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, 1999.                                                  
|     |  |                                                                                           
|[  ] |  | 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 October 30, 1999, 14,681,122 shares of common stock were outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

`CNS, INC.
                                                  CONDENSED BALANCE SHEETS

                                                                        September 30,    December 31,
                                                                            1999            1998
                                                                        -------------    ------------
                                                                        (unaudited)
ASSETS
Current assets:
     Cash and cash equivalents                                         $  5,741,525     $    584,718
     Marketable securities                                               45,876,225       59,796,952
     Accounts receivable, net                                             6,186,914        7,790,952
     Inventories                                                          5,636,495        8,823,193
     Income taxes receivable                                              3,177,771                0
     Prepaid expenses and other current assets                            3,569,195        2,794,558
     Deferred income taxes                                                        0        1,332,000
                                                                       ------------     ------------
          Total current assets                                           70,188,125       81,122,373
Property and equipment, net                                               2,131,128        2,406,488
Product rights, net                                                       1,210,582        1,434,566
                                                                       ------------     ------------
                                                                       $ 73,529,835     $ 84,963,427
                                                                       ============     ============


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable and accrued expenses                               13,999,914        8,412,649
     Accrued income taxes                                                         0          684,937
                                                                       ------------     ------------
          Total current liabilities                                      13,999,914        9,097,586
                                                                       ------------     ------------
Stockholders' equity:
     Preferred stock - authorized 8,483,589 shares;
          none issued or outstanding                                              0                0
     Common stock - $.01 par value; authorized 50,000,000 shares;
          issued and outstanding, 19,294,570 shares                         192,946          192,946
     Additional paid-in capital                                          61,965,701       61,932,529
     Treasury shares - at cost; 4,535,448 at September 30, 1999 and
        2,692,144 at December 31, 1998                                  (21,223,447)     (14,670,128)
     Retained earnings                                                   18,819,721       28,157,494
     Accumulated other comprehensive income (loss)                         (225,000)         253,000
                                                                       ------------     ------------
          Total stockholders' equity                                     59,529,921       75,865,841
                                                                       ------------     ------------
                                                                       $ 73,529,835     $ 84,963,427
                                                                       ============     ============

                  The accompanying notes are an integral part
                     of the condensed financial statements.
                                        2


                                    CNS, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (unaudited)

                                                     Three Months Ended               Nine Months Ended
                                                       September 30,                    September 30,
                                              -----------------------------     -----------------------------
                                                   1999            1998             1999             1998
                                              ------------     ------------     ------------     ------------
Net sales                                     $ 10,463,038     $ 12,749,081     $ 30,582,086     $ 39,187,364
Cost of goods sold                               3,992,442        4,241,459       12,310,078       13,164,543
                                              ------------     ------------     ------------     ------------
     Gross profit                                6,470,596        8,507,622       18,272,008       26,022,821
                                              ------------     ------------     ------------     ------------
Operating expenses:
     Marketing and selling                       4,644,002        7,032,080       20,410,465       22,306,603
     General and administrative                    940,667          810,191        2,567,747        3,024,687
     Product development                           782,240          539,878        2,628,321        1,524,275
     Contract termination fee                    6,345,000                0        6,345,000                0
                                              ------------     ------------     ------------     ------------
          Total operating expenses              12,711,909        8,382,149       31,951,533       26,855,565
                                              ------------     ------------     ------------     ------------
          Operating income (loss)               (6,241,313)         125,473      (13,679,525)        (832,744)
Interest income                                    643,536          711,788        2,240,613        2,131,179
                                              ------------     ------------     ------------     ------------
     Income (loss) before income taxes          (5,597,777)         837,261      (11,438,912)       1,298,435
Income tax (provision) benefit                    (248,861)        (100,000)       2,101,139          270,000
                                              ------------     ------------     ------------     ------------
     Net income (loss)                        $ (5,846,638)    $    737,261     $ (9,337,773)    $  1,568,435
                                              ============     ============     ============     ============

Basic net income (loss) per share             $       (.39)    $        .04     $       (.60)    $        .09
                                              ============     ============     ============     ============
Diluted net income (loss) per share           $       (.39)    $        .04     $       (.60)    $        .08
                                              ============     ============     ============     ============

Weighted average number of common
     shares outstanding                         15,107,000       18,202,000       15,693,000       18,346,000
                                              ============     ============     ============     ============
Weighted average number of common and
     assumed conversion shares outstanding      15,107,000       18,323,000       15,693,000       18,528,000
                                              ============     ============     ============     ============

                  The accompanying notes are an integral part
                     of the condensed financial statements.
                                        3


                                    CNS, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                                                      Nine Months Ended
                                                                        September 30,
                                                               ----------------------------
                                                                    1999           1998
                                                               -------------    -----------
Operating activities:
     Net income (loss)                                         $ (9,337,773)    $ 1,568,435
     Adjustments to reconcile net income (loss) to net cash
              from operating activities:
         Depreciation and amortization                              773,152         610,069
         Deferred income taxes                                    1,486,000          34,000
         Changes in operating assets and liabilities:
            Accounts receivable                                   1,604,038       3,321,261
            Inventories                                           3,186,698       2,188,426
            Prepaid expenses and other current assets            (3,842,408)        539,270
            Accounts payable and accrued expenses                 4,902,327       1,131,420
                                                               ------------     -----------
                 Net cash from operating activities              (1,227,966)      9,392,881
                                                               ------------     -----------
Investing activities:
     Change in marketable securities                             13,288,728      (2,265,268)
     Payments for purchases of property and equipment              (273,693)       (981,656)
     Payments for product rights                                       (115)       (139,185)
     Change in certificate of deposit, restricted                         0         359,898
                                                               ------------     -----------
                 Net cash from investing activities              13,014,920      (3,026,211)
                                                               ------------     -----------
Financing activities:
     Proceeds from issuance of common stock
          under Employee Stock Purchase Plan                         16,332           6,946
     Proceeds from the exercise of stock options                          0         228,063
     Purchase of treasury shares                                 (6,646,479)     (3,024,557)
                                                               ------------     -----------
                  Net cash from financing activities             (6,630,147)     (2,789,548)
                                                               ------------     -----------
                  Net change in cash and cash equivalents         5,156,807       3,577,122
Cash and cash equivalents:
     Beginning of period                                            584,718         229,647
                                                               ============     ===========
     End of period                                             $  5,741,525     $ 3,806,769
                                                               ============     ===========

                  The accompanying notes are an integral part
                     of the condensed financial statements.
                                        4`

NOTES TO CONDENSED FINANCIAL STATEMENTS

The accompanying condensed financial statements as of September 30, 1999 and
1998 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.

Note 1 - Accounting Principles

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, 1998, and reference is hereby made to
that report for detailed information on accounting policies.

Note 2 - Deferred Income Taxes

Net deferred tax assets as of September 30, 1999 and December 31, 1998 are as
follows:

|                                                  | September 30, |            | December 31,
|------------------------------------------------- | ------------- | ---------- | ------------
|                                                  | 1999          |            | 1998        
|                                                  |              
|Net deferred tax asset before valuation allowance | $             | 1,901,000  |             
|Valuation allowance                               |               | (1,901,000 | )           
|                                                  |              
|Net deferred tax asset                            | $             | 0          |             
|                                                  |              

Net deferred tax assets have been reduced by a valuation allowance, due to loss
carryforwards generated by the contract termination fee incurred during the
three months ended September 30, 1999. The estimated loss carryforward at
September 30, 1999 is $500,000.

Note 3 - Comprehensive Income (Loss)

A reconciliation of total comprehensive income (loss) is as follows:

|                                        | Three Months Ended | Nine Months Ended
|--------------------------------------- | ------------------ | -----------------
|                                        | September 30,      | September 30,    
|                                        |                   
|                                        |                    | 1999             
|                                        |                   
|Net income (loss)                       | $                  | (5,846,638       
|Change in unrealized loss on marketable
|Securities, net of income tax           |                    | (85,000          
|                                        |                   
|                                        |                   

Note 4 - Earnings Per Share

A reconciliation of weighted average common and assumed conversion shares
outstanding is as follows:

|                                    | Three Months Ended | Nine Months Ended
|----------------------------------- | ------------------ | -----------------
|                                    | September 30,      | September 30,    
|                                    |                   
|                                    | 1999               | 1998             
|                                    |                   
|Average common shares outstanding   | 15,107,000         | 18,202,000       
|Assumed conversion of stock options | 0                  | 121,000          
|                                    |                   
|Average common and assumed         
|Conversion shares                   | 15,107,000         | 18,323,000       
|                                    |                   

Item 2. Management's Discussion and Analysis of Financial Condition
            And Results of Operations

The Company's revenues are derived primarily from the manufacture and sale of
the Breathe Right(R) nasal strip, which is a nonprescription disposable device
designed to improve nasal breathing and temporarily relieve nasal congestion,
and to reduce or eliminate snoring and breathing difficulties due to a deviated
nasal septum. The Company also has new consumer products in various stages of
evaluation, testing and development.

Results of Operations

Net sales were $10.5 million for the third quarter of 1999 compared to $12.7
million for the same quarter of 1998 and were $30.6 million for the first nine
months of 1999 compared to $39.2 million for the same period of 1998.

Domestic sales declined to $10.2 million from $12.6 million in the third quarter
of 1998 and for the first nine months of 1999 were $30.0 million compared to
$37.7 million for the same period of 1998. Slower sales this year reflect both a
lower level of advertising during the previous cough/cold season and the
presence of competition. We believe retailers also managed down their inventory
levels to handle the introduction of our new packaging. This, along with
reserves for anticipated returns of product in the old packaging, significantly
reduced our sales for the first nine months of 1999.

International sales were $312,000 for the third quarter of 1999 compared to
$168,000 for the same quarter of 1998 and were $626,000 for the first nine
months of 1999 compared to $1.5 million for the same period of 1998. The lower
level of international sales for 1999 is attributable in large part to
disappointing marketing results and continued high inventory levels at the
Company's international distributor.

Gross profit was $6.5 million or 61.8% of net sales for the third quarter of
1999 compared to $8.5 million or 66.7% for the same quarter of 1998 and was
$18.3 million or 59.7% for the first nine months of 1999 compared to $26.0
million or 66.4% for the same period of 1998. The lower gross profit percentage
was primarily due to costs for the transition to new product packaging, lower
sales and product mix.

Marketing and selling expenses were $4.6 million for the third quarter of 1999
compared to $7.0 million for the same quarter of 1998 and were $20.4 million for
the first nine months of 1999 compared to $22.3 million for the same period in
1998. The higher level of expenses in 1998 resulted primarily from costs
associated with the market testing of a new product in 1998.

General and administrative expenses were $782,000 for the third quarter of 1999
compared to $540,000 for the same quarter of 1998. The increase was primarily
due to expenses associated with new business development efforts. General and
administrative expenses were $2.6 million for the first nine months of 1999
compared to $3.0 million for the same period in 1998. The decrease from 1998 was
primarily due to 1998 expenses associated with patent litigation that has been
settled and to personnel costs.

Product development expenses were $782,000 for the third quarter of 1999
compared to $540,000 for the same quarter of 1998 and were $2.6 million for the
first nine months of 1999 comparable to $1.5 million for the same period in
1998. This increase resulted from costs related to evaluation and testing of
potential new products.

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

Investment income was $644,000 for the third quarter of 1999 comparable to
$712,000 for the same quarter of 1998 and was $2.2 million for the first nine
months of 1999 comparable to $2.1 million for the same period in 1998.

Income tax provision for the third quarter of 1999 was $249,000 compared to
$100,000 for the same quarter of 1998 and was a benefit of $2.1 million for the
first nine months of 1999 compared to $270,000 for the same period of the prior
year. Due to tax loss carryforwards generated by the contract termination fee,
income tax expense for 1999 represents the remaining tax benefit available from
carrying back current losses, offset by a $1.9 million reserve against deferred
income tax assets. No future income tax benefit or expense will be provided
until the Company's income exceeds loss carryforwards and deferred tax temporary
differences. The estimated loss carryforward at September 30, 1999 is $500,000
and deferred tax temporary differences are approximately $5 million. A high
level of tax-exempt interest income impacted the effective income tax rate in
1998.

Net income (loss) for the third quarter of 1999 was a loss of $5.8 million or
$.39 per share compared to income of $737,000 or $.04 per share for the same
quarter of 1998. This decrease was due primarily to the contract termination fee
incurred during the third quarter. Net income (loss) for the first nine months
of 1999 was a loss of $9.3 million or $.60 per share compared to income of $1.6
million or $.08 per share for the same period of 1998. This decrease was due to
the contract termination fee and lower sales as noted above.

Seasonality

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

Liquidity and Capital Resources

At September 30, 1999, the Company had cash and cash equivalents and marketable
securities of $51.6 million and working capital of $56.2 million.

The Company used cash for operations of $1.2 million for the first nine months
of 1999 compared to generating cash of $9.4 million for the same period of 1998.
The reduced operating cash flow was due primarily to a decrease in net income
offset by a decrease in net operating assets and liabilities.

The Company had net sales of $13.3 million of marketable securities and
purchased $274,000 of property and equipment in the first nine months of 1999.

The Company repurchased 1.9 million shares of common stock for $6.6 million in
the first nine months of 1999. A total of 488,000 shares of common stock remain
to be purchased under the most recent Board of Directors authorization. Since
1997 the Company has repurchased 4.8 million shares at an average price per
share of $4.85. The shares of common stock are available to be used to meet the
Company's obligations under its employee stock ownership plan and stock option
plans, and for possible future acquisitions.

The Company believes that it's existing funds and funds generated from
operations will be sufficient to support its planned operations for the
foreseeable future.

Year 2000

The Company has evaluated the potential impact of what is commonly referred to
as the Year 2000 issue, concerning the inability of certain information systems
to properly recognize and process dates containing the year 2000 and beyond. The
Company has established a Year 2000 team, and this team has worked with
management to take the following steps: (i) implement a Year 2000 assessment and
testing plan for all internal information systems and other systems that contain
microcontrollers that may be affected by the Year 2000 date change; (ii)
communicate with third parties that supply product to the Company to ensure they
are addressing the Year 2000 issue; and (iii) perform contingency and disaster
recovery planning to ensure Year 2000 problem resolution.

The Company has identified and tested the systems it believes are critical, and
the test results indicate that these systems are Year 2000 compliant. The
Company has completed testing and established compliance with respect to all of
its systems and products, subject to possible equipment upgrades during 1999 and
ongoing communications with third parties. Regardless of the Year 2000
compliance of the Company's systems and products, there can be no assurance that
the Company will not be adversely affected by the failure of others to become
Year 2000 compliant.

The Company estimates that its direct costs for Year 2000 compliance will
consist primarily of costs related to the staff time devoted to Year 2000
compliance. The Company does not expect that material capital expenditures will
be necessary related to Year 2000 compliance. Costs and capital expenditures in
these areas have not been material for historical periods.

As noted below under "Forward-Looking Statements," statements in this section
that are not historical or current facts are forward-looking statements made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, including statements regarding the timetable for Year 2000
compliance, the Company's costs and capital expenditures, the success of the
Company's efforts and efforts of others to achieve compliance, and the effects
of the Year 2000 issue on the Company's future financial condition and results
of operations. These statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical results and
those presently anticipated or projected. The following important factors, among
others, could affect the accuracy of these statements: (i) the inherent
uncertainty of the costs and timing of achieving compliance on the wide variety
of systems used by the Company; (ii) the reliance on the efforts of vendors,
customers, government agencies and other third parties to achieve adequate
compliance and avoid disruption of the Company's business in early 2000; and
(iii) the uncertainty of the ultimate costs and consequences of any
unanticipated disruption in the Company's business resulting from the failure of
one of the Company's applications or of a third party's systems. The foregoing
list is not exhaustive, and the Company disclaims any obligation subsequently to
revise any forward-looking statements to reflect events or circumstances after
the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.

Forward Looking Statements

Certain statements in this Form 10-Q and other statements made by the Company
from time to time 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 primarily reliant on sales of a single
product, Breathe Right nasal strips; (ii) the Company's success will depend on
its ability to effectively market Breathe Right nasal strips and on the fact
that it was the first entrant into the nasal dilation market; (iii) the
Company's competitive position will, to some extent, be dependent on the
enforceability and comprehensiveness of the patents on the Breathe Right nasal
strip technology which have been, and in the future may be, the subject of
litigation; (iv) the Company operates in a highly competitive market where
recent and potential market entrants pose greater competitive challenges than
those faced by the Company in the past; (v) the Company has faced and will
continue to face challenges in successfully introducing new products; (vi) the
Company is currently dependent upon 3M for the international distribution of its
products under a contractual relationship which has produced less than
anticipated results and which the Company has terminated effective June 30,
2000; and (vii) the risk factors included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.

Item 3. 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's risk to interest rate fluctuations has not materially changed since
December 31, 1998. See Item 7A of the Company's Annual Report on Form 10K for
the year ended December 31, 1998.

PART II - OTHER INFORMATION

|Item 1. | Legal Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|       
|        | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|       
|Item 2. | Changes in Securities and Use of Proceeds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|       
|        | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|       
|        | During the third quarter the Company entered into an agreement
                  with 3M Company to terminate their international distribution
                  of Breathe Right nasal strips. The Company paid a one-time
                  termination fee of $6.3 million, which is less than the amount
                  called for in the contract. The agreement allows the Company
                  to regain control of the international business on a phased
                  schedule that will be completed by June 30, 2000. 3M will be
                  subject to a two-year non-compete agreement through June 30,
                  2002.
|       
|Item 6. | Exhibits and Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|       
|        | (a) Exhibits:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 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: |  | November 1, 1999 |  | By:        |  | /s/  Marti Morfitt                 
|      |  |                  |  |            |  | Marti Morfitt                      
|      |  |                  |  |            |  | President & Chief Operating Officer
|     
|Date: |  | November 1, 1999 |  | By:        |  | /s/  David J. Byrd                 
|      |  |                  |  |            |  | David J. Byrd                      
|      |  |                  |  |            |  | Vice President of Finance,         
|      |  |                  |  |            |  | Chief Financial Officer and        
|      |  |                  |  |            |  | Treasurer