8-K

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

FORM 8-K

CURRENT REPORT

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

Date of Report (date of earliest event reported): August 1, 2005

CNS, Inc.

(Exact name of Registrant as Specified in its Charter)

Delaware

(State Or Other Jurisdiction Of Incorporation)

0-16612	41-1580270
(Commission File Number)	(I.R.S. Employer Identification No.)
7615 Smetana Lane Eden Prairie, MN	55344
(Address Of Principal Executive Offices)	(Zip Code)

(952) 229-1500

Registrant’s Telephone Number, Including Area Code

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Items under Sections 3 through 7 are not applicable and therefore omitted.

Item 1.01 Entry Into a Material Definitive Agreement

Supply Agreement with Webtec Converting, LLC

        Effective August 1, 2005, CNS, Inc. (the “Company”) and WEBTEC Converting, LLC (“Webtec”) entered into an Amended and Restated Supply Agreement (the “Supply Agreement”) pursuant to which Webtec will manufacture Breathe Right nasal strips and any other products agreed to by the parties for a five-year term. The Company and Webtec were parties to a supply agreement dated October 5, 2001 that expired by its terms. The Company’s supply agreement dated October 15, 2001 with Tapemark, Inc. relating to the Breathe Right nasal strip also has expired by its terms. With the Supply Agreement, Webtec is the Company’s sole supplier of Breathe Right nasal strips.

        Under the Supply Agreement, Webtec is prohibited from supplying finished external nasal dilators or components for use in the manufacture of external nasal dilators to any party other than CNS during the term of the Supply Agreement and for a term of three years thereafter. The Supply Agreement also contains provisions relating to pricing and a commitment by Webtec to regular reduction of its prices to CNS and a provision regarding Webtec’s limited right in certain circumstances to renegotiate the prices in the event of cost increases from its suppliers. Further, if either Webtec or the Company initiate changes in design, concept or material or other proposed modification of the product, the Company will offer Webtec a right of first refusal to manufacture the products as changed, at prices at least as favorable to the Company as other suppliers’ prices. If Webtec does not accept the right of first refusal, the Company may use an alternative manufacturer for the products. The Supply Agreement contains customary provisions relating to provision of specifications and subsequent changes in the design of the product; rights of inspection and related quality assurance; forecasts by CNS of its requirements and information regarding Webtec’s manufacturing capacity; rights to the use of names and confidentiality; and indemnification for certain liabilities arising from the products. Either party may terminate the Supply Agreement in the event of a default by the other party, after providing written notice and an opportunity to cure such default.

Item 2.02 Results Of Operations And Financial Condition.

        The Company hereby furnishes a press release issued on August 3, 2005 disclosing material non-public information regarding its results of operations for the quarter ended June 30, 2005. A copy of the press release is attached hereto as Exhibit 99.1.

Item 8.01 Other Events

        On August 2, 2005, the Company issued a press release, attached hereto as Exhibit 99.2, announcing a six cent per share quarterly dividend payable September 9, 2005 to shareholders of record as of August 26, 2005. In the August 2, 2005 press release, the Company also announced that its Board of Directors authorized the repurchase of up to 1,000,000 shares of the Company’s common stock, or approximately 8% of the Company’s currently outstanding shares. Repurchases of common stock will be in accordance with Rule 10b-18 of the Securities Exchange Act of 1934 Repurchases will be made from time to time in the open market or in privately negotiated transactions using available Company cash. Management will determine the number of shares to be purchased, the timing of any purchases and the manner of purchase based upon a number of factors, including the common stock’s market price and market conditions.

Item 9.01 Financial Statements And Exhibits

Exhibit	Description
99.1	Press Release issued on August 3, 2005.
99.2	Press Release issued on August 2, 2005.

SIGNATURE

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

CNS, INC.

By: /s/ Marti Morfitt

Marti Morfitt
President and Chief Executive Officer

Date: August 3, 2005

EX-99.1

EXHIBIT 99.1

NEWS RELEASE

FOR 3:00 P.M. CT RELEASE
August 3, 2005

CONTACT:
Sam Reinkensmeyer Chief Financial Officer CNS, Inc. (952) 229-1500 sreinkensmeyer@cns.com Nasdaq Symbol: CNXS	Shawn Brumbaugh/Marian Briggs Padilla Speer Beardsley Inc. (612) 455-1700 sbrumbaugh@psbpr.com mbriggs@psbpr.com

CNS, Inc. Reports Strong Fiscal 2006 First-Quarter Results

• First-quarter sales of $23.5 million, up 42% versus the prior year, driven by strong growth of Breathe Right^® and FiberChoice^® brands
• First quarter fully diluted earnings per share of $0.27, up 134% versus prior year and ahead of consensus estimates
• Company increases estimates for fiscal 2006 sales and earnings per share

        MINNEAPOLIS, August 3 — CNS, Inc. (Nasdaq: CNXS), the Breathe Right^® company, today announced results for its fiscal 2006 first-quarter ended June 30, 2005.

        Net sales for the first quarter were $23.5 million, an increase of 42 percent compared to $16.5 million in the prior-year period. Net income for the first quarter grew 142 percent to $4.0 million, or $0.27 per fully diluted share, versus net income of $1.7 million, or $0.11 per fully diluted share, in the first quarter of fiscal 2005.

        “We are pleased to be off to a strong start in fiscal 2006. First-quarter sales and profits exceeded our expectations with strong performances by Breathe Right nasal strips both in the U.S. and internationally, as well as the FiberChoice^® brand,” said Marti Morfitt, CNS’ president and CEO. “Our results benefited from the effectiveness of important initiatives begun in the previous year, such as market testing designed to drive household penetration growth of Breathe Right nasal strips, new product development to expand the FiberChoice line and lower distributor inventories in Japan.”

        During fiscal 2006, CNS continues to focus on a number of key initiatives including:

• Growing nasal strips with tested, proven marketing tactics;
• Expanding FiberChoice sales, with geographical expansion of proven advertising and introducing two new FiberChoice items with strong marketing support;

• Conducting market testing designed to create a robust pipeline of growth tactics for Breathe Right nasal strips, both domestically and internationally; and
• Building a pipeline of potential new products for both the Breathe Right and FiberChoice brands.

        The gross margin rate for the 2006 first quarter was 70 percent, up 3 percentage points from the prior-year period’s gross margin rate, primarily due to lower product cost and greater efficiencies. Advertising and promotion expense for the 2006 first quarter of $6.3 million increased 23 percent compared to a year ago, partly due to increased FiberChoice advertising.

        CNS generated $5.7 million in cash from operations during its first quarter ended June 30, 2005 and ended the period with $60.0 million in cash and marketable securities. During the first quarter, CNS repurchased 315,000 shares of its common stock for $6.3 million.

        Yesterday, the company announced a quarterly dividend of $0.06 per share, payable on September 9, 2005 to shareholders of record as of August 26, 2005 and the expansion of its authorized share repurchase program by 1 million common shares.

First-Quarter Product Results

        Domestic Breathe Right sales in the 2006 first quarter grew 22 percent to $14.7 million, compared to prior-year sales of $12.0 million. Domestic nasal strips continued to benefit from strong consumer demand caused by last year’s relaunch of clear strips, including a new advertising message.

        International sales of Breathe Right products in the 2006 first quarter totaled $3.6 million, up 86 percent versus year-ago sales of $1.9 million. Sales growth resulted from continued strong shipments to Canada and Europe, as well as normal shipments to Japan, where the company recorded no revenues during the first half of fiscal 2005 due to high inventory levels in that market.

        Sales of FiberChoice chewable fiber tablets grew 107 percent to $5.2 million in the first quarter versus $2.5 million in the prior-year period. Sales growth resulted from strengthening consumer demand for the existing orange flavored tablets as well as initial pipeline shipments of the two new FiberChoice items launched February 2005.

        “We are very pleased to report strong revenue gains in each of our product lines,” said Morfitt. “We had strong core business growth, new product volume and a return to Breathe Right international sales growth, with strong shipments to all markets, including Japan.”

Expansion of Nasal Strip Supply Agreement

        CNS is pleased to announce an expansion of its production and supply agreement for nasal strips with WEBTEC Converting, LLC. WEBTEC has supplied nasal strips to the company since 1999, and has demonstrated its commitment to quality manufacturing and growth of the Breathe Right nasal strip business during this time. This expanded agreement makes WEBTEC the sole supplier of Breathe Right nasal strips, which will contribute to long-term improvements in product cost and customer service flexibility.

Company Raises Outlook for Fiscal 2006

        With one quarter completed, CNS is raising its estimates for fiscal 2006 sales and earnings per share. For the 2006 fiscal year ending March 31, 2006, CNS anticipates that sales will be between $106 million and $112 million, up 13 percent to 19 percent versus the 2005 fiscal year. Sales growth in the first half of fiscal 2006 is expected to be in the range of 25 percent to 30 percent, as the company benefits from the launch of the two new FiberChoice products, strong consumer demand trends for domestic nasal strips and the resumption of a normal shipping pattern to Japan. Growth in the second half of fiscal 2006 is expected to moderate to between 5 percent and 12 percent, as results compare against the high sales volumes resulting from the domestic Breathe Right clear strips relaunch during the third and fourth quarters of fiscal 2005.

        CNS anticipates fully diluted earnings per share for fiscal 2006 to be in the range of $1.00 to $1.10. This estimated range represents 14 percent to 25 percent growth, excluding the $0.05 earnings per share benefit of the one-time duty refund recorded in fiscal 2005. Earnings per share growth is expected to be concentrated in the first half of the fiscal year, based on estimated phasing of revenue growth.

Conference Call Webcast

        A conference call to review the first-quarter results is scheduled today at 4 p.m. CT (5 p.m. ET). Interested participants may listen to the live conference call or replay over the Internet by logging onto CNS’ Web site at www.cns.com. A replay of the first-quarter conference call may also be accessed by dialing toll-free 1-800-405-2236, conference call ID 1103494, between 6 p.m. CT on Wednesday, August 3, and 6 p.m. CT on Wednesday, August 10.

About CNS, Inc.
CNS, based in Minneapolis, designs and markets consumer health care products, including Breathe Right^® nasal strips and FiberChoice^® dietary fiber supplements. The company focuses on products that address important consumer needs within the aging well/self-care market, including better breathing and digestive health. Its common stock is listed on the Nasdaq National Market under the ticker symbol “CNXS.” More information about CNS and its products is available at www.cns.com.

        Some of the information contained in this news release is forward-looking and subject to certain business risks as described in the company’s filings with the Securities and Exchange Commission, including those referred to in its Annual Report on Form 10-K for the year ended March 31, 2005. This news release contains forward-looking statements, which involve risks and uncertainties.

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

	Three Months Ended June 30,
	2005		2004
Net sales	$	23,539	$	16,531
Cost of goods sold		6,968		5,394
Gross profit		16,571		11,137
Operating expenses:
Advertising and promotion		6,326		5,148
Selling, general and administrative		4,340		3,578
Total operating expenses		10,666		8,726
Operating income (loss)		5,905		2,411
Investment income		321		214
Income (loss) before income taxes		6,226		2,625
Income tax expense		2,181		952
Net income (loss)	$	4,045	$	1,673
Diluted net income (loss) per share	$	.27	$	.11
Weighted average number of common and
assumed conversion shares outstanding		15,079		14,570

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

	June 30, 2005		March 31, 2005
Current assets:
Cash and marketable securities	$	59,966	$	60,750
Accounts receivable, net		11,256		15,030
Inventories		6,181		4,531
Other current assets		2,792		3,403
Total current assets		80,195		83,714
Long-term assets		3,305		3,501
Total assets	$	83,500	$	87,215
Current liabilities		14,731		16,064
Stockholders’ equity		68,769		71,151
Total liabilities and stockholders’ equity	$	83,500	$	87,215

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EX-99.2

EXHIBIT 99.2

NEWS RELEASE

August 2, 2005

CONTACT:
Sam Reinkensmeyer	Shawn Brumbaugh/Marian Briggs
Chief Financial Officer	Padilla Speer Beardsley Inc.
CNS, Inc.	(612) 455-1700
(952) 229-1500	sbrumbaugh@psbpr.com
Nasdaq: CNXS	mbriggs@psbpr.com

FOR IMMEDIATE RELEASE

CNS, Inc. Declares Quarterly Dividend;
Announces Authorization to Repurchase One Million Shares of Common Stock

        MINNEAPOLIS, August 2, 2005 – CNS, Inc. (Nasdaq: CNXS), the Breathe Right^® company, today announced that its board of directors has declared a quarterly cash dividend of six cents per share of common stock. The dividend is payable on September 9, 2005, to shareholders of record on August 26, 2005.

        In addition, the company today announced that its board of directors authorized the repurchase of up to one million additional shares of common stock under the company’s stock repurchase program. Since the beginning of the stock repurchase program in February 2002, the company has purchased approximately one million shares of its common stock. The company intends to buy back shares from time to time in market or in privately negotiated transactions using available company cash.

        “Due to the company’s strong financial position, we are pleased to continue to reward our shareholders with a quarterly dividend, as well as announce an increase in our stock repurchase program,” said Marti Morfitt, president and chief executive officer of CNS. “These actions reflect the board’s confidence in the company’s long-term prospects.”

        CNS declared its first quarterly dividend in August 2003 and then raised the dividend payment in June 2004 and June 2005. Since 1997, under previously authorized stock repurchase plans, the company has repurchased approximately 7.2 million shares. The company has approximately 14.1 million shares outstanding.

About CNS, Inc.
CNS, based in Minneapolis, designs and markets consumer health care products, including Breathe Right^® nasal strips and FiberChoice^® dietary fiber supplements. The company focuses on products that address important consumer needs within the aging well/self-care market, including better breathing and digestive health. Its common stock is listed on the Nasdaq National Market under the ticker symbol “CNXS.” More information about CNS and its products is available at www.cns.com.

        Some of the information contained in this news release is forward-looking and subject to certain business risks as described in the company’s filings with the Securities and Exchange Commission, including those referred to in its Annual Report on Form 10-K for the year ended March 31, 2005. This news release contains forward-looking statements, which involve risks and uncertainties.

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