, a. s. - Úvod | Pharmos · 2013, the most important part is represented by loans for the financing of receivables (a form of an interest-bearing timetable for repayment) and short-term

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PHARMOS, a.s., registered office at Těšínská 1349/296, 716 00 Ostrava-Radvanice, ID No.: 19010290

The company incorporated in the Company Register administered by the Regional Court in Ostrava, Section B, File 188 Phone: +420-597575211, Fax: +420-597575261, e-mail: [email protected]

, a. s.

2013 Annual report (01.01.2013 – 31.12.2013)

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Table of Contents 1. Historical data

1.1. Establishment of the Company, Shareholding Structure 1.2. Activities, Operation of Autonomous Outlets 1.3. History of Profit and Loss

2. Company Organisational Structure and Company Bodies 2.1. Company Organisational Structure 2.2. Company Bodies

3. Profit and Loss 4. Investment Construction and Development of Activities

4.1. Investment Construction 4.2. Plans concerning Investment Construction and Development of Activities

5. Selected Data from the Balance Sheet 6. Selected Data from the Profit and Loss Statement 7. Selected Data from the Cash Flow Statement 8. Information about Data Ascertained after 31.12.13 9. Anticipated Development of Company 10. Activities in Research, Development and the Environment Protection 11. Company Supervisory Board Report 12. Independent Auditors' Report concerning the Annual Report 13. Financial Statements 2013 14. Report of Relations among Related Persons for 2013

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1. Historical Data

1.1. Establishment of the Company, Shareholding Structure PHARMOS, a.s., a joint stock company, was founded in April 1991, and since its establishment it has been dealing

especially with the wholesale distribution of pharmaceuticals. In 1992, together with the German partner Stumpf AG, it established the subsidiary Pharmos CS, a. s. with a parity representation of both companies. In 1993, Stumpf AG also acquired capital participation in PHARMOS, a.s. In 1995, the original shareholders of PHARMOS, a.s. established Česká lékárnická, a.s., into which PHARMOS, a.s. shares were transferred, which substantially changed the shareholding structure of PHARMOS.

During its history, PHARMOS, a.s. has gained an important position in the sphere of wholesale distribution of

pharmaceuticals to public and hospital pharmacies. The company makes effort to cooperate closely and continuously with customers and create favourable conditions for the development of pharmacies and contribute thus to the further enhancement of the seriousness of the pharmaceutical profession in the CR. Since the moment it came into existence, PHARMOS, a.s. has been a stable member of a group of companies gathered around Česká lékárnická, a.s.

In 2002, PHARMOS, a.s. increased the registered capital of the company by CZK 37.7 mil., this increase being performed

by a sole subscriber, Česká lékárnická, a.s., by means of a non-monetary deposit of a part of Česká lékárnická, a.s. The deposited part of the company included all assets and liabilities related to the distribution activity of Česká lékárnická, and the reason for this strategic step was the effort to obtain a majority share in PHARMOS, a.s. for Česká lékárnická, a.s. (in this manner, the share of Česká lékárnická, a.s. increased from 49.2% to 71.6%) and also the effort to concentrate all the distribution activity in a single main distribution company, thus creating an efficiently functioning company with a strong capital. In 2004, the registered capital was further increased from retained profit and the share premium, i.e. from CZK 85.7 mil. to CZK 342.8 mil. – the ratios among individual shareholders remained unchanged. In 2009, Česká lékárnická, a.s. bought back some shares of small shareholders and its share was increased from 71.6% to 71.7%.

In 2004, PHARMOS, a.s. sold the shares of THERÁPON 98, a.s. – the entire share held by Česká lékárnická, a.s. In 2013, PHARMOS, a. s. has 2 major shareholders, Česká lékárnická, a.s. holding 71.7% of shares of PHARMOS, a.s. and

the German shareholder Phoenix International Beteiligungs GmbH. Mannheim, holding 28% of shares (the original owner Stumpf AG, a part of the trust Phoenix, transferred shares to this company). The remaining 0.3% of the shares is owned by small Czech shareholders - physical entities.

1.2. Activities, Operation of Autonomous Outlets

The main activities of PHARMOS, a.s. are dealing with substances and medicines that are subject to the regime of Act No. 167/1998 Coll. As regards the specific items of its assortment, the company is oriented mostly towards delivering pharmaceuticals and medicinal products to public and hospital pharmacies, as well as towards delivering medical supplies and dental supplies. Besides this basic assortment, PHARMOS, a.s. also supplies its customers with a complementary assortment represented by parapharmaceuticals, cosmetic products and dietary supplements.

In 2013, the company has its registered office in Ostrava-

Radvanice, Těšínská 1349/296. The proper distribution of goods to pharmacies was operated from the warehouses in Ostrava, Prostějov, Brno, Hradec Králové, Brandýsek, Plzeň and newly also from Tábor and from the warehouse for consignment and bonded warehouse (Pchery locality). The operation of the warehouse in Lukášov was terminated in 2009. Towards the end of 2009, the operation of the warehouse in Ústí nad Labem was terminated. In 2013, operation of warehouses in České Budějovice and Jihlava was terminated. The subregion of these two warehouses is now supplied from the warehouses in Tábor and Brandýsek.

Within the framework of its own warehouses, the Company also operates a series of consignment warehouses used for

distribution both within the framework of the individual distribution companies that are members of the Česká lékárnická, a.s. group and to other distributors on the Czech market. These consignment warehouses are located in Ostrava, Brno, Hradec Králové, Tábor and Brandýsek. PHARMOS, a.s. provides some suppliers/manufacturers with the form of complex services - a complete package consisting of warehousing services, distribution and supplier's/manufacturer's stock management according to instructions the supplier/manufacturer strictly determines (in the name of the supplier/manufacturer).

As regards the distribution of the entire assortment, PHARMOS, a.s. is an exclusive supplier for two independent

distribution companies with a limited liability, in which Česká lékárnická has at least 50% capital participation (the remaining capital is owned by the individual pharmacists within a given region). These are regional pharmacy distributors, namely Pražská lékárnická s.r.o. and PHARMACY-distribuce léčiv s.r.o., while these regional distributions represent an important part within the distribution strategy of Česká lékárnická, a.s.

In order to increase effectiveness of services and economic management of PHARMOS, a.s., the company bought from

Česká lékárnická, a.s. all shares in Jihlavská lékárnická s.r.o. and Plzeňská lékárnická s.r.o., where it now holds 100% share in the registered capital.

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1.3. History of Profit and Loss

In spite of the fact that the company was economically influenced by the general decrease in the pharmaceutical market, the achieved results for 2013 can be assessed positively. This evaluation does not relate only to the evaluation of achieved economic results, stabilization of the company during the crisis affecting the whole market, including the pharmaceuticals market, where the company holds its important position in the market even in spite of these unfavourable facts.

The year of 2013 brought a decrease in sales especially due to the termination of distribution for the association Česká

lékárna a.s. (Dr.Max) and also thanks to the total decrease in the pharmaceuticals market and the government’s measures to decrease prices of medicines.

As in 2012, the pressure of customers on reduction of margin continued growing in 2013. During 2013, the gross margin amounting to CZK 322 977 thousand was achieved and economic result before taxation amounting to CZK 5 119 thousand was achieved.

In 2013, already in the second half of the year, it was obvious that the measures taken during 2012 and at the beginning

of 2013, with regard to the departure of the important association of Dr.Max pharmacies, will not be sufficient due to the continuously decreasing pharmaceuticals market and price regulation, and therefore some other measures for optimization of processes and the total number of employees were adopted in the second half of the year.

These other adopted optimization measures immediately brought considerable positive impacts on the company economic

management, and mostly for this reason the company achieved positive operating results. These measures have not only short-term, but also long-term effect for the company stabilization contributing to achieving positive results also in the following periods of the years to come.

Indicator Year 2009 Year 2010 Year 2011 Year 2012 Year 2013 Total revenue from normal operations ('000 CZK) 12 509 620 14 118 682 14 215 412 14 001 286 10 989 373

Total sale of goods ('000 CZK) 12 381 708 14 009 569 14 116 440 13 914 173 10 915 443 Total export of goods ('000 CZK) 73 528 57 644 42 356 50 109 34 031 Share of supplies for export in total sale of goods (%)

0,59% 0,41% 0,29% 0,36% 0,30%

Revenue from services ('000 CZK) 127 912 109 113 98 972 87 113 73 930 Share in % of revenue from total revenue from normal operations

1,02% 0,77% 0,69% 0,62% 0,67%

Gross margin in absolute figures (CZK) 323 967 387 044 390 388 396 271 322 977 Gross margin (%) 2,62% 2,76% 2,76% 2,85% 2,95% Business surcharge (%) 2,69% 2,84% 2,84% 2,93% 3,04%

0

5 000 000

10 000 000

15 000 000

2008 2009 2010 2011 2012 2013

Celkové tržby z běžné činnosti (v tis. Kč)

0

100 000

200 000

300 000

400 000

500 000

2008 2009 2010 2011 2012 2013

Objem tvorby obchodní marže (v Kč)

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2. Company Organisational Structure and Company Bodies 2.1. Company Organisational Structure

In 2013, the organisational structure of PHARMOS, a.s. underwent no major alternations. The diagram provided below represents the situation as of 31/12/2013.

2.2. Company Bodies As of 31 Dec. 2013 Supervisory Board:

• Chairman of the Supervisory Board JUDr.Martin Švéda – membership from 10.01.13, entry in SL OR 21.2.13 • Member of the Supervisory Board PharmDr. Petr Nalevajka – 23.10.2013 membership renewed • Member of the Supervisory Board Mgr. Ilona Mravcová – 23.10.2013 membership renewed • Member of the Supervisory Board Mgr. Lea Lesáková – 23.10.2013 membership renewed • Member of the Supervisory Board Mgr. Radim Fiala – 2.8.2013 membership renewed • Member of the Supervisory Board Ing. Dušan Marek – membership from 10.01.13, entry in SL OR 21.2.13

Board of Directors:

• Chairman of the Board PharmDr. Jiří Korta – reelected 04.09.13, entry in SL OR 23.10.13 • Member of the Board of Directors Ing. Radovan Mališ • Member of the Board of Directors Ing. Marcel Divácký – membership from 02.04.13, entry in SL OR

15.04.13

Board of Directors

Supervisory Board

Director

Central purchasing and marketing

Sales

Economics and Finances

Logistics

Quality, Proper distribution

practice, ISO

Plant Ostrava

Plant Prostějov

Plant Brno

Plant Tábor

Plant Brandýsek

Plant Hradec Králové

Plant Plzeň

PHARMOS, a.s. General Meeting

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3. Profit and Loss The total volume of the revenue from goods sold amounted to CZK 10 915 443 thousand, decreased by 21.56% in

comparison with the same period of the last year. The total revenue from ordinary activity amounted to CZK 10 989 373 thousand, and the sale of goods had the most important share in this revenue volume. The decisive part of the revenue from goods was represented by the supplies of pharmaceuticals and other complementary assortment to public and hospital pharmacies. In absolute figures, the gross margin was CZK 322 977 thousand; in relative figures the margin was 2.95%. In comparison with 2012, the relative margin decreased.

In the course of 2013, there was a decrease in the realized revenue for Česká lékárna a.s. (Dr.Max) and the related

decrease in the realized margin compared to 2012. The most significant cost items remain costs of transportation implemented by the subsidiary LEKTRANS s.r.o. and wage costs. Other measures to optimize the delivery routes and reduce logistics costs were implemented.

IT services continued to be provided by the SoftPharm s.r.o. subsidiary for provision of software support of warehouse

software and helpdesk, and therefore the planned costs of these services were met. As regards financial management, the Company's situation is complicated most by the expense interests which have a

significant influence on the financial profit/loss. The expense interests represented CZK 23 558 thousand. Compared to 2012 they dropped by CZK 9 619 thousand. This decrease was caused by negotiating favourable conditions for investment purchases and receiving a significant volume bonus and favourable conditions for drawing external banking sources.

As of the last day of the monitored period, the Company’s assets reached a total of CZK 4 043 229 thousand and in

comparison with the balance at the end of the last fiscal year, they dropped by CZK 281 251 thousand. Compared with the level on 31/12/2012 the long-term tangible and intangible assets in net values decreased on 31/12/13 by CZK 5 433 thousand. The Company’s current assets showed a year-on-year decline by CZK 257 277 thousand. This decline is caused mainly by the decline in trade receivables in connection with termination of cooperation with Dr. Max pharmacies. Furthermore, there was a decline in stock level which was reduced as a result of the decline in sales referable to Dr. Max pharmacies.

The Company’s equity increased by CZK 2 950 thousand and its total volume reached CZK 576 038 thousand.

During 2013, PHARMOS, a.s. purchased business shares in Plzeňská lékárnická s.r.o. (acquisition price CZK 750 thousand,

difference in valuation after valuation by equivalence minus CZK 750 thousand, total valuation CZK 0) and Jihlavská lékárnická s.r.o. (acquisition price CZK 11 300 thousand, difference in valuation after valuation by equivalence minus CZK 913 thousand, total valuation CZK 10 387 thousand) from the parent company Česká lékárnická, a.s. with the intention to carry out a merger with the decisive date on 1 January 2013. With regard to the fact that the merger was not carried out, PHARMOS, a.s. proceeded to correction of claim valuation in Plzeňská lékárnická s.r.o. In accordance with the provision of Section 15a of the Decree No. 500/2002 Coll. the total amount of CZK 32 554 thousand was recorded in the Financial Statement of PHARMOS, a.s. in the item of the Balance Sheet A.IV.1 „Retained profit of previous years“ – correction of errors in valuation of trade receivables as of the balance sheet date 31/12/2012. This amount represents correction of valuation of trade receivables due from the affiliated company at that time, Plzeňská lékárnická s.r.o., that terminated its business activities before the date of the Financial Statement for 2012 and did not record sufficient amount of funds to pay due obligations.

4. Investment Construction and Development of Activities 4.1. Investment Construction

In 2013, the company did not perform any investment construction. Only repairs of the existing warehouse complexes ere carried out.

Presentation of the geographic location of the distribution warehouses of the company (PHARMOS, a.s. warehouses and distribution pharmaceutical limited liability companies warehouses).

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4.2. Plans concerning Investment Construction and Development of Activities

The company has also approved the investment construction plan for the next period of 2014 in which the construction of

a new hall in the warehouse complex in Pchery and the construction of a new warehouse complex in Brno are approved. However, the implementation of these projects is deferred namely due to actual sufficient capacity of storage facilities.

Other financial means will be invested only in the extension of repairs of the existing warehouse complexes. The company also continued in 2013 with preparations for changeover to the new in-house SW – MS Dynamics AX.

5. Selected Data from the Balance Sheet

We inform the user that in connection with reporting a different economic result, the Balance Sheet and Profit and Loss Statement for the last accounting period were adjusted for the purpose of comparability.

TEXT (NETT BALANCE) IN CZK '000 Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Total assets 3 953 924 4 085 555 4 653 352 4 324 480 4 043 229 Receivables for subscribed capital - - - - - Fixed assets 269 674 253 693 234 479 224 813 219 380 Intangible fixed assets 6 856 5 104 3 810 11 061 16 018 Tangible fixed assets 259 699 245 470 227 550 210 633 191 356 Financial investments 3 119 3 119 3 119 3 119 12 006 Current assets 3 638 491 3 798

311 4 377 815 4 058 699 3 801 422

Stock 1 116 643 1 118 228 1 303 262 1 208 181 1 287 720 Long-term debtors 70 123 32 616 16 667 13 462 16 110 Short-term debtors 2 304 012 2 449 324 2 984 493 2 647 680 2 480 269 Financial assets 147 713 198 143 73 393 189 376 17 323 Other assets - temporary asset accounts 45 759 33 551 41 058 40 968 22 427 Total liabilities 3 953 924 4 085 555 4 653 352 4 324 480 4 043 229 Equity 578 820 591 334 604 396 573 088 576 038 Registered capital 342 800 342 800 342 800 342 800 342 800 Capital funds - - - - -1 663 Funds from profit 176 005 176 005 176 005 176 005 176 005 Retained profit or loss from previous years 56 009 58 063 69 378 81 260 52 483 Profit or loss of current year 4 006 14 466 16 213 -26 977 6 413 Liabilities 3 346 674 3 480 849 3 999 109 3 698 747 3 430 923 Reserves 129 1 920 169 105 - Long-term payables 14 080 12 862 11 142 9 422 4 956 Short-term payables 1 933 965 1 766 067 2 157 798 1 973 695 1 896 238 Bank loans and borrowings 1 398 500 1 700 000 1 830 000 1 715 525 1 529 729 Other liabilities - temporary liability accounts

28 430 13 372 49 847 52 645 36 268

6. Selected Data from the Profit and Loss Statement

TEXT (CZK '000) Year 2009 Year 2010 Year 2011 Year 2012 Year 2013 Sales of goods purchased for resale 12 381 708 14 009 569 14 116 440 13 914 173 10 915 443 Cost of goods sold 12 057 741 13 622 525 13 726 052 13 517 902 10 592 466 Gross margin 323 967 387 044 390 388 396 271 322 977

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Sale of own products and services 127 912 109 113 98 972 87 113 73 930 Consumption of material and energy 21 734 19 981 18 713 18 605 15 618 Services 146 114 179 644 187 776 192 143 171 996 Added value 284 031 296 532 282 871 272 636 209 293 Wages and salaries 109 940 116 476 121 052 121 242 95 027 Social and health insurance 32 171 37 814 39 665 38 791 31 058 Social benefits 6 943 7 894 8 220 7 700 5 838 Taxes and charges 2 407 3 469 4 497 5 017 5 272 Depreciations of tangible and intangible fixed assets 21 655 23 778 24 763 24 925 24 286 Sales of fixed assets and materials 2 182 5 792 1 909 2 098 1 159 Net book value of sold fixed assets and materials 1 203 3 451 710 2 381 3 368 Change in the reserves and adjusting entries in the area of operations and complex retained expenses

-13 495 13 777 -2 233 35 891 15 434

Other operating income 7 688 7 656 43 510 9 164 11 532 Other operating expenses 43 521 22 789 63 831 37 753 26 419 Profit / loss from operations 89 556 80 532 67 785 10 198 15 282 Sales from sold securities and shares 5 295 2 088 3 690 150 70 Securities and shares sold 5 295 2 579 4 785 150 70 Change in the reserves and adjusting entries in the area of finance

- - - - -

Interest income 3 700 1 541 106 1 968 1 582 Interest expenses 71 907 67 643 45 594 33 177 23 558 Other financial income 14 534 14 912 11 227 8 415 19 409 Other financial expenses 21 559 9 064 11 850 11 377 7 596 Profit or loss from financial operations - 75 080 -60 745 -47 206 -34 171 -10 163 Income tax on ordinary activities - due 8 811 6 955 5 941 4 565 3 060 Income tax on ordinary activities - deferred 1 659 -1 634 -1 575 -1 561 -4 354 Profit or loss from ordinary activities 4 006 14 466 16 213 -26 977 6 413 Extraordinary income - - - - - Extraordinary expenses - - - - - Income tax on extraordinary activities - due - - - - - Extraordinary profit or loss - - - - - Profit or loss of current year 4 006 14 466 16 213 -26 977 6 413 Profit or loss before taxation 14 476 19 787 20 579 -23 973 5 119

7. Selected Data from the Cash Flow Statement

No. Text (CZK '000) 2009 2010 2011 2012 2013 P. Cash and cash equivalents at the beginning of the accounting

period 82 929 147 713 198 143 73 393 189 376

Z. Book profit or loss from ordinary activity before taxation 14 476 19 787 20 579 -23 973 5 119 A.1. Adjustments by non-monetary operations 75 236 101 316 66 819 92 309 63 905 A.1.1. Depreciation of fixed assets (+) excluding net book value of fixed

assets sold 21 655 23 778 24 763 24 926 24 286

A.1.2. Variation in adjustments and reserves, and variat. in temp. asset and liab. acc. (+/-)

-13 495 13 777 -2 233 35 891 15 434

A.1.3. Profit (loss) from the sale of fixed assets (-/+) - 979 -2 341 -1 199 283 2 209 A.1.4. Revenue from dividend and shares of profit (-) - 152 - - - - A.1.5. Interest expense (+) and interest income (-) 68 207 66 102 45 488 31 209 21 976 A* Net cash flow from operating activities before tax, changes in

working capital and before extraordinary items 89 712 121 103 87 398 68 336 69 024

A.2. Change in the need of working capital 75 236 13 019 -150 087 101 574 -189 209 A.2.1. Change in receivables from operating activities (+/-) 29 472 -103 773 -523 483 303 102 169 893 A.2.2. Change in short-term payables from operating activities (+/-) 383 647 118 545 558 206 -295 781 -279 630 A.2.3. Change in stock (+/-) - 337 883 -1 753 -184 810 94 253 - 79 472 A** Net cash flow from operating activities before tax and

extraordinary items 164 948 134 122 -62 689 169 910 -120 185

A.3. Interests paid, except for capitalized interest (-) - 71 907 -67 643 -45 594 -33 177 - 23 558 A.4. Interest received (+) 3 700 1 541 106 1 968 1 582 A.5. Income tax paid from operating activities and retrospective tax

assessments for past periods -13 680 -10 599 -8 927 -2 687 -5 254

A.6. Profit/loss related to extraordinary accounting transactions - - - - - A.7. Accepted dividends and share in profits (+) 152 - - - 0

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A*** Net cash flow from operating activities 83 213 57 421 -117 104 136 014 -147 415 B.1. Expenses incurred to acquisition of fixed assets - 18 567 -11 248 -6 259 -17 641 - 23 884 B.2. Revenue from sale of fixed assets 2 182 5 792 1 909 2 098 1 159 B.3. Loans and credits to subsidiaries and associates - - - - - B*** Net cash flow from investment activities -16 385 -5 456 -4 350 -15 543 -22 725 C.1. Change in long-term liabilities or short-term liabilities - 416 -145 -158 -113 C.2. Impact of changes in equity on cash - 2 044 -1951 -3 151 -4 330 - 1 800 C.2.1. Increase in cash and cash equivalents as a result of increase in

registered capital, reserve fund (+) - - - - -

C.2.2. Transfer of profit to partners (-) - - - - - C.2.3. Monet. donations and allocations into equity and other

associates’ and shareholders’ deposits (+) - - - - -

C.2.4. Coverage loss by partners (+) - - - - - C.2.5. Direct payments into funds (-) - - - - - C.2.6. Dividends paid, including withholding tax paid (-) - 2 044 -1 951 -3 151 -4 330 - 1 800 C*** Net cash flow related to financing activities - 2 044 -1 535 -3 296 -4 488 - 1 913 F. Net increase, or decrease in cash 64 784 50 430 -124 750 115 983 -172 053 R. Cash and cash equivalents at the end of the accounting period 147 713 198 143 73 393 189 376 17 323

8. Information about Data Ascertained after 31.12.13

All important facts after the date of the financial statement compilation are described in the Notes to the Financial Statement for 2013. No other important events occurred from the end of the balance sheet day to the day of this Annual Report compilation.

9. Anticipated Development of Company In 2014, the market development will mainly be influenced by the state’s interventions in the area of pharmaceuticals

price regulation and payment regulation. The market may be influenced considerably especially by implementation of payment auctions and in-depth price revisions that we expect in the second half of 2014. In the first half of 2014, we expect further decrease in the financial volume of the pharmaceuticals market by 5-7%, with the market stagnation in hospital pharmacies and decrease in relation to public pharmacies. Therefore, the attention will still be paid to the sales growth in pharmacies of hospital facilities and the development of the My Pharmacy project the pharmacies of which make up a major share in sales. The increased attention will be paid to regions of Southern and Western Bohemia and the Vysočina region where the market share of PHARMOS, a.s. is below 20%.

When the years of 2012 and 2013 were compared, a year-on-year decrease in the pharmaceutical market also represented a decrease in the implemented gross margin by CZK 73 mil. Already at the end of 2013, the Group of pharmacy owners initiated negotiations with representatives of the Ministry of Health of the Czech Republic and health insurance companies in order to stop this decline and ensure compensation of at least 50% of the year-on-year decline in the margin by means of changes in the price regulation. PHARMOS, a.s. joined the joint communiqué with the Group of pharmacy owners and the Czech Medical Chamber, via the association AVEL, addressed at Mr. Holcát, Dr., the Minister of Health. The change in remuneration of the distribution chain that would lead to the increased creation of the margin would stabilize the system and lead to reduction in the risk of terminating activities of many pharmacies with the impact on increased volumes of not settled distribution companies’ receivables.

The requirements for changes in remuneration will also increase due to expected changes in VAT rate for pharmaceuticals

and expected cancellation of regulation fees as of 1 January 2015. The reduction in prices of pharmaceuticals in the Czech Republic finally results in an increase in their non-availability.

Compared to the other EU states, price differences are a reason for exporting pharmaceuticals from the Czech Republic and the efforts of manufacturers and suppliers to control and manage flows of goods down to the level of end customers. In 2014, we can expect further extension of controlled channels, the so-called DTP (direct to pharmacy) and reduction in the market in which pharmaceutical wholesale stores participate. Only in the first quarter of 2014, more than 70 new products were included by manufacturers in DTP.

Increasing efficiency of all activities of the Company will be in the centre of the attention, especially in the area of setting optimal logistic procedures, work with financial sources and receivables. Since 2009, as part of our rationalisation measures, we have cancelled the warehouse in Ústí nad Labem, Jihlava, České Budějovice and Lukášov and established new warehouses in Plzeň and Tábor. Since January 2011, the activity of all subsidiary distribution companies has already been virtualized and distribution is carried out within the group of Česká lékarnická, a.s. only from the logistic centres of PHARMOS, a.s. In the course of 2013, shares of Jihlavská lékárnická s.r.o. and Plzeňská lékárnická s.r.o. were purchased back and their distribution activities were terminated. Business cooperation with customers of these distribution companies was taken over by PHARMOS, a.s. These steps also increased efficiency of mainly logistic activities and decreased costs of distribution of goods to pharmacies. Optimization of the number and location of logistic centres will continue to be the area we have to pay attention to. The year of 2014 will also be the year of final preparations in the implementation of the new robust SW solution Dynamics AX from Microsoft. This SW should provide us with another tool to improve and increase efficiency of our work in all areas. Implementation should be completed as of 31 December 2014.

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10. Activities in Research, Development and the Environment Protection

PHARMOS, a.s. pursues no activities in research or development. In the area of environment protection, our long-term effort is to minimize impacts of our activities on the environment.

In our capital construction and redevelopment projects, we make sure, for example, that these projects have no negative

impact on the environment. PHARMOS, a.s. runs no outlets or organizational constituents outside the Czech Republic. All operating premises are

situated in the Czech Republic and all activities are carried out in the Czech Republic.

11. Company Supervisory Board Report

Company Supervisory Board Report concerning Annual Financial Statements 2013

The Supervisory Board of PHARMOS, a.s. has been duly informed of the development of the Company’s business activities and has performed all tasks that it has both according to Czech law and in accordance with the Company’s Articles of Association.

The audit of the Annual Financial Statements and the Annual Report as on 31/12/2013 was carried out by the Company’s auditor AUDIT PROFESIONAL, spol. s r.o. The Supervisory Board has reviewed the Financial Statements and familiarized itself with the Auditor Statement on the Annual Financial Statements 2013.

The Supervisory Board thanks to all members of the Board of Directors and to all employees of PHARMOS, a.s. who participated in the Company’s activities. Supervisory Board In Ostrava, 17 June 2014

PharmDr. Jiří Korta Ing. Radovan Mališ Chairman of the Board of Directors Member of the Board of Directors

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INDEPENDENT AUDITOR’S REPORT

Intended for shareholders of PHARMOS, a. s.

Report of Annual Financial Statements

On the basis of our audit of 7 May 2014 we issued the following report on the Financial Statements included in this Annual Report:

We audited the enclosed Financial Statement of PHARMOS, a. s., consisting of the Balance Sheet as of 31 Dec. 2013, the Profit and Loss Statement for the year ending 31 Dec. 2013, the Summary of Changes in Equity for the year ending 31 Dec. 2013 and the Cash Flow Statement for the year ending 31 Dec. 2013 and the Notes to this Financial Statement, including descriptions of important accounting methods used and other supporting information. The PHARMOS, a. s. data are presented in the Notes to this Financial Statement.

Responsibility of the accounting unit statutory body for Financial Statement

The statutory body of PHARMOS, a. s. is responsible for compilation of the Financial Statement, giving a true and honest image in compliance with Czech bookkeeping standards and for such an internal control system it considers necessary for the compilation of the Financial Statement so that it cannot contain any significant (material) irregularities caused by a fraud or mistake.

Auditor’s responsibilities

Our responsibility is to give our opinion of the Financial Statement pursuant to our audit. We carried out the audit in compliance with the Act on auditors, international auditor standards and related application clauses of the Chamber of Auditors of the Czech Republic. In compliance with these standards, we are bound to follow ethic requirements and plan and carry out auditing so as to obtain adequate assurance that the Financial Statement does not contain any significant (material) inaccuracies.

The audit includes the implementation of auditor procedures to obtain the probative information on amounts and data published in the Financial Statement. The selection of procedures depends on auditor’s consideration, covering also evaluation of risks of significant (material) incorrectness of the data presented in the Financial Statement caused by a fraud or error. When evaluating these risks, the auditor passes judgement on the internal control system relevant for compilation of the Financial Statement, giving a true and honest picture. The objective of this judgement is to propose suitable auditor procedures, not to give an opinion of the efficiency of the internal control system of the accounting unit. The audit also includes the examination of suitability of accounting methods used, adequacy of bookkeeping estimates carried out by the management and the examination of the entire presentation of the Financial Statement.

We are convinced that the evidence we obtained provides adequate and suitable background for giving our opinion.

Auditor’s verdict

In our opinion, the Financial Statement gives a true and honest picture of PHARMOS, a.s. assets and liabilities as of 31 Dec. 2013 and costs, revenues and its income from operations and cash flows in the year ending 31 Dec. 2013 in compliance with Czech accounting standards.

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Report on Annual Report

We also audited the conformity of the Annual Report of PHARMOS, a.s. as of 31 Dec. 2013 with the Financial Statement included in this Annual Report. The statutory body of PHARMOS, a. s. is responsible for correctness of the Annual Report. Our task is to issue an auditor’s opinion on the compliance of the Annual Report with the Financial Statements based on the auditing carried out. We carried out the audit in compliance with international auditor standards and related application clauses of the Chamber of Auditors of the Czech Republic. These standards require the auditor to plan and carry out examination aimed at getting an adequate amount of certainty that the information included in the Annual Report, describing the facts that are also the subject of indication in the Financial Statement, are in all relevant (material) aspects in compliance with the appropriate Financial Statements. We are convinced that the auditing we carried out provides adequate data for the auditor’s opinion.

In our opinion, the information indicated in the Annual Report of PHARMOS, a. s. as of 31 Dec. 2013 is, in all relevant (material) aspects, in compliance with the Financial Statement above. Report on relations among property-related parties

We have also examined the objective accuracy of the data submitted in the Report on Relations among property-related parties of PHARMOS, a.s. for the year ending 31 Dec. 2013. The statutory body of PHARMOS, a.s. is responsible for compilation of this Report on Relations. Our task is to issue an approach to the Report on Relations on the basis of the audit carried out. We carried out the audit in compliance with the auditor standard No. 56 of the Chamber of Auditors of the Czech Republic. This standard requires us to plan and carry out examination aimed at getting a medium degree of certainty that the Report on Relations does not include any relevant inaccuracies. The examination is mainly limited to inquiring the company’s staff and to analytical procedures and to selectively executed examination of the objective accuracy of the data. That is why the examination provides a lower degree of certainty than the audit. We did not audit and that is why we do not convey the auditor’s verdict. Pursuant to our examination, we did not discover any relevant objective inaccuracies in the data submitted in the Report on Relations among property-related parties of PAHRMOS, a.s. for the year ending 31 Dec. 2013 In Ostrava, on 18 June 2014 On behalf of AUDIT PROFESIONAL, spol. s r. o. Jurečkova 643/20, Moravská Ostrava, 702 00 Certificate KAČR No. 64 Ing. Jana Krkošková, auditor Certificate KAČR No. 1293 and the company executive head

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Notes to the Financial Statement PHARMOS, a.s.

As of 31 Dec. 2013

I. TABLE OF CONTENTS

TABLE OF CONTENTS 17

1. POPIS SPOLEČNOSTI Chyba! Záložka není definována.

2. BASIC RESOURCES FOR FINANCIAL STATEMENT COMPILATION 21

3. ACCOUNTING METHODS 21

a) Intangible fixed assets 21

b) Tangible fixed assets 22

c) Financial assets 22

d) Stock 23

e) Accounts receivable 23

f) Derivatives 23

g) Equity 23

h) Liabilities 24

i) Leasing 24

j) Foreign currency operations 24

k) Use of estimates 24

l) Revenue and expense accounting 24

m) Income tax 24

n) Grants/Investment incentives 24

o) Emission permits 25

p) Subsequent events 25

q) Changes in methods of evaluation, depreciation, comparability and correction of errors in past periods 25

4. FIXED ASSETS 25

r) Intangible fixed assets ('000 CZK) 25

s) Tangible fixed assets ('000 CZK) 27

t) Long-term financial assets ('000 CZK) 28

5. STOCK 28

6. RECEIVABLES 28

7. ADJUSTMENTS 30

Adjustment creation for Plzeňská lékárnická s. r. o. was posted to Other operating results (see item 4. c of these Notes). 30

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8. SHORT-TERM FINANCIAL ASSETS 30

9. OTHER ASSETS 30

10. EQUITY 30

11. RESERVES 32

12. LONG-TERM PAYABLES 32

13. SHORT-TERM PAYABLES 32

14. BANK LOANS AND BORROWINGS 33

15. OTHER LIABILITIES 33

16. DERIVATIVES 33

17. INCOME TAX 34

18. LEASING 34

19. ASSETS AND LIABILITIES NOT INDICATED IN BALANCE SHEET 34

20. REVENUES 35

21. STAFF COSTS 35

22. REVENUES FROM SALES REALIZED BY RELATED PARTIES 35

23. EXPENDITURE ON RESEARCH AND DEVELOPMENT 36

24. SIGNIFICANT ITEMS OF PROFIT AND LOSS STATEMENT 36

25. CONTINUATION OF THE COMPANY WITH UNLIMITED DURATION 37

26. SIGNIFICANT EVENTS OCCURRED AFTER BALANCE SHEET DAY 37

27. receivables and LIABILITIES TOWARDS ENTERPRISES IN CONSOLIDATED AGGREGATE 37

28. SUMMARY OF CASH FLOWS (REFER TO ENCLOSURE 1) 38

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1. COMPANY DESCRIPTION

Name: PHARMOS, a.s. Registered office: Těšínská 1349/296, Ostrava-Radvanice, Postal code: 716 00 Legal form: Joint stock company ID No.: 19010290 VAT No.: CZ19010290

Subject of enterprise:

- Handling of substances and preparations subject to the mode of Act No. 167/1998 Coll. to the following extent: preparations containing narcotics listed in Annex No. 2 Act No. 167/1998, preparations containing narcotics listed in Annex No. 5 Act No. 167/1998 and preparations containing narcotics listed in Annex No. 6 Act No. 167/1998 and others – pursuant to decision of the Ministry of Health of the Czech Republic No. 44/2002 of 04.07.2002

- Production, sale and services not indicated in Annexes 1 to 3 of the Trade Act - Activity of auditors, bookkeeping, tax records keeping

Establishment of company:

The Company was established by incorporation in the Companies Register kept by the Regional Court in Ostrava, Section B, Insert 188 on 30 April 1991. Start of operation of the accounting unit: 30.04.1991 Balance Sheet Date: 31.12.2013 Financial Statement compilation day 06.05.2014

INFORMATION CONCERNING IMPLEMENTED OR FORESEEN TRANSFORMATION OF THE COMPANY

The accounting unit does not plan any transformation of the company.

INFORMATION CONCERNING CHANGES IN FISCAL YEAR

The accounting unit does not plan to shift to a marketing year. Incorporated registered capital:

Total volume CZK 342 800 000.00 (100% paid up) Incorporated on 10/9/2004 on the basis of a decision adopted in the Shareholders' Meeting in March 2004

Shares: - 275 pcs of registered shares with a nominal value of CZK 100 000.00 - 5710 pcs of certificated registered shares with a nominal value of CZK 5 000.00 - 13 pcs of registered shares with a nominal value of CZK 50 000.00 - 386 pcs of ordinary shares with a nominal value of CZK 100 000.00

On 16.6.2010, the shareholder – Česká lékárnická, a.s., filed a proposal with the District Court in Ostrava for redemption of 2 pcs of shares of PHARMOS, a.s. in the nominal value of CZK 1.1 million as the shares were lost or destroyed. The decision on redemption of shares by the District Court in Ostrava became effective on 18/02/2012.

Persons holding shares in the registered capital of the accounting unit exceeding 20%: Name of individual or

trade name of corporation

Residence, registered office

As of 31 Dec. 2012 As of 31 Dec. 2013 i.e. % share i.e. % share

PHOENIX International Beteiligungs GmbH Mannheim, FRG

28,00 96 000 28,00 96 000

Česká lékárnická, a.s. Těšínská 1349/296, 71600 Ostrava-Radvanice, Czech Rep.

71,67 245 685 71,87 246 400

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Organizational structure of accounting unit and any significant changes thereof during the previous fiscal year: There were no significant changes to the organizational structure as compared to the situation during the previous year. A new warehouse was established in Tábor and the warehouses in České Budějovice and Jihlava were liquidated.

Organizational structure of PHARMOS, a.s.

Shareholders' Meeting

Board of Directors

Supervisory Board

Director

Central purchasing

Marketing and sales

Economics and Finances

Logistics

Quality, Proper distribution

practice, ISO

Plant Ostrava

Plant Prostějov

Plant Brno

Plant Tábor

Plant Brandýsek

Plant Hradec Králové

Plant Plzeň

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Members of statutory and supervisory bodies as of the balance sheet date:

Title Last name Name Note Chairman of the Board Korta Jiří Date of membership 04.09.13, entry in SL OR 23.10.13. Member of the Board of Directors

Mališ Radovan Date of membership 01.12.11, entry in SL OR 23.10.13.

Member of the Board of Directors

Divácký Marcel Date of membership 02.04.13, entry in SL OR 15.04.13.

Chairman of the Supervisory Board

Švéda Martin Date of membership 10/01/13, entry in SL OR 21/02/13.

Member of the Supervisory Board

Nalevajka Petr 23.10.13 renewal of membership in the Supervisory Board.


Mravcová Ilona 23.10.13 renewal of membership in the Supervisory Board.


Lesáková Lea 23.10.13 renewal of membership in the Supervisory Board.


Fiala Radim 02/08/13 renewal of membership in the Supervisory Board.


Marek Dušan Date of membership 10/01/13, entry in SL OR 21/02/13.

Entries made in the dossier of the Commercial Register As of the date of Final Accounts compilation, the following changes in the Supervisory Board were made on 06.05.14: Mgr. Karel Šlegr – Member of the Board of Directors – was deleted, his membership terminated 2/4/2013, deleted from SL OR on 15/4/2013. Mr. Grünewald – Chairman of the Supervisory Board – deleted from SL OR 21/2/2013. Mr. Nöll – Member of the Supervisory Board – deleted from SL OR 21/2/2013. The parent company of the Company and at the same time of the whole consolidation group is Česká lékárnická, a.s. The Company has no organizational unit abroad.

2. BASIC RESOURCES FOR FINANCIAL STATEMENT COMPILATION The Notes are compiled in compliance with the Ministry of Finance Decree No. 500/2002 Coll. as subsequently amended, by which means some provisions of Act No. 563/1991 Coll., on accounting, as subsequently amended, are implemented, for the accounting entities that are entrepreneurs subject to double-entry accounting. The data in the Notes are based on the bookkeeping papers of the accounting unit (accounting documents, books and other accounting papers) and on other data available to the accounting unit. The values are expressed in thousands of CZK, unless stated otherwise. We inform the user of this Financial Statements that in connection with reporting a different economic result (see item 4.c of these Notes), the Balance Sheet and Profit and Loss Statement for the last accounting period were adjusted for the purpose of comparability.

3. ÚČETNÍ METODYACCOUNTING METHODS Evaluation, depreciation and accounting methods used by the Company during compilation of the Financial Statement for 2013 and 2012 are as follows:

a) Intangible fixed assets

Intangible fixed assets are evaluated in acquisition prices that include the cost of acquisition and expenses related to acquisition. Depreciation

Chairman of the Supervisory Board

Švéda

Martin

JUDr.

Member of the Supervisory Board Nalevajka Petr PharmDr.

Member of the Supervisory Board Mravcová Ilona Mgr.

Member of the Supervisory Board Lesáková Lea Mgr.

Member of the Supervisory Board Fiala Radim Mgr.

Member of the Supervisory Board Marek Dušan Ing.

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Depreciations are calculated on the basis of the acquisition price and anticipated service life (4 years) of the relevant assets. The Depreciation Plan is updated during application of the intangible fixed assets on the basis of anticipated service life and expected residual values of the assets. Petty intangible fixed assets are reported at a separate analytical account 013018 - Petty intangible fixed assets. Intangible fixed assets can be classified as petty on condition that they do not fulfil the conditions for being classified as fixed assets and this concerns intangible assets with the acquisition price exceeding the amount of CZK 10 000 excl. VAT. As of 1 January 2003, petty intangible fixed assets and petty tangible fixed assets are depreciated over a period of 24 months. Petty intangible fixed assets falling outside the conditions above are reported as the Company's expenses at account 518 - Other services. These assets are not indicated in the off balance sheet or inventoried. If there is a decline in book values of intangible fixed assets, the Company creates adjustments due to temporary disuse, damage, etc.

b) Tangible fixed assets Tangible fixed assets are evaluated in acquisition prices that include the cost of acquisition, transport costs, customs duty and other costs related to their acquisition. Credit interests are not part of the acquisition price. As of 1 Jan. 2002, as a result of implementation of a non-monetary investment of Česká lékárnická, a.s., PHARMOS, a.s. also registers valuation difference to acquired assets totalling CZK 105 803 thousand whereas this item represents the difference between the accounting appraisal of the non-monetary investment at the depositor taken over to the acquirer’s book-keeping (i.e. PHARMOS, a.s.) and the appraisal compiled by 2 independent experts appointed by a court for the appraisal of the non-monetary deposit of Česká lékárnická, a.s. The net book value of this valuation difference toward the acquired assets is CZK 21 160 thousand on the date of the Financial Statement. As regards tangible fixed assets acquired on the basis of a non-monetary deposit of Česká lékárnická a.s. in PHARMOS, a.s., the acquirer (i.e. PHARMOS, a.s.) continues – from the tax perspective – in the depreciations commenced by the original owner, in accordance with Section 30, Paragraph 10 of the Income Tax Act, i.e. the entry price for the evaluation of assets in the company’s books is the net book value of such assets at the depositor. Spending on technical revaluation of tangible fixed assets increases their acquisition prices. Repairs and maintenance are charged to the costs. Depreciation

Depreciation is calculated on the basis of the acquisition price and expected useful life (e.g. machinery 3 - 20 years, buildings and structures 30 – 50 years) of the applicable asset. The Depreciation Plan is updated in the course of application of a tangible fixed asset on the basis of anticipated useful life and expected residual value of the asset. The Company does not use the component depreciation method. Petty tangible fixed assets are reported at a separate analytical account 022028 - Petty tangible fixed assets. Tangible fixed assets can be classified as petty on condition that they do not fulfil the conditions for being classified as tangible fixed assets and the acquisition price exceeds the amount of CZK 5 000 VAT excluding, and the service life will be longer than 1 year. Petty tangible fixed assets falling outside the conditions above are reported as the Company's expenses at account 501 - Consumption of material. These assets are not indicated in the off balance sheet or inventoried. If there is a decline in the book value of a tangible fixed asset, the Company creates adjustments due to temporary disuse, damage, etc. The differences in valuation to acquired assets are depreciated evenly during a period of 15 years.

c) Financial assets

The short-term financial assets are made up of valuables, cash and money in bank accounts, trading securities, debt securities with maturity up to 1 year held until maturity, own shares, own trade shares, own debentures and other feasible securities. The long-term financial assets are made up namely of capital ownership, feasible securities, shares and debt certificates held until maturity.

Shares and securities are evaluated by acquisition prices that include the cost of acquisition and expenses related to acquisition, e.g. fees and commissions for brokers. As of 31 Dec., the individual components of the financial assets are revaluated in the manner indicated below: Trading securities by a real value and the variation of the real value is charged into costs or revenues.

Feasible securities (except for debentures with fixed interests) and shares representing the minority participation by a real value, the variation of the real value is charged into equity capital as differences in valuation from revaluation of assets and liabilities.

Capital participations with a decisive and substantial influence are evaluated by the acquisition prices and revaluation is charged into equity capital as differences in valuation from revaluation of assets and liabilities.

The real value represents a market value which is declared at domestic or foreign stock exchanges, or in some case, a qualified estimation or expert's testimony if the market value is not available. The acquisition price of participation adjusted to the amount corresponding to the participation of the Company in equity capital is understood as equivalence.

If there is a decline in the book value of the long-term financial assets which are not evaluated at the end of the balance sheet date, the difference is considered as temporary reduction in the value and it is charged as an adjustment.

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d) Stock

Accounting of stock - implemented by stock records - method A

Release of stock from warehouse is accounted: - FIFO method

Evaluation of stock

• Evaluation of stock created at own costs: o not applied during the year

• Evaluation of purchased stock:

o in actual acquisition prices, including: � price of acquisition

� secondary acquisition costs: � transport expenses � customs � bonuses

The adjustment for stock is created pursuant to the following criteria:

- Stock expiring within 3 months - 100% of the stock value - Stock expiring within 6 months - 50% of the stock value

e) Accounts receivable

Accounts receivable are evaluated by their nominal values at the moment of their origination. Purchased accounts receivable are evaluated by their acquisition prices. Evaluation of dubious receivables is reduced by means of adjustments charged to spending on their realization values, namely based on individual assessment of individual debtors and age structure of the receivables. Active estimated accounts payable are evaluated on the basis of expert estimation and calculation. Receivables and active estimated accounts payable are divided into short-term (maturity period within 12 months, including) and long-term ones (maturity period more than 12 months) with the fact that the short-term ones are payable within one year from the balance sheet date.

f) Derivatives

Derivatives are initially evaluated by nominal values (in case of purchased derivatives by the acquisition prices). The derivatives in the enclosed Balance Sheet are indicated as part of other short-term/long-term receivables or payables. Derivatives are subdivided into trading derivatives and security derivatives. Security derivatives are negotiated in order to secure real values or for the purpose of cash flow securing. For a derivative to be classified as a security derivative, the variations in real value or in cash flows resulting from security derivatives must compensate, partly or in full, the changes in the real value of the secured item or changes in cash flows resulting from the secured item, and the Company must document and prove the existence of the securing relationship and the high efficiency of securing. In other cases, these are trading derivatives. As of the balance sheet date, the derivatives are revalued to the real value. Changes in real values of trading derivatives are charged into financial expenses or revenues. Changes in real values of derivatives, which are classified as securing the real value, are also charged into financial expenses or revenues along with the relevant change in real value of the secured asset or liability related to the secured risk. Changes in real values of derivatives, which are classified for securing the cash flows, are charged into equity capital and it is indicated in the Balance Sheet by means of differences in evaluation from revaluation of assets and liabilities. The ineffective part of securing is directly charged into financial expenses or revenues.

g) Equity

The capital stock is indicated in the amount registered in the Commercial Register of the Regional Court. The relevant increase or decrease in the capital stock pursuant to the decision of the General Meeting, which was not registered as of the Financial Statement date, is indicated as changes in the capital stock. The Reserve Fund serves for covering losses and risks as well as financing the Company in periods that may occur in its business activities when its incomes are not sufficient. The Fund will be supplied with allocations from net profit in the amount of 5% every year until the reserve fund reaches 20% of the capital stock. The Board of Directors makes decision on how to use the reserve fund. Every utilisation of the reserve fund must be approved by the Supervisory Board. Statutory and other funds came into being by taking over the property of Česká lékárnická, a.s. in 2002.

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h) Liabilities

The Company creates lawful reserves in terms of Act on reserves and reserves for covering losses and risks in cases when there is a high probability to determine the title, amount and settlement term with meeting material and chronological correlations.

Long-term and short-term liabilities are indicated in nominal values. In other liabilities item there are also the values detected as a result of evaluation of financial derivatives by a real value. Long-term and short-term loans are indicated in nominal values. Even the part of the long-term loans payable within one year from the balance sheet date is considered as a short-term loan. Passive estimated accounts payable are evaluated on the basis of expert estimation and calculation.

i) Leasing

The Company charges the lease of property that it includes lease payments in expenses and activates, in the event of financial leasing, the relevant value of the asset under the lease at the time when the lease agreement expires and the possibility of purchasing is applied. Lease payments paid in advance are accrued receipts. Indication of aggregate liabilities due to leasing and the value of property under the lease are indicated in Chapter 18.

j) Foreign currency operations

Assets and liabilities acquired in a foreign currency are evaluated in Czech crowns. When converting foreign currencies into Czech currency, the Company uses the current daily exchange rate announced by the Czech National Bank (the respective declared daily exchange rates are valid for the entire following business day). As of the balance sheet date, receivables, cash and liabilities were evaluated using the CNB exchange rate valid on 31/12/2013. Realized and non-realized exchange rate profits and losses are charged into financial revenues or financial expenses of the current fiscal year except for long-term financial assets.

k) Use of estimates

The compilation of the Financial Statement requires the Company management to use estimates and expectations that have an influence on indicated values of assets and liabilities as of the Financial Statement date and on the indicated amount of revenues and expenses during the period under consideration. The Company management determined these estimates and expectations on the basis of all relevant information available. Nevertheless, it is evident from the principle of estimate that real values may differ from these estimates in future.

l) Revenue and expense accounting Revenues and expenses are charged based on chronological differentiation, i.e. within the period they are chronologically correlated with.

The Company does not use accruals and deferrals in the following cases: - when the amounts are insignificant and if left in expenses or revenues without apportionment, the purpose of accruals or deferrals is not aggrieved and the accounting unit does not thereby demonstrably pursue the intentional adjustment of operating results. These are e.g. newspaper and magazine subscriptions, buying calendars for the next year. The irrelevance limit is CZK 5 000. - if there are recurrent expenses or incomes (such as payment of premium – Kooperativa, remuneration for activities of auditors or tax consultants relating to the previous fiscal period).

m) Income tax

The spending on income tax is calculated using an applicable tax rate from the book profit increased or decreased by permanently or temporarily non-recognizable expenses for tax purposes and tax-free revenues (e.g. creation and settlement of other reserves and adjustments, cost of representation, difference between book and tax depreciations, etc.). Furthermore, items reducing tax base (gifts), tax-deductible items and income tax abatements are taken into account. Deferred tax liability reflects the tax effect of transient differences between the net book values of assets and liabilities in terms of bookkeeping and determination of income tax base, considering the realization period.

The differences, which came into being on grounds of the first year of deferred tax accounting from all transition differences, are charged to equity capital.

n) Grants/Investment incentives

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A grant is booked at the moment of its reception or indisputable claim to reception. The grant received for settlement of expenses is charged to operating or financial revenues. The grant received for acquisition of tangible fixed assets, including technical improvement, and for settlement of interests included in the acquisition price of the asset reduces the acquisition price or the expenses of acquisition themselves. In 2010, the Ministry of Labour and Social Affairs decided on provision of a grant for implementation of the project "Comprehensive development programme for key employees of PHARMOS, a.s." In 2012, the project was completed and the final report was approved in February 2013.

o) Emission permits

The Company does not register any assets of this category.

p) Subsequent events

The effect of events occurred between the balance sheet day and the date of the Financial Statement compilation is recorded in financial reporting in the case that these events provided additional information on the facts that had existed as of the balance sheet day.

If between the balance sheet day and the Financial Statement compilation date there were significant events, taking into consideration the facts that occurred after the balance sheet day, the consequences of such events are described in the Notes to the Financial Statement, but they are not booked in financial reporting.

q) Changes in methods of evaluation, depreciation, comparability and correction of errors in past periods

There were no significant changes in methods of evaluation or depreciation in the period under consideration.

Correction of errors in past years – accounting was adjusted – more details in item 4c. Since 1 September 2013, the methodology of bonus accounting has changed for bonuses belonging to affiliated companies or customers. Pharmos claims bonuses from manufacturers in a summary way for all these companies, and further it hands them over to these companies in the form of tax document. These bonuses were accounted in the Profit and Loss Statement before (504, 604), since September 2013 these „flow“ bonuses are charged in the Balance Sheet through the accounts 325 and the bonuses remaining in Pharmos are only charged in the Profit and Loss Statement.

4. FIXED ASSETS

a) Intangible fixed assets ('000 CZK) ACQUISITION PRICE

Opening balance Accruals Disposal Ending balance Software 31 978 804 570 32 212

Valuable rights 26 542 26 542

Other long-term intangible assets 1 740 435 1 305

Outstanding long-term intangible assets 2 696 10 717 2 789 10 624

Total 2013 62 956 11 521 3 794 70 683

Total 2012 52 057 19 081 8 181 62 956

ALLOWANCES

Opening balance

Depreciation Sales Disposal Ending balance

Adjustments Book value

Software

23 647 3 760 575 26 832 26 832

Valuable rights 26

542 0 26 542 26 542

Other long-term intangible fixed assets

1 706 21 436 1 291 1 291

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Total 2013 51

895 3 781 1 011 54 665 54 665

Total 2012 48

246 3 648 51 895 51 895

Aggregate amount of petty intangible fixed assets not included in the Balance Sheet as of 31 Dec. 2013 and 31 Dec. 2012 in acquisition prices was CZK 1 304 thousand and CZK 1 740 thousand.

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b) Tangible fixed assets ('000 CZK)

ACQUISITION PRICE Opening balance Accruals Disposal Transfers Ending balance Lands 14 957 2 264 12 693

Structures 206 517 748 27 207 238

Machinery, devices, equipment 125 231 1 708 21 864 105 075

Motor vehicles 3 923 1 820 2 103

Inventory 6 970 543 6 427

Other tangible fixed assets 216 216

Tangible fixed assets not-in-use 1 732 4 951 2 669 4 014

Prepayments for tangible fixed assets 261 305 305 261

Adjustments to acquired assets 105 803 105 803

Total 2013 465 610 7 712 29 492 443 830

Total 2012 463 137 13 021 10 548 465 610

ALLOWANCES

Opening balance

Depreciation

Sales, liquidation, disposal

Ending balance

Adjustments

Book value

Structures 68 962 8 611 2 291 75 282 0 75 282

Machinery, devices, equipment 100 280 6 784 21 852 85 212 0 85 212

Motor vehicles 1 685 1 434 1 820 1 299 0 1 299

Inventory 6 453 120 543 6 030 0 6 030

Other tangible fixed assets 7 1 0 8 0 8

Adjustments to acquired assets 77 589 7 054 0 84 643 0 84 643

Total 2013 254 976 24 004 26 506 252 474 0 252 474

Total 2012 235 587 21 283 1 894 254 976 0 254 976

BREAKDOWN OF TANGIBLE FIXED ASSETS SUBJECT TO RIGHT OF LIEN

Property Acquisition

value Security Purpose Duration Liability

Warehouse complex Ostrava-Radvanice (building and land)

47 mil. CZK Entry of right of lien to Certificate

of Ownership registered by the

Real Estate Registry.

021000-Buildings,

halls, structures 031000 -

Lands

During the period of the

credit relationship

according to the credit and

Based on credit contracts entered into with financial

institutions.

Structures

Warehouse complex Prostějov (building and land)

14 mil. CZK

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Warehouse complex Hradec Králové (building and land)

19 mil. CZK security

agreement

Warehouse complex Brno (building and land)

63 mil. CZK

Warehouse complex Brandýsek (building and land)

54 mil. CZK

ČSOB bank guarantee for Medicom 10 mil. CZK

Total 2013 207 mil. CZK

Total 2012 207 mil. CZK

c) Long-term financial assets ('000 CZK) During 2013, PHARMOS, a.s. purchased business shares in Plzeňská lékárnická s.r.o. (acquisition price CZK 750 thousand, difference in valuation after valuation by equivalence minus CZK 750 thousand, total valuation CZK 0) and Jihlavská lékárnická s.r.o. (acquisition price CZK 11 300 thousand, difference in valuation after valuation by equivalence minus CZK 913 thousand, total valuation CZK 10 387 thousand) from the parent company Česká lékárnická, a.s. with the plan to carry out merger with the decisive day 1 Jan. 2013 on the basis of which mutual receivables and obligations would expire. With respect to the fact that merger was not implemented, PHARMOS, a.s. proceeded to correction of receivable valuation in Plzeňská lékárnická s.r.o. In accordance with the provision of Section 15a of the Decree No. 500/2002 Coll. the total amount of CZK 32 554 thousand was recorded in the Financial Statement of PHARMOS, a.s. in the item of the Balance Sheet A.IV.1 „Retained profit or loss from previous years“ – correction of errors in valuation of trade receivables as of the balance sheet date 31/12/2012. This amount represents correction of valuation of trade receivables due from the affiliated company at that time, Plzeňská lékárnická s.r.o., that terminated its business activities before the date of the Financial Statement for 2012 and did not record sufficient amount of funds to pay due obligations. Feasible securities and shares: Current year – 2013

Trade name Registered office Acquisition price Share % Adjustment Dividends

Profit/loss of current year

AGB Praha a.s. Praha, Czech Rep. 102 102 - -

Lekis s.r.o. Ostrava, Czech Rep. 119 17,7 % - - -293

Previous fiscal year - 2012 Trade name Registered

office Acquisition price Share % Adjustment Dividends

Profit/loss of current year

AGB Praha a.s. Praha, Czech Rep. 102 102 - -

Lekis s.r.o. Ostrava, Czech Rep. 119 17,7 % - - 264

5. STOCK Evaluation of expiring stock is reduced to a sale price by means of adjustments account which is indicated in the correction column of the enclosed Balance Sheet (refer to item 7). The adjustments were determined by the Company management based on the following criteria:

- Stock expiring within 3 months - 100% of the stock value (CZK 673 thousand) - Stock expiring within 6 months - 50% of the stock value (CZK 331 thousand) 6. RECEIVABLES

In 2013 and 2012, adjustments were created for the outstanding receivables that are considered as dubious (refer to item 7.). The receivables under insolvency proceedings are duly filed; the other problem receivables are exacted by court or solved in cooperation with our law office. Due to bad debts, rejection of bankruptcy and compensation or due to unsatisfied receivables in bankruptcy proceedings, etc. in 2013 and 2012, the Company wrote off receivables into costs in the amount of CZK 3 000 thousand and CZK 5 098 thousand. The receivables are still kept in accounts of the off balance sheet.

__________________________________________________________________________

_________________________________________________________________________________29_____



OVERDUE RECEIVABLES

As of 31 Dec. 2013 As of 31 Dec. 2012

Trade debtors Other Trade debtors

Other

Less than 30 151 425 - 205 947 - 31 – 60 76 973 - 111 898 - 61 – 90 33 005 - 55 236 - 91 – 180 85 877 - 43 838 - 181 and more 143 183 - 86 516 -

The significant part of the receivables is put away in favour of bank institutions to cover the credits accepted. In respect of overdue receivables over 180 days, some clients have worsened payment morale who are regularly monitored and appropriate steps to recover due amounts are initiated. Interest-bearing loans to customers represent an important group of receivables (trade debtors). Of the total volume granted in 2013, the most important part is represented by loans for the financing of receivables (a form of an interest-bearing timetable for repayment) and short-term bridging loans for a period of approximately 3-5 months. The remaining part is represented by the financial interest-bearing loans for assistance in the solution of business plans concerning the development of pharmacies. Each appropriate contract is drawn up in the form of a notarial record and provided with security instruments (bills of exchange, lien on real estate, deed of transfer of receivables, etc.).

2013

2012

Total Overdue Payable

within 1 year

Payable later than 1 year

Total

Overdue Payable within 1 year

Payable later than 1 year

Financial loans 34 782 29 108 3 623 2 051 34 678 29 121 2 373 3 184

Interest-bearing timetables for repayment 74 154 44 356 15 739 14 059 68 668 32 557 24 634 11 477

Total 108 936 73 464 19 362 16 110 106 274 64 606 27 007 14 661

On the balance sheet date, repayment schedules for interest-bearing receivables, financial and short-term loans after maturity amounting to CZK 73 464 thousand are filed. Adjustments are created to these liabilities in the amount of 97%. Interest-bearing deposits amounting to CZK 29 million were approved by the General Meeting. RECEIVABLES IN FOREIGN CURRENCY

EUR

USD

Total in currency

ČNB exchange

rate Total in CZK Total in

currency ČNB

exchange rate

Total in CZK

2012 204 326 25,14 5 136 760 43 760 19,055 833 847

2013 228 202 27,425 6 258 440 39 560 19,894 787 007

RECEIVABLES WITH TERM OF PAYMENT EXCEEDING FIVE YEARS The Company records the receivable due in 2018 amounting to CZK 786 thousand due to Recognition of obligation and the Agreement on Settlement of Mutual Rights and Duties (the repayment schedule). Estimated accounts active primarily comprise compensation estimates – special prices, marketing actions.

__________________________________________________________________________

_________________________________________________________________________________30_____



7. ADJUSTMENTS

Adjustments refer to temporary reduction of asset values (presented in items 4., 5. and 6.). Changes in accounts for adjustments ('000 CZK):

Adjustments as of:

Balance as of 31 Dec. 2011

Adjustment

creation

Adjustment

accounting


Adjustment

creation

Adjustment accounting


fixed financial assets 102 0 0 102 0 0 102

stock 243 192 1 020 1 071 0 67 1 004

receivables 101 656 7 400 4 827 104 229 17 609 2 003 119 835 Plzeňská lékárnická s.r.o. receivables 0 0 0 0 32 554 0 32 554

ADJUSTMENT CREATION FOR PLZEŇSKÁ LÉKÁRNICKÁ S. R. O. WAS POSTED TO OTHER OPERATING RESULTS (SEE ITEM 4. C OF THESE NOTES).

8. SHORT-TERM FINANCIAL ASSETS

The Company holds in possession short-term securities of the My Pharmacy project, the market assessment of which is CZK 1 185 thousand.

9. OTHER ASSETS

Deferred expenses primarily comprise insurance and are charged to expenses of the period where they belong to in terms of material and time. Deferred expenses primarily comprise bonuses from purchasing and are charged to revenues of the period where they belong to in terms of material and time.

10. EQUITY

The Company's fixed capital consists of shares: CURRENT FISCAL YEAR - 2013

Types of shares Number of shares Nominal value Outstanding shares Maturity period Registered shares 275 CZK 1 000 000 - - Registered shares 13 CZK 50 000 - - Registered shares 5710 CZK 5 000 - - Ordinary shares 386 CZK 100 000 - -

__________________________________________________________________________

_________________________________________________________________________________31_____



PREVIOUS FISCAL YEAR - 2012

Types of shares Number of shares Nominal value Outstanding shares Maturity period Registered shares 275 CZK 1 000 000 - - Registered shares 13 CZK 50 000 - - Registered shares 5710 CZK 5 000 - - Ordinary shares 386 CZK 100 000 - -

INCREASE OR DECREASE IN EQUITY

As of 31 Dec. 2013 As of 31 Dec. 2012

Registered capital 342 800 342 800 Changes in registered capital - - Statutory reserve fund 140 000 140 000 Capital funds - share premium - - Statutory and other funds Gains or losses from evaluation of assets and liabilities

36 005 -1 663

36 005

Retained profit of prior years 85 037 81 260 Accumulated loss from previous years - - Profit or loss of current year 6 413 5 577 Correction of profit or loss in 2012 - -32 554 Retained profit or loss from previous years -32 554 - Equity capital, total 576 038 573 088

Retained profit or loss is described in detail in item 4c of these Notes. Gains or losses from evaluation include revaluation of business shares by equivalence in Jihlavská lékárnická s.r.o. and Plzeňská lékárnická s.r.o.

Pursuant to a decision of the Shareholders' Meeting, the profit generated in 2012 was divided as follows: Allocation for dividends (gross dividend) 1 670 Allocation to royalties for statutory and supervisory bodies 130

Allocation to reserve fund 0 Allocation to statutory and other funds - Transfer to retained profit from previous years 3 777 Allocation to increase in registered capital - PROFIT/LOSS FOR 2012, TOTAL 5 577

The change in profit/loss for 2012 was taken into account in the accounting statements for the previous period.

Proposal for the distribution of profit generated during current year:

A proposal for the distribution of profit generated during current year will be presented by the Board of Directors for approval during Shareholders' Meeting.

__________________________________________________________________________

_________________________________________________________________________________32_____



11. RESERVES

2012 2013

Additions Withdrawal Balance Additions Withdrawal Balance

Lawful reserves (accrued taxes) - - - - - -

Non-tax reserves

- Reserve for unpaid social and health insurance

105 116 105 0 105 0

- Reserve for unpaid remunerations

- - - - - -

- Reserve for others 0 54 0 - - -

12. LONG-TERM PAYABLES

The Company did not indicate any „Other long-term payables“ as of 31 December. We do not file LIABILITIES WITH TERM OF PAYMENT EXCEEDING FIVE YEARS.

13. SHORT-TERM PAYABLES

OVERDUE LIABILITIES

As of 31 Dec. 2013 As of 31 Dec. 2012

Trade debtors Other Trade debtors

Other

Less than 30 110 411 - 133 840 - 31 – 60 -699 - 1 047 - 61 – 90 -269 - 238 - 91 – 180 -621 - -2 636 - 181 and more -1 497 - -866 -

The declared negative amounts are caused by accepted rectifying tax documents that were credited in January 2014. LIABILITIES IN FOREIGN CURRENCY

EUR

USD

Total in currency

ČNB exchange

rate Total in CZK Total in

currency ČNB

exchange rate

Total in CZK

2012 4 668 381 25,14 117 363 087 - - -

2013 6 083 205 27,425 166 831 897 - - -

OTHER LIABILITIES We register an amount of CZK 32 980 thousand on the account 325 – Other liabilities, of which CZK 28 800 thousand represents accepted interest-bearing loans from individuals. These liabilities have not exceeded the maturity period.

__________________________________________________________________________

_________________________________________________________________________________33_____



RELATIONS TOWARDS NATIONAL INSTITUTIONS

AMOUNTS PAYABLE ON SOCIAL INSURANCE We have no overdue liabilities

AMOUNTS PAYABLE ON PUBLIC HEALTH INSURANCE

We have no overdue liabilities

TAX ARREARS TOWARDS REVENUE AUTHORITIES

We have no tax arrears

IMPORTANT POTENTIAL LOSS FOR WHICH NO RESERVE HAS BEEN CREATED IN COMPANY'S BOOKS

none known

On 13 March 2007, Pharmos, a.s. was delivered a payment demand from Braddock Finance & Capital Ltd., Stoper House, Weber Street 15, London SE1 0RE, represented by Mgr. Marek Vojáček, attorney, with registered office at Týn 1049/3, 110 00 Prague 1 in the amount of CZK 100 000 000, including interests on late payments accruing by 5.5% until the date of payment. PHARMOS, a.s. filed an objection against this payment demand on 13 March 2007. In 2009, the legal action was rejected by the District Court in full. Braddock Finance lodged an appeal with the Regional Court in Ostrava. On 24 October 2012, the Supreme Court of the Czech Republic dismissed the action of Braddock Finance & Capital Ltd. pursuant to Court Ruling ref. No. 32 Cdo 4577/2010-232. No legal remedy is admissible against this ruling. ESTIMATED ACCOUNTS PAYABLE Estimated accounts payable primarily comprise estimates of uninvoiced energy, consignment sale and estimates of compensation for distribution Ltd.

14. BANK LOANS AND BORROWINGS

2013 2012

Bank Total limit Amount in thousand

CZK Amount in thousand

CZK Bank loans KB, a.s. 500 000 450 000 475 000

VÚB, a.s. 500 000 161 900 370 000

ČSOB, a.s. 350 000 0 0

ČS, a.s. 500 000 230 651 282 000

ING bank 380 000 288 200 280 000

Current accounts ČSOB, a.s. 400 000 398 978 308 525

VÚB, a.s. 0 0 0

Total 2 630 000 1 529 729 1 715 525 Interest costs related to bank loans and borrowings for years 2013 and 2012 were CZK 23 046 thousand and CZK 32 686 thousand. On the grounds of business secret, we do not indicate the interest rate.

15. OTHER LIABILITIES

Deferred expenses primarily comprise management remunerations, abandonment of consignment warehouses and they are charged to expenses of the period where they belong to in terms of material and time.

Accruals and deferrals primarily comprise estimates of uninvoiced energy, consignment sale and estimates of compensation for distribution Ltd.

16. DERIVATIVES

The Company charged a nested derivative in the amount of CZK 624 thousand which came into existence on the basis of a loan contract with PHARMOS, a.s. SK.

__________________________________________________________________________

_________________________________________________________________________________34_____



17. INCOME TAX

In 2013 and 2012, the Company posted income tax in the amount of CZK 3 060 thousand and CZK 4 565 thousand. The Company, as of 31 Dec. 2013, has no arrears of tax.

In accordance with the Czech Accounting Standard 3 (hereinafter the CAS), the accounting unit reported deferred tax from previous accounting and tax differences:

2013 2012

RESIDUAL VALUE (ACCOUNTING) > RESIDUAL VALUE (TAX) -8 654 -24 050

Outstanding default interest - receivable -2 885 -3 183 Net book value to rectifying item towards acquired assets -21 160 -28 214

Total taxable -32 699 -55 447

Deferred tax liability (2012-19%) -6 213 -10 535 RESIDUAL VALUE (ACCOUNTING) < RESIDUAL VALUE (TAX) - -

Adjustments to securities - -

Adjustments to stock 1 004 1 071 Net book value to rectifying item towards acquired assets - -

Accounting adjustments to receivables 5 531 5 121

Accounting reserves - 105

Outstanding property transfer tax - -

Outstanding penalties 82 154

Unapplied tax loss - -

Total deductibles 6 617 6 451

Deferred tax receivable (2012-19%) 1 257 1 226 Deferred tax, total (+ receivables /- liabilities -4 956 -9 309

The Company indicates a deferred tax of CZK 4 956 thousand.

18. LEASING The Company does not file any leasing. No operative lease is used.

19. ASSETS AND LIABILITIES NOT INDICATED IN BALANCE SHEET The Company, as of 31 Dec. 2013 and 31 Dec. 2012, had assets and liabilities of monetary and non-monetary nature that are not indicated in the Balance Sheet. The accounting unit reports the following assets on accounts of the off balance sheet: Goods in consignment stock: CZK 210 325 thousand Goods received to consignment sale: CZK 5 105 thousand ACCEPTED COLLATERALS

CO RER Accepted mortgage right to real estate – Mgr. Tamara Tichá 4803 Kuřim Accepted mortgage right to real estate – RNDr. Lukešová Jiřina 1846 Uherský Ostroh Accepted mortgage right to real estate – Zitko Miroslav Mgr. 1142 Žatec Accepted mortgage right to real estate – Zitková Greta PharmDr. 3961 Žatec Accepted mortgage right to real estate – Group of pharmacy owners 14972 Strašnice Accepted mortgage right to real estate – MUDr. Runczik + Dagmar Stinga 2423 Smržovka Accepted mortgage right to real estate – Mgr. Jana Vacková 750 Město Albrechtice Accepted mortgage right to real estate – Mgr. Jarmila Chudá 5507 Hlubočepy Accepted mortgage right to real estate – Mgr. Jana Vacková 967 Ostrava – Přívoz Accepted mortgage right to real estate – Lékárna 203-02, s.r.o. 922 Pchery Accepted mortgage right to real estate – ZENKAS, s.r.o. 1281 Moravské Budějovice

__________________________________________________________________________

_________________________________________________________________________________35_____



Receivables and payables not tracked in book-keeping and not indicated in the Balance Sheet (colaterals accepted for a different enterprise by reason of bank loan, Letter of Credit or law of exchange unless accruals are created) PROVIDED GUARANTEES

Company ID No. Bank guarantee (aval) Lektrans s.r.o. 27779271

Bank guarantee (aval) Lektrans Bohemia s.r.o. 28616600

20. REVENUES

Breakdown of Company revenues ('000 CZK):

2013

2012

Total Thereof inland Thereof EU Total Thereof inland Thereof EU

Revenues from ordinary activities 10 989 373 10 945 411 43 962 14 001 286 13 933 498 67 788 Therein: Revenues from sale of goods 10 915 443 10 881 412 34 031 13 914 173 13 864 064 50 109

Revenues from sale of services 73 930 63 999 9 931 87 113 69 434 17 679 Negotiation interests 6 017 6 017 - 3 040 3 040 - Exchange rate differences 15 016 14 217 799 12 580 11 745 835 Other revenues 12 719 12 719 - 6 175 6 175 - Total 11 023 125 10 978 364 44 761 14 023 081 13 954 458 68 623

21. STAFF COSTS

Breakdown of staff costs ('000 CZK): 2013 2012

Total headcount Members of governing bodies

Total headcount Members of governing bodies

Average headcount 466 58 592 66

Labour costs 95 027 20 661 121 242 24 939

Social and health insurance 31 058 6 820 38 791 8 172

Social benefits 5 838 - 7 700 62

Staff cost, total 131 923 27 481 167 733 33 173

In 2013 and 2012, the members and former members of statutory and supervisory bodies received the following remunerations ('000 CZK):

2013 2012

Remuneration to members of statutory bodies 390 165

Remuneration to members of supervisory bodies 130 130

Total 520 295

22. REVENUES FROM SALES REALIZED BY RELATED PARTIES

Except for remunerations indicated in par. 3, no former or current members of the statutory, management and supervisory bodies were awarded any compensations or benefits during the course of the fiscal year. According to the Statutes, members of the Board of Directors are employees of PHARMOS, a.s. In 2013 and 2012, members of statutory and supervisory bodies and managers received no loans, recognised collaterals, advance payments and other benefits and they do not own any shares of the company.

__________________________________________________________________________

_________________________________________________________________________________36_____



The Company generally sells the goods to related parties. In 2013, this sales volume reached CZK 395 972 thousand, in 2012 CZK 417 253 thousand. Revenues from sales realized by related parties as of 31 Dec. ('000 CZK):

Related party Purchaser 2013 2012

Mgr. Radim Fiala Mgr. Radim Fiala 29 558 31 933

Mgr. Radim Fiala + Pharm Dr. Petr Nalevajka Stavovská, s.r.o. 239 819 233 955

Mgr. Radim Fiala Lékárna Sagena s.r.o. 17 677 13 228

PharmDr. Petr Nalevajka Lékárna Quercus s.r.o. 10 082 11 542

PharmDr. Petr Nalevajka B.H.N. s.r.o. 12 326 13 853

Mgr. Ilona Mravcová Mgr. Ilona Mravcová 17 727 30 749

Mgr. Ilona Mravcová M – PHARM s.r.o. 38 796 54 349

Mgr. Lea Lesáková Le Pharmacy s.r.o. 29 987 27 684

23. EXPENDITURE ON RESEARCH AND DEVELOPMENT

The Company made no expenses on research and development in 2013.

24. SIGNIFICANT ITEMS OF PROFIT AND LOSS STATEMENT

Services – the most important items ('000 CZK): 2013 2012

External transport charges 90 643 101 362

Publicity, advertising, promotion 13 313 14 668

Charges for transport between warehouses 12 133 14 823

Rental of non-residential premises 8 845 7 257

IT administration 7 139 7 202

Total 132 073 145 312

Remunerations for statutory auditor as of 31 Dec.:

Services 2013 2012

Mandatory audit of financial statements, including the Annual Report verification

750 725

Other verification services

Tax consulting

Other non-auditing services

Total 750 725

__________________________________________________________________________

_________________________________________________________________________________37_____



Other operating revenues are primarily made up of unsettled contractual interests on late payments in the amount of CZK 6 017 thousand. Other operating costs are primarily made up of bad debts according to § 24 para 2 and bonuses in the amount of CZK 23 464 thousand. Other financial revenues are primarily made up of exchange rate profits in the amount of CZK 15 016 thousand. Other financial expenses are primarily made up of exchange rate losses in the amount of CZK 5 737 thousand.

25. CONTINUATION OF THE COMPANY WITH UNLIMITED DURATION

The Financial Statements as of 31 Dec. 2013 was prepared on assumption that the Company will continue operating as an enterprise with unlimited duration. Thus the enclosed final accounts do not contain any modifications that may result from this uncertainty.

26. SIGNIFICANT EVENTS OCCURRED AFTER BALANCE SHEET DAY No significant events occurred.

27. receivables and LIABILITIES TOWARDS ENTERPRISES IN CONSOLIDATED AGGREGATE

RECEIVABLES TOWARDS ENTERPRISES IN CONSOLIDATED AGGREGATE

2013 2012 Total Overdue Total Overdue Plzeňská lékárnická s.r.o. (ID No.: 25238213) 32 796 32 796 39 480 39 009 Česká lékárnická, a.s. (ID No.: 63080877) - - 7 - Pražská lékárnická s.r.o. (ID No.: 25633741) 104 456 17 549 124 917 25 188 Jihlavská lékárnická s.r.o. (ID No.: 25534459) 22 - 16 757 - Lekis s.r.o. (ID No.: 25356089) 118 - 122 - PHARMACY - distribuce léčiv s.r.o. (ID No.: 65139577) 112 060 - 223 701 118 273

THERÁPON 98, a.s. (ID No.: 25399195) 43 - 8 - GALMED a.s. (ID No.: 47672145) 67 117 31 233 15 564 3 861 LEKTRANS s.r.o. (ID No.: 27779271) 826 500 944 925 PHARMOS, a.s. SK (ID No: 35974559) 5 097 3 331 2 909 2 315 Sanovia, a.s. (ID No.: 28570481) Lékárna U Nádraží (ID No.: 26821681)

23 810 5 634

2 957 913

19 751 -

6 895 -

Lektrans Bohemia s.r.o. (ID No.: 28616600) SoftPharm s.r.o. (ID No.: 28656385)

343 66

120 -

265 -

263 -

Overdue receivables of Plzeňská lékárnická s.r.o. (adjustments are created in full amount), Pražská lékárnická s.r.o. (max. 30 days) and GALMED a.s. (max. 60 days). As of 31/12/2013, we file the provided loans as follows: GALMED a.s. CZK 7 000 thousand PHARMOS, a.s. SK CZK 52 108 thousand Sanovia, a.s. CZK 9 000 thousand LEKTRANS s.r.o. CZK 496 thousand These loans are in the maturity period.

LIABILITIES TOWARDS ENTERPRISES IN CONSOLIDATED AGGREGATE

2013 2012 Total Overdue Total Overdue Plzeňská lékárnická s.r.o. (ID No.: 25238213) - - 41 - Česká lékárnická, a.s. (ID No.: 63080877) 1 177 769 139 - Pražská lékárnická s.r.o. (ID No.: 25633741) 5 989 29 2 972 - Jihlavská lékárnická s.r.o. (ID No.: 25534459) - - 243 - Lekis s.r.o. (ID No.: 25356089) 274 - 383 - PHARMACY - distribuce léčiv s.r.o. (ID No.: 65139577)

11 816 - 2 041 -

THERÁPON 98, a.s. (ID No.: 25399195) 68 - - - GALMED a.s. (ID No.: 47672145) 8 399 69 333 10 LEKTRANS s.r.o. (ID No.: 27779271) 3 816 - 4 716 - PHARMOS, a.s. Sk. (ID No: 35974559) 3 613 806 812 42 Sanovia, a.s. (ID No.: 28570481) Lékárna U Nádraží (ID No.: 26821681)

203 34

- -

851 -

- -

Lektrans Bohemia s.r.o. (ID No.: 28616600) SoftPharm s.r.o. (ID No.: 28656385)

2 475 824

- 364

4 527 387

- -

__________________________________________________________________________

_________________________________________________________________________________38_____



As of 31/12/2013, we file the accepted loans as follows: THERÁPON 98, a.s. CZK 15 000 thousand Česká lékárnická, a.s. CZK 8 000 thousand These loans are in the maturity period. In the volume of reported receivables and liabilities, rectifying tax documents are included according to their nature.

28. SUMMARY OF CASH FLOWS (REFER TO ENCLOSURE 1)

The accounting unit calculates the cash-flow by the indirect method. For the purpose of cash-flow definition the following was considered as cash and cash equivalents: Money in the treasure and in banks, valuables, short-term securities, and shares.

Compiled on: 06.05.2014 Approved on: 06.05.2014

Signature of the person responsible for compilation:

Signature of a statutory representative:

__________________________________________________________________________

_________________________________________________________________________________39_____



__________________________________________________________________________

_________________________________________________________________________________40_____



Report on the Relations between Controlling and Controlled Entity Issued pursuant to the provisions of § 66a (par. 9) of the Commercial Code

PHARMOS, a.s., registered office at Těšínská 1349/296, Ostrava-Radvanice, Postal code: 71600, ID No.: 19010290, incorporated in the Companies Register kept on file at the Regional Court in Ostrava, Section B, Insert 188 (hereinafter the "Submitter"). As regards the provision of Section 66a) of Act 513/1991 Coll. - the Commercial Code, as amended, the Company is a member of a business group (trust) in which the following relationships have been established between the Submitter and the controlling entities and between the Submitter and the persons controlled by the same controlling entities (hereinafter the "Affiliated Entities“). This Report regarding the relationships among the entities specified below was issued in accordance with the provisions of Section 66a Paragraph 9 of Act 513/1991 Coll., the Commercial Code (hereinafter the ComCo), as amended, during the fiscal year from 1 January 2013 to 31 December 2013 (hereinafter the „Fiscal Year“). The following contracts and agreements were entered into between the Submitter and the below-specified entities during this Fiscal Year, and the following legal and other deeds were adopted or effected: A. CONTROLLING ENTITIES

The vertical relationships between the controlling and controlled entities are specified hereunder. For detailed information, see Annex 1 Group Structure. The structure is as follows:

Česká lékárnická, a.s.. registered office at Těšínská 1349/296, Ostrava - Radvanice, ID No.: 63080877

Phoenix International Beteiligungs GmbH registered office Mannheim, FRG

Relationship to the company: Controlling entity B. OTHER AFFILIATED ENTITIES

a) Companies controlled by the Submitter ----------------------------------

b) Companies controlled by the same controlling entity as the Submitter (affiliated companies) and the

companies controlled by them with whom business relationships were established during the

evaluated period

Pražská lékárnická s.r.o., registered office at Theodor 28, 273 08 Pchery, ID No.: 25633741

Jihlavská lékárnická s.r.o., registered office at Těšínská 1349/296, Ostrava - Radvanice, ID No.: 25534459

Plzeňská lékárnická s.r.o., registered office at K Jezu 32, 326 00 Plzeň, ID No.: 25238213

PHARMACY-distribuce léčiv s.r.o., registered office at Kojetínská 4219/10, 796 01 Prostějov, ID No.: 65139577

Lekis s.r.o., registered office at Těšínská 1349/296, Ostrava - Radvanice, ID No.: 25356089

THERÁPON 98, a.s., registered office at Štefánikova 1301, 742 21 Kopřivnice, ID No.: 25399195

GALMED a.s., Těšínská 1349/296, Ostrava - Radvanice, ID No.: 47672145

LEKTRANS s.r.o., Těšínská 1349/296, 716 00 Ostrava - Radvanice, ID No.: 27779271

PHARMOS, a.s., registered office at Levická 11, 949 01 Nitra, Slovak Republic, ID No.: 35974559 Sanovia, a.s., registered office at Těšínská 1349/296, Ostrava - Radvanice, Postal Code 716 00, ID No.:

28570481 Lektrans Bohemia s.r.o., registered office at Těšínská 1349/296, Ostrava - Radvanice, ID No.: 28616600

SoftPharm s.r.o., registered office at Těšínská 1349/296, Ostrava – Radvanice, ID No.: 28656385

__________________________________________________________________________

_________________________________________________________________________________41_____



• Další společnost patřící do skupiny společnosti se stejnou vrcholovou ovládající osobou, s nimiž vstoupil zpracovatel zprávy v průběhu hodnoceného období do obchodních vztahů jsou :Other members of the Group with the same top controlling entity which whom the Submitter entered into business relationships during the period concerned:

None.

c) Other companies controlled by the same entity as the directly controlling entity is controlled with

whom business relationships were established during the evaluated period

None.

This Report provides a summary of the business and economic relationships between the controlled entity, the controlling entities above this controlled entity and the companies controlled by the same top entity.

1. Contracts

1.1.Sales

1.1.1. Fixed assets

As regards sales, there were no business relationships established and implemented as of the date of this Report for 2013 within the group with respect to the controlling entity or the affiliated entities within the same Group, regarding the sale of fixed assets, other assets, material and products. The Submitter does not lease out any assets. Name Party Description Detriment (if

any) Advantages /

Disadvantages Motor Vehicle Purchase/Sale Agreement

Lektrans Bohemia s.r.o. RENAULT CLIO 2T6 7705 - -

Motor Vehicle Purchase/Sale Agreement

Lektrans Bohemia s.r.o. ŠKODA OCTÁVIA 7T1 3134 - -


Lektrans Bohemia s.r.o. ŠKODA OCTÁVIA 7T9 2756 - -


Lektrans Bohemia s.r.o. ŠKODA FÁBIA 2T7 5453 - -


LEKTRANS s.r.o. ŠKODA OCTÁVIA 7T9 2093 - -


LEKTRANS s.r.o. ŠKODA ROOMSTER 8T0 2915 - -


LEKTRANS s.r.o. VW PASSAT 6T7 2831 - -


LEKTRANS s.r.o. VW PASSAT 5T3 3712 - -

1.1.2. Merchandise

The Submitter entered into the following sales and other contracts during the period specified below, pursuant to which products were sold during the fiscal year.

Name Party Description Detriment (if

any) Advantages /

Disadvantages

__________________________________________________________________________

_________________________________________________________________________________42_____



Separate Contract of Sale - delivery according to an invoice

PHARMACY-distribuce léčiv s.r.o.

Products - pharmaceuticals, parapharmaceuticals, additional assortment

- -


PHARMOS, a.s. SR Products - pharmaceuticals, parapharmaceuticals, additional assortment

- -


Pražská lékárnická s.r.o. Products - pharmaceuticals, parapharmaceuticals, additional assortment

- -

1.1.3. Services

The Submitter entered into contracts during the fiscal year, pursuant to which the Submitter rendered services during the fiscal year with respect to controlling entity or affiliated entities within the same Group.


any) Advantages /

Disadvantages Non-residential Premises Lease Agreement

Česká lékárnická, a.s. Non-residential premises at Těšínská 1346/296 Ostrava - Radvanice

- -

Re-invoicing of services - separate contracts according to invoices


Re-invoicing of services - promotional campaigns, advertising articles, provision of data services and fire protection

- -

Logistics services contract


Logistics services - -

Technical advice contract


Technical advice - -

Technical services contract


Other technical services - -


Sanovia, a.s. Re-invoicing of services - promotional campaigns, advertising articles, provision of data services

- -


Pražská lékárnická s.r.o.. Re-invoicing of services - promotional campaigns, advertising articles, provision of data services and fire protection

- -

Contract for transportation of goods

Pražská lékárnická s.r.o. Remuneration for carriage of goods implemented

- -

Distribution Services Agreement

Pražská lékárnická s.r.o.. Remuneration for distribution services - -

Lease contract Pražská lékárnická s.r.o. Non-residential premises Brandýsek lease - -


Jihlavská lékárnická s.r.o. Remuneration for distribution services


GALMED a.s. Remuneration for distribution services - -

Lease contract, as per invoices

GALMED a.s. Costs of assets leased and energy - -


GALMED a.s. Re-invoicing of services, fuels, tel. charges, data services, etc. - -

Consignation stock keeping agreement

GALMED a.s. Consignation stock keeping at Pchery branch

- -

Non-residential Premises Lease Agreement

LEKTRANS s.r.o. Non-residential premises in Prostějov - -


LEKTRANS s.r.o. Non-residential premises at Těšínská 1346/296 Ostrava – Radvanice

- -


Sanovia, a.s. Accounting services - -


Česká lékárnická, a.s. Accounting services - -


GALMED a.s. Accounting services - -


PHARMACY – distribuce léčiv s.r.o.

Non-residential premises in Prostějov - -

Motor Vehicle Lease Agreement

PHARMOS, a.s. SR Motor vehicle lease - -

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GALMED a.s. 8T7 3612 motor vehicle lease - -


Lektrans Bohemia s.r.o. Non-residential premises at Těšínská 1346/296 Ostrava – Radvanice - -


Lektrans Bohemia s.r.o. Non-residential premises Slánská 79, Brandýsek


LEKTRANS s.r.o. Non-residential premises in Brno - -

Software Lease Agreement, according to invoices

LEKTRANS s.r.o. Lease of accounting IS Helios - -

Software Lease Agreement, according to invoices

Lektrans Bohemia s.r.o. Lease of accounting IS Helios - -


Jihlavská lékárnická s.r.o. Accounting services - -


Lekis s.r.o. Non-residential premises in Ostrava - -


SoftPharm s.r.o. Non-residential premises in Ostrava - -

Lease contract Sanovia, a.s. Frontage commercial space lease - -


Sanovia, a.s. Non-residential premises in Ostrava - -

Lease contract Sanovia, a.s. Motor vehicle lease - -

Contract for Merchandising in ML project

Sanovia, a.s. Co-operation in merchandising - -

Contract for cooperation on the project mojelekarna.cz (My Pharmacy)

Sanovia, a.s. Marketing services related to trade association management

- -


SoftPharm s.r.o. Accounting services - -


Pražská lékárnická s.r.o Accounting services - -

1.1.4. Other contractual relationships

PHARMOS, a.s. provided the following companies with the following interest-bearing loans (in '000 CZK)

Name Party Balance as of

31/12/2013 Description Detriment (if

any) Advantages /

Disadvantages Loan Agreement GALMED a.s. 7 000 Loan - -

Loan Agreement PHARMOS, a.s. SR 52 108 Loan - -

Loan Agreement Sanovia, a.s. 9 000 Loan - -

Loan Agreement LEKTRANS s.r.o. 496 Loan - -

PHARMOS, a.s. concluded the Claim Assignment Agreements with the following companies



any) Advantages /

Disadvantages Claim assignment PHARMACY-distribuce

léčiv s.r.o. 0 Claim purchase

- -

Claim assignment Pražská lékárnická s.r.o. 0 Claim purchase - -

1.2.Purchases

As regards purchasing, the following purchase relationships were established and implemented as of the date of this Report for 2013 within the group with respect to the controlling entity or the affiliated entities within the same Group, regarding fixed assets, other assets and material.

__________________________________________________________________________

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1.2.1. Services (except for leasing)

The Submitter concluded contracts on the basis of which it was provided with the following services during the fiscal year:


any) Advantages /

Disadvantages Separate deliveries, according to invoices

Česká lékárnická, a.s. Agency activities

- -

Agreement on bonus for goods sold

GALMED a.s. Intermediated sale of goods of the pharmaceutical character to third parties - -

Contract for transportation of distributed goods

LEKTRANS s.r.o. Arrangement for transportation of goods - -

Contract for cooperation on the project „Moje lékárna“ (My Pharmacy)

Sanovia, a.s. Marketing service - -


LEKTRANS s.r.o. 7T5 0795 motor vehicle lease - -









































__________________________________________________________________________

_________________________________________________________________________________45_____





Lease contract LEKTRANS s.r.o. Land Lease Contract for DF* storage and distribution in Ostrava - -

Lease contract LEKTRANS s.r.o. Land Lease Contract for DF* storage and distribution in Brno - -

Lease contract LEKTRANS s.r.o. Land Lease Contract for DF* storage and distribution in Prostějov

- -

Lease contract LEKTRANS s.r.o. Land Lease Contract for DF* storage and distribution in Hradec Králové

- -


Česká lékárnická, a.s. Non-residential premises in Plzeň - -

Contract for provision of transport services

Lektrans Bohemia s.r.o. Provision of transport - -


Lektrans Bohemia s.r.o. 6T7 0764 motor vehicle lease - -

Service Agreement SoftPharm s.r.o. SW Algis maintenance - -

Service Agreement SoftPharm s.r.o. Hotline - -

Motor vehicle maintenance and service contract

LEKTRANS s.r.o. Motor vehicle maintenance and service - -

Motor vehicle maintenance and service contract

Lektrans Bohemia s.r.o. Motor vehicle maintenance and service - -

Motor vehicle lease GALMED a.s. 8T0 4438 motor vehicle lease - -

Service contract Lekis s.r.o. SW+ HW service - -

Repackaging of pharmaceuticals and parapharmaceuticals

GALMED a.s. Repackaging of supplies - -

Sale intermediation contract

GALMED a.s. Intermediated sales of pharmaceuticals, parapharmaceuticals and medical materials

- -

DF* = Diesel Fuel

1.2.2. Material Purchases The Submitter did not purchase any material during the fiscal year from the controlling entity or the affiliated entities within the same Group. 1.2.3 Purchase of goods The Submitter purchased products during the fiscal year from the controlling entity or the affiliated entities within the same Group.


any) Advantages /

Disadvantages Separate deliverables - as per invoices

GALMED a.s. Products - pharmaceuticals, parapharmaceuticals, additional assortment

- -

Separate deliverables - as per invoices

Pražská lékárnická s.r.o. Products - pharmaceuticals, parapharmaceuticals, additional assortment

Separate deliverables - as per invoices

PHARMOS, a.s. SR Products - pharmaceuticals, parapharmaceuticals, additional assortment

- -

__________________________________________________________________________

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1.2.4. Purchase of fixed assets

The Submitter did not enter into agreements during the fiscal year, pursuant to which the Submitter purchased fixed assets from the controlling entity or the affiliated entities within the same Group.

1.2.5. Other contractual relationships

PHARMOS, a.s. provided the following companies with the following interest-bearing deposits (in '000 CZK)



any) Advantages /

Disadvantages Agreement on an Interest-Bearing Deposit

THERÁPON 98, a.s. 15 000 Deposit - -

Agreement on an Interest-Bearing Deposit

Česká lékárnická, a.s. 8 000 Deposit - -

Other legal operations

None

Other measures

None

Statement

The Board of Directors affirms that the above given contracts, all the purchase orders and transactions with related parties as described above, were concluded or implemented pursuant to usual business terms and conditions and the Company suffered no harm on account of these commercial and contractual relationships.

In Ostrava on: 31.3.2014 ………………………………………………………………. PharmDr. Jiří Korta, Chairman of the Board of Directors

…………………………………………………………. Ing. Radovan Mališ, Member of the Board of Directors ………………………………………………………….. Ing. Marcel Divácký, Member of the Board of Directors

__________________________________________________________________________

_________________________________________________________________________________47_____



__________________________________________________________________________

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Annex 1 to Report on the Relationships between Controlling and Controlled Entities

issued pursuant to the provisions of Section 66a (par. 9) of the Commercial Code

Česká lékárnická, a.s.

(ID No: 63080877)

PHARMOS, a.s. (ID No.: 19010290) (Česká lékárnická, a.s. 71.9% share) (Phoenix Int. Bet. GmbH 28.0% share)

Lektrans Bohemia s.r.o. (ID No.: 28616600) (Česká lékárnická, a.s. 51% share) (individual shareholders 49%)

SoftPharm s.r.o. (ID No: 28656385) (Česká lékárnická, a.s. 51.0% share) (Jiří Svoboda’s 49.0% share)

Jihlavská lékárnická s.r.o. (ID No.: 25534459) (PHARMOS, a.s. 100.0% share )

Plzeňská lékárnická s.r.o. (ID No.: 25238213) (PHARMOS, a.s. 100.% share)

PHARMACY - distribuce léčiv s.r.o. (ID No.: 65139577) (Česká lékárnická, a.s. – share in reg. cap. 51%, share in voting rights 51%) (TECH PHARMA, a.s.- share in reg. cap. 29%) (Martin Cigánek- share in reg. cap 20%)

GALMED a.s. (ID No.: 47672145) (Česká lékárnická, a.s. 100% share)

PHARMOS, a.s. (Slovakia, ID No.: 35974559) (Česká lékárnická, a.s. 50.0% share) (Top Pharmex 50.0% share)

LEKTRANS s.r.o. (ID No.: 27779271) (Česká lékárnická, a.s. 52% share) (individual shareholders 48%)

THERÁPON 98, a.s. (ID No.: 25399195) Kopřivnice policlinic (Česká lékárnická, a.s. 80.0% share) (Stavovská s.r.o. 20.0% share)

Lekis s.r.o. (ID No.: 25356089) (Česká lékárnická, a.s. 19.7% share) (PHARMOS, a.s. 17.7% share) (HB system, s.r.o. 55% share) (plus individual partners)

Pražská lékárnická s.r.o. (ID No.: 25633741) (Česká lékárnická, a.s. – share in reg. cap. 50%, share in voting rights 23.8%) (individual pharmacists – share in reg. cap. 50.0%)

Sanovia, a.s. (ID No.: 28570481) (Česká lékárnická, a.s. 100.0% share)

LÉKÁRNA U NÁDRAŽÍ P ŘEROV s.r.o.LÉKÁRNA U NÁDRAŽÍ PŘEROV s.r.o. (ID No: 26821681) (Sanovia, a.s. 100.% share)

__________________________________________________________________________

_________________________________________________________________________________49_____



THERÁPON REAL s.r.o. (ID No.: 28615913) (THERÁPON 98, a.s. 100.0% share) Pharmedol spol. s r.o. (ID No: 26146878)

(Pražská lékárnická s.r.o. 100.0% share)

Documents

, a. s. - Úvod | Pharmos · 2013, the most important part is represented by loans for the financing of receivables (a form of an interest-bearing timetable for repayment) and short-term