lETTER FROM ED EGAN,
Dear fellow Shareholders,
Egan Systems closed the books on its second fiscal Quarter on June 30, 1999 with sales for the first half of $1,133,412 and earnings of $179,699. This compares with sales of $591,254 and a loss of $382,800 in the first half of 1998. For the second Quarter of 1999 your Company achieved sales of $482,000 and a profit of $47,000, both a record for Q2 and substantially better than the $349,193 and loss of $240,892 reported for Q2 1998.
In the first half of 1999, the Company's business consisted of essentially two distinct segments, the first, the sale of Licensed Products consisting of copies of or upgrades to its core COBOL language runtimes, development environments, certain tools, enhancements to these products and the second segment, Professional Services, which include software migration, custom programing and Year 2000 assessment and remediation. The sale of licensed products, which are traditionally very high (over 90%) gross margin sales, accounted for about 60% of all revenue for the half, with the Professional Services component accounting for the balance.
Year 2000 activity has not yet produced the magnitude of overall revenue than was anticipated and the Company can not explain the shortfall. We note that other companies engaged in the sale of Y2K tools and services with whom the Company corresponds report the same disappointment. The Company is currently involved in negotiation with several organizations to perform Y2K related work and expects to derive substantial revenue over the next twelve months from Y2K activity but believes that overall, Y2K revenue will be lower than expected by all. However, for Egan Systems, Y2K has introduced the Company to many users of outdated mini-computers that can and will benefit from the Company's migration tools and services in the future. As a result we expect the migration aspect of the Company's business to grow and thrive.
Our co-operative marketing agreement with Data General is continuing to lead to longer scale opportunities primarily with regard to system migration. The Company is benefitting from the good will generated by the success achieved as a subcontractor to Data General at a major transportation company. In addition, Egan Systems is in negotiation with Computer Associates to resell certain of its products to new and existing customers. These products have a high technical skill requirement that the Company can satisfy.
Egan Systems continues to invest heavily in its core Licensed product family with the twin goals of enhancing the appeal of our products to our existing world wide customer base and substantially increasing our ability to attract new customers in what is a $300+ million dollar annual market. To achieve this, the Company is determined to develop versions of its COBOL product that allow users of a competing product to easily compare the Company's cost/performance with that of its current supplier. If easy comparison (no requirement for a re-write) is possible, the Company believes that it can substantially increase its participation in this high margin market.
The Company is actively interested in acquisitions and/or mergers. However, with the price of the Company's shares so terribly low, our ability to act in the event we uncover something appealing is debatable.
Despite its willingness to contribute funding, resources and training, the Company has had no contact with its joint venture partners in China, Tech2020, directly or indirectly since early in the first Quarter. There has been no response to direct E-mail and fax inquiries nor has there been any response to bids submitted. Attempts to contact them through third parties have been non productive. No individuals from Tech 2020 have come to this country for training and subsequent to the original invitation to do so has any contact been received in this regard. No technology has been transferred but the Company has invested a million shares of free trading stock and approximately $50,000 in this venture to date and has retained counsel to consider its future course of action.
It is the Company's intention to hold the next annual shareholders meeting in April of 2000 on Long Island in New York, and in April of each year thereafter. While more than one year since the last meeting, this schedule will allow for the more complete accounting of the prior year's (1999) results, the preparation and distribution of the annual report, as well as to provide insight into the first quarters activity. A formal announcement of date, time and place as well as any proxy material will be provided in a timely fashion.
It is with regret that the Company announces the resignation, for personal reasons, of Mr. Brian Murphy from its Board of Directors. While only serving for a short period Mr. Murphy brought a fresh point of view and opportunity to our Board and his absence will be noted.
Thank you for this opportunity to share my thoughts with you and thank you for your support throughout the year.
Very truly yours,
Edward J. Egan
President and Chairman
Egan Systems Inc.
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