on or in. CNS agrees to notify P&G
         in writing no later than February 28, 2000 of the number of each
         quantity of Sample Vehicles listed that CNS would like to specify for
         the sampling program. The combination and quantity of products
         specified by CNS are herein called "Sample Vehicles."

(b)      As part of this sampling effort, CNS will supply wrapped sample units
         of two strips of the Product to P&G at [* * *] to P&G in an amount
         equal to the number of Sample Vehicles specified by CNS. P&G will
         attach or in-pack samples of the Product to P&G Sample Vehicles and
         will distribute the samples of the Product with the Sample Vehicles at
         the sole expense of CNS according to costs set forth in Table 1. The
         costs in Table 1 include the cost of stickering the Sample Vehicles.
         Depending on the quantity of Sample Vehicles ordered by CNS, and
         depending on P&G's internal timing constraints, P&G will use reasonable
         efforts to change package artwork for Sample Vehicles in order to avoid
         the necessity of utilizing a sticker on the Sample Vehicles that have
         the samples of the Product. If P&G is able to change the Sample
         Vehicles package artwork, it shall do so at P&G's sole expense and the
         costs listed in Table 1 may be reduced by the cost of stickering. All
         sales of Sample Vehicles (including samples) are for P&G's account.

(c)      The samples of the Product with the Sample Vehicles will be timed to
         ship during the P&G July 3, 2000 to January 31, 2001 cough-cold
         packaging period. P&G will use


                                       31



         reasonable efforts to facilitate key account merchandising and trade
         ads featuring the samples of the Product with the Sample Vehicles.

                                     TABLE 1


VICKS(R) PRODUCT                   SAMPLING COST                NUMBER
                                      PER UNIT                AVAILABLE
                                     (DOLLARS)             (MILLION UNITS)
- --------------------------------------------------------------------------------
SINEX (SKU'S)                                                  [* * *]
open box + sticker*                   [* * *]
- --------------------------------------------------------------------------------
4 OZ. CHILDREN'S NYQUIL                                        [* * *]
shrink to side + sticker*             [* * *]
- --------------------------------------------------------------------------------
10 OZ. NYQUIL TWIN PACK                                        [* * *]
inset + sticker*                      [* * *]
- --------------------------------------------------------------------------------

*costs may be reduced by the cost of stickering pursuant to section 1(b) above.

2.       PROMOTION.

         CNS agrees to place a front-page, full-page, free standing coupon
         insert ("FSCI") for January 28, 2001 for the Product. CNS agrees to
         bear the cost of this placement. CNS cost of placing this ad would be
         [* * *]. Upon CNS providing P&G with reasonable documentation of
         running the FSCI, P&G will grant CNS a credit of [* * *] (one half the
         amount of CNS placement costs of the FSCI) against royalties payable
         under Section 7 hereof. CNS will produce the artwork for this FSCI. CNS
         will submit such artwork to P&G for approval pursuant to Section 2(f)
         of the Agreement. CNS will bear the redemption and other administrative
         costs of the CNS coupon.

3.       ADVERTISING.

         (a)      CNS will support the launch of the Product with national TV
                  advertising during the cough-cold season (Q4 2000-Q1 2001) at
                  its own expense. This advertising will feature the Product and
                  will include a visual of the package and the Licensed Marks.
         (b)      In addition to promotional efforts outlined in Section 9 of
                  the Agreement, P&G agrees to include an advertisement on the
                  Product in its Pharmacy Digest mailing which is mailed to
                  pharmacists.  P&G agrees to explore the option of placing a


                                       32



                  sample of the Product in the Pharmacy Digest mailing. If
                  logistically feasible, and upon CNS approval, P&G will include
                  a sample of the Product in Pharmacy Digest mailing at CNS sole
                  expense.

4.       SALES COORDINATION. P&G and CNS will use reasonable efforts to
         coordinate sales information and materials to support the launch of the
         Product by sharing with each other 1-2 page sell sheets and fact sheets
         about the Product and Sample Vehicles respectively. These materials
         will educate each company's sales force on the basics of the Product
         and the Vicks family of products and prepare them for retailer
         questions. Notwithstanding the above, should either party's sales
         personnel receive questions about the other party's products, each
         party agrees that such sales personnel will use reasonable efforts to
         take action to refer the retailer's question to the other party's
         appropriate sales representative.


                                       33

EX-10

CERTAIN INFORMATION HAS BEEN DELETED FROM THIS EXHIBIT AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 24b-2.

                                                                   EXHIBIT 10.11



                              DISTRIBUTOR AGREEMENT
                                     BETWEEN
                                    CNS, INC.
                                       AND
                                 EISAI CO., LTD.




                                TABLE OF CONTENTS                           Page
                                -----------------                           ----

ARTICLE I - DEFINITIONS........................................................1
        1.1    Party...........................................................1
        1.2    Products........................................................1
        1.3    Term of this Agreement..........................................2
        1.4    Territory.......................................................2
        1.5    Trademarks......................................................2
        1.6    Year............................................................2

ARTICLE II - DISTRIBUTION AND OTHER RESPONSIBILITIES...........................2
        2.1    Appointment.....................................................2
        2.2    Acceptance, Activity, and Compensation..........................2
        2.3    Facilities and Capability.......................................3
        2.4    Promotion.......................................................3
        2.5    Market Information..............................................3
        2.6    Business Planning and Review....................................4
        2.7    Not an Agent....................................................4
        2.8    Conflict of Interest............................................5
        2.9    Expenses........................................................5
        2.10   Goodwill........................................................5
        2.11   Nondisclosure...................................................5
        2.12   Performance Objectives..........................................6
        2.13   Other Responsibilities of EISAI.................................6

ARTICLE III - PURCHASE AND SUPPLY OF PRODUCTS..................................6
        3.1    Purchase and Supply.............................................6
        3.2    Prices, Terms, and Conditions...................................6
        3.3    Inventories:....................................................6

ARTICLE IV - TRADEMARKS........................................................7
        4.1    Trademarks......................................................7
        4.2    Infringement....................................................8

ARTICLE V - TERM AND TERMINATION...............................................8
        5.1    Duration........................................................8
        5.2    Termination by Either Party.....................................8
        5.3    Termination by CNS..............................................9
        5.4    Reasonable Notice:..............................................9
        5.5    Effect of Termination or Expiration.............................9


                                        i



ARTICLE VI - INDEMNIFICATION..................................................10
        6.1    Indemnification by CNS.........................................10
        6.2    Indemnification by EISAI.......................................10
        6.3    Qualifications.................................................10

ARTICLE VII - MISCELLANEOUS PROVISIONS........................................10
        7.1    Notice:........................................................10
        7.2    Validity:......................................................11
        7.3    Compliance with Law; Governing Law; Disputes...................11
        7.4    Assignment.....................................................12
        7.5    Non-waiver.....................................................12
        7.7    Headings.......................................................12
        7.8    Entire Agreement...............................................12
        Schedule A - Products and Territory...................................14
        Schedule B - Trademarks...............................................15
        Schedule C - Performance Objectives...................................16


                                       ii




                            CNS DISTRIBUTOR AGREEMENT

                                 EISAI CO., LTD.

        Agreement made effective as of the 1st day of August, 2000 (the
"Effective Date") by and between CNS, Inc., a corporation whose principal
offices are located 7615 Smetana Lane, Eden Prairie, Minnesota 55344 USA
(hereinafter referred to as "CNS") and EISAI Co., Ltd., a Japanese company whose
principal offices are located at 4-6-10 Koishikawa, Bunkyo-ku, Tokyo 112-8088
Japan (hereinafter referred to as "EISAI").

        WHEREAS, CNS wishes to arrange for the promotion, sale and distribution
of the Products (hereinafter defined) in the Territory (hereinafter defined) on
the terms and conditions set forth below; and

        WHEREAS, EISAI wishes to become a distributor of the Products for CNS in
the Territory and represents that it possesses qualified personnel and
sufficient financial and physical resources to promote fully CNS's Products in
the Territory.

        NOW, THEREFORE, in consideration of the above and of the mutual promises
set forth below, the parties hereby agree as follows:


                             ARTICLE I - DEFINITIONS

        In this Agreement each of the terms listed below has the meaning
indicated. Words incorporating the singular shall also include the plural and
vice versa where context requires.

        1.1 PARTY: CNS or EISAI as the case may be, when used in the singular,
and both CNS and EISAI when used in the plural.

        1.2 PRODUCTS: CNS's tan and clear Breath Right(R) nasal strips, in
finished, packaged form, and any other Products defined in Schedule A, attached
hereto, as such Schedule A may be updated from time to time by agreement of the
Parties; provided, however, that (a) CNS may elect not to offer all of its
products to EISAI for distribution under this Agreement; (b) CNS may
unilaterally delete from the list of Products at any time, upon one hundred and
eighty (180) days'


                                        1



notice to EISAI, those products which CNS no longer offers generally for sale to
distributors in the same form or with the same specifications; and (c) CNS may
delete any Products from the list of Products at any time, for any reason, upon
one hundred twenty (120) days' notice thereof to EISAI, with the agreement of
EISAI or if CNS offers a comparable replacement for the Product to be deleted
from the list. The quality agreement which contains the specifications, handling
instructions, special precautions and other information relating to the Products
shall be separately agreed by CNS, EISAI and HERUSU.

        1.3 TERM OF THIS AGREEMENT: That period from the Effective Date until
the expiration or termination of this Agreement as provided herein, including
any extension or renewal.

        1.4 TERRITORY: All areas and territories of Japan.

        1.5 TRADEMARKS: Trademarks as shown on Schedule B of this Agreement
attached hereto and made a part hereof, and including any other trademarks,
trade names and designs that EISAI knows or are associated with the Products,
whether registered or unregistered. CNS may from time to time add trademarks to
the list on Schedule B through simple notice thereof to EISAI or by unilaterally
providing to EISAI a new Schedule B.

        1.6 YEAR: The first Year of this Agreement shall be the period from
August 1, 2000, to March 31, 2001. Thereafter, Years of this Agreement shall be
the twelve (12) month periods commending on April 1 and ending on the following
March 31.


              ARTICLE II - DISTRIBUTION AND OTHER RESPONSIBILITIES

        2.1 Appointment: CNS hereby appoints EISAI as its exclusive distributor
for the Territory with the right to appoint sub-distributors and agrees that CNS
will not appoint or sell the Products to another distributor in the Territory,
except to HERUSU as supplier to EISAI, so long as EISAI is not in breach of any
terms or provisions of this Agreement subject to Clause 5.2, 5.3 and 5.4 herein.
CNS will attempt to ensure EISAI's exclusivity for sale of Products in the
Territory, but in cases where CNS is prevented by law from restricting sales by
CNS's other distributors or representatives out of their respective territories
into the Territory, CNS assumes no responsibility for such sales. Without paying
any fees or incurring any similar liabilities or obligations, CNS shall exert
reasonable efforts to arrange a smooth transition of information and business to
EISAI from CNS's previous distributor for the Territory.

        2.2 Acceptance, Activity, and Compensation: EISAI hereby accepts the
appointment and agrees that it will diligently promote, sell, and distribute the
Products in the Territory in accordance with the terms and conditions of this
Agreement. Eisai shall also provide all customary distributor services,
including without limitation delivery, distribution, stock counts and inventory
control, regulatory responsibilities, order taking, invoicing, collection,
credit risk,


                                        2



sales promotion, merchandising, free goods, trade discounts, rebates and
year-end bonuses, and reporting on and analysis of competitive activities and
products. Eisai further agrees to perform other related activities described
herein, including but not limited to those referenced in Section 2.13 below.
Among other obligations, EISAI agrees to purchase Products exclusively from
HERUSU for the Territory. EISAI shall not itself or through an affiliated party
solicit orders for Products from customers outside the Territory or sell
Products to customers outside the Territory. The sole compensation to EISAI for
its sales, marketing, information, enhancement of goodwill, and other aspects of
distribution pursuant to this Agreement but not as indemnification as provided
in Sections 4.2 and 6.1 below shall be its profit on the resale of the Products
in the Territory, and such profit shall be deemed to include all termination
obligations and other payments which CNS might, but for this provision, have had
to pay EISAI under the Agency law or applicable Laws in the Territory
("Compensation for Termination").

        2.3 Facilities and Capability: EISAI shall maintain a suitable place of
business and adequate facilities to enable it to perform its obligations under
this Agreement. EISAI shall not establish or maintain an office or warehouse
outside the Territory in connection with the sale of the Products outside the
Territory. EISAI represents that it already possesses sufficient facilities and
employs sufficient personnel to perform its responsibilities under this
Agreement, that it does not need to expand or to hire additional people in order
to represent and distribute the Products as provided herein.

        2.4 Promotion:

                2.4.1 EISAI shall use its best efforts to acquire
        sub-distributors that EISAI deems reasonably acceptable to CNS and
        otherwise to expand the market for the Products in the Territory and
        carry out a merchandising policy designed to preserve the goodwill that
        is currently associated with the name of CNS and with the Products.

                2.4.2 EISAI shall provide advice and assistance to CNS in CNS's
        efforts to advertise the Products to consumers in the Territory, such
        advice and assistance to include but not be limited to the placement of
        advertising; provided, however, that CNS shall bear the expense of all
        such consumer advertisement.

                2.4.3 CNS shall supply EISAI with samples of package design and
        promotional and sales materials from the U.S. market for adaptation to
        the market of the Territory at the expense of EISAI. All promotion and
        packaging materials or programs that relate to the Products and that are
        developed by or for EISAI shall be submitted to CNS for approval prior
        to the distribution, use or implementation thereof.

                2.4.4 EISAI shall be responsible for the development and
        implementation of all sales promotions, including but not limited to
        special trade


                                        3



        discounts, and other trade incentives. Any direct or indirect expenses
        associated with such sales promotions shall be the sole responsibility
        of EISAI.

        2.5 Market Information: If so required by CNS, EISAI shall remain fully
knowledgeable about the market for the Products in the Territory and shall keep
CNS fully informed with respect thereto, and shall advise CNS of any changes in
applicable laws and regulations pertaining to the quality and marketability of
the Products in the Territory.


                                        4



        2.6 Business Planning and Review:

                2.6.1 After the second Year of this Agreement, EISAI shall
        supply to CNS at least two (2) months before the end of each Year during
        the term hereof an annual business plan for promotion and sale of the
        Products in the Territory ("Business Plan"). The Business Plan presented
        by EISAI shall include such matters as targeted levels for CNS's
        advertising spending in the Territory, supply of free samples to be
        distributed to consumer at the cost of CNS ("Consumer Samples"), and the
        supply of ten (10) strip samples to be distributed to customer at the
        cost of EISAI ("Customer Sample"). CNS and EISAI shall consult and
        decide on the Business Plan. In the event that the parties can not reach
        an agreement on such Business Plan prior to the commencement of the
        Year, final decisions on consumer activities shall be vested in CNS and
        final decisions on customer activities shall be vested in EISAI.

                2.6.2 EISAI shall furnish quarterly to CNS, upon CNS's request,
        such other periodic forecasts, budgets, promotional schedules, and
        recommendations for the Territory as CNS may reasonably request and
        shall confer with CNS quarterly to provide an update and progress report
        with respect to the Business Plan.

                2.6.3 In addition to the quarterly updates provided for in
        Section 2.6.2, during the Term of this Agreement, EISAI shall submit to
        CNS good faith twelve-month forecasts of quantities to be supplied by
        HERUSU by the end of January each year and monthly sales reports
        transmitted no later than ten (10) business days after the end of each
        month, including at least (1) Product sales by type and number of
        Product units sold; (b) a comparison of current sales against the sales
        forecast; and (c) inventory on hand at the end of such month, as well as
        other information and reports in such form as agreed by the Parties or
        as CNS may reasonably request for the purpose of keeping CNS advised of
        the current competitive conditions in the Territory and the progress of
        EISAI in promoting and selling the Products, including but not limited
        to wholesaler information such as names, addresses, purchase volumes,
        phone and fax numbers, upon request by CNS.

                2.6.4 For efficient ordering and execution of volume sales as
        forecast in this Agreement, EISAI shall provide promptly to HERUSU Co.,
        Ltd., ("HERUSU") copies of all forecasts that EISAI supplies to CNS.

        2.7 NOT AN AGENT: At all times during the term of this Agreement, EISAI
shall act as an independent contractor. Neither the making of this Agreement nor
the performance of any of the provisions hereof shall be construed to constitute
EISAI as an agent or legal representative of CNS for any purpose; nor shall this
Agreement be deemed to establish a joint venture or partnership. Each purchase
of the Products by EISAI from CNS pursuant to this Agreement, each sale of the
Products made by EISAI and each agreement or commitment made by EISAI to any
person, firm or corporation with respect thereto shall be made by EISAI for its
own account


                                        5



as principal and at its own expense. EISAI will have no authority to represent
CNS in the Territory or elsewhere as agent nor to bind CNS by any conduct,
representations, or understanding concern CNS or the Products. The Parties agree
that they do not intend to create and do not hereby create a franchise
relationship under the laws of any jurisdiction.

        2.8 Conflict of Interest: During the term of this Agreement, EISAI shall
not, directly or indirectly, manufacture, distribute or sell products in the
Territory which in CNS's reasonable judgment are similar to or might compete or
interfere with the sale of the Products except the products which EISAI sells
prior to the launch of the Products. In the event that the parties agree to add
a new product to Schedule A, EISAI shall inform CNS if EISAI has any similar
product currently on sale which may compete with the CNS product to be added to
Schedule A. Eisai shall so inform CNS early in the course of discussions and
before the Parties agree to add the product to Schedule A.

        2.9 Expenses: Except as provided elsewhere in this agreement or as the
Parties may otherwise expressly agree in writing from time to time, EISAI shall
bear the costs and expenses for the performance of EISAI's obligation hereunder,
including, but not limited to, bad debt expenses, inventory losses, commissions,
taxes, and promotion to the distribution network. In no event shall CNS be
liable for any such costs and expenses therefor incurred by EISAI unless CNS has
specifically agreed in writing, in advance, to pay such expenses.

        2.10 Goodwill: EISAI shall use its best efforts to preserve and enhance
the goodwill of the Products and the Trademarks. The Parties agree that all
goodwill associated with the Products and the Trademarks in the Territory shall
accrue solely to the benefit of CNS.

        2.11 Nondisclosure: The Parties agree that, to the extent that the
confidentiality agreement in force between them as of May 19, 2000, may be
limited, invalidated, or terminated, and the following terms and conditions
shall apply to the confidential information disclosed by the Parties
("Confidential Information").

                2.11.1 The party which receives the Confidential Information
        ("Receiving Party") shall not disclose to any third party any
        Confidential Information relating to business or methods of carrying on
        business or any other information it receives from the Party which
        discloses Confidential Information ("Disclosing Party") without prior
        written consent of the Disclosing Party. Receiving Party shall return
        all such information to Disclosing Party upon termination or expiration
        of this Agreement. Except as indicated in Section 2.11.2, information
        that shall be considered to be confidential is all information
        concerning the Products, future unpublished product tests and
        specifications, future product plans, marketing and sales information,
        technical dossiers, product drawings, customer names, customer
        addresses, customer order history, and other customer data and
        information that the Receiving Party should reasonably understand to be
        confidential; however, in the case of termination of this Agreement,
        information relating to customer names, addresses, and order history
        directly or indirectly supplied by Eisai to CNS shall


                                        6



        be excluded from this confidentiality obligation for the purpose of
        disclosure to EISAI's successor.

                2.11.2 Information is not considered as confidential if a) it
        becomes public through no fault of the Receiving Party; b) the Receiving
        Party develops the information independently prior to the receipt of
        such information; c) the Receiving Party has already possessed the
        information at the time of receiving it; d) the Receiving Party receives
        the information from a third party without restriction and without
        breach of any confidentiality agreement.

        2.12 Performance Objectives: Performance Objectives for the initial two
Years of this Agreement are as specified in Schedule C. For each Year thereafter
during the Term of this Agreement, the Parties shall agree in writing on
Performance Objectives, as an update to Schedule C, at least two (2) months
before the end of the current Year. Performance Objectives shall be updated as a
part of the business plan referenced in Section 2.6.1 and shall include sales
objectives of EISAI, volume of Customer Samples, trade promotion spending by
EISAI, CNS's volume of Consumer Samples of Products, and CNS's advertising
spending.

        2.13 Other Responsibilities of EISAI: EISAI agrees to perform certain
additional duties specific to EISAI and/or the Territory, which duties are
detailed in Schedule D and are considered by the Parties to be material to this
Agreement.


                  ARTICLE III - PURCHASE AND SUPPLY OF PRODUCTS

        3.1 Purchase and Supply: EISAI shall purchase for its own account and in
its own name exclusively from HERUSU, such quantities of the Products as may be
deemed necessary or desirable to meet fully and promptly all demand therefor
from the customers in the Territory and to market the Products effectively in
the Territory, subject to the terms and conditions herein. EISAI shall give to
CNS and to HERUSU as much advance notice of supply requirements for the Products
as reasonably practicable and shall observe the combined lead times specified by
CNS and HERUSU. However, EISAI shall be released from this obligation during the
three (3) months period prior to any termination.

        3.2 Prices, Terms, and Conditions: EISAI shall purchase Products, only
from HERUSU, at the prices and on the terms and conditions agreed between EISAI
and HERUSU.

        3.3 Inventories: EISAI shall establish and maintain at all times at
least sufficient inventory of the Products to supply, fully and promptly, all
demand for the Products by the customers in the Territory for one month. Such
demand will be measured at any time by the greater of (a) the most recent
month's sales and (b) EISAI's sales projections that include the next month.
However, EISAI shall be released from this obligation during the three (3)
months period prior to any termination.


                                        7



        3.4 Warranties and Claims:

                3.4.1 Warranties: CNS warrants the Products only as specified in
        a warranty provided by CNS on the packaging of the Products or packed
        with the Products. The Parties recognize that a substitute warranty may
        be provided by HERUSU on the packaging of the Products or packed with
        the products. The Parties agree that any and all warranty-related claims
        concerning the Products must be presented by EISAI to HERUSU, rather
        than CNS, for action.

                3.4.2 Claims: EISAI shall as a courtesy notify CNS immediately
        of any likelihood of claim under the foregoing warranty and shall give
        such notification to CNS at substantially the same time as EISAI
        notified HERUSU of the likelihood of claim. EISAI shall also inform CNS
        immediately of any likelihood of claim from any consumer or consumers
        with regard to any of the Products. The Parties shall provide each other
        all reasonable assistance and cooperation with regard to any such claim
        by consumers. Indemnification with respect to such claims shall be
        conducted as provided in Section 6.3 below.

                3.4.3 Disclaimer of Liability: The warranty referred to in
        Clause 3.4.1 is the only warranty or representation made by CNS with
        respect to the Products. ALL OTHER EXPRESSED AND IMPLIED WARRANTIES ARE
        SPECIFICALLY DISCLAIMED, INCLUDING THOSE OF MERCHANTABILITY AND FITNESS
        FOR A PARTICULAR PURPOSE. IN NO CASE WILL CNS BE LIABLE FOR SPECIAL,
        INCIDENTAL OR CONSEQUENTIAL DAMAGES EVEN IF CNS HAS BEEN ADVISED OF THE
        POSSIBILITY OF SUCH DAMAGES.


                             ARTICLE IV - TRADEMARKS

        4.1 Trademarks: CNS has registered or otherwise gained rights in the
Territory with respect to some or all of the Trademarks referenced in Schedule
B. CNS hereby licenses EISAI to use the Trademarks, free of charge, only during
the term of this Agreement, only as provided herein and only in connection with
EISAI's sale of the Products, to indicate the source of such Products. EISAI
shall have no rights under this Agreement in or to the Trademarks, and shall not
during or after the term of this Agreement represent that it is the owner of the
Trademarks, whether or not such Trademarks are registered nor shall EISAI
dispute the validity of the Trademarks during or after the Term of this
Agreement.

                4.1.1 EISAI shall sell the Products only (a) with labeling and
        packaging of which the format and type have been supplied or approved by
        CNS and (b) under the Trademarks specified or approved by CNS.


                                        8



                4.1.2 EISAI shall not at any time register or cause to be
        registered in its name or in the name of another, nor use or employ
        during or after the term of this Agreement, any of the Trademarks or any
        trade name or design resembling or similar to any of the Trademarks.

                4.1.3 EISAI agrees that upon termination or expiration of this
        Agreement EISAI will discontinue forthwith all use of the Trademarks,
        subject to Section 5.5 herein and shall not thereafter directly or
        indirectly sell or distribute any products bearing trademarks, names, or
        designs confusingly similar to the Trademarks or otherwise use trade
        names or designs confusingly similar to the Trademarks.

        4.2 Infringement: EISAI shall, for the benefit of CNS, undertake to
monitor the infringement of the Trademarks in the Territory. EISAI shall
promptly send a report to CNS in the event EISAI should become aware of any
infringement or threatened infringement by a third party of the Trademarks or
any patents of CNS in the Territory. CNS shall promptly take all necessary steps
to remove or prevent such infringement and EISAI shall fully cooperate with CNS
upon request. EISAI shall not pay, settle, or otherwise compromise or conclude
any action or claim based on or involving any of the Trademarks or any patents
without the prior written approval of CNS.


                        ARTICLE V - TERM AND TERMINATION

        5.1 Duration: This Agreement shall become effective as of the Effective
Date, shall continue in effect until March 31, 2003, and shall be automatically
renewed thereafter for successive two-year terms, unless either Party gives
notice to the other at least one hundred and eighty (180) days before the end of
the then current term, indicating such Party's intent not to renew unless
renewal is enforced under other provisions of this Agreement. Terms and
conditions shall remain unchanged upon renewal.

        5.2 Termination by Either Party: Notwithstanding any other provisions of
this Agreement, either Party, at its option, may terminate this Agreement
immediately upon written notice to the other Party in the event that the
repackaging agreement between CNS and HERUSU for the Territory terminates or
upon written notice hereunder that the other Party to this Agreement:

                5.2.1 commences or has commenced against it any proceeding in
        bankruptcy, insolvency, dissolution, composition, or reorganization
        pursuant to bankruptcy or similar laws, or makes an assignment for the
        benefit of its creditors;

                5.2.2 becomes insolvent or unable to pay its debts when due or
        admits its inability to pay its debts;


                                        9



                5.2.3 is in material breach or material default in the
        performance of any of the provisions of this Agreement; provided that
        such breach or default has not been remedied within such thirty (30)
        days;

                5.2.4 receives notice that all or any substantial portion of its
        capital stock or assets will be expropriated by any governmental
        authority; or

                5.2.5 is acquired by, merges with, or comes under the control of
        another company, person or firm. In this context, control means that
        fifty percent (50%) or more of the securities representing voting
        control of the other party comes under the control of third party,
        another company, person or firm.

        5.3 Termination by CNS: Notwithstanding anything to the contrary above,
CNS may also terminate this Agreement effective immediately upon written notice
to EISAI if EISAI sells Products to other countries without CNS's prior written
authorization.

        5.4 Reasonable Notice: The parties recognize and agree that the
termination notice periods provided in this Sections 5.2 and 5.3 are reasonable
under the circumstances, and they agree not to assert otherwise at any time.

        5.5 Effect of Termination or Expiration: In the event of termination or
expiration of this Agreement EISAI shall immediately cease acquiring and
distributing the Products, except that EISAI shall have the right during the
three (3) months immediately following termination to sell off its inventory of
the Products in compliance with good business practices, and the Parties agree
further that:

                5.5.1 Such termination shall not prejudice the rights and
        obligations of CNS and EISAI accrued up to and including the date of
        such termination.

                5.5.2. Provisions of Sections 2.11, 3.4, 5.5, 5.5.3, 7.2, and
        7.3 shall survive termination of this Agreement.

                5.5.3 In the event of any expiration, termination or non-renewal
        of this Agreement pursuant to the terms hereof, except as provided in
        Article 6, EISAI shall not be entitled to any compensation, damages,
        payment for goodwill that has been established, severance pay,
        Compensation for Termination, or any other amount for any other cause,
        by reason of the termination of the relationship between CNS and EISAI,
        or the expiration, termination, or non-renewal of this Agreement or any
        rights hereunder, despite any applicable law within or without the
        Territory to the contrary.

                5.5.4 In the event of termination or non-renewal of this
        Agreement, EISAI shall return to CNS all unused promotional or other
        materials relating to the sale of the Products and any and all other
        property of CNS in the possession or control of EISAI.


                                       10



                5.5.5 In the event of termination or non-renewal of this
        Agreement, EISAI shall, upon request of CNS, assist CNS in the transfer
        of the distribution business of the Products to CNS's designee.


                          ARTICLE VI - INDEMNIFICATION

        6.1 Indemnification by CNS: Subject to provisions of Section 6.3 below,
CNS shall indemnify and hold EISAI harmless from and against any losses,
obligations, liabilities, costs and expenses, including legal and other fees,
due to any claim of a third party arising from the act of omission or negligence
of CNS or its employees and agents in connection with its obligations hereunder.

        6.2 Indemnification by EISAI: Subject to provisions of Section 6.3
below, EISAI shall indemnify and hold CNS harmless from and against any losses,
obligations, liabilities, costs and expenses, including legal and other fees,
due to any claim of a third party arising from the act or omission or negligence
of EISAI or its employees and agents in connection with its obligations
hereunder.

        6.3 Qualifications: To qualify for indemnification with respect to any
claim as provided in Section 6.1 or 6.2 above, the Party seeking indemnification
(the "Requesting Party') must (a) give the other Party (the "Indemnifying
Party") prompt notice of the claim with regard to which indemnification is being
sought (the "Claim"); (b) allow the Indemnifying Party, upon reasonable notice
to the Requesting Party and at the Indemnifying Party's option, to conduct or
participate in the defense, negotiation, and settlement of the Claim, at the
expense of the Indemnifying Party; (c) render all reasonable assistance to the
Indemnifying Party in the defense, negotiation, or settlement of the Claim; and
(d) refrain from settling or compromising the Claim or the position or defense
of the Indemnifying Party without prior written consent of the Indemnifying
Party, which consent the Indemnifying Party shall not unreasonably deny or
delay. The parties agree that any portion of the losses, obligations,
liabilities, costs and expenses referred to in Section 6.1 or 6.2 above that is
attributable to a willful or negligent act or failure to act, on the part of the
Requesting Party or any of its employees or agents is excluded from the
indemnification provided herein.


                     ARTICLE VII - MISCELLANEOUS PROVISIONS

        7.1 Notice: Any notice required or permitted to be given under this
Agreement shall be deemed to have been duly given if hand delivered or delivered
by facsimile, registered mail, or commercial messenger service to the address
listed at the beginning of this Agreement for the Party to be notified. If a
Party gives notice according to this Section 7.1, updating and amending that
Party's address, then the address required for such notification by the other
Party shall be the


                                       11



address as so updated or amended. All notices are effective upon receipt or
rejection by the Party to be notified.

        7.2 Validity: In the event that a provision of this Agreement is held
invalid by a court of competent jurisdiction, the remaining provisions shall
nonetheless be enforced in accordance with their terms. Further, in the event
that any provision is held to be overbroad as written, such provision shall be
deemed amended to narrow its application to the extent necessary to make the
provision enforceable according to applicable law and shall be enforced as
amended.

        7.3 Compliance with Law; Governing Law; Disputes:

                7.3.1 Compliance: EISAI shall comply with all applicable
        statutes, regulations, and ordinances and other laws.

                7.3.2 Governing Law: This Agreement shall be deemed to have been
        made in the State of Minnesota, USA, and shall be governed by and
        interpreted in accordance with the laws of the State of Minnesota,
        without regard to the rules of any jurisdiction with respect to
        conflicts of laws.

                7.3.3 Arbitration: In the event of any disputes arising in
        connection with this Agreement, both Parties agree to make every effort
        to resolve the disputes amicably between themselves. Any disputes not so
        settled shall be finally settled by binding arbitration under the
        arbitration rules of the American Arbitration Association ("AAA"), with
        the following stipulations: (a) the language of the arbitration shall be
        English; provided, however, that documents in other languages shall be
        permitted as exhibits if mutually acceptable English translations are
        supplied by the offering party at its expense; (b) there shall be three
        (3) arbitrators, CNS shall appoint one of such arbitrators and EISAI
        shall appoint one of such arbitrators. Another arbitrator shall be
        appointed jointly by the Parties or, should they be unable to agree on a
        single arbitrator within thirty (30) days after notification by one
        Party to the other and to the AAA of invocation of provisions of this
        Section 7.3 to commence arbitration, then the arbitrator shall be the
        arbitrator chosen by the AAA under its rules; (c) the arbitrator is
        authorized to grant any relief appropriate under the applicable law,
        including without limitation declaratory relief and/or specific
        performance, and is further authorized and encouraged to award costs and
        fees in accordance with his or her assessment of the relative equities
        and validity and reliability of claims and defenses in the controversy,
        but is not empowered to award punitive damages against either Party.
        Both Parties consent to the jurisdiction of any court for enforcement of
        any arbitral award issued hereunder. During the pendency of any
        arbitration or court action initiated by EISAI against CNS in connection
        with this Agreement, EISAI's exclusivity with respect to sales in the
        Territory is suspended, and CNS may sell Products into the Territory
        either directly or through distributors or agents located inside or
        outside the Territory. The place of arbitration shall be Minneapolis,
        Minnesota, USA.


                                       12



        7.4 Assignment: This Agreement shall be binding upon and shall inure to
the benefit of the Parties hereto and their respective successors and assigns.
EISAI shall not directly or indirectly transfer, assign, or otherwise encumber
this Agreement without the prior written consent of CNS.

        7.5 Non-waiver: The failure of either Party to terminate this Agreement
or exercise any of its other rights under this Agreement, even after breach of
this Agreement by the other Party or after such other Party's failure to comply
with any provision hereof, shall not be deemed a waiver of rights of termination
or any other rights, with regard to either the event or incident in question or
any future event or incident, whether similar or dissimilar.

        7.6 Force Majeure: If the performance of any obligation under this
Agreement, other than payment of money, is prevented or delayed for any cause
beyond the reasonable control of the Party whose performance is prevented or
delayed, such Party shall be excused from performance so long as and to the
extent that such cause continues to prevent or delay performance; provided,
however, that such defaulting Party shall promptly notify the other Party of the
existence of such cause and shall at all times use its best efforts to resume
promptly and complete its performance.

        7.7 Headings: The titles and headings used in this Agreement are solely
for convenience and are not to be used in the interpretation of any provisions
hereof.

        7.8 Entire Agreement: This Agreement, together with its Schedules,
constitutes the entire Agreement between the Parties and supersedes any and all
prior and contemporaneous oral or written understandings between the Parties
relating to the subject matter hereof. No amendment is valid unless in writing
and signed by both Parties. Notwithstanding any translation hereof, the English
language version shall control.

        IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized offices in two copies each of which shall be
deemed an original as of the Effective Date:

CNS, INC.                                     EISAI CO., LTD.


 /s/ Marti Morfitt                            /s/ Mitsuhiro Ebata
- -----------------------------------           ----------------------------------
Name:  Marti Morfitt                          Name:  Mitsuhiro Ebata
Title:  President and COO CNS, Inc.           Title:  Cooperate Officer
                                                      Consumer Health Division
                                                      Eisai Co., Ltd.


                                       13



                            CNS DISTRIBUTOR AGREEMENT

                                 EISAI CO., LTD.

                       SCHEDULE A - PRODUCTS AND TERRITORY

PRODUCTS:

        From the Effective Date forward until otherwise agreed or terminated,
               Breathe Right(R) nasal Strips, both tan and clear.

        In and after the second Year of this Agreement,
               Breathe Right(R) nasal strips for colds and for children.
               The Parties shall exert their best efforts jointly to launch
               these products in the market in the Territory in the second year
               of this Agreement.


        And other such products as may be added from time to time.

Unless otherwise expressly agreed in writing, the rights of EISAI do not include
or apply to any products of CNS not listed above.


                                       14



                            CNS DISTRIBUTOR AGREEMENT

                                 EISAI CO., LTD.

                             SCHEDULE B - TRADEMARKS

Trademarks:

        Breathe Right(R)




And other such trademarks as may be added from time to time.


                                       15



                            CNS DISTRIBUTOR AGREEMENT
                                 EISAI CO., LTD.
                       SCHEDULE C - PERFORMANCE OBJECTIVES


EISAI and CNS shall agree on annual volume targets, support and business plans
that will be executed by CNS and EISAI as follows:

The volume targets shall not be construed as a commitment of minimum purchase or
sales quantity. Advertising spend and sample quantities shall not be construed
as commitments of CNS.



- ------------------------------ ---------------- -----------------------------------------------------
                                  6 months                 12 months from April each year
- ------------------------------ ---------------- -----------------------------------------------------
                                Oct 00-Mar 01      2001         2002***        2002***       2004***
- ------------------------------ ---------------- -----------------------------------------------------
                                                                              
            Volume*               [* * *]         [* * *]       [* * *]        [* * *]       [* * *]
- -----------------------------------------------------------------------------------------------------
      CNS Ad Spend [* * *]        [* * *]         [* * *]       [* * *]        [* * *]       [* * *]
- -----------------------------------------------------------------------------------------------------
      CNS Free Strips for         [* * *]         [* * *]       [* * *]        [* * *]       [* * *]
    Consumer Sample [* * *]
- -----------------------------------------------------------------------------------------------------
   EISAI Trade Spend [* * *]      [* * *]         [* * *]       [* * *]        [* * *]       [* * *]
- -----------------------------------------------------------------------------------------------------
 EISAI Customer Sample [* * *]    [* * *]         [* * *]
- -----------------------------------------------------------------------------------------------------


*       Products (unit boxes of 10 strips) [* * *], includes Eisai inventory
        purchase in Year 1.
**      Volume Target in year 2001 includes the sales of Breathe Right(R)
        nasal strips for colds and for children.
***     All figures above for years 2002 to 2004 are suggestive only and are not
        to be considered as agreed between the parties until the parties have
        agreed to them in connection with the business plans for the respective
        years.

        CNS and EISAI shall review and agree on the amount of sales volume
target, CNS Ad Spend, Consumer Sample, Eisai Trade Spend and EISAI Customer
Sample for years 2002 to 2004 prior to the commencement of each year.


                                       16



                            CNS DISTRIBUTOR AGREEMENT

                                 EISAI CO., LTD.

                     SCHEDULE D - ADDITIONAL DUTIES OF EISAI

        In addition to the activities of EISAI as specified in this Agreement,
EISAI shall perform the duties outlined below:




           (NONE SPECIFIED AT THE TIME OF EXECUTION OF THIS AGREEMENT)


                                       17

EX-10

CERTAIN INFORMATION HAS BEEN DELETED FROM THIS EXHIBIT AND FILED SEPARATELY WITH
THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT UNDER RULE 24b-2.

                                                                   EXHIBIT 10.12

                                    AGREEMENT

        This Agreement made effective the lst day of August, 2000 (hereinafter
called the "Effective Date"), by and between: CNS, INC., of 7615 Smetana Lane,
Eden Prairie, Minnesota 55344 U.S.A. (hereinafter called "CNS") and HERUSU, Co.,
Ltd., of 665 Kasikehongo, Matsuo- machi, Sanbu-gun, Chiba, Japan 289-1537
(hereinafter called "HERUSU").

                                   WITNESSETH:

        WHEREAS, CNS intends to market and distribute the Products (hereinafter
defined) in the Territory (hereinafter defined) and wishes to export Bulk
Products (hereinafter defined) to HERUSU for repackaging and supply to the CNS
distributor in the Territory (hereinafter referred to as "EISAI");

        WHEREAS, HERUSU has the necessary facilities to repackage the Products
and is willing to import, repackage and sell the same to EISAI for marketing and
distribution in the Territory under terms and conditions hereinafter set forth;

        NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:

1.      DEFINITIONS

(a)     "Bulk Products" shall mean the bulk strips manufactured by CNS and ready
        for repackaging.

(b)     "Other Materials" shall mean packaging, labeling and other materials to
        be used in the repackaging of the Products.

(c)     "Party" means CNS or HERUSU, as the case may be, and "Parties" means
        both CNS and HERUSU.

(d)     "Products" shall mean tan and clear BREATHE RIGHT(R) nasal strips and
        other products as may be agreed between the Parties from time to time in
        writing, in finished form, appropriately packaged and labeled for the
        Territory; provided, that (a) CNS may elect not to offer all of its
        products to HERUSU; (b) CNS may unilaterally delete from the list of
        Products at any time, upon one hundred and eighty (180) days' notice to
        HERUSU,




        those products which CNS no longer offers generally to distributors in
        the same form or with the same specifications; CNS may delete any
        Product from the list of Products at any time, for any reason, upon one
        hundred twenty (120) days' notice thereof to HERUSU, with the agreement
        of HERUSU or if CNS offers a comparable replacement for the Product to
        be deleted from the list.

(e)     "Quality Agreement" shall mean the Agreement separately agreed to by the
        parties which contains the Specifications (hereinafter defined),
        handling instruction, special precautions and other information relating
        to the Repackaging (hereinafter defined) of the Products. CNS and HERUSU
        may, during the term of this Agreement, modify or supplement the Quality
        Agreement by mutual agreement of the parties. The Parties (hereinafter
        defined) acknowledge that the Quality Agreement shall be executed by
        CNS, HERUSU and EISAI.

(f)     "Repackaging" shall mean the act of repackaging and labeling the Bulk
        Products appropriately for sale to EISAI, in compliance with the Quality
        Agreement and local laws, regulations, and market requirements.

(g)     "Specifications" shall mean specifications, descriptions of the Products
        and Bulk Products, instructions, quality control and other information
        relating to the Products as defined by CNS.

(h)     "Territory" shall mean all areas and territories of Japan.

(i)     "Trademarks" shall mean any trademark and/or trade name to be used in
        the manufacture, repackaging, use and sale of the Products as listed in
        Schedule 2 hereof.

(f)     "Year" shall mean the period from August 1, 2000, to March 31, 2001 for
        the first Year of this Agreement. Thereafter, Years of this Agreement
        shall mean the twelve (12) month periods commencing on April 1 and
        ending on the following March 31.

2.      PURCHASE AND SUPPLY OF PRODUCTS

(a)     HERUSU shall purchase all its requirements for the Bulk Products from
        CNS. CNS shall exclusively supply the Bulk Products to HERUSU in the
        Territory. HERUSU shall perform Repackaging of the Bulk Products and
        sell the finished Products exclusively to EISAI in the Territory.

(b)     CNS undertakes to supply HERUSU with such quantities of Bulk Products as
        may be agreed upon by the parties to be necessary and desirable to meet
        fully and promptly all demands from customers in the Territory as may be
        informed to HERUSU by the EISAI from time to time.


                                        2



(c)     Subject to the provisions of 2(b) above, HERUSU shall provide to CNS a
        good faith written estimate of its requirements of the Bulk Products for
        one (1) year, divided into monthly calendar periods two (2) months prior
        to the commencement of such year. Further, HERUSU shall provide monthly
        to CNS a three (3) months good faith written estimate of its
        requirement. If any of HERUSU's purchase orders issued in accordance
        with Section 4(a) for delivery in any month call for more than one
        hundred and twenty five percent (125%) of HERUSU's most recent three (3)
        months written estimate for that particular calendar month, CNS shall
        not be obligated, but shall use its reasonable endeavors to meet such
        order in full provided that CNS may extend the shipping date for such
        exceeding order by such reasonable period of time as is necessary in the
        circumstances.

(d)     HERUSU shall promptly obtain customs clearances and other documentation
        for the importation of the Bulk Products.

3.      SPECIFICATIONS AND OTHER INFORMATION

(a)     CNS and HERUSU shall enter into the Quality Agreement separately from
        and after their execution of this Agreement.

(b)     The Quality Agreement shall include, but not be limited to, the
        following items:

        (i)    Standards applicable to the Products, printing, lot coding,
               inventory method, repackaging methods and procedures, storage
               conditions, and other matters necessary for the proper
               Repackaging of the Products.

        (ii)   Matters requiring attention at the time of receiving, storing and
               shipping the Bulk Products and/or the Products, transport
               conditions and other matters essential to the Repackaging
               environment.

        (iii)  Matters necessary for quality control including, but not limited
               to, methods of selecting samples for inspection upon delivery of
               the Products and methods for assessing results of inspections.

(c)     In the event that it is necessary to amend the Specifications, the
        parties shall discuss and agree on such amendments as appropriate and
        signify in writing their acceptance of such amendments, in compliance
        with Section 21 below.

(d)     HERUSU shall not, without the prior written consent of CNS, make any
        alterations or modifications in the Specifications of the Products or
        the methods or procedures of Repackaging.

4.      PURCHASE ORDERS


                                        3



(a)     HERUSU shall place a written order for its requirement of the Bulk
        Products not later than forty five (45) days prior to the required date
        of delivery to HERUSU ("Purchase Order"). The Purchase Order shall
        indicate the quantity, expected date of delivery, point of delivery and
        other terms and conditions for such particular order. CNS shall, upon
        receipt of HERUSU's Purchase Order, promptly issue a confirmation and
        acceptance of such Purchase Order. No order submitted by HERUSU shall be
        binding upon CNS unless confirmed and accepted by CNS. Confirmation and
        acceptance shall not be unreasonably withheld by CNS. All confirmed
        orders may not be canceled without the prior written consent of CNS.

(b)     HERUSU shall work closely with EISAI in the Territory and shall always
        order Bulk Products sufficiently in advance that the time permitted for
        CNS's delivery under this Agreement allows HERUSU to meet the lead time
        requirement for the transaction between HERUSU and EISAI.

(c)     The terms and conditions of this Agreement shall prevail and control
        over any conflicting terms and conditions used in the Purchase Order.

5.      DELIVERY AND SHIPMENT

(a)     Delivery terms for the Bulk Products include CNS's export standard
        packing. Ownership and risk of loss of or damage to the Bulk Products
        shall transfer from CNS to HERUSU upon landing of the Bulk Products in
        Japan, before entering Customs.

(b)     CNS shall send a sample of the Bulk Product manufactured prior to
        shipment to HERUSU for HERUSU's inspection, and HERUSU shall inspect it
        within seven (7) business days after the receipt of such sample. If in
        HERUSUs inspection the sample of the Bulk Products to be shipped is
        found to be defective or not conforming to the Specifications, HERUSU
        shall immediately notify CNS and send to CNS such defective sample for
        CNS's verification. CNS may thereupon either demonstrate to HERUSU that
        the Bulk Product is acceptable or designate a different lot of Bulk
        Products for shipment to HERUSU and send a sample of such different lot
        to HERUSU, thereby re-commencing the process described in this
        paragraph, including seven (7) business days limit for inspection by
        CNS. CNS shall not ship the bulk Product to HERUSU until the sample from
        the lot designated for shipment to HERUSU is confirmed acceptable by
        HERUSU. HERUSU shall not unreasonably withhold, condition, or delay its
        confirmation. Absence of HERUSU's rejection within any seven (7)
        business days time limit provided in this Section shall be deemed
        confirmation of HERUSU's acceptance of the relevant shipment of Bulk
        Products, and such Bulk Products shall not be subject to further
        inspection prior to shipment. In the event that the Bulk Product is
        found to be defective, CNS and HERUSU shall discuss and agree on new
        delivery date.

(c)     Upon the arrival of each shipment of Bulk Products at the point of
        delivery in Japan, and


                                        4



        no later than seven (7) business days after such arrival, HERUSU or its
        designee shall examine and inspect such shipment of the Bulk Products
        for damage, defect or shortage. In the event that, upon HERUSU's timely
        inspection, the Bulk Product supplied is found to be defective or does
        not conform to Specifications, CNS agrees to replace such shipment
        within forty-five (45) days, at CNS's cost. However, CNS shall be
        entitled to verify such claimed defect or non-conformity of the
        delivered Bulk Products prior to replacement. Defective or
        non-conforming Bulk Products shall either be returned to CNS or disposed
        of locally upon prior agreement between the parties.

6.      REPACKAGING OF PRODUCTS

(a)     HERUSU shall Repackage the Bulk Products in accordance with the Quality
        Agreement and shall observe all Japanese laws and regulations pertinent
        to such Repackaging. However, prior to the commencement of the first
        Repackaging under this Agreement, and prior to the first Repackaging
        after any change in the Repackaging process, HERUSU shall submit to CNS
        the proposed package design of the Products for approval, consistent
        with CNS's specifications, and shall thereafter submit to CNS by fax or
        otherwise a legible copy of the test printed approved design as rendered
        on the package by HERUSU's printer for CNS' approval prior to use. CNS
        shall not unreasonably withhold any approval provided for in this
        section.

(b)     HERUSU shall be responsible for procuring all repackaging and labeling
        materials to be used in the Repackaging of the Bulk Products. Prior to
        the first usage and procurement of such repackaging and labeling
        materials, and prior to the first usage and procurement of any
        repackaging and labeling materials different from those approved before
        by CNS, HERUSU shall submit to CNS the list of suppliers of such
        repackaging and labeling materials for approval (which approval shall
        not be unreasonably withheld). HERUSU shall ensure by contract or other
        arrangement that CNS has the right to audit or inspect such suppliers
        upon reasonable notice.

7.      PRICE AND PAYMENTS

(a)     The price of the Bulk Products shall be as listed in the attached
        Schedule 1. From the Year 2001, such price(s) shall be fixed for a
        period of one (1) Year or as otherwise stated in Schedule 1. Generally,
        such price(s) shall be reviewed in good faith by the end of January each
        year during the term of this Agreement. However, if neither party gives
        written notice to the other to review such price(s) or to change such
        price(s), the previously agreed upon price(s) shall continue in effect
        for another one (1) year period. Provided, however, that upon mutual
        consultations and agreement of the parties, such price(s) may be changed
        at any time in consideration of changes in market and economic
        conditions and such other factors affecting the business of the parties.
        If the parties do not agree on pricing changes by the end of January in
        any Year, or at the latest on the day before the beginning of the
        following Year, the prices then in effect shall continue in


                                        5



        effect for such following Year. The parties may then elect to make
        other, compensating adjustment for such Year as may be permitted by the
        terms of this Agreement

(b)     All payments due under this Agreement are payable to CNS in U.S.
        Dollars. Unless otherwise specified in this Agreement, all required
        payments shall be due within ninety (90) days after issuance of the bill
        of lading, provided that the invoice has been received within a
        reasonable time thereafter, and shall be sent by telegraphic transfer to
        a designated bank account of CNS.

(c)     All freight, insurance, forwarding and handling charges, customs duties,
        taxes, storage fees, and all other charges applicable to the Bulk
        Products and/or the Products and all samples shall be the responsibility
        of HERUSU. To the extent that the Parties consider practical, HERUSU
        will pay actual freight and insurance charges directly. If for any
        reason CNS should prepay reasonable freight and insurance charges,
        HERUSU shall reimburse CNS for such charges immediately upon receipt of
        an invoice for such charges, supported by evidence of payment by CNS.

8.      DEVIATIONS AND CHANGE CONTROL

(a)     If CNS desires to make any change in the raw materials (including change
        of supplier or manufacturer of raw materials), manufacturing process, or
        manufacturing facilities of the Products and/or the Bulk Products, CNS
        shall notify HERUSU ninety (90) days prior to apply such change into
        manufacturing of the Products to be delivered to HERUSU under this
        Agreement

(b)     If CNS notices, or has any reason to suspect, any abnormality in the
        quality of the Products during manufacture or while in storage, CNS
        shall immediately notify HERUSU to that effect so that the parties can
        agree upon appropriate procedures and/or remedies.

9.      CLAIMS

(a)     In the event that HERUSU has any claim to be made with respect to the
        quantity, condition, loss or damage of the strips (hereinafter referred
        to as "Deficiency"), HERUSU shall notify CNS of any such claim within 7
        days from the date HERUSU detects such deficiency and shall furnish CNS
        with a copy of HERUSU's written inspection report made upon arrival of
        the shipment in question and a description of any such defect or
        non-conformity. No such claim may be asserted by HERUSU later than six
        (6) months after delivery of the Products in question, "delivery" being
        agreed by the parties to occur upon transfer of title of the Products
        pursuant to this Agreement.

(b)     No Bulk Products claimed to be defective may be returned to CNS or
        scrapped by HERUSU without the prior written consent of CNS. CNS shall
        bear the reasonable actual out-of-pocket costs of HERUSU for destruction
        of Bulk Products following CNS's approval.


                                        6



10.     HANDLING OF CONSUMER CLAIM

(a)     The procedure for handling claims by consumer relating to the defective
        Products shall be separately agreed to by the Parties in the Quality
        Agreement.

(b)     In the case of a claim by a consumer alleging personal injury, damage or
        loss caused by the Products, HERUSU shall advise CNS immediately of such
        claim, ascertaining all relevant and necessary facts to permit CNS to
        conduct a prompt investigation. CNS shall initially advise HERUSU of its
        position on such claim within seven (7) days after the receipt of
        HERUSUs notice of claim and shall furnish to HERUSU a detailed report on
        such claim within a reasonable time thereafter, considering the pendency
        of the claim.

11.     HANDLING OF PRODUCT RETURNS

        CNS and HERUSU agree to share the cost of all product returns received
from EISAI in the Territory (hereinafter referred to as "Product Returns"). CNS
shall bear the cost of Bulk Strips and HERUSU shall bear the rest of the cost of
the Products returned by EISAI provided that the limit of CNS's liability in any
Year under this provision shall be the supply of replacement Bulk Product for
returned Products not suitable for resale, to a maximum of [* * *] of the gross
number of Products sold by CNS to HERUSU during such year; provided further,
however, that the cost of Product returns caused by a defect or non-conformity
shall be borne by the party hereto that is responsible for such defect or
non-conformity. "Not suitable for resale" means that the 10-strip box of the
Products has been opened or damaged by the customer or retailers.

12.     INDEMNIFICATION

(a)     Subject to provisions of Section 11(c) below, CNS shall indemnify and
        hold HERUSU harmless from and against any losses, obligations,
        liabilities, costs and expenses, including legal and other fees, due to
        any claim of a third party arising from any defect in the Bulk Products,
        or from any act or omission or negligence of CNS or its employees and
        agents, in connection with its obligations under this Agreement.

(b)     Subject to provisions of Section 11(c) below, HERUSU shall indemnify and
        hold CNS harmless from and against any liability, claims, losses, legal
        and other fees, costs or expenses, including legal and other fees, due
        to any claim of a third party arising from any defect in the repackaging
        of the Products or any acts or omission or negligence of HERUSU or its
        employees and agents in connection with its obligations under this
        Agreement.

(c)     To qualify for indemnification with respect to any claim as provided in
        Section 11(a) or


                                        7



        11(b) above, the Party seeking indemnification (the "Requesting Party")
        must (a) give the other Party (the "Indemnifying Party") prompt notice
        of the claim with regard to which indemnification is being sought (the
        "Claim"); (b) allow the Indemnifying Party, upon reasonable notice to
        the Requesting Party and at the Indemnifying Party's option, to conduct
        or participate in the defense, negotiation, and settlement of the Claim,
        at the expense of the Indemnifying Party; (c) render all reasonable
        assistance to the Indemnifying Party in the defense, negotiation, or
        settlement, of the Claim; and (d) refrain from settling or compromising
        the Claim or the position or defense of the Indemnifying Party without
        prior written consent of the Indemnifying Party, which consent the
        Indemnifying Party shall not unreasonably deny or delay. The parties
        agree that any portion of the losses, obligations, liabilities, costs
        and expenses referred to in Section 11(a) or 11(b) above that is
        attributable to a willful or negligent act or failure to act, on the
        part of the Requesting Party or any of its employees or agents is
        excluded from the indemnification provided herein.

13.     LEGAL RELATIONSHIP

        For purposes of this Agreement, the parties herein are separate and
        independent contractors. Nothing herein contained shall be construed or
        deemed to create a principal- agent relationship or any form of
        partnership or joint venture. Neither party has and shall not hold
        itself as having any right, power, or authority to create any contract
        or obligation in the name of or binding upon the other party unless such
        contract or obligation is created with the prior written consent of the
        other party.

14.     REGISTRATION, LICENSES AND INFORMATION

(a)     HERUSU shall be responsible for obtaining registration/ license for the
        importation of the Bulk Products and Products into Japan and for the
        sale of the Products, and provision of the Products to retailers and
        consumers, in Japan. However, CNS shall assist HERUSU with the English
        language versions of all relevant documentation necessary for such
        registration/ license of the Products within Japan.

(b)     Upon termination of this Agreement, HERUSU shall immediately, upon CNS's
        request, transfer any or all such registrations or licenses to CNS or a
        party designated by CNS for a reasonable actual out-of-pocket cost of
        transfer. CNS shall reimburse such cost incurred by HERUSU within 30
        days after the receipt of the invoice sent by HERUSU.

(c)     CNS shall appoint a member of its staff whom HERUSU can immediately
        contact for information and customer service as required.

15.     TRADEMARKS

(a)     CNS grants HERUSU the right to use Trademarks free of charge to
        repackage and sell the


                                        8



        Products in the Territory pursuant to this Agreement.

(b)     HERUSU recognizes the validity and ownership by CNS of the Trademarks.
        Therefore, HERUSU shall not, during the term of this Agreement or
        thereafter, represent that it is the owner of any Trademark pertaining
        to the Products nor shall it assert any right or interest in such
        Trademark or of any joint trademarks of the Trademark anywhere in the
        world. HERUSU shall not do or cause to be done any act or thing which
        may impair the validity or ownership by CNS of the Trademark at any time
        during and after the term of this Agreement.

(c)     The Trademarks shall be used by HERUSU only with respect to the
        repackaging and sale of the Products to EISAI in the Territory and in
        strict conformity with the Specifications and instructions of CNS.

(d)     CNS shall, to the best of its ability, protect the Trademark and shall
        at its own expense prosecute infringers of such Trademark. CNS's
        decision as to whether or not such action shall be taken shall be
        accepted by HERUSU as final. HERUSU shall immediately bring to the
        attention of CNS any improper or wrongful use in the Territory of CNS's
        patents, trademarks, emblems, designs, models or other similar
        industrial or commercial monopoly rights. Upon CNS's request and
        expense, HERUSU shall assist CNS in taking all steps to defend the
        rights of CNS with respect to the trademarks. In such a case, CNS shall
        reimburse HERUSU its reasonable, actual, out-of-pocket expenses for such
        assistance. However, HERUSU agrees not to initiate on its own motion or
        in its own name any protective action or legal proceedings with respect
        to the Trademarks or the Products without the prior written
        authorization of CNS. Also, HERUSU shall act with care in its use of the
        Trademarks so as not to compromise, reduce, or injure CNS's rights in
        the Trademarks.

16.     CONFIDENTIALITY

(a)     CNS and HERUSU acknowledges that all information transmitted by one
        party to the other under this Agreement, including but not limited to,
        information relating to research, development, manufacturing, testing,
        purchasing, accounting and marketing, are confidential (the
        "Confidential Information"). The parties undertake to hold such
        Confidential Information confidential and shall not disclose such
        information to third parties unless otherwise agreed to in writing by
        the parties to disclose such information. However, such obligation of
        confidentiality and non-disclosure shall not apply to information that.

        (i)     is or becomes publicly available through no fault of the party
                receiving the information;

        (ii)    is disclosed to the party receiving the information by a third
                party entitled to disclose it;


                                        9



        (iii)   is already known to the party receiving the information as is
                shown by prior written documentation; or

        (iv)    is developed independently by the party receiving the
                information as is proven by proper evidence.

(b)     The parties hereto undertakes to hold the Confidential Information in
        confidence and shall use the same degree of care as if they are
        protecting their own information. The party receiving the Confidential
        Information shall use such information only for purposes of exercising
        its rights and fulfilling its obligations under this Agreement. Further,
        the parties agree not to use the other party's Confidential Information
        for their own benefit or for the benefit of any third party.

(c)     The parties hereto covenant and agree that they will limit the
        disclosure of such Confidential Information only to their employees to
        whom such disclosure is necessary and appropriate to permit the party
        receiving the information to exercise its rights and carry out its
        obligations under this Agreement. Notwithstanding the foregoing, each
        party shall be free to disclose Confidential Information to: (i) an
        appropriate governmental agency properly requiring such disclosure or in
        order to comply with applicable law, and (ii) to its Affiliates and
        consultants who are bound by the same conditions of confidentiality as
        are undertaken by each party herein.

        The obligations herein contained shall survive the termination of this
        Agreement and shall continue for five (5) years after termination
        hereof.

17.     WARRANTIES

(a)     CNS warrants that all Bulk Products shipped to HERUSU under this
        Agreement have been manufactured in accordance with applicable laws and
        regulations and are free from defects in materials and workmanship and
        conform to the Specifications and quality control tests pertinent to
        such Bulk Products. CNS further warrants that all documentation
        (including records maintenance) relating to manufacturing and testing of
        the Bulk Products was made in accordance with relevant laws, regulations
        and the Specifications. THE FOREGOING ARE ALL OF CNS'S WARRANTIES. CNS
        DOES NOT WARRANT THAT THE BULK PRODUCTS OR THE PRODUCTS ARE
        MERCHANTABLE: NOR DOES CNS WARRANT THAT THE BULK PRODUCTS OR THE
        PRODUCTS ARE FIT FOR ANY PARTICULAR PURPOSE.

(b)     CNS'S LIABILITY WITH RESPECT TO ITS WARRANTIES FOR THE BULK PRODUCTS AND
        THE PRODUCTS IS LIMITED IN THE AGGREGATE TO THE PAYMENTS OF SALES PRICES
        CNS HAS RECEIVED UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTHS
        PRIOR TO THE EVENT (OR FIRST EVENT, IF MORE THAN ONE EVENT IS ALLEGED)
        GIVING RISE TO THE WARRANTY CLAIM. THE LIMITATION EXPRESSED IN THIS
        PARAGRAPH


                                       10



        DOES NOT APPLY TO INDEMNIFICATION BY CNS UNDER SECTION 11.

(c)     EXCEPT AS EXPLICITLY PROVIDED IN THIS AGREEMENT, CNS SHALL NOT BE
        RESPONSIBLE FOR ANY LOSS, DAMAGE, EXPENSES, CLAIMS, COSTS OR ANY ACTION
        WHATSOEVER ARISING FROM THE SUPPLY OR SALE OF THE PRODUCTS BY HERUSU.
        HERUSU SHALL NOT MAKE ANY REPRESENTATION TO THIS EFFECT WHATSOEVER ON
        CNS'S BEHALF. IN NO EVENT SHALL CNS BE LIABLE FOR ANY INCIDENTAL,
        SPECIAL, OR CONSEQUENTIAL DAMAGES IN CONNECTION WITH THIS AGREEMENT, THE
        BULK PRODUCTS, OR THE PRODUCTS.

18.     INSPECTIONS

(a)     CNS or its authorized representative shall have the right to inspect
        HERUSU's records and facilities relating to the Repackaging of the
        Products, and HERUSU shall ensure that CNS has the right to inspect the
        related records and facilities of HERUSU's subsidiaries and suppliers
        used in connection with the Products, the Repackaging, or the Bulk
        Products, and CNS shall conduct such inspection(s) in the presence of a
        HERUSU representative during normal business hours. Such inspection(s)
        shall be notified in writing to obtain an approval in advance, upon
        reasonable notice (such approval not to be unreasonably withheld,
        conditioned, or delayed). If, upon inspection, CNS finds that any
        Products Repackaged by HERUSU or that any Repackaging process does not
        conform to relevant laws, regulations or the standard rules and agreed
        specifications on Quality Agreement, CNS shall notify HERUSU in writing
        of such findings. HERUSU undertakes to correct such defect within thirty
        (30) days upon receipt of notice from CNS.

(b)     HERUSU or its authorized representative shall have the right to inspect
        CNS's records and facilities relating to the Bulk Products. HERUSU shall
        conduct such inspection(s) in the presence of a CNS representative
        during normal business hours. Such inspections shall be notified in
        writing to obtain an approval in advance, upon reasonable notice (such
        approval not to be unreasonably withheld, conditioned, or delayed). If,
        upon inspection, HERUSU finds that any Bulk Products or that any
        manufacturing process does not conform to relevant laws, regulations or
        the standard rules and agreed specifications on Quality Agreement,
        HERUSU shall notify CNS in writing of such findings. CNS undertakes to
        correct such defect within thirty (30) days upon receipt of notice from
        HERUSU.

19.     TERM AND TERMINATION

        This Agreement shall become effective on the date first above written
        and shall continue in full force and effect from August 1, 2000 to March
        31, 2003, renewing automatically thereafter for consecutive two-year
        periods unless either party gives notice to the other at least one
        hundred eighty (180) days prior to the end of the then current term,
        indicating


                                       11



        such party's intent not to renew. However, in the event that one party
        defaults in or breaches any of its obligations under this Agreement or
        any provisions thereof, the other party shall have the right to
        terminate this Agreement upon thirty (30) days written notice to the
        party in default, provided that such default is not remedied within such
        thirty (30) days. Furthermore, either party may terminate this
        Agreement, immediately without notice, if one party becomes insolvent or
        is adjudicated by a voluntary or involuntary bankruptcy or a
        receivership of its assets or properties, and CNS may terminate this
        Agreement upon notice to HERUSU in the event that the Distribution
        Agreement between CNS and EISAI is terminated.

20.     NON-ASSIGNABILITY

        HERUSU shall not assign, transfer, sub-license or encumber any of its
        rights and obligations under this Agreement without the prior written
        consent of CNS. Notwithstanding this provision, HERUSU may assign or
        delegate some or all of its rights and obligations under this Agreement
        to any of its affiliates or subsidiaries, provided that HERUSU shall
        remain primarily responsible for the performance of such obligations and
        subject to an acceptable Agreement between the parties hereto. This
        Agreement shall be binding and inure to the benefit of the successors
        and assigns of CNS.

20.     NOTICES

        To be effective, all notices and statements to be given hereunder shall
        be in writing and shall be sent at the respective addresses of the
        parties as set forth below unless notification of a change of address is
        given in writing pursuant to this notice provision:

        If to CNS:
               CNS, Inc.
               7615 Smetana Lane
               Eden Prairie MN 55344
               USA
               Attention: Ms. Marti Morfitt, President

        If to HERUSU:
               HERUSU Co., Ltd. Chiba Factory
               665 Kasikehongo, Mastuo-machi, Sanbu-gun
               Chiba, Japan 289-1537
               Yosuke Murashima
               Director, Manufacturing Department

        All notices given pursuant to this Section 21 shall be deemed effective
        upon receipt or rejection by the Party to be charged with notice.


                                       12



22.     ENTIRE AGREEMENT

        This Agreement comprises the entire agreement of the parties hereto and
        supersedes all prior provisions, negotiations, agreements and
        conunitments with respect thereto and shall not be released, discharged,
        changed or modified in any manner except by instruments signed by the
        duly authorized officers or representatives of each of the parties
        hereto.

23.     SEVERABILITY

        If any provision of this Agreement is determined to be illegal, invalid
        or otherwise unenforceable, then to the extent necessary to make such
        provision and/or this Agreement legal, valid or otherwise enforceable,
        such provision shall be limited, construed or severed and deleted from
        this Agreement, and the remaining portion of such provision and the
        remaining other provisions hereof shall survive, remain in full force
        and effect and continue to be binding, and shall be interpreted to give
        effect to the intention of the parties insofar as that is possible.

24.     FORCE MAJEURE

        Except for the obligation of HERUSU to make payment when due, neither
        party shall be liable to the other for its failure to perform any of its
        obligations under this Agreement for so long and to the extent that such
        failure is due to causes beyond its reasonable control such as but not
        limited to prohibition in exportation or importation, refusal to issue
        export or import license, Acts of God, war, blockade, revolution,
        insurrection, strike, lockout, civil commotion, riot, plague or other
        epidemics, destruction of the Products by fire or flood or any other
        cause beyond the reasonable control of either party. However, the
        failure of either party to perform its obligations under this Agreement
        due to the foregoing reasons or events shall be limited and/or suspended
        only for a long as such reasons or events are existing. The performance
        of either party's obligations shall resume as soon as these reasons or
        events have been resolved or has ended; provided that for such reasons
        or events which are remediable or preventable, the failure to perform
        shall be excused only for as long as it is proven that the party so
        affected has exerted an efforts to remedy or prevent such reasons or
        events from occurring.

25.     ARBITRATION

(a)     Any disputes, controversies, difficulties or differences which may arise
        out of or in relation to this Agreement shall be settled amicably
        between the parties. However, in case of the failure to settle amicably
        such disputes, controversies, difficulties or differences, the parties
        hereto agree to settlement through arbitration in accordance with the
        International Arbitration Rules of the American Arbitration Association
        ("AAA"). The arbitration shall be conducted by three (3) arbitrators.
        CNS shall appoint one of such


                                       13



        arbitrators and EISAI shall appoint one of such arbitrators. Another
        arbitrator shall be chosen jointly by the parties or, if they fail to
        agree within thirty (30) days after notice by one of the parties of
        initiation of the arbitration, then such arbitrator shall be appointed
        by the AAA in accordance with said Rules.

(b)     The place of arbitration shall be Minneapolis, Minnesota, USA.

(c)     The language of the arbitration shall be English. Documents in other
        languages shall be permitted as exhibits but mutually acceptable English
        translations shall be provided by the offering Party.

(d)     The award may grant any relief appropriate under the applicable law,
        including without Station declaratory relief and/or specific
        performance. However, the Parties agree that notwithstanding the
        applicable law, the arbitral tribunal shall not be empowered to award
        punitive damages against either Party.

(e)     Judgment on the award may be entered in any court having jurisdiction
        over the award or any of the Parties or their assets.

26.     COMPLIANCE WITH LAW:  GOVERNING LAW

        HERUSU shall comply with all applicable statutes, regulations,
        ordinances and other laws. This Agreement shall be governed by and
        interpreted in accordance with the Laws of the State of Minnesota,
        without regard to the rules of any jurisdiction with respect to
        conflicts of law.

27.     HEADINGS

        The titles, captions and headings used in this Agreement are for
        convenience only and must not be used in any way to interpret, construe
        or otherwise determine the meanings of any of the provisions or terms
        thereof.


                                       14



        IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.



CNS, Inc.                                    HERUSU Co., Ltd.

/s/ Marti Morfitt                            /s/ Tadanari Hiraku
- ----------------------------------          ------------------------------------
Name:   Marti Morfitt                        Name:   Tadanari Hiraku
Title:  President and COO                    Title:  President
        CNS, Inc.                                    HERUSU CO., LTD.
Date:   November 13, 2000                    Date:   November 10, 2000


                                       15



                                   SCHEDULE 1
                                       TO
                                    AGREEMENT
                                     BETWEEN
                         HERUSU CO., LTD., AND CNS, INC.



BULK PRODUCTS:
        Initially, tan and clear Breathe Right(R) nasal strips.
        Thereafter, additional products, as the Parties may agree upon in
        writing.



PRICES:

For tan and clear Breathe Right(R) nasal strips, HERUSU shall pay the following
prices, which reflect the parties' recognition of the advertising investment in
the Market by CNS. The parties also recognize that CNS's advertising investment
will vary substantially from Year to Year and is not proportional to any change
in prices for the Bulk Products:

        For the first three months from the date of the first order.

- --------------------------------------------------------------------------------
          Exchange Rate                                   Price per Strip
- --------------------------------------------------------------------------------
 [* * *]                                                      [* * *]
- --------------------------------------------------------------------------------
 [* * *]                                                      [* * *]
- --------------------------------------------------------------------------------
 [* * *]                                                      [* * *]
- --------------------------------------------------------------------------------

        From the fourth month until August 1, 2001

- --------------------------------------------------------------------------------
          Exchange Rate                                   Price per Strip
- --------------------------------------------------------------------------------
 [* * *]                                                      [* * *]
- --------------------------------------------------------------------------------
 [* * *]                                                      [* * *]
- --------------------------------------------------------------------------------
 [* * *]                                                      [* * *]
- --------------------------------------------------------------------------------

*The exchange rate used for calculation shall be the Mitsubishi Bank (Tokyo) TTS
rate on the order date by HERUSU.


                                       16



Before March 31, 2001, CNS and HERUSU shall review and agree on the price for
the period from August 1, 2001 to March 31, 2002.

        CNS shall supply free samples of Products in quantities agreed with
EISAI. HERUSU shall pay only the transportation, taxes, insurance, import
duties, and other such costs for shipment and importation of such free samples
into Japan.

        CNS shall supply in reasonable quantities agreed with EISAI Bulk
Products for EISAI to provide to customers and potential customers as boxed
samples, including two strip boxes of Products to be sold to customers such as
airlines or rail road companies which will purchase such Products not for resale
but for their customer service. The price to be paid by HERUSU for Bulk Products
intended for and limited to such resale is reduced to a standard US [* * *] per
strip, and HERUSU shall pay all other costs and charges related to such sales,
as provided above.


                                       17



                                   SCHEDULE 2
                                       TO
                                    AGREEMENT
                                     BETWEEN
                         HERUSU CO., LTD., AND CNS, INC.



Trademarks:

        Breathe Right(R) and other trademarks, according to notice provided to
HERUSU from time to time by CNS either adding or subtracting trademarks from the
list of active trademarks subject to the provisions of this Agreement.


                                       18

EX-10

                                                                   Exhibit 10.21


                         EXECUTIVE EMPLOYMENT AGREEMENT

This Agreement is made as of January 2, 2001 (the "Effective Date") between CNS,
INC. a Delaware corporation ("CNS") and Larry R. Muma ("Employee").

WHEREAS, CNS considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of CNS
and its shareholders; and

WHEREAS, Employee has made and is expected to continue to make, due to his
experience and knowledge, a significant contribution to the profitability,
growth and financial strength of CNS; and

WHEREAS, CNS, as a publicly held corporation, recognizes that the possibility of
a change in control may exist and that such possibility and the uncertainty and
questions which it may raise among management may result in the departure or
distraction of the performance of Employee's duties to the detriment of CNS and
its shareholders; and

WHEREAS, Employee is willing to continue his employment with CNS upon the
understanding that CNS will provide income security if Employee's employment is
terminated under certain terms and conditions;

WHEREAS, it is in the best interests of CNS and its stockholders to employ
Employee and to reinforce and encourage his continued attention and dedication
to his assigned duties without distraction and to ensure his continued
availability to CNS in the event of a Change in Control; and

WHEREAS, it is further in CNS's best interests to receive certain assurances
from Employee regarding CNS's confidentiality, competition and other proprietary
business concerns;

THEREFORE, in consideration of the foregoing and of this agreement, certain
change in control protection, continued employment and other benefits hereunder,
as well as other mutual covenants and obligations hereinafter set forth, CNS and
Employee agree as follows:

1.       Employment. CNS agrees to continue to employ Employee as its VP,
         Operations under the terms, conditions and benefits set forth herein
         and Employee accepts continued employment with CNS on said terms,
         conditions and benefits.

2.       Term. The term of Employee's employment shall continue until terminated
         pursuant to paragraph 6, 7, or 8 herein.




Executive Employment Agreement
Page 2


3.       Duties. In his position as VP, Operations, Employee will continue to
         faithfully and diligently perform such executive management
         responsibilities as may be assigned to him from time to time by the
         Chief Executive Officer, President or Chairman of the Board of
         Directors of CNS (the "Board"); devote his full time, energy and skill
         to CNS's business, as is reasonably necessary to execute fully his
         duties hereunder, except for vacations, absences made necessary because
         of illness, and service on other corporate, civic, or charitable boards
         or committees not significantly interfering with his duties hereunder;
         and promote CNS's best interests. The principal place of employment and
         the location of Employee's principal office and normal place of work
         shall be in the Minneapolis, Minnesota metropolitan area. Employee will
         be expected to travel to other locations, as necessary, in the
         performance of his duties during the term of this Agreement. Employee
         shall notify the President of any other paid position which he is
         considering accepting, including but not limited to a board of
         directors position, a position as an employee or an independent
         consultant, or any position, whether or not for pay, which could
         constitute a conflict of interest with CNS. The Employee agrees not to
         accept any such position without the President of CNS's prior approval.

4.       Compensation. For all services rendered by Employee, CNS shall pay
         Employee the compensation described in Exhibit A, payable at such times
         as salaried employees of CNS are customarily paid. The President of CNS
         shall, from time to time during Employee's employment, review his
         annual salary in connection with possible increases, giving
         consideration to inflation factors, performance of Employee and CNS,
         salaries paid for positions of similar responsibility for other
         companies, and other relevant factors, and shall provide for such
         increases when deemed appropriate. Employee shall in addition be
         eligible to participate in the annual management incentive bonus
         program, as approved by the Board of Directors. In the event of
         termination of this Agreement by CNS without Good Cause, as defined in
         paragraph 7 herein, the Board may, in good faith and in its sole
         discretion, determine and cause to be paid a partial bonus based on
         Employee's performance through the date of termination, and such
         determination shall be final and binding.

5.       Benefits. Employee shall be entitled to Paid Time Off consistent with
         CNS policy and such insurance, 401(k) program and other benefits
         available to all salaried employees of CNS, subject to any limitations
         on such benefits to officers, directors or highly paid employees in
         order that such benefit programs qualify under federal or state law for
         favored tax or other treatment. Such benefit programs may be changed
         from time to time by the Board. Employee shall also be entitled to
         reimbursement of his reasonable and necessary expenses incurred in
         connection with the performance of his duties hereunder.

6.       Termination by Employee. Employee may resign his employment with CNS
         effective upon 30 days' advance written notice to the President. If
         Employee resigns under this




Executive Employment Agreement
Page 3


         paragraph, the President retains the right to terminate his employment,
         effective upon written notice to Employee, at any time during the
         30-day notice period, provided, however, that base salary and the
         employer portion of his health insurance premiums will continue to be
         paid by CNS for the duration of the 30-day notice period. In connection
         with his termination, Employee will receive any accrued unused Paid
         Time Off to which he is entitled.

7.       Termination by CNS. CNS shall have the right to terminate Employee's
         employment in any of the following ways:

         a.       CNS may, by written notice to Employee, terminate his
                  employment without Good Cause, in which event Employee will be
                  paid his base salary up to the date of termination. Employee
                  is also entitled to receive Salary Continuation for one year
                  from his termination date. "Salary Continuation" shall mean
                  payment by CNS of the Employee's base salary as of his
                  termination date, payable to Employee on the same schedule and
                  in the same amount as the payment of base salary prior to
                  termination of his employment, until such time as the full
                  Salary Continuation obligation shall be discharged, as
                  provided in this paragraph 7. During the period when Salary
                  Continuation is payable to Employee, CNS will also continue to
                  provide to Employee all group medical, dental and life plan
                  benefits provided to its other senior executives. Employee
                  shall also receive any accrued unused Paid Time Off to which
                  he is entitled. Receipt of Salary Continuation is subject to
                  Employee's compliance with his obligations under paragraphs 9,
                  10, 11 and 12 of this Agreement and his execution of a
                  standard release agreement which includes, in addition to
                  release of claims against CNS and related releasees, an
                  obligation not to speak negatively about or harm CNS,
                  confidentiality with respect to the termination process, and
                  cooperation with the transition of responsibilities. Payment
                  of the employer portion of Employee's group medical, dental
                  and life plan premiums under this paragraph and under
                  paragraphs 6 and 8 herein shall cease as of the date on which
                  Employee is covered under other such group plans if such
                  coverage occurs prior to termination of any salary
                  continuation periods set forth in said paragraphs.

         b.       CNS, by written notice to Employee, may terminate his
                  employment for Good Cause, as defined below. In the event of
                  termination under this subparagraph 7.b., Employee shall be
                  paid his base salary up to the date of termination. "Good
                  Cause" for the purpose of this Agreement shall mean one or
                  more of the following: (i) willful and premeditated failure or
                  refusal of Employee to render services to CNS in accordance
                  with his obligations under paragraph 3; (ii) the commission by
                  Employee of an act of fraud or embezzlement against CNS; (iii)
                  the commission by Employee of any other willful or reckless
                  act which injures CNS in a substantial or material way (it
                  being understood that mere negligence in




Executive Employment Agreement
Page 4


                  performance of duties is not Good Cause under this Agreement);
                  (iv) the breach by Employee of any provision of this
                  Agreement; or (v) the commission of a substantial act of moral
                  turpitude by Employee which is deemed by CNS's Board to have a
                  material adverse effect on CNS; or (vi) unsatisfactory
                  performance after specific notice of performance deficiencies,
                  description of expectations and opportunity to cure.

         c.       CNS, by written notice to Employee, may terminate Employee's
                  employment under this Agreement if he becomes physically or
                  mentally disabled during the term so that he has not been able
                  to substantially perform, for a period of 120 consecutive
                  days, with reasonable accommodation, the usual duties assigned
                  to him hereunder ("Disability"). Upon such determination, CNS
                  shall pay to Employee his base salary up to the date of such
                  termination to the extent not covered by any disability plan.

         d.       This Agreement shall terminate upon the Employee's death
                  during its term, except that CNS shall pay to the legal
                  representative of Employee's estate all base salary due him up
                  to the date of his death.

8.       Termination Following a Change in Control.

DEFINITION.

         a.       For purposes of this Agreement, "Change in Control" shall mean
                  the occurrence of one of the following events:

                  i.       ACQUISITION OF 25% OF STOCK IN CNS
                           any "person" [as such term is used in Section 13(d)
                           and 4(d) of the Securities Exchange Act of 1934, as
                           amended ("Exchange Act")], other than a trustee or
                           other fiduciary holding securities under an employee
                           benefit plan of CNS is or becomes the "beneficial
                           owner" (as defined in Rule 13d-3 under the Exchange
                           Act), directly or indirectly of securities
                           representing 25% or more of the combined voting power
                           of CNS's then outstanding securities;

                  ii.      CHANGE IN 50% OF BOARD DIRECTORS WHO WERE NOT
                           APPROVED BY BOARD
                           during any period of two consecutive years (not
                           including any period ending prior to the effective
                           date of this Agreement), individuals who at the
                           beginning of such period constitute the Board of
                           Directors of CNS, and any new director [other than a
                           director designated by a person who has entered into
                           agreement with CNS to effect a transaction permitted
                           by Section 6(a)(I), (iii) or (iv)] whose election by
                           the Board of Directors of




Executive Employment Agreement
Page 5


                           CNS or nomination for election by CNS's stockholders
                           was approved by vote of at least two-thirds of the
                           directors then still in office who either were
                           directors at the beginning of the period or whose
                           election or nomination for election was previously so
                           approved ("Continuing Directors"), cease for any
                           reason to constitute at least a majority of the Board
                           of Directors of CNS;

                  iii.     MERGER OR CONSOLIDATION WHERE CNS SHAREHOLDERS OWN
                           LESS THAN 50% OF SURVIVING COMPANY'S STOCK
                           the stockholders of CNS approve a merger or
                           consolidation of CNS with any other corporation,
                           other than (A) a merger or consolidation which would
                           result in the voting securities of CNS outstanding
                           immediately prior thereto continuing to represent
                           (either by remaining outstanding or by being
                           converted into voting securities of the merged or
                           consolidated entity) 50% or more of the combined
                           voting power of the voting securities of CNS or such
                           merged or consolidated entity outstanding immediately
                           after such merger or consolidation, or (B) a merger
                           or consolidation effected to implement a
                           recapitalization of CNS or similar transaction in
                           which no "person" acquires more than 25% of the
                           combined voting power of CNS's then outstanding
                           securities;

                  iv.      SALE OF CNS ASSETS FOR VALUE TOTALING 50% OR MORE OF
                           CNS STOCK MARKET VALUE
                           the stockholders of CNS approve a plan of complete
                           liquidation or a sale or disposition by CNS of all or
                           substantially all of CNS's assets. "The sale or
                           disposition by CNS of all or substantially all of
                           CNS's assets" shall mean a sale or other disposition
                           transaction or series of related transactions
                           involving assets of CNS or of any direct or indirect
                           subsidiary of CNS (including the stock of any direct
                           or indirect subsidiary of CNS) in which the value of
                           the assets or stock being sold or otherwise disposed
                           of (as measured by the purchase price being paid
                           therefor or by such other method as the Board of
                           Directors of CNS determines is appropriate in a case
                           where there is no readily ascertainable purchase
                           price) constitutes more than 50% of the fair market
                           value of CNS. For purposes of the preceding sentence,
                           the "fair market value of CNS" shall be the aggregate
                           market value of CNS's outstanding common stock (on a
                           fully diluted basis) plus the aggregate market value
                           of CNS's other outstanding equity securities. The
                           aggregate market value of CNS's common stock shall be
                           determined by multiplying the number of shares of CNS
                           common stock (on a fully diluted basis) outstanding
                           on the date of the execution and delivery of a
                           definitive agreement ("Transaction Date") with
                           respect to the sale or disposition by CNS of all or
                           substantially all of CNS's assets by the




Executive Employment Agreement
Page 6


                           average closing price for CNS's common stock for the
                           ten trading days immediately preceding the
                           Transaction Date. The aggregate market value of any
                           other equity securities of CNS shall be determined in
                           a manner similar to that prescribed in the
                           immediately preceding sentence for determining the
                           aggregate market value of CNS's common stock or by
                           such other method as the Board of Directors of CNS
                           shall determine is appropriate; and

                  Employee agrees that, subject to the terms and conditions of
                  this Agreement, in the event of a Change in Control of CNS
                  occurring after the date hereof, Employee will remain in the
                  employ of CNS for a period of 30 days from the occurrence of
                  such Change in Control.

         b.       Applicability. In the event of a Change in Control, the terms
                  of this subparagraph 8.b shall be effective for a period of 24
                  months following the Change in Control. At the expiration of
                  such 24 month period this Agreement in its entirety shall be
                  terminated and be of no further effect. Employee shall be
                  entitled to receive the benefits set forth in subparagraph 8.f
                  if, within 24 months of such Change in Control, his employment
                  is terminated by CNS or its successor without Good Cause (as
                  defined in paragraph 7.a above), or by Employee for Good
                  Reason (as defined in subparagraph 8.b.i, below). Employee
                  shall, in return for the benefits provided under subparagraph
                  8.f., sign a standard release agreement with CNS, in which he
                  agrees to release any and all claims and causes of action
                  which he might have against CNS and in which he affirms and
                  acknowledges his obligations under paragraphs 9, 10, 11 and 12
                  of this Agreement.

                  i.       Termination for Good Reason shall be effective
                           immediately upon written notice from the Employee to
                           the President. Good Reason shall exist if CNS has
                           materially breached any of the terms of this
                           Agreement; Employee is assigned duties which are
                           materially inconsistent with his position, duties,
                           responsibilities and status as VP, Operations; his
                           compensation, including any incentive compensation or
                           bonus plan, is reduced; or relocation of CNS would
                           require him to relocate his principal residence
                           outside reasonable commuting distance of the Twin
                           Cities Metropolitan area.

                  ii.      Termination without Good Cause shall be effective
                           upon 30 days' advance notice by CNS to the Employee.
                           For purposes of this paragraph 8, Good Cause shall be
                           defined as in subparagraph 7.b.

         c.       Notice of Termination. Any purported termination of employment
                  under this paragraph 8 and also under paragraphs 6 and 7 shall
                  be communicated by written




Executive Employment Agreement
Page 7


                  Notice of Termination to the other party hereto in accordance
                  with paragraph 20 hereunder. For purposes of this Agreement, a
                  "Notice of Termination" shall mean a notice which indicates
                  the specific termination provision in this Agreement relied
                  upon and which sets forth the facts and circumstances claimed
                  to provide a basis for termination of Employee's employment.

         d.       Date of Termination. For purposes of this paragraph 8 and also
                  paragraphs 6 and 7 of this Agreement, "Date of Termination"
                  shall mean:

                  i.       if Employee's employment is terminated for
                           Disability, as defined in paragraph 7.c. hereunder,
                           30 days after Notice of Termination is given
                           (provided that Employee shall not have returned to
                           the full-time performance of Employee's duties during
                           such 30 day period); and

                  ii.      if Employee's employment is terminated pursuant to a
                           provision contained in paragraph 6, 7 or 8 herein or
                           for any other reason (other than Disability), the
                           date specified in the Notice of Termination,
                           consistent with the provisions in said paragraphs.

         e.       Dispute of Termination. If, within ten days after any Notice
                  of Termination is given under this paragraph 8, the party
                  receiving such Notice of Termination notifies the other party
                  that a dispute exists concerning the termination, the Date of
                  Termination shall be the date on which the dispute is finally
                  determined, either by mutual written agreement of the parties,
                  or by a final judgment, order or decree of a court of
                  competent jurisdiction (which is not appealable or the time
                  for appeal therefrom having expired and no appeal having been
                  perfected); provided, that the Date of Termination shall be
                  extended by a notice of dispute only if such notice is given
                  in good faith and the party giving such notice pursues the
                  resolution of such dispute with reasonable diligence.
                  Notwithstanding the pendency of any such dispute, CNS shall
                  continue to pay Employee full compensation in effect when the
                  notice giving rise to the dispute was given (including, but
                  not limited to, base salary) and continue Employee as a
                  participant in all compensation, benefit and insurance plans
                  in which Employee was participating when the notice giving
                  rise to the dispute was given, to the extent permissible under
                  the terms of the applicable group plans and state and federal
                  law, until the dispute is finally resolved in accordance with
                  this subparagraph. Amounts paid under this subsection are in
                  addition to all other amounts due under this Agreement and
                  shall not be offset against or reduce any other amounts under
                  this Agreement.




Executive Employment Agreement
Page 8


         f.       Compensation Upon Termination. Following a Change in Control,
                  as defined in subparagraph 8.a. above, to the extent provided
                  in subparagraph 8.b. above, Employee shall be entitled to the
                  following benefits in lieu of any benefits which would
                  otherwise be available to him upon termination under
                  paragraphs 6 or 7 hereunder:

                  i.       CNS shall pay Employee through the Date of
                           Termination Employee's base salary at the rate in
                           effect at the time the Notice of Termination is given
                           and any other form or type of other compensation
                           otherwise payable for such period, including any
                           applicable incentive bonus, commensurate with his
                           performance and the performance of CNS.

                  ii.      In lieu of any further salary payments for periods
                           subsequent to the Date of Termination, CNS shall pay
                           a severance payment (the "Severance Payment") equal
                           to 24 months of Employee's Compensation as defined
                           below based on the average monthly Compensation paid
                           to Employee during the 24 month period ending
                           immediately prior to the Date of Termination (without
                           giving effect to any reduction in such Compensation
                           which would constitute a breach of this Agreement).
                           If the Employee has not been employed by CNS for 24
                           months as of the Date of Termination, average monthly
                           Compensation shall be the Employee's average monthly
                           Compensation for the number of months during which
                           the Employee has been employed at CNS. For purposes
                           of this subparagraph, Compensation shall mean and
                           include every type and form of compensation paid to
                           Employee by CNS (or any corporation ("Affiliate")
                           affiliated with CNS within the meaning of Section
                           1504 of the Internal Revenue Code of 1986, as may be
                           amended from time to time (the "Code")) and included
                           in Employee's gross income for federal income tax
                           purposes, but excluding compensation income arising
                           from (1) hiring bonuses and (2) compensation income
                           recognized as a result of the exercise of stock
                           options or sale of the stock so acquired. All of
                           Employee's contributions to any qualified plan
                           pursuant to Section 401(k) of the Code or any
                           flexible benefit plan pursuant to Section 125 of the
                           Code shall be deemed to be included in gross income
                           for federal tax purposes for purposes of this
                           subparagraph. The Severance Payment shall be made in
                           a single lump sum within 60 days after the Date of
                           Termination.

                  iii.     For 18 months following the Employee's Date of
                           Termination, CNS shall arrange to provide, at its
                           sole expense, Employee with group medical, dental and
                           life plan benefits substantially similar to those
                           which Employee was receiving or entitled to receive
                           immediately prior to the Notice of Termination. The
                           cost of providing such benefits shall be in addition
                           to




Executive Employment Agreement
Page 9


                           (and shall not reduce) the Severance Payment.
                           Benefits otherwise receivable by Employee pursuant to
                           this paragraph (iii) shall be reduced to the extent
                           comparable benefits are actually received by Employee
                           during such period from any third party, and any such
                           benefits actually received by Employee shall be
                           reported to CNS.

                  iv.      CNS shall also pay to Employee all legal fees and
                           expenses incurred by Employee as a result of such
                           termination (including all such fees and expenses, if
                           any, incurred in contesting or disputing any such
                           termination or in seeking to obtain or enforce any
                           right or benefit provided by this paragraph).

                  v.       The Severance Payment shall be reduced and offset by
                           the amount of any other payment received or to be
                           received by Employee in connection with his
                           termination of employment pursuant to any policies of
                           CNS.

                  vi.      If a determination is made by legislation,
                           regulations, rulings directed to CNS or Employee, or
                           court decision that the aggregate amount of any
                           payment made to Employee hereunder, or pursuant to
                           any plan, program or policy of CNS in connection
                           with, on account of, or as a result of, a Change of
                           Control constitutes an "excess parachute payment" as
                           defined in Section 280G of the Code subject to the
                           excise tax provisions of Section 4999 of the Code, or
                           any successor sections thereof, Employee shall be
                           entitled to receive from CNS, in addition to any
                           other amounts payable hereunder, an amount which
                           shall be equal to such excise tax, plus, on a net
                           after-tax basis, an amount equal to the aggregate
                           amount of any interest, penalties, fines or additions
                           to any tax, including income tax, which are imposed
                           in connection with the imposition of such excise tax.
                           Such amount shall be payable to Employee as soon as
                           may be practicable after such final determination is
                           made. Employee and CNS shall mutually and reasonably
                           determine whether or not such determination has
                           occurred or whether any appeal to such determination
                           should be made.

                  vii.     Employee shall be entitled to receive all benefits
                           payable to Employee under the CNS, Inc. Profit
                           Sharing Plan and Trust or any successor of such Plan
                           and Trust and any other plan or agreement relating to
                           retirement benefits, and, in addition, if Employee is
                           not fully vested in his account balance under such
                           Plan, a single lump sum payment in cash from CNS
                           representing the nonvested portion of his account,
                           which shall be in addition to, and not reduced by,
                           any other amounts payable to Employee under this
                           paragraph 8.




Executive Employment Agreement
Page 10


                  viii.    Employee shall not be required to mitigate the amount
                           of any payment provided for in this paragraph 8 by
                           seeking other employment or otherwise, nor shall the
                           amount of any payment or benefit provided for in this
                           paragraph 8 be reduced by any compensation earned by
                           Employee as the result of employment by another
                           employer or by retirement benefits after the Date of
                           Termination, or otherwise except as specifically
                           provided in this paragraph 8.

                  ix.      In order to assure the performance of CNS or its
                           successor of its obligations under this paragraph,
                           CNS may deposit in trust an amount equal to the
                           maximum payment that will be due Employee under the
                           terms hereof. Under a written trust instrument, the
                           Trustee shall be instructed to pay to Employee (or
                           Employee's legal representative, as the case may be)
                           the amount to which Employee shall be entitled under
                           the terms hereof, and the balance, if any, of the
                           trust not so paid or reserved for payment shall be
                           repaid to CNS. If CNS deposits funds in trust,
                           payment shall be made no later than the occurrence of
                           a Change in Control. If and to the extent there are
                           not amounts in trust sufficient to pay Employee under
                           this Agreement, CNS shall remain liable for any and
                           all payments due to Employee. In accordance with the
                           terms of such trust, at all times during the term of
                           this Agreement, Employee shall have no rights, other
                           than as an unsecured general creditor of CNS, to any
                           amounts held in trust and all trust assets shall be
                           general assets of CNS and subject to the claims of
                           creditors of CNS. Failure of CNS to establish or
                           fully fund such trust shall not be deemed a
                           revocation or termination of this Agreement by CNS.

                  x.       As a condition of receiving the Severance Payment and
                           other benefits provided in this subparagraph 8.f and
                           in subparagraph 8.g, Employee shall be required to
                           sign a standard release agreement with CNS in which
                           he agrees to release any and all claims and causes of
                           action which he might have against CNS and in which
                           he affirms and acknowledges his obligations under
                           paragraphs 9, 10, 11 and 12 of this Agreement.

         g.       Stock Options. Employee shall, immediately upon a Change in
                  Control, vest in all stock options which have been granted to
                  him and he shall be entitled to exercise all rights and to
                  receive all benefits accruing to him under any and all CNS
                  stock purchase and stock option plans or programs, including
                  the CNS, Inc. 1994 Amended Stock Plan, or any successor to any
                  such plan or program, which shall be in addition to and not
                  reduced by any other amounts payable to Employee under this
                  paragraph 8.




Executive Employment Agreement
Page 11


9.       Confidential Information. All knowledge and information not already
         available to the public which Employee may acquire or has acquired with
         respect to product development, improvements, modifications,
         discoveries, designs, methods, systems, computer software, programs,
         codes and documentation, research, designs, formulas, instructions,
         methods, inventions, trade secrets, services or other private or
         confidential matters of CNS (such as those concerning sales, costs,
         profits, organizations, customer lists, pricing methods, etc.), or of
         any third party which CNS is obligated to keep confidential, shall be
         regarded by Employee as strictly confidential and shall not be used by
         Employee directly or indirectly or disclosed to any persons,
         corporations or firms. All of the foregoing knowledge and information
         are collectively termed "Confidential Information" herein. Employee's
         obligations under this paragraph will not apply to any information
         which (a) is or becomes known to the general public under circumstances
         involving no breach by Employee of the terms of this paragraph, (b) is
         generally disclosed to third parties by CNS as a continuing practice
         without restriction on such third parties, (c) is approved for release
         by written authorization of CNS's Board, or (d) Employee is obligated
         by law to disclose.

10.      Disclosure and Transfer of Product Developments, etc.

         a.       Employee will make full and prompt disclosure to CNS or all
                  product developments, improvements, modifications,
                  discoveries, computer software, programs, codes and
                  documentation, research, designs, formulas, configurations,
                  instructions, methods and inventions (all of which are
                  collectively termed "Developments" herein), whether patentable
                  or not, made, discovered, conceived or first reduced to
                  practice by Employee or under his direction during his
                  employment, alone or with others, whether or not made or
                  conceived during normal working hours or on the premises of
                  CNS which relate in any material way to the business or to
                  research or development work of CNS. Employee confirms by his
                  acceptance of this Agreement that CNS owns and shall own all
                  of the Developments.

         b.       Employee also agrees on behalf of himself and his heirs and
                  legal representatives that he will promptly communicate,
                  disclose and transfer to CNS, free of encumbrances and
                  restrictions, all of his right, title and interest in the
                  Developments covered by subparagraph 10.a. and any patents or
                  patent applications covering such Developments and to execute
                  and deliver such assignments, patents and applications, and
                  any other documents as CNS may direct, and to cooperate fully
                  with CNS to enable it to secure any patents or otherwise
                  protect such Developments in any and all countries. Employee
                  shall assign to CNS any and all copyrights and reproduction
                  rights to all material prepared by Employee in connection with
                  his employment.




Executive Employment Agreement
Page 12


         c.       Notwithstanding subparagraphs 10.a. and b., however, this
                  paragraph 10 shall not apply to Developments for which no
                  equipment, supplies, facility or trade secret information of
                  CNS was used and which was developed entirely on the
                  Employee's own time, and (1) which do not relate (a) directly
                  to the business of CNS or (b) to CNS's actual or demonstrably
                  anticipated research or development, or (2) which does not
                  result from any work performed by Employee for CNS.

         This will confirm that Employee's obligations to CNS under paragraphs
         9, 10 and 11 will continue after the termination of Employee's
         employment.

11.      Non-Competition. During the term of Employee's employment by CNS and
         for twelve (12) months thereafter, Employee shall not directly or
         indirectly engage in, enter into or participate in the business of CNS
         or in any business or commercial activity which does or is reasonably
         likely to compete with or adversely affect the Business or products of
         CNS, either as an individual for Employee's own account, as a partner
         or a joint venturer, or as an officer, director, consultant or holder
         of more than five percent (5%) of the entity interest in, any other
         person, firm, partnership or corporation, or an employee, agent or
         salesman for any person. In addition, during such period Employee shall
         not: avail himself of any advantages or acquaintances he has made with
         any person who has, within the twelve (12) month period ended on the
         date of termination of his employment, been a customer of CNS or its
         affiliates, and which would, directly or indirectly, materially divert
         business from or materially and adversely affect the Business of CNS;
         interfere with the contractual relations between CNS and any of its
         employees; or employ or cause to be employed in any capacity or retain
         or cause to be retained as a consultant any person who was employed in
         any capacity by CNS during the twelve (12) month period ended on the
         date of termination of Employee's employment.

         For purposes of this Agreement, the "Business of CNS" or "Business"
         means and includes the business of the manufacture, production, sale,
         marketing and distribution of the Breathe Right strip and any other
         products currently offered or currently under development by CNS or
         offered or currently under development by CNS during one (1) year prior
         to the date of termination of Employee's employment.

         Inasmuch as the activities of CNS are conducted on an international
         basis, the restrictions of this paragraph 11 shall apply throughout the
         United States, Canada, Japan and Europe.

12.      Non-Solicitation. During the term of Employee's employment by CNS and
         for twelve (12) months thereafter, Employee shall not directly or
         indirectly solicit any current or prospective CNS customer, broker,
         vendor or distributor for the purpose of providing products or services
         for or on behalf of said customer, broker, vendor or distributor which
         are competitive with the products or services being provided by CNS,
         which are in the development stages of being competitive with the
         products or services being provided by




Executive Employment Agreement
Page 13


         CNS, or which would in any way cause said customer, broker, vendor or
         distributor to discontinue or reduce its business relationship with
         CNS. Current CNS customers, brokers, vendors or distributors include
         those customer, brokers, vendors or distributors with whom CNS has had
         a business relationship at any time within one year immediately
         preceding Employee's termination date. Prospective CNS customers,
         brokers, vendors and distributors include those with whom (a) a CNS
         representative has been in direct personal contact and (b) CNS has a
         reasonable opportunity of entering into a business relationship within
         six months following Employee's termination date. Employee also agrees
         that during his employment in the one year period following his
         employment, he will not directly or indirectly solicit any CNS
         employees to terminate his or her employment with CNS. This Employee
         non-solicitation obligation applies to Employees of CNS during
         Employee's employment and as of his termination date.

13.      Remedies. Employee acknowledges that the restrictions set forth in
         paragraphs 9, 10,11 and 12 hereof are reasonably necessary to protect
         legitimate business interests of CNS. It is understood that if Employee
         violates his obligations under any of these paragraphs, CNS would
         suffer irreparable harm for which a recovery of money damages would be
         an incomplete and inadequate remedy. It is therefore agreed that CNS,
         in addition to any remedies at law, shall be entitled, as a matter of
         right, in any court of competent jurisdiction, to a mandatory
         injunction restraining Employee pending litigation, as well as upon
         final determination thereof, from violating this Agreement. In
         addition, CNS will discontinue payment to Employee of any Severance or
         Salary Continuation Payments, benefits or bonus which he may be
         entitled to receive or is receiving under paragraphs 6, 7 or 8
         hereunder or otherwise, in the event of his violation of any of his
         obligations under this Agreement. In the event of cessation of payments
         and benefits, Employee's release of his claims against CNS shall remain
         valid and fully enforceable in consideration of the benefits which
         Employee received prior to set breach.

14.      Severability. The parties intend that the covenants and agreements
         contained herein shall be deemed to be a series of separate covenants
         and agreements, one for each and every state of the United States and
         political subdivision outside the United States where the business
         described is conducted. If, in any judicial proceeding, a court shall
         refuse to enforce any of the separate covenants deemed included in such
         action, then such unenforceable covenants shall be deemed eliminated
         from the provisions of this Agreement for the purpose of such
         proceeding to the extent necessary to permit the remaining covenants to
         be enforced in such proceeding. Further, in the event that any
         provision is held to be overbroad as written, such provision shall be
         deemed amended to narrow its application to the extent necessary to
         make the provision enforceable according to applicable law and enforced
         as amended




Executive Employment Agreement
Page 14


15.      Binding Effect.

         a.       CNS will require any successor (whether direct or indirect, by
                  purchase, merger, consolidation or otherwise) to all or
                  substantially all of the business and/or assets as defined in
                  subparagraph 8.a of CNS to expressly assume and agree to
                  perform this Agreement in the same manner and to the same
                  extent that CNS would be required to perform it if no such
                  succession had taken place, in which case, the term "CNS" as
                  used in this Agreement shall instead refer to CNS' successor.
                  Failure of CNS to obtain such assumption and agreement prior
                  to the effectiveness of any such succession shall be a breach
                  of this Agreement and shall entitle Employee to compensation
                  from CNS in the same amount and on the same terms as he would
                  be entitled hereunder if he terminated his employment for Good
                  Reason following a Change in Control, except that for purposes
                  of implementing the foregoing, the date on which any such
                  succession becomes effective shall be deemed the Date of
                  Termination.

         b.       This Agreement shall inure to the benefit of and be
                  enforceable by Employee's personal or legal representatives,
                  successors, heirs, and designated beneficiaries. If Employee
                  should die while any amount would still be payable to Employee
                  hereunder if Employee had continued to live, all such amounts,
                  unless otherwise provided herein, shall be paid in accordance
                  with the terms of this Agreement to Employee's designated
                  beneficiaries, or, if there is no such designated beneficiary,
                  to Employee's estate.

16.      Entire Agreement. From and after the date of this Agreement the terms
         and provisions of this Agreement constitute the entire agreement
         between the parties and this Agreement supersedes any previous oral or
         written communications, representations, or agreements with respect to
         any subject, including the subject matter of compensation, bonus,
         participation and profit sharing and termination compensation.

17.      Waiver and Interpretation. The waiver by either party of a breach of
         any provision of this Agreement by the other party shall not operate or
         be construed as a waiver of any subsequent breach by the breaching
         party. No waiver shall be valid unless in writing and signed by the
         party providing such waiver. If any provision of this Agreement is held
         by any court to be unenforceable, then such provision shall be deemed
         to be eliminated from the Agreement to permit enforceability of the
         remaining provisions. If any provision is held to be overbroad, such
         provision shall be amended to narrow its application to the extent
         necessary for enforceability. For purposes of the release agreement
         which Employee shall be required to execute as a condition of receiving
         any payments and benefits hereunder, "CNS", as referred to in this
         Agreement, shall include CNS and all its




Executive Employment Agreement
Page 15


         affiliates, shareholders, officers, directors, employees, agents,
         attorneys, insurers and indemnitors.

18.      Applicable Law. All questions pertaining to the validity, construction,
         execution and performance of this Agreement shall be construed and
         governed in accordance with the laws of the State of Minnesota. The
         parties consent to the personal jurisdiction of the State of Minnesota,
         waive any argument that such a forum is not convenient, and agree that
         any litigation relating to this Agreement shall be venued in
         Minneapolis, Minnesota.

19.      Tax Withholding. CNS may withhold from any payment of benefits under
         this Agreement (and forward to the appropriate taxing authority) any
         taxes required to be withheld under applicable law.

20.      Notice. Any notice required or desired to be given under this Agreement
         shall be deemed given if in writing sent by certified mail to his
         residence in the case of Employee, or to its principal office in the
         case of CNS.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first set forth above.

                                        CNS, INC.


                                        By /s/ Daniel E. Cohen
                                           -------------------------------------

                                           Its  CEO
                                               ---------------------------------



                                        EMPLOYEE


                                        /s/ Larry R. Muma
                                        ----------------------------------------
                                        Larry R. Muma



                         EXECUTIVE EMPLOYMENT AGREEMENT

                                    EXHIBIT A

NAME: Larry R. Muma

DATE: January 2, 2001

POSITION: VP, Operations

DEPARTMENT: Operations

BASE SALARY: $182,000

MANAGEMENT INCENTIVE PLAN LEVEL:  15 at Threshold
                                  30 at Plan
                                  60 at Maximum

EX-23.1

                                                                    Exhibit 23.1


INDEPENDENT AUDITORS' CONSENT

The Board of Directors
CNS, Inc.:

We consent to incorporation by reference in the registration
statements Nos. 333-60017, 33-29454, 33- 42971 and 33-59719 on Form S-8 of CNS,
Inc. of our report dated January 18, 2001, relating to the consolidated balance
sheets of CNS, Inc. and subsidiaries as of December 31, 2000, and 1999, and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 2000, which report is included in the
December 31, 2000, annual report on Form 10-K of CNS, Inc.

/s/ KPMG LLP



Minneapolis, Minnesota
March 26, 2001