10-K

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

FORM 10-K

(MARK ONE)

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

For the fiscal year ended March 31, 2003

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

7615 Smetana Lane
Eden Prairie, MN 55344
(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 31, 2003, the aggregate market value of the Company’s Common Stock held by non-affiliates is $71,501,532, computed by reference to the closing sales price of the Company’s Common Stock of $5.74 on September 30, 2002, the last business day of the Company’s most recently completed second fiscal quarter.

Indicated by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): Yes |_| No |X|

As of June 13, 2003, the Company had outstanding 13,305,792 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 August 27, 2003, are incorporated by reference into Part III of this Form 10-K.

TABLE OF CONTENTS

		Page
PART I
Item 1	Business	3
Item 2	Properties	16
Item 3	Legal Proceedings	16
Item 4	Submission of Matters to a Vote of Security Holders	16
PART II
Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters	17
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	31
Item 8	Financial Statements and Supplementary Data	32
Item 9	Changes in and Disagreements with Accountants on Accounting and    Financial Disclosure	32
PART III
Item 10	Directors and Executive Officers of the Registrant	32
Item 11	Executive Compensation	33
Item 12	Security Ownership of Certain Beneficial Owners and Management	33
Item 13	Certain Relationships and Related Transactions	34
Item 14	Controls and Procedures	34
PART IV
Item 15	[Reserved]	35
Item 16	Exhibits, Financial Statement Schedules, and    Reports on Form 8-K	35
SIGNATURES		36
CERTIFICATIONS		38, 39
EXHIBIT INDEX		40
INDEX TO 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 currently has a seasonal pattern of sales that is typically higher in the third and fourth quarters of each fiscal year due to increased nasal strip usage during the cough/cold season and its revenues and earnings may be impacted by the severity of such season; (iii) 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; (iv) 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”); (v) the Company has faced and will continue to face challenges in successfully developing and introducing new products; (vi) the Company operates in competitive markets where recent and potential entrants into the nasal dilator segment pose competitive challenges (see Item 1, “Competition”); (vii) the Company is dependent upon contract manufacturers for the production of substantially all of its products; and (viii) the Company currently purchases its nasal strip products from different contract manufacturers that obtain the raw materials from a single supplier (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 Breathe Right® nasal strips, Breath Right Snore Relief™ throat spray and FiberChoice® chewable fiber tablets. The Company focuses on products that address important consumer needs within the aging well/self care market, including better breathing and digestive health.

              The Company’s principal product, the Breathe Right nasal strip, improves breathing by reducing nasal airflow resistance. 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 mentholated vapor strips for colds that are sized for the entire family, and nasal strips for children that are available in multiple colors. Breathe Right with mentholated vapor strips were introduced in selected overseas markets in 2001.

              The Company further extended the Breathe Right brand in fiscal 2003 by launching Breathe Right Snore Relief throat spray. Snore Relief spray lubricates and soothes dry throats, while a natural astringent firms loose tissue to reduce the vibrations that cause snoring. Breathe Right strips open nasal passages and reduce mouth breathing that leads to snoring. These two products provide a portfolio of solutions for snoring. 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 that have established consumer brands, particularly those that complement the Company’s drug-free, better breathing platform. The Company is also considering opportunities for licensing new products and technologies.

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              The Company introduced its FiberChoice® chewable fiber tablets in March, 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 1999, the Company introduced its FLAIR™ equine nasal strip, a product that enables horses to breathe more easily during strenuous exercise. In March 2002, the Company established an exclusive, worldwide distribution relationship for its FLAIR equine nasal strip product with a joint venture entity comprised of Merial, LLC, an affiliate of Merck & Co., Inc. and Aventis. The Company has had limited sales of its FLAIR product to date.

              During June, 2001, the Company completed a restructuring and organizational realignment plan. The Company eliminated 20 positions across all areas for a 25% work force reduction. These actions enabled the Company to focus its resources on better leveraging the success of the Breathe Right brand, both in the United States and abroad, and operate the FiberChoice business more flexibly and efficiently.

              On January 23, 2002, the Company changed its fiscal year-end from December 31 of each year to March 31 of each year. The change in its fiscal year-end aligns the Company’s financial reporting period with its business and customer-planning cycle. The Company believes this change provides a clearer picture of the Company’s financial results by including an entire cough/cold season within the same fiscal year.

Management

              The Company’s management structure is organized into strategic business teams to expand the Breathe Right and Fiber-Choice brands and to develop and launch new products: Breathe Right Brand Team; FiberChoice Team; International Team and New Business Development Team. The Company believes that its team focus enables the Company to more effectively implement its business strategies.

              Breathe Right Brand Team. The Company’s Breathe Right Brand Team is responsible for the strategic development and management of the domestic Breathe Right nasal strip business and other products that carry 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 branded products. This team is responsible for developing and launching additional Breathe Right products. The Company introduced two new products in the United States during the fall of 2000 to coincide with the cough/cold season: mentholated vapor strips for colds for the entire family and nasal strips with stars for children. During 2002, the Company launched Breathe Right Snore Relief™ throat spray. This product leverages the Company’s existing position in the better breathing/snoring product category and complements existing Breathe Right offerings. In the 2003 cough/cold season, the Company intends to launch Breathe Right VaporShot!™ personal vaporizer. This product builds on the existing line of Breathe Right mentholated vapor strips for colds. The VaporShot! product gives consumers a drug-free breathing solution that can be used in the daytime, complementing the Breathe Right nasal strips, which are generally used to relieve nighttime breathing conditions. VaporShot! works by dropping an effervescent tablet into hot water in the VaporShot! cup with a customized lid. The VaporShot! cup delivers an intense shot of mentholated vapors that instantly relieves congested noses.

              FiberChoice Team. The Company introduced FiberChoice® chewable fiber tablets in March, 2000. The FiberChoice Team is responsible for the strategic development and management of the FiberChoice chewable fiber supplement business.

              International Team. The Company began shipping Breathe Right® nasal strips to new distributor partners in Europe, Australia and Japan during 2000. Breathe Right mentholated vapor strips for colds were introduced in selected overseas markets in 2001. In 2003, the Company introduced Breathe Right nasal strips for kids in Japan and Italy and introduced Breathe Right Snore Relief™ throat spray in the UK. The Company intends to expand the distribution of Breathe Right Snore Relief throat spray into several more countries during fiscal 2004. 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.”

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              New Business Development Team. The New Business Development Team is committed to the expansion of the Company’s product base through the development, acquisition or licensing of promising consumer health care products. The New 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 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.” Breathe Right nasal strips come in tan, clear, mentholated and stars-for-kids varieties.

              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 drugs, thereby avoiding any medicinal side effects. The Breathe Right nasal strip is offered in three sizes (kids, 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 10 to 38 strips per box. The Company believes that Breathe Right nasal strips are priced less than medicinal decongestants on a daily or nightly basis at retail prices ranging between $3.99 and $11.99 per box.

              The Company expanded the Breathe Right nasal strip line with the introduction of Breathe Right nasal strips with mentholated vapors and Breathe Right nasal strip for kids in 2000. In March 2000, the Company licensed the Vicks® trademark from The Proctor & Gamble Company for use with the mentholated nasal strip product. Effective July, 2003 the Vicks trademark will no longer be used. The mentholated vapor 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. The Company believes that its mentholated vapor strip product has increased 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 kids’ strips are sized specifically to fit children and include a brightly-colored version and a mentholated version.

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              Breathe Right® Brand Products. 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. Breathe Right Snore Relief™ throat spray is a drug-free product that addresses a different cause of snoring than nasal strips and lubricates and soothes dry throats while a natural astringent firms loose tissues to reduce the vibrations that produce snoring. This product leverages the Company’s existing position in the better breathing/snoring product category and complements existing Breathe Right product offerings. The Company intends to introduce additional non-nasal strip products in the future that carry the Breathe Right brand name to extend the product line. For example, the Company intends to launch a new product during the fall 2003 cough/cold season — Breathe Right
VaporShot!™ personal vaporizer. This product builds the Company’s existing line of Breathe Right mentholated vapor strips for colds. Breathe Right VaporShot! personal vaporizer works by dropping an effervescent tablet into hot water in the customized VaporShot! cup which delivers an intense shot of mentholated vapors that instantly relieves congested noses. This product leverages the Company’s existing position in the better breathing product category and complements existing Breathe Right product offerings.

              FiberChoice® Chewable Fiber Tablets. The Company introduced its FiberChoice chewable fiber tablets in March, 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 tablets contain four grams of fiber per dose and provide more than twice the amount of fiber per dose versus other convenient fiber supplements. The active ingredient in FiberChoice tablets is inulin, a natural fiber source. Inulin is also a prebiotic that helps promote the growth of healthy intestinal tract bacteria. 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 is packaged in 90-count and 36-count bottles and 10-count tubes.

Markets

              Breathe Right Brand Product Line. The Breathe Right brand of products includes Breathe Right nasal strips, Breathe Right saline nasal spray and Breathe Right Snore Relief throat spray. The Company intends to expand the Breathe Right brand in 2003 during the fall cough/cold season with the introduction of its Breathe Right VaporShot! personal vaporizer.

              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 chronic 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, and in a separate campaign, it promotes both Breathe Right nasal strips and Breathe Right Snore Relief throat spray as solutions for snoring.

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              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. Nasal congestion as a result of allergies affects approximately 35 million Americans. The Company believes that Breathe Right nasal strips are often used as either an alternative or as an adjunct to decongestant drugs (including nasal sprays and oral decongestants). This broad cough/cold/allergy market represents significant potential for the Breathe Right brand. 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 mentholated vapor strips for colds. At the same time, the product line was extended into children’s sizes, with a brightly colored “stars” strip and a Kid Strip with mentholated vapors.

• Snoring Relief. Based on results from clinical trials, Breathe Right products were effective in reducing snoring loudness in approximately 85% of the participants. 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 Septum. 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.

• Athletic Market. The Company believes that Breathe Right nasal strips 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 Breathe Right nasal strips 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 Breathe Right nasal strips during exercise. The Company continues to use athletes to endorse Breathe Right nasal strips to increase the visibility of the product, which 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 turned 55 was in 2001. This generation is generally more active and demanding than their parents. These consumers search for solutions that do not hamper their active lifestyles. Additionally, most Americans only get 10-15 grams of fiber a day, while experts recommend 25-30 grams daily. 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 provide four grams of fiber per dose and can be taken anytime and anywhere, with or without water.

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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 mentholated vapor strips for colds and children’s nasal strips, maximizing the potential of recently introduced products and successfully introducing new products with an emphasis on drug-free, better breathing such as the Company’s Breathe Right Snore Relief™ throat spray and Breathe Right VaporShot!™ personal vaporizer.

              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 increase its emphasis on positioning the Breathe Right nasal strip as a product that provides instant, drug-free relief for those suffering from nasal congestion and other breathing conditions such as the common cold, allergies and sinusitis. The Company’s advertising introduced Breathe Right mentholated vapor strips for colds, emphasizing the ability of Breathe Right nasal strips to provide instant, drug-free relief from nasal congestion. In 2001, the Company began separately advertising Breathe Right nasal strips as a product that provides drug-free relief from nasal congestion and for snoring.

              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 Breathe Right saline nasal spray. The Company has also expanded the Breathe Right product line to include mentholated vapor strips for colds and nasal strips for children, both of which were introduced during the fall of 2000 in order to coincide with the cough/cold season. In the 2002 cough/cold season the Company launched Breathe Right Snore Relief throat spray. This product leverages the Company’s existing position in the better breathing/snoring product category and complements existing Breathe Right offerings. In the 2002 cough/cold season, the Company intends to launch Breathe Right VaporShot! personal vaporizer. This product also leverages the Company’s existing position in the better breathing product category and complements existing Breathe Right offerings.

              Expanding Company Presence in International Markets. The Company believes that there is significant market potential for its products outside the United States. The Company is devoting significant resources to the development of its international business. 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 in 2000 and in Hong Kong in 2001. The Company is considering additional distributors and representatives for distribution of its nasal strip products in international markets. During 2001, the Company launched its Breathe Right mentholated vapor strips for colds in some international markets in conjunction with each market’s cough/cold season. During fiscal 2003, the Company test-marketed Breathe Right nasal strips in China. The Company intends to launch Breathe Right Snore Relief throat spray in Canada, Italy and Spain in fiscal 2004. 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.”

              Acquiring, Developing and Marketing New Products. The Company plans to take advantage of its position as the drug-free, better breathing company and its marketing and distribution strengths by acquiring, developing or licensing the rights to new products that it believes have merit and bringing them to market. The FiberChoice® chewable fiber tablet was launched in March, 2000 and the FLAIR™ equine nasal strip was introduced in 1999. Breathe Right Snore Relief throat spray was launched during the fall of 2002 and Breathe Right VaporShot! personal vaporizer will be launched in the second quarter of fiscal 2004. See Item 1, “Marketing Strategies.” In addition, the Company is evaluating opportunities for licensing new products and acquiring product lines that have an established base of consumer acceptance.

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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 advertising to market its products. The Company’s advertising focuses on the Breathe Right brand benefits of providing instant, drug-free relief from nasal congestion and snoring. The Company also uses product promotion programs, such as sampling, coupons and public relations activities to encourage product trial and repeat purchases. Introduction of the Breathe Right mentholated vapor strips for colds 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. In January 2003, the Company concluded a highly successful promotion for Breathe Right nasal strips and Breathe Right Snore Relief™ throat spray by having NFL wide receiver Jerry Rice select the loudest snorer in the Company’s “NFL’s Loudest Snorer” contest.

              Marketing efforts for Breathe Right nasal strips as an aid in the prevention of snoring also included 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 Breathe Right nasal strips are 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 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 tablets are directed toward all consumers who don’t get enough fiber in their diet. In 2002, the Company tested a new advertisement in four focused markets that simply states how busy people usually don’t get the fiber they need from their diets and that FiberChoice tablets offer at least twice as much fiber per dose than any other convenient fiber supplement. During fiscal 2003, the Company expanded its successful four-market advertising test to thirteen markets. The Company intends to broaden the FiberChoice brand marketing efforts to 68% of the United States in fiscal 2004.

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, particularly those that complement the Company’s drug-free, better breathing platform. 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. The Company also seeks to extend the Breathe Right brand awareness through licensing to other better breathing products in new categories. The Company intends to launch a new product during the fall 2003 cough/cold season–Breathe Right VaporShot!™ personal vaporizer. This product will leverage the Company’s existing position in the better breathing category and complement existing Breathe Right offerings.

              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.

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Domestic Distribution

              Breathe Right® nasal strips, Breathe Right saline nasal spray, Breathe Right Snore Relief™ throat spray and FiberChoice® chewable fiber tablets are sold primarily as consumer products in mass merchant 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 brokers. The Company uses direct sales people and brokered sales forces 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.

              Breathe Right nasal strips are typically positioned in the cough, cold and allergy sections of stores because they provide benefits similar to those obtained with other decongestant products. Breathe Right saline nasal spray is also usually positioned in the same section of the store as Breathe Right nasal strips since the products are typically used by those suffering from congestion, allergies and colds. Breathe Right Snore Relief throat spray is also usually positioned in the cough/cold section of stores, adjacent to Breathe Right nasal strips. 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, Kroger and Albertson’s and warehouse clubs such as Sam’s Club and Costco, as well as regional and independent stores in the same store categories. In fiscal 2003, Wal-Mart accounted for approximately 25% 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.

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. The Company believed that international markets required an increased level of focus, advertising and promotion to reach their potential. 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. As part of the agreement, 3M also agreed not to sell any nasal dilator devices for a period of two years, which period ended on June 30, 2002.

              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, Hong Kong, China 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.

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Manufacturing and Operations

              The Company currently subcontracts with multiple manufacturers to produce Breathe Right® nasal strips, Breathe Right saline nasal spray, Breathe Right Snore Relief™ throat spray and FiberChoice® chewable fiber tablets. The Company does no in-house product production. These contract manufacturers provide full turnkey service and ship product to the Company that is completely packaged ready to be sold to retailers or provide semi-finished goods to the Company that require final packaging.

              Each of the manufacturers makes Breathe Right nasal strips 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 regularly inspect the contract manufacturers to observe processes and procedures in an attempt to ensure compliance with FDA Good Manufacturing Practice Standards. Finished goods are also inspected to ensure that they meet quality requirements. 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 9001:2000/EN 46001.

              To ensure consistent quality and supply, the Company has multi-year contracts with manufacturers that purchase most of the major components for the Breathe Right nasal strips directly from 3M. In 2001, the Company entered into a multi-year contract with 3M that provides for consistent supply, adherence to specifications and pricing. Although similar materials are currently available from other suppliers, the Company has historically utilized 3M components in its products. Although the Company believes that this relationship will not be disrupted or terminated, 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 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 sold over the counter, 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 September, 1998 with an external nasal dilation device. Schering Plough Corp. recently sold its nasal strip business to Aso Corp., a subsidiary of Aso International of Japan. In May 2003, Aso Corp. announced it was acquiring the marketing, sales and distribution of Schering Plough’s nasal strip device effective June 3, 2003. Other companies have also 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 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 of these strategies and other steps taken by the Company, 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 owned and 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 and major international markets. The Company intends to aggressively enforce its patent rights covering the Breathe Right nasal strip and has engaged in litigation to protect its patent rights.

              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, and may not in the future have, patent protection on the Breathe Right® nasal strip.

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              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 with more fiber per dose than any other convenient fiber supplement. The technology of the FiberChoice chewable fiber tablet is currently protected by one issued U.S. patent with other U.S. and international patents pending.

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 since 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 regulations for certain provisions of the DSHEA which will be published as final rules in the Federal Register.

              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.

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              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 Company’s other 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, waste management and disposal, among others.

Patents, Trademarks and Proprietary Rights

              The Company has registered trademarks, owns several patents and pending patent applications, and has a number of patents through 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 worldwide rights to manufacture and sell the Breathe Right nasal strip in its various versions and the FiberChoice® chewable fiber tablet. 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 to pay royalties to the licensors based on sales of the products typically including certain minimum royalty amounts in order to maintain its exclusivity.

              The original 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. Seven 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 later licensor of the Breathe Right mentholated vapor strip has filed several patent applications with the U.S. Patent and Trademark Office as well as international patent offices resulting in both issued and pending applications. The Company, in addition to the patents and patent applications pending in the U.S. mentioned above, has filed corresponding patent applications seeking protection in several foreign countries to protect certain rights to nasal dilation technology that it acquired.

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              The licensor of the FiberChoice® chewable fiber tablet has one issued U.S. Patent and other issued and pending international patents seeking patent protection for different aspects of this product.

              Although the Company believes that its owned and licensed patents on nasal strips 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 or that the Company will have sufficient resources to pursue enforcement of any patents issued. The Company does, however, intend to aggressively enforce the patents covering nasal strips and its other products. In order to enforce any patents issued covering nasal strips, including 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. 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 would narrow the 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 newly 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 one patent pending for Breathe Right Snore Relief™ throat spray and two patents pending for the Breathe Right VaporShot!™ vaporizer technology. Both Snore Relief and VaporShot! are trademarks of the Company and their registrations are pending.

Employees

              At June 13, 2003, the Company had 53 full-time employees and 4 part-time employees, of whom 15 were engaged in operations, 22 in general administration, and 20 in marketing and sales. 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.

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EXECUTIVE OFFICERS OF THE COMPANY

              The following table sets forth the names and ages of the Company’s current 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 (50)	Chairman of the Board and Director
Marti Morfitt (45)	President, Chief Executive Officer and Director
Marcia O’Brien (47)	Interim Chief Financial Officer
Milton Anderson, Ph.D (52)	Vice President of Product Development
	and Regulatory
John J. Keppeler (41)	Vice President of Worldwide Sales
Linda Kollofski (50)	Vice President of New Business Development
John Kundtz (41)	Vice President of Marketing
Larry R. Muma (52)	Vice President of Operations
Carol J. Watzke (55)	Vice President of Consumer Strategy

              Daniel E. Cohen has served as the Company’s Chairman of the Board since 1993, its Chief Executive Officer from 1989 to June 2001 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 a director since March 1998 and its Chief Executive Officer since June 2001. She also served as the Company’s Chief Operating Officer from 1998 to June 2001. 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.

              Marcia O’Brien has served as the Company’s Interim Chief Financial Officer since March 31, 2003. From 1985 to 2002, Ms. O’Brien served as Executive Vice President and Chief Financial Officer of Signal Financial Corporation, a $1.1 billion bank holding company based in Minnesota that was acquired by Associated Bank in 2002. Prior to Signal, she served as a senior manager at accounting firm KPMG, as well as a senior auditor at Deloitte & Touche. Ms. O’Brien is a certified public accountant.

              Milton Anderson, Ph.D has served as the Company’s Vice President of Product Development and Regulatory 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.

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              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.

              Linda Kollofski has served as the Company’s Vice President of New Business Development since November of 2002. Prior to joining the Company in 2002, Ms. Kollofski was principal of Linda K. Consulting, Inc. from October of 1994 to October of 2002. Ms. Kollofski provided marketing expertise to various Pillsbury brands including Hagen-Daz, Totino’s and Green Giant as well as to Telex Communications, Hazeldon Foundation publishing business and the Company’s FiberChoice business. Previously, Ms. Kollofski served in senior marketing and new business development positions with the Hazeldon Foundation, Dow Brands, Pillsbury and Munsingwear.

              John Kundtz has served as the Company’s Vice President of Marketing since July of 2002. From 2001 to 2002, Mr. Kundtz served as Vice President, Strategic Marketing for Eagan, MN based West Group, a division of The Thompson Corporation, the nation’s leading legal information company. From 1987 to 2000, Mr. Kundtz served in a series of senior marketing and management positions with the Pillsbury Company, a Minneapolis-based manufacturer and distributor of food products, most recently serving as Vice President of Channel Development and Vice President of the Totinos brand. In addition, Mr. Kundtz co-founded Dogs Howling, Inc., which operates an upscale restaurant and entertainment venue.

              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.

              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.

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. Monthly payments on the lease are $61,766.

Item 3. LEGAL PROCEEDINGS

              From time to time, the Company may be involved in litigation that arises through the normal course of its business. As of the date of this Annual Report on Form 10-K, the Company is not a party to any litigation the Company believes could reasonably be expected to have a material adverse effect on its business or results of operations.

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

              None.

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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 which cover the Company’s fiscal years ending March 31, 2003 and December 31, 2001 and the transition period of January 1, 2002 to March 31, 2002.

Fiscal Year Ended March 31, 2003	High	Low
Quarter Ended March 31, 2003	7.19	5.87
Quarter Ended December 31, 2002	6.79	5.08
Quarter Ended September 30, 2002	6.15	5.00
Quarter Ended June 30, 2002	7.11	5.54
Transition Period	High	Low
Quarter Ended March 31, 2002	6.92	4.90
Fiscal Year Ended December 31, 2001	High	Low
Quarter Ended December 31, 2001	5.95	3.66
Quarter Ended September 30, 2001	5.13	3.15
Quarter Ended June 30, 2001	6.08	3.25
Quarter Ended March 31, 2001	5.13	3.50

              On June 13, 2003, the last sale price of the Common Stock was $8.40 per share.

Shareholders

              As of June 13, 2003, there were approximately 700 owners of record of Common Stock and an estimated 7,000 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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Information Regarding Equity Compensation Plans

              The following table sets forth information regarding the Company’s equity compensation plans in effect as of March 31, 2003. Each of the Company’s equity compensation plans is an “employee benefit plan” as defined by Rule 405 of Regulation C of the Securities Act of 1933.

Securities Authorized for Issuance under Equity Compensation Plans

Plan Category	Number of shares of common stock to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights			Number of shares of common stock remaining available for future issuance under equity compensation plans
Equity compensation plans
approved by stockholders	2,084,504			$4.58		86,710
Equity compensation plans not
approved by shareholders	-0	-		-0	-	-0	-
Totals	2,084,504			$4.58		86,710

              The equity compensation plans approved by CNS, Inc. shareholders are the 2000 Stock Option Plan, the 1994 Amended Stock Plan, the 1990 Stock Plan and the 1987 Employee Incentive Stock Option Plan. No shares remain available for future awards under any of the 1994, 1990 or 1987 Plans.

              The Company also maintains a 1989 Employee Stock Purchase Plan, participation in which is available to substantially all of the Company’s employees. Participating employees may purchase the Company’s common stock at the end of each participation period at a purchase price equal to 85% of the lower of the fair market value of the stock at the beginning or end of the period. The six-month participation period runs from January 1 to June 30 and from July 1 to December 31 each year. Employees may contribute up to 10% of their base compensation to the plan subject to certain IRS limits on stock purchases through the plan. This plan has been approved by the Company’s shareholders.

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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 March 31, 2003 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
	Mar 31		Dec 31			Dec 31			Dec 31			Dec 31
	2003		2001			2000			1999			1998
Net sales	$	79,075	$	76,242		$	61,777		$	38,409		$	49,037
Operating income (loss)		9,639		(1,225	)		(17,843	)		(18,696	)		701
Net income (loss)		6,516		81			(15,660	)		(13,756	)		2,982
Diluted net income (loss) per share	$	0.46	$	0.01		$	(1.09	)	$	(0.89	)	$	0.16
Working capital	$	45,266	$	32,712		$	32,507		$	50,183		$	72,025
Total assets		65,375		50,618			56,344			65,337			84,963
Stockholders’ equity		49,054		36,612			36,937			53,584			75,866

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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. Fiscal 2001 and 2000 amounts have been restated to give effect to the adoption on January 1, 2002 of the provisions of EITF Issue No. 01-9. These new accounting standards had no impact on the Company’s net income; however, they did require reclassification of certain promotional costs. In this discussion, our fiscal years ended March 31, 2003; December 31, 2001 and 2000 are referred to as fiscal year 2003, 2001 and 2000, respectively. 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.

              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, the international distribution agreement with 3M terminated on June 30, 2000. During 2000, the Company established an international distribution network that consists of both sales representatives and reselling distributors and 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 have amended and are also seeking to further amend certain claims to provide the Company with additional protection under the patent. The final outcome of the reexamination is 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.

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              Beginning in 1998, the Company strengthened its management team to add consumer packaged goods and new products experience. The Company also formed teams to focus on individual product lines. The Company completed positioning research work to expand the Breathe Right® brand and developed 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.

              In 2000, the Company expanded its domestic Breathe Right product line to include nasal strips for colds with mentholated vapors that are sized for the entire family and nasal strips for children that are available in multiple colors. Breathe Right nasal strips for colds with mentholated vapors were introduced in selected overseas markets in 2001.

              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 chewable fiber tablets can be taken without water and have been clinically proven to be as effective as powder alternatives.

              In 2001, the Company streamlined and realigned the Company’s resources to better match its strategic goals and to focus on building the core businesses. The Company recorded a special charge related to costs associated with this plan. Approximately 25% of the workforce, from throughout the organization, was eliminated. These cost-cutting actions were expected to result in annual savings of approximately $2 to $2.5 million. The cost savings relating to this plan were realized beginning in July of 2001.

              In 2002, the Company changed its fiscal year-end from December 31 to March 31. The change in its fiscal year end aligns the Company’s financial reporting with its business and customer planning cycle. The Company believes this change provides a clearer picture of the Company’s financial results by including an entire cough/cold season within the same fiscal year. The first period to be reported in 2002 was a three-month stub period ending March 31, 2002. Fiscal 2003 is from April 1, 2002 through March 31, 2003.

              In fiscal 2003, the Company continued to expand its Breathe Right product line by launching Breathe Right Snore Relief™ throat spray. Snore Relief spray lubricates and soothes dry throats, while a natural astringent firms loose tissue to reduce the vibrations that cause snoring. Breathe Right strips open nasal passages and reduce the mouth breathing that leads to snoring. These two products provide a portfolio of solutions for snoring.

Accounting Policies

              In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management must make decisions which impact the reported amounts and the related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, management applies judgment based on its understanding and analysis of the relevant circumstances. Note 1 to the consolidated financial statements provides a summary of the significant accounting policies followed in the preparation of the financial statements.

              The Company’s critical accounting policies include the following:

              Sales Returns and Other Allowances, and Allowance for Doubtful Accounts. Revenue from sales is recognized at the time products are shipped less estimated sales returns, certain promotional costs and other allowances. Management must make estimates of potential future product returns and other allowances related to current period revenue. Management analyzes historical returns, current trends, and changes in customer and consumer demand when evaluating the adequacy of the sales returns and other allowances. The Company has established a reserve of $1.4 million for future sales returns and other allowances as of March 31, 2003. Similarly, management must make estimates of the uncollectability of accounts receivables. Management specifically analyzes customer account balances, historical bad debts, current economic trends and changes in the timing of customer payments. The balance of accounts receivable was $11.0 million, net of the allowance for doubtful accounts of $330,000 as of March 31, 2003.

21

              Inventory Valuation. Inventory is valued at the lower of cost, determined on a first-in, first-out basis (FIFO), or market. The Company analyzes the cost and the market value of inventory items and establishes the appropriate valuation reserves. The Company has established a reserve of $667,000 as of March 31, 2003. Management believes that the inventory valuation results in carrying inventory at the lower of cost or market.

              Accounting for Income Taxes. As part of the process of preparing financial statements, the Company is required to estimate income taxes, both state and federal. This process involves management estimating the actual current tax exposure together with assessing temporary differences resulting from different treatment for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within the consolidated balance sheet. Management must then assess the likelihood that deferred tax assets will be utilized to offset future taxable income during the periods in which these temporary differences are deductible. Based on the level of historical taxable income and projections of future taxable income for the periods, in which the deferred tax assets are deductible, management believes that it is more likely than not the Company will realize the benefits of these deductible differences. Accordingly, the Company has eliminated the valuation allowance of $9.1 million against the net deferred tax assets as of March 31, 2002.

              Valuation of Product Rights. Management assesses the impairment of product rights whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors that are considered important for the assessment include significant underperformance of a product line relative to projected or historical results, significant change in the market in relation to competitive products and significant negative industry or economic trends. Management currently does not believe that it is necessary to record an impairment charge at this time and that the carrying value of these assets will be recoverable.

Operating Results

              On January 23, 2002, the Company changed its fiscal year-end from December 31 to March 31. The first period to be reported in 2002 was a three-month stub period ended March 31, 2002. The change in fiscal year-end aligns the Company’s financial reporting period with its business and customer-planning cycle. The Company believes this change provides a clearer picture of the Company’s financial results by including an entire cough/cold season within the same fiscal year.

              The following discussion of historical operating results compares the fiscal year ended March 31, 2003 to the previous fiscal year ended December 31, 2001 and compares the fiscal year ended December 31, 2001 to the fiscal year ended December 31, 2000. Additionally, the three-month transition period ended March 31, 2002 is compared to the same unaudited period in the prior year.

              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 operations for the periods indicated.

22

              Certain prior period amounts have been reclassified to conform to the current period’s presentation. These reclassifications had no impact on the operating net income (loss) or net income (loss) for 2001 and 2000.

	Three Months Ended											Year Ended
	Mar 31,			Jun 30,		Sep 30,		Dec 31,		Mar 31,		Mar 31,
	2002			2002		2002		2002		2003		2003
	(In thousands)
Domestic net sales	$	15,195		$	12,711	$	15,346	$	19,088	$	18,117	$	65,262
International net sales		3,940			1,812		2,040		6,826		3,135		13,813
Net sales		19,135			14,523		17,386		25,914		21,252		79,075
Cost of goods sold		6,390			5,319		5,912		8,119		6,642		25,992
Gross profit		12,745			9,204		11,474		17,795		14,610		53,083
Operating expenses:
Advertising and promotion		8,796			4,115		2,881		13,407		10,527		30,930
Selling, general and
administrative		3,213			2,763		3,015		3,204		3,532		12,514
Total operating expenses		12,009			6,878		5,896		16,611		14,059		43,444
Operating income		736			2,326		5,578		1,184		551		9,639
Investment income		272			229		240		240		130		839
Income before income
taxes		1,008			2,555		5,818		1,424		681		10,478
Income tax expense (benefit)		(9,126	)		1,000		2,300		550		112		3,962
Net income	$	10,134		$	1,555	$	3,518	$	874	$	569	$	6,516

23

	Three Months Ended												Year Ended
	Mar 31,			Jun 30,			Sep 30,			Dec 31,			Dec 31,
	2001			2001			2001			2001			2001
	(In thousands)
Domestic net sales	$	18,727		$	11,448		$	13,709		$	16,344		$	60,228
International net sales		4,741			2,922			3,340			5,011			16,014
Net sales		23,468			14,370			17,049			21,355			76,242
Cost of goods sold		8,706			5,557			6,059			7,376			27,698
Gross profit		14,762			8,813			10,990			13,979			48,544
Operating expenses:
Advertising and promotion		13,935			7,529			3,175			9,617			34,256
Selling, general and administrative		4,766			3,519			3,247			3,051			14,583
Special charges		0			1,100			0			(170	)		930
Total operating expenses		18,701			12,148			6,422			12,498			49,769
Operating income (loss)		(3,939	)		(3,335	)		4,568			1,481			(1,225	)
Investment income		362			345			269			330			1,306
Income (loss) before income taxes		(3,577	)		(2,990	)		4,837			1,811			81
Income taxes		0			0			0			0			0
Net income (loss)	$	(3,577	)	$	(2,990	)	$	4,837		$	1,811		$	81
	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	$	13,210		$	11,210		$	14,899		$	16,408		$	55,727
International net sales		286			598			2,588			2,578			6,050
Net sales		13,496			11,808			17,487			18,986			61,777
Cost of goods sold		4,846			5,110			6,875			8,076			24,907
Gross profit		8,650			6,698			10,612			10,910			36,870
Operating expenses:
Advertising and promotion		10,920			4,503			7,756			16,400			39,579
Selling, general and administrative		3,915			3,470			3,756			3,993			15,134
Total operating expenses		14,835			7,973			11,512			20,393			54,713
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	)
Income taxes		0			0			0			0			0
Net loss	$	(5,687	)	$	(709	)	$	(393	)	$	(8,871	)	$	(15,660	)

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	Three Months Ended										Year Ended
	Mar 31,		Jun 30,		Sep 30,		Dec 31,		Mar 31,		Mar 31,
	2002		2002		2002		2002		2003		2003
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	33.4		36.6		34.0		31.3		31.2		32.9
Gross profit	66.6		63.4		66.0		68.7		68.8		67.1
Operating expenses:
Advertising and promotion	46.0		28.3		16.6		51.7		49.5		39.1
Selling, general and
administrative	16.8		19.0		17.3		12.4		16.6		15.8
Total operating expenses	62.8		47.3		33.9		64.1		66.1		54.9
Operating income	3.8		16.1		32.1		4.6		2.7		12.2
Investment income	1.4		1.6		1.4		0.9		0.6		1.1
Income before income
taxes	5.2		17.7		33.5		5.5		2.7		13.3
Income tax expense (benefit)	(47.7	)	6.9		13.2		2.1		0.5		5.0
Net income	52.9	%	10.8	%	20.3	%	3.4	%	2.8	%	8.3	%

	Three Months Ended								Year Ended
	Mar 31,		Jun 30,		Sep 30,		Dec 31,		Dec 31,
	2001		2001		2001		2001		2001
Net sales	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	37.1		38.7		35.5		34.5		36.3
Gross profit	62.9		61.3		64.5		65.5		63.7
Operating expenses:
Advertising and promotion	59.4		52.4		18.6		45.0		44.9
Selling, general and administrative	20.3		24.5		19.0		14.3		19.1
Special charges	0.0		7.7		0.0		(0.8	)	1.2
Total operating expenses	79.7		84.6		37.6		58.5		65.2
Operating income (loss)	(16.8	)	(23.3	)	26.9		7.0		(1.5	)
Investment income	1.5		2.4		1.6		1.5		1.7
Income (loss) before income taxes	15.3		20.9		28.5		8.5		0.2
Income taxes	0.0		0.0		0.0		0.0		0.0
Net income (loss)	(15.3	)%	(20.9	)%	28.5	%	8.5	%	0.2	%

25

	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	35.9		43.3		39.3		42.5		40.3
Gross profit	64.1		56.7		60.7		57.5		59.7
Operating expenses:
Advertising and promotion	80.9		38.1		44.4		86.4		64.1
Selling, general and administrative	29.0		29.4		21.5		21.0		24.5
Total operating expenses	109.9		67.5		65.9		107.4		88.6
Operating loss	(45.8	)	(10.8	)	(5.2	)	(49.9	)	(28.9	)
Investment income	3.7		4.8		2.9		3.2		3.5
Loss before income taxes	(42.1	)	(6.0	)	(2.3	)	(46.7	)	(25.4	)
Income taxes	0.0		0.0		0.0		0.0		0.0
Net loss	(42.1	)%	(6.0	)%	(2.3	)%	(46.7	)%	(25.4	)%

2003 Compared to 2001

              Net Sales. Net sales for 2003 of $79.1 million increased 3.8% over 2001 sales of $76.2 million. Domestic sales of Breathe Right® products grew to $57.9 million, representing an increase of 7.6% over 2001 sales of $53.8 million. FiberChoice® tablet sales for 2003 grew to $7.1 million from $6.4 million for the previous year, representing an increase of 10.9%, primarily as the result of expanding the advertising support to thirteen U.S. markets.

              International sales decreased by 13.8% to $13.8 million dollars compared to 2001 sales of $16.0 million. This decrease resulted from some international partners decreasing their inventory levels.

              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 $53.1 million for 2003 compared to $48.5 million for 2001. Gross profit as a percentage of net sales increased to 67.1% for 2003 compared to 63.7% for 2001. The improvement in gross profit is due to lower product costs on products sold.

              Advertising and Promotion. Advertising and promotion expenses were $30.9 million for 2003 compared to $34.3 million for 2001. Advertising and promotion expenses as a percentage of net sales decreased to 39.1% in 2003 from 44.9% in 2001. This decrease in spending rate was the result of a planned lower support level for FiberChoice tablets.

              Selling, General and Administrative. Selling, general and administrative expenses were $12.5 million for 2003 compared to $14.6 million for 2001. Selling, general and administrative expenses as a percentage of net sales decreased to 15.8% for 2003 compared to 19.1% for 2001. This decrease was primarily the result of the corporate restructure that included a workforce reduction and that enabled the Company to streamline its resources to focus on building the core businesses.

              Investment Income. Investment income was $.8 million for 2003 compared to $1.3 million for 2001. The decrease in investment income was primarily due to a decrease in market interest rates. The Company also incurred $100,000 of interest expense relating to an IRS audit in 2003.

26

              Income Tax Expense (Benefit).Income tax expense was $4.0 million for 2003 compared to $0 for 2001. The Company did not recognize an income tax benefit in 2001 due to the increase in net income before tax, offset by changes in deferred tax assets, including utilization of net operating loss carryforwards for which a full valuation allowance had been established.

2001 Compared to 2000

              Net Sales. Net sales for 2001 of $76.2 million showed a 23.3% increase over 2000 sales of $61.8 million. Domestic sales of Breathe Right® products grew to $53.8 million, representing an increase of 8.9% over 2000 sales of $49.4 million. FiberChoice® tablet sales for 2001 of $6.4 million remained flat from sales of $6.4 million in 2000.

              International sales increased by 162.3% to $16.0 million compared to 2000 sales of $6.1 million. This increase was the result of a full year of distribution in Japan, Europe, and Australia as well as the launch of Breathe Right nasal strips for colds with mentholated vapors in selected countries.

              Gross Profit. Gross profit was $48.5 million for 2001 compared to $36.9 million for 2000. Gross profit as a percentage of net sales increased to 63.7% for 2001 compared to 59.7% for 2000. Gross profit in 2000 was unfavorably impacted by the lower gross profit on 10-count FiberChoice chewable tablets, disposal of an excess inventory of pillow covers and higher costs associated with expediting inventory purchases and deliveries.

              Advertising and Promotion. Advertising and promotion expenses were $34.3 million for 2001 compared to $39.6 million for 2000. Advertising and promotion expenses as a percentage of net sales decreased to 44.9% in 2001 from 64.1% in 2000. This decrease in spending rate was the result of a planned lower support level for FiberChoice tablets in the year following its introduction and the elimination of less effective expenditures for the Breathe Right brand.

              Selling, General and Administrative. Selling, general and administrative expenses were $14.6 million for 2001 compared to $15.1 million for 2000. Selling, general and administrative expenses as a percentage of net sales decreased to 19.1% compared to 24.5% for 2000. This decrease was primarily the result of the corporate restructure that included a workforce reduction that enabled the Company to streamline its resources to focus on building the core businesses.

              Special Charges. The Company recorded a special charge of $930,000 in 2001 for the costs of implementing the Company’s corporate restructuring plan to streamline and realign the Company’s resources. The charge was primarily for severance benefits.

              Investment Income. Investment income was $1.3 million for 2001 compared to $2.2 million for 2000. The decrease in investment income was the result of a decrease in funds invested and lower market interest rates.

              Income Tax Expense (Benefit). There was no income tax benefit for 2001 and 2000 due to fully reserving for tax loss carryforwards for which a full valuation allowance had been established.

27

Three Months ended March 31, 2002 Compared to the Three Months ended March 31, 2001 (unaudited)

              Net Sales. Net sales for the March 2002 quarter were $19.1 million compared to $23.5 million (unaudited) for the 2001 quarter, representing a decrease of 18.7%. Domestic sales for the March 2002 quarter were $15.2 million compared to $18.7 million (unaudited) for the same quarter of 2001. As anticipated, sales for the 2002 March quarter were comparably lower due to the significant sales boost generated by the introduction of mentholated strips in 2001, as well as industry-wide slower sales of cough/cold products during the 2001/2002 cough/cold season.

              International sales were $3.9 million for the March 2002 quarter compared to $4.7 million (unaudited) for the same quarter of 2001. Sales for the 2002 March quarter were lower due to the timing of purchases by international distributors.

              Gross Profit. Gross profit was $12.7 million for the March 2002 quarter compared to $14.8 million (unaudited) for the same quarter of 2001. Gross profit as a percentage of net sales increased to 66.6% for the March 2002 quarter compared to 62.9% (unaudited) for the same quarter of 2001. The lower gross profit percentage in 2001 resulted primarily from higher deductions from sales for promotional expenditures in conjunction with the launch of new products.

              Advertising and Promotion. Advertising and promotion expenses were $8.8 million for the March 2002 quarter compared to $13.9 million (unaudited) for the same quarter in 2001. The decrease resulted primarily from elimination of less effective advertising expenditures and the planned reduction in spending for FiberChoice® tablets in the year following the launch.

              Selling, General and Administrative. Selling, general and administrative expenses were $3.2 million for the March 2002 quarter compared to $4.8 million (unaudited) for the same quarter of 2001. This decrease was primarily the result of the June 2001 corporate restructuring that included a workforce reduction and that has enabled the Company to streamline its resources to focus on building the core businesses.

              Investment Income. Investment income was $272,000 for the March 2002 quarter compared to $362,000 (unaudited) for the same quarter of 2001. This decrease was primarily the result of a decrease in market interest rates.

              Income Tax Expense (Benefit). Income tax benefit was $9.1 million for the March 2002 quarter compared to $0 (unaudited) taxes for the same quarter of 2001. The Company recognized a tax benefit of $9.1 million during the March quarter of 2002 as a result of reinstating net deferred tax assets, including the benefit of net operating loss carryforwards. Management believes, based on the level of historical taxable income and projections of future taxable income for the periods in which the deferred tax assets are deductible, that it is more likely than not the Company will realize the benefits of the deductible differences. There were no income taxes recognized for the March quarter of 2001 as the Company was in a net operating loss carryforward position.

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 cough/cold season.

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Liquidity and Capital Resources

              At March 31, 2003, the Company had cash, cash equivalents and marketable securities of $41.6 million and working capital of $45.3 million.

              Operating Activities. The Company had cash provided by operations of $19.2 million in 2003 primarily due to net income for the year, an increase in operating liabilities and a decrease in deferred income taxes. The Company used cash in operations of $2.8 million in 2001 primarily due to a decrease in operating liabilities. The Company used cash in operations of $4.4 million in 2000 primarily due to the net loss for the year, partially offset by an increase in operating liabilities. The Company used cash in operations of $53,000 for the three months ended March 31, 2002 compared to $11.4 million (unaudited) for the same quarter in 2001. The use of cash in 2002 was the result of net income offset primarily by the non-cash deferred income tax benefit and a decrease in operating liabilities. The use of cash in the March quarter of 2001 was due to the net loss for the quarter along with a decrease in operating liabilities.

              Investing Activities. Purchases of marketable securities exceeded sales and maturities by $5.9 million in 2003. Marketable securities purchased consisted primarily of U.S. Government obligations. Sales and maturities of marketable securities exceeded purchases by $10.6 million in 2001. Net proceeds were used primarily to fund the cash used in operations and to purchase treasury shares. Sales and maturities of marketable securities exceeded purchases by $8.8 million in 2000. Net proceeds were used to fund the cash used in operations, purchase property and equipment and purchase treasury shares. Purchases of marketable securities exceeded sales and maturities by $372,000 for the three months ended March 31, 2002. Sales and maturities of marketable securities exceeded purchases by $10.5 million (unaudited) for the March 31, 2001 quarter. Net proceeds were used primarily to fund the cash used in operations.

              The Company purchased $60,000 and $394,000 of property and equipment in 2003 and 2001, respectively, primarily associated with upgrading personal computers and software. The Company purchased $2.0 million of property and equipment in 2000 primarily associated with the Company’s move to different facilities. The Company purchased $8,000 and $255,000 (unaudited) of property and equipment in the March 2002 and March 2001 quarter, respectively.

              The Company purchased $510,000; $357,000 and $141,000 of product rights during the years ended March 31, 2003; December 31, 2001 and 2000, respectively. The Company purchased $148,000 (unaudited) of product rights during the quarter ended March 31, 2001.

              Financing Activities. The Company purchased 458,000 shares of its common stock for $2.8 million in 2003 and purchased 202,000 shares for $1.0 million in 2001. The Company purchased 482,000 shares of its common stock for $2.4 million during the quarter ended March 31, 2002. These treasury shares will be used to meet the Company’s obligations under its employee stock purchase plan and stock option plans, and for possible future acquisitions. The Company received $949,000 in 2003 and $288,000 in 2001 from the exercise of stock options and issuance of stock under the employee stock purchase plan. The Company received $72,000 from the exercise of stock options during the quarter ended March 31, 2002.

29

              Significant Agreements and Lease Obligations. The Company has entered into certain agreements and leases in order to secure product rights and office space. The following is a summary of significant agreements and lease obligations:

Year ending March 31,		Minimum Royalties		Operating Leases		Total
	2004	$	795	$	766	$	1,561
	2005		795		741		1,536
	2006		795		741		1,536
	2007		795		741		1,536
	2008		795		741		1,536
	Later years				1,977
	Total			$	5,707

              The Company has agreements that exclusively license intellectual property rights for certain products. Royalties due under these agreements are based on various percentages of net sales. The licensing agreements are valid for the lives of the related patents, however, they may be terminated earlier under certain conditions. Total minimum royalties are not determinable since royalties continue for the life of current and potential future patents related to the licensed intellectual property. The Company has entered into operating leases for office space and office equipment. Leases expire at various dates beginning in 2003 through 2010. Management is not aware of any significant agreements or obligations that would have a material negative impact upon the Company’s short-term or long-term liquidity.

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

Recent Accounting Pronouncements

              In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement provides guidance on accounting for restructuring activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of the statement are effective for exit or disposal activities initiated after December 31, 2002, with early adoption encouraged. The Company will apply the provisions of SFAS No. 146 for exit or disposal activities initiated after December 31, 2002, as required.

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

              In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” which requires certain guarantees to be recorded at fair value. This Interpretation also requires a guarantor to make certain disclosures about guarantees, including product warranties, even when the likelihood of making any payments under the guarantee is remote. The Company has adopted the disclosure requirements in this Interpretation as of January 1, 2003, as required.

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              In May 2003, the FASB issued SFAS No.150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” which requires that certain types of financial instruments with characteristics of a liability be presented as a liability. The Company is required to implement SFAS No. 150 beginning with the quarter ending June 30, 2003. Management does not expect this statement to have a material impact on the Company’s consolidated financial position.

Forward Looking Statements

              Certain statements contained in this Annual Report 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 currently has a seasonal pattern of sales that is typically higher in the third and fourth quarters of each fiscal year due to increased nasal strip usage during the cough/cold season and its revenues and earnings may be impacted by the severity of such season; (iii) 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; (iv) 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; (v) the Company has faced and will continue to face challenges in successfully developing and introducing new products; (vi) the Company operates in competitive markets where recent and potential entrants into the nasal dilator segment pose competitive challenges; (vii) the Company is dependent upon contract manufacturers for the production of all of its products; and (viii) the Company currently purchases its nasal strip products from different contract manufacturers that obtain the raw materials from a single supplier.

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 March 31, 2003:

	(In Thousands)
	Cost		Fair Value
Due within one year	$	27,056	$	27,112
Due after one year through three years		14,237		14,503
	$	41,293	$	41,615

31

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

              The Consolidated Balance Sheets of the Company as of March 31, 2003 and 2002, and the related Consolidated Statements of Operations, Stockholders’ Equity and Comprehensive Income (Loss), and Cash Flows for each of the years ended March 31, 2003, December 31, 2001 and December 31, 2000 and for the three months ended March 31, 2002 and 2001 (unaudited), the Notes to the Consolidated Financial Statements and the Report of KPMG LLP, independent certified public accountants, are listed under Item 16 of this Report.

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

              None.

PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

              The following sets forth certain information with respect to the Company’s directors:

              Daniel E. Cohen, 50, has served as the Company’s Chairman of the Board since 1993 and has served as a director of the Company since its formation in 1982. Mr. Cohen also served as the Company’s Chief Executive Officer from 1989 to June 2001 and as Treasurer from 1982 to March 1999. Mr. Cohen, a founder of the Company, is a medical doctor and board-certified neurologist.

              Patrick Delaney, 60, has served as a director of the Company since 1983 and as the Company’s Secretary since 1995. In December 2002, Mr. Delaney retired as a partner in the Minneapolis-based law firm of Lindquist & Vennum P.L.L.P., counsel to the Company. He was in the private practice of law since 1967. He is also a director of Community First Bankshares, Inc., a multi-bank holding company.

              R. Hunt Greene, 52, has served as a director of the Company since 1985. Mr. Greene has been an investment banker for over twenty years. He is presently Managing Director and Member of Greene Holcomb & Fisher LLC (“GH&F”), a Minneapolis investment banking firm that was formed in 1995. GH&F has provided the Company with certain financial advisory and investment banking services from time to time since 1996.

              Andrew J. Greenshields, 65, has served as a director of the Company since 1986. Mr. Greenshields has been President of Pathfinder Ventures, Inc., Minneapolis, Minnesota, since 1980. He is also a general partner of Pathfinder Venture Capital Fund III and a general partner of Spell Capital Partners, LP, both of which are Minneapolis-based financial limited partnerships. Mr. Greenshields is also a director of Aetrium, Inc., a manufacturer of semi-conductor handling equipment.

              H. Robert Hawthorne, 58, has served as a director of the Company since 1999. Mr. Hawthorne served as Chief Executive Officer of Ocean Spray Cranberries, Inc., a Boston-based food and beverage company, from February 2000 to November 2002. From 1997 to 1999, Mr. Hawthorne served as a director, President and Chief Executive Officer of Select Comfort Corporation, a Minneapolis-based company that manufactures air beds and sleep related products. From 1986 to 1997, Mr. Hawthorne 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 February 1992 to December 1997 as President of The Pillsbury Brands Group, a subsidiary of The Pillsbury Company.

32

              Marti Morfitt, 45, has served as the Company’s President and Chief Executive Officer since June 2001, its President and Chief Operating Officer from March 1998 to June 2001. Ms. Morfitt has served as a director of the Company since 1998. From September 1982 to February 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 1997 to February 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.

              Richard W. Perkins, 72, has been a director of the Company since 1993. Mr. Perkins has been President, Chief Executive Officer and a director of Perkins Capital Management, Inc., a Minneapolis-based investment management company, since 1985. He is also a general partner of Spell Capital Partners, LP, a Minneapolis-based venture capital limited partnership. He is also a director of the following publicly-held companies: Synovis Life Technologies, Inc., a manufacturer of medical products; Intellefilm Corp., a producer of television and internet commercials; PW Eagle, Inc., a manufacturer of plastic pipe; Lifecore Biomedical, Inc., a medical device company; Nortech Systems, Inc., a contract manufacturer for the electronics industry; Vital Images, Inc., a medical diagnostic software company; and Paper Warehouse, Inc., a retailer specializing in party supplies and paper products.

              Morris J. Siegel, 53, has served as a director of the Company since April 18, 2003. Mr. Siegel is the founder and retired chairman of Celestial Seasonings, Inc., a manufacturer and marketer of specialty herb teas. In 2000, Celestial Seasonings merged with The Hain Food Group, a natural, specialty, organic and snack food company. Mr. Siegel then served as vice chairman of the merged company, The Hain Celestial Group, Inc. and was Chief Executive Officer of Celestial Seasonings until September 2002. In 1987, Mr. Siegel founded Earth Wise, Inc., a marketer of environmentally friendly cleaning products and recycled trash bags. Mr. Siegel also currently serves as a director of Annie’s Homegrown Foods, Inc., which manufactures, markets and sells premium all natural and organic macaroni and cheese dinners, all natural pasta meals and other all natural and organic food products, and is a subsidiary of Solera Capital LLC.

              Certain other 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 August 27, 2003 (the "2003 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.

Executive Officers

              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 2003 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 2003 Proxy Statement and is incorporated herein by reference.

33

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

              Information required under this item is contained in the section entitled “Certain Relationships and Related Transactions” in the Company’s 2003 Proxy Statement and is incorporated herein by reference.

Item 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

              The Company’s Chief Executive Officer, Marti Morfitt, and interim Chief Financial Officer, Marcia O’Brien, have reviewed the Company’s disclosure controls and procedures within 90 days prior to the filing of this report. Based upon this review, each such officer believes that the Company’s disclosure controls and procedures are effective in ensuring that material information related to the Company is made known to her by others within the Company.

(b) Changes in Internal Controls.

              There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls during the quarter covered by this report or from the end of the reporting period to the date of this Form 10-K.

34

PART IV

Item 15. [RESERVED]

Item 16. 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
	March 31, 2003, December 31, 2001 and December 31, 2000 and
	for the three months ended March 31, 2002 and March 31, 2001 (unaudited)	F-2
	Consolidated Balance Sheets as of March 31, 2003 and 2002	F-3
	Consolidated Statements of Stockholders’ Equity and Comprehensive
	Income (Loss) for the Years Ended March 31, 2003, December 31, 2001
	and December 31, 2000 and for the three months ended
	March 31, 2002 and March 31, 2001 (unaudited)	F-4
	Consolidated Statements of Cash Flows for the Years Ended
	March 31, 2003, December 31, 2001 and December 31, 2000 and
	for the three months ended March 31, 2002 and March 31, 2001 (unaudited)	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.

None.

35

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.

Dated: June 26, 2003 CNS, INC.
(“Registrant”)


By /s/ Marti Morfitt
      ————————————————
      Marti Morfitt
      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 June 26, 2003 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 MARTI MORFITT 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 or she might or could do in person, hereby ratifying and confirming all said attorneys-in-fact and agents, each acting alone, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue thereof.

/s/ Marti Morfitt
————————————————
Marti Morfitt
Chief Executive Officer and Director
(Principal Executive Officer)

/s/ Marcia O’Brien
————————————————
Marcia O’Brien
Interim Chief Financial Officer
(Principal Financial and Accounting Officer)

/s/ Daniel E. Cohen
————————————————
Daniel E. Cohen
Chairman of the Board and Director

/s/ Patrick Delaney
————————————————
Patrick Delaney
Director

36

/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

/s/ Morris J. Siegel
————————————————
Morris J. Siegel
Director

37

CERTIFICATIONS

I, Marti Morfitt, certify that:

1. I have reviewed this annual report on Form 10-K of CNS, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date June 26, 2003
/s/ Marti Morfitt
——————————————
Chief Executive Officer

38

CERTIFICATIONS

I, Marcia O’Brien, certify that:

1. I have reviewed this annual report on Form 10-K of CNS, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and I have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date June 26, 2003
/s/ Marcia O’Brien
——————————————
Interim Chief Financial Officer

39

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 3.1 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).

4.1 Form of Amended and Restated Rights Agreement dated as of December 20, 2002 by and between CNS, Inc. and Wells Fargo Bank Minnesota, N.A., as Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Amendment No. 1 to Registration Statement on Form 8-A/A, Commission File No. 0-16612).

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-18, Commission File No. 33-14052C).

10.2* CNS, Inc. 1989 Employee Stock Purchase Plan, as amended (incorporated by reference to Exhibits 4.1 and 4.2 to the Company’s Registration Statement on Form S-8, Commission File No. 333-68310).

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 4.1 of the Company’s Registration Statement on Form S-8 (File No. 333-42108)).

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, Commission 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 Company’s Annual Report on Form 10-K for the year ending December 31, 1999 (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 to the Company’s 1999 Form 10-K).

10.9** Addendum to License Agreement between the Company and WinEase LLC dated March 21, 2002 (incorporated by reference to Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2001).

10.10** 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).

40

10.11** License Agreement dated March 1, 2000 between the Company and Proctor and Gamble (incorporated by reference to Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000 (the "2000 Form 10-K”)).

10.12 Amendment to Trademark License Agreement effective as of March 20, 2001 by and between the Company and the Procter & Gamble Company (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001).

10.13** Second Amendment to Trademark License Agreement effective as of April 27, 2001 by and between the Company and the Procter & Gamble Company (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2001).

10.14** Distributor Agreement between the Company and Eisai Co., Ltd. dated August 1, 2000 (incorporated by reference to Exhibit 10.11 to the Company’s 1999 Form 10-K).

10.15** Repackaging Agreement between the Company and Herusu, Co., Ltd. dated August 1, 2000 (incorporated by reference to Exhibit 10.12 to the Company’s 2000 Form 10-K).

10.16** Supply Agreement between the Company and Tapemark, Inc. dated October 15, 2001 (incorporated by reference to Exhibit 10.15 to the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2001 (the “September 30, 2001 Quarterly Report”)).

10.17** Supply Agreement between the Company and WebTec Converting, LLC dated October 5, 2001 (incorporated by reference to Exhibit 10.16 to the September 30, 2001 Quarterly Report).

10.18** Medical Specialties Material Purchase Agreement between the Company and Minnesota Mining and Manufacturing Company dated August 1, 2001 (incorporated by reference to Exhibit 10.17 to the September 30, 2001 Quarterly Report).

10.19* 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”)).

10.20* First Amendment to Executive Employment Agreement between the Company and Daniel E. Cohen dated June 29, 2001 (incorporated by reference to Exhibit 10.19 to the September 30, 2001 Quarterly Report).

10.21* 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).

10.22* 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).

10.23* 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).

10.24* 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).

41

10.25* Employment Agreement between the Company and Larry R. Muma dated January 2, 2001 (incorporated by reference to Exhibit 10.21 to the 2000 Form 10-K).

10.26* Agreement between the Company and Teri P. Osgood dated February 14, 2002.

10.27* Employment Agreement between the Company and Linda Kollofski dated October 29, 2002.

10.28* Employment Agreement between the Company and John Kundtz dated July 22, 2002.

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 signature page hereof).

99.1 Certification Pursuant to 18 U.S.C. Section 1350.

* 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.

42

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 March 31, 2003 and 2002 and the related consolidated statements of operations, stockholders’ equity and comprehensive income (loss), and cash flows for the years ended March 31, 2003, December 31, 2001 and 2000 and the three months ended March 31, 2002. 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 March 31, 2003 and 2002 and the results of their operations and their cash flows for the years ended March 31, 2003, December 31, 2001 and 2000 and the three months ended March 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

Minneapolis, Minnesota
April 23, 2003

CNS, INC.
Consolidated Statements of Operations
(in thousands, except per share amounts)

	For the Years Ended								For the Three Months Ended
	March 31,		December 31,						March 31,
	2003		2001			2000			2002			2001
(unaudited)
Net sales	$	79,075	$	76,242		$	61,777		$	19,135		$	23,468
Cost of goods sold		25,992		27,698			24,907			6,390			8,706
Gross profit		53,083		48,544			36,870			12,745			14,762
Operating expenses:
Advertising and promotion		30,930		34,256			39,579			8,796			13,935
Selling, general and administrative		12,514		14,583			15,134			3,213			4,766
Special charges		0		930			0			0			0
Total operating expenses		43,444		49,769			54,713			12,009			18,701
Operating income (loss)		9,639		(1,225	)		(17,843	)		736			(3,939	)
Investment income		821		1,242			2,234			236			345
Gain (loss) on sales of marketable securities		18		64			(51	)		36			17
Income (loss) before income taxes		10,478		81			(15,660	)		1,008			(3,577	)
Income tax expense (benefit)		3,962		0			0			(9,126	)		0
Net income (loss)	$	6,516	$	81		$	(15,660	)	$	10,134		$	(3,577	)
Basic net income (loss) per share	$	0.48	$	.01		$	(1.09	)	$	.74		$	(.25	)
Weighted average number of common shares     outstanding		13,467		14,131			14,372			13,711			14,123
Diluted net income (loss) per share	$	0.46	$	.01		$	(1.09	)	$	.71		$	(.25	)
Weighted average number of common
and assumed conversion shares outstanding		14,044		14,431			14,372			14,198			14,123

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

F-2

CNS, INC.
Consolidated Balance Sheets
(in thousands, except per share amounts)

	March 31,
Assets	2003			2002
Current assets:
Cash and cash equivalents	$	16,554		$	5,633
Marketable securities		25,061			19,029
Accounts receivable, net of allowance for doubtful accounts               of $330 in 2003 and $500 in 2002		11,011			11,682
Inventories		3,266			4,465
Deferred income taxes		4,660			5,879
Prepaid expenses and other current assets		1,035			999
Total current assets		61,587			47,687
Property and equipment, net		1,605			2,400
Product rights, net		1,293			1,179
Deferred income taxes		890			3,220
	$	65,375		$	54,486
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	7,615		$	3,413
Accrued expenses		7,948			6,330
Accrued income taxes		758			521
Total current liabilities		16,321			10,264
Stockholders’ equity:
Preferred stock - authorized 8,484 shares;
none issued or outstanding		0			0
Common stock - $.01 par value; authorized 50,000 shares;
issued 19,295 shares in 2003 and 2002		193			193
Additional paid-in capital		59,879			60,796
Treasury shares - at cost; 5,989 shares in 2003 and 5,756 shares in 2002		(26,694	)		(25,821	)
Retained earnings		15,472			8,956
Accumulated other comprehensive income		204			98
Total stockholders’ equity		49,054			44,222
Commitments (notes 10 and 11)
	$	65,375		$	54,486

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)
(in thousands)

	Common stock			Additional paid-in capital			Treasury shares					Retained earnings (deficit)			Accumulated other comprehensive income (loss)			Total stockholders’ equity
	Number of shares	Par value					Number of shares		Cost
Balance at December 31, 1999	19,295	$	193	$	61,531		4,838		$	(22,221	)	$	14,401		$	(320	)	$	53,584
Stock issued in connection with
Employee Stock Purchase Plan	0		0		(131	)	(26	)		214			0			0			83
Stock options exercised	0		0		(218	)	(29	)		238			0			0			20
Treasury shares purchased	0		0		0		396			(1,510	)		0			0			(1,510	)
Comprehensive loss:
Net loss for the year	0		0		0		0			0			(15,660	)		0			(15,660	)
Unrealized gains on marketable securities
net of income tax effect of $0	0		0		0		0			0			0			420			420
Total comprehensive loss																			(15,240	)
Balance at December 31, 2000	19,295		193		61,182		5,179			(23,279	)		(1,259	)		100			36,937
Stock issued in connection with
Employee Stock Purchase Plan	0		0		(189	)	(36	)		303			0			0			114
Stock options exercised	0		0		(262	)	(51	)		436			0			0			174
Other	0		0		54		0			0			0			0			54
Treasury shares purchased	0		0		0		202			(1,010	)		0			0			(1,010	)
Comprehensive income:
Net income for the year	0		0		0		0			0			81			0			81
Unrealized gains on marketable securities
net of income tax effect of $0	0		0		0		0			0			0			262			262
Total comprehensive income																			343
Balance at December 31, 2001	19,295		193		60,785		5,294			(23,550	)		(1,178	)		362			36,612
Stock options exercised	0		0		(95	)	(20	)		167			0			0			72
Other	0		0		106		0			0			0			0			106
Treasury shares purchased	0		0		0		482			(2,438	)		0			0			(2,438	)
Comprehensive income:
Net income for the period	0		0		0		0			0			10,134			0			10,134
Unrealized losses on marketable securities
net of income tax effect of $58	0		0		0		0			0			0			(264	)		(264	)
Total comprehensive income																			9,870
Balance at March 31, 2002	19,295		193		60,796		5,756			(25,821	)		8,956			98			44,222
Stock issued in connection with
Employee Stock Purchase Plan	0		0		(69	)	(19	)		163			0			0			94
Stock options exercised	0		0		(862	)	(206	)		1,717			0			0			855
Other	0		0		14		0			2			0			0			16
Treasury shares purchased	0		0		0		458			(2,755	)		0			0			(2,755	)
Comprehensive income:
Net income for the year	0		0		0		0			0			6,516			0			6,516
Unrealized gains on marketable securities
net of income tax effect of $60	0		0		0		0			0			0			106			106
Total comprehensive income																			6,622
Balance at March 31, 2003	19,295	$	193	$	59,879		5,989		$	(26,694	)	$	15,472		$	204		$	49,054

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

F-4

CNS, INC.
Consolidated Statements of Cash Flows
(in thousands)

	For the Years Ended									For the Three Months Ended
	March 31,			December 31,						March 31,
	2003			2001			2000			2002			2001
(unaudited)
Operating activities:
Net income (loss)	$	6,516		$	81		$	(15,660	)	$	10,134		$	(3,577	)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization		1,251			1,244			1,051			330			271
Deferred income taxes		3,489			0			0			(9,126	)		0
Other		16			90			81			74			0
Changes in operating assets and liabilities:
Accounts receivable		671			275			(1,212	)		626			(1,182	)
Inventories		1,199			(1,070	)		153			1,357			(1,767	)
Prepaid expenses and other current assets		(36	)		1,964			3,546			294			362
Accounts payable and accrued expenses		6,057			(5,401	)		7,654			(3,742	)		(5,544	)
Net cash provided by (used in) operating                          activities		19,163			(2,817	)		(4,387	)		(53	)		(11,437	)
Investing activities:
Purchases of marketable securities		(36,255	)		(44,911	)		(63,151	)		(11,218	)		(6,970	)
Sales and maturities of marketable securities		30,389			55,550			71,967			10,846			17,425
Payments for purchases of property and equipment		(60	)		(394	)		(2,019	)		(8	)		(255	)
Payments for product rights		(510	)		(357	)		(141	)		0			(148	)
Net cash provided by (used in) investing                          activities		(6,436	)		9,888			6,656			(380	)		10,052
Financing activities:
Proceeds from the issuance of common stock
under Employee Stock Purchase Plan		94			114			83			0			0
Proceeds from the exercise of stock options		855			174			20			72			88
Purchase of treasury shares		(2,755	)		(1,010	)		(1,510	)		(2,438	)		(51	)
Net cash provided by (used in) financing                          activities		(1,806	)		(722	)		(1,407	)		(2,366	)		37
Net increase (decrease) in cash and cash                          equivalents		10,921			6,349			862			(2,799	)		(1,348	)
Cash and cash equivalents:
Beginning of period		5,633			2,083			1,221			8,432			2,083
End of period	$	16,554		$	8,432		$	2,083		$	5,633		$	735
Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	0		$	0		$	0		$	0		$	0
Cash paid during the year for income taxes		237			0			0			35			0

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

F-5

CNS, INC.
Notes to Consolidated Financial Statements
March 31, 2003, December 31, 2001 and 2000

(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, Breathe Right Snore Relief™ throat spray 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.

Fiscal Year Change In 2002, the Company changed its fiscal year-end from December 31 to March 31. The three-month transition period ended March 31, 2002 bridges the gap between the Company’s old and new fiscal year-ends.

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.

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. The Company’s estimates and assumptions primarily arise from risks and uncertainties associated with potential future product returns, the uncollectibility of accounts receivable and inventory obsolescence.

Basis of Presentation Certain amounts from prior years’ financial statements have been reclassified to conform to the current year presentation.

Change in Method of Accounting for Sales Incentives and Consideration Paid to a Reseller Effective January 1, 2002, the Company implemented Emerging Issues Task Force bulletins Number 00-14 “Accounting for Certain Sales Incentives”, Number 00-25 “Vendor Income Statement Characterization of Consideration Paid to a Reseller” and Number 01-9 “Accounting for Consideration Given by a Vendor to a Customer”. These new accounting standards had no impact on the Company’s net income; however, they did require reclassification of certain promotional costs such as sales incentives, promotional funds, and consumer coupon redemptions that were previously reported as a component of advertising and promotion expense as a reduction of net sales.

F-6

The following table presents the impact of the adoption of the provisions of EITF Issue Nos. 00-14, 00-25 and 01-9 discussed above, on the consolidated statements of operations for the years ended December 31, 2001 and 2000, respectively:

	For the Years Ended December 31,
	2001			2000
Net sales - previous reporting basis	$	83,934		$	68,892
Impact of adopting accounting changes		(7,692	)		(7,115	)
Net sales - current reporting basis	$	76,242		$	61,777
Advertising and promotion expense -
previous reporting basis	$	41,948		$	46,694
Impact of adopting accounting changes		(7,692	)		(7,115	)
Advertising and promotion expense -
current reporting basis	$	34,256		$	39,579

The Company’s results of operations for the years disclosed above were not affected by the adoption of the provisions of these three announcements.

Change in Method of Accounting for Long-Lived Assets Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement superceded SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” SFAS No. 144 retains the previously existing accounting requirements related to the recognition and measurement of the impairment of long-lived assets to be held and used while expanding the measurement requirements of long-lived assets to be disposed of by sale. It also expands the previously existing reporting requirements for discontinued operations to include a component of an entity that either has been disposed of or is classified as held for sale.

Revenue Recognition Revenue from sales is recognized at the time products are shipped less estimated sales returns, certain promotional costs and other allowances.

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, net of deferred income taxes, are included in stockholders’ equity as a separate component of other comprehensive income. A decline in the market value of any available-for-sale security below cost that is deemed other than temporary, results in a charge to operations resulting in the establishment of a new cost basis for the security. Realized securities gains or losses are included in gain (loss) on sales of marketable securities in the consolidated statements of operations.

F-7

Inventories Inventories are valued at the lower of cost (determined on a first-in, first-out basis) or market. Inventory reserves have been established for potential product obsolescence.

Property and Equipment Property and equipment are stated at cost. Equipment is depreciated using the straight-line method over three to 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 accounts for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and complies with the disclosure provisions of SFAS No. 148, “Accounting for Stock-Based Compensation”. Under APB No. 25, compensation cost is determined based on the difference, if any, on the grant date between the fair value of the Company’s stock and the amount an employee must pay to acquire the stock. Accordingly, no compensation expense associated with the fair market value of stock option grants or shares sold to employees under the Employee Stock Purchase Plan has been recognized in the Company’s financial statements.

The fair value of each stock option grant issued and shares sold to employees under the Employee Stock Purchase Plan are estimated on the date of grant or purchase using the Black-Scholes option-pricing model. The following assumptions were made in estimating fair value:

	For the Years Ended									For the Three Months Ended
	March 31,			December 31,						March 31,
	2003			2001			2000			2002			2001
												(unaudited)
Expected lives (Years)		6			6			6			6			6
Dividend Yield		0.00	%		0.00	%		0.00	%		0.00	%		0.00
Expected volatility		60.00	%		60.00	%		65.00	%		60.00	%		60.00	%
Risk-Free Interest Rate		5.00	%		5.00	%		6.50	%		5.00	%		5.00	%

F-8

Had compensation cost for the Company’s stock option plan been determined pursuant to SFAS No. 148, net earnings and earnings per share would have been as follows:

	For the Years Ended								For the Three Months Ended
	March 31,		December 31,						March 31,
	2003		2001			2000			2002			2001
											(unaudited)
Net income (loss),
as reported	$	6,516	$	81		$	(15,660	)	$	10,134		$	(3,577	)
Deduct: Total stock-based
compensation expense
determined under the fair
value based method for all
awards, net of related tax
effects		456		523			325			124			89
Proforma net income (loss)	$	6,060	$	(442	)	$	(15,985	)	$	10,010		$	(3,666	)
Earnings (loss) per share:
Basic - as reported	$	0.48	$	0.01		$	(1.09	)	$	.74		$	(.25	)
Basic - proforma	$	0.45	$	(0.03	)	$	(1.11	)	$	.73		$	(.26	)
Diluted - as reported	$	0.46	$	0.01		$	(1.09	)	$	.71		$	(.25	)
Diluted - proforma	$	0.43	$	(0.03	)	$	(1.11	)	$	.71		$	(.26	)

Foreign Currency Transactions Most foreign transactions are in U.S. dollars, although some are conducted in functional local currencies. The functional currency is translated into U.S. dollars for the balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using a weighted average exchange rate during the fiscal year. Gains and losses resulting from transactions denominated in foreign currencies are included in the consolidated statements of operations.

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. Deferred tax assets are recognized when management determines that it is more likely than not that the asset will be realized.

Net Income (Loss) 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.

F-9

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).

Recent Accounting Pronouncements In June 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement provides guidance on accounting for restructuring activities. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. The provisions of the statement are effective for exit or disposal activities initiated after December 31, 2002, with early adoption encouraged. The Company will apply the provisions of SFAS No. 146 for exit or disposal activities initiated after December 31, 2002, as required.

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

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” which requires certain guarantees to be recorded at fair value. This Interpretation also requires a guarantor to make certain disclosures about guarantees, including product warranties, even when the likelihood of making any payments under the guarantee is remote. The Company has adopted the disclosure requirements in this Interpretation as of January 1, 2003, as required.

In May 2003, the FASB issued SFAS No.150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” which requires that certain types of financial instruments with characteristics of a liability be presented as a liability. The Company is required to implement SFAS No. 150 beginning with the quarter ending June 30, 2003. Management does not expect this statement to have a material impact on the Company’s consolidated financial position.

F-10

(2) Marketable Securities

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

	March 31,
	2003				2002
	Cost		Fair Value		Cost		Fair Value
Commercial paper	$	5,415	$	5,415	$	3,148	$	3,148
Certificate of deposit		0		0		1,000		997
Corporate bonds		7,225		7,361		9,075		9,240
U.S. Government obligations		12,099		12,285		5,650		5,644
Total marketable securities	$	24,739	$	25,061	$	18,873	$	19,029

Maturities of marketable securities at March 31, 2003 are as follows (in thousands):

	Cost		Fair Value
Due within one year	$	10,502	$	10,558
Due after one year through three years		14,237		14,503
Total marketable securities	$	24,739	$	25,061

Gross unrealized gains on marketable securities available for sale totaled $324,000 and $195,000 at March 31, 2003 and 2002, respectively. Gross unrealized losses on marketable securities available for sale totaled $2,000 and $39,000 at March 31, 2003 and 2002, respectively.

Realized gains on sales of marketable securities were $18,000; $64,000 and $0 for the years ended March 31, 2003; December 31, 2001 and 2000, respectively. Realized gains on sales of marketable securities were $36,000 and $17,000 (unaudited) for the three months ended March 31, 2002 and 2001, respectively. Realized losses on sales of marketable securities were $51,000 for the year ended December 31, 2000.

(3) Advertising

At March 31, 2003 and 2002, $668,000 and $686,000, respectively, of advertising costs were reported as assets. Advertising expense was $22,657,000, $19,486,000 and $26,027,000 for the years ended March 31, 2003, December 31, 2001 and 2000, respectively. Advertising expense was $6,708,000 and $9,081,000 (unaudited) for the three months ended March 31, 2002 and 2001, respectively.

F-11

(4) Details of Selected Balance Sheet Accounts

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

	March 31,				December 31,
	2003		2002		2001			2000
Allowance for doubtful accounts:
Balance beginning of period	$	500	$	500	$	300		$	280
Plus provision for doubtful accounts		55		31		316			26
Less charge offs		225		31		116			6
Balance end of period	$	330	$	500	$	500		$	300
					March 31,
					2003			2002
Inventories:
Finished goods					$	2,225		$	2,602
Raw materials and component parts						1,041			1,863
Total inventories					$	3,266		$	4,465
Property and equipment:
Warehouse and production equipment					$	760		$	760
Office equipment and information systems						3,680			3,650
Leasehold improvements						1,050			1,050
Less accumulated depreciation						(3,885	)		(3,060	)
Property and equipment, net					$	1,605		$	2,400
Product rights:
Product rights					$	3,416		$	2,906
Less accumulated amortization						(2,123	)		(1,727	)
Product rights, net					$	1,293		$	1,179
Accrued expenses:
Promotions and allowances					$	4,703		$	3,347
Royalties and commissions						778			951
Salaries, incentives and paid time off						1,829			1,638
Restructuring costs						26			206
Other						612			188
Total accrued expenses					$	7,948		$	6,330

(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 March 31, 2003.

F-12

Stock option activity under these plans is summarized as follows:

	Weighted-average Exercise Price Per Share		Shares Outstanding		Shares Available For Grant
Balance at December 31, 1999	$	4.47	1,771,390		64,750
New 2000 Plan			0		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
Granted		4.26	345,960		(345,960	)
Exercised		3.36	(51,800	)	0
Canceled		4.47	(102,970	)	102,970
Expired			0		(7,280	)
Balance at December 31, 2001		4.33	2,083,190		324,180
Granted		5.98	117,100		(117,100	)
Exercised		3.63	(19,696	)	0
Canceled		4.09	(4,560	)	4,560
Expired			0		(3,000	)
Balance at March 31, 2002	$	4.43	2,176,034		208,640
Granted		6.01	175,460		(175,460	)
Exercised		4.15	(205,900	)	0
Canceled		4.68	(61,090	)	61,090
Expired			0		(7,560	)
Balance at March 31, 2003	$	4.58	2,084,504		86,710

Information on outstanding and currently exercisable options by price range as of March 31, 2003, is summarized as follows:

Price Range Per Share		Total Number of Shares	Weighted- average Remaining Life (Years)	Weighted- average Exercise Price		Exercisable Number of Shares	Weighted- average Exercise Price
$	2.31 - 2.81	192,303	5.6	$	2.77	192,303	$	2.77
	3.10 - 3.94	379,000	2.8		3.26	337,200		3.21
	4.00 - 4.50	608,381	7.2		4.23	443,613		4.25
	5.00 - 5.94	640,600	4.6		5.37	532,600		5.38
	6.05 - 6.85	174,220	9.0		6.40	34,740		6.05
	7.25	90,000	4.3		7.25	90,000		7.25
		2,084,504				1,630,456

F-13

At March 31, 2003, the weighted-average remaining contractual life of outstanding options was 5.5 years. At March 31, 2003; December 31, 2001 and 2000, currently exercisable options aggregated 1,630,456; 1,409,570 and 1,207,232 shares of common stock, respectively and the weighted-average exercise price of those options was $4.43; $4.46 and $4.55, respectively.

The per share weighted-average fair value of stock options granted during the year ended March 31, 2003; December 31, 2001 and 2000 is estimated as $3.54; $2.55 and $2.60, respectively on the date of grant using the Black-Scholes option pricing model with the following assumptions: volatility of 60% in 2003 and 2001 and 65% in 2000; risk-free interest rate of 5.00% in 2003 and 2001 and 6.50% in 2000, and an expected life of 6 years.

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 400,000 shares under the plan of which employees as of March 31, 2003 have purchased 243,884 shares. Common shares sold to employees under the Purchase Plan in fiscal 2003, 2001 and 2000 were 19,517, 35,860 and 25,857, respectively. There was no common stock sold to employees during the periods ended March 31, 2002 and 2001.

The weighted-average fair value of each purchase right granted in fiscal 2002, 2001 and 2000 was $2.26, $2.25 and $1.44, respectively.

Warrants In connection with agreements to license certain intellectual property rights to potential products, licensors 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, 65,000 shares are currently exercisable.

Preferred Stock At March 31, 2003, 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.

F-14

(6) Income Taxes

Income tax expense (benefit) for the years ended March 31, 2003; December 31, 2001 and 2000 and for the three months ended March 31, 2002 and 2001 is as follows (in thousands):

	For the Years Ended						For the Three Months Ended
	March 31,		December 31,				March 31,
	2003		2001		2000		2002			2001
	(unaudited)
Current income tax
expense (benefit)
Federal	$	224	$	0	$	0	$	0		$	0
State		115		0		0		0			0
		339		0		0		0			0
Deferred income tax
expense (benefit)
Federal		3,366		0		0		(8,388	)		0
State		257		0		0		(738	)		0
		3,623		0		0		(9,126	)		0
Total income tax
expense (benefit)	$	3,962	$	0	$	0	$	(9,126	)	$	0

The following table is a reconciliation of the statutory federal income tax expense (benefit) to the effective income tax expense (benefit) for the years ended March 31, 2003; December 31, 2001 and 2000 and for the three months ended March 31, 2002 and 2001 (in thousands):

	For the Years Ended								For the Three Months Ended
	March 31,		December 31,						March 31,
	2003		2001			2000			2002			2001
	(unaudited)
Computed tax
expense (benefit)	$	3,667	$	28		$	(5,481	)	$	353		$	(1,252	)
State taxes, net of
federal benefit		242		0			(554	)		(480	)		0
Change in deferred tax
valuation allowance		0		(46	)		6,018			(9,126	)		1,252
Other		53		18			17			127			0
Actual tax
expense (benefit)	$	3,962	$	0		$	0		$	(9,126	)	$	0

The Company recognized a tax benefit of $9.1 million during the March quarter of 2002 as a result of reinstating net deferred tax assets, including the benefit of net operating loss carryforwards.

F-15

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities for 2003 and 2002 are presented below (in thousands):

	March 31,
	2003			2002
Deferred tax assets:
Inventory items	$	383		$	324
Accounts receivable allowance		122			185
Product rights		304			304
Accrued expenses		2,108			2,128
Contract termination		770			0
Net operating loss and credit carryforwards		2,166			6,400
Less valuation allowance		0			0
		5,853			9,341
Deferred tax liabilities:
Unrealized gains on marketable securities		(119	)		(58	)
Property and equipment		(184	)		(184	)
		(303	)		(242	)
Net deferred tax assets	$	5,550		$	9,099

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 of historical taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management believes that it is more likely than not the Company will realize the benefits of these deductible differences.

As of March 31, 2003, the Company has reported federal net operating loss carryforwards of approximately $3,900,000. The federal net operating loss carryforwards begin to expire in 2019. Additionally, the Company has a federal credit carryforward for alternative minimum tax of approximately $730,000 that has no expiration date.

(7) Sales

The Company had one significant customer who accounted for 25%, 22% and 20% of net sales in the years ended March 31, 2003; December 31, 2001 and 2000, respectively. The Company had one significant customer who accounted for approximately 22% and 21% (unaudited) of net sales for the three months ended March 31, 2002 and 2001, respectively. Accounts receivable from this customer as of March 31, 2003 and 2002 were $2,611,000 and $2,223,000, respectively.

F-16

Net sales by geographic area are as follows (in thousands):

	For the Years Ended						For the Three Months Ended
	March 31,		December 31,				March 31,
	2003		2001		2000		2002		2001
	(unaudited)
Domestic	$	65,262	$	60,228	$	55,727	$	15,195	$	18,727
International
Japan		5,360		8,055		2,083		1,996		2,644
UK		2,275		2,378		767		426		665
Italy		2,020		2,312		808		260		621
Netherlands		1,632		1,178		750		522		333
Canada		1,161		1,102		928		346		296
Other		1,365		989		714		390		182
Total
international		13,813		16,014		6,050		3,940		4,741
Net sales	$	79,075	$	76,242	$	61,777	$	19,135	$	23,468

(8) Employee Benefit Plan

The Company provides a defined contribution plan which covers all eligible employees. Generally, employees may contribute up to 50% of base compensation to the plan, not to exceed annual limits. The Company matches 25% of employee contributions up to 5% each year, with certain limitations. The Company may also make additional discretionary contributions. Employee benefit plan expense was $204,000; $269,000 and $166,000 for the years ended March 31, 2003; December 31, 2001 and 2000, respectively. Employee benefit plan expense was $46,000 and $120,000 (unaudited) for the three months ended March 31, 2002 and 2001, respectively.

(9) Special Charges

On June 26, 2001, the Company announced a plan to streamline and realign the Company’s resources to better match its strategic goals. The Company recorded a special charge of $930,000 for costs associated with this restructure plan. Approximately 20 jobs, or 25% of the workforce from throughout the Company, were eliminated. These cost-cutting actions were expected to result in annualized savings of approximately $2 to $2.5 million. Cost savings relating to this plan were realized beginning in July of 2001. During 2001, the Company utilized $608,000 of the $930,000 accrual, primarily for severance benefits. During the three months ended March 31, 2002, the Company utilized $116,000 for severance payments and during the year ended March 31, 2003, the Company utilized $180,000 for severance payments.

(10) 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 $795,000 each year until patents for the products expire. Royalties are classified as a component of cost of goods sold. Royalty expense was approximately $2,652,000, $3,524,000 and $2,692,000 for the years ended March 31, 2003; December 31, 2001 and 2000, respectively. Royalty expense was approximately $724,000 and $1,040,000 (unaudited) for the three months ended March 31, 2002 and 2001, respectively.

F-17

(11) 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 March 31, 2003 are as follows (in thousands):

Year ending March 31,	Amount
2004	$	766,000
2005		741,000
2006		741,000
2007		741,000
2008		741,000
Later years		1,977,000
Future minimum lease payments	$	5,707,000

Total rental expense for operating leases was $781,000, $789,000 and $559,000 for the years ended March 31, 2003; December 31, 2001 and 2000, respectively. Total rental expense for operating leases was $195,000 and $195,000 (unaudited) for the three months ended March 31, 2002 and 2001, respectively.

(12) Net Income (Loss) Per Share

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

	For the Years Ended						For the Three Months
	March 31,		December 31,				Ended March 31,
	2003		2001		2000		2002		2001
	(unaudited)
Weighted average common
shares outstanding		13,467		14,131		14,372		13,711		14,123
Assumed conversion of
stock options		577		300		0		487		0
Average common and
assumed conversion shares		14,044		14,431		14,372		14,198		14,123

As of March 31, 2003, a total of 191,000 options and warrants to purchase shares of common stock with a range of exercise prices from $6.79 to $8.00 per share were outstanding but were not included in the computation of diluted earnings per share because the exercise price was greater than the average market price of the common shares. The options expire from 2003 to 2011.

F-18

EX-10

                                                                   EXHIBIT 10.26


                                [CNS Letterhead]





February 14, 2002

Teri Osgood
6905 Howard Lane
Eden Prairie, MN  55346

Dear Teri:

This letter describes our agreement regarding your resignation as
Vice-President, US Marketing and officer of CNS, Inc. ("CNS") effective April
15, 2002.

We will provide you with the following benefits in connection with your
departure from CNS:

1.   We will pay you Salary Continuation pursuant to the terms of Paragraph 7 of
     the Employment Agreement as follows: 24 semi-monthly paychecks of
     $7,299.05, subject to applicable withholding, beginning with the later of
     (a) our April 30, 2002 payday or (b) our first regular payday following
     expiration of the 15-day rescission period described on page 3 of this
     agreement and our receipt of Exhibit A, signed and dated by you after
     expiration of the rescission period. Exhibit A is your certification that
     you took no steps to exercise your right of rescission. In the event of a
     Change in Control, as that term is defined in the "Executive Employment
     Agreement" dated February 12, 1999, the above- referenced semimonthly
     paychecks will be accelerated and payable, in full, on demand by you. We
     will also pay you for your accrued unused paid time off ($9,287.78 or
     110.28 hours, as of February 15, 2002.)

     You will be eligible to receive a bonus consistent with CNS business
     performance under the CNS Management Incentive Plan for 2001/2002 based on
     your April 15, 2002 Resignation Date, the terms of the Plan and provided
     that the Plan objectives have been met. Payment of any available bonus
     would occur at the normal payout time for all employees. We estimate the
     payout to be made in May 2002.






Teri Osgood Separation Letter
Page Two


2    We will continue to pay the employer share, and you will continue to be
     responsible for the employee share, as applicable, of your CNS group
     health, dental and life insurance premiums through April 30, 2003 or, if
     earlier, the date on which you are eligible to participate in other group
     plans through your new employer, provided you make the appropriate timely
     written elections to continue your CNS group coverage's. Your share of the
     premiums will be deducted from the Salary Continuation payments described
     in paragraph 1. You agree to notify CNS immediately if your eligibility
     under other group plans through your new employer occurs. If you are not
     covered under other such group plans as of April 30, 2003, you will have
     the right to continue your group coverage's at your own expense for up to
     an additional six months, in accordance with applicable state and federal
     group insurance continuation laws and the terms of the plans. All rights
     which you may have under CNS's group plans, are subject to the terms of the
     plans, applicable laws and the continuation of said plans for active CNS
     employees. Information and election forms concerning your group coverages
     will be mailed to you.

3.   We are providing you with the opportunity to voluntarily resign from your
     employment. If any prospective employer of yours wishes to contact CNS for
     employment information, you agree to direct that employer to make a written
     inquiry to Michelle Beuning, Director of Human Resources. Ms. Beuning will
     provide the prospective employer, in writing, with your job title, the
     scope of your responsibilities, your dates of employment, and the fact that
     you voluntarily resigned your employment.

4.   We will provide an executive outplacement package that we have selected
     with Right Management Consultants at our expense.

5.   To the extent required under applicable law, we will indemnify you and hold
     you harmless with respect to any action in which you are a named defendant
     which arises out of your CNS employment responsibilities.

6.   We will remove all restrictive legends on any shares of CNS common stock
     held by you. In connection with the removal, you agree that for a period of
     90 days from the date you cease to be employed by CNS, any shares that you
     sell will be sold in compliance with the applicable requirements of Rule
     144 under the Securities Act of 1933.






Teri Osgood Separation Letter
Page Three


As of April 15, 2002 the remaining 50,400 shares of your stock options will be
exercisable according to the terms of the applicable Stock Option Plan. Your
stock options are set forth on Exhibit B.

In consideration of the benefits to be afforded to you as outlined above, you
agree to do the following things:

1.   You hereby release CNS, Inc., its past and present affiliates, and its and
     their past and present officers, directors, agents, shareholders,
     employees, attorneys, insurers and indemnitors (collectively, the
     "Releasees") from any and all claims and causes of action, known or
     unknown, which you may have against any and all of them. Through this
     release, you extinguish all causes of action against the Releasees
     occurring up to the date on which you sign this agreement, including but
     not limited to any contract, compensation or benefit claims; intentional
     infliction of emotional distress, defamation or any other tort claims; and
     all claims arising from any federal, state or municipal law or ordinance,
     including the Employee Retirement Income Security Act, the Family and
     Medical Leave Act. This release extinguishes any potential claims of
     employment discrimination arising from your employment with and resignation
     from CNS, including specifically any claims under the Minnesota Human
     Rights Act, the Americans With Disabilities Act, Title VII of the Civil
     Rights Act of 1964, the Older Workers Benefit Protection Act, and the Age
     Discrimination in Employment Act. This release does not extinguish any
     claims that arise against CNS after you sign this agreement. You certify
     that you (a) have not filed any claims, complaints or other actions against
     any Releasee and (b) are hereby waiving any right to recover from any
     Releasee under any lawsuit or charge filed by you or any federal, state or
     local agency on your behalf based upon any event occurring up to the date
     on which you sign this agreement. You are advised by CNS to review your
     rights and responsibilities under this agreement with your own lawyer.






Teri Osgood Separation Letter
Page Four


     You have 21 days to review and consider this offer. If you sign this letter
     before 21 days have elapsed from the date on which you first receive it,
     then you will be voluntarily waiving your right to the full 21-day review
     period. You also have the right to rescind this agreement within 15
     calendar days of the date upon which you sign it. You understand that if
     you desire to rescind this agreement, you must put the rescission in
     writing and deliver it to Michelle Beuning, CNS, Inc., 7615 Smetana Lane,
     P.O. Box 39802, Minneapolis, MN 55439-0802 by hand or by mail within 15
     calendar days of the date on which you sign this agreement. If you deliver
     the rescission by mail, it must be postmarked within 15 calendar days of
     the date on which you sign this agreement and sent by certified mail,
     return receipt requested. If you rescind this agreement, all of CNS's
     obligations to you, other than payment of accrued unused paid time off,
     will immediately cease, and CNS will owe you nothing hereunder.

2.   At our specific request and at mutually convenient times while you are
     receiving payments under this agreement, you agree to consult with me or my
     designee with respect to transitional CNS business matters. You also agree
     to cooperate with CNS in any current or future claims or lawsuits involving
     CNS where you have knowledge of the underlying facts. In addition, you
     agree that you will not voluntarily aid, assist, or cooperate with any
     claimants or plaintiffs or their attorneys or agents in any claims or
     lawsuits commenced in the future against CNS, provided, however, that
     nothing in this agreement will be construed to prevent you from testifying
     truthfully as required by valid legal or administrative process.

3.   You agree that you will continue to speak positively and with respect
     towards CNS as you have in the past.

4.   All knowledge and information not already available to the public which you
     have 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 you as strictly confidential and shall not be used by you directly or
     indirectly or disclosed to any persons, corporations or firms. All of the
     foregoing knowledge and information are collectively referred to as
     "Confidential Information". Your obligations under this paragraph will not
     apply to any information which (a) is or becomes known to the general
     public under






Teri Osgood Separation Letter
Page Five


     circumstances involving no breach by you 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' Board, or (d) you are obligated by law to
     disclose. Confidential Information also includes the terms of this
     agreement. You agree that you will not disclose its terms to anyone other
     than your family members, tax and legal advisors and as otherwise required
     by law.

5.   During the one-year period following your termination date, you 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 your 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 you shall not: avail yourself of
     any advantages or acquaintances you have made with any person who has,
     within the twelve (12) month period ended on the date of termination of
     your 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 your 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, FiberChoice, Flair strips and
     any other products currently offered or currently under development by CNS
     or offered or currently under development by CNS during the 12 months prior
     to the date of termination of your employment.






Teri Osgood Separation Letter
Page Six


6.   For one year following your termination date, you agree that you will not,
     directly or indirectly, solicit any current or prospective CNS customer,
     broker, vendor or distributor who is not, as of your termination date, a
     current customer, broker, vendor or distributor of your new employer,
     consulting business or any other enterprise in which you become involved
     after your resignation from CNS, for the purpose of providing products or
     services for or on behalf of said customer, broker, vendor or distributor
     which are currently 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 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 customers, brokers, vendors or
     distributors with whom CNS has had a business relationship at any time
     within the two years immediately preceding your resignation date.
     Prospective CNS customers, brokers, vendors and distributors are 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 your resignation date. You also agree that
     during the same one-year period, you will not directly or indirectly
     solicit any CNS employee to terminate his or her employment with CNS. This
     employee nonsolicitation obligation shall apply to employees of CNS as of
     your resignation date.

     If, in your opinion, the restrictions in this paragraph 6 or in paragraph 5
     prevent you from obtaining employment, you may make a written request for
     modification of the restrictions with respect to a specific position that
     you are considering. The president of CNS will review and consider your
     request and if she determines, in her sole discretion, that the requested
     modification will not be adverse to CNS's business interests, she will
     provide you with the modification, which must then be memorialized in
     writing and signed by both parties. In addition, if you have any questions
     with respect to the scope of your obligations hereunder, you agree to seek
     clarification from the president.

This agreement shall not in any way be construed as an admission of liability by
CNS or as an admission that CNS has acted wrongfully with respect to you. CNS
specifically denies and disclaims any such liability or wrongful acts. If any
provision of this agreement is found to be illegal or unenforceable, such
provision will be severed or modified to the extent necessary to make it
enforceable, and as so severed or modified, the remainder of this agreement
shall remain in full force and effect.

You understand that if you violate any obligation which you have to CNS under
this agreement, all payments and benefits to you hereunder will immediately
cease. In such event, your release






Teri Osgood Separation Letter
Page Seven


of your claims shall remain fully in effect in consideration of the payments and
benefits which you received prior to any such breach.

This agreement sets forth our entire agreement and fully supersedes any prior
agreements, contracts or understandings between you and CNS. CNS asks that our
records reflect that you conclude your employment on terms you understand and
accept. Therefore, we ask you to declare that you have entered into this
agreement voluntarily, without coercion, duress, or reliance on any
representations by any CNS employee, agent or lawyer.

If this letter accurately reflects our understanding and agreement, please sign
both copies and return the original to me. We appreciate all of your efforts and
contributions to CNS over the past 3 1/2 years and wish you success in your
future career.

Sincerely,

CNS, INC.


/s/  Marti Morfitt
- ------------------------------------
Marti Morfitt
President & CEO

Acknowledged and agreed to, with declarations confirmed, this 22nd day of
February, 2002.



/s/  Teri Osgood
- ------------------------------------
Teri Osgood






                                    EXHIBIT A
                                       TO
                                RELEASE AGREEMENT




March 11, 2002




Ms. Michelle Beuning
Director of Human Resources
CNS, Inc.
7615 Smetana Lane
P. O. Box 39802
Minneapolis, MN  55439-0802

Dear Michelle:

This letter, signed and dated more than 15 days after I signed the Agreement
between CNS and me dated February 14, 2002, is to certify that I have taken no
steps to exercise my 15-day right of rescission, as described in the Agreement.

Sincerely,

/s/  Teri Osgood
- ------------------------------------
Teri Osgood






                                    EXHIBIT B



                              STOCK OPTION SCHEDULE
                                  As of 4/15/02

- --------------------------------------------------------------------------------
      OPTION PLAN           PRICE       DATE GRANTED     REMAINING VESTED SHARES
- --------------------------------------------------------------------------------
1994 Stock Option Plan      4.125         08/17/98               30,000
- --------------------------------------------------------------------------------
1994 Stock Option Plan      2.8125        04/15/99               15,000
- --------------------------------------------------------------------------------
1990 Stock Option Plan       4.00         05/03/00                2,400
- --------------------------------------------------------------------------------
2000 Stock Option Plan      4.375         03/15/01                3,000
- --------------------------------------------------------------------------------

The stock option exercise period for the grants dated 8/17/98, 4/15/99 and
5/3/00 has been extended from 30 days to 90 days to the extent exercisable at
date of termination for the lesser of 90 days from the date of termination or
the balance of the option's term.

This will constitute the only amendment to these stock option agreements.


/s/  Marti Morfitt
- ------------------------------------
Marti Morfitt
President and CEO

EX-10

                                                                   EXHIBIT 10.27


                         EXECUTIVE EMPLOYMENT AGREEMENT


This Agreement is made as of October 29, 2002 (the "Effective Date") between
CNS, INC. a Delaware corporation ("CNS") and Linda Kollofski ("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 Vice
     President, New Business Development 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 Vice President, New Business Development,
     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 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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 3


     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 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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 4


     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 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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 3


               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 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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 6


     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 Vice President, New Business Development; 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 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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 7


          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.

     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,






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 8


               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 (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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 9


               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.

         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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 10


          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.

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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 11


     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.

     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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 12


     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 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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 13


     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

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 14


     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/ Marti Morfitt
                                         --------------------------------------
                                           Marti Morfitt
                                           Its President & CEO



                                       EMPLOYEE


                                       /s/ Linda Kollofski
                                       ----------------------------------------
                                       Linda Kollofski






                         EXECUTIVE EMPLOYMENT AGREEMENT

                                    EXHIBIT A

NAME:            Linda Kollofski

DATE:            October 29, 2002

POSITION:        Vice President, New Business Development

DEPARTMENT:      New Business Development

BASE SALARY:     $175,000



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

EX-10

                                                                   EXHIBIT 10.28


                         EXECUTIVE EMPLOYMENT AGREEMENT


This Agreement is made as of July 22, 2002 (the "Effective Date") between CNS,
INC. a Delaware corporation ("CNS") and John F. Kundtz ("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 Vice President
     Marketing, Breathe Right Brand 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 Vice President Marketing, Breathe Right Brand,
     Employee will continue to faithfully and diligently perform such executive
     management responsibilities as may be assigned to him from time to time by
     the President and Chief Executive Officer 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 and CEO 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 paragraph, the President and CEO 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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 3


     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 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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 4


     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 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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 5


               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 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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 6


     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 and CEO. 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 Vice President Marketing, Breathe
               Right Brand; 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 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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 7


          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.

     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,






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 8


               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 (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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 9


               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.

         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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 10


          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.

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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 11


     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.

     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.






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 12


     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 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






EXECUTIVE EMPLOYMENT AGREEMENT
PAGE 13


     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

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 14


     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/ Marti Morfitt
                                          -------------------------------------
                                           Marti Morfitt
                                           Its: President & CEO


                                       EMPLOYEE


                                       /s/ John F. Kundtz
                                       ----------------------------------------
                                       John F. Kundtz






                         EXECUTIVE EMPLOYMENT AGREEMENT

                                    EXHIBIT A


NAME:           John F. Kundtz

DATE:           July 22, 2002

POSITION:       Vice President Marketing, Breathe Right Brand

DEPARTMENT:     Marketing

BASE SALARY:    $175,000


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

EX-23

Exhibit 23.1

INDEPENDENT AUDITORS’ CONSENT

The Board of Directors
CNS, Inc.:

              We consent to incorporation by reference in the registration statements Nos. 333-68310, 333-42108, 333-60017, 33-59719, 33-42971, 33-29454, 33-19043, 33-15044 and 33-14052 on Form S-8 of CNS, Inc. of our report dated April 23, 2003, relating to the Consolidated Balance Sheets of CNS, Inc. and subsidiaries as of March 31, 2003 and 2002, and the related Consolidated Statements of Operations, Stockholders’ Equity and Comprehensive Income (Loss), and Cash Flows for the years ended March 31, 2003, December 31, 2001 and December 31, 2000 and the three months ended March 31, 2002, which report is included in the March 31, 2003, annual report on Form 10-K of CNS, Inc.

/s/ KPMG LLP

Minneapolis, Minnesota
June 26, 2003

EX-99

Exhibit 99.1

CERTIFICATION OF
PRESIDENT AND CHIEF FINANCIAL OFFICER

PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

              I, Marti Morfitt, the President of CNS, Inc. (the “Company”) in compliance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that, the Company’s Annual Report on Form 10-K for the period ended March 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Marti Morfitt
——————————————————————
   Marti Morfitt
Title: President and Chief Executive Officer CNS, Inc.
Dated: June 26, 2003

              I, Marcia O’Brien, the Chief Financial Officer of CNS, Inc. (the “Company”) in compliance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certify that the Company’s Annual Report on Form 10-K for the period ended March 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Marcia O’Brien
——————————————————————
   Marcia O’Brien
Title: Interim Chief Financial Officer, CNS, Inc.
Dated: June 26, 2003