27.05.1999, Tallinna Farmaatsiatehas, TLN

TALLINNA FARMAATSIATEHAS

ANNOUNCEMENT

27.05.99

 

 

ADDITIONAL COMMENTS BY THE MANAGEMENT BOARD OF TFT AS TO 1998 AUDITED 

ANNUAL REPORT

 

Proceeding from chapter "Requirements to Issuers" of the Rules and 

Regulations of the TSE, and considering the questions asked by the 

shareholders on the annual general meeting, the Management Board of TFT 

AS founds necessary to make the following comments to the transactions 

reflected in the 1998 audited financial reports:

 

PRIVATIZATION EXPENSES OF POLFA (appendix 30.4.1)

 

According to the announcement published by TFT AS on March 03, 1998, a 

consortium including TFT AS was formed to privatize the Polish 

pharmaceutical company POLFA Tarchomin. In order to participate in the 

privatization process, TFT AS concluded a representation contract with 

AS Magnum Group. Since the representation contract, concluded on 

08.01.1998 (hereinafter representation contract), includes the 

provision of confidentiality, TFT is not entitled to publish the 

aforementioned contract in full extent. In order to publish the 

contract via the Stock Exchange, there have been consultations with AS 

Magnum Group. In the following sections, the Management Board of TFT AS 

takes the responsibility to briefly review for clarification purposes 

the circumstances related to the contract.

 

Pursuant to the representation contract, TFT AS was prepared to meet 

expenses of up to 1.5 million USD in order to participate in the 

privatization process. 

Considering the size of the privatization transaction of pharmaceutical 

giant and potential expenses, the company found necessary to make a 

prepayment, and pursuant to the contract, TFT AS made a prepayment of 

13.7 million USD.

 

As of this moment, AS TFT’s expenses related to privatization project 

of Polfa total 12 190 022 EEK.

The expenses have occurred mainly in the following fields: 

a) consultations on privatization 	5.0 mln EEK

b) privatization-related expenses	4.6 mln EEK

c) representation services according to the representation contract 

2.55 mln EEK.

 

Pursuant to the representation contract, the representative was 

obligated to secure the protection of the interests of TFT AS. In order 

to check the volume of expenses of TFT AS compared to the expenses of 

other parties, we will specify the volume of total expenses. In case 

the expenses of TFT AS are proportionally and unreasonably higher, we 

will begin negotiations with other parties to achieve a fair solution.

 

The unused portion of prepayment amounted to 1 529 977 EEK. Magnum 

Group returned the unused share in accordance with the mutual 

settlement agreement made on 02.12.98, pursuant to which also TFT paid 

its debt to Magnum Group (see appendix 30.4 of the annual report).

 

TFT AS has been billed in accordance with the activities and related 

expenses, which are determined in the representation contract.

Magnum Group has been consulted with for additional information on the 

nature of subcontracting works.

 

TRANSACTION WITH PROMETHEUS (Appendix 22) 

 

Due to the fact that company Prometheus was not solvent enough to 

continue to meet its liabilities to TFT AS proceeding from the contract 

concluded on 30.12.1997, TFT AS began negotiations with AS Magnum Group 

about meeting the guarantee liabilities, as provided in the respective 

letter of guarantee. 

 

According to the contract concluded on 30.12.97, the balance of the 

liabilities of Prometheus before write-off of the respective receivable 

was 1 334 899.35 USD (17 901 534.24 EEK).

 

Pursuant to the guarantee contract of AS Magnum Group and its 

appendixes, as of 14.04.99 Magnum Group guarantees the liabilities of 

Prometheus in total amount of 310 195.60 USD. The aforementioned 

agreement is guaranteed by AS Magnum Medical.

 

The customer receivables purchased by Prometheus from TFT AS can be 

referred to in total volume and individually as doubtful accounts. 

Pursuant to the accounting principle of conservatism, such receivables 

should be reflected in the expense accounts of the balance sheet.

 

Since Magnum Group has guaranteed the aforementioned transaction and 

agreement of MG is to repay more than 4 million EEK to TFT AS, then the 

estimated residue of debt of Prometheus in total amount of 13.9 million 

EEK transferred to he expense account.

 

As of 31.12.98, all the liabilities of Prometheus to TFT AS before 

revaluation of the aforementioned assets are (legally) in off-balance 

sheet terms binding and all receivables valid.

 

The liability will be met in 20 months as of the date the agreement is 

enforced. Prometheus will return to TFT AS the accounts receivable, 

which were taken over from TFT AS by Prometheus. TFT AS will evaluate 

the likelihood of recovering these accounts, and will likely make an 

offer to a collecting agent.

 

 

OTHER EXPENSES (Appendix 22)

 

Other expenses are reflected in the income statement in total amount of 

27 078 379 EEK; expenses in amount of 22 524 975 EEK are described in 

detail in appendix 22 of the annual report. Difference between the sums 

in the income statement and appendix are balanced exchange differences 

of 4 553 404 EEK.

 

1998	foreign exchange gain	11 242 899 EEK

foreign exchange loss	15 796 303 EEK

            

 

In 1998, the company formed a reserve account (on account of expenses) 

of 18 664 302 EEK to write off doubtful accounts; in 1998, the company 

received previously written off debts of 106 290 EEK, which was used to 

decrease expenses. 18 558 012 EEK was transferred to the expense 

account.

 

WRITTEN OFF ACCOUNTS RECEIVABLE (Appendix 4)

 

The company wrote off accounts receivables in total amount of 

13 339 351 EEK from the reserves of 1998 

By customers:               

 

    1.Aleks					3 659 319

    2.Herba Pharmaceutical			3 355 375

    3.Horizon Enterprice Ltd			1 743 177

    4.Mosfarmatsia				1 551 120

    5.Royston Selby				1 429 127

    6.TOO Universal-Med.			  750 064

    7.Izida					  425 583

    8.Lotsekt					  145 318

    9.Baltika					   66 060

   10.Profeks					   63 005 

   11.Farmakon					   56 399

   12.Korona M					   43 972

   13.Other					   50 832   

                        total		       13 339 351

 

All aforementioned companies are insolvent.

 

OTHER OPERATING EXPENSES (Appendix 24)

 

1.Transportation                3 541 535    mainly transportation of 

					     goods produced to consign. storehouses

2.Maintenance                     818 500    maintenance of equipment

3.Office expenses                 116 181    office supplies

4.Marketing                    16 754 772    registration of 

					     pharmaceutical products, product support 

					     expenses, advertising, custom 

					     costs, storage expenses 

5.Koolitus ja consultations     2 413 648    legal and economic 

					     consultations, employee training, seminars

6.Services purchased            2 060 952    analyses of goods produced 

					     and raw materials, security, communications, 

					     telephone, mail, garbage 

					     disposal, information services   

7.Representational expenses       206 757    expenses related to 

					     admission of visitors 

8.Leasing,rent                    432 250    rent of rooms and equipment 

9.Travelling expenses             775 310    travelling and accommodation expenses, 

					     allowances, other travelling expenses

10.Other fees                     427 146    different contract-related 

					     expenses, notarial fees, bank fees

11.Other expenses              12 403 612    privatization of Polfa 12 190 023

12.Written-off receivables     18 558 012    allowance for doubtful accounts 

                        

			total  58 508 675   

 

 

 

Arno Kaseniit

Member of the Management Board