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To: Joe Hoek who wrote (1447)	2/14/1998 1:51:00 PM
From: John Chew	Respond to of 7054

This is the profitability of TAD Division for six months. Sorry I do not have last qtr. right now. 6 Mos. 98 6 Mos. 97 Capital Sales 24,806,174 7,312,871 CGS 23,234,002 6,853,928 Gross Profit 1,572,172 458,943 SG&A 1,071,823 Inc. From Ops. 500,349 Int. Exp. -62,392 Inc. Bef. Taxes 437,957 Taxes 65,694 Net Income 372,263 91,064 **Net Margin Pct. 1.5007% 1.2453% Actrade SA 14,420,358 As volume goes up, their net margin will go up. Ultimately I think their net margin will go up to 4%, especially if they do offshore TADs. As to the drop in profitability from first to second, I haven't checked, but there has been the hiring of 11 new sales people, training and 2 new offices, so infrastructure expenses are a big part of that. Revenue Recognition: Here is Mr. Aharoni's response word for word: Ans: " By accounting rules, when we purchase a TAD, the TAD is the Product (TAD equals a note) this is the cost of sales, and when we collect the money, the amount that we collect, this is the revenue. This is similar to a wholesaler. Even if this was not correct and the "gross margin" was counted as revenue, the earnings would be the same. The net margin would go up. A better issue might be the collectability of revenues. But TADs are short-term and insured. Right now, Actrade has the majority of sales from TAD business, Majority of earnings coming from Actrade SA and smallest contribution, Less than 15% of earnings coming from Air Cond. Business. Big Six accounting firm: Amos was going to hire one last year, but he raised the money, so there was no need to placate investors and pay the extra $100,000 a year. But he does agree that this coming year he will hire one. He likes Zeller because three years ago the IRS challenged the recognition of Actrade's offshore income. The IRS dropped the challenge. So he is loyal to Zeller. He believes that with Actrade's earnings growth, the extra $100,000 is not such a big deal. Compensation: I am still studying this issue. There is good and bad. Why tie so much to the price of a stock. A stock price can go down as Net income goes up.