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 period ended June 30, 2003 [ ] 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 I.R.S. 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, 2003 $.05 Par Value Common Stock 10,465,505 Shares Transitional Small Business Disclosure Format (Check One): Yes ; No X TSI, INC. INDEX JUNE 30, 2003 Page Number PART I Condensed Financial Statements: Balance Sheet - March 31, 2003 2 Statements of Income and Comprehensive Income - Three Months and Six Months Ended June 30, 2003 and 2002 3 Statements of Cash Flows - Six Months Ended June 30, 2003 and 2002 4 Notes to Financial Statements 5 Management's Discussion and Analysis of the Statements of Income 6 PART II Other Information 7 Signatures 8 Certifications 9-10 1 TSI, INC. CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2003 ASSETS Current Assets Cash $ 22,857,815 Marketable Securities, at Fair Value 1,860,411 Receivables, Net 37,947 Deferred Tax Asset 116,226 Prepaid Expenses 7,965 Total Current Assets 25,046,808 Other Assets Noncurrent Investments, at Fair Value 705,443 Other Assets 200 Property, Plant and Equipment, Net 671,396 Total Assets $ 26,257,403 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable and Accrued Liabilities $ 179,227 Income Taxes Payable 97,895 Due to Parent Company 489,679 Total Current Liabilities 766,801 Provision for Estimated Title and Escrow Losses 800,156 Minority Interests 393,820 Deferred Income Taxes 176,855 Excess of Fair Value of Net Assets Acquired Over Cost 11,645 Stockholders' Equity Common Stock, $.05 Par Value, 30,000,000 shares authorized, 10,483,142 shares issued 524,157 Additional Paid-In Capital 22,165,957 Retained Earnings 1,120,567 Accumulated Other Comprehensive Income 326,879 Treasury Stock, at Cost (29,434) Total Stockholders' Equity 24,108,126 Total Liabilities and Stockholders' Equity $26,257,403 See Notes to Consolidated Financial Statements. 2 TSI, INC. CONSOLIDATED STATEMENTS OF INCOME and COMPREHENSIVE INCOME For The Three Months For The Six Months Ended Ended June 30, June 30, 2003 2002 2003 2002 Operating Revenues 790,671 $ 554,053 $ 1,445,642 $ 1,111,035 Operating Expenses Salaries and Payroll Costs 392,086 148,114 623,092 354,463 Depreciation 19,024 13,103 36,813 34,001 Other Expenses 168,711 191,410 423,078 314,192 Administrative 33,000 33,000 66,000 66,000 Total Expenses 612,821 385,627 1,148,983 768,656 Operating Income 177,850 168,426 296,659 342,379 Amortization of Deferred Credit 2,055 2,055 4,110 4,110 Minority Portion Of Income (298) (1,563) (2,138) (3,775) 179,607 168,918 298,631 342,714 Income Tax Expense (33,925) (47,300) (47,055) (103,000) Net Income 145,682 121,618 251,576 239,714 Other Comprehensive Income Increase (Decrease) in Unrealized Holding Gains, Net of Income Taxes 143,226 43,470 160,556 43,470 Comprehensive Income $ 288,908 $165,088 $412,132 $283,184 See Notes to Consolidated Financial Statements. 3 TSI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For The Six Months Ended June 30, 2003 2002 CASH FLOWS FROM OPERATING ACTIVITIES Net Cash Provided By Operating Activities $ 142,445 $ 135,054 CASH FLOWS FROM INVESTING ACTIVITIES Cash Purchases of Furniture and Equipment (18,403) (5,351) Cash Used For Purchases of Marketable Securities Available For Sale (1,040,528) (339,828) Cash Received on Dispositions of Marketable Securities Available For Sale 177,701 645,592 Net Cash Provided (Used) By Investing Activities (881,230) 300,413 CASH FLOWS FROM FINANCING ACTIVITIES Cash Purchases of Treasury Stock (8,642) (1,941) Cash Provided From Parent Company 268,093 151,150 Net Cash Provided By Financing Activities 259,451 149,209 NET INCREASE IN CASH (479,334) 584,676 CASH - BEGINNING OF PERIOD 23,337,149 22,140,919 CASH - END OF PERIOD $ 22,857,815 $ 22,725,595 See Notes to Consolidated Financial Statements. 4 TSI, INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2003 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, 2003 and the results of the Company's operations and cash flows for the six months ended June 30, 2003 and 2002. The results of operations for the six months ended June 30,2003 and 2002 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 92% of the Company's issued and outstanding common stock. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115) effective January 1, 1994. In accordance with SFAS No. 115 the Company's portfolios, current and noncurrent, are carried at fair value in the Company's balance sheet at June 30, 2003. The net unrealized holding gain at June 30, 2003, 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, 2003 in accordance with the provisions of Financial Accounting Standards No. 130. Sales to outside concerns, interest revenues and segment operating profit for the Company's reportable segments were as follows for the period ended June 30, 2003: TSI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2003 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 financial position as of June 30, 2003 and the results of the Company's operations for the three months and six months ended June 30, 2003 and 2002 and cash flows for the six months ended June 30, 2003 and 2002. The results of operations for the three months and six months ended June 30, 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 owns approximately 92% of the Company's issued and outstanding common stock. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115) effective January 1, 1994. In accordance with SFAS No. 115 the Company's portfolios, current and noncurrent, are carried at fair value in the Company's balance sheet at June 30, 2003. The net unrealized holding gain at June 30, 2003, 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, 2003 in accordance with the provisions of Financial Accounting Standards No. 130. 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, 2003: Sales To Segment Outside Interest Operating Concerns Revenues Profit Financial Holding Company $ 1,640 $ 24,855 $ (47,871) Title Insurance Operations 618,098 19,441 264,277 Rental Properties 123,130 3,507 (38,555) Consolidated $ 742,868 $ 47,803 $ 177,851 5 TSI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE INCOME STATEMENT JUNE 30, 2003 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, 2003 AND 2002 2003 AND 2002 INCREASES (DECREASES) Revenues $ 236,618 42.7% $ 334,607 30.1% Expenses 227,193 58.9% 380,327 49.5% Net Income 24,064 19.8% 11,862 4.9% Revenues increased $334,607 for the first six months of 2003 ($236,618 for the second quarter of 2003) as compared to this time frame in 2002. This increase is due to a 53.8% increase in title revenue ($407,609, and increase in rent of $10,393 (5.5%) a decrease in interest and dividend revenues decreased by $54,751 (34.8%), and a loss on sale of investments of $36,431 (107.3%) as compared to this time frame in 2002. Operating expenses increased $380,327 (49.5%) in the first six months of 2003 ($227,193 in the second quarter) compared to this time frame in 2002. This is due to an increase in payroll of $268,629 (75.8%), an increase in depreciation of $2,812 (8.3%) and an increase in other expenses of $108,885 (34.7%). The provision for income tax expense decreased by $55,945 (54.3%) in the first six months of 2003 ($13,375 in the second quarter of 2003) as compared to this time frame in 2002. 6 TSI, INC. PART II OTHER INFORMATION JUNE 30, 2003 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 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K None 7 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: August 18, 2003 s/Angela Semenza Angela Semenza, Assistant Secretary-Treasurer Date: August 18, 2003 s/D. Mellinger D. Mellinger, Accountant 8 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 quarterly 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 quarterly 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 annual 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-14 and 15d-14) for TSI, Inc. We have: a. designed such disclosure controls and procedures to ensure that material information relating to TSI, Inc. is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared. b. evaluated the effectiveness of TSI, Inc. disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. TSI, Inc.'s other certifying officers and I have disclosed, based on our most recent evaluation, to TSI, Inc. auditors and the audit committee of TSI, Inc. board of directors (or persons performing the equivalent functions): a. all significant deficiencies in the design or operation of internal controls which could adversely affect TSI, Inc.'s ability to record, process, summarize and report financial data, and I have identified for TSI, Inc.'s auditors any material weaknesses in internal controls; 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; and 9 6. TSI, Inc.'s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: August 18, 2003 s/Paul J. McCann Paul J. McCann 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, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Paul J. McCann, Representative of TSI, Inc., certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Subanes- Oxley Act of 2002, that: 1. The report fully compiles with the requirement of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of TSI, Inc. Date: August 18, 2003 s/Paul J. McCann Paul J. McCann, Representative 10