"For the first time in over twenty-five years the Company reported a loss for the year ended 31st December 1999 following a year of record earnings in 1998.
I will not dwell on the reasons for this loss as the reasons are clearly described in our Annual Report - but if shareholders have any questions about our 1999 results I would be pleased to try and answer them.
I think what is more important today is to look at where we are going. At the end of the first six months of operations this year we had earnings of $113,881 compared with a loss of $435,532 at this time last year. It should be noted, however, that in the first six months of last year there was a provision of $225,000 for an inventory write-off in connection with the decision by IBM to emphasize distribution of their computers over the Internet. This year, by way of contrast, earnings include a gain on sale of investments of $91,177.
It should be appreciated that this year's results are not truly comparable with last year for a number of reasons:
1. Sales are down from $2,340,000 to $1,761,000 entirely as a result of the decision by IBM to distribute PC's by sale on the internet yet our gross margins are up from $265,218 last year to $548,680 this year as a result of our change in emphasis to software solutions which our wholly-owned subsidiary, BCS Agencies, provides in concert with IBM.
2. This year's earnings include losses incurred by Transact-e-Biz.com, our new wholly-owned e-commerce start-up subsidiary. This year, net start-up costs amounted to a loss of $76,403 compared with a small profit of $14,309 in connection with our IBM/IGN communications business in 1999.
The losses of the Computer Store in the first six months of this year amounted to $93,066 with the Computer Store slowly but surely being reduced to "a PC service support centre". We are attempting to find ways in which to reduce the cost of providing this service without the earnings of continuing sales of new PC's - for we cannot expect to make a profit from only handling warranty claims for those who buy IBM's over the internet. We have a challenge as to how we are going to address these continuing losses of providing warranty claims services for there is no way in which we can compete with IBM itself who offers the same PC's over the internet.
The Agency is a bright light in our continuing operations for it is, as we pointed out earlier, the area where there is growth in earnings because of the demand for computer software solutions which may or may not require hardware to support such solutions. The Agency's earnings in the first half of this year amounted to $227,689 compared with $189,938 in the first half of last year.
At a Director's Meeting in February this year we agreed to proceed with the development of Transact-e-Biz.com, into a complete e-business service provider, specializing 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 evolves. For example, selling "frame relay" through the IBM/IGN network is facing increased competition from new voice and data services which provide secure communication over the Internet.
We believe, we now have a unique e-business service offering for both local and international companies in Bermuda. Our focus is to provide our customers, with the very best state of the art information technology solutions, and we have, without a doubt, the most sophisticated e-commerce hosting solution in Bermuda. This e-commerce hosting solution is also supported and managed by a highly trained staff who possess technology certifications from IBM, Cisco, Microsoft and Checkpoint.
This e-commerce hosting platform rivals the best hosting solutions found anywhere in the world. Large customers will feel confident that our e-commerce technology solution (on which their e-business depends) is of the highest quality and professionally managed. Smaller customers can take advantage of this high calibre solution via our shared hosting solution. We also offer our large Bermuda based international customers access to the AT&T Global Network, a managed, private, frame relay network. There is no competing service in Bermuda that offers the same level of reliability, end to end management and security. We use this same managed service ourselves to connect our Internet and e-commerce customers to the AT&T Internet Backbone in the USA. As a result our customers do not compete in Bermuda for bandwidth with residential dial Internet customers. surfing
We will soon announce the availability in Bermuda of the AT&T Global Dialer for Internet access. The Bermuda dialer will be one of almost 2,000 AT&T points of presence around the world. Corporate customers can access the Internet reliably and easily from almost anywhere in the world with a local phone call. From any dialer they can securely access their corporate servers. Residential customers will be able to enjoy a competitively priced, dial Internet service in Bermuda with dependable global roaming.
These new e-business solutions are now in the launch phase and we believe we have e-business solutions which are superior to any other offered locally. To help ensure a successful launch, we expect to invest heavily in the marketing and delivery of these services in the coming months.
Having said all of this, we are writing off the cost of this investment as it is incurred, which is consistent with our normal policy. We anticipated entry into the market at the level noted would cost a minimum of $1.5 million and our initial investment of $450,000 for equipment is only a small part of the total investment to be made. Substantial cost will come from marketing our services to customers around the world, recruiting additional highly skilled technical staff and continual training and certification of staff to ensure that we can provide the very best service and solutions to meet the needs of our global customers.
As a Bermuda Public Company, Bermuda represents our home and our future. The success of Bermuda in its efforts to become a global e-commerce centre will directly affect our success. To help with Bermuda's (and our own) success, we plan to develop an in-house training (apprenticeship) program for Bermudians who want to join our team of highly trained, motivated, e-business technology experts.
I would particularly like to thank Wyatt Sellyeh who, in addition to his role as Chief Financial Officer of BCS, has done an incredible job for us in negotiating arrangements with AT&T, IBM and others and for his work in developing and implementing the plan for our entry into the e-business field.
I would also like to thank Barry Wilson (General Manager) and Aaron Smith (Sales Manager) and the entire BCS staff for their hard work and understanding during this period of immense change - for without their efforts, we could not have come as far as we have in the development of our e-business initiative.
In fairness to shareholders I must point out that we have on occasion thought of raising additional capital for investment in Transact-e-Biz.com but, until we have a clearer understanding of the demands, cost and the market we have delayed any decision in this regard.
Once again, I would like to point out that earnings in the first six months ending 30th June 2000 which amounted to $113,881, include a non-recurring profit of $91,177 resulting from the sale of investments. Shareholders will have noted that the company did not pay a quarterly dividend on the 15th of July. Until Transact-e-Biz.com is profitable or we decide to refinance the development cost of this new business, the Directors have decided it is prudent for the company to conserve its resources and to forego dividends."