U.S. Securities and Exchange Commission Washington, D.C. 20549 Gentlemen, We are transmitting herewith Form 10-QSB for the quarter ended March 31, 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 March 31, 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 March 31, 2002 $.05 Par Value Common Stock 10,474,010 Shares Transitional Small Business Disclosure Format (Check One): Yes ; No X TSI, INC. INDEX MARCH 31, 2002 Page Number PART I Condensed Consolidated Financial Statements: Balance Sheet March 31, 2002 2 Statements of Income and Comprehensive Income - Three Months Ended March 31, 2002 and 2001 3 Statements of Cash Flows - Three Months Ended March 31, 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 MARCH 31, 2002 ASSETS Current Assets Cash $ 22,725,595 Marketable Securities, at Fair Value 1,969,919 Receivables - Net 71,817 Prepaid Expenses 1,800 Total Current Assets 24,769,131 Other Assets Noncurrent Investments, at Fair Value 508,970 Other Assets 2,238 Property, Plant and Equipment, Net 687,173 TOTAL ASSETS $ 25,967,512 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable and Accrued Liabilities $ 386,318 Income Taxes Payable 211,738 Deferred Income Taxes 118,600 Due to Parent Company 254,868 Total Current Liabilities 971,524 Provison For Estimated Title and Escrow Losses 838,133 Minority Interests 390,300 Excess of Fair Value of Net Assets Acquired Over Cost 21,920 Deferred Income Taxes 97,600 Stockholders' Equity Common Stock - $.05 Par Value, 30,000,000 shares authorized, 10,483,142 shares issued 524,157 Additional Paid-In Capital 13,165,957 Retained Earnings 3,658,287 Accumulated Other Comprehensive Income 312,793 Treasury Stock, at Cost (13,159) Total Stockholders' Equity 23,648,035 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,967,512 See Notes to Consolidated Financial Statements 2 TSI, INC. STATEMENTS OF INCOME For The Three Months Ended March 31, 2002 2001 Operating Revenues $ 556,982 $3,578,692 Operating Expenses Salaries and Payroll Costs 206,348 211,067 Depreciation 20,898 21,462 Other Expenses 155,783 196,069 Total Expenses 383,029 428,598 173,953 3,150,094 Amortization of Deferred Credit 2,055 2,055 Minority Portion of (Income) (2,213) (9,078) 173,795 3,413,071 Income Tax Expense (55,700) (1,275,000) Net Income 118,095 1,868,071 Other Comprehensive Income (Loss) Increase (Decrease) in Unrealized Holding Gains, Net of Income Taxes 43,470 (1,838,478) Comprehensive Income $ 161,565 $ 29,593 See Notes to Consolidated Financial Statements 3 TSI, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For The Three Months Ended March 31, 2002 2001 CASH FLOWS FROM OPERATING ACTIVITIES Net Cash Provided By Operating Activities $ 129,703 $ 333,117 CASH FLOWS FROM INVESTING ACTIVITIES Cash Purchases of Furniture and Equipment - (4,276) Cash Used for Purchases of Marketable Securities Available For Sale (339,828) (2,372,957) Cash Received Upon Dispositions of Marketable Securities Available For Sale 645,592 6,543,446 Net Cash (Used) By Investing Activities 305,764 4,166,213 CASH FLOWS FROM FINANCING ACTIVITIES Cash Purchases of Treasury Stock (1,941) (5,863) Cash Provided From Parent Company 151,150 3,400 Net Cash Provided By Financing Activities 149,209 (2,463) NET INCREASE IN CASH 584,676 4,496,867 CASH - BEGINNING OF PERIOD 22,140,919 16,867,357 CASH - END OF PERIOD $22,725,595 $21,364,224 See Notes to Consolidated Financial Statements 4 TSI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 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 March 31, 2002 and the results of the Company's operations for the three months ended March 31, 2002 and 2001 and cash flows for the three months ended March 31, 2002 and 2001. The results of operations for the three months ended March 31, 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 March 31, 2002. The net unrealized holding gain at March 31, 2002, net of the estimated income tax effects and minority interests in the unrealized holding gains, is included in Accumulated Other Comprehensive Income at March 31, 2002 in accordance with the provisions of Financial Accounting Standards No. 130. Slaes to outside concerns, interest revenues and segemnt operating profit for the Company's reportable segements were as follows for the period ended March 31, 2002: Sales to Segment Outside Interest Operating Concerns Revenues Profit Financial Holding Company $ 30,208 $ 10,888 $ 23,808 Title Insurance Operations 394,979 21,111 114,618 Rental Properties 101,851 - 37,582 Consolidated $ 527,038 $ 31,999 $ 176,008 5 TSI, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE INCOME STATEMENT MARCH 31, 2002 A summary of the period to period changes in items included in the statements of income is shown below. COMPARISON OF THREE MONTHS ENDED MARCH 31, 2002 AND 2001 INCREASES (DECREASES) Revenues $ (3,021,710) (84.4%) Expenses (45,569) (10.6%) Net Income (1,749,975) (93.7%) Revenues decreased $3,021,710 in the first quarter of 2002 as compared with the first quarter of 2001 due primarily to a decrease in the security sales ($2,872,963). Other factors include: decrease in rent of $14,035 (12.1%), a decrease in interest and dividends of $158,078 (65.0%), increase in title revenue of $44,451 (13.8%), and a decrease in other revenues of $21,084 (83.1%). Operating expenses decreased $45,569 in the first quarter of 2002 as compared with the first quarter of 2001 due to the decrease in salaries of $4,718 (2.2%) and depreciation of $565 (2.6%). The provision for income tax expense decreased by $1,219,300 (94.7%) in the first quarter of 2002 as compared with the first quarter of 2001 due primarily to the substantial decrease in pretax income. 6 TSI, INC. PART II OTHER INFORMATION MARCH 31, 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: September 27, 2002 s/D. Mellinger D. Mellinger, Assistant Secretary-Treasurer Date: September 27, 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 Diversified Realty, 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. Date: September 27, 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 Diversified Realty, In. on Form 10-QSB for the period ending March 31, 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: September 27, 2002 s/Paul J. McCann Paul J. McCann, Representative 10