0001104659-18-046531.txt : 20180723 0001104659-18-046531.hdr.sgml : 20180723 20180723163404 ACCESSION NUMBER: 0001104659-18-046531 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20180604 ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20180723 DATE AS OF CHANGE: 20180723 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Teladoc, Inc. CENTRAL INDEX KEY: 0001477449 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-OFFICES & CLINICS OF DOCTORS OF MEDICINE [8011] IRS NUMBER: 043705970 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-37477 FILM NUMBER: 18964769 BUSINESS ADDRESS: STREET 1: 2 MANHATTANVILLE ROAD STREET 2: SUITE 203 CITY: PURCHASE STATE: NY ZIP: 10577 BUSINESS PHONE: 2036352002 MAIL ADDRESS: STREET 1: 2 MANHATTANVILLE ROAD STREET 2: SUITE 203 CITY: PURCHASE STATE: NY ZIP: 10577 8-K/A 1 a18-17562_48ka.htm 8-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K/A

(Amendment No. 1)

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) July 23, 2018 (June 4, 2018)

Teladoc, Inc.

(Exact name of registrant as specified in its charter)

Delaware		001-37477		04-3705970
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

2 Manhattanville Road, Suite 203 Purchase, New York		10577
(Address of principal executive offices)		(Zip Code)

(203) 635-2002

Registrant’s telephone number, including area code

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Explanatory Note

Teladoc, Inc. (the “Company”) hereby amends the Current Report on Form 8-K filed on June 4, 2018 to provide the financial statements and pro forma financial information required by Item 9.01 relating to the Company’s acquisition of Advance Medical-HealthCare Management Services, S.A. (“Advance Medical”), as described in such Current Report.

Item 9.01. Financial Statements and Exhibits.

(a) Financial statements of businesses acquired.

The audited consolidated financial statements of Advance Medical and its subsidiaries as of December 31, 2017 and 2016 and for each of the years in the two-year period ended December 31, 2017 are attached hereto as Exhibit 99.1, which is incorporated herein by reference.

The unaudited interim condensed consolidated financial statements of Advance Medical and its subsidiaries as of March 31, 2018 and for the three months ended March 31, 2018 and 2017 are attached hereto as Exhibit 99.2, which is incorporated herein by reference.

(b) Pro forma financial information.

The unaudited pro forma combined financial statements of the Company giving pro forma effect to the acquisition of Advance Medical and the issuance of the Company’s 1.375% Convertible Senior Notes Due 2025 as of and for the three months ended March 31, 2018 and giving pro forma effect to the acquisitions of Best Doctors Holdings, Inc. and Advance Medical and the issuance of the Company’s 1.375% Convertible Senior Notes Due 2025 for the year ended December 31, 2017, is attached hereto as Exhibit 99.3.

(d) Exhibits.

Exhibit No.		Description

23.1		Consent of KPMG Auditores, S.L., independent auditors.
99.1		Audited consolidated financial statements of Advance Medical-HealthCare Management Services, S.A. and its subsidiaries as of December 31, 2017 and 2016 and for each of the years in the two-year period ended December 31, 2017.
99.2		Unaudited interim condensed consolidated financial statements of Advance Medical-HealthCare Management Services, S.A. and its subsidiaries as of March 31, 2018 and for the three months ended March 31, 2018 and 2017.
99.3		Unaudited pro forma combined financial statements of Teladoc, Inc. giving pro forma effect to the acquisition of Advance Medical-HealthCare Management Services, S.A. and the issuance of the Company’s 1.375% Convertible Senior Notes Due 2025 as of and for the three months ended March 31, 2018 and giving pro forma effect to the acquisitions of Best Doctors Holdings, Inc. and Advance Medical Health-Care Management Services, S.A. and the issuance of the Company’s 1.375% Convertible Senior Notes Due 2025 for the year ended December 31, 2017.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	TELADOC, INC.

Date: July 23, 2018	By:	/s/ Adam C. Vandervoort
	Name:	Adam C. Vandervoort
	Title:	Chief Legal Officer and Secretary

EX-23.1 2 a18-17562_4ex23d1.htm EX-23.1

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the registration statements (No. 333-205568 and No. 333-219275 on Form S-8 and No. 333-213894 and No. 333-221784 on Form S-3) of Teladoc, Inc. of our report dated July 23, 2018, with respect to the consolidated balance sheets of Advance Medical-HealthCare Management Services, S.A. and its subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years then ended, and the related notes, which report appears in the Current Report on Form 8-K/A of Teladoc, Inc. dated July 23, 2018.

/s/ KPMG Auditores, S.L.

Barcelona, Spain
July 23, 2018

EX-99.1 3 a18-17562_4ex99d1.htm EX-99.1

Exhibit 99.1

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

		Page
Consolidated Financial Statements of Advance Medical-HealthCare Management Services, S.A.
Report of Independent Auditors		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Comprehensive Income		F-5
Consolidated Statements of Stockholders’ Equity		F-6
Consolidated Statements of Cash Flows		F-7
Notes to Consolidated Financial Statements		F-8

F-1

Independent Auditors’ Report

The Board of Directors of

Advance Medical-HealthCare Management Services, S.A.

We have audited the accompanying consolidated financial statements of Advance Medical-HealthCare Management Services, S.A. and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Advance Medical-HealthCare Management Services, S.A. and its subsidiaries as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.

/s/ KPMG Auditores, S.L.

Barcelona, Spain

July 23, 2018

F-2

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Consolidated Balance Sheets

(In thousands of Euros, except share and per share data)

	As of December 31,
	2017		2016
Assets
Current assets:
Cash and cash equivalents	€	4,865	€	4,509
Short-term investments	2,435		2,531
Accounts receivable, net	5,704		4,812
Prepaid expenses and other current assets	443		251
Total current assets	13,447		12,103
Non current assets:
Property and equipment, net	1,766		1,695
Deferred income tax assets	307		362
Other assets	539		587
Total non current assets	2,612		2,644
Total assets	€	16,059	€	14,747
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	€	1,476	€	456
Accrued expenses and other current liabilities	4,607		4,301
Total current liabilities	6,083		4,757
Non-current liabilities:
Deferred taxes	163		218
Total non-current liabilities	163		218
Stockholders’ equity:
Common stock, €6.02 par value; 43,877 shares and 43,877 shares issued and outstanding as of December 31, 2017 and 2016, respectively	264		264
Additional paid-in capital	1,587		1,587
Accumulated other comprehensive income (loss)	7,946		7,827
Stockholders’ equity attributable to majority stockholders	9,797		9,678
Non-controlling interest	16		94
Total stockholders’ equity	9,813		9,772
Total liabilities and stockholders’ equity	€	16,059	14,747

See accompanying notes to consolidated financial statements.

F-3

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Consolidated Statements of Operations

(In thousands of Euros, except share and per share data)

	Year Ended December 31,
	2017			2016
Revenue	€	55,166		€	48,012
Cost of revenue	(35,460		)	(30,359		)
Gross profit	19,706			17,653
Operating expenses:
Advertising and marketing	(879		)	(735		)
Sales	(2,499		)	(2,596		)
Technology and development	(1,830		)	(1,633		)
General and administrative	(12,671		)	(10,866		)
Depreciation	(507		)	(412		)
Income /(Loss) from operations	1,320			1,411
Interest (expense) / income net	(24		)	43
Foreign currency transaction loss	(296		)	178
Net income before taxes	1,000			1,632
Income tax (benefit) provision	(783		)	(565		)
Net income / (loss)	€	217		€	1,067
Add: Net income / (loss) attributable to the non-controlling interest	(78		)	51
Net income / (loss) attributable to majority stockholders	€	295		€	1,016
Net income /(loss) per share, basic and diluted	€	4.95		€	24.32

Weighted-average shares used to compute basic and diluted net income /(loss) per share	43,877			43,877

See accompanying notes to consolidated financial statements.

F-4

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Consolidated Statements of Comprehensive Income

(In thousands of Euros)

	Year Ended December 31,
	2017			2016
Net income / (loss)	€	217		€	1,067
Other comprehensive income / (loss), net of tax: Cumulative translation adjustment	(176		)	(215		)
Other comprehensive income (loss), net of tax	(176		)	(215		)
Non-controlling interest	(78		)	51
Comprehensive income /(loss) attributable to majority stockholders	€	119		€	801

See accompanying notes toconsolidated financial statements

F-5

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

						Accumulated
				Additional		Other			Non-			Total
	Common Stock			Paid-In		Comprehensive			controlling			Stockholders’
	Shares	Amount		Capital		Income / (loss)			interest			Equity

Balance as of December 31, 2015	43,877	€	264	€	1,587	€	7,026		€	43		€	8,920
Other comprehensive income, net of tax		—		—		(215		)	—			(215		)
Net income / (loss)		—		—		1,016			51			1,067
Balance as of December 31, 2016	43,877	264		1,587		7,827			94			9,772
Other comprehensive income, net of tax		—		—		(176		)	—			(176		)
Net income / (loss)		—		—		295			(78		)	217
Balance as of December 31, 2017	43,877	€	264	€	1,587	€	7,946		€	16		€	9,813

See accompanying notes to consolidated financial statements.

F-6

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,
	2017			2016
Cash flows used in operating activities:
Net income / (loss)	€	217		€	1,067
Adjustments to reconcile net income /(loss) to net cash used in operating activities:
Depreciation	507			412
Foreing Excahnge (gain) / loss	296			(178		)
Other results	—			57
Changes in operating assets and liabilities:
Accounts receivable	(1,017		)	(755		)
Prepaid expenses and other current assets	(214		)	(122		)
Accounts payable	694			(53		)
Accrued expenses and other current liabilities	487			563
Net cash used in operating activities	970			991
Cash flows (used in) provided by investing activities:
Purchase of property and equipment	(672		)	(640		)
Purchase of other current assets	—			(27)
Proceeds form sale of property and equipment	71			—
Proceeds from sale of other current assets	142			39
Net cash (used in) provided by investing activities	(459		)	(628		)
Net (decrease) increase in cash and cash equivalents	511			363
Foreign exchange difference	(155		)	(74		)
Cash and cash equivalents at beginning of the period	4,509			4,220
Cash and cash equivalents at end of the period	€	4,865		€	4,509

Supplemental disclosures of cash flow information

Income taxes paid	€	599		€	390
Interest recieved	€	(6	)	€	(46	)
Interest paid	€	30		€	3

See accompanying notes to consolidated financial statements.

F-7

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Notes to Consolidated Financial Statements

Note 1. Organization and Description of Business

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A. (together with its consolidated subsidiaries, “Advance Medical”, or the “Company”) was incorporated in Spain in November 13, 1999 under name Centro Médico Virtual, S.A. On March 30, 2004 the Company changed its company name to the current name. The Company’s principal executive offices are located in Barcelona, Spain as a leading telehealth company.

During the first quarter of year 2018, the parent company intends to complete the acquisition of the remaining percentages attributed to minority interests of the company Advance Medical Inc. (USA).

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated financial statements include the results of Advance Medical- Healthcare Management Services, S.A. and its subsidiaries. The detail of subsidiaries consolidated for the years ended December 31, 2017 and 2016, are as follows:

			Ownership		Amount of stockholding
	Country		% Direct stockholding		(in thousands of Euros)
Name of subsidiary	location	Name of holder company	2017	2016	2017	2016

Advance Medical Inc.	USA	Advance Medical-Health Care Management Services, S.A.	90.38	90.38	1,111	1,111
Advance Medical Hungary KFT	Hungary	Advance Medical-Health Care Management Services, S.A.	80.87	80.87	38	38
Advance Medical—Serviços de Consultoria e Gestão de Dados Lda	Brazil	Advance Medical-Health Care Management Services, S.A.	99.6	99.6	11	11
Advance Medical-Health Care Management Services Chile, S.A.	Chile	Advance Medical-Health Care Management Services, S.A.	99	99	205	205
Advance Medical-Health Care Management Consulting (Shanghai) Co., Ltd.	China	Advance Medical-Health Care Management Services, S.A.	100	100	810	610
AMHMS — Health Care Management Services, S.A.	Portugal	Advance Medical-Health Care Management Services, S.A.	100	100	50	50

All intercompany transactions and balances have been eliminated upon consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience, current business factors, and various other assumptions that the Company believes are necessary to consider to form a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses, and the disclosure of contingent assets and liabilities. The Company is subject to uncertainties such as the impact of future events, economic and political factors, and changes in the Company’s business environment; therefore, actual results could differ from these estimates. Accordingly, the accounting estimates used in the preparation of the Company’s consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as the Company’s operating environment evolves.

F-8

Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to the consolidated financial statements. Significant estimates and assumptions by management affect the carrying value of long-lived assets.

Segment Information

The Company’s Chief Executive Officer (“CEO”), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable segment—health services. Revenue earned by foreign operations outside of Spain were €19.5 million for the year ended December 31, 2017 and €15.2 million in 2016. Long- lived assets of foreign operations totaled €0.5 million as of December 31, 2017 and € 0.6 million as of December 31, 2016.

Revenue Recognition

The Company generates most of its revenue from clients on a contractually recurring, per-Member-per-month, subscription access fee basis. Certain of the company’s clients contracts generate revenues on a per case basis. Subscription access fees but also general medical and other specialty visit fees are paid by the Company’s clients on behalf of their employees, dependents, policy holders, cardholders, beneficiaries or themselves.

The Company recognizes access fees on a monthly basis when the following criteria are met: (i) there is an executed subscription agreement, (ii) the Member is eligible to the service, (iii) the services are performed, (iv) collection of the fees is reasonably assured and (v) the amount of fees to be paid by the Client is fixed and determinable. The Company’s agreements generally have a term of one year with automatic renewal.

Subscription Access Revenue

Subscription access revenue recognition commences on the date that the Company’s services are made available to the Client, which is considered the starting date, provided all the other criteria described above are met. Historically, the Company has not paid any material amounts related to performance guarantees.

Cost of Revenue

Cost of revenue primarily consists of fees paid to the providers, costs incurred in connection with the Company’s Provider network operations center activities, which include employee-related expenses (including salaries and benefits) as well as costs related to medical records, magnetic resonance imaging, medical lab tests, translation, postage and medical malpractice insurance.

Cost of revenue is driven primarily by the number of general medical visits, expert second opinions and other specialty visits completed in each period. Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue-generating activities. While we currently expect to continue to enhance our Provider network operations center as well as our sales and technology capabilities to support business growth, we believe our increased investment in automation and integration capabilities and economies of scale in our Provider network operations center operating model, will position us to grow our revenue at a greater rate than our cost of revenue.

F-9

Technology and Development Expenses

Technology and development expenses include personnel and related expenses for software engineering, information technology infrastructure, security and compliance and product development. Technology and development expenses also include outsourced software engineering services, the costs of operating our on-demand technology infrastructure and licensed applications. Our technology and development expenses exclude certain allocations of occupancy expense as well as depreciation and amortization.

General and Administrative Expenses

General and administrative expenses include personnel and related expenses of professional fees incurred by our executive, finance, product development, operations and human resources departments. They also include most of the facilities costs including utilities and facilities maintenance. Our general and administrative expenses exclude any allocation of depreciation and amortization.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. The Company’s cash and cash equivalents generally consist of investments in money market funds. Cash and cash equivalents are stated at fair value.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at the invoiced amount, net of allowances for doubtful accounts. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of accounts. The Company regularly reviews the adequacy of the allowance for doubtful accounts by considering the collection history and age of each outstanding invoice of each customer to determine whether a specific allowance is appropriate. Accounts receivable deemed uncollectable are charged against the allowance for doubtful accounts when identified. The Company has not booked any allowance for doubtful accounts for the years ended December 31, 2017 and 2016.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:

Computer equipment		4 years
Licenses and trademarks		10 years
Furniture and equipment		10 years
Other assets		4 years
Leasehold improvements		Shorter of the lease term or the estimated useful lives of the improvements

Maintenance and repairs are charged to expense as incurred while improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in the consolidated statement of operations in the period realized.

Internal-Use Software

Internal-use software is included in intangible assets and is amortized on a straight-line basis over 4 years. For the Company’s development costs related to its software development tools that enable its members and providers to interact, the Company capitalizes costs incurred during the application development stage. Costs related to minor upgrades, minor enhancements and maintenance activities are expensed as incurred.

F-10

Foreign Currency

The functional currency for each of our foreign subsidiaries is the local currency. All assets and liabilities denominated in a foreign currency are translated into Euros at the exchange rate on the balance sheet date. Revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative translation gains or losses are included in stockholders’ equity as a component of accumulated other comprehensive income (loss) . For the year ended December 31, 2017, realized foreign exchange gain was €0.3 million (€0.2 million foreign exchange loss in 2016) and was recognized in the Company’s consolidated statement of operations.

Income Taxes

The Company accounts for income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the future tax consequences attributable to differences between the financial reporting carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry forwards and net operating loss carryforwards. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to be in effect when the differences are expected to reverse.

The Company assesses the likelihood that deferred tax assets will be recovered from future taxable income, and a valuation allowance is established when necessary to reduce deferred tax assets to the amounts more likely than not expected to be realized.

The Company recognizes and measures uncertain tax positions using a two-step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. Its evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues. The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component of interest expense, net in the consolidated statements of operations.

New tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. Authoratative accounting guidance requires companies based in the US to recognize the effect of tax law changes in the period of enactment. Certain key aspects of the new law are effective January 1, 2018 and other key aspects have an immediate accounting effect for the year ended December 31, 2017. Refer to Note 7.

Comprehensive Income / (Loss)

Comprehensive income / (loss) consists of net loss and cumulative translation gains or losses. Unrealized gains or losses are net of any reclassification adjustments for realized gains and losses included in the consolidated statements of operations.

Net Income /(Loss) Per Share

Basic net income /(loss) per share is computed by dividing the net income /(loss) by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net loss per share is computed by giving effect to all potential shares of common stock and outstanding stock options, warrants and convertible notes, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock outstanding would have been anti-dilutive.

F-11

Warranties and Indemnification

The Company’s arrangements generally include certain provisions for indemnifying clients against liabilities if there is a breach of a Client’s data or if the Company’s service infringes a third party’s intellectual property rights. To date, the Company has not incurred any material costs as a result of such indemnifications.

The Company has also agreed to indemnify its directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by the Company, arising out of that person’s services as a director or officer or that person’s services provided to any other company or enterprise at the Company’s request. The Company maintains director and officer liability insurance coverage that would generally enable it to recover a portion of any future amounts paid. The Company may also be subject to indemnification obligations by law with respect to the actions of its employees under certain circumstances and in certain jurisdictions.

Advertising and Marketing Expenses

Advertising and marketing include all communications and campaigns to the Company’s clients and members, digital advertising and related employees’ costs and are expensed as incurred. For the years ended December 31, 2017 and 2016, advertising expenses were €0.9 million and €0.7 million, respectively.

Sales Expenses

Sales expenses consist primarily of employee-related expenses, including salaries, benefits, commissions, employment taxes, travel and account management and sales support in addition to commissions paid to external brokers. Sales expenses exclude certain allocations of occupancy expense as well as depreciation and amortization.

Concentrations of Risk and Significant Clients

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. Also the Company deposits its cash with several financial institutions in Spain and in foreign countriesThe Company’s short-term investments mostly are comprised of investments funds with maturity durations of one year or less.

Revenue from clients located in Spain for the year ended December 31, 2017 and 2016 were €35.7 million and €32.8 million, respectively. Revenue from clients located outside Spain for the year ended December 31, 2017 and 2016 were €19.5 million and €15.2 million, respectively.

One Client represented between 10%-13% of revenue for the years ended December 31, 2017 and 2016.

No Client represented over 10% of accounts receivable at December 31, 2017 and 2016.

The Company has policies to ensure that sales are made to customers with an appropriate credit track record.

F-12

Recently Issued and Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the revised guidance requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2018; early adoption is allowed. The revised guidance is required to be applied retrospectively to each prior reporting period presented or modified retrospectively applied with the cumulative effect of initially applying it recognized at the date of initial application. The Company plans to adopt this standard on January 1, 2018 utilizing the modified retrospective approach. The Company underwent a process of identifying the various types of revenue streams, performed an evaluation of the components of the associated contractual arrangements and determined that the adoption of the new standard is expected to have no impact on the condensed consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on the consolidated financial statements.

Note 3. Fair Value Measurements

The Company measures its financial assets and liabilities at fair value at each reporting period using a fair value hierarchy that requires it to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s classification within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value:

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activity.

The Company measures its cash equivalents at fair value on a recurring basis. The Company classifies its cash equivalents within Level 1 because they are valued using observable inputs that reflect quoted prices for identical assets in active markets and quoted prices directly in active markets.

The Company measures certain of its short-term investments at fair value on a recurring basis and classifies such as Level 1. They are valued using observable inputs that reflect quoted prices directly in active markets. These short-term investments corresponds to the fair value of the participation which the parent company holds in the DWS Fondeposito Plus class A investment fund and investments in short term deposits in financial entities.

Other non-current assets for an amount of €0.5 million as of December 31, 2017 and 2016, classified as Level 2, correspond to the outstanding amount of loans granted to some of the stockholders of the parent company after the sale, with effect from January 9, 2015 of the own shares of the parent company. Mentioned loans accrued interest Euribor 3 months plus a 1.1 percentage points margin and expire January 9, 2025. These loans are valued at amortized cost which approximates fair value. On January 19, 2018, said loans have been fully paid, see note 12.

F-13

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis using the above input categories (in thousands):

	December 31, 2017
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	€	4,865	€	—	€	—	€	4,865
Short-term investments	2,435		—		—		2,435
Other non-current assets	€	—	€	539	€	—	€	539

	December 31, 2016
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	€	4,509	€	—	€	—	€	4,509
Short-term investments	2,531		—		—		2,531
Other non-current assets	€	—	€	587	€	—	€	587

There were no transfers between fair value measurement levels during the years ended December 31, 2017 and 2016.

Note 4. Property and Equipment, Net

Property and equipment, net, consist of the following (in thousands):

	As of December 31,
	2017			2016
Computer equipment and computer software	€	1,697		1,304
Furniture and equipment and leasehold improvements	2,637			2,571
Construction in progress	51			—
Total	3,105			2,988
Accumulated depreciation	(2,698		)	(2,151		)
Property and equipment, net	€	1,766		€	1,695

Depreciation expense for the years ended December 31, 2017 and 2016 was €0.5 million and €0.4 million, respectively. Currency translation adjustments for the years ended December 31, 2017 and 2016 was -€0.1 million and €0.1 million, respectively.

F-14

Note 5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

	As of December 31,
	2017		2016

Professional, consulting, legal and marketing fees	€	1,279	€	1,799
Deferred revenue	484		452
Wages and salaries	1,643		676
Taxes payable and other tax liabilities	1,201		1,374
Total	€	4,607	€	4,301

Operating Leases

The Company leases office space under non-cancelable operating leases in the Spain and various international locations. As of December 31, 2017 and 2016, the future minimum lease payments under non-cancelable operating leases are as follows (in thousands):

	As of December 31,
	2017		2016

Until 1 year	€	212	€	262
Until 2 years	165		137
Until 3 years	165		137
Until 4 years	168		137
Until 5 years	169		141

All of the total future minimum lease payments relate to facilities space. The facility lease agreements generally provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Deferred rent represents the difference between actual operating lease payments due and straight-line rent expense. The excess is recorded as a deferred rent liability in the early periods of the lease, when cash payments are generally lower than straight-line rent expense, and are reduced in the later periods of the lease when payments begin to exceed the straight-line expense. The Company also accounts for leasehold improvement incentives within its deferred rent liability. Rent expense for the years ended December 31, 2017 and 2016 was €1.0 million and €0.9 million, respectively.

Note 6. Common Stock and Stockholders’ Equity

Capitalization

As of December 31, 2017 and 2016, the Parent Company’s share capital consisted of 43,877 issued common shares, with €6.02 par value each. For each common share held, the stockholder has the right to one vote at the stockholders’ meetings.

As indicated in note 12, effective January 19, 2018 the authorized number of shares of the Company’s common stock was increased from 43,877 to 52,736 shares. At the date of preparation of the present consolidated annual accounts, the companies involved directly or indirectly in a percentage equal to or greater than 10% in the share capital of the parent company is Advance Holdco Limited and Peralsi, S.L.

F-15

Additional paid-in capital

This reserve has no restrictions and is fully distributable.

Note 7. Income Taxes

The Company follows the provisions of the accounting guidance on accounting for income taxes which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized.

For financial reporting purposes, income (loss) before income taxes for the years ended December 31, 2017 and 2016 include the following components (in thousands):

	Year Ended December 31,
	2017			2016
Domestic	€	2,323		€	2,507
International	(1,323		)	(875		)
Total	€	1,000		€	1,632

The provision (benefit) for income taxes is comprised of the following components (in thousands):

	Year Ended December 31,
	2017		2016
Current federal	€	782	€	641
Total current	782		641
Deferred federal	—		(2		)
Deferred foreign	1		(74		)
Total deferred	1		(74		)
Total provision / (benefit)	€	783	€	565

The corporate income tax rate applicable to the Group is predominantly 25%. The income tax rate applicable to the majority of income of foreign subsidiaries ranges from 25% to 35%.

The provision for income taxes differs from the amount computed by applying the statutory income tax rate to income before provision for income taxes. Details of the income tax expense and income tax related to income for the year are as follows:

F-16

	As of December 31,
	2017			2016
Net income before income tax from continuing operations	€	1.000		€	1.632
Tax at 25% and 28%	250			408
Non taxable income	(49		)	(70		)
Non deductible expenses	111			74
Effect of different tax rates and impact related to the US tax legislation modification	515			188
Tax credits (deductions)	(44		)	(35		)
Total income tax expense	€	783		€	565
Deferred tax	1			(76		)
Current tax	782			641
Total income tax expense	€	783		€	565

The Company’s deferred tax assets and liabilities consist of the following (in thousands):

	As of December 31,
	2017			2016
Deferred tax assets:
Net operating loss carryforwards	€	1,010		€	1,617
Amortization of property and equipment	16			18
Accrued expenses, deferred rent expense and Other (US)	13			106
Deferred tax assets	1,039			1,741
Valuation allowance	(732		)	(1,379		)
Net deferred tax assets	307			362

Deferred tax liabilities:

Impairment of investment in subsidiaries	(163		)	(218		)
Deferred tax liabilities	(163		)	(218		)

Net deferred tax assets	€	144		€	144

As of December 31, 2017, the Company has a valuation allowance of approximately €0.7 million against most of the net deferred tax assets from the US affiliate, for which realization cannot be considered more likely than not at this time (€1.4 million as of December 31, 2016). The Company has recognized net deferred tax assets for an amount of €0.3 million as of December 31, 2017 and 2016, respectively. The deferred tax liability is the result of the temporary difference resulting from the depreciation of the investment in subsidiaries, which is not tax deductible until its reversal.

In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. The US affiliate remains in a significant cumulative loss position as of December 31, 2017 and, as a result, management believes a significant valuation allowance against all domestic net deferred tax assets as of December 31, 2017 and 2016. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Consolidated Statements of Operations, the effect of which would be an increase in reported net income. The amount of any such tax benefit associated with release of our valuation allowance in a particular reporting period may be material.

F-17

The valuation allowance movement corresponds, in an amount of Euros 601 thousand to the tax rate decrease in the United Estates and in an amount of Euros 46 thousand to the exchange rate variation.

H.R. 1, new tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. The Tax Act includes significant changes to the Internal Revenue Code of 1986, as amended, including amendments which significantly change the taxation of business entities. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment.

The Tax Act reduces the U.S. statutory tax rate from 34 percent to 21 percent for years after 2017. Accordingly, the US affiliate has remeasured the U.S. deferred tax assets as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes will reverse, resulting in a reduction of the net deferred tax assets, by approximately €0.6 million, which is offset by the change in valuation allowance by €0.6 million.

As of December 31, 2017, the US affiliate has federal and state net operating loss carryforwards. The federal net operating loss carryforwards of €4.2 million and €2.5 million respectively, which begin to expire in 2028 and 2027, respectively.

Utilization of the net operating loss carryforwards and foreign tax credits may be subject to a substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to ownership change limitations that have occurred previously or that could occur in the future in accordance with Section 382 of the Internal Revenue Code of 1986, or Section 382, as well as similar state provisions. These ownership changes may limit the amount of NOL carryforwards that can be utilized annually to offset future taxable income. In general an ownership change as defined by Section 382 results from transactions increasing the ownership of certain shareholders or public groups in the stock of a corporation by more than 50 percentage points over a three-year period.

The Company is subject to income taxes in Spain and numerous foreign jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. The Company adjusts these reserves in light of changing facts and circumstances, such as the outcome of tax audit. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business the Company is subject to examination by federal and state jurisdictions in the Spain and other countries, where applicable. There are currently no pending tax examinations. The Company thus is still open under the U.S. statute from 2014 to the present and as early as 2014 to the present for foreign jurisdictions. Earlier years may be examined to the extent that loss carryforwards are used in future periods. There are no tax matters under discussion with taxing authorities that are expected to have a material effect on the Company’s consolidated financial statements.

The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component of interest expense, net in the consolidated statements of operations.

Note 8. Net Income per Share

Basic net income per share is computed by dividing the net income/(loss) by the weighted-average number of shares of common stock of the Company outstanding during the period. Diluted net income /(loss) per share is computed by giving effect to all potential shares of common stock of the Company, and outstanding stock options, warrants and convertible notes, to the extent dilutive. Basic and diluted net loss per share was the same for each period presented as the inclusion of all potential shares of common stock of the Company outstanding would have been anti-dilutive. The

F-18

Company does not have outstanding stock options nor outstanding restricted stock units as of December 31, 2017 and 2016.

The following table presents the calculation of basic and diluted net loss per share for the Company’s common stock (in thousands, except shares and per share data):

	Year Ended December 31,
	2017		2016
Net income /(loss)	€	217	€	1,067
Weighted-average shares used to compute basic and diluted net income /(loss) per share	43,877		43,877
Net income per share, basic and diluted	€	4.95	€	24.32

Note 9. 401(k) Plan

The Company has established a salary deferral 401(k) plan for employees in the United States that qualifies as a deferred compensation arrangement under Section 401 of the Internal Revenue Code. All employees over the age of 21 are eligible to participate in the plan. The Plan allows employees to defer a portion of their compensation with a partial matching contribution by the Company. Matching contributions to the Plan totaled €0.08 million and €0.09 million for the years ended December 31, 2017 and 2016, respectively.

Note 10. Non-recurring costs

As of December 31, 2017, the statement of income include certain non-recurring costs related to the transaction disclosed in note 12. These costs, which have been previously agreed with the new stockholder of the Company, primarily correspond to incentives paid to key management staff and some employees contracted to do so.

As these costs are not related to the normal course of the business of the Company, they should be considered when analyzing this consolidated financial statements.

The impact on the Income from operations totals €1.5 million.

The impact on the stockholders’ equity as of December 31, 2017 totals €1.4 millions.

Note 11. Legal Matters

The Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of its business. At December 31, 2017, the Company is not a party to any material legal proceeding, and it is not aware of any pending or threatened litigation that would have a material adverse effect on its business, results of operations, cash flows or financial condition should such litigation be resolved unfavorably.

Note 12. Subsequent Events

Dated January 19, 2018, the parent company has increased its common stock in an amount of €53,331 by issuance of 8,859 new shares, €6,02 of nominal value each one of them and with a total share premium of €2,946,726. At the date of preparation of the present consolidated annual accounts, the companies involved directly or indirectly in a percentage equal to or greater than 10% in the share capital of the parent company is Advance Holdco Limited and Peralsi, S.L.

During the first quarter of the year 2018, the parent company has proceeded to the acquisition of the remaining 9.62% of participation in Advance Medical Inc. (USA) so at the date of preparation of the present consolidated financial statements, the Parent company owns 100% of such participation. The consideration paid has totalled $2.1 million.

F-19

As indicated in note 2, Other non-current assets for an amount of €0.5 million as of December 31, 2107 and 2016 corresponded to the outstanding amount of loans granted to some of the stockholders of the parent company after the sale, with effect from January 9, 2015 of the own shares of the parent company. Mentioned loans have been fully paid dated January 19 2018.

On May 31, 2018, Teladoc, Inc. completed the acquisition of 100% of the shares of the Company. The aggregate purchase price of the acquisition was $353.1 million.

F-20

EX-99.2 4 a18-17562_4ex99d2.htm EX-99.2

Exhibit 99.2

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

QUARTERLY REPORT

Index to Financial Statements

		Page
Unaudited Interim Condensed Consolidated Financial Statements of Advance Medical-HealthCare Management Services, S.A.
Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017		F-2
Condensed Consolidated Statements of Operations (unaudited) for the three months ended ended March 31, 2018 and 2017		F-3
Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended ended March 31, 2018 and 2017		F-4
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2018 (unaudited) and December 31, 2017		F-5
Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2018 and 2017		F-6
Notes to Unaudited Condensed Consolidated Financial Statements		F-7

F-1

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Condensed Consolidated Balance Sheets

(In thousands of Euros, except share and per share data, unaudited)

	March 31, 2018		December 31, 2017
Assets
Current assets:
Cash and cash equivalents	€	6,009	€	4,865
Short-term investments	2,422		2,435
Accounts receivable, net	7,396		5,704
Prepaid expenses and other current assets	523		443
Total current assets	16,350		13,447
Non current assets:
Property and equipment, net	1,892		1,766
Deferred income tax assets	362		307
Other assets	103		539
Total non current assets	2,357		2,612
Total assets	€	18,707	€	16,059
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	€	529	€	1,476
Accrued expenses and other current liabilities	6,141		4,607
Total current liabilities	6,670		6,083
Non-current liabilities:
Deferred taxes	163		163
Total non-current liabilities	163		163
Stockholders’ equity:
Common stock, €6.02 par value; 52,736 shares and 43,877 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively	317		264
Additional paid-in capital	4,534		1,587
Accumulated other comprehensive income	6,828		7,946
Stockholders’ equity attributable to majority stockholders	11,679		9,797
Non-controlling interest	195		16
Total stockholders’ equity	11,874		9,813
Total liabilities and stockholders’ equity	€	18,707	€	16,059

See accompanying notes to unaudited condensed consolidated financial statements.

F-2

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Condensed Consolidated Statements of Operations

(In thousands of Euros, except share and per share data, unaudited)

	Three Months Ended March 31,
	2018			2017
Revenue	€	15,024		€	12,756
Cost of revenue	(9,541		)	(8,520		)
Gross profit	5,483			4,236
Operating expenses:
Advertising and marketing	(386		)	(525		)
Sales	(640		)	(634		)
Technology and development	(682		)	(680		)
General and administrative	(2,531		)	(2,470		)
Depreciation and amortization	(124		)	(111		)
Income /(Loss) from operations	1,120			(184		)
Interest (expense) / income, net	(10		)	7
Foreign currency transaction loss	(84		)	—
Net income / (loss) before taxes	1,026			(191		)
Income tax (benefit) provision	(195		)	(13		)
Net income / (loss)	€	831		€	(204	)
Add: Net income / (loss) attributable to the non-controlling interest	20			25
Net income / (loss) attributable to majority stockholders	€	811		€	(229	)
Net income /(loss) per share, basic and diluted	€	16.12		€	(4.65	)

Weighted-average shares used to compute basic and diluted net income /(loss) per share	51,555			43,877

See accompanying notes to unaudited condensed consolidated financial statements.

F-3

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Condensed Consolidated Statements of Comprehensive Income

(In thousands of Euros, unaudited)

	Three Months Ended March 31,
	2018			2017
Net income / (loss)	€	831		€	(204	)
Other comprehensive income / (loss), net of tax:
Cumulative translation adjustment	(57		)	(33		)
Other comprehensive income (loss), net of tax	(57		)	(33		)
Non-controlling interest	20			25
Comprehensive income /(loss) attributable to majority stockholders	€	754		€	(262	)

See accompanying notes to unaudited condensed consolidated financial statements.

F-4

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data, unaudited)

	Common Stock			Additional Paid-In		Accumulated Other Comprehensive			Non- controlling		Total Stockholders’
	Shares	Amount		Capital		Income / (loss)			interest		Equity
Balance as of December 31, 2017	43,877	264		1,587		7,946			16		9,813
Other comprehensive income, net of tax		—		—		(57		)	—		(57		)
Issuance of common stock	8,859	53		2,947		—			—		3,000
Acquisition of non-controlling interest		—		—		(1,848		)	159		(1,689		)
Other movements		—		—		(24		)	—		(24		)
Net income / (loss)		—		—		811			20		831
Balance as of March 31, 2018	52,736	€	317	€	4,534	€	6,828		€	195	€	11,874

See accompanying notes to unaudited condensed consolidated financial statements.

F-5

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Condensed Consolidated Statements of Cash Flows

(in thousands, unaudited)

	Three Months Ended March 31,
	2018			2017
Cash flows used in operating activities:
Net profit / (loss)	€	831		€	(204	)
Adjustments to reconcile net profit /(loss) to net cash used in operating activities:
Depreciation and amortization	124			111
Foreing Excahnge (gain) / loss	84			—
Changes in operating assets and liabilities:
Accounts receivable	(1,717		)	956
Prepaid expenses and other current assets	(84		)	(76		)
Accounts payable	(933		)	226
Accrued expenses and other current liabilities	1,576			(279		)
Net cash used in operating activities	(119		)	734
Cash flows (used in) provided by investing activities:
Purchase of property and equipment	(253		)	(111		)
Purchase of other current assets	—			(47		)
Proceeds form sale of property and equipment	—
Proceeds from sale of other current assets	449			98
Net cash (used in) provided by investing activities	196			(60		)
Cash flows (used in) provided by financing activities:
Proceeds for issuance of common stock	3,000			—
Purchase of non-controlling interest	(1,872		)	—
Net cash (used in) provided by financing activities	1,128			—
Net (decrease) increase in cash and cash equivalents	1,205			674
Foreign exchange difference	(61		)	260
Cash and cash equivalents at beginning of the period	4,865			4,509
Cash and cash equivalents at end of the period	€	6,009		€	5,443

Income taxes paid	€	—		€	—
Interest paid	€	10		€	7

See accompanying notes to unaudited condensed consolidated financial statements.

F-6

ADVANCE MEDICAL-HEALTHCARE MANAGEMENT SERVICES, S.A.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization and Description of Business

During January 2018, the parent company has completed the acquisition of the remaining percentages attributed to minority interests of the company Advance Medical Inc. (USA).

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) regarding interim financial reporting. Accordingly, such financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals and adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company at the dates and for the periods indicated. The interim results for the three months ended March 31, 2018 are not necessarily indicative of results for the full 2018 calendar year or any other future interim periods. As such, these interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2017.

The consolidated balance sheet at December 31, 2017 was derived from the audited financial statements at that date, but does not include all of the disclosures required by GAAP.

The unaudited condensed consolidated financial statements include the results of Advance Medical-Healthcare Management Services, S.A. and its subsidiaries. The detail of subsidiaries consolidated for the three months period ended March 31, 2018 and the year ended December 31, 2017, are as follows:

	Country		Ownership % Direct stockholding		Amount of stockholding (in thousands of Euros)
Name of subsidiary	location	Name of holder company	3/31/2018	12/31/2017	3/31/2018	12/31/2017

Advance Medical Inc.	USA	Advance Medical-Health Care Management Services, S.A.	100	90.38	2,800	1,111
Advance Medical Hungary KFT	Hungary	Advance Medical-Health Care Management Services, S.A.	100	80.87	38	38
Advance Medical—Serviços de Consultoria e Gestão de Dados Lda	Brazil	Advance Medical-Health Care Management Services, S.A.	99.9	99.6	11	11
Advance Medical-Health Care Management Services Chile, S.A.	Chile	Advance Medical-Health Care Management Services, S.A.	99.9	99	205	205
Advance Medical-Health Care Management Consulting (Shanghai) Co., Ltd.	China	Advance Medical-Health Care Management Services, S.A.	100	100	810	810
AMHMS — Health Care Management Services, S.A.	Portugal	Advance Medical-Health Care Management Services, S.A.	100	100	50	50

All intercompany transactions and balances have been eliminated upon consolidation.

F-7

The Company adopted ASU 2014-09, Revenue from Contracts with Customers during the quarter ended March 31, 2018, as described below. There have been no other changes to the significant accounting policies described in the consolidated financial statements and accompanying notes for the year ended December 31, 2017 that have had a material impact on the unaudited condensed consolidated financial statements and related notes.

Recently Issued and Adopted Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), to achieve a consistent application of revenue recognition within the U.S., resulting in a single revenue model to be applied by reporting companies under GAAP. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the revised guidance requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The revised guidance is effective for the Company beginning in the quarter ending March 31, 2018; early adoption is allowed. The revised guidance is required to be applied retrospectively to each prior reporting period presented or modified retrospectively applied with the cumulative effect of initially applying it recognized at the date of initial application. The Company adopted this standard on January 1, 2018 utilizing the modified retrospective approach. The Company underwent a process of identifying the various types of revenue streams, performed an evaluation of the components of the associated contractual arrangements and determined that the adoption of the new standard had no impact on the condensed consolidated financial statements . See Note 3 “Revenue”, for further information.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 outlines a comprehensive lease accounting model and supersedes the current lease guidance. The new guidance requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new guidance must be adopted using the modified retrospective approach and will be effective for the Company starting in the first quarter of fiscal 2019. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on the unaudited condensed consolidated financial statements .

Use of Estimates

F-8

Segment Information

The Company’s Chief Executive Officer (“CEO”), reviews the financial information presented on a consolidated basis for purposes of allocating resources and evaluating its financial performance. Accordingly, the Company has determined that it operates in a single reportable segment—health services. Revenue earned by foreign operations outside of Spain were €5.2 million and €4.6 million for the three months period ended March 31, 2018 and 2017, respectivelty. Long-lived assets of foreign operations totaled €0.7 million as of March 31, 2018 (€0.5 million as of December 31, 2017).

Revenue Recognition

On January 1, 2018, we adopted Accounting Standards (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective method. The adoption of ASU 2014-09 had no impact on our consolidated financial position, results of operations or cash flows.

The Company generates most of its revenue from clients on a contractually recurring, per-member-per-month, subscription access fee basis. Certain of the company’s clients contracts generate revenues on a per case basis. Subscription access fees but also general medical and other specialty visit fees are paid by the Company’s clients on behalf of their employees, dependents, policy holders, cardholders, beneficiaries or themselves.

The Company recognizes access fees on a monthly basis when the following criteria are met: (i) there is an executed subscription agreement, (ii) the member is eligible to the service, (iii) the services are performed, (iv) collection of the fees is reasonably assured and (v) the amount of fees to be paid by the Client is fixed and determinable. The Company’s agreements generally have a term of one year with automatic renewal.

Subscription Access Revenue

Cost of Revenue

Cost of revenue is driven primarily by the number of general medical visits, expert second opinions and other specialty visits completed in each period. Many of the elements of the cost of revenue are relatively variable and semi-variable, and can be reduced in the near-term to offset any decline in our revenue. Our business and operational models are designed to be highly scalable and leverage variable costs to support revenue-generating activities. While we currently expect to continue to enhance our Provider network operations center as well as our sales and technology capabilities to support business growth, we believe our increased investment in automation and integration capabilities and economies of scale in our Provider network operations center operating model, will position us to grow our revenue at a greater rate than our cost of revenue.

F-9

Technology and Development Expenses

General and Administrative Expenses

Cash and Cash Equivalents

Accounts Receivable and Allowance for Doubtful Accounts

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective asset as follows:

Computer equipment		4 years
Licenses and trademarks		10 years
Furniture and equipment		10 years
Other assets		4 years
Leasehold improvements		Shorter of the lease term or the estimated useful lives of the improvements

Internal-Use Software

Internal-use software is included in intangible assets and is amortized on a straight-line basis over 4 years. For the Company’s development costs related to its software development tools that enable its members and Providers to interact, the Company capitalizes costs incurred during the application development stage. Costs related to minor upgrades, minor enhancements and maintenance activities are expensed as incurred.

F-10

Foreign Currency

The functional currency for each of our foreign subsidiaries is the local currency. All assets and liabilities denominated in a foreign currency are translated into Euros at the exchange rate on the balance sheet date. Revenues and expenses are translated at the weighted average exchange rate during the period. Cumulative translation gains or losses are included in stockholders’ equity as a component of accumulated other comprehensive income (loss) . For the three months period ended March 31, 2018, realized foreign exchange gain was €0.1 million (€0.3 million foreign exchange gain for the year ended December 31, 2017) and was recognized in the Company’s unaudited consolidated statement of operations.

Income Taxes

The Company recognizes and measures uncertain tax positions using a two- step approach. The first step is to evaluate the tax position taken or expected to be taken by determining if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates its uncertain tax positions on a regular basis. Its evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of audit and effective settlement of audit issues. The Company’s policy is to include interest and penalties related to unrecognized tax benefits as a component of interest expense, net in the consolidated statements of operations.

H.R. 1, new tax legislation, commonly referred to as the Tax Cuts and Jobs Act, was enacted on December 22, 2017. Authoratative accounting guidance requires companies based in the US to recognize the effect of tax law changes in the period of enactment. The Tax Act included significant changes to the Internal Revenue Code of 1986, as amended, including amendments which significantly change the taxation of business entities. ASC 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment. Beginning with the quarter ended March 31, 2018, the Company are calculating tax expense in the US affiliate based on the newly enacted U.S. statutory rate of 21%.

Comprehensive Income / (Loss)

Net income /(Loss) Per Share

F-11

Warranties and Indemnification

Advertising and Marketing Expenses

Advertising and marketing include all communications and campaigns to the Company’s clients and members, digital advertising and related employees’ costs and are expensed as incurred. For the three months period ended March 31, 2018 and 2017, advertising expenses were €0.4 million and €0.5 million, respectively.

Sales Expenses

Concentrations of Risk and Significant clients

The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. Also the Company deposits its cash with several financial institutions in Spain and in foreign countries.The Company’s short-term investments mostly are comprised of investments funds with maturity durations of one year or less.

Revenue from clients located in Spain for the three months period ended March 31, 2018 and 2017 were €9.8 million and €8.1 million, respectively. Revenue from clients located outside Spain for the three months period ended March 31, 2018 and 2017 were €5.2 million and €4.6 million, respectively.

One Client represented between 10%-13% of revenue for the three months period ended March 31, 2018 and for the year ended December 31, 2017.

No Client represented over 10% of accounts receivable at March 31, 2018 and December 31, 2017.

The Company has policies to ensure that sales are made to customers with an appropriate credit track record.

Note 3. Revenue

F-12

The Company recognizes revenue from contracts with customers based on the following five steps:

1) Identification of the contract, or contracts, with a customer

2) Identification of all performance obligations in the contract

3) Determination of the transaction price

4) Allocation of the transaction price to the performance obligations in the contract

5) Recognition of revenue as we satisfy a performance obligation

The Company’s agreements generally have a minimum term of one year. The majority of clients renew their contracts following their first year of services. Revenues are recognized when the Company satisfies its performance obligation to stand ready to provide telehealth services which occurs when the Company’s clients and members have access to and obtain control of the telehealth service. The Company generally bills for the telehealth services on a monthly basis with payment terms generally being 30 days and there are not significant differences between the timing of revenue recognition and billing. Consequently, the Company has determined that client contracts do not include a financing component. Revenue is recognized in an amount that reflects the consideration that is expected in exchange for the service and this may include a variable transaction price as the number of members may vary from the initial billing. Based on historical experience, the Company estimates this amount which is recorded as a component of revenue.

Subscription access revenue accounted for approximately 95% of our total revenue during both of the quarters ended March 31, 2018 and 2017.

The following table presents the Company’s revenues disaggregated by revenue source (in thousands):

	Quarters Ended March 31,
	2018		2017
Subscription Access Fee
Spain	€	9,136	€	7,684
International Operations	5,267		4,479
Visit Fee Revenue
Other Specialty Visit (Expert Medical Opinion and other)	621		593
Total	€	15,024	€	12,756

As of March 31, 2018, accounts receivable related to virtual healthcare services, net of allowance for doubtful accounts, were €7.4 million (€5.7 million as of December 31, 2017). The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. The Company determines the allowance based on historical experience, specific account information and other currently available evidence. The Company has not booked any allowance for doubtful accounts for the three months period ended March 31, 2018 and for the year ended December 31, 2017

For certain virtual healthcare service products, payment is required for future months before the telehealth services access is delivered to the member. The Company records deferred revenue when cash payments are received in advance of the Company’s performance obligation to provide telehealth service access. The net increase of €1.1 million in the deferred revenue balance for the three months ended March 31, 2018 is primarily driven by cash payments received or due in advance of satisfying the Company’s performance obligations, offset by revenue recognized that were included in the deferred revenue balance at the beginning of the period. The Company anticipates that it will satisfy most of its performance obligation associated with the deferred revenue within the prospective fiscal year.

The Company’s contracts do not generally contain refund provisions for fees earned related to services performed. In the USA (Advance Medical Inc.) the Company has contracts where it commits to performance guarantees that could potentially diminish revenues. Historically, clients have never executed on them. For the three months ended March 31, 2018, revenue recognized from performance obligations related to prior periods for the aforementioned changes in transaction price or client performance guarantees, was not material.

F-13

Note 4. Business acquistion

During the first quarter of the year 2018, the parent company has proceeded to the acquisition of the remaining 9.62% of participation in Advance Medical Inc. (USA) so at the date of preparation of the present unaudited condensed consolidated financial statements, the Parent company owns 100% of such participation. The consideration paid has totalled $2.1 million.

The increase in ownership of a subsidiary without resulting in a change in control, as described above, is accounted for as an equity transaction according to ASC 810-10-45-23 and thus not following the acquisition method of accounting. That is, the carrying amount of the noncontrolling interest is adjusted to reflect the controlling interest’s increased ownership interest in the subsidiary’s net assets which remain unchanged. Any difference between the consideration paid by the parent to a noncontrolling interest holder and the adjustment to the carrying amount of the noncontrolling interest in the subsidiary is recognized directly in equity (booked under Other comprehensive income, see Condensed Consolidated Statements of Stockholders’ Equity) and attributable to the controlling interest.

Note 5. Property and Equipment, Net

Property and equipment, net, consist of the following (in thousands):

	As of
	March 31,			December 31,
	2018			2017
Computer equipment and computer software	€	1,844		1,697
Furniture and equipment and leasehold improvements	2,698			2,637
Construction in progress	59			51
Total	3,179			3,105
Accumulated depreciation	(2,789		)	(2,698		)
Intangible assets, net	€	1,892		€	1,766

Depreciation expense for the quarters ended March 31, 2018 and 2017 was €0.1 million and €0.1 million, respectively.

Note 6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

	As of
	March 31, 2018		December 31, 2017
Professional, consulting, legal, marketing fees and others	€	2,035	€	1,279
Deferred revenue	1,635		484
Wages and salaries	942		1,643
Taxes payable and other tax liabilities	1,280		1,201
Total	€	5,892	€	4,607

F-14

Operating Leases

The Company leases office space under non-cancelable operating leases in the Spain and various international locations. As of March 31, 2018 and December 31, 2017, the future minimum lease payments under non-cancelable operating leases are as follows (in thousands):

	As of
	March 31, 2018		December 31, 2017

Until 1 year	€	212	€	212
Until 2 years	165		165
Until 3 years	165		165
Until 4 years	168		168
Until 5 years	169		169

All of the total future minimum lease payments relate to facilities space. The facility lease agreements generally provide for rental payments on a graduated basis and for options to renew, which could increase future minimum lease payments if exercised. The Company recognizes rent expense on a straight-line basis over the lease period and has accrued for rent expense incurred but not paid. Deferred rent represents the difference between actual operating lease payments due and straight-line rent expense. The excess is recorded as a deferred rent liability in the early periods of the lease, when cash payments are generally lower than straight-line rent expense, and are reduced in the later periods of the lease when payments begin to exceed the straight-line expense. The Company also accounts for leasehold improvement incentives within its deferred rent liability. Rent expense for the quarters ended March 31, 2018 and 2017 was €0.3 million and €0.25 million, respectively.

Note 7. Fair Value Measurements

Level 1—Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2—Include other inputs that are directly or indirectly observable in the marketplace.

Level 3—Unobservable inputs that are supported by little or no market activity.

The Company measures its cash equivalents at fair value on a recurring basis. The Company classifies its cash equivalents and certain short term investments within Level 1 because they are valued using observable inputs that reflect quoted prices for identical assets in active markets and quoted prices directly in active markets.

F-15

Other non-current assets for an amount of € 0.1 million as of March 31, 2018 and €0.5 million as of December 31, 2017, classified as Level 2, primarily corresponded to the outstanding amount of loans granted to some of the stockholders of the parent company after the sale, with effect from January 9, 2015 of the own shares of the parent company, which totaled €0.4 million. Mentioned loans accrued interest Euribor 3 months plus a 1.1 percentage points margin and expired January 9, 2025. On January 19, 2018, said loans have been fully paid.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis using the above input categories (in thousands):

	March 31, 2018
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	€	6,009	€	—	€	—	€	6,009
Short-term investments	2422		—		—		2,422
Other non-current assets	€	—	€	103	€	—	€	103

	December 31, 2017
	Level 1		Level 2		Level 3		Total
Cash and cash equivalents	€	4,865	€	—	€	—	€	4,865
Short-term investments	2,435		—		—		2,435
Other non-current assets	€	—	€	539	€	—	€	539

There were no transfers between fair value measurement levels during the three months period ended March 31, 2018 and the year ended December 31, 2017.

Note 8. Common Stock and Stockholders’ Equity

Capitalization

As of March 31, 2018, the Parent Company’s share capital consisted of 52,736issued common shares (43,877 shares as of December 31, 2017), with €6.02 par value each. For each common share held, the stockholder has the right to one vote at the stockholders’ meetings.

Effective January 19, 2018 the authorized number of shares of the Company’s common stock was increased from 43,877 to 52,736 shares. At the date of preparation of the present unaudited consolidated annual accounts, the companies involved directly or indirectly in a percentage equal to or greater than 10% in the share capital of the parent company is Advance Holdco Limited and Peralsi, S.L.

Additional paid-in capital

This reserve has no restrictions and is fully distributable.

Note 9. Income Taxes

The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items arising in that quarter.

In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, the Company makes a cumulative adjustment in that quarter.

F-16

The Company’s provision for income taxes and effective tax rates were as follows:

	Quarter ended March 31,
	2018			2017
Provision for income taxes	€	257		€	67
Income before income taxes	1,275			24
Effective tax rate	20.2		%	35.8		%

The corporate income tax rate applicable to the Group is predominantly 25%. The income tax rate applicable to the majority of income of foreign subsidiaries ranges from 25% to 35%.

The provision for income taxes differs from the amount computed by applying the statutory income tax rate to income before provision for income taxes.

As of March 31, 2018, the Company has a valuation allowance of approximately €0.7 million against most of the net deferred tax assets from the US affiliate, for which realization cannot be considered more likely than not at this time (€0.7 million as of December 31, 2017). The Company has recognized net deferred tax assets for an amount of €0.3 million as of March 31, 2018 and December 31, 2017, respectively. The deferred tax liability is the result of the temporary difference resulting from the depreciation of the investment in subsidiaries, which is not tax deductible until its reversal.

The Company will continue to evaluate all evidence in all jurisdictions in future periods to determine if a change in valuation allowance against its deferred tax assets is warranted.

In assessing the need for a valuation allowance, the Company considers all positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and past financial performance. The US affiliate remains in a significant cumulative loss position as of March 31, 2018 and, as a result, management believes a significant valuation allowance against all domestic net deferred tax assets as of March 31, 2018 and December 31, 2017. The valuation allowance against these deferred tax assets may require adjustment in the future based on changes in the mix of temporary differences, changes in tax laws, and operating performance. If and when the Company determines the valuation allowance should be released (i.e., reduced), the adjustment would result in a tax benefit reported in that period’s Condensed Consolidated Statements of Operations, the effect of which would be an increase in reported net income. The amount of any such tax benefit associated with release of our valuation allowance in a particular reporting period may be material.

Note 10. Commitments and Contingencies

Legal Proceedings

There are no legal proceedings pending against or involving the Company that in management’s opinion, based on the current known facts and circumstances, are expected to have a material adverse effect on the Company’s condensed consolidated financial position, cash flow, or results from operations.

Note 11. Subsequent Events

On May 31, 2018, Teladoc, Inc. completed the acquisition of 100% of the shares of the Company. The aggregate purchase price of the acquisition was $353.1 million.

F-17

EX-99.3 5 a18-17562_4ex99d3.htm EX-99.3

Exhibit 99.3

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

On May 31, 2018, Teladoc, Inc. (“Teladoc”, the “Company,” “our” or “we”) completed the acquisition (the “Acquisition”) of all of the outstanding shares of Advance Medical-HealthCare Management Services, S.A. (“Advance Medical”). Advance Medical is a worldwide leader in telemedicine and expert medical opinion services. Partnered with more than 300 large, multinational employers and insurers across Europe, Asia, Latin America and the United States, Advance Medical has built an integrated portfolio of high quality telehealth and expert medical opinion solutions, including Global Care on Demand and the Virtual Medical Home. The aggregate purchase price for the Acquisition was $360.5 million, comprising approximately $291.9 million of cash and 1,344,387 shares of Teladoc’s common stock valued at approximately $68.6 million.

On May 8, 2018, the Company issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025 (the “2025 Notes”). The net proceeds to the Company from the offering were $279.1 million after deducting offering costs of approximately $8.4 million.

On July 14, 2017, the Company completed the acquisition of all of the outstanding shares of Best Doctors Holdings, Inc. (“Best Doctors”). Best Doctors is a leading expert medical consultation company and provides technology innovations and services to help employers, health plans and provider organizations to improve health outcomes for the most complex, critical and costly medical issues. The aggregate purchase price for the acquisition was $445.5 million, comprising approximately $379.3 million of cash, net of cash acquired of $13.7 million, and 1,855,078 shares of Teladoc’s common stock valued at approximately $66.2 million.

The following unaudited pro forma combined financial statements are based on our historical consolidated financial statements, Advance Medical’s historical financial statements and Best Doctors’ historical financial statements as adjusted to give effect to the acquisitions and the issuance of the 2025 Notes, as discussed further below. The unaudited pro forma combined financial statements are derived from the following items: (1) our audited consolidated financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K for the year ended December 31, 2017; (2) our unaudited consolidated financial statements as of and for the three months ended March 31, 2018 included in our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018; (3) the unaudited consolidated financial statements of Best Doctors for the six months ended June 30, 2017 included in our Current Report on Form 8-K, filed with the Securities and Exchange Commission (the “SEC”) on November 28, 2017; (4) the audited consolidated financial statements of Advance Medical for the year ended December 31, 2017 included in our Current Report on Form 8-K/A, filed with the SEC on July 23, 2018; and (5) the unaudited interim condensed consolidated financial statements of Advance Medical as of and for the three months ended March 31, 2018 included in our Current Report on Form 8-K/A, filed with the SEC on July 23, 2018. For purposes of preparing the unaudited pro forma combined financial statements, Advance Medical’s historical consolidated statement of operations for the year ended December 31, 2017 was translated from euros into U.S. dollars at an average rate for the period of $1.130068 : €1.00, Advance Medical’s historical consolidated statement of operations for the three months ended March 31, 2018 was translated from euros into U.S. dollars at an average rate for the period of $1.228838 : €1.00 and Advance Medical’s historical consolidated balance sheet as of March 31, 2018 was translated from euros into U.S. dollars at the closing rate on March 31, 2018 of $1.2324 : €1.00.

The unaudited pro forma combined statement of operations for the three months ended March 31, 2018 gives effect to the Acquisition and the issuance of the 2025 Notes as if each had occurred on January 1, 2017 and the unaudited pro forma combined statement of operations for the year ended December 31, 2017 gives effect to the acquisitions of Advance Medical and Best Doctors and the issuance of the 2025 Notes as if each had occurred on January 1, 2017. The unaudited pro forma combined balance sheet as of March 31, 2018 gives effect to the Acquisition and the issuance of the 2025 Notes as if each had occurred on March 31, 2018. No pro forma adjustments are necessary to the unaudited pro forma combined statement of operations for the three months ended March 31, 2018 or the unaudited pro forma combined balance sheet as of March 31, 2018 to reflect the acquisition of Best Doctors as this acquisition is fully reflected in our historical financial statements as of and for the three months ended March 31, 2018. The unaudited pro forma combined financial statements do not include the realization of any future cost savings or integration changes that are expected to be achieved.

The pro forma adjustments are based on the best information available and certain assumptions that management believes are reasonable under the circumstances. The assumptions underlying the pro forma adjustments are described in the accompanying notes, which should be read in conjunction with this unaudited pro forma combined financial information. The unaudited pro forma combined financial statements are presented for illustrative and informative purposes only and are not intended to represent or be indicative of what our results of operations would have been had the transactions actually occurred on the dates indicated. Our, Advance Medical’s and Best Doctors’ historical audited and unaudited financial statements described above have been adjusted in the unaudited pro forma combined financial statements to give effect to events that are (1) directly attributable to the transactions, as applicable, (2) factually supportable and (3) with respect to the unaudited pro forma combined statements of operations, expected to have a continuing impact on us. The unaudited pro forma combined statements of operations do not reflect any non-recurring charges directly related to the acquisitions of Advance Medical and Best Doctors that have already been incurred by us. These non-recurring charges are further described in the accompanying notes to the unaudited pro forma combined financial statements and include transaction-related costs such as financial advisory, legal and regulatory filing fees and all related financing fees. The unaudited pro forma combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma combined financial statements.

The unaudited pro forma combined financial information has been prepared using the acquisition method of accounting with respect to the Acquisition, with us considered the acquirer of Advance Medical. Under the acquisition method of accounting, the purchase price will be allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values, with any excess purchase price allocated to goodwill. The purchase price allocation was based on estimates of the fair market value of the tangible and intangible assets and liabilities of Advance Medical, as described further in the notes to our unaudited pro forma combined financial information below. As of the date of the Current Report to which this unaudited pro forma combined financial information is attached as an exhibit, we only have preliminary estimates of the fair market values and the related allocations of the purchase price. In arriving at such estimates, we have considered the preliminary appraisals of independent consultants, which were based on a preliminary and limited review of the assets and liabilities of Advance Medical acquired by us in the Acquisition. We expect to complete the purchase price allocation after considering the fair market value of Advance Medical’s assets and liabilities at the level of detail necessary to finalize the purchase price allocation. The final purchase price allocation will be based, in part, on third-party appraisals and may be different than that reflected in the pro forma purchase price allocation presented herein, and any such differences may be material.

The unaudited pro forma combined financial statements should be read in conjunction with our historical financial statements and related management’s discussion and analysis of financial condition and results of operations, which are included in our Annual Report on Form 10-K for the year ended December 31, 2017 and Quarterly Report on Form 10-Q for the three months ended March 31, 2018, Best Doctors’ historical financial statements, which are included in our Report on Form 8-K, filed with the SEC on November 28, 2017, and Advance Medical’s historical financial statements, which are included in our Current Report on Form 8-K/A, filed with the SEC on July 23, 2018.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2018

(in thousands, except share and per share information)

	For the Three Months Ended March 31, 2018
	Advance					Advance		Pro Forma
	Medical(1)		Teladoc			Medical(2)		Adjustments			Pro Forma
	For Reference
Revenue	€	15,024	$	89, 644		$	18,463	$	—		$	108,107
Cost of revenue	9,541		26,856			11,725		—			38,581
Gross profit	5,483		62,788			6,738		—			69,526
Operating expenses:
Advertising and marketing	386		20,325			474		—			20,799
Sales	640		13,783			787		—			14,570
Technology and development	682		12,904			838		—			13,742
Legal	—		481			—		—			481
Regulatory	—		564			—		—			564
Acquisition and integration related costs	—		1,569			—		(1,569		)(a)	—
General and administrative	2,531		24,001			3,110		103		(f)	27,214
Depreciation and amortization	124		8,253			152		2,262		(b)	10,667
Income (loss) from operations	1,120		(19,092		)	1,377		(796		)	(18,511		)
Interest expense, net	10		4,873			13		3,925		(c)(d)	8,811
Foreign currency transaction loss	84		—			103		(103		)(f)	—
Net income (loss) before taxes	1,026		(23,965		)	1,261		(4,618		)	(27,322		)
Income tax (benefit) provision	195		(103		)	239		—			136
Net income (loss)	€	831	$	(23,862	)	$	1,022	$	(4,618	)	$	(27,458	)
Net loss per share, basic and diluted			$	(0.39	)						$	(0.43	)
Weighted-average shares used to compute basic and diluted net loss per share			61,797,762					1,344,387		(e)	63,142,149

(1) Advance Medical is incorporated in Spain and the functional currency is in euros as exhibited.

(2) The statement of operations was translated from euros into U.S. dollars at an average rate for the period of $1.228838 : €1.00.

See accompanying notes to unaudited pro forma combined financial information.

UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2017

(in thousands, except share and per share information)

			For the Year Ended December 31, 2017
	Advance					Advance		Best						Pro Forma
	Medical(1)		Teladoc			Medical(2)		Doctors(3)			Reclassifications			Adjustments			Pro Forma
	For Reference
Revenue	€	55,166	$	233,279		$	62,341	$	52,966		$	—		$	—		$	348,586
Cost of revenue	35,460		61,623			40,072		17,192			—			—			118,887
Gross profit	19,706		171,656			22,269		35,774			—			—			229,699
Operating expenses:
Advertising and marketing	879		57,663			993		—			2,083		(f)	—			60,739
Sales	2,499		37,984			2,824		—			10,035		(f)	—			50,843
Technology and development	1,830		34,459			2,068		—			4,087		(f)	—			40,614
Legal	—		1,485			—		—			157		(f)	—			1,642
Regulatory	—		3,387			—		—			—			—			3,387
Acquisition related costs	—		13,196			—		—			—			(13,196		)(a)	—
General and administrative	12,671		79,781			14,319		—			13,996		(f)	—			108,096
Selling, general and administrative	—		—			—		29,390			(29,390		)(f)	—			—
Depreciation and amortization	507		19,095			573		1,815			—			15,989		(b)	37,472
Income (loss) from operations	1,320		(75,394		)	1,492		4,569			(968		)	(2,793		)	(73,094		)
Amortization of warrants and loss on extinguishment of debt	—		14,122			—		—			—			(14,122		)(g)	—
Foreign currency transaction loss	296		—			335		499			(834		)(f)	—			—
Gain on sale	—		—			—		(2,369		)	—			2,369		(h)	—
Interest expense (income), net	24		17,491			27		13,644			—			2,745		(c)(d)	33,907
Other expense, net	—		—			—		2,508			(134		)(f)	(2,374		)(i)	—
Net income (loss) before taxes	1,000		(107,007		)	1,130		(9,713		)	—			8,589			(107,001		)
Income tax (benefit) provision	783		(225		)	885		70			—			—			730
Net income (loss)	€	217	$	(106,782	)	$	245	$	(9,783	)	$	—		$	8,589		$	(107,731	)
Net loss per share, basic and diluted			$	(1.93	)												$	(1.87	)
Weighted-average shares used to compute basic and diluted net loss per share			55,427,460											2,330,374		(j)	57,757,834

(1) Advance Medical is incorporated in Spain and the functional currency is in euros as exhibited.

(2) The statement of operations was translated from euros into U.S. dollars at an average rate for the period of $1.130068 : €1.00.

(3) Includes results from a business disposed of by Best Doctors in January 2017, of which revenue and net income were $387 and $223, respectively.

See accompanying notes to unaudited pro forma combined financial information.

UNAUDITED PRO FORMA COMBINED BALANCE SHEET

AS OF MARCH 31, 2018

(in thousands)

			As of March 31, 2018
	Advance					Advance		Pro Forma
	Medical(1)		Teladoc			Medical(2)		Adjustments			Pro Forma
	For Reference
Assets
Current assets:
Cash and cash equivalents	€	6,009	$	65,179		$	7,405	$	(12,805	)(k)	$	59,779
Short-term investments	2,422		54,555			2,985		—			57,540
Accounts receivable, net	7,396		30,701			9,115		—			39,816
Prepaid expenses and other current assets	523		6,497			645		—			7,142
Total current assets	16,350		156,932			20,150		(12,805		)	164,277
Property and equipment, net	1,892		7,995			2,331		(617		)(f)	9,709
Goodwill	—		498,277			—		257,855		(l)	756,132
Intangible assets, net	—		153,493			—		119,310		(b,f)	272,803
Deferred income tax assets	362		—			446		(446		)(f)	—
Other assets	103		827			127		446		(f)	1,400
Total assets	€	18,707	$	817,524		$	23,054	$	363,743		$	1,204,321
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	€	529	$	3,290		$	652	$	—		$	3,942
Accrued expenses and other current liabilities	6,141		21,498			7,568		—			29,066
Accrued compensation	—		13,024			—		—			13,024
Total current liabilities	6,670		37,812			8,220		—			46,032
Other liabilities	—		6,154			—		—			6,154
Deferred taxes	163		12,258			201		30,437		(m)	42,896
Convertible senior notes, net	—		210,432			—		—			210,432
2025 Convertible senior notes, net	—		—			—		187,744		(n)	187,744
Commitments and contingencies

Stockholders’ equity:
Common stock, par value	317		62			391		(390		)(o)	63
Additional paid-in capital	4,534		882,804			5,587		154,367		(p)	1,042,758
Accumulated deficit	—		(335,439		)	—		—			(335,439		)
Non-controlling interest	195		—			240		—			240
Accumulated other comprehensive income	6,828		3,441			8,415		(8,415		)(q)	3,441
Total stockholders’ equity	11,874		550,868			14,633		145,562			711,063
Total liabilities and stockholders’ equity	€	18,707	$	817,524		$	23,054	$	363,743		$	1,204,321

(1) Advance Medical is incorporated in Spain and the functional currency is in euros as exhibited.

(2) The statement of operations was translated from euros into U.S. dollars at the closing rate on March 31, 2018 of $1.2324 : €1.00.

See accompanying notes to unaudited pro forma combined financial information.

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

(in thousands, except share and per share information)

Note 1 — Basis of Presentation

The historical consolidated financial statements have been adjusted in the pro forma combined financial statements to give effect to pro forma events that are directly attributable to the business combinations, factually supportable and with respect to the pro forma combined statements of operations and expected to have a continuing impact on the combined results following the business combination, as well as to give effect to the issuance of the 2025 Notes.

The business combinations will be accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. As the acquirer for accounting purposes, the Company has estimated the fair value of Advance Medical’s and Best Doctors’ assets acquired and liabilities assumed and conformed the accounting policies of Advance Medical and Best Doctors to our own accounting policies.

The pro forma combined financial statements do not necessarily reflect what the combined company’s financial condition or results of operations would have been had the acquisitions or the issuance of the 2025 Notes occurred on the dates indicated. They also may not be useful in predicting the future financial condition and results of operations of the combined company. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.

Note 2 — Financing Transactions

On May 8, 2018, the Company issued, at par value, $287.5 million aggregate principal amount of 1.375% convertible senior notes due 2025. The 2025 Notes bear cash interest at a rate of 1.375% per year, payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2018. The 2025 Notes will mature on May 15, 2025, unless earlier converted, redeemed or repurchased. The net proceeds to the Company from the offering were $279.1 million after deducting offering costs of approximately $8.4 million. In accounting for the issuance of the 2025 Notes, the Company separated the 2025 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2025 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized from the issuance date to May 15, 2025 (the first date on which the Company may be required to repurchase the 2025 Notes at the option of the holder). The equity component related to the 2025 Notes is $91.4 million, net of debt issuance costs, and is recorded in additional paid-in capital in the unaudited pro forma combined balance sheet.

On June 27, 2017, the Company issued, at par value, $275.0 million aggregate principal amount of 3% convertible senior notes due 2022 (the “2022 Notes”). The 2022 Notes bear cash interest at a rate of 3.00% per year, payable semi-annually in arrears on June 15 and December 15 of each year, with the first payment having been made on December 15, 2017. The 2022 Notes will mature on December 15, 2022, unless earlier converted, redeemed or repurchased. The net proceeds to the Company from the offering were $263.7 million after deducting offering costs of approximately $11.3 million. In accounting for the issuance of the 2022 Notes, the Company separated the 2022 Notes into liability and equity components. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2022 Notes as a whole. The excess of the principal amount of the liability component over its carrying amount, referred to as the debt discount, is amortized from the issuance date to June 15, 2022 (the first date on which the Company may be required to repurchase the 2022 Notes at the option of the holder). The equity component related to the 2022 Notes is $62.4 million, net of debt issuance costs, and is recorded in additional paid-in capital in the unaudited pro forma combined balance sheet.

Concurrently with the acquisition of Best Doctors, the Company entered into a $175 million senior secured first lien term loan facility (the “Term Loan Facility”) and a $10 million senior secured revolving credit facility (the “Revolving Credit Facility” and, together with the Term Loan Facility, the “Senior Secured Credit Facilities”). Prior to its repayment, the Term Loan Facility carried interest at a rate of 7.25% above fixed 90-days LIBOR of 1.24% (or 8.49%)

and was set to mature in July 2022. Interest payments were payable monthly in arrears. The Revolving Credit Facility carries interest at a rate of 7.25% above fixed 90-days LIBOR of 1.24% and matures in July 2020. The Company is also required to pay a commitment fee on the average daily unused portion of the Revolving Credit Facility at 0.50%. The Company incurred expenses of $8.3 million in conjunction with obtaining the Senior Secured Credit Facilities. In December 2017, the Company used the proceeds from an equity offering to repay and extinguish the Term Loan Facility, including early termination and final deferred origination fees of $12.6 million, and recorded a one-time charge reflected in the consolidated statements of operations as amortization of warrants and loss on extinguishment of debt.

On July 13, 2017, the Company repaid and extinguished all the outstanding amounts under both the Company’s previous line of credit facility (the “SVB Line of Credit Facility”) and mezzanine term loan facility (the “Mezzanine Term Loan”) of $17.5 million and $25 million, respectively, including early termination and final deferred origination fees of $1.5 million, and recorded a one-time charge reflected in the consolidated statements of operations as amortization of warrants and loss on extinguishment of debt.

Note 3 — Preliminary Purchase Price Allocation

The Company has performed a preliminary valuation analysis of the fair market value of Advance Medical’s assets and liabilities. The following table summarizes the allocation of the preliminary purchase price:

Tangible assets acquired:
Current assets	$	20,150
Property and equipment, net	1,714
Other	573
Total	22,437
Value assigned to identifiable intangible assets acquired	119,310
Liabilities assumed	(39,098		)
Total assets acquired in excess of liabilities assumed	102,649
Goodwill	257,855
Total purchase price	$	360,504

This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma combined balance sheet and statements of operations. The final purchase price allocation will be determined when the Company has completed the detailed valuations and necessary calculations including a more comprehensive review. The final allocation may differ materially from the preliminary allocation used in the pro forma adjustments.

The Company has performed a valuation analysis of the fair market value of Best Doctors’ assets and liabilities. The following table summarizes the allocation of the final purchase price:

Tangible assets acquired:
Current assets	$	11,205
Property and equipment, net	2,650
Other	2,483
Total	16,338
Value assigned to identifiable intangible assets acquired	146,210
Liabilities assumed	(24,530		)
Total assets acquired in excess of liabilities assumed	138,018
Goodwill	307,517
Total purchase price	$	445,535

This final purchase price allocation has been used to prepare pro forma adjustments in the pro forma statement of operations.

Note 4 — Pro Forma Adjustments

The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma combined financial information:

(a) Represents the elimination of nonrecurring transaction costs incurred of $1,569 and $13,196 principally due to transaction costs for bankers, other professional fees and integration costs that are directly related to the acquisitions of Advance Medical and Best Doctors, respectively.

(b) As part of the preliminary valuation analysis of Advance Medical, the Company identified intangible assets, including client lists, trademark, non-compete agreements, favorable leases and internal-use software. These amounts represent the acquired intangible assets and the estimated additional amortization.

The following table summarizes the estimated fair values of Advance Medical’s identifiable intangible assets and their estimated useful lives and the associated amortization for the three months ended March 31, 2018 and for the year ended December 31, 2017:

	Estimated Fair Value		Estimated Useful Life	Three Months Ended March 31, 2018 Amortization		Year Ended December 31, 2017 Amortization
Customer relationships	$	100,760	20 years	$	1,712	$	6,465
Trademark	16,190		15 years	284		1,044
Non-compete	1,540		3 years	135		497
Favorable leases	203		1.5 years	28		135
Internal-use software	617		1.5 years	103		411
Total	$	119,310		$	2,262	$	8,552

These preliminary estimates of fair value and estimated useful lives may differ from final amounts the Company will calculate after completing a detailed valuation analysis, and the difference could have a material impact on the accompanying unaudited pro forma combined financial statements.

Additionally, the Company identified Best Doctors’ intangible assets, including client lists, trademark and technology. The following table summarizes the fair values and their useful lives and the associated amortization for the period prior to the acquisition of Best Doctors from January 1, 2017 through July 13, 2017:

	Estimated Fair Value		Estimated Useful Life	Year Ended December 31, 2017 Amortization
Customer relationships	$	112,810	10 years	$	4,891
Trademark	24,920		15 years	878
Internal-use software	8,480		2 years	2,296
	146,210			8,065
Pre-acquisition amortization expense	¾			(628		)
Total	$	146,210		$	7,437

(c) Reflects (i) the elimination of interest expense and amortization of debt issuance costs associated with the Company’s SVB Line of Credit Facility and Mezzanine Term Loan of $8,382 for the year ended December 31, 2017, (ii) the estimated interest expense on debt incurred, amortization of debt issuance cost and fair value of

the equity component of the 2022 Notes of $10,022 for the year ended December 31, 2017 and (iii) the estimated interest expense on debt incurred, amortization of debt issuance cost and fair value of the equity component of the 2025 Notes of $3,937 and $14,776 for the three months ended March 31, 2018 and the year ended December 31, 2017, respectively. An increase or decrease of 0.25% per annum related to the interest rate associated with the debt incurred would increase or decrease pro forma interest expense by approximately $180 for the three months ended March 31, 2018 and $719 for the year ended December 31, 2017.

(d) Reflects (i) the elimination of interest expense associated with Best Doctors’ existing credit facilities and long-term promissory notes and other debt in the aggregate amount of $13,644 for the year ended December 31, 2017 and (ii) the elimination of interest expense associated with Advance Medical’s debt in the aggregate amount of $116 and $27 for the three months ended March 31, 2018 and for the year ended December 31, 2017, respectively.

(e) Reflects the issuance of 1,344,387 shares of Teladoc common stock in connection with the Acquisition.

(f) Reflects the reclassification of certain components of the statements of operations and balance sheet to conform to the financial information of the combined companies.

(g) Reflects the elimination of loss on extinguishment of debt for the Company upon early termination of all the outstanding amounts under both of the SVB Line of Credit Facility and Mezzanine Term Loan.

(h) Reflects the elimination of gain on sale from a business disposed of by Best Doctors in January 2017.

(i) Represents the elimination of the change in fair value of the warrants issued in 2016 associated with Best Doctors’ long-term promissory notes of $2,374 for the year ended December 31, 2017.

(j) Reflects (i) the increase in weighted average shares of 1,344,387 shares of Teladoc common stock in connection with the Acquisition and (ii) the increase in weighted average shares of 985,987 in connection with the issuance of 1,855,078 shares of Teladoc common stock for the acquisition of Best Doctors.

(k) Represents the preliminary cash purchase price for the Acquisition of $291,941, less proceeds from the issuance of the 2025 Notes of $279,136, net of fees.

(l) Represents the preliminary net increase to goodwill as a result of the Acquisition.

(m) Represents the preliminary net increase to deferred tax liability as a result of the Acquisition.

(n) Reflects the issuance of the 2025 Notes, net of debt issuance costs of $8,364, and the fair value of the equity component of the 2025 Notes of $91,392.

(o) Reflects the issuance of 1,344,387 shares of Teladoc common stock of $1 in connection with the Acquisition, less $391 of the par value of Advance Medical common stock eliminated in connection with the Acquisition.

(p) Reflects the issuance of 1,344,387 shares of Teladoc common stock of $68,563 in connection with the Acquisition, less $5,587 of additional paid-in capital of Advance Medical eliminated in connection with the Acquisition and the fair value of the equity component of the 2025 Notes of $91,392.

(q) Reflects the elimination of Advance Medical’s other comprehensive income.