"Consolidated earnings of the Company for the six months ended 30th June 2001 amounted to $36,947 compared with $113,881 in the same period last year. Consolidated earnings reflect the net income of BCS Agencies amounting to $289,620 for the six months ended June 30th 2001 compared with net income of $227,200 last year less Transact losses for this year to date of $148,817 compared with losses of $81,722 in 2000 less Corporate and Property losses of $103,856 this year compared with losses of $31,597 last year, which included a gain of $91,177 on sale of investments. Sales of the Company in the first six months of this year declined by $938,246 to $823,716 due to the closure of The Computer Centre (TCC) in early 2000. Offsetting this decline were sales increases by Transact of $250,029 and BCS Agencies of $62,420.
Total assets of the group amounted to $4,431,917 including fixed assets of $2,608,745 as at June 30th 2001 compared with $4,523,419 in 2000 including fixed assets of $2,812,446. At June 30th 2001 the Company had cash and time deposits of $1,275,178 compared with $516,257 at this time last year. Total liabilities amounted to $2,527,906 at June 30th 2001, including long term debt of $1,862,291, compared with total liabilities of $2,449,451 at June 30th 2000 including long term debt of $2,160,506. On July 31st, the Company used $500,000 of its cash to reduce the bank debt. Shareholders equity has increased from $2,073,968 to $2,103,921.
BCS Properties Limited
In the early part of the year, the land and building (20 Dundonald Street) was transferred to this holding company at net book value. The directors segregated the property from the trading companies as the first step in the process to make the property a distinct operating entity, responsible for its own financing and earnings. With the closure of The Computer Centre, the amount of space required by the BCS group has declined and income generated by rent to group subsidiaries is accordingly lower. It is anticipated that by the end of this year, however, BCS Properties Limited will have leased the second floor of the building and that it will become profitable with full occupancy.
BCS Agencies Ltd.
During the first six months of 2001, BCS Agencies Ltd. continued to build on the momentum established toward the end of the year 2000 for IT systems and solutions.
As IBM's exclusive agent and representative for sales and services of the eServer family of systems, including iSeries (AS/400) and pSeries (RS/6000), BCS Agencies fulfilled significant orders for new systems as well as upgrades to existing networks. In addition, the first half saw the growth in professional services and consulting engagements involving both BCS and IBM Global Services.
BCS Agencies slightly exceeded revenue targets established by IBM for the 1st half of 2001. We look forward to the 2nd half of the year with cautious optimism as we recognize that global economic factors may negatively affect the IT investment decisions that some customers in Bermuda make.
Transact-e-Biz.com (Bermuda) Limited
Transact was conceived in the fall of 1999, a time of unbridled optimism in Bermuda (and around the world) for a new economy based on e-commerce. The Bermuda Government was implementing a number of very positive e-commerce initiatives. The common goal was to make Bermuda "the centre for offshore e-commerce". Transact was developing a world-class infrastructure to provide managed hosting for this new industry in Bermuda.
Transact has dealt with the impact of several blows caused by external forces:
· The primary business for Transact leading up to the fall of 1999 was managing the Bermuda node of the IBM Global Network. This business was expected to be a cornerstone of an expanding Transact. On October 1st 1999 the IBM sale of its network to AT&T was completed for Bermuda. We made enormous efforts to try to develop this business under AT&T. These efforts were terribly time consuming and in the end proved fruitless. AT&T Global Network Services was in a serious decline that culminated in AT&T closing the Bermuda node in July of 2001.
· Early in 2000 it became apparent that e-commerce hosting in Bermuda was going to develop slowly.
· In the spring of 2000 Income Tax jurisdictions around the world were announcing that e-commerce servers do not constitute a "permanent establishment for tax purposes". This eliminated the necessity for a company to keep its servers offshore.
· In the fall of 2000, the "dot com bubble burst". This was a major blow to e-commerce businesses around the world including Transact.
Despite these negative influences, Transact invested heavily in infrastructure and staff training. Transact became an advanced level IBM, Lotus and Tivoli business partner. What sets Transact apart from all other service providers in Bermuda is our close IBM relationship, our use of world-class IBM and Cisco technology, and our highly trained and certified staff.
Transact has changed its business model to reflect the changed environment. We've expanded our service offerings with specific service offerings being developed for the local market. In the coming months, Transact will announce and launch several new services that will appeal to business and residential customers.
Throughout this year we've seen signs of increased e-commerce activity in Bermuda. With this increase in activity, we are confident that Transact's e-business will prosper. In addition, we expect our new service offerings aimed at the local market to be warmly received.
Facing the pending closure of the AT&T Global Network Node, Transact chose Cable & Wireless to provide our Internet bandwidth. We appreciate the efforts made by C&W to accommodate our requirements and we look forward to a long, growing relationship with C&W.
It was agreed at the Director's Meeting held in February 2000 to proceed with the development of Transact as a complete e-business service provider specialising in Internet services, application services and managed hosting services. Our business plan, prepared by Wyatt Sellyeh and delivered to us in December 1999, made it clear that investing in e-business would not guarantee profits in the fast-moving, e-commerce hosting and Internet space but, we could not sit by as the computer marketplace evolved. For example, selling "frame relay" through the AT&T Global Network faced increased competition from new voice and data services, which provide secure communication over the Internet, thus this revenue stream would in time evaporate.
In July 2000 we advised Shareholders that the payment of quarterly dividends would be suspended, "until Transact-e-Biz.com is profitable or we decide to refinance the development cost of this new business". We further noted that we anticipated entry into the market at the level noted would cost a minimum of $1.5 million and our initial investment of $550,000 for equipment would only be a small part of the total investment to be made.
The accumulated losses of Transact, which reflect our continuing investment in the development of this business, amounted to $474,904 at June 30th 2001. To this cost we must add the cost of state of the art systems and equipment purchased for this purpose amounting to $524,232 less depreciation of $180,596 which is included in our losses to date. This brings our total investment to date to $818,540 which is still less than the original $1.5 million we committed to this project in July last year.
Going forward through to the end of 2002, we forecast a steady decline in losses and expect that by the second half of 2002, we will generate monthly earnings before interest and depreciation."
Signed,
Donald P. Lines, OBE, FCA, JP
Chairman