Bermuda Computer Services Issues Report For The Half-Year Ended 30th June 2003

"Consolidated earnings of the Company for the six months ended 30th June 2003 amounted to $121,917 compared with $30,636 in the same period last year. Consolidated earnings reflect the net income of BCS Agencies Limited for the six months ended 30th June 2003 amounting to $324,232 compared with net income of $287,441 for the first six months of last year. Transact losses this year to date amounted to $183,725 compared with losses of $213,676 at this time last year. BCS Properties earnings amounted to $66,458 in the first six months of this year compared with $55,854 in the first six months of 2002 and corporate expenses amounted to $85,048 for this year to date compared with $98,983 in 2002.

Total assets of the group amounted to $3,061,780 including fixed assets of $2,192,233 as at 30th June 2003 compared with $3,251,762 in 2002 including fixed assets of $2,341,218. At 30th June 2003 the Company had cash and time deposits of $385,067 compared with $514,742 at this time last year. Total liabilities amounted to $440,239 at 30th June 2003, with no long-term debt, compared with liabilities of $897,614 at 30th June 2002 including long-term debt of $428,627. Shareholder's equity increased to $2,621,541 from $2,354,148 as at 30th June 2002.

BCS Properties Limited

In 2001, the Company transferred its property at 20 Dundonald Street to BCS Properties Limited at net book value as a first step in the process to make the property a separate operating entity, responsible for rentals, property management, financing and earnings.

As a result of the closure of The Computer Centre in 2000, the space requirements of the BCS Group (who at present are the only tenants of BCS Properties) was reduced and revenue generated by rent and recovery of building management expenses from group subsidiaries was lowered. There has been, therefore, approximately 3,400 sq. ft. of space vacant since 2000 that is available for rent and we have had a number of expressions of interest in renting this space which we are still considering.

Inter-group rental revenue, including recovery of building management expenses in the first six months of this year, amounted to $108,322 compared with $106,710 in the same period last year. Operating expenses for the period amounted to $41,864 including depreciation of $25,644 and allocation of group overheads of $4,011. Operating expenses amounted to $50,856 for the same period last year including depreciation of $33,132 and share of group overheads of $2,900.

Net income for the six months ended 30th June 2003 amounted to $66,458 compared with $55,854 last year when there was interest paid on the mortgage loan of $4,927 compared with $1,928 this year as a result of repayment of the mortgage loan in May 2003.

BCS Agencies Limited (IBM's exclusive agent in Bermuda)

BCS Agencies began the first half of 2003 with continued growth of IBM related sales and services. This growth was primarily attributable to local consulting engagements which leveraged IBM's Business Consulting Services - the practice formed by IBM's late-2002 acquisition of PriceWaterhouse Consulting (PwC).

Our Systems Integration and Project Management expertise have combined well with IBM's industry-specific business consultants to provide value-added business and technology consulting services to several Bermuda-based customers early in the year. Services engagements are, therefore, expected to continue to grow as we now have access to worldwide resources capable of solving customer general business problems - in addition to the traditional technical and networking consulting services that our customers expect us to provide.

It is anticipated that with increased consumer confidence, brought about by improved global economic conditions, there will be renewed investment in technology during the second half of this year. This, in turn, should lead to an increase in e-business and "on demand" applications which rely on IBM's award-winning iSeries and pSeries family of eServers for reliability, availability and security.

Agency revenues and costs amounted to $1,444,416 and $1,120,184 respectively in the first six months of this year compared with $1,347,015 and $1,058,812 respectively in the six months ended 30th June 2002. Net income for the six months ended 30th June 2003 was $324,232 compared with $288,203 in the same period last year.

Transact Limited

Transact successfully switched its focus during the year to the domestic market. Transact is now a complete e-business service provider specializing in Internet services, application services and managed hosting services. Transact offers Dial and DSL Internet access to residential and corporate customers and plans to expand its service offerings further to include wireless communication and voice over IP services in the near future. Transact is an IBM, Lotus and Tivoli business partner and our close IBM relationship sets Transact apart from other service providers in Bermuda.

In the six months ended 30th June 2003 Transact's revenue amounted to $125,109 compared with $178,875 in the first six months last year. The decline in revenue was due to an anticipated reduction in income as the last of the IGN/ATT customers left the network in July through October 2002. It should be noted, however, this decline in revenue was more than offset by a reduction in costs associated with the provision of services for ATT. In fact, gross margin increased in the first six months of this year to $77,422 compared with gross margin of $33,999 in the same period last year. Operating expenses in the first six months of this year amounted to $261,147 including depreciation of $62,524 and an allocation of corporate expenses of $43,309 compared with $247,922 including depreciation of $85,845 and corporate expenses of $48,882 last year.

It should be noted that as a result of our aggressive approach to the write-off of costs associated with investment in the development of Transact all but $21,185 of the set up and equipment costs has been depreciated or written off by 30th June 2003 and looking forward we expect that operating expenses will have a more realistic relationship to operating income.

In July 2000 we advised Shareholders that the payment of quarterly dividends would be suspended, "until Transact is profitable or we decide to refinance the development cost of this new business". We further noted in 2000 when it was agreed we would invest in developing this business over the next three years that we anticipated entry into the market at the level then noted would cost a minimum of $1.5 million. The accumulated losses of Transact, which amounted to $1,309,504 at 30th June 2003, are therefore, the costs of developing this business, including the cost of equipment and set up costs, all of which have, except for $21,185, been written off as incurred.

Looking forward we expect operating expenses will be further reduced despite the addition of customers and increasing revenues.

Company Chairman, Mr. Donald P. Lines, OBE, FCA, JP submitted the report