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 September 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 September 30, 2004
$.05 Par Value Common Stock 10,381,739 Shares
Transitional Small Business Disclosure Format (Check One):
Yes ; No X
TSI, INC.
INDEX
SEPTEMBER 30, 2004
Page Number
PART I
Condensed Financial Statements:
Balance Sheet -
September 30, 2004 2
Statements of Income and Comprehensive Income -
Three Months and Nine Months Ended
September 30, 2004 and 2003 3
Statements of Cash Flows -
Nine Months Ended
September 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 13-17
1
TSI, INC.
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 2004
(Unaudited)
ASSETS
Current Assets
Cash $ 18,685,184
Marketable Securities,
at Fair Value 4,925,318
Receivables, Net 58,285
Due from Parent 150,606
Prepaid Expenses 60,878
Total Current Assets 23,880,271
Other Assets
Note Receivable 200,000
Noncurrent Investments, at Fair Value 651,752
Property, Plant and Equipment, Net 3,052,821
Total Assets $ 27,784,844
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable and
Accrued Liabilities $ 240,861
Current Portion of
Long Term Debt 50,000
Income Taxes Payable 37,941
Current Deferred Income Taxes 127,972
Related Party Payable 75,000
Total Current Liabilities 531,774
Long Term Liabilities
Provision for Estimated Title
and Escrow Losses 765,534
Minority Interests 370,265
Long Term Debt Payable 1,270,930
Long Term Deferred Income Taxes 204,239
Total Long Term Liabilities 2,610,968
Stockholders' Equity
Common Stock, $.05 Par Value,
30,000,000 shares authorized,
10,381,739 shares issued &
outstanding 519,087
Additional Paid-In Capital 18,974,061
Retained Earnings 4,706,549
Accumulated Other Comprehensive Income 442,405
Total Stockholders'Equity 24,642,102
Total Liabilities and
Stockholders' Equity $ 27,784,844
See Notes to Consolidated Financial Statements.
2
TSI, INC.
CONSOLIDATED STATEMENTS OF INCOME and COMPREHENSIVE INCOME
(Unaudited)
For The Three Months For The Nine Months
Ended Ended
September 30, September 30,
2004 2003 2004 2003
Operating Revenues $1,025,401 $742,451 $2,106,899 $2,194,258
Operating Expenses
Salaries and
Payroll Costs 319,867 324,714 897,120 947,806
Depreciation 15,038 19,024 56,369 55,837
Other Expenses 222,947 243,289 643,772 734,422
Total Expenses 557,852 587,027 1,597,261 1,738,065
Operating Income 467,549 155,424 509,638 456,193
Minority Portion
Of (Income) (999) (431) (3,362) (2,569)
Net Income Before
Income Taxes 466,550 154,993 506,276 453,624
Income Tax (Expense) (89,094) (27,116) (75,006) (74,171)
Net Income 377,456 127,877 431,270 379,453
Other Comprehensive Income (Loss)
Increase (Decrease) in
Unrealized Holding Gains,
Net of Income Taxes 6,420 111,072 (213) 271,628
Comprehensive
Income $ 383,876 $238,949 $ 431,057 $ 651,081
Basic Earnings
Per Share $ 0.04 $ 0.01 $ 0.04 $ 0.04
Weighted Average
Shares 10,381,640 10,465,174 10,413,873 10,466,644
See Notes to Consolidated Financial Statements.
3
TSI, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For The Nine Months
Ended
September 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net Cash Provided by Operating Activities $(408,464) $ 429,415
Income Taxes Paid (6,500) (3,650)
Net Cash From Operating Activities $(414,964) $ 425,765
CASH FLOWS FROM INVESTING ACTIVITIES
Cash Received on Sales and Redemptions
of Property, Plant and Equipment 495,516 10,250
Cash Purchases of Property,
Plant and Equipment (1,156,605) (46,025)
Cash Used For Purchases of Marketable
Securities Available For Sale (5,980,435) (1,053,645)
Cash Received on Dispositions of Marketable
Securities Available For Sale 2,162,572 118,893
Net Cash Provided By (Used By)
Investing Activities (4,478,952) (970,527)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Advanced as Note Receivable (200,000) --
Cash Advances From (To) Parent Company 310,000 264,074
Cash Purchases of Common Stock (162,032) (9,842)
Net Cash Provided By
Financing Activities (52,032) 254,232
NET (DECREASE) IN CASH (4,945,948) (290,530)
CASH - BEGINNING OF PERIOD 23,631,132 23,337,149
CASH - END OF PERIOD $ 18,685,184 $ 23,046,619
See Notes to Consolidated Financial Statements.
4
TSI, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
Note. 1 Basis of Presentation
In the opinion of management, all adjustments necessary (consisting of only
normalrecurring accruals) have been made to the unaudited financial
statements to present fairly the Company's financial position as of
September 30, 2004 and the results of the Company's operations and cash
flows for the nine months ended September 30, 2004 and 2003. The results
of operations for the nine months ended September 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 September 30, 2004.
The unrealized holding gain at September 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 September 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
SEPTEMBER 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 September 30, 2004:
Sales To Segment
Outside Interest Operating
Concerns Revenues Profit(Loss)
Financial
Holding Company $ 47,024 $ 14,818 $ (75,998)
Title Insurance
Operations 370,510 18,187 58,485
Rental
Properties 572,643 2,219 485,051
Consolidated $990,177 $ 35,224 $ 467,548
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. Real Estate Transactions
During second quarter, an agreement was entered into for the sale of two
apartment complexes owned by Merritt Properties, Inc., a subsidiary of TSI,
Inc. On July 30, 2004 the Company sold this property. The net proceeds of
the sale were held by Montana Exchange, Inc. pending a like-kind exchange.
Merritt Properties, Inc. identified the new property involved in the 1031
tax-deferred exchange as a tenant in common of the Avalon Apartments located
in Gresham, Oregon. On September 16, 2004 the exchange was finalized and
TSI, Inc. realized a gain of $490,897. Merritt Properties, Inc. paid
additional cash to invest a total $1,000,000. Merritt Properties, Inc. was
then allocated debt in the amount of $1,320,930, resulting in an increase
in the amount of the asset to $2,320,930 and the creation of allocated debt
in the amount of $1,320,930. Merritt Properties, Inc. owns 9.3023% of the
Avalon Apartments as a tenant in common.
On September 27, 2004 the Company signed an agreement with Dahlquist Realty
to sell property (not used as rental property) located in Monarch, Montana.
TSI, Inc. shows this building cost at $63,795, which is fully depreciated.
The price expected upon sale of the property is $465,000. There are no
offers to-date. The operating expenses associated with this property have
been reported in the Financial Holding Company segment.
6
TSI, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE STATEMENTS OF INCOME
SEPTEMBER 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 Nine Months
Ended Ended
September 30, September 30,
2004 and 2003 2004 and 2003
Increases
(Decreases)
Revenues $ 280,894 37.7% $ (87,359) (4%)
Operating Expenses $ (31,230) (5.3%) $ (140,804) (8.1%)
Net Income $ 249,578 195.2% $ 51,817 13.7%
Revenues decreased $87,359 (4%) in the first nine months of 2004 (an increase
of $280,894 for the third quarter of 2004) as compared to this time frame in
2003. This decrease is due primarily to a decrease in title revenue of
$620,408 ($216,751 during the third quarter of 2004) offset by a $475,718
gain on the sale of securities and fixed assets during the first nine months
of 2004. Other factors include an increase in rental income of $34,878
(11.5%), an increase in interest and dividend revenues of $11,645 (8.1%), and
an increase in other revenue of $10,808.
Operating expenses decreased $140,804 (8.1%) in the first nine months of 2004
($31,230 during the third quarter of 2004) as compared with the same period
of 2003 due primarily to a decrease of $79,650 (12.5%) in other expenses and
a decrease in salaries and payroll costs of $50,686 (5.3%). Intercompany
charges decreased by $11,000 (11.1%), and depreciation increased by $532 (1%)
in the first nine months of 2004 compared with the first nine months of 2003.
The provision for income taxes decreased by $835 (1.1%) for the first nine
months of 2004.
7
TSI, INC.
CONTROLS AND PROCEDURES
SEPTEMBER 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
SEPTEMBER 30, 2004
ITEM 1 LEGAL PROCEEDINGS
None
ITEM 2 UNREGISTERED SALES OF EQUITY 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
SEPTEMBER 30, 2004
ITEM 6 EXHIBITS
Exhibit
Number Description Page #
3.1 Articles of Incorporation 12
3.2 By-Laws 12
10 Material Contracts 12
31.1 Certification required under Section 302 13-14
31.2 Certification required under Section 302 15-16
32.1 Certification required under Section 906 17
32.2 Certification required under Section 906 17
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: November 12, 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 November 12, 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, second or third fiscal quarters of 2004.
EXHIBIT 3.2
BY-LAWS
During the first, second or third quarters ending September 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, second or third quarters of 2004.
12
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
third fiscal quarter that has materially affected, or is reasonably
likely to materially affect TSI, Inc.'s internal control over
financial reporting;
13
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: November 12, 2004 s/Paul J. McCann
Paul J. McCann,
Chief Executive Officer
14
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
third 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 31.2 - 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: November 12, 2004 s/D. Mellinger
D. Mellinger,
Chief Financial Officer
16
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 September 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: November 12, 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 September 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: November 12, 2004 s/D. Mellinger
D. Mellinger,
Chief Financial Officer
17