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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2021  
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From                 to                
Commission file number: 001-37792
NantHealth, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
27-3019889
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
9920 Jefferson Blvd.
90232
Culver City,
California
(Zip Code)
(Address of principal executive offices)
(310) 883-1300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.0001 per share
NH
The NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company

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.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
As of August 5, 2021, the registrant had 115,204,656 shares of common stock, par value $0.0001 per share, outstanding.



NantHealth, Inc.
Form 10-Q
As of and for the quarterly period ended June 30, 2021
Table of contents

Page
PART I.
Item 1.
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Stockholders' Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Exhibits Index

We own or have rights to trademarks and service marks that we use in connection with the operation of our business. NantHealth, Inc. and our logo as well as other brands such as NaviNet, Eviti, NaviNet Open, Eviti Connect, Quadris, OpenNMS, and other marks relating to our product lines are used in this Quarterly Report on Form 10-Q. Solely for convenience, the trademarks and service marks referred to in this Quarterly Report on Form 10-Q are listed without the (sm) and (TM) symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. Additionally, we do not intend for our use or display of other companies’ trade names, trademarks, or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Quarterly Report, including, without limitation, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 1A, “Risk Factors,” contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In some cases you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “might,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “project,” “plan,” “outlook,” “target,” “expect,” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include, but are not limited to, statements concerning the following:
the structural change in the market for healthcare in the United States, including uncertainty in the healthcare regulatory framework and regulatory developments in the United States and foreign countries;
any impact of the COVID-19 pandemic, or responses to the pandemic, on our operations or personnel, or on commercial activity or demand across our and our customers’ businesses;
physician, payer and pharmaceutical business needs for clinical decision support, payer/provider collaboration and data analytics solutions and any perceived advantage of our solutions over those of our competitors, including the ability of our platforms to help physicians treat their patients;
our ability to increase the commercial success and to accelerate commercial growth of our clinical decision support, payer/provider collaboration, network monitoring and management, and data analytics solutions and our other products and services;
our plans or ability to develop, implement and commercialize a cloud/SaaS-based version of our network monitoring and management solutions;
our ability to effectively implement, offer and manage delegated entity services to health plans in a compliant and timely manner in connection with our decision support solutions;
our ability to effectively manage our growth, including the rate and degree of market acceptance of our solutions;
our ability to offer new and innovative products and services, including new features and functionality for our existing products and services;
our ability to attract new partners and clients and our ability to retain or renew contracts with partners and clients;
our ability to estimate the size of our target market;
our ability to maintain and enhance our reputation and brand recognition;
consolidation in the healthcare industry;
competition which could limit our ability to maintain or expand market share within our industry;
restrictions and penalties as a result of privacy and data protection laws;
our use of “open source” software;
our ability to use, disclose, de-identify or license data and to integrate third-party technologies;
data loss or corruption due to failures or errors in our systems and service disruptions at our data centers;
breaches or failures of our security measures;
our reliance on Internet infrastructure, bandwidth providers, data center providers, other third parties and our own systems for providing services to our users;
risks related to future acquisition opportunities;
the requirements of being a public company;
our ability to attract and retain key personnel;
our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act, or the JOBS Act;
our ability to obtain and maintain intellectual property protection for our solutions and not infringe upon the intellectual property of others;
our financial performance expectations, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, including changes in research and development, sales and marketing and general and administrative expenses, and our ability to achieve and maintain future profitability; and
our expectations regarding our ability to comply with Nasdaq continued listing standards.
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We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report.
These forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in the forward-looking statements. These statements are within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These statements appear throughout this Quarterly Report and are statements regarding our intent, belief, or current expectations, primarily based on our current assumptions, expectations and projections about future events and trends that may affect our business, financial conditions, operating results, cash flows or prospects, as well as related industry developments. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us and described in Part II, Item 1A, “Risk Factors,” and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 2 of this Quarterly Report. We undertake no obligation to update any forward-looking statements for any reason to conform these statements to actual results or to changes in our expectations, except as required by law.
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PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
- 5 -

NantHealth, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
June 30,
2021
December 31,
2020
(Unaudited)
Assets
Current assets
Cash and cash equivalents$51,993 $22,787 
Accounts receivable, net4,629 3,273 
Related party receivables, net704 1,031 
Prepaid expenses and other current assets3,936 3,504 
Total current assets61,262 30,595 
Property, plant, and equipment, net12,648 13,102 
Goodwill98,333 98,333 
Intangible assets, net43,504 47,969 
Related party receivable, net of current1,144 823 
Operating lease right-of-use assets6,740 7,539 
Other assets1,648 1,927 
Total assets$225,279 $200,288 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable$2,323 $5,122 
Accrued and other current liabilities11,983 13,975 
Deferred revenue1,251 1,166 
Related party payables, net4,550 4,238 
Notes payable 268 
Related party convertible note, net4,988 9,411 
Convertible notes, net4,473 90,578 
Total current liabilities29,568 124,758 
Deferred revenue, net of current1,240 393 
Related party liabilities34,653 31,091 
Related party promissory note112,666 112,666 
Related party convertible note, net62,234  
Convertible notes, net74,563  
Deferred income taxes, net1,672 1,853 
Operating lease liabilities7,261 8,170 
Other liabilities37,527 32,757 
Total liabilities361,384 311,688 
Commitments and Contingencies (Note 14)
Stockholders' deficit
Common stock, $0.0001 par value per share, 750,000,000 shares authorized; 115,204,656 and 111,284,733 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively
12 11 
Additional paid-in capital889,189 891,583 
Accumulated deficit(1,025,349)(1,003,210)
Accumulated other comprehensive loss(122)(168)
Total NantHealth stockholders' deficit(136,270)(111,784)
Noncontrolling interests165 384 
Total stockholders' deficit(136,105)(111,400)
Total liabilities and stockholders' deficit$225,279 $200,288 

The accompanying notes are an integral part of these Consolidated Financial Statements.
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NantHealth, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Revenue
Software-as-a-service related$15,504 $17,521 $31,261 $35,642 
Maintenance413  795  
Professional services173  200  
Total software-related revenue16,090 17,521 32,256 35,642 
Other 64 3 123 
Total net revenue16,090 17,585 32,259 35,765 
Cost of Revenue:
Software-as-a-service related5,444 5,916 10,979 11,617 
Maintenance270  477  
Professional services1  7  
Amortization of developed technologies1,247 1,143 2,494 2,286 
Total software-related cost of revenue6,962 7,059 13,957 13,903 
Other47 259 93 611 
Total cost of revenue7,009 7,318 14,050 14,514 
Gross Profit9,081 10,267 18,209 21,251 
Operating Expenses
Selling, general and administrative11,837 11,995 24,340 24,422 
Research and development4,849 4,215 9,862 7,765 
Amortization of acquisition-related assets
985 866 1,971 1,733 
Total operating expenses17,671 17,076 36,173 33,920 
Loss from operations(8,590)(6,809)(17,964)(12,669)
Interest expense, net(3,803)(4,773)(7,371)(9,430)
Other expense, net(3,051)(6,751)(5,621)(3,297)
Loss from related party equity method investment
 (29,918) (31,702)
Loss from continuing operations before income taxes(15,444)(48,251)(30,956)(57,098)
Provision for (benefit from) income taxes6 4 (2)97 
Net loss from continuing operations(15,450)(48,255)(30,954)(57,195)
Income (loss) from discontinued operations, net of tax attributable to NantHealth19 (34)24 31,971 
Net loss(15,431)(48,289)(30,930)(25,224)
Net loss attributable to noncontrolling interests(128) (219) 
Net loss attributable to NantHealth$(15,303)$(48,289)$(30,711)$(25,224)
Basic and diluted net (loss) income per share attributable to NantHealth:
Continuing operations - common stock$(0.13)$(0.44)$(0.27)$(0.52)
Discontinued operations - common stock$ $ $ $0.29 
Total net loss per share - common stock$(0.13)$(0.44)$(0.27)$(0.23)
Weighted average shares outstanding
Basic and diluted - common stock114,512,542 110,831,456 112,924,619 110,731,925 

The accompanying notes are an integral part of these Consolidated Financial Statements.
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NantHealth, Inc.
Consolidated Statements of Comprehensive Loss
(Dollars in thousands)
(Unaudited)

Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Net loss$(15,431)$(48,289)$(30,930)$(25,224)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments18 (10)46 (198)
Total other comprehensive income (loss)18 (10)46 (198)
Comprehensive loss(15,413)(48,299)(30,884)(25,422)
Less: Comprehensive loss attributable to noncontrolling interests(128) (219) 
Comprehensive loss attributable to NantHealth$(15,285)$(48,299)$(30,665)$(25,422)

The accompanying notes are an integral part of these Consolidated Financial Statements.
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NantHealth, Inc.
Consolidated Statements of Stockholders’ Deficit
(Dollars in thousands)
(Unaudited)
Common StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal NantHealth Stockholders' DeficitNoncontrolling InterestsTotal Stockholders' Deficit
SharesAmount
Balance at December 31, 2020111,284,733 $11 $891,583 $(1,003,210)$(168)$(111,784)$384 $(111,400)
Modified retrospective adjustment on adoption of ASU No. 2020-06 (Note 2)— — (14,318)8,572 — (5,746)— (5,746)
Stock-based compensation cost— — 912 — — 912 — 912 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
81,400 — 64 — — 64 — 64 
Other comprehensive income— — — — 28 28 — 28 
Net loss— — — (15,408)— (15,408)(91)(15,499)
Balance at March 31, 2021111,366,133 $11 $878,241 $(1,010,046)$(140)$(131,934)$293 $(131,641)
Stock-based compensation expense
— — 887 — — 887 — 887 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
222,553 — 61 — — 61 — 61 
Stock issued on Exchange of 2016 Notes3,615,970 1 10,000 — — 10,001 — 10,001 
Other comprehensive income— — — — 18 18 — 18 
Net loss— — — (15,303)— (15,303)(128)(15,431)
Balance at June 30, 2021115,204,656 $12 $889,189 $(1,025,349)$(122)$(136,270)$165 $(136,105)
The accompanying notes are an integral part of these Consolidated Financial Statements.


- 9 -

NantHealth, Inc.
Consolidated Statements of Stockholders’ Deficit
(Dollars in thousands)
(Unaudited)
Common StockAdditional
Paid-In Capital
Accumulated DeficitAccumulated Other
Comprehensive Loss
Total NantHealth stockholders' deficitNoncontrolling InterestsTotal stockholders' deficit
SharesAmount
Balance at December 31, 2019110,619,678 $11 $889,955 $(946,884)$(218)$(57,136)$ $(57,136)
Stock-based compensation cost— — 668 — — 668 — 668 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
— — — — — — — — 
Other comprehensive loss— — — — (188)(188)— (188)
Net income— — — 23,065 — 23,065 — 23,065 
Balance at March 31, 2020110,619,678 11 890,623 (923,819)(406)(33,591)$ $(33,591)
Stock-based compensation expense
— — 408 — — 408 — 408 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
309,679 — (739)— — (739)— (739)
Other comprehensive loss— — — — (10)(10)— (10)
Net loss— — — (48,289)— (48,289)— (48,289)
Balance at June 30, 2020110,929,357 $11 $890,292 $(972,108)$(416)$(82,221)$ $(82,221)
The accompanying notes are an integral part of these Consolidated Financial Statements.

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 NantHealth, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Ended
June 30,
2021
2020 (2)
Cash flows from operating activities:
Net loss$(30,930)$(25,224)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on sale of businesses (32,211)
Depreciation and amortization
7,705 8,305 
Amortization of debt discounts and deferred financing offering cost
510 3,135 
Change in fair value of derivatives liability
(4)63 
Change in fair value of Bookings Commitment
4,803 3,727 
Stock-based compensation
1,742 1,049 
Deferred income taxes, net(181)(265)
Provision for bad debt expense
29 121 
Loss on exchange and prepayment of 2016 Notes742  
Loss from related party equity method investment 31,702 
Changes in operating assets and liabilities:
Accounts receivable, net(1,385)4,165 
Inventories (18)
Related party receivables, net6 (63)
Prepaid expenses and other current assets506 15,640 
Accounts payable(2,799)(437)
Accrued and other current liabilities(2,047)(20,110)
Deferred revenue932 (2,963)
Related party payables, net3,922 2,934 
Change in operating lease right-of-use assets and liabilities(204)(180)
Other assets and liabilities(32)(104)
Net cash used in operating activities(16,685)(10,734)
Cash flows from investing activities:
Net proceeds from sale of business 46,401 
Purchases of property and equipment, including internal-use software(2,411)(2,157)
Net cash (used in) provided by investing activities(2,411)44,244 
Cash flows from financing activities:
Repayments of insurance promissory note and notes payable(227)(238)
Payment of deferred financing costs, related party(268) 
Payment of deferred financing costs(390) 
Proceeds from related party convertible notes62,500  
Proceeds from convertible notes75,000  
Payment of convertible notes(87,500)
Proceeds from exercises of stock options125  
Tax payments related to stock issued, net of stock withheld, for vested equity awards (739)
Net cash provided by (used in) financing activities49,240 (977)
Effect of exchange rate changes on cash, cash equivalents and restricted cash5 (11)
Net increase in cash, cash equivalents and restricted cash30,149 32,522 
Cash, cash equivalents and restricted cash, beginning of period (1)
24,162 6,379 
Cash, cash equivalents and restricted cash, end of period (1)
$54,311 $38,901 

(1) Cash and cash equivalents included restricted cash of $2,318 and $1,375 at June 30, 2021 and June 30, 2020, respectively. Restricted cash is included in prepaid expenses and other current assets and other assets and consists of funds that are contractually restricted as to usage or withdrawal related to the Company's performance bond related to a contract with a customer, security deposits in the form of standby letters of credit for leased facilities, and funds previously held in an escrow account related to the sale of the Connected Care Business (see Note 4). No amounts have been drawn upon the letters of credit as of June 30, 2021.
(2) The statements for the six months ended June 30, 2020 include the Connected Care Business (see Note 4).
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NantHealth, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)

Six Months Ended
June 30,
20212020
Supplemental disclosure of cash flow information:
Interest paid$2,447 $2,944 
Non-cash transactions:
Purchases of property and equipment including internal use software50 102 
Common stock issued in exchange for 2016 Notes10,000  
Accrued deferred financing costs112  
The accompanying notes are an integral part of these Consolidated Financial Statements.
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NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)

Note 1. Description of Business and Basis of Presentation
Nature of Business
Nant Health, LLC was formed on July 7, 2010, as a Delaware limited liability company. On June 1, 2016, Nant Health, LLC converted into a Delaware corporation (the “LLC Conversion”) and changed its name to NantHealth, Inc. (“NantHealth”). NantHealth, together with its subsidiaries (the “Company”), is a healthcare IT company converging science and technology. The Company provides enterprise solutions that help businesses transform complex data into actionable insights. By offering efficient ways to move, interpret and visualize complex and highly sensitive information, NantHealth enables customers in healthcare, life sciences, logistics, telecommunications and other industries to automate, understand and act on data while keeping it secure and scalable. The Company markets certain of its solutions as a comprehensive integrated solution that includes its clinical decision support, payer engagement solutions, data analysis and network monitoring and management. The Company also markets its clinical decision support, payer engagement solutions, data analysis and network monitoring and management on a stand-alone basis. NantHealth is a majority-owned subsidiary of NantWorks, LLC (“NantWorks”), which is a subsidiary of California Capital Equity, LLC (“Cal Cap”). The three companies were founded by and are led by Dr. Patrick Soon-Shiong.

On February 3, 2020, the Company sold certain of its assets related to its Connected Care Business (see Note 4). The divestiture enables the Company to focus on its core competencies of clinical decision support, payer engagement and data analytics.

On July 22, 2020, the Company acquired The OpenNMS Group, Inc. ("OpenNMS") pursuant to an assignment agreement with Cambridge Equities, L.P. ("Cambridge"), a related party (see Note 19). The Company intends to integrate OpenNMS with NantHealth’s software portfolio and service offerings, as well as expand the Company’s capabilities in cloud, SaaS, and AI technologies, providing customers with services to maintain reliable network connections for critical data flows that enable patient data collaboration and decision making at the point of care. At the same time, this transaction will allow the Company to expand penetration of OpenNMS services in the healthcare industry.

As of June 30, 2021, the Company conducted the majority of its operations in the United States, Canada, and the United Kingdom.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) a pandemic. In the same month, the President of the United States declared a State of National Emergency due to the COVID-19 pandemic. Many jurisdictions, in North America (including the United States), Europe and Asia, have adopted or are considering laws, rules, regulations or decrees intended to address the COVID-19 pandemic, including implementing travel restrictions, closing non-essential businesses and/or restricting daily activities. In addition, many communities have limited social mobility and gathering. To date, there has been no material adverse impact to the Company's business from the COVID-19 pandemic. Given the unprecedented and evolving nature of the pandemic, the future impact of these changes and potential changes on the Company and its contractors, consultants, customers, resellers and partners is unknown at this time.

However, in light of the uncertainties regarding economic, business, social, health and geopolitical conditions, the Company’s revenues, earnings, liquidity, and cash flows could be adversely affected, whether on an annual or quarterly basis. Continued impacts of the COVID-19 pandemic could materially adversely affect the Company’s current and long-term accounts receivable collectability, as its negatively impacted customers from the pandemic may request temporary relief, delay, or not make scheduled payments. In addition, the deployment of the Company’s solutions may represent a large portion of its customers' investments in software technology. Decisions to make such an investment are impacted by the economic environment in which the customers operate. Uncertain global geopolitical, economic and health conditions and the lack of visibility or the lack of financial resources may cause some customers to reduce, postpone or terminate their investments, or to reduce or not renew ongoing paid services, adversely impacting the Company’s revenues or timing of revenue. Health conditions in some geographic areas where the Company’s customers operate could impact the economic situation of those areas. These conditions, including the COVID-19 pandemic, may present risks for health and limit the ability to travel for Company employees, which could further lengthen the Company’s sales cycle and delay revenue and cash flows in the near-term.
- 13 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Basis of Presentation and Principles of Consolidation
The accompanying unaudited Consolidated Financial Statements include the accounts of NantHealth and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. These interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and, in the opinion of management, include all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the Company's financial position and results of operations. In accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as issued by the Securities and Exchange Commission ("SEC"), these Consolidated Financial Statements do not include all of the information and disclosures required by GAAP for complete financial statements. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the fiscal year ended December 31, 2020. The results of operations of the entities disposed of are included in the unaudited Consolidated Financial Statements up to the date of disposal and, where appropriate, these operations have been reflected as discontinued operations. The accompanying Consolidated Balance Sheet as of December 31, 2020 has been derived from the audited Consolidated Financial Statements at that date. Operating results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year.
The Company believes its existing cash and cash equivalents will be sufficient to fund operations through at least 12 months following the issuance date of the financial statements. The Company continues to have its Chairman and CEO’s intent and ability to support the Company’s operations with additional funds as required. The Company may also seek to sell additional equity, through one or more follow-on public offerings or in separate financings, or sell additional debt securities, or obtain a credit facility. However, the Company may not be able to secure such financing in a timely manner or on favorable terms. The Company may also consider selling off components of its business. Without additional funds, the Company may choose to delay or reduce its operating or investment expenditures. Further, because of the risk and uncertainties associated with the commercialization of the Company's existing products as well as products in development, the Company may need additional funds to meet its needs sooner than planned. To date, the Company's primary sources of capital have been the private placement of membership interests prior to its IPO, debt financing agreements, including the promissory note with Nant Capital, LLC (“Nant Capital”) and its convertible notes, the sale of its common stock, and proceeds from the sale of components of its business.


Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of Consolidated 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. Actual results may differ from those estimates.
Segment Reporting

The chief operating decision maker for the Company is its Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results, or plans for levels or components below the consolidated unit level. Accordingly, management has determined that the Company operates in one reportable segment.
- 14 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU') No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40). This update simplifies the accounting for convertible instruments by eliminating the cash conversion and beneficial conversion feature models which require separate accounting for embedded conversion features. This update also amends the guidance for the derivatives scope exception for contracts in an entity's own equity to reduce form-over-substance-based accounting conclusions and requires the application of the if-converted method for calculating diluted earnings per share. ASU No. 2020-06 is effective for fiscal periods beginning after December 15, 2023. The Company early adopted ASU 2020-06 on a modified retrospective basis on January 1, 2021. The cumulative effect of the adoption on accumulated deficit and additional paid-in capital was a decrease of $8,572 and $14,318, respectively, on January 1, 2021. Under the new guidance, the Company will record less noncash interest expense going forward as the cash conversion model that was previously applied is now eliminated.
Upcoming Accounting Standard Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, which changes how companies measure credit losses on most financial instruments measured at amortized cost, such as loans, receivables and held-to-maturity debt securities. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the Company expects to collect over the instrument's contractual life. ASU No. 2016-13 is effective for fiscal periods beginning after December 15, 2022 and must be adopted as a cumulative effect adjustment to retained earnings. Early adoption is permitted. The Company is still evaluating the effects of this ASU.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not have, nor are believed by management to have, a material impact on the Company's present or future Consolidated Financial Statements.


Note 3. Revenue Recognition
Contract Balances
The Company records deferred revenue when cash payments are received, or payment is due, in advance of its fulfillment of performance obligations. During the three months ended June 30, 2021 and 2020, there were revenues of $490 and $1,821 recognized, respectively, that were included in the deferred revenue balance at the beginning of the period. During the six months ended June 30, 2021 and 2020, there were revenues of $1,028 and $3,649 recognized, respectively.
Assets Recognized from the Costs to Obtain a Contract with a Customer
The Company recognizes an asset for the incremental costs to obtain a contract with a customer, where the stated contract term, with expected renewals, is longer than one year. The Company amortizes these assets over the expected period of benefit. These costs are generally employee sales commissions, with amortization of the balance recorded in selling, general and administrative expenses. The value of these assets was $924 at June 30, 2021 and $1,321 at December 31, 2020. During the three months ended June 30, 2021 and 2020, the Company recorded amortization of $155 and $226, respectively. During the six months ended June 30, 2021 and 2020, the Company recorded amortization of $315 and $469, respectively.
Remaining Performance Obligations
As of June 30, 2021, the Company has allocated a total transaction price of $3,048 to unfulfilled performance obligations that are expected to be fulfilled within 10 years. Excluded from this amount are contracts of less than one year and variable consideration that relates to the value of services provided.

- 15 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 4. Discontinued Operations and Divestitures
Discontinued Operations
Sale of Connected Care Business

On January 13, 2020, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with Masimo Corporation (“Masimo”), VCCB Holdings, Inc., a wholly owned subsidiary of Masimo (collectively with Masimo, the “Purchaser”), and, solely with respect to certain provisions of the Purchase Agreement, NantWorks, LLC, an affiliate of the Company. Pursuant to the Purchase Agreement, the Company agreed to sell to the Purchaser certain of its assets related to its Connected Care business, including the products known as DCX (formerly DeviceConX), VCX (formerly VitalsConX), HBox and Shuttle Cable (collectively, the “Connected Care Business”).

On February 3, 2020, the Company completed the sale of the Connected Care Business for $47,250 of cash consideration in exchange for assets primarily related to the Connected Care Business (as defined under the terms of the Purchase Agreement).

The sale of the Connected Care Business qualified as a discontinued operation because it comprised operations and cash flows that could be distinguished, operationally and for financial reporting purposes, from the rest of the Company. The disposal of the Connected Care Business, which represented the Company's medical device interoperability solutions, represented a strategic shift in the Company’s operations as the sale enables the Company to focus on clinical decision support, payer engagement, and molecular analysis.

The total gain on sale of the Connected Care Business consisted of the following:
Cash received as consideration$47,250 
Less: Costs to sell(849)
Less: Carrying value of net assets sold(14,190)
Gain on sale of the Connected Care Business$32,211 

The operating results of the Company's discontinued operation were as follows:
Three Months Ended June 30,Six Months Ended
June 30,
20202020
Major classes of line items constituting pretax income (loss) of discontinued operations
Net revenue$ $1,165 
Cost of revenue (467)
Selling, general and administrative(2)(526)
Research and development9 (583)
Other expense, net (5)
Pretax loss from discontinued operations related to major classes of pretax income (loss)7 (416)
Pretax gain on sale of the Connected Care Business 32,211 
Total pretax income from discontinued operations7 31,795 
Benefit from income taxes7 (216)
Total gain from discontinued operations, net of tax$ $32,011 
- 16 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)

The significant operating and investing cash and noncash items of the discontinued operation included on the Consolidated Statements of Cash Flows were as follows:
Six Months Ended
June 30,
2020
Cash flows from operating activities:
Depreciation and amortization$10 
Gain on sale of the Connected Care Business32,211 
Cash flows from investing activities:
Net proceeds from sale of the Connected Care Business$46,401 
Purchases of property and equipment, including internal-use software76 
Note 5. Accounts Receivable, net
Accounts receivable are included in the Consolidated Balance Sheets, net of the allowance for doubtful accounts. The allowance for doubtful accounts at June 30, 2021 and December 31, 2020 was $16 and $44, respectively.
Note 6. Prepaid Expenses and Other Current Assets and Accrued and Other Current Liabilities
Prepaid expenses and other current assets as of June 30, 2021 and December 31, 2020 consisted of the following:
June 30,
2021
December 31,
2020
Prepaid expenses$2,040 $2,268 
Restricted cash1,180 238 
Other current assets716 998 
Prepaid expenses and other current assets$3,936 $3,504 

Accrued and other current liabilities as of June 30, 2021 and December 31, 2020 consisted of the following:
June 30,
2021
December 31,
2020
Accrued payroll and related costs$5,313 $7,247 
Bookings commitment (see Note 12)1,690 1,662 
Accrued liabilities1,476 1,455 
Interest payable661 289 
Operating lease liabilities1,802 1,900 
Other accrued and other current liabilities1,041 1,422 
Accrued and other current liabilities$11,983 $13,975 
- 17 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 7. Property, Plant and Equipment, net
Property, plant and equipment, net as of June 30, 2021 and December 31, 2020 consisted of the following:
June 30,
2021
December 31,
2020
Computer equipment and software$9,021 $12,332 
Furniture and equipment1,061 1,168 
Leasehold improvements3,818 4,282 
Property, plant, and equipment, excluding internal-use software, gross13,900 17,782 
Less: Accumulated depreciation and amortization(9,875)(12,837)
Property, plant and equipment, excluding internal-use software, net4,025 4,945 
Internal-use software40,299 38,488 
Construction in progress - Internal-use software1,629 1,616 
Less: Accumulated depreciation and amortization, internal-use software(33,305)(31,947)
Internal-use software, net8,623 8,157 
Property, plant and equipment, net$12,648 $13,102 
 
Depreciation and amortization expense from continuing operations was $1,515 and $2,926, respectively, for the three and six months ended June 30, 2021, of which $1,022 and $2,011, respectively, related to internal-use software costs. Depreciation and amortization expense from continuing operations was $1,799 and $3,807, respectively, for the three and six months ended June 30, 2020, of which $1,421 and $3,056, respectively, related to internal-use software costs.

Amounts capitalized to internal-use software related to continuing operations for the three and six months ended June 30, 2021 were $742 and $1,632, respectively. Amounts capitalized to internal-use software related to continuing operations for the three and six months ended June 30, 2020 were $943 and $2,153, respectively.

Note 8. Intangible Assets, net
The Company’s definite-lived intangible assets as of June 30, 2021 and December 31, 2020 consisted of the following:
June 30,
2021
December 31,
2020
Customer relationships$53,000 $53,000