-----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, HqEqjexg98drCJ9EnCYUdrESfJbuUNB9/7+INJTiE+v56wI4hvG7pxQBwlXO1HYV bjJYg7W93CpwZ8kOOc2A5Q== 0000897101-96-000206.txt : 19960513 0000897101-96-000206.hdr.sgml : 19960513 ACCESSION NUMBER: 0000897101-96-000206 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 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: 96559285 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 FORM 10-Q FOR CNS, INC. 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 March 31, 1996. [ ] 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.) P.O. BOX 39802 MINNEAPOLIS, MN 55439 (Address of principal executive offices including zip code) (612) 820-6696 (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 April 30, 1996, 19,144,552 shares of common stock were outstanding. This Form 10-Q consists of 13 pages (including Exhibits). The Index to Exhibits is set forth on page 9. PART I - FINANCIAL INFORMATION CNS, INC. CONDENSED BALANCE SHEETS (unaudited)
March 31, December 31, 1996 1995 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $10,631,100 $ 8,551,919 Marketable securities 6,827,732 1,950,354 Accounts receivable, net 9,845,241 7,830,793 Inventories 7,634,652 11,100,909 Prepaid expenses and other current assets 1,150,397 997,674 Deferred income taxes 563,000 879,000 ----------- ----------- Total current assets 36,652,122 31,310,649 Property and equipment, net 664,297 558,999 Patents and trademarks, net 121,454 126,887 Certificate of deposit, restricted 320,000 320,000 Deferred income taxes 24,000 24,000 ----------- ----------- $37,781,873 $32,340,535 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued expenses 5,641,445 4,947,193 Accrued income taxes 1,385,000 508,000 ----------- ----------- Total current liabilities 7,026,445 5,455,193 ----------- ----------- Stockholders' equity: Common stock - $.01 par value: Authorized 50,000,000 shares; issued and outstanding, 17,515,552 shares at March 31, 1996 and 17,387,852 shares at December 31, 1995 175,156 173,878 Additional paid-in capital 26,596,305 25,828,434 Retained earnings 3,983,967 883,030 ----------- ----------- Total stockholders' equity 30,755,428 26,885,342 ----------- ----------- $37,781,873 $32,340,535 =========== ===========
The accompanying notes are an integral part of the condensed financial statements. CNS, INC. CONDENSED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended March 31, --------------------------- 1996 1995 ------------ ------------ Net sales $ 20,820,761 $ 7,459,238 Cost of goods sold 7,651,631 2,850,285 ------------ ------------ Gross profit 13,169,130 4,608,953 ------------ ------------ Operating expenses: Marketing and selling 7,430,097 2,139,359 General and administrative 737,660 254,032 Product development 157,261 46,571 ------------ ------------ Total operating expenses 8,325,018 2,439,962 ------------ ------------ Operating income 4,844,112 2,168,991 Interest income 154,825 84,175 ------------ ------------ Income from continuing operations before income taxes 4,998,937 2,253,166 Income tax provision 1,898,000 -- ------------ ------------ Income from continuing operations 3,100,937 2,253,166 Loss from operations of discontinued sleep division -- 450,404 ------------ ------------ Net income $ 3,100,937 $ 1,802,762 ============ ============ Net income per common and common equivalent share: From continuing operations $ .17 $ .12 From discontinued operations -- (.02) ------------ ------------ Net income per share $ .17 $ .10 ============ ============ Weighted average number of common and common equivalent shares outstanding 18,706,000 18,174,000 ============ ============
The accompanying notes are an integral part of the condensed financial statements. CNS, INC. CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended March 31, ---------------------------- 1996 1995 ------------ ------------ Operating activities: Net income $ 3,100,937 $ 1,802,762 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 54,617 54,797 Deferred income taxes 316,000 -- Changes in operating assets and liabilities: Accounts receivable (2,014,448) (3,028,570) Inventories 3,466,257 415,086 Prepaid expenses and other current assets (152,723) 122,893 Net assets of discontinued operations -- 49,653 Accounts payable and accrued expenses 1,571,252 2,241,245 ------------ ------------ Net cash from operating activities 6,341,892 1,657,866 ------------ ------------ Investing activities: Change in marketable securities (4,877,378) 1,040,533 Payments for purchases of property and equipment (141,210) (58,757) Payments for patents and trademarks (13,272) (19,671) ------------ ------------ Net cash from investing activities (5,031,860) 962,105 ------------ ------------ Financing activities: Proceeds from the exercise of stock options 769,149 41,824 ------------ ------------ Net cash from financing activities 769,149 41,824 ------------ ------------ Net change in cash and cash equivalents 2,079,181 2,661,795 Cash and cash equivalents: Beginning of period 8,551,919 2,051,957 ------------ ------------ End of period $ 10,631,100 $ 4,713,752 ============ ============
The accompanying notes are an integral part of the condensed financial statements. NOTES TO CONDENSED FINANCIAL STATEMENTS The accompanying condensed financial statements as of March 31, 1996 and 1995 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, 1995, and reference is hereby made to that report for detailed information on accounting policies. 1. The Company has a $1.25 million bank line of credit. Borrowings are due on demand, bear interest at 1% over a defined base, 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 March 31, 1996. The line of credit expires on June 30, 1996. 2. During April 1996, the Company completed a public offering of 1,725,000 shares of common stock. Of these shares, 1,525,000 shares were sold by the Company and 200,000 shares by selling shareholders. Net proceeds to the Company were approximately $35 million. The primary use of the net proceeds will be to provide working capital for marketing , advertising and promotion expenses; to finance the purchase and construction of equipment, plant and machinery to develop certain supplementary in-house manufacturing capability; to expand and upgrade management information systems; and for other general corporate purposes. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Company's current revenues are derived from the manufacture and sale of the Breathe Right nasal strip, which is a nonprescription disposable device that can reduce or eliminate snoring by improving nasal breathing and temporarily relieve nasal congestion. The Company also has entered into several agreements to market or license certain new medical consumer products that are in various stages of evaluation and testing. In 1995, the Company divested itself of all the assets of its sleep disorder diagnostic products division. Unless otherwise noted, the following discussion of financial condition and results of operations relates only to continuing operations of the Company. Results of Operations: Net sales increased to $20.8 million for the first quarter of 1996 from $7.5 million for the same quarter of 1995. Breathe Right sales increased in part as a result of increased advertising, particularly national television and radio. Unlike sales for the first quarter of 1995, which reflected an increase in inventory levels at existing and new retail outlets, sales during the first quarter of 1996 paralleled off the shelf movement at retail due to increased consumer demand. International sales were $2.8 million for the first quarter of 1996, which represented primarily initial inventory purchases by 3M, the Company's international distributor and initial stocking of inventory at international retail outlets in certain countries. Gross profit was $13.2 million for the first quarter of 1996 compared to $4.6 million for the same quarter of 1995. Gross profit as a percentage of net sales, improved to 63.2% for the first quarter of 1996 compared to 61.8% for the same quarter of 1995 as a result of the efficiencies realized from the higher level of Breathe Right nasal strip sales. Gross profit as a percentage of net sales was lower than the fourth quarter of 1995 level of 65.9% due to the higher level of international sales in the first quarter of 1996. International sales to 3M are at a lower gross profit margin than domestic sales, because 3M is responsible for substantially all of the operating expenses and a portion of the packaging costs of the product. Marketing and selling expenses were $7.4 million for the first quarter of 1996 compared to $2.1 million for the same quarter of 1995. This increase resulted primarily from marketing expenses associated with national television and radio advertising. General and administrative expenses were $738,000 for the first quarter of 1996 compared to $254,000 for the same quarter of 1995. This increase resulted from additional personnel and systems required to support growth of the Breathe Right nasal strip business. Product development expenses were $157,000 for the first quarter of 1996 compared to $47,000 for the same quarter of 1995. This increase resulted from costs related to evaluation and testing of potential new products. Interest income was $155,000 for the first quarter of 1996 compared to $84,000 for the same quarter of 1995, reflecting increased funds available for investment. Income before income taxes for the first quarter of 1996 increased to $5.0 million compared to $2.3 million for the same quarter of 1995. Income before income taxes as a percentage of net sales was 24.0% for the first quarter of 1996 compared to 30.2% for the same quarter of 1995, due to increased marketing expenses in the first quarter of 1996. Income tax expense for the first quarter of 1996 was $1.9 million or 38.0% of income before income taxes. There was no income tax expense in the first quarter of 1995 due to the utilization of net operating loss carry forwards. There are no net operating loss carry forwards available for 1996 or future years. Net income per share for the first quarter of 1996 was $.17 compared to $.12 per share from continuing operations for the same period of 1995. Net income per share from continuing operations would have been $.08 for the same quarter of 1995 on a fully taxed basis. Seasonality The Company began marketing the Breathe Right nasal strip on a broad scale in September 1994. Given the short time frame since introduction of the Breathe Right nasal strip and the rapid revenue growth experienced by the Company, it is difficult to ascertain what, if any, impact seasonality has had on sales of the Breathe Right nasal strip. The Company believes that sales of the product for the temporary relief of nasal congestion may be higher during the fall and winter seasons because of increased use during the cold season. If such seasonality occurs, the Company expects its net sales and operating income to be relatively higher in the first and fourth quarters. Accordingly, the Company is unable to predict the extent to which its business will be affected by seasonality. Liquidity and Capital Resources: At March 31, 1996, the Company had cash and cash equivalents and marketable securities of $17.5 million, working capital of $29.6 million and a $1.25 million line of credit with a bank, subject to certain borrowing base restrictions The Company provided cash from operations of $6.3 million for the first quarter of 1996 compared with $1.7 million for the same quarter of 1995. The improved cash flow was primarily from an increase in net income, a decrease in inventories and an increase in accounts payable and accrued expenses, offset by an increase in accounts receivable. The Company purchased $4.9 million of marketable securities in the first quarter of 1996 and property and equipment of $141,000. The Company received $769,000 during the first quarter of 1996 from the exercise of stock options. At March 31, 1996, the Company had a $1.25 million bank line of credit. There were no borrowings against this line of credit as of March 31, 1996. The line of credit expires on June 30, 1996. During April 1996, the Company completed a public offering of 1,725,000 shares of common stock. Of these shares, 1,525,000 shares were sold by the Company and 200,000 shares by selling shareholders. Net proceeds to the Company were approximately $35 million. The primary use of the net proceeds will be to provide working capital for marketing, advertising and promotion expenses; to finance the purchase and construction of equipment, plant and machinery to develop certain supplementary in-house manufacturing capability; to expand and upgrade management information systems; and for other general corporate purposes. The Company believes that its existing funds and funds generated from operations 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 January 11, 1996, the Company issued a press release (attached hereto as Exhibit 99.1) reporting that the Company had entered into an agreement with LecTec Corporation under which the Company will private-label and market LecTec's analgesic pain patch in the U.S. and Canada On March 5, 1996, the Company issued a press release (attached hereto as Exhibit 99.2) 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 temporary relief of nasal congestion and stuffy nose. Item 6. Exhibits and Reports on Form 8-K Page -------------------------------- ---- (a) Exhibits: Exhibit No. 11, Calculation of Net Income Per Share 11 Exhibit No. 99.1, Press Release - LecTec Agreement 12 Exhibit No. 99.2, Press Release - FDA 13 Exhibit No. 27, Financial Data Schedule (b) Reports on Form 8-K None 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: May 10, 1996 By: /s/ Richard E. Jahnke Richard E. Jahnke President & Chief Operating Officer Date: May 10, 1996 By: /s/ David J. Byrd David J. Byrd Vice President of Finance and Chief Financial Officer EX-11 2 COMPUTATION OF NET INCOME PER SHARE Exhibit No. 11 CNS, INC. COMPUTATION OF NET INCOME PER SHARE OF COMMON STOCK Three months ended March 31, --------------------------- 1996 1995 ------------ ------------ NET INCOME Income from continuing operations $ 3,100,937 $ 2,253,166 Loss from discontinued operations 0 (450,404) ------------ ------------ Net income $ 3,100,937 $ 1,802,762 ============ ============ PRIMARY EARNINGS PER SHARE: Average number of common and common equivalent shares outstanding: Average common shares outstanding 17,446,000 17,057,000 Incentive stock options 709,000 461,000 Non qualified stock options 399,000 257,000 Warrants 75,000 147,000 ------------ ------------ 18,629,000 17,922,000 ============ ============ Earnings per share from continuing operations $ .17 $ .13 Loss per share from discontinued operations .00 (.03) ------------ ------------ Primary earnings per share $ .17 $ .10 ============ ============ FULLY DILUTED EARNINGS PER SHARE Average number of common and common equivalent shares outstanding: Average common shares outstanding 17,446,000 17,057,000 Incentive stock options 756,000 595,000 Non qualified stock options 426,000 328,000 Warrants 78,000 194,000 ------------ ------------ 18,706,000 18,174,000 ============ ============ Earnings per share from continuing operations $ .17 $ .12 Loss per share from discontinued operations .00 (.02) ------------ ------------ Fully diluted earnings per share $ .17 $ .10 ============ ============ EX-99.1 3 PRESS RELEASE -- LECTEC AGREEMENT EXHIBIT - NO. - 99.1 FROM: FOR: Swenson/Falker Associates Inc. CNS, Inc. 1111 TCF Tower, 121 S. 8th Street 4400 W. 78th Street Minneapolis, Minn. 55402 Bloomington, Minn. 55435 Contact-Curt Swenson 612/371-0000 Contact-Richard E. Jahnke or Daniel E. Cohen 612/820-6696 And: LecTech Corporation FOR IMMEDIATE RELEASE 10701 Red Circle Dr. Minnetonka, MN 55343 Contact-Erwin Templin 612/933-2291 CNS AND LECTEC ANNOUNCE DEFINITIVE AGREEMENT ON MARKETING ALLIANCE FOR ANALGESIC PAIN PATCH - ---------------------------------------------- MINNEAPOLIS, Jan. 11 -- CNS, Inc., (NASDAQ/NM:CNXS) and LecTec Corporation (NASDAQ/NM:LECT) have executed a definitive agreement under which CNS will private-label and market LecTec's analgesic pain patch as a non-prescription product to consumers in the U.S. and Canada, the companies announced today. The patch, which delivers analgesics to the skin, will be marketed for external application for temporary relief of pain from arthritis, simple backache and muscular aches and strains. It is an alternative to topical analgesic rubs and various pain-relief pills and has been cleared for marketing by the U.S. Food and Drug Administration. Test marketing is planned to begin during the first half of this year, to be followed by a national product roll-out. CNS, based in Minneapolis, designs, manufacturers and markets consumer products, including the Breathe Right} nasal strip which improves breathing by reducing nasal airflow resistance. LecTec, also based in Minneapolis, develops, manufactures and markets medical products, including diagnostic and monitoring electrodes, conductive hydrogels, medical tape and a growing range of therapeutic products. # # # # 01/11/96 EX-99.2 4 PRESS RELEASE -- FDA EXHIBIT - NO. - 99.2 FROM: FOR: Swenson/Falker Associates Inc. CNS, Inc. 1111 TCF Tower, 121 S. 8th Street 4400 W. 78th St. Minneapolis, Minn. 55402 Bloomington, Minn. 55435 Contact-Curt Swenson 612/371-0000 Contact- Richard E. Jahnke or Daniel E. Cohen 612/820-6696 FOR IMMEDIATE RELEASE CNS, INC., GETS FDA CLEARANCE TO MARKET BREATHE RIGHT(R) STRIPS FOR TEMPORARY RELIEF OF NASAL CONGESTION AND STUFFY NOSE - ------------------------------------------------------------ MINNEAPOLIS, March 5 -- CNS, Inc., (NASDAQ/NM:CNXS) today announced that the U.S. Food and Drug Administration (FDA) has given it clearance to market Breathe Right(R) nasal strips for the temporary relief of nasal congestion and stuffy nose. The company had previously received clearance (in November 1995) to market the product for the reduction or elimination of snoring by improving nasal breathing. "This claim should be very helpful to our marketing efforts," said Daniel E. Cohen, M.D., chairman and chief executive officer. "We can now promote the product's use in another very large market during the cold and allergy seasons. We believe that the drug-free nature of the Breathe Right strip will become a strong motivating factor for many consumers to purchase the product instead of using medications." Richard E. Jahnke, president and chief operating officer, said the company plans to continue to advertise the product primarily as a treatment for snoring during the next six months. "Advertising that emphasizes use of Breathe Right strips for the relief of nasal congestion is currently planned to begin early in the fall of 1996," Jahnke said. "That will coincide with the onset of the fall allergy season, back-to-school colds and the beginning of the NFL season, which further illustrates and reinforces the breathing application of the product." 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. It can be effective in eliminating or reducing snoring, and for the temporary relief of nasal congestion and stuffy nose. # # # # 03/05/96 EX-27 5 FINANCIAL DATA SCHEDULE
5 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 10,631,100 6,827,732 9,845,241 0 7,634,652 36,652,122 664,297 0 37,781,873 7,026,445 0 0 0 175,156 30,580,272 37,781,873 20,820,761 20,820,761 7,651,631 8,325,018 0 0 0 4,998,937 1,898,000 3,100,937 0 0 0 3,100,937 .17 .17
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