Profits at Bermuda Computer Services Group, which is the Island's IBM agent, have been decimated for the first six months of 2001 after the bottom line was hit by losses incurred by its e-commerce venture Transact and increased corporate and property losses.

The company reported that it only made $36,947, compared to $113,881 for the same six months in 2000, a drop of 67.6 percent.

Donald P. Lines, Chairman of BCS said in a report to shareholders on Friday that the net income of BCS Agencies came to $289,620 for the six months ended June 30th 2001 compared with net income of $227,200 last year.

But Transact losses for this year to date stood at $148,817 compared with losses of $81,722 in 2000 and corporate and property losses also amounted to $103,856 this year compared with losses of $31,597 last year, which included a gain of $91,177 on sale of investments.

And the company was further hit by declining sales, which dropped nearly 47 percent or $938,246 from $1.76 million to $823,716 due to the closure of The Computer Centre (TCC) in early 2000.

The drop in sales, Mr Lines said, was however, offset by sales increases by Transact of $250,029 and BCS Agencies of $62,420.

Mr. Lines said that more money would have to be spent on Transact and the share dividends that were suspended in June would be back in place by the second half of 2002.

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.

Mr. Lines said that in the early part of the year, the land and building at 20 Dundonald Street was transferred to BCS Properties Limited, its holding company at net book value.

BCS Agencies Ltd., which is IBM's exclusive agent, during the first six months of 2001 continued to build on the momentum established toward the end of the year 2000 for IT systems and solutions, according to Mr. Lines.

This segment of the group slightly exceeded revenue targets established by IBM for the 1st half of 2001.

Mr. Lines said: "We look forward to the second half of the year with cautious optimism as we recognise that global economic factors may negatively affect the IT investment decisions that some customers in Bermuda make."

In the statement Mr. Lines explained that Transact-e-Biz.com (Bermuda) Limited, was set up in 1999, "a time of unbridled optimism in Bermuda (and around the world) for a new economy based on e-commerce".

And he said the company "has dealt with the impact of several blows caused by external forces".

He explained; "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."

He added that in early in 2000 it became apparent that e-commerce hosting in Bermuda was going to develop slowly and in spring 2000 he said Income Tax jurisdictions around the world were announcing that e-commerce servers do not constitute a "permanent establishment for tax purpose" which eliminated the necessity for a company to keep its servers offshore.

And then he added, in the fall of 2000, the "dot com bubble burst". He said: "This was a major blow to e-commerce businesses around the world including Transact."

Mr. Lines said despite these negative influences, Transact invested heavily in infrastructure and staff training and added that now the company has changed its business model to reflect the changed environment, with expanded service offerings with specific service offerings being developed for the local market.

He added: "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."