-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D8xnKArQPniXLAq1lUyj7UKmh4TgB3a9Gmhtx06IMfvwGPDzRzJGi6hPhezk0Kuy HElAVZnGF6hTXrqBJWimZw== 0000897101-95-000419.txt : 19951119 0000897101-95-000419.hdr.sgml : 19951119 ACCESSION NUMBER: 0000897101-95-000419 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CNS INC /DE/ CENTRAL INDEX KEY: 0000814258 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 411580270 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16612 FILM NUMBER: 95591594 BUSINESS ADDRESS: STREET 1: 1250 PARK RD CITY: CHANHASSEN STATE: MN ZIP: 55317 BUSINESS PHONE: 6124747600 MAIL ADDRESS: STREET 2: 1250 PARK RD CITY: CHANHASSEN STATE: MN ZIP: 55317-9260 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Period Ended September 30, 1995. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Transition Period from _________________ to _________________ COMMISSION FILE NUMBER: 0 - 16612 CNS, INC. (Exact name of registrant as specified in its charter) DELAWARE 41-1580270 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1250 PARK ROAD CHANHASSEN, MN 55317 (Address of principal executive offices including zip code) (612) 474-7600 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES _ X _ NO ____ At November 14, 1995, 17,379,772 shares of common stock were outstanding. This Form 10-Q consists of 14 pages (including Exhibits). The Index to Exhibits is set forth on page 10. PART I - FINANCIAL INFORMATION
CNS, INC. CONDENSED BALANCE SHEETS (unaudited) September 30, December 31, 1995 1994 ASSETS CURRENT ASSETS: Cash and cash equivalents $12,170,231 $ 6,024,366 Accounts receivable 7,394,323 936,279 Note receivable 297,805 0 Inventories: Finished goods 7,049,310 932,407 Work in process 1,289,722 171 Components 675,904 192,431 Total inventories 9,014,936 1,125,009 Prepaid expenses 1,986,552 245,619 Net assets of discontinued operations 0 2,990,990 TOTAL CURRENT ASSETS 30,863,847 11,322,263 PROPERTY AND EQUIPMENT less accumulated depreciation of $128,258 and $15,453, respectively 365,391 178,104 OTHER ASSETS Intangible assets less accumulated amortization of $80,277 and $38,538, respectively 121,621 112,504 $31,350,859 $11,612,871
The accompanying notes are an integral part of the condensed financial statements.
CNS, INC. CONDENSED BALANCE SHEETS (unaudited) September 30, December 31, LIABILITIES AND 1995 1994 SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,767,487 $ 272,039 Accrued expenses 1,698,662 134,297 Accrued income tax 1,491,000 0 TOTAL CURRENT LIABILITIES 7,957,149 406,336 SHAREHOLDERS' EQUITY Common stock, $.01 par value. Authorized 50,000,000 shares; issued and outstanding, 17,352,772 shares at September 30, 1995 and 17,041,656 shares at December 31, 1994. 173,528 170,417 Additional paid-in capital 25,245,985 24,229,582 Accumulated deficit (2,025,803) (13,193,464) TOTAL SHAREHOLDERS' EQUITY 23,393,710 11,206,535 $31,350,859 $11,612,871
The accompanying notes are an integral part of the condensed financial statements.
CNS, INC. CONDENSED STATEMENTS OF OPERATIONS (unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 Sales $10,287,980 $ 681,607 $36,565,663 $ 1,554,757 Cost of goods sold 3,512,658 368,081 13,434,983 980,776 Gross profit 6,775,322 313,526 23,130,680 573,981 Operating expenses: Marketing and selling 4,836,659 838,978 10,764,407 1,742,706 General and administrative 638,616 139,869 1,316,437 399,260 Research and development 3,500 44,540 10,633 107,640 Total operating expenses 5,478,775 1,023,387 12,091,477 2,249,606 Operating profit (loss) 1,296,547 11,039,203 Interest income 214,000 78,558 434,969 140,947 Interest expense 0 0 (12,500) (4,612) Income (loss) from continuing operations before income taxes 1,510,547 (631,303) 11,461,672 (1,539,290) Income tax provision 150,000 0 1,060,000 0 Income (loss) from continuing operations 1,360,547 (631,303) 10,401,672 (1,539,290) Income (loss) from operations of discontinued sleep division (less applicable income tax benefit of $259,000 and $0 at September 30, 1995 and 1994, respectively) 0 36,694 (459,901) 43,762 Gain on disposal of sleep division (less applicable income taxes of $690,000 and $0 at September 30, 1995 and 1994, respectively) 0 0 1,225,890 0 Net income (loss) $1,360,547 $ (594,609) $11,167,661 $(1,495,528) Income (loss) per common and common equivalent share: From continuing operations $ .07 $ (.04) $ .57 (.10) From discontinued operations $ 0 0 .04 0 Net income (loss) per share $ .07 $ (.04) $ .61 $ (.10) Weighted average number of common and common equivalent shares outstanding $18,657,086 $16,753,952 $18,342,901 $15,357,218
The accompanying notes are an integral part of the condensed financial statements.
CNS, INC. CONDENSED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended September 30, 1995 1994 OPERATING ACTIVITIES: Net income (loss) $ 11,167,661 $ (1,495,528) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Gain on sale of discontinued operations (1,915,890) 0 Depreciation and amortization 154,544 32,251 Changes in operating assets and liabilities: Accounts receivable (6,458,044) (679,721) Inventories (7,889,927) (789,366) Prepaid expenses (1,740,933) (853,197) Net assets of discontinued operations 0 (337,582) Accounts payable and accrued expenses 7,159,888 586,287 Net cash provided by (used in) operating activities 477,299 (3,536,856) INVESTING ACTIVITIES: Payments for purchases of property and equipment (300,092) (66,290) Payments for intangible assets (50,856) (72,751) Net cash used in investing activities (350,948) (139,041) FINANCING ACTIVITIES: Proceeds from sale of discontinued operations 5,000,000 0 Proceeds from exercise of employee stock options 211,714 75,837 Proceeds from exercise of warrants, nonqualified options and other 807,800 171,000 Net proceeds from public offering 0 9,661,932 Net cash provided by financing activities 6,019,514 9,908,769 Net increase in cash and cash equivalents 6,145,865 6,232,872 Beginning cash and cash equivalents 6,024,366 347,224 Ending cash and cash equivalents $ 12,170,231 $ 6,580,096
Supplemental schedule of non-cash operating and financing activities: A note receivable for $595,611 was received on June 1, 1995 when the Company sold the assets of its discontinued sleep division. $297,805 remains open at September 30, 1995. The accompanying notes are an integral part of the condensed financial statements. NOTES TO CONDENSED FINANCIAL STATEMENTS The accompanying condensed financial statements as of September 30, 1995 and 1994 are unaudited but, in the opinion of management, include all adjustments (consisting only of normal, recurring accruals) necessary for a fair presentation of results for the interim periods presented. The accounting principles followed in the preparation of the financial information contained herein are the same as those described in the Form 10-K report for the year ended December 31, 1994, and reference is hereby made to that report for detailed information on accounting policies. 1. The Company's balance sheet reflects Common Stock outstanding on a historical basis. Net income per common share for the three and nine month periods ended September 30, 1995 was based upon the weighted average of common and common equivalent shares outstanding during the period. Net loss per share of Common Stock for the three and nine month periods ended September 30, 1994 was based upon the weighted average number of common shares outstanding during the period. Common equivalent shares were not included because they were anti-dilutive. 2. The Company has a $1.25 million bank line of credit. Borrowings are due on demand, bear interest at 1% over a defined base rate (8 3/4% at September 30, 1995), are secured by substantially all assets of the Company and are subject to certain restrictive covenants. Borrowings are limited to 80% of eligible accounts receivable. There were no borrowings against this line of credit as of September 30, 1995. The line of credit expires on March 31, 1996. 3. The Company declared a two-for-one stock split, which was accomplished in the form of a 100 percent stock dividend distributed on June 22, 1995 to shareholders of record on June 1, 1995. The accompanying condensed financial statements presented for all periods herein have been adjusted to reflect the increased shares. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. On June 1, 1995, the Company completed the sale of all the assets of its Sleep Disorder Diagnostic Products Division (Sleep) to Aequitron Medical Inc. Net sale proceeds of $5,000,000 cash and a note receivable of $595,611 resulted in a gain on the sale of discontinued operations of $1,915,890 which is reflected in the nine month period ended September 30, 1995. The net income or loss of this operation is shown on the Condensed Statement of Operations as the income (loss) from discontinued operations. The net assets of Sleep were $2,990,990 at December 31, 1994. Continuing operations of the Company is soley related to the manufacture and marketing of the Breathe Right nasal strip, which is a non medicinal disposable device that improves nasal breathing by reducing nasal airflow resistance. Unless otherwise noted, the following discussion of financial condition and results of operations relates only to the continuing operations of the Company. Results of Operations: Net sales of continuing operations increased to $10.3 million in the quarter ended September 30, 1995 from $.7 million in the quarter ended September 30, 1994. For the nine month period of 1995 net sales were $36.6 million, up from $1.6 million in the comparable nine month period of 1994. These significant increases of Breathe Right sales were due to increased consumer awareness as a result of the use of the Breathe Right nasal strips by professional athletes in several sports, as well as the commencement of national consumer advertising in newspapers, magazines and radio. The Company believes that the Breathe Right nasal strip sales to wholesalers and retailers represent an expansion of their inventories as well as a replenishment of product sold to consumers. The Company expected that the third quarter sales of the Breathe Right nasal strip would ease somewhat from the second quarter due to the expansion of inventories during the second quarter of 1995. Foreign sales of the Breathe Right nasal strip were $.7 million for the nine months ended September 30, 1995. Gross profit was $6.8 million and $23.1 million compared to $.3 million and $.6 million in the third quarter and nine month periods of 1995 and 1994, respectively. As a percentage of sales, gross profit from sales was 65.9% and 63.3% for the two periods of 1995, respectively, compared to 46.0% and 36.9% for the same two periods of 1994 as a result of the efficiencies realized from the higher level of Breathe Right nasal strip sales. Marketing and selling expenses were $4.8 million and $10.8 million in the third quarter and nine month periods of 1995, respectively, compared to $.8 million and $1.7 million in the same two periods of 1994, respectively. This significant increase results primarily from the marketing expenses associated with trade advertisements, consumer advertisements, and other product roll-out items for the Breathe Right nasal strip. Marketing and selling expenses were expected to increase significantly in 1995 as a result of the increased marketing and advertising of the Breathe Right nasal strip. General and administrative expenses were $.6 million and $1.3 million for the third quarter and nine month period ended September 30, 1995, respectively, compared to $.1 million and $.4 million in the same two periods of 1994, respectively. These increases result from the additional personnel and systems required to support the Breathe Right nasal strip. Research and Development expenses for the Breathe Right nasal strips are minimal. The Company received interest income of $435,000 during the first nine months ending September 30, 1995 compared to approximately $141,000 during the same nine month period of 1994, primarily due to the Company's higher level of cash and cash equivalents in the 1995 period. Interest expense during the reporting periods represents the cost of minimal borrowings and maintaining the bank line of credit. The tax expense of $1,060,000 on continuing operations represent the estimated tax rate from all of 1995 applied to earnings for the nine month period ended September 30, 1995. Liquidity and Capital Resources: At September 30, 1995, the Company had cash and cash equivalents of $12.2 million, working capital of $22.9 million and $1.25 million line of credit with a bank, subject to certain borrowing base restrictions. The Company had total assets at September 30, 1995 of $31.4 million, an increase of $19.8 million from $11.6 million at December 31, 1994. The increase primarily reflects the Company's net income, the receipt of proceeds from the sale of the sleep disorders product line and the increases in current liabilities during the first nine months of 1995. The Company's operations provided approximately $.5 million in cash flow during the nine months ended September 30, 1995 compared to a use of cash of $3.5 million for the comparable nine month period of 1994. Cash provided in operations was primarily from net earnings, less an increase in accounts receivable of $6.5 million, an increase in inventories of $7.9 million, the gain on discontinued operations of $1.9 million offset by an increase in accounts payable and accrued expenses of $7.2 million. With respect to investing activities, the Company made purchases of property and equipment totaling $300,000 during the first nine months of 1995 compared to $66,000 during the comparable nine months of 1994. Capitalized patent and trademark costs were approximately $51,000 in the first nine months of 1995 compared to $73,000 during the first nine months of 1994. The Company presently does not have any significant commitments for capital equipment. At September 30, 1995, the Company had a $1.25 million bank line of credit. Borrowings are due on demand, bear interest at 1% over a defined base rate, (8 3/4% at September 30, 1995) are secured by substantially all assets of the Company and are subject to certain restrictive covenants. Borrowings are limited to 80% of eligible accounts receivable. There were no borrowings against this line of credit as of September 30, 1995. The line of credit expires on March 31, 1996. During the nine month period ended September 30, 1995, the Company utilized net operating loss carryforwards totaling approximately $11,476,000. The remaining net operating loss and credit carryforwards at September 30, 1995 which are available to reduce income taxes payable in future periods total approximately $240,000 and $312,000 respectively, and expire at various times through 2009. The Company believes that its existing funds and funds generated from operations, along with its bank line of credit, will be sufficient to support its planned operations for the foreseeable future. PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities Not applicable Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information On November 8, 1995, the Company issued a press release (attached hereto as Exhibit 99.1) reporting that the U.S. Food and Drug Administration has cleared the Company's Breathe Right nasal strip for marketing with a new indication for use of the strip for the reduction or elimination of snoring. On November 9, 1995, the Company issued a press release (attached hereto as Exhibit 99.2) reporting that the Company received the official notice of allowance from the U.S. Patent Office with regard to a patent based on the original application of its Breathe Right nasal strips. Item 6. Exhibits and Reports of Form 8-K Page (a) Exhibits: Exhibit No. 11, Calculation of Net Income (Loss) Per Share 12 Exhibit No. 99.1, Press Release - FDA 13 Exhibit No. 99.2, Press Release - U.S. Patent 14 Exhibit No. 27, Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K The Company filed a current report on Form 8-K dated July 20, 1995 reporting a Rights agreement which grants implicit rights to shareholders of record on August 3, 1995. No financial statements were filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CNS, Inc. Registrant Date: November 14, 1995 By: /s/ Richard E. Jahnke Richard E. Jahnke President & Chief Operating Officer Date: November 14, 1995 By: /s/ Ronald D. Cox Ronald D. Cox Vice President of Finance and Chief Financial Officer EX-11 2 Exhibit 11
CNS, INC. COMPUTATION OF NET INCOME (LOSS) PER SHARE OF COMMON STOCK (unaudited) 1995 1994 1995 1994 Income (loss) from continuing operations before income taxes $1,510,547 $(631,303) $11,461,672 $(1,539,290) Income tax provision 150,000 0 1,060,000 0 Income (loss) from continuing operations 1,360,547 (631,303) 10,401,672 (1,539,290) Income (loss) from operations of discontinued sleep division (less applicable income tax benefit of $259,000 and $0 at September 30, 1995 and 1994, respectively). 0 36,694 (459,901) 43,762 Gain on disposal of sleep division (less applicable income taxes of $690,000 and $0 at September 30, 1995 and 1994 respectively). 0 0 1,225,890 0 Income from discontinued operations 0 36,694 765,989 43,762 Net income (loss) $1,360,547 $(594,609) $11,167,661 $(1,495,528) Income (loss) per common and common equivalent share From continuing operations before income tax .08 (.04) .62 (.10) From income tax on continuing operations (.01) 0 (.05) 0 From continuing operations .07 (.04) .57 (.10) From discontinued operations (sleep div.) 0 0 (.03) 0 From gain on disposal of sleep division 0 0 .07 0 From discontinued operations, net 0 0 .04 0 Net income (loss) per common and common equivalent share $ .07 $ (.04) $ .61 $ (.10) Weighted average number of common and common equivalent shares outstanding 18,657,086 16,753,952 18,342,901 15,357,218
EX-99.1 3 FROM: FOR: Swenson/Falker Associates Inc. CNS, Inc. 1111 TCF Tower, 121 S. 8th Street 1250 Park Rd. Minneapolis, Minn. 55402 Chanhassen, Minn. 55417 Contact - Curt Swenson 612/371-0000 Contact - Richard E. Jahnke or Daniel E. Cohen 612/474-7600 FOR IMMEDIATE RELEASE CNS, INC., SAYS FDA HAS CLEARED BREATHE RIGHT(R) NASAL STRIP FOR MARKETING AS SNORING REMEDY MINNEAPOLIS, Nov. 8 -- CNS, Inc. (NASDAQ/NM:CNXS) announced today that the U.S. Food and Drug Administration (FDA) has cleared thed company's Breathe Right(R) nasal strip for marketing with a new indication for use of the strip for the reduction or elimination of snoring. "We have believed for some time that snorers represented on of the largest markets for the Breathe Right strip, and this clearance will enable us to address them directly in our advertising," said Daniel E. Cohen, M.D., CNS chairman and chief executive officer. "We believe this is the only over-the- counter product in wide retail distribution that has been cleared by the FDA for marketing as a snoring treatment." Under the product's original FDA marketing clearance, received in late 1993, the company was able to claim only that the product improved nasal breathing by reducing nasal airway resistance, and could not directly claim a benefit to snorers. Recent clinical studies showed that 75 percent of participants snored less often and less loudly when wearing the Breathe Right strip. Cohen said 80 percent of U.S. households contain at least one snorer and there are approximately 40 million chronic snorers in the U.S. Many people, unable to get enough air through their noses, open their mouths to breathe, which promotes snoring. Breathe Right strips decrease nasal airway resistance by 31 percent, making nasal breathing easier so the mouth can be closed and snoring can be reduced or eliminated. CNS, based in Minneapolis, designs, manuafactures and markets consumer products, including the Breathe Right nasal strip. # # # 11/08/95 EX-99.2 4 FROM: FOR: Swenson/Falker Associates Inc. CNS, Inc. 1111 TCF Tower, 121 S. 8th Street 1250 Park Rd. Minneapolis, Minn. 55402 Chanhassen, Minn. 55417 Contact - Curt Swenson 612/371-0000 Contact - Richard E. Jahnke or Daniel E. Cohen 612/474-7600 FOR IMMEDIATE RELEASE CNS, INC., RECEIVES OFFICIAL NOTICE OF PATENT ALLOWANCE FOR BREATHE RIGHT DEVICE MINNEAPOLIS, Nov. 9 -- CNS, Inc., (NASDAQ/NM:CNXS) has received the official notice of allowance from the U.S. Patent Office with regard to a patent based on the original application for its Breathe Right(R) nasal strips. The company had said on Monday that it expected to receive the notice soon. "The patent, when issued, will provide our Breathe Right product with the significant protection we have always expected it would receive," said Daniel E. Cohen, M.D., chairman and chief executive officer of CNS. CNS, based in Minneapolis, designs, manufactures and markets consumer products, including the Breathe Right nasal strip. The Breathe Right strip improves breathing by reducing nasal airflow resistance and can be effective in eliminating or reducing snoring. # # # 11/09/95 EX-27 5
5 9-MOS DEC-31-1995 JUL-01-1995 SEP-30-1995 12,170,231 0 7,692,128 0 9,014,936 30,863,847 493,649 128,258 31,350,859 7,957,149 0 25,419,513 0 0 0 31,350,859 10,287,980 10,287,980 3,512,658 3,512,658 3,500 0 0 1,510,547 150,000 1,360,547 0 0 0 1,360,547 .07 .07
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