U.S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
Commission file number 0-2054
TSI, Inc.
(Exact name of small business issuer as specified in its charter)
Montana 81-0267738
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
128 Second Street South, Great Falls, Montana 59405
(Address of principal executive offices)
(406) 727-2600
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
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 X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
Class Outstanding at June 30, 2004
$.05 Par Value Common Stock 10,381,639 Shares
Transitional Small Business Disclosure Format (Check One): Yes ; No X
TSI, INC.
INDEX
JUNE 30, 2004
Page Number
PART I
Condensed Financial Statements:
Balance Sheet -
June 30, 2004 2
Statements of Income and Comprehensive Income -
Three Months and Six Months Ended
June 30, 2004 and 2003 3
Statements of Cash Flows -
Three Months and Six Months Ended
June 30, 2004 and 2003 4
Notes to Financial Statements 5-6
Management's Discussion and Analysis of the
Statements of Income 7
Controls and Procedures 8
PART II
Other Information 9-10
Signatures 11
Certifications 14-18
1
TSI, INC.
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 2004
(Unaudited)
ASSETS
Current Assets
Cash $ 19,441,514
Marketable Securities, at Fair Value 5,064,989
Receivables, Net 67,683
Prepaid Expenses 60,503
Total Current Assets 24,634,689
Other Assets
Noncurrent Investments, at Fair Value 659,609
Property, Plant and Equipment, Net 748,932
Total Assets $ 26,043,230
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and Accrued Liabilities $ 205,928
Income Taxes Payable 37,941
Current Deferred Income Taxes 120,493
Due to Parent Company 99,394
Related Party Payable 75,000
Total Current Liabilities 538,756
Provision for Estimated Title and Escrow Losses 772,141
Minority Interests 369,667
Long Term Deferred Income Taxes 104,441
Stockholders' Equity
Common Stock, $.05 Par Value,
30,000,000 shares authorized,
10,381,639 shares issued & outstanding 519,082
Additional Paid-In Capital 18,974,066
Retained Earnings 4,329,092
Accumulated Other Comprehensive Income 435,985
Total Stockholders' Equity 24,258,225
Total Liabilities and Stockholders' Equity $ 26,043,230
See Notes to Consolidated Financial Statements.
2
TSI, Inc.
CONSOLIDATED STATEMENTS OF INCOME and COMPREHENSIVE INCOME
(Unaudited)
For The Three Months For The Six Months
Ended Ended
June 30, June 30,
2004 2003 2004 2003
Operating
Revenues $ 517,092 $ 792,726 $1,081,498 $1,449,752
Operating
Expenses
Salaries
and Payroll
Costs 296,242 392,086 577,253 623,092
Depreciation 20,665 19,024 41,330 36,813
Other Expenses 244,627 201,711 420,826 489,078
Total
Expenses 561,534 612,821 1,039,409 1,148,983
Operating
Income (Loss) (44,442) 179,905 42,089 300,769
Minority Portion
Of Income 1,797 (298) (2,363) (2,138)
(42,645) 179,607 39,726 298,631
Income Tax
(Expense)
Benefit 32,627 (33,925) 14,088 (47,055)
Net
Income (Loss) (10,018) 145,682 53,814 251,576
Other Comprehensive
Income
Increase (Decrease) in
Unrealized Holding Gains,
Net of Income
Taxes (20,107) 143,226 (6,633) 160,556
Comprehensive
Income (Loss) $ (30,125) $ 288,908 $ 47,181 $412,132
Basic
Earnings (Loss)
Per Share $ (0.001) $ 0.01 $ 0.005 $ 0.02
Weighted
Average
Shares 10,406,448 12,773,426 10,430,153 11,627,724
See Notes to Consolidated Financial Statements.
3
TSI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Six Months
Ended
June 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net Cash Provided By
Operating Activities $ 180,314 $ 142,445
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Purchases of Furniture and
Equipment (137,488) (18,403)
Cash Used For Purchases of Marketable
Securities Available For Sale (5,953,050) (1,040,528)
Cash Received on Dispositions of
Marketable Securities Available
For Sale 1,977,572 177,701
Net Cash Provided (Used) By
Investing Activities (4,112,966) (881,230)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Purchases of Common Stock (196,966) (8,642)
Cash Provided (To) From Parent Company (60,000) 268,093
Net Cash Provided By
Financing Activities (256,966) 259,451
NET DECREASE IN CASH (4,189,618) (479,334)
CASH - BEGINNING OF PERIOD 23,631,132 23,337,149
CASH - END OF PERIOD $ 19,441,514 $ 22,857,815
See Notes to Consolidated Financial Statements.
4
TSI, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
Note. 1 Basis of Presentation
In the opinion of management, all adjustments necessary (consisting of
only normal recurring accruals) have been made to the unaudited financial
statements to present fairly the Company's financial position as of
June 30, 2004 and the results of the Company's operations and cash flows
for the six months ended June 30, 2004 and 2003. The results of operations
for the six months ended June 30, 2004 and 2003 are not indicative of the
results to be expected for the full year.
The consolidated financial statements include the accounts of the company,
its wholly owned subsidiaries and its majority owned subsidiaries. All
significant intercompany transactions and balances have been eliminated in
consolidation.
M Corp, Great Falls, Montana, owns approximately 93% of the Company's
issued and outstanding common stock.
Note 2. Significant Accounting Policies
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.
The Company's investment security portfolios, current and noncurrent, are
carried at fair value in the Company's balance sheet at June 30, 2004. The
unrealized holding gain at June 30, 2004, net of the estimated income tax
effects and minority interests in the unrealized holding gains, is included
in Accumulated Other Comprehensive Income at June 30, 2004.
Basic earnings per share (EPS) is calculated by dividing net income by the
weighted number of common shares outstanding for the period.
Note 3. Contingencies
The Board of Directors has approved the Company's participation in an
attempt to purchase a savings and loan institution. The Company will
participate in the purchase with its parent, M Corp. Should the .
purchase take place, the liquidity of the Company will be significantly
affected.
5
TSI, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2004
Note 4. Segment Information
Sales to outside concerns, interest revenues and segment operating profit
for the Company's reportable segments were as follows for the quarter
ended June 30, 2004:
Sales To Segment
Outside Interest Operating
Concerns Revenues Profit (Loss)
Financial Holding
Company $(91,844) $15,779 $(98,946)
Title Insurance
Operations 446,975 11,642 61,988
Rental Properties 132,551 1,989 (7,934)
Consolidated $ 487,682 $29,410 $(44,442)
A loss on the sale of securities is shown as a reduction in revenue
in order to remain consistent with comparisons in previous financial
statements.
Note 5. Subsequent Event
An agreement was drafted for the sale of two apartment complexes owned
by Merritt Properties, Inc., a subsidiary of TSI, Inc, in the amount of
$528,900. On July 30, 2004 the Company sold this property. As of
June 30, 2004, the property including furniture and fixtures is carried
on the financial statements at a cost of $334,397 with $84,078 in
accumulated depreciation, and the land is carried at $18,000. The net
proceeds of the sale are expected to be approximately $491,771, and will
be held by Montana Exchange, Inc. pending a like-kind exchange expected
to occur in the third or fourth quarter of 2004. The Company has not
yet identified the new property in connection with the exchange.
6
TSI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE STATEMENTS OF INCOME
JUNE 30, 2004
A summary of the period to period changes in items included in the
statements of income is shown below.
COMPARISON OF
Three Months Six Months
Ended Ended
June 30, June 30,
2004 and 2003 2004 and 2003
Increases
(Decreases)
Revenues $ (275,634) ( 34.8%) $ (368,254) (25.4%)
Operating Expenses $ (51,287) ( 8.4%) $ (109,574) (9.5%)
Net Income $ (155,700) (107%) $ (197,761) (78.6%)
Revenues decreased $368,254 in the first six months of 2004
($275,634 for the second quarter of 2004) as compared to this time frame in
2003. This decrease is due primarily to a decrease in title revenue of
$403,657 ($207,566 during the second quarter of 2004). Other factors include
an increase in rental income of $12,277 (6.1%), and increase in interest and
dividend revenues of $6,767, an increase in other revenue of $31,128, and an
increased loss on sale of securities of $14,770 (40.2%) during the first six
months of 2004.
Operating expenses decreased $109,574 (9.5%) in the first six months of 2004
($51,287 during the second quarter of 2004) as compared with the same period
of 2003 due primarily to a decrease of $57,252 (13.5%) in other expenses and
a decrease in salaries and payroll costs of $45,839 (7.4%). Intercompany
charges decreased by $11,000 (16.7%) ,and depreciation increased by $4,517
(12.3%) in the first six months of 2004 compared with the first six months of
2003. The provision for income taxes decreased by $61,143 (130%) for the
first six months of 2004, due mainly to an increase in non-taxable income.
7
TSI, INC.
CONTROLS AND PROCEDURES
JUNE 30, 2004
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.
8
TSI, INC.
PART II
OTHER INFORMATION
JUNE 30, 2004
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
9
TSI, INC.
PART II
OTHER INFORMATION - CONTINUED
JUNE 30, 2004
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description Page #
3.1 Articles of Incorporation 12
3.2 By-Laws 12
10 Material Contracts 12
16 Letter on change in certifying accountant 13
31.1 Certification required under Section 302 14-15
31.2 Certification required under Section 302 16-17
32.1 Certification required under Section 906 18
32.2 Certification required under Section 906 18
(b) Reports on Form 8-K
On October 20, 2003, Dwyer & Company, CPA, PC, our independent
accountant, resigned, when the review for the period ending September
30, 2003 was completed. 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. On April
30, 2004, Form 8-K/A was filed including additional disclosures required
by the Securities Exchange Commission.
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TSI, INC.
Registrant
Date: July 27, 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 July 27, 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
11
TSI, INC.
EXHIBIT 3.1
ARTICLES OF INCORPORATION
There have been no amendments to the Articles of Incorporation for
TSI, Inc. during the first or second fiscal quarters of 2004.
EXHIBIT 3.2
BY-LAWS
During the first or second quarters ending June 30, 2004, there were
no changes to TSI, Inc.'s By-laws.
EXHIBIT 10
MATERIAL CONTRACTS
No material contracts were executed or became effective during the
first or second quarter of 2004.
12
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
13
TSI, INC.
EXHIBIT 31.1
CERTIFICATION
I, Paul J. McCann, certify that:
1. I have reviewed this quarterly report on Form 10-QSB 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 quarterly 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
second fiscal quarter that has materially affected, or is
reasonably likely to materially affect TSI, Inc.'s internal control
over financial reporting;
14
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: July 27, 2004 s/Paul J. McCann
Paul J. McCann,
Chief Executive Officer
15
TSI, INC.
EXHIBIT 31.2
CERTIFICATION
I, D. Mellinger, certify that:
1. I have reviewed this quarterly report on Form 10-QSB 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 quarterly 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
second fiscal quarter that has materially affected, or is
reasonably likely to materially affect TSI, Inc.'s internal control
over financial reporting;
16
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: July 27, 2004 s/D. Mellinger
D. Mellinger, Chief Financial Officer
17
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 Quarterly Report of TSI, Inc. on Form 10-QSB
for the period ending June 30, 2004 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 condition and result of operations of TSI, Inc.
Date: July 27, 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 Quarterly Report of TSI, Inc. on Form 10-QSB
for the period ending June 30, 2004 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: July 27, 2004 s/D. Mellinger
D. Mellinger,
Chief Financial Officer
18