U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D .C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number 0-2054
TSI, INC.
(Name of small business issuer in its charter)
Montana 81-0267738
(State or other jurisdiction of
incorporation or organization) I.R.S. Employer Identification Number)
128 Second Street South, Great Falls, Montana 59401
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (406) 727-2600
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.05 Par Value
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 XX No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB.
State issuer's revenues for its most recent fiscal year $2,980,779.
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was sold, or the average bid and asked price of such common equity, as
of a specified date within the past 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act). As of February 28, 2004, 747,951 shares held
by non-affiliates were outstanding. The aggregate market value of the
Registrant's common stock held by non-affiliates of the Registrant as of
February 28, 2004 was approximately $934,939 based upon the average bid price
as reported by Nasdaq.com.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
10,451,023 shares $.05 par value common stock are outstanding as of
February 28, 2004.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the form 10-KSB (e.g., Part I, Part II, etc.)
into which the documents are incorporated: (1) any annual report to security
holders: 2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933
("Securities Act"). The listed documents should be clearly described for
identification.
Portions of the TSI, Inc. Annual Report to Shareholders for the year ended
December 31, 2003 are incorporated by reference into Parts I, II, III and
IV of this Form 10-KSB.
TSI, INC.
PART I
ITEM 1. DESCRIPTION OF BUSINESS AND
ITEM 2. DESCRIPTION OF PROPERTY
A description of the Company's business and property ownership is set forth
on Page 1 of Exhibit 13, the Annual Report to Shareholders for the year
ended December 31, 2003, which description is incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS
No legal proceedings presently pending by or against TSI, Inc., are
described herein as management believes that the outcome of such litigation
should not have a material adverse effect on the financial position of the
Company and its subsidiaries taken as a whole.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of 2003.
1.
TSI, INC.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS,
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION, AND
ITEM 7. FINANCIAL STATEMENTS
Items 5, 6 and 7 are set forth on Page 19, Pages 1 and 2 and Pages
6 through 18, respectively, of Exhibit 13, TSI, Inc. Annual Report
to Shareholders for the year ended December 31, 2003, which report
is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements between the Company and its
independent auditors on any matter of accounting principles or
practices or financial statement disclosure or auditing scope or
procedure since the Company's inception of a nature which, if not
resolved, would have caused the accountant to make reference in
connection with its report. On October 20, 2003, Dwyer & Company,
CPA, PC, our independent accountant, resigned when the review for
the period ending September 30, 2003 was completed. On February 23,
2004, we engaged Anderson ZurMuehlen & Co., P.C. as our principal
accountant to audit our financial statements. The decision to
change was approved by the Board of Directors. Dwyer & Company,
CPA, PC's report on the financial statements for either of the past
two years did not contain an adverse opinion and was not modified as
to uncertainty, audit scope or accounting principles. A current
report on Form 8-K was filed with the SEC on February 24, 2004
regarding the change in auditors.
ITEM 8A. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures. Based on an
evaluation carried out under the supervision and with the
participation of our management, including our Chief Executive Officer
and Chief Financial Officer during the 90-day period prior to the
filing of this report, our Chief Executive Officer and Chief Financial
Officer believe that our disclosure controls and procedures, as defined
in Securities Exchange Act Rules 13a-14 and 15d-14, are, to the best of
their knowledge, effective.
Changes in internal controls. Subsequent to the date of this
evaluation, our Chief Executive Officer and Chief Financial Officer
are not aware of any significant changes in our internal controls over
financial reporting, including any corrective actions with regard to
significant deficiencies and material weakness, or in other factors
that could significantly affect these controls to ensure that
information required to be disclosed by us, in reports that we file or
submit under the Securities Act, is recorded, processed, summarized,
and reported within the time period specified in Securities and
Exchange Commission rules or regulations.
2.
TSI, INC.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16 (A) OF THE EXCHANGE
ACT.
The following are the directors and executive officers of the Company.
All directors and officers serve as such until the 2004 annual meeting
of shareholders or until their successors are elected and qualify.
NAME, AGE, AND YEAR ELECTED POSITION
John Ross 50, 2000 Director, President
A.M. McCann 81, 2002 Director
Tyler Arneson 24, 2002 Director
Paul J. McCann 83, 2003 Chief Executive Officer
D. M. Mellinger 50, 2003 Chief Financial Officer
John Ross, a representative for the Maytag Corporation, is also a
director of Diversified Realty, Inc. A.M. McCann is a director of
M Corp. Paul J. McCann is the Chief Executive Officer for Diversified
Realty, Inc. and for M Corp. D. M. Mellinger is the Chief Financial
Officer for Diversified Realty, Inc. and for M Corp. Tyler Arneson is
also a director of DiversifiedRealty, Inc. and Consulting Associates,
Inc.
Family Relationships
Tyler Arneson is a grandchild of Anne Marie and Paul J. McCann. Members
of the Anne Marie and Paul J. McCann family control, directly or
indirectly, a majority of the outstanding common stock of M Corp. M Corp
owns approximately 92% of the Company's issued and outstanding common
stock. There are no other family relationships among the individuals
listed above nor are there any arrangements or understandings pursuant to
which any of them were elected as officers or directors.
Following are the executive officers of the Company and a description of
their principal business experience:
Name and Position Principal Business Experience
John Ross, President/Director Sales Representative, Maytag Corporation
Billings, Montana
A. M. McCann, Director Retired Businesswoman
Clearwater, Florida
Tyler Arneson, Director Carpenter
Billings, Montana
Paul J. McCann, Business Manager and CEO
Chief Executive Officer Clearwater, Florida
D. M. Mellinger, Accountant
Chief Financial Officer Great Falls, Montana
The Company's Board of Directors acts as the Company's audit committee.
TSI, Inc.'s stock is listed as an "other OTC", a security that is not
listed on any national stock exchange nor quoted on the Pink Sheets or
the OTCBB.
Based solely on its review of reports of persons subject to Section 16
of the Securities and Exchange Act, the Company believes that required
reports were filed in a timely manner disclosing transactions involving
the Company's common stock.
3.
TSI, INC.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table. The following table shows the cash
compensation paid by the Company and its consolidated subsidiaries to
the Company's President and Chief Executive Officer for 2003, 2002 and
2001. No other officer compensation was paid by the Company or its
consolidated subsidiaries in excess of $100,000 for 2003, 2002 or
2001.
Summary Compensation Table
Name and Calendar Total Cash
Principal Position Year Compensation
John Ross 2003 $0
President 2002 $0
2001 $0
Paul J. McCann 2003 $198,000
Chief Executive Officer 2002 $198,000
2001 $436,862
The Company has no pension plan, no stock option or stock
appreciation rights plans and no long-term incentive plans and there
was no other material compensation paid during the year ended
December 31, 2003. The Company has not adopted a formal plan for the
compensation of directors. During 2003 the Company and its
consolidated subsidiaries paid a total of $ 2,258 to directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners
Set forth below is certain information concerning persons who are
known by the Company to own beneficially more than 5% of the
Company's voting shares on February 28, 2004.
Amount and Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
$.05 Par M Corp 9,694,877 (1) 92.6%
Value Common 110 Second Street South Direct
Stock Great Falls, Montana
(1) At February 28, 2004 members of the Anne Marie and Paul J. McCann
family indirectly controlled a majority of the outstanding stock of
M Corp. Members of the Anne Marie and Paul J. McCann family own
directly a total of 4,745 shares of the Company's outstanding stock.
Neither Anne Marie McCann nor Paul J. McCann own any shares of stock
in TSI, Inc. Anne Marie McCann and Paul J. McCann disclaim beneficial
ownership in any stock of TSI, Inc.
4.
TSI, INC.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT - Continued
(b) Security Ownership of Management
The following table sets forth as of February 28, 2004, information
concerning the beneficial ownership of the Company's common stock
by each director and each executive officer named in the Company's
Summary Compensation Table and by all directors and executive
officers of the Company as a group:
Amount and Nature
Name of Beneficial Owner of Beneficial Ownership Percent
John Ross None (1) --
Paul J. McCann None (1) --
All Directors and Officers None (1) --
as a Group
(1) See Note (1) item 11(a) on preceding page.
(c) Changes In Control
The Company knows of no contractual arrangements which may at a
subsequent date result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with the Company's parent company, its subsidiaries and
other related parties are disclosed in Note 9 of the notes to
consolidated financial statements in the Annual Report to Shareholders
for the year ended December 31, 2003, which note is incorporated herein
by reference. M Corp owns approximately 92.6% of the Company's
outstanding stock.
5.
TSI, INC.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Signatures 8
No. 3.1 Articles of Incorporation 9
No 3.2 By-Laws 9
No. 10 Material Contracts 9
No. 13 TSI, Inc. Annual Report to Shareholders for
the year ended December 31, 2003,
incorporated by reference in this Form 10KSB 21
No. 14.1 Code of Ethics 10
No. 16 Letter on Change in Certifying Accountant 12
No. 22 Subsidiaries 20
No. 23.1 Letter of Consent 13
No. 23.2 Letter of Consent 14
No. 27 Financial Data Schedules - TSI, Inc. Annual
Report to Shareholders for the year ended
December 31, 2003, Pages 6-18 of Exhibit 13,
Incorporated by reference in this Form 10-KSB 21
No. 31.1 Certification required under Section 302 15-16
No. 31.2 Certification required under Section 302 17-18
No. 32.1 Certification required under Section 906 19
No. 32.2 Certification required under Section 906 19
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Company during the three
months ended December 31, 2003. Subsequently, Form 8K was filed February
24, 2004 disclosing the resignation of Dwyer and Company, CPA, PC on
October 20, 2003 and upon engagement of new auditing firm, Anderson
ZurMuehlen on February 23, 2004. On April 30, 2004, Form 8-K/A was filed
including additional disclosures required by the Securities Exchange
Commission.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees for professional services rendered by Dwyer & Company
CPA PC for the audit of annual financial statements and its review of
financial statements included in Forms 10QSB in fiscal years 2002 and
2003 were $24,000 and $6,000, respectively. The aggregate fees billed
for professional services rendered by Anderson ZurMuehlen & Co., P.C.
for its audit of our annual financial statements in the fiscal year 2003
were $14,500.
6.
TSI, INC.
AUDIT FEES - CONTINUED
`
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES-CONTINUES
Audit-Related Fees
During the 2002 and 2003 years, there were no aggregate fees for audit
related services.
Tax Fees
There were no professional service fees rendered by the principal
accountant for tax advice, tax compliance or tax planning for the fiscal
year 2002 or 2003.
Other Fees
There were no "other fees" during the 2003 and 2002 fiscal years.
ITEM 15. PURCHASES OF EQUITY SECURITIES BY THE SMALL BUSINESS ISSUER
AND AFFILIATED PURCHASERS.
The following table represents the total number of shares repurchased
by TSI, Inc. during 2003.
Total Number Maximum Number
Total Number Average Price Shares Purchased as of Shares that May
of Shares Paid a Part of Publicly Yet Be Purchased
Purchased Per Share Announced Plans Under the Plans
Period
Jan 1-31, 2003 -0- $2.00 -0- -0-
Feb 1-29, 2003 850 2.00 -0- -0-
Mar 1-31, 2003 -0- 2.00 -0- -0-
Apr 1-30, 2003 1,550 2.00 -0- -0-
May 1-31, 2003 1,921 2.00 -0- -0-
June 1-30,2003 -0- 2.00 -0- -0-
July 1-31, 2003 350 2.00 -0- -0-
Aug 1-31, 2003 -0- 2.00 -0- -0-
Sept 1-30,2003 250 2.00 -0- -0-
Oct 1-31, 2003 350 2.00 -0- -0-
Nov 1-30, 2003 700 2.00 -0- -0-
Dec 1-31, 2003 1,100 2.00 -0- -0-
Totals 7,071 $2.00 -0- -0-
No transactions in the cash repurchase of 7,071 shares were done pursuant
to publicly announced plans or programs. All transactions were processed
at the request of security holders via phone calls or mail.
7.
TSI, INC.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
TSI, INC.
Date: April 14, 2004 By: s/John Ross,
John Ross,
President
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and
in the capacities indicated on April 14, 2004
Director s/Tyler Arneson
Tyler Arneson
Director s/A, M. McCann
A. M. McCann
Chief Executive Officer s/Paul J. McCann
Paul J. McCann
Chief Financial Officer s/D. Mellinger
D. Mellinger
8.
TSI, INC.
EXHIBIT 3.1
ARTICLES OF INCORPORATION
There have been no amendments to the Articles of Incorporation for
TSI, Inc. during the 2003 or 2002 calendar years.
EXHIBIT 3.2
BY-LAWS
During the last two years ending December 31, 2003 and
December 31, 2002, there were no changes to TSI, Inc.'s By-laws.
EXHIBIT 10
MATERIAL CONTRACTS
No material contracts were executed or became effective during
2003 or 2002.
9
TSI, INC.
EXHIBIT 14.1
CODE OF ETHICS
Principles Governing Professional and Ethical Conduct
It is the policy of TSI, Inc. (the "Company") that the Company's
Chief Executive Officer, Chief Financial Officer, principal
accounting officer and controller (or persons performing similar
functions) adhere to, advocate and promote the following
principles:
-Honest and ethical conduct, including the ethical handling
of actual or apparent conflicts of interest between personal
and professional relationships;
-Full, fair, accurate, timely and understandable disclosures
in reports and documents that the Company files with, or
submits to, the SEC and other public communications made by
the Company; and
-Compliance with laws, rules and regulations applicable to
the Company.
Reporting and Treatment of Violations
Persons who become aware of suspected violations of this Code should
report such suspected violations promptly to the Chief Financial
Officer, who will forward such report to the Company's Chief Executive
Officer and Board of Directors. To assist in the response to or
investigation of the alleged violation, the report should contain as
much specific information as possible to allow for proper assessment of
the nature, extent and urgency of the alleged violation. Without
limiting the foregoing, the report should, to the extent possible,
contain the following information:
-the alleged event, matter or issue that is the subject of the
alleged violation;
-the name of each person involved;
-if the alleged violation involves a specific event or events,
the approximate date and location of each event; and
-any additional information, documentation or other evidence
available relating to the alleged violation.
The Chief Executive Officer shall have the power to monitor,
investigate, make determinations and recommend action to the Board of
Directors with respect to violations of this Code. In determining
whether a violation of this Code has occurred, the Chief Executive
Officer may take into account:
-the nature and severity of the violation;
-whether the violation was a single occurrence or involved
repeated occurrences;
-whether the violation appears to have been intentional or
inadvertent;
-whether the person in question had been advised prior to the
violation as to the proper course of action;
-whether the person in question had committed other violations
in the past; and
-such other facts and circumstances as the Chief Executive
Officer shall deem advisable in the context of the alleged
violation.
10.
TSI, INC.
EXHIBIT 14.1 - CONTINUED
CODE OF ETHICS
Consequences of Violations
If a violation is substantiated, the Board of Directors, upon the
recommendation of the Chief Executive Officer, may impose such
sanctions or take such actions as it deems appropriate, including
but not limited to, the following:
-Disciplinary action (including censure, re-assignment,
demotion, suspension or termination);
-Pursuit of any and all remedies available to the Company for
any damages or harm resulting from a violation, including
injunctive relief; and
-Referral of matters to appropriate legal or regulatory
authorities for investigation and prosecution.
Requests for Waivers and Changes in Code
A waiver of a provision of this Code shall be requested whenever there
is reasonable likelihood that a contemplated action will violate the
Code. Any waiver (including an implicit waiver) that constitutes a
material departure from a provision of the Code shall be publicly
disclosed on a timely basis, to the extent required by applicable
rules and regulations of the SEC. In addition, any amendments to this
Code (other than technical, administrative or other non-substantive
amendments) shall be publicly disclosed on a timely basis, to the
extent required by applicable rules and regulations of the SEC.
11.
TSI, INC.
EXHIBIT 16
LETTER ON CHANGE IN CERTIFYING ACCOUNTANT
[DWYER & COMPANY, CPA, PC LETTERHEAD]
DWYER & COMPANY, CPA, PC [LOGO]
18 6th Street North, Suite 200, Great Falls, MT 59401
Phone (406) 453-2463 Fax (406) 727-3225
We have read the Form 8-K, item 4, for TSI, Inc.,
(SEC File No. 0-2054) dated February 23, 2004, and
Form 8-K/A dated April 27, 2004, and we agree with
the statements made therein concerning our resignation.
Sincerely,
/s/Dwyer & Company, CPA, PC
Dwyer & Company, CPA, PC
12.
TSI, INC.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
[LETTERHEAD OF ANDERSON ZURMUEHLEN & CO., P.C.]
We consent to the use in this report on Form 10KSB
of our report dated April 14, 2004, relating to the
financial statements as of and for the year ended
December 31, 2003 of TSI, Inc.
/s/Anderson ZurMuehlen & Co., P.C.
13.
TSI, INC.
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS - CONTINUED
[DWYER & COMPANY, CPA, PC LETTERHEAD]
DWYER & COMPANY, CPA, PC [LOGO]
18 6th Street North, Suite 200, Great Falls, MT
Phone (406) 453-2463 Fax (406) 727-3225
We consent to the use in this report on Form 10KSB
of our report dated May 9, 2003, relating to the financial
statements as of and for the year ended December 31, 2002
of TSI, Inc.
/s/ Dwyer & Company, CPA, PC
Dwyer & Company, CPA, PC
14.
TSI, INC.
EXHIBIT 31.1
I, Paul J. McCann, certify that:
1. I have reviewed this annual report on Form 10-KSB of
TSI, Inc.
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in the annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of TSI, Inc., as of,
and for, the periods presented in this report.
4. TSI, Inc.'s other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for
TSI, Inc. and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to TSI, Inc., including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Evaluated the effectiveness of TSI, Inc.'s disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and:
c. Disclosed in this report any change in TSI, Inc.'s internal
control over financial reporting that occurred during TSI,
Inc.'s fourth fiscal quarter that has materially affected, or
is reasonably likely to materially affect TSI, Inc.'s internal
control over financial reporting;
15
TSI, INC.
EXHIBIT 31.1 - CONTINUED
CERTIFICATION
5. TSI Inc.'s other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to TSI, Inc.'s auditors and the audit
committee of TSI, Inc.'s Board of Directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
TSI, Inc.'s ability to record, process, summarize and report
financial information; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in TSI,
Inc.'s internal control over financial reporting.
Date: April 15, 2004 s/Paul J. McCann
Paul J. McCann, Chief Executive Officer
16.
TSI, INC.
EXHIBIT 31.2
CERTIFICATION
I, D. Mellinger, certify that:
1. I have reviewed this annual report on Form 10-KSB of
TSI, Inc.
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstance under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in the annual report, fairly
present in all material respects the financial condition,
results of operations and cash flows of TSI, Inc., as of, and
for, the periods presented in this report.
4. TSI, Inc.'s other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for TSI,
Inc. and have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to TSI, Inc., including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Evaluated the effectiveness of TSI, Inc.'s disclosure controls
and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report
based on such evaluation; and:
c. Disclosed in this report any change in TSI, Inc.'s internal
control over financial reporting that occurred during TSI,
Inc.'s fourth fiscal quarter that has materially affected, or
is reasonably likely to materially affect TSI, Inc.'s internal
control over financial reporting;
17.
TSI, INC.
EXHIBIT 31.2 - CONTINUED
CERTIFICATION
5. TSI Inc.'s other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to TSI, Inc.'s auditors and the audit
committee of TSI, Inc.'s Board of Directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal controls over financial
reporting which are reasonably likely to adversely affect
TSI, Inc.'s ability to record, process, summarize and report
financial information; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in
TSI, Inc.'s internal control over financial reporting.
Date: April 15, 2004 s/D. Mellinger
D. Mellinger, Chief Financial Officer
18.
TSI, INC.
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED UPRSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of TSI, Inc. on Form
10-KSB for the period ending December 31, 2003 as filed with
the Securities and Exchange Commission on the date hereof
(the "Report"), I, Paul J. McCann, Chief Executive Officer of
TSI, Inc., certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, to the best of my knowledge and belief, that;
The report fully compiles with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in
all material respects, the financial conditionand result of
operations of TSI, Inc.
Date: April 14, 2004 s/Paul J. McCann
Paul J. McCann,
Chief Executive Officer
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED UPRSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of TSI, Inc. on Form
10-KSB for the period ending December 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof
(the "Report"), I, D. Mellinger, Chief Financial Officer of TSI,
Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the
best of my knowledge and belief, that;
The report fully compiles with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all
material respects, the financial condition and result of
operations of TSI, Inc.
Date: April 14, 2004 s/D. Mellinger
D. Mellinger, Chief Financial Officer
19.
TSI, INC.
EXHIBIT #22
SUBSIDIARIES
Percentage
Voting
Securities
State of Owned By
Name of Company Organization Registrant
UAC, Inc. Delaware 87.3
TSI Business Systems, Inc. Montana 100.0
TSI Leasing, Inc. Montana 100.0
Personnel Services, Inc.
(Formally First Montana Title
Company of Great Falls) Montana (1)
First Montana Title Insurance Company Montana 100.0
First Montana Title Company of Billings Montana (2)
First Montana Title Company of
Cut Bank (Inactive) Montana (2)
First Montana Title Company of
Forsyth Montana (2)
Consulting Associates, Inc. Montana (1)
Merritt Properties, Inc. Montana (2)
Lake Place, Inc. Montana (3)
Miramar, Inc. Montana 100.0
(1) Owned 100% by UAC, Inc.
(2) Owned 100% by First Montana Title Insurance Company
(3) Owned 100% by Miramar, Inc.
20.
TSI, INC.
ANNUAL REPORT
2003
21.
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
DESCRIPTION AND LINES OF BUSINESS
TSI, Inc. (herein referred to as "TSI" or the "Company") was
incorporated in 1958. A wholly-owned subsidiary of the Company, First
Montana Title Insurance Company (FMTIC), is a title insurance company
operating in that business in the State of Montana only. Through
wholly-owned subsidiaries, FMTIC owns and operates title plants in two
Montana counties. A subsidiary of FMTIC owns real property in Great
Falls, Montana.
During 2001 UAC, Inc., a subsidiary of the Company, through its
wholly-owned subsidiary sold the title agency assets it owned and
operated in Montana. During 1988 through 1991, UAC, Inc., primarily
through its wholly-owned subsidiary, acquired residential rental units
in Montana.
TSI owns rental property in Helena, Montana and subsidiaries of
the Company own rental property in Polson, Billings, and Great Falls,
Montana, for a total of seventy two residential rental units with an
average occupancy rate of 180 persons. TSI, Inc. and it's
subsidiaries own two commercial buildings listed for rent. The
Company's investments in rental properties is set forth in Note 8,
Rental Property, of the Notes to Consolidated Financial Statements.
The Company is a 92% owned subsidiary of M Corp, a financial
holding company located in Great Falls, Montana. Transactions with the
Company's parent company and its affiliates are set forth in Note 9,
Related Party Transactions, of the Notes to Consolidated Financial
Statements.
The Company operates in a competitive business environment and is
not dependent upon one or a few major customers. Management believes
that TSI, Inc. is adequately insured in all respects. Information
concerning the Company's industry segments is set forth in Note 11
(Information on Segments of Business) of the Notes to Consolidated
Financial Statements. The Company and its subsidiaries employed three
full time and fifty eight part time seasonal maintenance workers
during 2003.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
TSI, Inc. delivers annual reports to security holders including
audited financial statements. The Company files required annual
and quarterly reports with the Securities Exchange Commission (SEC).
The SEC maintains a website which contains reports, proxy and
information statements, and other information available for viewing
at http://www.sec.gov.
1
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
ANNUAL REPORT
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
TSI, Inc. plans to continue operations while constantly looking
for ways to improve profitability and remain competitive in each
market.
Title insurance premiums and related fees increased $347,013
(28.2%) in 2003 as compared with 2002 due to a general increase in the
real estate economies within which the Company operates.
Interest revenues decreased $84,528 (37.8%) in 2003 as compared
with 2002 primarily due to a decrease in interest-bearing
deposits and a decrease in interest rates earned on such deposits.
Rent revenues increased $14,152 (3.5%) in 2003 as compared with
2002 due primarily to increased rental rates.
Other income increased $251,579 (41.7%) in 2003 as compared with
2002. During 2002 the Company recognized net gains on the disposition
of investments in the total amount of $6,357, whereas 2003
dispositions of such resulted in a gain of $136,536. The increase
in gains recognized on the disposition of investments in 2003 was the
primary reason for the increase in other income in 2003 as compared
with 2002.
Salaries increased $173,035 (17.9%) in 2003 as compared with 2002
due primarily to an increase in the number of personnel employed in
the Company's operations.
The provision for depreciation increased $9,297 (11.9%) in 2003
as compared with 2002.
Transactions with the Company's parent company and other
affiliates are disclosed in Note 9, Related Party Transactions, of the
Notes to Consolidated Financial Statements.
Income tax expense decreased $140,881 (103.7%) in 2003 as
compared with 2002 due primarily to the contribution of appreciated
investments during the year.
The Company is considering acquisitions which would deplete the
Company's available cash and thus affect the liquidity of the Company.
2
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
FINANCIAL REPORT
DECEMBER 31, 2003
CONTENTS
PAGE
AUDITOR'S REPORTS 4-5
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 2003 and 2002 6-7
Statements of Income and Comprehensive Income
for the Years Ended
December 31, 2003 and 2002 8
Statements of Stockholders' Equity
for the Years Ended
December 31, 2003 and 2002 9
Statements of Cash Flows for the Years Ended
December 31, 2003 and 2002 10-11
Notes to Consolidated Financial Statements 12-18
OTHER INFORMATION 19
3
Report of Independent Auditors
To The Board of Directors
TSI, Inc.
Great Falls, MT 59405
We have audited the accompanying consolidated balance sheets of TSI,
Inc. and consolidated subsidiaries as of December 31, 2003, and the related
consolidated statements of income and comprehensive income, stockholders'
equity and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audit.
The financial statements of TSI, Inc. for the year ended December 31, 2002
were audited by other auditors whose report, dated May 9, 2003 expressed
an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of TSI, Inc. and consolidated subsidiaries as of December 31,
2003, and the consolidated results of their operations and their
consolidated cash flows for the year then ended, in conformity with
accounting principles accepted in the United States of America.
ANDERSON ZURMUEHLEN & CO., P.C.
April 14, 2004
Helena, Montana
4
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
TSI, Inc.
Great Falls, MT 59401
We have audited the accompanying balance sheet of TSI, Inc.,
as of December 31, 2002, and the related statements of income,
stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
Opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
TSI, Inc., as of December 31, 2002, and the results of its
operation and its cash flows for the year then ended, in
conformity with accounting principles generally accepted
in the United States of America.
s/Dwyer & Company, CPA, PC
Dwyer & Company, CPA, PC
18 6th Street North, Suite 200
Great Falls, MT 59401
May 9, 2003
Great Falls, MT
5
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 2003 and 2002
ASSETS 2003 2002
Current Assets
Cash (Note 2) $ 23,631,132 $ 23,337,149
Investment Securities (Note 3) 1,189,089 1,011,648
Trade Accounts Receivable, Less Allowance
for Doubtful Accounts of $11,500
in 2002 and 2003 95,991 102,513
Prepaid Expenses 45,863 --
Total Current Assets $ 24,962,075 $ 24,451,310
Noncurrent Investments (Note 3) 714,149 586,580
Other Assets -- 2,238
Deferred Tax Asset 90,017 14,800
Investments In Property, Plant and
Equipment, at Cost (Notes 1 and 8)
Buildings 2,051,552 2,047,260
Furniture, Fixtures and Equipment 180,247 473,924
2,231,799 2,521,184
Less Accumulated Depreciation (1,774,818) (2,039,769)
456,981 481,415
Title Plants 117,865 117,865
Land 76,318 80,453
Net Property, Plant and Equipment 651,164 679,733
$ 26,417,405 $ 25,734,661
See Notes to Consolidated Financial Statements.
6
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
DECEMBER 31, 2003 and 2002
LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2002
Current Liabilities
Accounts Payable $ 70,770 $ 73,500
Accrued Liabilities (Note 4) 118,213 126,563
Due to Parent Company (Note 9) 159,394 206,764
Related Party Payable (Note 9) 135,129 135,129
Income Taxes Payable (Notes 1 , 3 and 5) 70,000 137,297
Deferred Income Taxes (Notes 1, 3 and 5) 304,415 --
Total Current Liabilities 857,921 679,253
Provision for Estimated Title and
Escrow Losses (Note 6) 785,355 815,013
Minority Interests in Consolidated Subsidiaries 393,518 391,503
Deferred Income Taxes (Notes 1, 3 and 5) -- 128,500
Other Liabilities 7,535 15,755
Total Non-Current Liabilities 1,186,408 1,350,771
Stockholders' Equity
Common Stock, $.05 Par Value,
30,000,000 shares authorized,
10,462,755 shares and 10,469,826
shares issued and outstanding as of
December 31, 2003 and 2002,
respectively 523,137 523,491
Capital Surplus 19,132,043 19,145,831
Retained Earnings (Notes 7 and 10) 4,275,278 3,868,992
Accumulated Other
Comprehensive Income (Note 3) 442,618 166,323
Total Stockholders' Equity 24,373,076 23,704,637
$ 26,417,405 $ 25,734,661
See Notes to Consolidated Financial Statements.
7
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
2003 2002
Revenues
Title Insurance Premiums and Related Fees $ 1,576,672 $ 1,229,659
Interest 138,940 223,468
Rent 410,427 396,275
Other 854,740 603,161
2,980,779 2,452,563
Operating Expenses
Salaries and Other Personnel Costs 1,258,381 964,477
Depreciation 87,146 77,849
Rent 62,939 49,048
Title and Escrow Losses 16,019 12,612
Other General and Administrative Expenses 1,153,363 879,791
2,577,848 1,983,777
Operating Income 402,931 468,786
Minority Share of Consolidated
Subsidiaries Net (Income) Loss (1,726) (4,185)
Income Before Income Taxes 401,205 464,601
Income Taxes (Note 5) 5,081 (135,800)
Net Income 406,286 328,801
Other Comprehensive Income (Loss),
Net of Income Taxes:
Unrealized Holding Gains (Losses):
Gain (Loss) Arising During Year 357,193 (105,892)
Reclassification Adjustment (80,898) 2,892
Other Comprehensive Income (Loss) 276,295 (103,000)
Comprehensive Income $ 682,581 $ 225,801
Basic Earnings Per Share $ 0.04 $ 0.03
Weighted Average Shares 10,466,204 10,472,914
See Notes to Consolidated Financial Statements.
8
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
Accumulated
Other
Common Capital Retained Comprehensive
Stock Surplus Earnings Income Total
Balances,
January 1, 2002 $ 523,773 $ 19,155,123 $ 3,540,191 $ 269,323 $ 23,488,410
Net Income 328,801 328,801
Cancelled Stock (282) (9,292) (9,574)
Change in Net Unrealized
Holding Gains, Net of (103,000) (103,000)
tax of $29,800
Balances,
December 31,
2002 $ 523,491 $ 19,145,831 $ 3,868,992 $ 166,323 $ 23,704,637
Net Income 406,286 406,286
Cancelled Stock (354) (13,788) (14,142)
Change in Net Unrealized
Holding Gains, Net of 276,295 276,295
tax of $175,915
Balances,
December 31, 2003 $ 523,137 $ 19,132,043 $ 4,275,278 $ 442,618 $ 24,373,076
See Notes to Consolidated Financial Statements.
9
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
INCREASE (DECREASE) IN CASH
2003 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash Received From Customers $ 2,653,176 $ 2,133,095
Cash Paid to Suppliers and Employees (2,511,203) (1,925,007)
Interest and Dividends Received in Cash 193,594 285,524
Income Taxes Paid in Cash (3,900) (266,250)
Net Cash Provided By Operating Activities 331,667 227,362
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash Proceeds From Sales and Redemptions
of Property, Plant and Equipment 10,250 --
Cash Purchases of Minority Interests -- (228)
Property and Equipment Purchases (62,712) (55,934)
Cash Received on Dispositions of
Investments 1,156,944 1,320,479
Cash Purchases of Current Investments (1,080,654) (388,921)
Net Cash Provided By Investing Activities 23,828 875,396
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Cash Advances (To) From Parent Company (47,370) 103,046
Cash Purchases of Common Stock (14,142) (9,574)
Net Cash Provided by (Used in)
Financing Activities (61,512) 93,472
NET INCREASE IN CASH 293,983 1,196,230
CASH - BEGINNING OF YEAR 23,337,149 22,140,919
CASH - END OF YEAR $ 23,631,132 $ 23,337,149
(Continued)
10
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS - Continued
FOR THE YEARS ENDED DECEMBER 31, 2003 and 2002
RECONCILIATION OF NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
2003 2002
Net Income $ 406,286 $ 328,801
Adjustments to Reconcile Net Income to Net
Cash Provided By Operating Activities:
Depreciation 87,146 77,849
Provision for Title Losses (29,658) --
(Gain) Loss on Sale of Fixed Assets (24,878) --
Deferred Income Tax Expense (Benefit) (75,217) (14,800)
Change in Minority Interests 2,015 4,185
Realized (Gains) on Dispositions
of Investments (136,536) (6,357)
Property and Investments Donated 273,557 --
Changes in Operating Assets and Liabilities:
(Increase) Decrease in Accounts Receivable 6,522 (17,386)
Decrease in Other Assets 2,238 --
(Increase) Decrease in Prepaid Expenses (45,863) 1,800
Increase (Decrease) in Payables and
Accrued Liabilities (58,428) (22,860)
(Decrease) in Other Liabilities (8,220) (8,220)
Increase (Decrease) in Income Taxes Payable (67,297) (115,650)
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 331,667 $ 227,362
NonCash Investing and Financing Activities:
Donation of property and investments $ 273,557 $ --
See Notes to Consolidated Financial Statements.
11
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Operations, Risks and Uncertainties
The Company is engaged in the title insurance business within the state of
Montana, in the title insurance agency business in Yellowstone, Rosebud and
Cascade Counties, Montana and in the ownership and rental of properties
located in Montana. The Company's primary business based on revenues is title
insurance.
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
that affect reported amounts of certain types of assets, liabilities,
revenues and expenses. Such estimates primarily relate to unsettled
transactions and events as of the date of the financial statements. Actual
results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
,in the near term relate to the provision for estimated title and escrow
losses. Management believes the provision is adequate but not excessive
based on current economic conditions.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly and majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
(c) Depreciation and Amortization
Depreciation and amortization, computed using various methods are provided
over the useful lives of the various classes of property, plant and
equipment. Title plants and land are carried at cost and are not depreciated.
(d) Fiduciary Assets and Liabilities
The assets and liabilities of the escrows administered by the Company are not
included in the consolidated balance sheets.
(e) Title Insurance Income and Related Fees
The Company follows the practice of recording title insurance premiums as
income upon the issuance of the title insurance policy or the collection of
payment for the non-refundable title insurance preliminary commitment,
whichever occurs first. All other fees and charges are recognized as income
upon the rendering of services.
(f) Policy of Cash Equivalents
For purposes of the statements of cash flows, cash equivalents include time
deposits, certificates of deposit and money market accounts, all with
original maturities of three months or less.
12
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
(g) Income Taxes
The Company and its subsidiaries file consolidated income tax returns with
the Company's parent company. Income taxes are allocated to the Company
based upon the ratio of the Company's pre-tax income to total consolidated
pre-tax income. The Company follows the practice of recording deferred
income taxes resulting from timing differences between financial reporting
and income tax reporting. Investment tax credits, if any, are accounted for
as a reduction of income tax expense in the years they are available for
use under the flow-through method.
(h) Comprehensive Income
Comprehensive income includes net income, as well as other changes in
stockholders' equity that result from transactions and economic events other
than those with stockholders. The Company's only significant element of
other comprehensive income is unrealized gains and losses on available-for-
sale securities.
(i) Earnings Per Share
Basic earnings per share (EPS) is calculated by dividing net income by the
weighted number of common shares outstanding for the period.
(j) Retirement Plans
The Company adopted an employees' savings plan under Section 401(k) of the
Internal Revenue Code (the "Code") during 1998. The Company allows eligible
employees to contribute the maximum percentage of their compensation allowed
by the Code. The Company matches employee contributions in an amount equal
to fifty percent of the first six percent of the employee's compensation up
to a maximum of $1,080. Participants are at all times fully vested in their
contributions and are gradually vested in the Company's contributions. The
Company's 401(k) contributions and administrative costs were $5,716 and
$6,160 for 2003 and 2002, respectively.
(k) Reclassifications
Certain reclassifications have been made to the prior year amounts to make
them comparable to the 2003 presentation. These reclassifications had no
impact on previously reported net income.
2. Cash Balances
The Company maintains accounts with various financial institutions and
stock brokerage firms. Cash balances are insured up to $100,000 by
either the Securities Investor Protection Corporation ("SIPC") or the
Federal Deposit Insurance Corporation ("FDIC"). At December 31, 2003,
cash balances totaling $21,533,249 were uninsured by either the SIPC
or the FDIC.
13
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
2. CASH BALANCES - Continued
The Board of Directors of the Company has approved the Company's
participation with its subsidiaries and M Corp in the purchase of all, or
substantially all, the outstanding stocks of a bank, which if successfully
accomplished would significantly affect the liquidity of the Company, the
cash available to pay dividends and the cash available for other purposes
and acquisitions.
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS
The Company has classified all of its current and noncurrent investments,
except for restricted investments, as available for sale. Following is a
summary of the Company's investments:
Current Assets:
2003 2002
Cost $ 904,416 $ 1,047,811
Gross Unrealized
Holding Gains 313,236 62,037
Gross Unrealized
Holding Losses (28,563) (98,200)
Fair Value $ 1,189,089 $ 1,011,648
Noncurrent Assets:
Cost $ 115,290 $ 166,443
Gross Unrealized
Holding Gains 493,659 315,137
Fair Value $ 608,949 $ 481,580
Other noncurrent investments consist of certificates of deposit in the
amount of $105,000 which are on deposit with the State of Montana
Commissioner of Insurance and are restricted as to use by law, and $200
in reserve deposit with Peak Property Management in Bozeman, Montana.
Realized gains and losses are determined on the basis of specific
identification. During 2003 and 2002, sales proceeds and gross realized
gains and losses were as follows:
2003 2002
Sales Proceeds $ 1,411,738 $ 1,320,479
Gross Realized Gains $ 203,745 $ --
Gross Realized Losses $ 67,209 $ 4,888
4. ACCRUED LIABILITIES Accrued liabilities consist of the following
at December 31,:
2003 2002
Property Taxes $ -- $ 43,904
Compensation -- 46,274
Security Deposits 23,477 18,952
Unearned Rental Income 6,418 --
Other 88,318 17,433
$ 118,213 $ 126,563
14
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5. INCOME TAXES The components of income tax expense (benefit) consist
of the following:
Current: 2003 2002
Federal $ 58,520 $ 108,450
State 11,616 42,150
$ 70,136 $ 150,600
Deferred: 2003 2002
Federal $ (62,750) $(12,350)
State (12,467) (2,450)
$ (75,217) $(14,800)
Total Income Tax
Expense (Benefit) $ (5,081) $135,800
The significant differences between the current provision for federal
income taxes and the income taxes computed using the U.S. Federal income
tax rates were as follows:
2003 2002
Using federal statutory rate (34%) $ 136,410 $ 159,387
Increase (reduction) in tax
resulting from:
Non-taxable interest (38,252) (47,420)
Non-taxable dividends (13,007) (21,099)
Purchase accounting adjustments -- (2,795)
Minority Interest in Subsidiaries
Income (Loss) -- 1,423
State Income Taxes (8,934) 39,700
Contributions (17,170) (251)
Depreciation Expense (1,649) --
Other, Net 1,122 (20,495)
Current Federal Tax Provision $ 58,520 $ 108,450
The components of deferred tax assets and liabilities on the balance
sheet as of December 31, 2003 and 2002 are related to the following:
Deferred Income Tax Assets: 2003 2002
Accumulated Depreciation $ 24,892 $ 14,800
Contribution Carry Forward 62,715 --
State NOL Carry Forward 2,410 --
$ 90,017 $ 14,800
Deferred Income Tax Liabilities:
Unrealized Gain on Available for
Sale Securities $ 304,415 $ 128,500
The Company has assessed the need for establishing a valuation allowance
for its deferred income tax assets and has determined that such an
allowance is unnecessary.
15
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
6. PROVISION FOR ESTIMATED TITLE AND ESCROW LOSSES
The Company's wholly-owned subsidiary, First Montana Title Insurance
Company (FMTIC) issues title insurance policies in the State of Montana.
The terms of policies issued are indefinite and premiums are not
refundable. FMTIC is a party to various lawsuits wherein, among other
things, plaintiffs generally claim defects in insured titles, unreported
liens or improper practices. FMTIC is also required under many of its
policies issued to provide defense for its insureds in litigation founded
upon alleged defects or other matters insured against by the policy. Such
litigation and claims are normal occurrences within the title insurance
industry. In accordance with generally accepted accounting practices, FMTIC
has established a provision for estimated title and escrow losses which
appears on the consolidated balance sheets under the same title. FMTIC has
established the provision for estimated losses on (1) claims known to FMTIC
and (2) claims unknown to FMTIC but incurred upon issuance of policies as
well as for estimated external settlement expenses to be incurred. The
provision has been reduced for estimated recoveries.
7. COMMITMENTS & CONTINGENCIES
The Company leases its office buildings in Billings and Forsyth from third
parties. Agreements for the leases of office space are month to month.
Rental expense for office space for the years ended December 31, 2003 and
2002, was $56,075 and $38,904, respectively. Annual rental commitments for
the ensuing calendar years are as follows: 2004 - $56,268 and 2005 -
$56,268.
The board of directors has approved the Company's participation with M
Corp, its parent, in an attempt to purchase a bank. Should the purchase
take place, the liquidity of the Company will be significantly affected.
8. RENTAL PROPERTY
The Company is the lessor of property under operating leases expiring in
calendar year 2003. The following is a summary of property leased or held
for lease at December 31, 2003:
Buildings $ 1,816,998
Land 61,125
1,878,123
Less: Accumulated Depreciation 1,434,837
$ 443,286
There are no minimum future rentals to be received on non-cancelable leases
as of December 31, 2003 and the consolidated statements of income do not
contain any contingent rental income.
16
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
9. RELATED PARTY TRANSACTIONS
The Company maintains a non interest-bearing demand account with its parent
company, M Corp. M Corp owns approximately 92% of the Company's outstanding
stock. The Company had transactions with its parent company or affiliates
during 2003 and 2002, as follows:
2003 2002
Due to Parent, Beginning of Year $ (206,764) $ (110,110)
Charge for Managerial Assistance $ (113,000) $ (132,000)
Net Cash Transfers to Parent 367,000 182,584
Charge for Property Insurance (26,488) (43,880)
Income Taxes Paid by Parent (93,685) --
Income Tax Allocation (86,457) (103,358)
Due to Parent, End of Year $(159,394) $ (206,764)
At December 31, 2003 and 2002, the Company owed $135,129 to Jefferson
Management Company. Jefferson owns 44.7% of the Company's parent, M Corp.
10. DIVIDEND RESTRICTIONS
TSI, Inc., the parent company, depends in part upon cash dividends from its
subsidiaries for the funding of its cash requirements. Dividends paid to
TSI, Inc. by its subsidiary, First Montana Title Insurance Company (FMTIC)
are restricted by statutes of the State of Montana. FMTIC is required to
obtain regulatory approval before making any dividend distributions. At
December 31, 2003, substantially all of consolidated retained earnings
were subject to such restrictions. At December 31, 2003, FMTIC's statutory
capital and surplus as regards policyholders amounted to $ 9,724,150.
17
TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
11. INFORMATION ON SEGMENTS OF BUSINESS
The Company's operations are classified into three reportable segments that
provide different products or services. The Company's reportable segments,
the title insurance business, ownership and rental of properties and
financial holding company are managed separately because of their differing
operations, customers and requirements. The Company's accounting policies
for segments are the same as those described in the summary of significant
accounting policies. Management evaluates segment performance based on
segment profit or loss before income taxes. Substantially all of the
Company's business is conducted within the state of Montana.
Sales To Segment Total Net Expenditures
Outside Interest Operating Segment Depreciation For Segment
Concerns Revenues Profit Assets Expense Assets
Year Ended
December 31, 2003:
Financial Holding
Company $ 19,112 $ 69,748 $(186,849) $9,347,494 $ 500 $2,000
Title Insurance
Operations 2,402,050 63,622 748,193 16,062,099 17,528 27,362
Rental Properties 420,677 5,570 (158,413) 1,007,812 69,118 33,350
Consolidated $ 2,841,839$138,940 $402,931 $26,417,405 $87,146$ 2,712
Year Ended December 31, 2002:
Financial Holding
Company $ 29,175 $101,528 $(99,977)$10,146,581 $ -- $ --
Title Insurance
Operations 1,795,425 121,940 598,942 14,975,868 9,110 20,824
Rental Properties 396,275 - (30,179) 597,412 68,739 35,112
Consolidated $ 2,220,875 $223,468 $ 468,786 $25,719,861$77,849 $55,936
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TSI, INC.
AND CONSOLIDATED SUBSIDIARIES
DIRECTORS AND OFFICERS
NAME OCCUPATION
John Ross Manufacturer Representative
President Billings, Montana
Tyler Arneson Carpenter,
Director Billings, Montana
A.M. McCann Retired
Director Clearwater, Florida
Paul J. McCann Business Owner
Chief Executive Officer Clearwater, Florida
D.M. Mellinger Accountant
Chief Financial Officer Great Falls, Montana
MARKET INFORMATION
The Company's common stock, under the symbol "TSIA", is listed as an
"Other OTC", a security that is neither listed on Nasdaq or any stock
exchange, nor quoted on the Pink Sheets or the OTCBB; bids and offers
are not centrally collected. The range of high and low bid prices and
the trading volume of the Company's common stock for each quarter during
2003 and 2002 are indicated below, per the Nasdaq.com webbsite. Such
over-the-counter market quotations reflect inter-dealer prices, without
retail markup, markdown or commission and may not necessarily represent
actual transactions.
2003 2002
Quarter High Low Volume High Low Volume
First .00 .00 None .10 .10 None
Second 2.18 .00 1,300 .10 .10 None
Third .50 .50 None .10 .10 None
Fourth 2.00 .50 400 .10 .00 1,000
No dividends were paid in 2003 or 2002.
There are approximately 3,055 holders of record of the Company's
common stock.
A copy of the Form 10-KSB Annual Report may be obtained upon written
request to the Company.
TSI, INC.
P. O. Box 2249
110 Second Street South
Great Falls, MT 59403-2249
406-727-2602
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