|UNITED STATES
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 June 30, 2003.

[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                EXCHANGE ACT OF 1934.





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.)


7615 Smetana Lane
Eden Prairie, MN  55344
(Address of principal executive offices including zip code)

(952) 229-1500
(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





Indicated by check mark whether the
registration is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



YES

NO X






At July 31, 2003, the Company had
outstanding 13,561,318 shares of common stock, $.01 par value per share.
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1

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PART I - FINANCIAL
INFORMATION Item
1. Financial Statements CNS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS(unaudited)(in thousands, except per share amounts) June 30,
2003
     March 31,
2003ASSETSCurrent assets:Cash and cash equivalents
     $15,838
        
     $16,554Marketable securities
     25,307
        
     25,061Accounts receivable, net
     9,638
        
     11,011Inventories
     4,872
        
     3,266Deferred income taxes
     3,026
        
     4,660Prepaid expenses and other current assets
     723
        
     1,035Total current assets
     59,404
        
     61,587Property and equipment, net
     1,478
        
     1,605Product rights, net
     1,199
        
     1,293Deferred income taxes
     890
        
     890$62,971
        
     $65,375LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
     $10,685
        
     $16,321Total current liabilities
     10,685
        
     16,321Stockholders equity:Preferred stock - authorized 8,484 shares;none issued or outstanding
     0
        
     0Common stock - $.01 par value; authorized 50,000 shares;issued 19,295 shares; outstanding 13,437 shares at          June 30, 2003 and
13,306 shares at March 31, 2003
      193
        
     193Additional paid-in capital
     59,285
        
     59,879Treasury shares - at cost;  5,858 at June 30, 2003 and5,989 at March 31, 2003
     (25,649
        )
     (26,694
        )Retained earnings
     18,253
        
     15,472Accumulated other comprehensive income
     204
        
     204Total stockholders equity
     52,286
        
     49,054$62,971
        
     $65,375 The accompanying notes
are an integral part of thecondensed consolidated financial
statements. 2  CNS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(unaudited)
(in thousands, except per share amounts) Three Months Ended
June 30,2003
     2002Net sales
     
     
     $17,497
        
     $14,523Cost of goods sold
     5,470
        
     5,319Gross profit
     12,027
        
     9,204Operating expenses:Advertising and promotion
     4,465
        
     4,115Selling, general and administrative
     3,341
        
     2,763Total operating expenses
     7,806
        
     6,878Operating income
     4,221
        
     2,326Interest income
     194
        
     229Income before income taxes
     4,415
        
     2,555Income tax expense
     1,634
        
     1,000Net income
     $2,781
        
     $1,555Basic net income per share
     $.21
        
     $.11Diluted net income per share
     $.20
        
     $.11Weighted average number of commonshares outstanding
     13,357
        
     13,556Weighted average number of common andassumed conversion shares outstanding
     14,238
        
     14,193 The accompanying notes
are an integral part                    of the condensed consolidated financial
statements. 3  CNS, INC.
                                                                       CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                      (unaudited)
                                                                    (in thousands) Three Months Ended
June 30,2003
     2002Operating activities:Net income
     $2,781
        
     $1,555Adjustments to reconcile net income to net cashfrom operating activities:Depreciation and amortization
     240
        
     313Deferred income taxes
     1,634
        
     1,000Changes in operating assets and liabilities:Accounts receivable
     1,373
        
     3,279Inventories
     (1,606
        )
     268Prepaid expenses and other current assets
     312
        
     (37
        )Accounts payable and accrued expenses
     (5,636
        )
     (1,245
        )Net cash from operating activities
     (902
        )
     5,133Investing activities:Purchases of marketable securities
     (14,204
        )
     (16,067
        )Sales of marketable securities
     13,958
        
     10,938Payments for purchases of property and equipment
     (4
        )
     (25
        )Payments for product rights
     (15
        )
     (120
        )Net cash from investing activities
     (265
        )
     (5,274
        )Financing activities:Proceeds from issuance of common stockunder stock plans
     451
        
     312Purchase of treasury shares
     0
        
     (475
        )Net cash from financing activities
     451
        
     (163
        )Net change in cash and cash equivalents
     (716
        )
     (304
        )Cash and cash equivalents:Beginning of period
     16,554
        
     5,553End of period
     $15,838
        
     $5,249 The accompanying notes
are an integral part                                                     of the condensed
consolidated financial statements. 4  NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed
consolidated financial statements as of June 30, 2003 and 2002 and March 31, 2003 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 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 Companys Annual Report on
Form 10-K for the year ended March 31, 2003 with the exception of the following new
pronouncement, being adopted during the quarter ended June 30, 2003: In December 2002, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based
Compensation. This statement supercedes SFAS No. 123, Accounting for Stock-Based Compensation. This statement
provides alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based compensation. In addition, the
statement amends disclosure requirements to require prominent disclosures in annual and interim
financial statements about the method of accounting used for stock-based employee compensation and the effect
of the method used on reported results. The interim disclosure provisions became effective for the Company
for the interim period beginning January 1, 2003. The annual disclosure provisions became effective for the Company
for the year ended March 31, 2003. The
Company implemented SFAS No.
150, Accounting for          Certain Financial Instruments with Characteristics of
both Liabilities and Equity for financial instruments entered into or modified
after May 31, 2003. There was no          material impact on the Companys
consolidated financial position or results of operations as the result          of
implementing this standard.  Refer to the Annual Report on Form
10-K for detailed information on accounting policies. Note 2  Stock-Based
Compensation The Company accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board Opinion (APB) No. 25,
Accounting for Stock Issued to Employees, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation as
amended by SFAS No. 148, Accounting for Stock-Based Compensation. Under APB
No. 25, compensation cost is determined based on the difference, if any, on the grant
date between the fair value of the Companys stock and the amount an employee must
pay to acquire the stock. Accordingly, no compensation expense associated with the fair
market value of stock option grants or shares sold to employees under the Employee Stock
Purchase Plan has been recognized in the Companys financial statements.   5  Had compensation cost for the Companys
stock option plan been determined based on the fair value of options at the grant date,
net earnings and earnings per share would have been as follows: For the Three Months Ended
June 30,2003
     2002Net income, as reported
     
     
     $
2,781
        
     
1,555Deduct:  Total stock-based compensation expensedetermined under the fair value based method for all awards,net of tax
     98
        
     129Proforma net income
     $2,683
        
     1,426Earnings per share:Basic  as reported
     $.21
        
     $
        .11Basic  proforma
     $.20
        
     $
        .11Diluted  as reported
     $.20
        
     $
        .11Diluted  proforma
     $.19
        
     $
        .10 Note 3  Inventories Inventories
are valued at the lower of cost (determined on a first-in, first-out basis) or market. Inventory reserves
have been established for potential product obsolescence. The components of inventories are as follows: June 30, 2003
     March 31, 2003Finished goods
     
     
     $3,372
        
     $2,225Raw materials and component parts
     1,500
        
     1,041Total inventories
     $4,872
        
     $3,266 Note 4  Comprehensive Income A
reconciliation of total comprehensive income is as follows (in thousands): Three Months Ended
June 30,2003
     2002Net income
     
     
     $2,781
        
     $1,555Change in unrealized gain on marketable securities,net of income tax
     0
        
     63Total comprehensive income
     $2,781
        
     $1,618   6 Note 5 - Earnings Per Share A
reconciliation of weighted average common and assumed conversion shares outstanding is as
follows (in thousands): Three Months Ended
June 30,2003
     2002Average common shares outstanding
     
     
     13,357
        
     13,556Assumed conversion of stock options
     881
        
     637Average common and assumedconversion shares
     14,238
        
     14,193 Note 6  Income Taxes As part
of the process of preparing  financial statements, the Company is required to estimate
income taxes, both state and federal.  This process involves management estimating the
actual current tax exposure together with assessing temporary differences resulting from
different treatment for tax and accounting purposes.  These differences result in
deferred tax assets and liabilities, which are included within the consolidated balance
sheet.  Management must then assess the likelihood that deferred tax assets will be
utilized to offset future taxable income during the periods in which these temporary
differences are deductible.  Management believes that as of June 30, 2003, based on the
level of historical taxable income and projections of future taxable income for the
periods in which the deferred tax assets are deductible, that it is more likely than not
the Company will realize the benefits of these deductible differences.   7  Item 2. Managements
Discussion and Analysis of Financial Condition and Results of Operations This Report on Form 10-Q should be
read in conjunction with the Companys Annual Report on Form 10-K for the period
ended March 31, 2003. The Companys revenues are
derived primarily from the manufacture and sale of the Breathe Right® 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 began marketing FiberChoice® chewable
tablets, an innovative bulk fiber supplement in March of 2000.  The
Company began marketing Breathe Right Snore Relief throat spray in March of 2002.
Snore Relief spray lubricates and soothes dry throats, while a natural
astringent firms loose tissue to reduce the vibrations that cause snoring. The Company has experienced in the
past, and expects to experience in the future, quarterly fluctuations in both domestic
and international sales and earnings.  These fluctuations are due in part to advertising
levels and seasonality of sales, as described below, as well as increases and decreases
in purchases by distributors in anticipation of future demand by consumers. Results of Operations Net sales for the June 2003 quarter
were $17.5 million versus $14.5 million in the June 2002 quarter. Net sales for the June 2003
quarter was impacted by $485,000 primarily relating to a reduction of estimated promotional
spending liabilities. Domestic sales for the June quarter
of 2003 were $14.6 million compared to $12.7 million for the same quarter of 2002.  Sales
for the 2003 June quarter were higher due to a full quarter of sales of Snore Relief
throat spray, as well as increased sales of other Breathe Right branded products and
FiberChoice chewable tablets. International sales were $2.9
million for the June quarter of 2003 compared to $1.8 million for the same quarter of
2002.  Sales for the 2003 June quarter were higher primarily due to new product shipments
in several countries, allergy season promotion activity and unusually low sales to Japan
for the same quarter of 2002 as the Japanese distributor worked through excess inventory. Gross profit was $12.0 million for
the June quarter of 2003 compared to $9.2 million for the same quarter of 2002.  Gross
profit as a percentage of net sales increased to 68.7% for the June quarter of 2003
compared to 63.4% for the same quarter of 2002.  The higher gross profit percentage in
2003 resulted primarily from lower material costs and reduced freight expense. Advertising and promotion expenses
were $4.5 million for the June quarter of 2003 compared to $4.1 million for the same
quarter of 2002. Expenditures for the Breathe Right brand declined by $1.3 million, due
primarily to a switch in the quarter to spot television advertising which is less
expensive than direct response television advertising and sampling that was used in the
prior   8  year. Expenditures for the
FiberChoice brand increased by $1.2 million as a result of expanding the advertising
efforts to reach 68% of the United States.  International advertising and promotion
expenses increased by $500,000 due to snoring advertising in Japan. Selling, general and administrative
expenses were $3.3 million or 19.1% of sales for the June quarter of 2003 compared to
$2.8 million or 19.0% of sales for the same quarter of 2002.  This increase was primarily
the result of increased spending in the June 2003 quarter for new product development. Operating income for the June
quarter of 2003 was $4.2 million compared to $2.3 million for the same quarter of 2002. Investment income was $194,000 for
the June quarter of 2003 compared to $229,000 for the same quarter of 2002. The decrease
was primarily the result of lower market interest rates, partially offset by higher
balances of interest bearing assets. Net income for the June quarter of
2003 was $2.8 million compared to $1.6 million for the same quarter of 2002. Income tax
expense was $1.6 million or 37% of income before taxes for the June quarter of 2003
compared to $1.0 million or 39% of income before taxes for the same quarter of 2002. Seasonality The Company believes that a portion
of Breathe Right nasal strip use is for the temporary relief of nasal congestion and
congestion-related snoring.  Sales of nasal congestion remedies are higher during the
fall and winter seasons because of increased use during the cough and cold seasons. Liquidity and Capital Resources At June 30, 2003, the Company had
cash, cash equivalents and marketable securities of $41.1 million and working capital of
$48.7 million. Company operations used cash of
$902,000 for the June quarter of 2003 compared with cash provided of $5.1 million for the
same quarter of 2002.  Net income, that included non cash deferred tax expense of $1.6
million and a decrease in accounts receivable of $1.4 million was more than offset by an
increase in inventories of $1.6 million and the payment of operating liabilities of $5.6
million causing the negative impact on cash for the June 2003 quarter. The Company had net purchases of
$246,000 of marketable securities in the June quarter of 2003 compared to net purchases of
$5.1 million for the same quarter of 2002. The Company issued 255,526 shares of
common stock for $1.1 million during the June quarter of 2003 under its Employee Stock
Purchase Plan.  The Company did not repurchase any shares of common stock in the June
quarter of 2003. There remain 531,600 shares of common stock that   9  can be repurchased by the Company in
connection with the repurchase program that was authorized by the board of directors. The Company believes that its
existing funds and funds generated from operations will be sufficient to support its
planned operations for the foreseeable future. Accounting Policies and Recent
Accounting Pronouncements In preparing the consolidated
financial statements in conformity with accounting principles generally accepted in the
United States, management must make decisions which impact the reported amounts and
related disclosures. Such decisions include the selection of the appropriate principles
to be applied and the assumptions on which to base accounting estimates.  In reaching
such decisions, management applies judgement based on its understanding and analysis of
the relevant circumstances.  Note 1 to the condensed consolidated financial statements
and the critical accounting policies section in the Companys Annual Report on Form
10-K for the year ended March 31, 2003
provide important information about the significant accounting policies followed in the
preparation of the Companys financial statements and accounting pronouncements
applicable to the Company. Forward-Looking Statements Certain  statements  contained in
this Report on Form 10-Q and other written and oral  statements made from time to time by
the Company do not relate  strictly to  historical  or current facts but provide  current
 expectations  or forecasts  of  future  events.  As  such,  they are  considered  forward-looking
 statements  under  the  Private Securities  Litigation  Reform Act of 1995 and are
 subject to certain  risks and  uncertainties  that could  cause actual  results  to
 differ  materially  from  those  presently  anticipated  or  projected.  Such
 forward-looking statements  can be  identified  by the use of  terminology  such as
 may,  will,  expect,  plan,  intend,anticipate,  estimate,  or
 continue  or  similar  words or  expressions.  It is not  possible  to
foresee or identify all factors  affecting  the  Companys  forward-looking
 statements  and  investors  therefore  should not consider any list of factors to be an
exhaustive  statement of all risks,  uncertainties or potentially  inaccurate
assumptions.  Factors that could cause actual results to differ from the results
 discussed in the  forward-looking statements  include,  but are not limited to, the
following  factors:  (i) the Companys  revenue and profitability is reliant on
sales of Breathe  Right nasal  strips;  (ii) the Company  currently  has a seasonal
 pattern of sales that is typically  higher in the fiscal third and fourth  quarters of
each year due to increased  nasal strip usage during the  cough/cold  season and its
 revenues  and  earnings  may be impacted by the  relative  severity of such season;
 (iii) the Companys  success and future  growth will depend  significantly  on its
ability to  effectively market  Breathe  Right nasal strips and upon its ability to
develop and achieve  markets for  additional  products; (iv)  the  Companys
  competitive  position  will,  to  some  extent,  be  dependent  on  the  enforceability
 and comprehensiveness  of the patents on its Breathe Right nasal strip  technology
 which have been,  and in the future may be, the subject of  litigation  and could be
narrowed  as a result of the outcome of the  reexamination  of one such patent by the
United States Patent and Trademark  Office;  (v) the Company has faced and will continue
to face challenges in  successfully  developing  and  introducing  new products;  (vi)
the Company  operates in competitive markets where recent and potential entrants into the
nasal dilator segment pose competitive   10  challenges;  (vii) the Company is
dependent upon contract  manufacturers  for the  production of  substantially  all of its
products;  and (viii) the Company  currently  purchases  most of its major  components
for its nasal strip products from different contract manufacturers that obtain the raw
materials from a single supplier. Item 3. Quantitative and
Qualitative Disclosures about Market Risk The Companys market risk
exposure is primarily interest rate risk related to its cash, cash equivalents and
investments in marketable securities.  The Companys risk to interest rate
fluctuations has not materially changed since March 31, 2003.  See Item 7A of the Companys
Annual Report on Form 10-K for the year ended March 31, 2003. Item 4. Controls and Procedures (a) Evaluation of Disclosure
Controls and Procedures. The
Companys Chief Executive Officer, Marti Morfitt, and interim Chief Financial
Officer, Marcia OBrien, have evaluated the Companys disclosure controls and
procedures as of the end of the period covered by this report.  Based upon that review,
they have concluded that these controls and procedures are
effective in ensuring that material information related to the Company is made known to
them by others within the Company. (b) Changes in Internal Control Over Financial Reporting. There
have been no significant changes in internal control over financial reporting that occurred during the
fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.   11  PART II - OTHER
INFORMATION Item 1.

Legal Proceedings  Not
Applicable  Item 2.

Changes
in Securities  Not
Applicable  Item 3.

Defaults
Upon Senior Securities  Not
Applicable  Item 4.

Submission
of Matters to a Vote of Security Holders  Not
Applicable  Item 5.

Other
Information  Not
Applicable  Item 6.

Exhibits
and Reports on Form 8-K  (a)

The
following exhibits are filed as part of this Report:  3.1

Amended
and Restated Bylaws of CNS, Inc. (as amended on July 15, 2003) 31.1

Certifications of Chief Executive
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act). 31.2

Certifications of interim Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act). 32

Certifications pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. §1350).  (b)

Reports
on Form 8-K  During
the quarter covered by this report, the Company furnished a Current Report on Form 8-K
dated April 24, 2003 reporting, under Item 12, the disclosure of information regarding
its results of operations for its fiscal year and quarter ended March 31, 2003 and attaching as an
exhibit a press release regarding its results of operations for that period under Item 7.   12  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:
August 12, 2003

By:
/s/  Marti Morfitt

Marti Morfitt
President & Chief Executive Officer





Date:
August 12, 2003

By:
/s/  Marcia L. OBrien

Marcia L. OBrien
Interim Chief Financial Officer    13