U.S. Securities and Exchange Commission Washington, D.C. 20549 Gentlemen, We are transmitting herewith Form 10-QSB for the quarter ended June 30, 2002 for TSI, Inc. TSI, Inc. s/Lori Olson Lori Olson Accountant 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, 2002 [ ] 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 59401 (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, 2002 $.05 Par Value Common Stock 10,473,610 Shares Transitional Small Business Disclosure Format (Check One): Yes ; No X TSI, INC. INDEX JUNE 30, 2002 Page Number PART I Condensed Consolidated Financial Statements: Balance Sheet June 30, 2002 2 Statements of Income and Comprehensive Income - Six Months and Three Months Ended June 30, 2002 and 2001 3 Statements of Cash Flows - Six Months Ended June 30, 2002 and 2001 4 Notes to Consolidated Financial Statements 5 Management's Discussion and Analysis of the Statements of Income 6 PART II Other Information 7 Signatures 8 Certification 9-10 1 TSI, INC. CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2002 ASSETS Current Assets Cash $ 22,826,733 Marketable Securities, at Fair Value 1,660,195 Receivables - Net 111,232 Total Current Assets 24,598,160 Other Assets Noncurrent Investments, at Fair Value 608,470 Other Assets 2,238 Property, Plant and Equipment, Net 692,598 TOTAL ASSETS $ 25,901,466 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable and Accrued Liabilities $ 318,045 Income Taxes Payable 98,588 Deferred Income Taxes 72,600 Due to Parent Company 272,319 Total Current Liabilities 761,552 Provison For Estimated Title and Escrow Losses 829,041 Minority Interests 391,090 Excess of Fair Value of Net Assets Acquired Over Cost 19,865 Deferred Income Taxes 137,400 Stockholders' Equity Common Stock - $.05 Par Value, 30,000,000 shares authorized, 10,483,142 shares issued 524,157 Additional Paid-In Capital 19,165,957 Retained Earnings 3,779,905 Accumulated Other Comprehensive Income 306,383 Treasury Stock, at Cost (13,884) Total Stockholders' Equity 23,762,518 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,901,466 See Notes to Consolidated Financial Statements 2 TSI, INC. STATEMENTS OF INCOME For The Three Months For The Six Months Ended Ended June 30, June 30, 2002 2001 2002 2001 Operating Revenues $ 554,053 $ 763,509 $1,111,035 $4,342,201 Operating Expenses Salaries and Payroll Costs 148,115 264,211 354,463 475,277 Depreciation 13,103 21,463 34,001 42,925 Other Expenses 224,410 230,336 380,192 426,405 Total Expenses 385,628 516,010 768,656 944,607 168,425 247,499 342,379 3,397,594 Amortization of Deferred Credit 2,055 2,055 4,110 4,110 Minority Portion of (Income) (1,563) (284) (3,775) (9,362) 168,917 249,270 342,714 3,392,342 Income Tax Expense (47,300) (80,000) (103,000) (1,355,000) Net Income 121,617 169,270 239,714 2,037,342 Other Comprehensive Income (Loss) Increase (Decrease) in Unrealized Holding Gains, Net of Income Taxes (6,409) 39,922 37,060 (1,798,556) Comprehensive Income $ 115,208 $209,192 $ 276,774 $ 238,786 See Notes to Consolidated Financial Statements 3 TSI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For The Six Months Ended June 30, 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES Net Cash From Operations $ 214,264 $ 510,471 Income Taxes Paid (147,150) - Net Cash Provided By Operating Activities $ 67,114 $ 510,471 CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures Paid In Cash (22,033) - Cash Received on Sales and Redemptions of Property and Equipment - (4,276) Cash Used for Purchases of Marketable Securities Available For Sale (353,343) (3,091,061) Cash Received Upon Dispositions of Marketable Securities Available For Sale 845,592 6,530,426 Net Cash (Used) By Investing Activities 470,216 2,982,827 CASH FLOWS FROM FINANCING ACTIVITIES Cash Provided From Parent Company 151,150 (955,200) Cash Purchases of Treasury Stock (2,666) (5,863) Net Cash Provided By Financing Activities 148,484 (961,063) NET INCREASE IN CASH 685,814 2,532,235 CASH - BEGINNING OF PERIOD 22,140,919 16,867,357 CASH - END OF PERIOD $22,826,733 $19,399,592 See Notes to Consolidated Financial Statements 4 TSI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2002 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, 2002 and the results of the Company's operations for the three months and six months ended June 30, 2002 and 2001 and cash flows for the six months ended June 30, 2002 and 2001. The results of operations for the three months and six months ended June 30, 2002 and 2001 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, 2002. The net unrealized holding gains at June 30, 2002, 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, 2002 in accordance with the provisions of Financial Accounting Standards N0. 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, 2002: Sales to Segment Outside Interest Operating Concerns Revenues Profit Financial Holding Company $ 28,601 $ 3,811 $ (16,608) Title Insurance Operations 413,315 19,576 164,869 Rental Properties 88,750 - 20,164 Consolidated $ 530,666 $ 23,387 $ 168,425 5 TSI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE INCOME STATEMENT JUNE 30, 2002 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, 2002 AND 2001 2002 AND 2001 INCREASES (DECREASES) Revenues $ (209,456) (27.4%) $(3,231,166) (74.4%) Expenses (130,382) (25.3%) (175,951) (18.6%) Net Income (47,653) (28.2%) (1,797,628) (88.2%) Revenues decreased $3,231,166 for the first six months of 2002 ($209,456 for the second quarter of 2002) as compared to this time frame in 2001. This decrease is primarily due to a decrease n the security sales($2,872,823). The majority of the decrease in security sales revenue came from the sale of WesterFed. A commission fee of seven percent of gross proceeds from the sales of WesterFed stock, in connection with a merger of WesterFed, was paid to Paul J. McCann, a member of the controlling shareholders group, who played an acitve part in conneciton therewith. Other factors for the change in revenues include: decrease in rent of $26,799 (12.3%), decrease in interest and dividend revenues of $271,047 (63.2%), and a decrease in title revenues of $39,323 (4.9%). Operating expenses decreased $175,951 in the first six months of 2002 ($130,382 in the second quarter) as compared to this time frame in 2001. This is due to the decrease in depreciation of $8,924 (20.8%) and a decrease in payroll of $120,814 (25.4%). The provision for income tax expense decreased by $1,282,000 (918.8%) in the first six montsh of 2002 ($32,700 in the second quarter of 2002) as compared to this time frame in 2001. This change was primarily due to the substantial decrease in income from the security sales. 6 TSI, INC. PART II OTHER INFORMATION JUNE 30, 2002 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: October 4, 2002 s/D. Mellinger D. Mellinger, Assistant Secretary-Treasurer Date: October 4, 2002 s/Lori Olson Lori Olson, 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 circomstances 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 inforamtion included in quarterly 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 annual report. 4. TSI, Inc.'s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Eschange 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., including its consolidated subsidiaries, 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 TSI, Inc. disclosure controls and prodecures as of a date with 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 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. Based on my knowledge all of the above is true and correct. Date: October 4, 2002 s/Paul J. McCann Paul J. McCann 9 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, 2002 as filed with the Securites and Exchange Commission on the date hereof (the "Report"), I, Paul J. McCann, Representative of Diversified Realty, 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 requirements 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 Diversified Realty, Inc. Date: October 4, 2002 s/Paul J. McCann Paul J. McCann, Representative 10