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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 March 31, 2022  
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.)
3000 RDU Center Drive, Suite 200
27560
Morrisville,
North Carolina(Zip Code)
(Address of principal executive offices)
(855) 949-6288
(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 May 5, 2022, the registrant had 115,550,244 shares of common stock, par value $0.0001 per share, outstanding.



NantHealth, Inc.
Form 10-Q
As of and for the quarterly period ended March 31, 2022
Table of contents

Page
PART I.
Item 1.
Consolidated Balance Sheets
Consolidated Statement 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, OpenNMS, Quadris 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.
- 2 -


SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q, or this Quarterly Report, including, without limitation, Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, 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 customers and our ability to retain or renew contracts with partners and customers;
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 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.
We caution you that the foregoing list does not contain all of the forward-looking statements made in this Quarterly Report.
- 3 -


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.
- 4 -


PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
- 5 -

NantHealth, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
March 31,
2022
December 31,
2021
(Unaudited)
Assets
Current assets
Cash and cash equivalents$16,078 $29,084 
Accounts receivable, net5,025 5,810 
Related party receivables, net505 506 
Prepaid expenses and other current assets4,518 4,010 
Total current assets26,126 39,410 
Property, plant, and equipment, net11,956 12,366 
Goodwill98,333 98,333 
Intangible assets, net36,807 39,039 
Related party receivable, net of current1,012 1,012 
Operating lease right-of-use assets5,673 6,048 
Other assets1,494 1,620 
Total assets$181,401 $197,828 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable$5,288 $3,204 
Accrued and other current liabilities12,712 16,358 
Deferred revenue2,704 2,440 
Related party payables, net4,302 5,161 
Notes payable— 782 
Total current liabilities25,006 27,945 
Deferred revenue, net of current1,793 2,024 
Related party liabilities40,136 38,278 
Related party promissory note112,666 112,666 
Related party convertible note, net62,285 62,268 
Convertible notes, net74,623 74,603 
Deferred income taxes, net1,680 1,775 
Operating lease liabilities5,711 6,248 
Other liabilities34,098 34,013 
Total liabilities357,998 359,820 
Commitments and Contingencies (Note 11)
Stockholders' deficit
Common stock, $0.0001 par value per share, 750,000,000 shares authorized; 115,550,244 and 115,505,244 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively
12 12 
Additional paid-in capital892,546 891,105 
Accumulated deficit(1,068,847)(1,052,897)
Accumulated other comprehensive loss(308)(212)
Total stockholders' deficit(176,597)(161,992)
Total liabilities and stockholders' deficit$181,401 $197,828 

The accompanying notes are an integral part of these Consolidated Financial Statements.
- 6 -

NantHealth, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
20222021
Revenue
Software-as-a-service related$15,771 $15,757 
Maintenance464 383 
Professional services138 27 
Total software-related revenue16,373 16,167 
Other— 
Total net revenue16,373 16,170 
Cost of Revenue
Software-as-a-service related5,563 5,535 
Maintenance369 207 
Professional services— 
Amortization of developed technologies1,247 1,247 
Total software-related cost of revenue7,179 6,996 
Other— 47 
Total cost of revenue7,179 7,043 
Gross Profit9,194 9,127 
Operating Expenses
Selling, general and administrative14,980 12,502 
Research and development5,715 5,013 
Amortization of acquisition-related assets
985 985 
Total operating expenses21,680 18,500 
Loss from operations(12,486)(9,373)
Interest expense, net(3,450)(3,568)
Other income (expense), net(2,570)
Loss from continuing operations before income taxes(15,930)(15,511)
Provision for (benefit from) income taxes20 (8)
Net loss from continuing operations(15,950)(15,503)
Income from discontinued operations, net of tax attributable to NantHealth— 
Net loss(15,950)(15,499)
Net loss attributable to noncontrolling interests— (91)
Net loss attributable to NantHealth$(15,950)$(15,408)
Basic and diluted net loss per share attributable to NantHealth:
Total net loss per share - common stock$(0.14)$(0.14)
Weighted average shares outstanding
Basic and diluted - common stock115,521,243 111,319,061 

The accompanying notes are an integral part of these Consolidated Financial Statements.
- 7 -

NantHealth, Inc.
Consolidated Statements of Comprehensive Loss
(Dollars in thousands)
(Unaudited)

Three Months Ended
March 31,
20222021
Net loss$(15,950)$(15,499)
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustments(96)28 
Total other comprehensive (loss) income(96)28 
Comprehensive loss(16,046)(15,471)
Less: Comprehensive loss attributable to noncontrolling interests— 91 
Comprehensive loss attributable to NantHealth$(16,046)$(15,380)

The accompanying notes are an integral part of these Consolidated Financial Statements.
- 8 -

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, 2021115,505,244 $12 $891,105 $(1,052,897)$(212)$(161,992)$— $(161,992)
Stock-based compensation cost— — 1,417 — — 1,417 — 1,417 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
45,000 — 24 — — 24 — 24 
Other comprehensive loss— — — — (96)$(96)— $(96)
Net loss— — — (15,950)— $(15,950)— $(15,950)
Balance at March 31, 2022115,550,244 $12 $892,546 $(1,068,847)$(308)$(176,597)$— $(176,597)
    
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
Deficit
Accumulated Other
Comprehensive Loss
Total 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— — (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)
    
The accompanying notes are an integral part of these Consolidated Financial Statements.
- 10 -

 NantHealth, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
20222021
Cash flows from operating activities:
Net loss$(15,950)$(15,499)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
4,011 3,803 
Amortization of debt discounts and deferred financing offering cost
37 323 
Change in fair value of derivatives liability
— (4)
Change in fair value of Bookings Commitment
94 2,463 
Stock-based compensation
1,390 887 
Deferred income taxes, net(96)(101)
Provision for bad debt expense
26 11 
Changes in operating assets and liabilities:
Accounts receivable, net759 (1,443)
Related party receivables, net
Prepaid expenses and other current assets(617)(48)
Accounts payable2,077 (3,524)
Accrued and other current liabilities(3,699)1,833 
Deferred revenue33 269 
Related party payables, net948 1,652 
Change in operating lease right-of-use assets and liabilities(108)(99)
Other assets and liabilities45 (221)
Net cash used in operating activities(11,049)(9,692)
Cash flows from investing activities:
Purchases of property and equipment, including internal-use software(1,203)(1,141)
Net cash used in by investing activities(1,203)(1,141)
Cash flows from financing activities:
Repayments of insurance promissory note and notes payable(782)(268)
Proceeds from exercises of stock options24 64 
Net cash used in financing activities(758)(204)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(46)
Net decrease in cash, cash equivalents and restricted cash(13,056)(11,034)
Cash, cash equivalents and restricted cash, beginning of period (1)
31,402 24,162 
Cash, cash equivalents and restricted cash, end of period (1)
$18,346 $13,128 

(1) Cash and cash equivalents included restricted cash of $2,268 and $2,318 at March 31, 2022 and December 31, 2021, respectively, and $2,318 and $1,375 March 31, 2021 and December 31, 2020, respectively. At March 31, 2022, restricted cash of $1,180 is included in prepaid expenses and other current assets and $1,088 is included in other assets. At March 31, 2021, restricted cash of $1,180 is included in prepaid expenses and other current assets and $1,138 is included in other assets. 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, and security deposits in the form of standby letters of credit for leased facilities. No amounts have been drawn upon the letters of credit as of March 31, 2022.

The accompanying notes are an integral part of these Consolidated Financial Statements.
- 11 -

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 works to transform clinical delivery with actionable clinical intelligence at the moment of decision, enabling clinical discovery through real-time machine learning systems. 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 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 16). In August 2021, the Company purchased the remaining 9%, or 241,485 shares of outstanding OpenNMS common stock held by the remaining shareholders.

The Company is integrating OpenNMS with NantHealth’s software portfolio and service offerings, as well as expanding the Company’s capabilities in cloud, Software-as-a-Service ("SaaS"), and artificial intelligence ("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 March 31, 2022, 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. The COVID-19 pandemic has resulted in intermittent worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets. 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.

- 12 -

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 unaudited 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 unaudited Consolidated Financial Statements do not include all of the information and disclosures required by GAAP for complete financial statements. These unaudited Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the fiscal year ended December 31, 2021. The accompanying Consolidated Balance Sheet as of December 31, 2021 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, and its ability to borrow on the $125,000 promissory note with Nant Capital, LLC ("Nant Capital") (see Note 16) 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 launch, commercialization and marketing of the Company's existing products and services 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 promissory notes with Nant Capital and affiliates, convertible notes, the sale of its common stock, revenue generated from our products and services and proceeds from the sale of components of its business.


Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of the unaudited Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates. The estimates and assumptions used in the accompanying unaudited Consolidated Financial Statements are based upon management’s evaluation of the relevant facts and circumstances at the balance sheet date. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, accounts receivable allowance, useful lives of long-lived assets and intangible assets, income taxes, stock-based compensation, impairment of long-lived assets and intangible assets, and the expected performance against minimum reseller commitments. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the periods presented.
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.
- 13 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
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 for smaller reporting companies 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 March 31, 2022 and 2021, there were revenues of $727 and $538 recognized, respectively, that were included in the deferred revenue balance at the beginning of the period.
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 $739 at March 31, 2022 and $810 at December 31, 2021. During the three months ended March 31, 2022 and 2021, the Company recorded amortization of $142 and $160, respectively.

Where management is not able to conclude that the costs of a contract will be recovered, costs to obtain the contract are expensed as incurred.
Performance Obligations
As of March 31, 2022, the Company has allocated a total transaction price of $3,925 to unfulfilled performance obligations that are expected to be fulfilled within 9 years. Excluded from this amount are contracts of less than one year and variable consideration that relates to the value of services provided.

Note 4. 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 March 31, 2022 and December 31, 2021 was $25 and $2, respectively.

- 14 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 5. Prepaid Expenses and Other Current Assets and Accrued and Other Current Liabilities
Prepaid expenses and other current assets as of March 31, 2022 and December 31, 2021 consisted of the following:
March 31,
2022
December 31,
2021
Prepaid expenses$2,797 $2,256 
Restricted cash1,180 1,180 
Other current assets541 574 
Prepaid expenses and other current assets$4,518 $4,010 

Accrued and other current liabilities as of March 31, 2022 and December 31, 2021 consisted of the following:
March 31,
2022
December 31,
2021
Payroll and related costs$3,990 $8,545 
Accrued liabilities2,633 2,640 
Bookings Commitment (see Note 9)1,670 1,661 
Interest payable1,547 703 
Operating lease liabilities1,967 1,912 
Other accrued and other current liabilities905 897 
Accrued and other current liabilities$12,712 $16,358 

Note 6. Property, Plant and Equipment, net
Property, plant and equipment, net as of March 31, 2022 and December 31, 2021 consisted of the following:
March 31,
2022
December 31,
2021
Computer equipment and software$7,627 $9,267 
Furniture and equipment1,059 1,060 
Leasehold improvements3,809 3,821 
Property, plant, and equipment, excluding internal-use software, gross12,495 14,148 
Less: Accumulated depreciation and amortization(9,687)(10,857)
Property, plant and equipment, excluding internal-use software, net2,808 3,291 
Internal-use software44,545 43,314 
Construction in progress - Internal-use software1,051 1,082 
Less: Accumulated depreciation and amortization, internal-use software(36,448)(35,321)
Internal-use software, net9,148 9,075 
Property, plant and equipment, net$11,956 $12,366 
 
Depreciation expense from continuing operations was $1,637 for the three months ended March 31, 2022, of which $1,128 related to internal-use software costs. Depreciation and amortization expense from continuing operations was $1,411 for the three months ended March 31, 2021, of which $989 related to internal-use software costs.

Amounts capitalized to internal-use software related to continuing operations for the three months ended March 31, 2022 and 2021 were $1,206 and $890, respectively.


- 15 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 7. Intangible Assets, net
The Company’s definite-lived intangible assets as of March 31, 2022 and December 31, 2021 consisted of the following:
March 31,
2022
December 31,
2021
Customer relationships$53,000 $53,000 
Developed technologies34,500 34,500 
Trade name3,300 3,300 
Installed user base1,400 1,400 
Intangible assets, gross92,200 92,200 
Less: Accumulated amortization(55,393)(53,161)
Intangible assets, net$36,807 $39,039 

Amortization of definite-lived intangible assets is provided over their estimated useful lives on a straight-line basis or the pattern in which economic benefits are consumed, if reliably determinable. The Company reviews its definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Amortization expense from continuing operations for the three months ended March 31, 2022 and 2021 was $2,232 and $2,232, respectively.

The estimated future amortization expense over the next five years and thereafter for the intangible assets that exist as of March 31, 2022 is as follows:
Amounts
Remainder of 2022$6,698 
20234,346 
20244,283 
20254,147 
20263,467 
Thereafter13,866 
Total future intangible amortization expense$36,807 

Note 8. Convertible Notes
2021 4.5% Convertible Senior Notes ("2021 Notes")
On April 13, 2021, the Company and its wholly owned subsidiary, NaviNet (the "Guarantor") entered into a note purchase agreement (the “Note Purchase Agreement”) with Highbridge and certain other buyers, including Nant Capital to issue and sell $137,500 in aggregate principal amount of its 4.5% convertible senior notes in a private placement pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act. The 2021 Notes were issued on April 27, 2021. The total net proceeds from this offering were approximately $136,772, comprised of $62,223 from Nant Capital and $74,549 from Highbridge, after deducting Highbridge’s debt issuance costs of $118 and $610 in debt issuance costs paid to third parties in connection with the 2021 Notes offering.

The Company used part of the proceeds from the 2021 Notes issuance to repurchase the remaining $31,945 of principal amount of the 2016 5.5% Convertible Senior Notes ("2016 Notes") held by Highbridge (“Repurchased Notes”) and pay $644 of accrued and unpaid interest. On April 27, 2021, in connection with the issuance of the 2021 Notes, the Company provided a notice of a "Fundamental Change" (as defined in the indenture governing the Company's 2016 Notes) and an offer to repurchase all the outstanding 2016 Notes. On May 25, 2021, the Company purchased $55,555 of the outstanding 2016 Notes via a Fundamental Change repurchase and paid $1,358 of accrued and unpaid interest thereon.

On April 27, 2021, the 2021 Notes were issued to the investors under an indenture (the “2021 Indenture”) dated April 27, 2021 entered into between the Company and U.S. Bank National Association (the “Trustee”).

- 16 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
The interest rates are fixed at 4.5% per year, payable semi-annually on October 15th and April 15th of each year, beginning on October 15, 2021. The 2021 Notes will mature on April 15, 2026, unless earlier repurchased by the Company or converted pursuant to their terms.

The deferred financing offering costs on the 2021 Notes are being amortized to interest expense over the contractual terms of the 2021 Notes, using the effective interest method at an effective interest rate of 4.61%.

The initial conversion rate of the 2021 Notes is 259.8753 shares of common stock per $1 principal amount of 2021 Notes (which is equivalent to an initial conversion price of approximately $3.85 per share). The conversion rate will be subject to adjustment upon the occurrence of certain specified events in accordance with the terms of the 2021 Indenture but will not be adjusted for accrued and unpaid interest.

Holders of the 2021 Notes may convert all or a portion of their 2021 Notes, in multiples of $1 principal amount, at any time prior to the close of business on the business day immediately preceding the maturity date. Upon conversion, the 2021 Notes will be settled in cash, shares of the Company's common stock or any combination thereof at the Company's option.
As of March 31, 2022, the remaining life of the Convertible Notes is approximately 48.5 months.

The 2021 Notes are the Company’s general unsecured obligations and are initially guaranteed on a senior unsecured basis by the Guarantor.

The Company may not redeem the 2021 Notes prior to April 20, 2024. The Company may redeem for cash all or any portion of the 2021 Notes, at its option, on or after April 20, 2024, if the last reported sale price of the common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the 2021 Notes to be redeemed, plus any accrued and unpaid special interest up to, but excluding, the redemption date. No sinking fund is provided for the 2021 Notes, which means that the Company is not required to redeem or retire the 2021 Notes periodically. If the Company exercises this option to redeem the 2021 Notes owned by Highbridge and Highbridge is unable to convert such 2021 Notes as a result of the application of the beneficial ownership limitations, at the request of Highbridge, the Company shall convert such 2021 Notes into the number of shares of the Company’s Series 1 Preferred Stock equal to the number of shares that the 2021 Notes are convertible into pursuant to the Conversion Option (as defined in the 2021 Indenture) into common stock.

Upon the occurrence of a fundamental change (as defined in the 2021 Indenture), holders may require the Company to purchase all or a portion of the 2021 Notes in principal amounts of $1 or an integral multiple thereof, for cash at a price equal to 100% of the principal amount of the 2021 Notes to be purchased plus any accrued and unpaid interest to, but excluding, the fundamental change purchase date.

For so long as at least $25,000 principal amount of the 2021 Notes are outstanding, the 2021 Indenture restricts the Company or any of its subsidiaries from creating, assuming, or incurring any indebtedness owing to any of the Company's affiliates (other than intercompany indebtedness between the Company and its subsidiaries and other than any of the Company's 2021 Notes), or prepaying any such indebtedness, subject to certain exceptions, unless certain conditions described in the 2021 Indenture have been satisfied. Under the 2021 Indenture, the Company may incur affiliate debt if there is (i) no default or event of default at the time of such incurrence or would occur as a consequence of such incurrence; (ii) such affiliate debt is unsecured and subordinated to the 2021 Notes; and (iii) no principal of such affiliate debt is scheduled to mature earlier than the date that is 181 days after April 15, 2026, the maturity date of the 2021 Notes. See Note 11 Commitments and Contingencies for default provisions.
- 17 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
The following table summarizes how the issuance of the 2021 Notes is reflected in the Company's Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021.
Related PartyOthersTotal
Balance as of March 31, 2022
Gross proceeds
$62,500 $75,000 $137,500 
Unamortized debt discounts and deferred financing offering costs
(215)(377)(592)
Net carrying amount
$62,285 $74,623 $136,908 
Balance as of December 31, 2021
Gross proceeds
$62,500 $75,000 $137,500 
Unamortized debt discounts and deferred financing offering costs
(232)(397)(629)
Net carrying amount
$62,268 $74,603 $136,871 
 
The following tables set forth the Company's interest expense recognized in the Company's Consolidated Statements of Operations:
Three Months Ended
March 31, 2022
2021 Notes
Related Party
Others
Total
Accrued coupon interest expense$703 $844 $1,547 
Amortization of deferred financing offering costs
17 20 37 
Total convertible notes interest expense$720 $864 $1,584 
Three Months Ended
March 31, 2021
2016 NotesRelated PartyOthersTotal
Accrued coupon interest expense $137 $1,334 $1,471 
Amortization of debt discounts76 84 
Amortization of deferred financing offering costs234 239 
Total convertible notes interest expense$150 $1,644 $1,794 

Note 9. Fair Value Measurements
Liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 consisted of the following:
March 31, 2022
Total
 fair value
Quoted price in active markets for identical assets
 (Level 1)
Significant other observable inputs
(Level 2)
Significant unobservable inputs
 (Level 3)
Liabilities
Bookings Commitment$34,568 $— $— $34,568 
December 31, 2021
Total
 fair value
Quoted price in active markets for identical assets
 (Level 1)
Significant other observable inputs
(Level 2)
Significant unobservable inputs
 (Level 3)
Liabilities
Bookings Commitment$34,474 $— $— $34,474 

- 18 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
The Company’s intangible assets and goodwill are initially measured at fair value and any subsequent adjustment to the initial fair value occurs only if an impairment charge is recognized.
Level 3 Inputs
Bookings Commitment
On August 3, 2017, the Company entered into an asset purchase agreement (the “APA”) with Allscripts Healthcare Solutions, Inc. (“Allscripts”), pursuant to which the Company agreed to sell to Allscripts substantially all of the assets of the Company’s provider/patient engagement solutions business, including the Company’s FusionFX solution and components of its NantOS software connectivity solutions (the “Business”). On August 25, 2017, the Company and Allscripts completed the sale of the Business (the "Disposition") pursuant to the APA.

Concurrent with the closing of the Disposition and as contemplated by the APA, (a) the Company and Allscripts modified the amended and restated mutual license and reseller agreement dated June 26, 2015, which was further amended on December 30, 2017, such that, among other things, the Company committed to deliver a minimum of $95,000 of total bookings over a ten-year period (“Bookings Commitment”) from referral transactions and sales of certain Allscripts products; (b) the Company and Allscripts each licensed certain intellectual property to the other party pursuant to a cross license agreement; (c) the Company agreed to provide certain transition services to Allscripts pursuant to a transition services agreement; and (d) the Company licensed certain software and agreed to sell certain hardware to Allscripts pursuant to a software license and supply agreement. The Company also agreed that Allscripts shall receive at least $500 per year in payments from bookings (the “Annual Minimum Commitment”). If the total payments received by Allscripts from bookings during such period are less than the Annual Minimum Commitment, the Company shall pay to Allscripts the difference between the Annual Minimum Commitment and the total amount received by Allscripts from bookings during such period. As of both March 31, 2022 and December 31, 2021, the accrued Annual Minimum Commitment was $1,200. In the event of a Bookings Commitment shortfall at the end of the ten-year period, the Company may be obligated to pay 70% of the shortfall, subject to certain credits. The Company will earn 30% commission from Allscripts on each software referral transaction that results in a booking with Allscripts. The Company accounts for the Bookings Commitment at its estimated fair value over the life of the agreement.

The Company values the Bookings Commitment, assumed upon the disposal of the provider/patient engagement solutions business, using a Monte Carlo Simulation model to calculate average payments due under the Bookings Commitment, based on management's estimate of its performance in securing bookings and resulting annual payments, discounted at the cost of debt based on a yield curve. The cost of debt used for discounting was 12% at March 31, 2022 and 11% at December 31, 2021. The change in fair value is recorded within other income (expense), net in the Company's Consolidated Statements of Operations.

The fair value of the Bookings Commitment is dependent on management's estimate of the probability of success on individual opportunities and the cost of debt applied in discounting the liability. The higher the probability of success on each opportunity, the lower the fair value of the Bookings Commitment liability. The lower the cost of debt applied, the higher the value of the liability.

Management believes the assumptions used on projected financial information is reasonable, but those assumptions require judgment and are forward looking in nature. However, actual results may differ materially from those projections. The fair value of the Bookings Commitment is most sensitive to management's estimate of the discount rate applied to present value the liability. If the discount rate applied was 2% lower at March 31, 2022, the fair value of the liability would increase by $3,716.
The fair market value for level 3 securities may be highly sensitive to the use of unobservable inputs and subjective assumptions. Generally, changes in significant unobservable inputs may result in significantly lower or higher fair value measurements.
- 19 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
The following tables set forth a summary of changes in the fair value of Level 3 liabilities for the three months ended March 31, 2022:
December 31, 2021Transfers in (out) Change in fair value recognized in earningsMarch 31, 2022
Liabilities
Bookings Commitment34,474 — 94 34,568 
$34,474 $— $94 $34,568 
Fair Value of Convertible Notes held at amortized cost
As of March 31, 2022 and December 31, 2021, the fair value and carrying value of the Company's Convertible 2021 Notes were:
 
Fair valueCarrying valueFace value
2021 Notes
Balance as of March 31, 2022
Related party
$49,430 $62,285 $62,500 
Others
59,316 74,623 75,000 
$108,746 $136,908 $137,500 
Balance as of December 31, 2021
Related party
$51,466 $62,268 $62,500 
Others
61,760 74,603 75,000 
$113,226 $136,871 $137,500 

The fair value of the 2021 Notes was determined by using unobservable inputs that are supported by minimal non-active market activity and that are significant to determining the fair value of the debt instrument. The fair value is level 3 in the fair value hierarchy.

- 20 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 10. Leases
The Company has operating leases for corporate offices, data centers, and certain equipment. The Company's leases have lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year. Options to extend are included in the lease term where the Company is reasonably certain to exercise the options. Variable payments on the Company's leases are expensed as incurred, as they do not depend on an index or rate. The Company concluded certain leases for data centers had a term of less than 1 year at inception, as arrangements are only renewed following marketplace assessments and negotiations with vendors.

Future minimum lease payments under the Company's operating leases at March 31, 2022 were:

Maturity AnalysisAmounts
Remainder of 2022$2,007 
20232,679 
20242,524 
2025671 
2026604 
2027427 
Thereafter660 
Total future minimum lease payments9,572 
Less: imputed interest(1,894)
Total$7,678 
As reported in the Consolidated Balance Sheet
Accrued and other current liabilities$1,967 
Operating lease liabilities5,711 
$7,678 

Note 11. Commitments and Contingencies
The Company's principal commitments consist of obligations under its outstanding debt obligations, noncancelable leases for its office space and certain equipment and vendor contracts to provide research services, and purchase obligations under license agreements and reseller agreements.
Related Party Promissory Note
On January 4, 2016, the Company executed a $112,666 demand promissory note in favor of Nant Capital to fund the acquisition of NaviNet (see Note 16). On May 9, 2016 and December 15, 2016, the promissory note with Nant Capital was amended to provide that all outstanding principal and accrued interest is due and payable on June 15, 2022, and not on demand. On April 27, 2021, in connection with the issuance of the 2021 Notes, the Company entered into a Third Amended and Restated Promissory Note which amends and restates its promissory note, dated January 4, 2016, as amended on May 9, 2016, and on December 16, 2016, between the Company and Nant Capital, to, among other things, extend the maturity date of the promissory note to October 1, 2026 and to subordinate the promissory note in right of payment to the 2021 Notes (see Note 8).
Indenture Obligations Under Convertible Notes
On April 27, 2021, the Company and the Guarantor entered into an indenture (the “2021 Indenture”) by and among NantHealth, the Guarantor and U.S. Bank National Association, as trustee (the “Trustee”), pursuant to which the Company issued the 2021 Notes. The 2021 Notes will bear interest at a rate of 4.5% per year, payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. The 2021 Notes will mature on April 15, 2026, unless earlier repurchased, redeemed or converted.

The following events are considered “events of default” with respect to the 2021 Notes, which may result in the acceleration of the maturity of the 2021 Notes:

- 21 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
(1) the Company defaults in any payment of interest on the 2021 Notes when due and payable and the default continues for a period of 30 days;

(2) the Company defaults in the payment of principal on the 2021 Notes when due and payable at the stated maturity, upon redemption, upon any required repurchase, upon declaration of acceleration or otherwise;

(3) failure by the Company to comply with its obligation to convert the 2021 Notes in accordance with the 2021 Indenture upon exercise of a holder’s conversion right and such failure continues for a period of five business days;

(4) failure by the Company to give a fundamental change notice or notice of a specified corporate transaction when due with respect to the 2021 Notes;

(5) failure by the Company to comply with its obligations under the 2021 Indenture with respect to consolidation, merger and sale of assets of the Company;

(6) failure by the Company to comply with any of its other agreements contained in the 2021 Notes or the 2021 Indenture, for a period 60 days after written notice from the Trustee or the holders of at least 25% in principal amount of the 2021 Notes then outstanding has been received;

(7) default by the Company or any of its significant subsidiaries (as defined in the 2021 Indenture) with respect to any mortgage, agreement or other instrument under which there may be outstanding, or by which there may be secured or evidenced, any indebtedness for money borrowed in excess of $17,500 (or its foreign currency equivalent) in the aggregate of the Company and/or any such subsidiary, whether such indebtedness now exists or shall hereafter be created (i) resulting in such indebtedness becoming or being declared due and payable or (ii) constituting a failure to pay the principal of any such indebtedness when due and payable at its stated maturity, upon required repurchase, upon declaration of acceleration or otherwise, and, in the case of clauses (i) and (ii), such default is not rescinded or annulled or such failure to pay or default shall not have been cured or waived, such acceleration is not rescinded or such indebtedness is not discharged, as the case may be, within 30 days after notice to the Company by the Trustee or to the Company and the Trustee by holders of at least 25% in aggregate principal amount of 2021 Notes then outstanding in accordance with the 2021 Indenture; or

(8) certain events of bankruptcy, insolvency, or reorganization of the Company or any of its significant subsidiaries (as defined in the 2021 Indenture).

If such an event of default, other than an event of default described in clause (8) above with respect to the Company, occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding 2021 Notes by notice to the Company and the Trustee, may, and the Trustee at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest, if any, on all the 2021 Notes to be due and payable. In case of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal of and accrued and unpaid interest on the 2021 Notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest on the 2021 Notes, if any, will be due and payable immediately.
Unconditional Purchase Obligations
In 2020, NantWorks entered into agreements with various vendors related to an enterprise resource planning (“ERP”) implementation project on behalf of its subsidiaries, including NantHealth. NantWorks bills the Company for its portion of these expenses through the Shared Services Agreement (see Note 16). As of March 31, 2022, the Company’s estimated unconditional purchase obligations total approximately $600 for the remainder of 2022, and $100 in 2023. During the three months ended March 31, 2022, the Company made payments of approximately $67 for the amounts purchased related to the unconditional purchase obligations for the ERP implementation project.
Regulatory Matter
The Company is subject to regulatory oversight by the U.S. Food and Drug Administration and other regulatory authorities with respect to the development, manufacturing, and sale of some of the solutions. In addition, the Company is subject to the Health Insurance Portability and Accountability Act (“HIPAA”), the Health Information Technology for Economic and Clinical Health Act and related patient confidentiality laws and regulations with respect to patient information. The Company reviews the applicable laws and regulations regarding effects of such laws and regulations on its operations on an on-going basis and modifies operations as appropriate. The Company believes it is in substantial compliance with all applicable laws and regulations. Failure to comply with regulatory requirements could have a significant adverse effect on the Company’s business and operations.
- 22 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Legal Matters
The Company is, from time to time, subject to claims and litigation that arise in the ordinary course of its business. Except as discussed below, in the opinion of management, the ultimate outcome of proceedings of which management is aware, even if adverse to the Company, would not have a material adverse effect on the Company’s consolidated financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on the Company because of defense and settlement costs, diversion of management resources and other factors.
Securities and Derivative Litigation
In March 2017, a number of putative class action securities complaints were filed in U.S. District Court for the Central District of California, naming as defendants the Company and certain of our current or former executive officers and directors. These complaints have been consolidated with the lead case captioned Deora v. NantHealth, Inc., 2:17-cv-01825 ("Deora"). In June 2017, the lead plaintiffs filed an amended consolidated complaint, which generally alleges that defendants violated federal securities laws by making material misrepresentations in NantHealth’s IPO registration statement and in subsequent public statements. In particular, the complaint refers to various third-party articles in alleging that defendants misrepresented NantHealth’s business with the University of Utah, donations to the university by non-profit entities associated with the Company's founder Dr. Patrick Soon-Shiong, and orders for GPS Cancer. The lead plaintiffs seek unspecified damages and other relief on behalf of putative classes of persons who purchased or acquired NantHealth securities in the IPO or on the open market from June 1, 2016 through May 1, 2017. In March 2018, the Court largely denied Defendants’ motion to dismiss the consolidated amended complaint. On July 30, 2019, the Court certified the case as a class action. On October 23, 2019, the parties notified the Court that they had reached a settlement in principle to resolve the action on a class wide basis in the amount of $16,500, which was included in accrued and other current liabilities in the Consolidated Balance Sheet at December 31, 2019. The Court granted preliminary approval of the settlement on January 31, 2020. A hearing for final approval of the settlement was scheduled for June 15, 2020, but on June 5, 2020, the Court decided to take the final approval motion on submission, and on July 17, 2020, the Court directed Plaintiff’s counsel to submit evidence substantiating all costs incurred. The $16,500 settlement was paid into a settlement fund prior to the payment deadline of March 2, 2020. The majority of the settlement amount was funded by the Company’s insurance carriers, and a portion was by the Company. On September 10, 2020, the Court entered an order granting final approval of the settlement, and the order and settlement are now final.

In May 2017, a putative class action complaint was filed in California Superior Court, Los Angeles County, asserting claims for violations of the Securities Act based on allegations similar to those in Deora. That case is captioned Bucks County Employees Retirement Fund v. NantHealth, Inc., BC 662330. At a case management conference on December 3, 2019, the parties informed the court of the pending settlement of the federal class action in the Deora action. During a status conference on February 4, 2021, the Court scheduled a further status conference for April 7, 2021 and stated that if Plaintiff did not voluntarily dismiss the action, the Court would entertain a motion to dismiss in light of the finalization of the Deora settlement. Plaintiff filed an unopposed request for voluntarily dismissal on March 15, 2021. On March 22, 2021, the court issued an order granting plaintiff’s request and dismissing the action with prejudice.

In April 2018, two putative shareholder derivative actions, captioned Engleman v. Soon-Shiong, Case No. 2018-0282-AGB, and Petersen v. Soon-Shiong, Case No. 2018-0302-AGB were filed in the Delaware Court of Chancery. The plaintiff in the Engleman action previously filed a similar complaint in California Superior Court, Los Angeles County, which was dismissed based on a provision in the Company’s charter requiring derivative actions to be brought in Delaware. The Engleman and Petersen complaints contain allegations similar to those in the Deora action but asserted causes of action on behalf of NantHealth against various of the Company’s current or former executive officers and directors for alleged breaches of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets, and unjust enrichment. The Company is named solely as a nominal defendant. In July 2018, the court issued an order consolidating the Engleman and Petersen actions as In re NantHealth, Inc. Stockholder Litigation, Lead C.A. No. 2018-0302, appointing Petersen as lead plaintiff, and designating the Petersen complaint as the operative complaint. On September 20, 2018, the defendants moved to dismiss the complaint. In October 2018, in response to the motion to dismiss, Petersen filed an amended complaint. In November 2018, the defendants moved to dismiss the amended complaint, which asserts claims for breach of fiduciary duty, waste of corporate assets (which Petersen subsequently withdrew), and unjust enrichment. On January 14, 2020, the court issued an order granting in part and denying in part the defendants’ motion to dismiss. The court dismissed all claims except one claim against Dr. Patrick Soon-Shiong for breach of fiduciary duty. Dr. Soon-Shiong and the Company filed answers to the amended complaint on March 30, 2020. Discovery commenced and the action remains pending.

- 23 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
In April 2018, a putative shareholder derivative action captioned Shen v. Soon-Shiong was filed in U.S. District Court for the District of Delaware. In November 2018, a putative shareholder derivative action captioned Manuel v. Soon-Shiong was filed in the U.S. District Court for the District of Delaware. The complaints contain allegations similar to those in the Deora action but also asserted causes of action on behalf of NantHealth against various of the Company’s current or former executive officers and directors for alleged breaches of fiduciary duty and unjust enrichment, as well as alleged violations of the federal securities laws based on alleged misstatements or omissions in the Company’s 2017 proxy statement. The Company is named solely as a nominal defendant. On January 15, 2019, the Shen and Manuel actions were consolidated in a case captioned In re NantHealth, Inc. Derivative Litigation. The parties agreed to stay the consolidated case pending a decision on defendants’ motion to dismiss in the derivative action in the Delaware Court of Chancery. The stay was lifted after the Delaware Court of Chancery's January 14, 2020 decision granting in part and denying in part the motion to dismiss. On October 5, 2020, an amended consolidated complaint was filed which brings claims only against Dr. Soon-Shiong for alleged violations of the federal securities laws and breach of fiduciary duty based on alleged misstatement or omissions in the Company’s 2017 and 2018 proxy statements and other public filings. On December 4, 2020, defendant moved to dismiss the amended complaint. On February 2, 2021, plaintiffs filed an answering brief in opposition to defendant’s motion to dismiss. On March 18, 2021, defendant filed a reply brief in further support of his motion to dismiss the amended complaint.


Note 12. Income Taxes

The provision for income taxes for the three months ended March 31, 2022 and 2021 from continuing operations was a provision of $20 and a benefit from of $8, respectively. The provision for (benefit from) income taxes for the three months ended March 31, 2022 and 2021 from continuing operations included an income tax provision for (benefit from) the consolidated group based on an estimated annual effective tax rate.

The effective tax rates for the three months ended March 31, 2022 and 2021 from continuing operations were a provision of 0.13% and a benefit of 0.05%, respectively. The effective tax rates for the three months ended March 31, 2022 and 2021 differed from the U.S. federal statutory rates of 21% primarily as a result of a valuation allowance on the Company's deferred tax assets.

The Company has evaluated all available evidence supporting the realization of its deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that its net deferred tax assets will not be realized in the U.S. Due to uncertainties surrounding the realization of the deferred tax assets, the Company maintains a valuation allowance on substantially all deferred tax assets in excess of deferred tax liabilities. If/when the Company determines that it will be able to realize some portion or all of its deferred tax assets, an adjustment to its valuation allowance on its deferred tax assets would have the effect of increasing net income in the period(s) such determination is made. The Company files income tax returns in the U.S. Federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. The Company has recently completed an IRS audit for the tax year 2016 with no adjustments. The Company is no longer subject to income tax examination by the U.S. federal, state or local tax authorities for years ended December 31, 2016 or prior, however, its tax attributes, such as net operating loss (“NOL”) carryforwards and tax credits, are still subject to examination in the year they are used.

Note 13. Stockholders’ Equity
Amended Certificate of Incorporation
In accordance with the Company’s amended and restated certificate of incorporation, which was filed immediately following the closing of its IPO, the Company is authorized to issue 750,000,000 shares of common stock, with a par value of $0.0001 per share, and 20,000,000 shares of undesignated preferred stock, with a par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for each share held on all matters submitted to a vote of its stockholders. Holders of the Company’s common stock have no cumulative voting rights. Further, as of March 31, 2022 and December 31, 2021, holders of the Company’s common stock have no preemptive, conversion, redemption or subscription rights and there are no sinking fund provisions applicable to the Company’s common stock. Upon liquidation, dissolution or winding-up of the Company, holders of the Company’s common stock are entitled to share ratably in all assets remaining after payment of all liabilities and the liquidation preferences of any outstanding shares of preferred stock. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of the Company’s common stock are entitled to receive dividends, if any, as may be declared from time to time by the Company’s board of directors. As of March 31, 2022, and December 31, 2021, there were no outstanding shares of preferred stock.

On April 13, 2021, the Company exchanged with Cambridge and Highbridge, $10,000 principal of the 2016 Notes ($5,000 with each party, respectively), for 1,689,189 and 1,926,781 common shares, respectively.

- 24 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
On November 12, 2021, the Company entered into a certain Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”) relating to shares of our common stock, $0.0001 par value per share, offered pursuant to an effective shelf registration statement on Form S-3 that was declared effective on May 6, 2021. In accordance with the terms of the Sale Agreement, we may offer and sell shares of our common stock having an aggregate offering price of up to $30,000 from time to time through Jefferies acting as our agent.

Note 14. Stock-Based Compensation
The following table reflects the components of stock-based compensation expense recognized in the Company's Consolidated Statements of Operations:
Three Months Ended
March 31,
20222021
Stock options:
Cost of revenue60 42 
Selling, general and administrative1,140698
Research and development14198
Total stock options stock-based compensation expense1,341838
Restricted stock units:
Selling, general and administrative2749
Total restricted stock units stock-based compensation expense2749
Related party share based payments:
Selling, general and administrative12 — 
Research and development10 — 
Total related party stock-based compensation expense22 — 
Total stock-based compensation expense1,390887 
Amount capitalized to internal-use software2725 
Total stock-based compensation cost$1,417 $912 
2016 Equity Incentive Plan
Stock Options
The following table summarizes the activity related to stock options during the three months ended March 31, 2022:
 
Number of 
Shares
Weighted-Average 
Exercise Price
Stock options outstanding - December 31, 202114,475,636 $2.06 
Exercised(45,000)$0.55 
Forfeited(118,750)$3.60 
Stock options outstanding - March 31, 202214,311,886 $2.05 
Stock options exercisable - March 31, 20224,320,636 $1.35 
As of March 31, 2022, the Company had $11,365 of unrecognized stock-based compensation expense related to stock options. This cost is expected to be recognized over a weighted-average period of 1.9 years.
The Company settles all exercised stock options by issuing shares of the Company's common stock without netting down the portion related to payroll withholding tax obligations.
- 25 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Restricted Stock Units
The following table summarizes the activity related to the unvested restricted stock units during the three months ended March 31, 2022:
 
Number of
Units
Weighted-Average Grant Date
Fair Value
Unvested restricted stock units outstanding - December 31, 2021119,705 $1.81 
Vested(59,852)$1.81 
Unvested restricted stock units outstanding - March 31, 202259,853 $1.81 
Vested and exercisable, end of period59,852 $1.81 
Vested and unvested restricted units outstanding - March 31, 2022119,705 $1.81 
As of March 31, 2022, the Company had $102 of unrecognized stock-based compensation expense related to restricted stock units. This cost is expected to be recognized over a weighted-average period of 0.9 years.
During the three months ended March 31, 2022, the Company issued 0 shares of common stock to participants of the 2016 Plan based in the United States.

Note 15. Net Loss Per Share
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted net loss per share of common stock attributable to NantHealth for the three months ended March 31, 2022 and 2021:
Three Months Ended
March 31,
20222021
Common StockCommon Stock
Net loss per share numerator:
Net loss from continuing operations
$(15,950)$(15,503)
Net loss attributable to noncontrolling interests— (91)
Net loss from continuing operations attributable to NantHealth(15,950)(15,412)
Income from discontinued operations attributable to NantHealth— 
Net loss attributable to NantHealth for basic and diluted net loss per share$(15,950)$(15,408)
Weighted-average shares for basic and diluted net loss per share115,521,243 111,319,061 
Basic and diluted net loss per share attributable to NantHealth:
Total net loss per share - common stock$(0.14)$(0.14)

The following number of potential common shares at the end of each period were excluded from the calculation of diluted net loss per share attributable to common stockholders because their effect would have been anti-dilutive for the periods presented:
March 31,
20222021
Unvested and vested and unissued restricted stock units119,705 193,455 
Unexercised stock options14,311,886 9,678,724 
Convertible notes35,732,853 8,815,655 

- 26 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 16. Related Party Transactions
NantWorks Shared Services Agreement
In October 2012, the Company entered into a shared services agreement with NantWorks that provides for ongoing services from NantWorks in areas such as public relations, information technology and cloud services, human resources and administration management, finance and risk management, environmental health and safety, sales and marketing services, facilities, procurement and travel, and corporate development and strategy (the "Shared Services Agreement"). The Company is billed quarterly for such services at cost, without mark-up or profit for NantWorks, but including reasonable allocations of employee benefits, facilities and other direct or fairly allocated indirect costs that relate to the associates providing the services. NantHealth also bills NantWorks and affiliates for services such as information technology and cloud services, finance and risk management, and facilities management, on the same basis. During the three months ended March 31, 2022, the Company recognized $594 of income from selling, general and administrative expenses for services provided by the Company to NantWorks and affiliates, net of services provided to NantWorks and affiliates. During the three months ended March 31, 2021, the Company incurred $106 of expenses recognized in selling, general and administrative expenses for services provided to the Company by NantWorks and affiliates, net of services provided to NantWorks and affiliates.
Nant Capital Note Purchase Agreement
On April 13, 2021, the Company entered into a Note Purchase Agreement with Nant Capital to issue and sell $62,500 in aggregate principal amount of its 2021 Notes (see Note 11). The accrued and unpaid interest on the 2021 Notes held by Nant Capital was $1,289 and $586 at March 31, 2022 and December 31, 2021, respectively, and was included as part of current related party payables, net in the Consolidated Balance Sheets.
Related Party Receivables and Payables
As of March 31, 2022 and December 31, 2021, the Company had related party receivables of $1,517 and $1,518, respectively, primarily consisting of a receivable from Ziosoft KK of $1,144 in both periods, which was related to the sale of Qi Imaging. As of March 31, 2022 and December 31, 2021, respectively, the Company had related party payables and related party liabilities of $44,438 and $43,439, respectively, which primarily relate to interest payable on the $112,666 promissory note in favor of Nant Capital and amounts owed to NantWorks pursuant to the Shared Services Agreement. The balance of the related party receivables and payables represent amounts paid by affiliates on behalf of the Company or vice versa.
Amended Reseller Agreement
On June 19, 2015, the Company entered into a five and a half year exclusive Reseller Agreement with NantOmics for sequencing and bioinformatics services (the "Original Reseller Agreement"). NantOmics is a majority owned subsidiary of NantWorks and is controlled by the Company's Chairman and CEO. On May 9, 2016, the Company and NantOmics executed an Amended and Restated Reseller Agreement (the “Amended Reseller Agreement”), pursuant to which the Company received the worldwide, exclusive right to resell NantOmics’ quantitative proteomic analysis services, as well as related consulting and other professional services, to institutional customers (including insurers and self-insured healthcare providers) throughout the world. The Company retained its existing rights to resell NantOmics’ molecular analysis and bioinformatics services. Under the Amended Reseller Agreement, the Company is responsible for various aspects of delivering its sequencing and molecular analysis solutions, including patient engagement and communications with providers such as providing interpretations of the reports delivered to the physicians and resolving any disputes, ensuring customer satisfaction, and managing billing and collections. On September 20, 2016, the Company and NantOmics further amended the Amended Reseller Agreement (the "Second Amended Reseller Agreement"). The Second Amended Reseller Agreement permits the Company to use vendors other than NantOmics to provide any or all of the services that are currently being provided by NantOmics and clarifies that the Company is responsible for order fulfillment and branding.

The Second Amended Reseller Agreement grants to the Company the right to renew the agreement (with exclusivity) for up to three renewal terms, each lasting three years, if the Company achieves projected volume thresholds, as follows: (i) the first renewal option can be exercised if the Company completes at least 300,000 tests between June 19, 2015 and June 30, 2020; (ii) the second renewal option can be exercised if the Company completes at least 570,000 tests between July 1, 2020 and June 30, 2023; and (iii) the third renewal option can be exercised if the Company completes at least 760,000 tests between July 1, 2023 and June 30, 2026. If the Company does not meet the applicable volume threshold during the initial term or the first or second exclusive renewal terms, the Company can renew for a single additional three-year term, but only on a non-exclusive basis.

- 27 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
The Company agreed to pay NantOmics noncancelable annual minimum fees of $2,000 per year for each of the calendar years from 2016 through 2020 and, subject to the Company exercising at least one of its renewal options described above. The Company was also required to pay annual minimum fees to from 2021 through 2029. These annual minimum fees are no longer applicable with the execution of Amendment No. 3 to the Second Amended Reseller Agreement.
On December 18, 2017, the Company and NantOmics executed Amendment No. 1 to the Second Amended Reseller Agreement. The Second Amended Reseller Agreement was amended to allow fee adjustments with respect to services completed by NantOmics between the amendment effective date of October 1, 2017 to June 30, 2018.
On April 23, 2019, the Company and NantOmics executed Amendment No. 2 to the Second Amended Reseller Agreement. The Second Amended Reseller Agreement was amended to set a fixed fee with respect to services completed by NantOmics between the amendment effective date and the end of the Initial Term, December 31, 2020.
On December 31, 2020, the Company and NantOmics executed Amendment No. 3 to the Second Amended Reseller Agreement to automatically renew at the end of December 2020 for a non-exclusive renewal term and to waive the annual minimum fee for the 2020 calendar year and calendar years 2021 through 2023.

As of March 31, 2022 and December 31, 2021, the Company had $0 and $0, respectively, of outstanding related party payables under the Second Amended Reseller Agreement. During the three months ended March 31, 2022 and March 31, 2021, direct costs of $0 were recorded as cost of revenue related to the Second Amended Reseller Agreement.
Related Party Promissory Notes
In January 2016, we executed a demand promissory note with Nant Capital (the "Nant Capital Note"), a personal investment vehicle for Dr. Soon-Shiong, our Chairman and CEO. As of December 31, 2021, the total advances made by Nant Capital to us pursuant to the note was approximately $112,666. On May 9, 2016, the Nant Capital Note was amended and restated to provide that all outstanding principal and accrued and unpaid interest is due and payable on June 30, 2021, and not on demand. On December 15, 2016, in connection with the offering of the 2016 Notes, we entered into a Second Amended and Restated Promissory Note which amended and restated the Amended and Restated Promissory Note, dated May 9, 2016, between us and Nant Capital, to, among other things, extend the maturity date of the Nant Capital Note to June 15, 2022 and to subordinate the Nant Capital Note in right of payment to the 2016 Notes. The Nant Capital Note bears interest at a per annum rate of 5.0% compounded annually and computed on the basis of the actual number of days in the year. When a repayment is made, Nant Capital has the option, but not the obligation, to require us to repay any such amount in cash, Series A-2 units of NantOmics (based on a per unit price of $1.484 held by us, shares of our common stock based on a per share price of $18.6126 (if such equity exists at the time of repayment), or any combination of the foregoing at the sole discretion of Nant Capital. On April 27, 2021, in connection with the issuance of the 2021 Notes, we entered into a Third Amended and Restated Promissory Note which amends and restates its promissory note, dated January 4, 2016, as amended on May 9, 2016, and on December 16, 2016, between the Company and Nant Capital, to, among other things, extend the maturity date of the promissory note to October 1, 2026 and to subordinate the promissory note in right of payment to the 2021 Notes. As of March 31, 2022 and December 31, 2021, the total principal and interest outstanding on the promissory note amounted to $152,802 and $150,944, respectively. The accrued and unpaid interest on the promissory note as of March 31, 2022 and December 31, 2021 was $40,136 and $38,278, respectively, included as part of noncurrent related party liabilities in the Consolidated Balance Sheets.

On March 3, 2017, NantHealth Labs (formerly Liquid Genomics, Inc.), executed a promissory note with NantWorks. The principal amount of the advance made by NantWorks totaled $250,000 as of March 31, 2022 and December 31, 2021 On June 30, 2017, the promissory note was amended and restated to provide that all outstanding principal and accrued and unpaid interest is due on demand. The note bears interest at a per annum rate of 5.0%, compounded annually. As of March 31, 2022 and December 31, 2021, the total interest outstanding on this note amounted to $70 and $66, respectively and is included in related party payables, net.

On August 8, 2018, the Company executed a promissory note in favor of Nant Capital, with a maturity date of June 15, 2022. On December 31, 2020, the Company and Nant Capital executed an agreement to amend and restate the original promissory note allowing us to request advances up a maximum commitment of $125,000 that bears interest at a per annum rate of 5.50%, extended the maturity date to December 31, 2023, and created an option for the securitization of the debt under the promissory note upon full repayment of the 2016 Notes. Interest payments on outstanding amounts are due on December 15th of each calendar year. The promissory note includes customary negative covenants. On April 27, 2021, in connection with the issuance of the 2021 Notes, we and Nant Capital entered into a Second Amended and Restated Promissory Note which amends and restates its promissory note, dated August 8, 2018, as amended on December 31, 2020, between the Company and Nant Capital, to, among other things, extend the maturity date of the promissory note to December 31, 2026 and to subordinate the promissory note in right of payment to the 2021 Notes. No advances have been made under the promissory note. As of March 31, 2022, the Company was in compliance with the covenants.

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NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Related Party Share-based Payments
On December 21, 2020, ImmunityBio, Inc. (formerly known as NantKwest, Inc.) ("ImmunityBio"), NantCell, and Nectarine Merger Sub, Inc., a wholly owned subsidiary of ImmunityBio, entered into an Agreement and Plan of Merger, which was completed on March 9, 2021 (the "Merger"). The newly merged entity is majority owned by entities controlled by Dr. Soon-Shiong, Chairman and Chief Executive Officer of the Company. On March 4, 2021, prior to the Merger, NantCell awarded restricted stock units to its employees and employees, including certain NantHealth employees of Immunity Bio, which vest over defined service periods, subject to completion of a liquidity event. At the effective time of the Merger on March 9, 2021, the performance condition was met and each share of common stock of NantCell that was issued and outstanding immediately prior to the Merger was automatically converted into the right to receive as consideration newly issued common shares of ImmunityBio. The Company accounts for these awards as compensation cost at its estimated fair value over the vesting period with a corresponding credit to equity to reflect a capital contribution from, or on behalf of, the common controlling entity, to the extent that those services provided by its employees associated with these awards benefit NantHealth. The fair value is dependent on management's estimate of the benefit to NantHealth. The higher the estimate of benefit to the Company, the higher the fair value of compensation cost. The compensation cost attributed to NantHealth associated with these awards was $22 for the three months ended March 31, 2022.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion and analysis of our financial condition and the results of operations as of and for the periods presented below. The following discussion and analysis should be read in conjunction with the “Consolidated Financial Statements” and notes thereto included elsewhere in this Quarterly Report on Form 10-Q ("Quarterly Report"). This discussion contains forward-looking statements that are based on the beliefs, assumptions, and information currently available to our management, and are subject to known and unknown risks, uncertainties, and other factors that may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties, and other factors include, among others, those described in greater detail elsewhere in this Quarterly Report and in our Annual Report on Form 10-K, particularly in Item 1A, “Risk Factors”.
Overview
NantHealth, Inc. (“we” or “us”) 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, we help our customers in healthcare, life sciences, logistics, telecommunications, and other industries, to automate, understand, and act on data while keeping it secure and scalable.

Our product portfolio comprises the latest technology in payer/provider collaboration platforms for real-time coverage decision support (NaviNet and Eviti), and data solutions that include multi-data analysis, reporting and professional services offerings (Quadris). In addition, OpenNMS, a subsidiary of ours, helps businesses monitor and manage network health and performance. Altogether, we generally derive revenue from SaaS subscription fees, support services, professional services, and revenue sharing through collaborations with complementary businesses.

We market certain of our solutions as a comprehensive integrated solution that includes our clinical decision support, payer engagement solutions, data analysis and network monitoring and management. We also market our clinical decision support, payer engagement solutions, data analysis and network monitoring and management on a stand-alone basis. To accelerate our commercial growth and enhance our competitive advantage, we intend to continue to:

introduce new marketing, education and engagement efforts and foster relationships across the health care community to drive adoption of our products and services;
strengthen our commercial organization to increase our NantHealth solutions customer base and to broaden usage of our solutions by existing customers;
develop new features and functionality for NantHealth solutions to address the needs of current and future healthcare provider and payer, self-insured employer and biopharmaceutical company customers, as well as logistics, telecommunications and other customers through OpenNMS; and
publish scientific and medical advances.

The acquisition of OpenNMS, an enterprise-grade open-source network management company, expands and diversifies our software portfolio and service offerings, adding AI technologies, and enhancing cloud and SaaS capabilities. We believe OpenNMS will provide our customers with a new set of services to maintain reliable network connections for critical data flows that enable patient data collaboration and decision making at the point of care.
Since our inception, we have devoted substantially all our resources to the development and commercialization of NantHealth solutions. To complement our internal growth and expertise, we have made several strategic acquisitions of companies, products and technologies. We have incurred significant losses since our inception and, as of March 31, 2022, our accumulated deficit was approximately $1.1 billion. We expect to continue to incur operating losses over the near term as we expand our commercial operations and invest further in NantHealth solutions.
We plan to (i) continue investing in our infrastructure, including but not limited to solution development, sales and marketing, implementation and support, (ii) continue efforts to make infrastructure investments within an overall context of maintaining reasonable expense discipline, (iii) add new customers through maintaining and expanding sales, marketing and solution development activities, (iv) expand our relationships with existing customers through delivery of add-on and complementary solutions and services and (v) continue our commitment of service in support of our customer satisfaction programs.
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Purchase of Convertible Notes
On April 13, 2021, we and our wholly owned subsidiary, NaviNet (the “Guarantor”) entered into a note purchase agreement (the “Note Purchase Agreement”) with Highbridge Capital Management, LLC and one of its affiliates (“Highbridge”) and Nant Capital, LLC ("Nant Capital"), an entity affiliated with Dr. Patrick Soon-Shiong, our Executive Chairman, to issue and sell $137.5 million in aggregate principal amount of our 4.5% convertible senior notes due 2026 (the “2021 Notes”) in a private placement pursuant to an exemption from the registration requirements of the Securities Act afforded by Section 4(a)(2) of the Securities Act. The Note Purchase Agreement includes customary representations, warranties and covenants by us. Under the terms of the Note Purchase Agreement, we have agreed to indemnify the buyers against certain liabilities. The 2021 Notes were issued on April 27, 2021. The 2021 Notes will mature on April 15, 2026, unless earlier repurchased, redeemed or converted.

On April 27, 2021, in connection with the issuance of the 2021 Notes, we entered into a Third Amended and Restated Promissory Note which amends and restates our promissory note, dated January 4, 2016, as amended on May 9, 2016, and on December 15, 2016, between us and Nant Capital, to, among other things, extend the maturity date of the promissory note to October 1, 2026 and to subordinate the promissory note in right of payment to the 2021 Notes.

On April 27, 2021, in connection with the issuance of the 2021 Notes, we entered into a Second Amended and Restated Promissory Note which amends and restates our promissory note, dated August 8, 2018, as amended on December 31, 2020, between us and Nant Capital, to, among other things, extend the maturity date of the promissory note to December 31, 2026 and to subordinate the Second Promissory Note in right of payment to the 2021.

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 outbreak. The COVID-19 pandemic has resulted in intermittent worldwide government restrictions on the movement of people, goods, and services resulting in increased volatility in and disruptions to global markets. To date, there has been no material adverse impact to our 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 us and our 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, our 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 our current and long-term accounts receivable, as our negatively impacted customers from the pandemic may request temporary relief, delay, or not make scheduled payments. In addition, the deployment of our solutions may represent a large portion of our 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 our revenues or timing of revenue. Health conditions in some geographic areas where our 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 our employees, which could further lengthen our sales cycle and delay revenue and cash flows in the near-term.
Nasdaq Delisting
On February 18, 2022, we received a notice (the “Notice”) from The Nasdaq Stock Market LLC ("Nasdaq”) informing us that for the last 30 consecutive business days, the bid price of our common stock had closed below $1.00 per share, which is the minimum required closing bid price for continued listing on Nasdaq pursuant to Listing Rule 5450(a)(1) (the “Bid Price Requirement”). The Notice has no immediate effect on our Nasdaq listing or trading of our common stock. We have 180 calendar days, or until August 17, 2022, to regain compliance. To regain compliance, the closing bid price of our common stock must be at least $1.00 per share for a minimum of ten consecutive business days. If we do not regain compliance by August 17, 2022, we may be eligible for additional time to regain compliance or if we are otherwise not eligible, we may request a hearing before a Hearings Panel.
2017 Asset Purchase Agreement with Allscripts
On August 3, 2017, we entered into an asset purchase agreement (the "APA") with Allscripts Healthcare Solutions, Inc.(“Allscripts”), pursuant to which we agreed to sell to Allscripts substantially all of the assets of our provider/patient engagement solutions business, including our FusionFX solution and components of its NantOS software connectivity solutions (the “Business”). On August 25, 2017, we and Allscripts completed the sale pursuant to the APA.

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Allscripts conveyed to us 15,000,000 shares of our common stock at par value of $0.0001 per share that were previously owned by Allscripts as consideration for the transaction. We retired the shares of stock. Allscripts also paid $1.7 million of cash consideration to us as an estimated working capital payment, and we recorded a receivable of $1.0 million related to final working capital adjustments. We are also responsible for paying Allscripts for fulfilling certain customer service obligations of the business post-closing.

Concurrent with the closing and as contemplated by the APA, we and Allscripts modified the amended and restated mutual license and reseller agreement dated June 26, 2015, which was further amended on December 30, 2017, such that, among other things, we committed to deliver a minimum of $95.0 million of total bookings over a ten-year period (“Bookings Commitment”) from referral transactions and sales of certain Allscripts products under this agreement (see Note 9 of the Consolidated Financial Statements). We also agreed that Allscripts shall receive at least $0.5 million per year in payments from bookings (the “Annual Minimum Commitment”). If the total payments received by Allscripts from bookings during such period are less than the Annual Minimum Commitment, we shall pay to Allscripts the difference between the Annual Minimum Commitment and the total amount received by Allscripts from bookings during such period. In the event of a Bookings Commitment shortfall at the end of the ten-year period, we may be obligated to pay 70% of the shortfall, subject to certain credits. We will earn 30% commission from Allscripts on each software referral transaction that results in a booking with Allscripts. We account for the Bookings Commitment at its estimated fair value over the life of the agreement. The total estimated liability was $35.8 million and $35.7 million as of March 31, 2022 and December 31, 2021, respectively.

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Non-GAAP Net Loss from Continuing Operations and Non-GAAP Net Loss Per Share from Continuing Operations
Adjusted net loss from continuing operations and adjusted net loss per share from continuing operations are financial measures that are not prepared in conformity with United States generally accepted accounting principles (U.S. GAAP). Our management believes that the presentation of Non-GAAP financial measures provides useful supplementary information regarding operational performance, because it enhances an investor’s overall understanding of the financial results for our core business. Additionally, it provides a basis for the comparison of the financial results for our core business between current, past and future periods. Other companies may define these measures in different ways. Non-GAAP financial measures should be considered only as a supplement to, and not as a substitute for or as a superior measure to, financial measures prepared in accordance with U.S. GAAP.

Non-GAAP net loss from continuing operations excludes the effects of (1) stock-based compensation expense, (2) change in fair value of derivatives liability, (3) change in fair value of the Bookings Commitment, (4) noncash interest expense related to convertible notes, (5) intangible amortization, and (6) the impacts of certain income tax benefits and provisions from noncash activity.

The following table reconciles Net loss from continuing operations attributable to NantHealth to Net loss from continuing operations attributable to NantHealth - Non-GAAP for the three months ended March 31, 2022 and 2021 (Unaudited):
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
20222021
Net loss from continuing operations attributable to NantHealth$(15,950)$(15,412)
Adjustments to GAAP net loss from continuing operations attributable to NantHealth:
Stock-based compensation expense from continuing operations
1,390 883 
Change in fair value of derivatives liability— (4)
Change in fair value of Bookings Commitment94 2,463 
Noncash interest expense related to convertible notes
37 323 
Intangible amortization from continuing operations
2,232 2,212 
Tax benefit resulting from certain noncash tax items(40)(43)
Total adjustments to GAAP net loss from continuing operations attributable to NantHealth3,713 5,834 
Net loss from continuing operations attributable to NantHealth - Non-GAAP$(12,237)$(9,578)
Weighted average basis common shares outstanding115,521,243 111,319,061 
Net loss per common share from continuing operations attributable to NantHealth - Non-GAAP$(0.11)$(0.09)

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The following table reconciles Net loss per common share from continuing operations attributable to NantHealth to Net loss per common share from continuing operations attributable to NantHealth - Non-GAAP for the three months ended March 31, 2022 and 2021 (Unaudited):
(Dollars in thousands, except per share amounts)Three Months Ended
March 31,
20222021
Net loss per common share from continuing operations attributable to NantHealth$(0.14)$(0.14)
Adjustments to GAAP net loss per common share from continuing operations attributable to NantHealth:
Stock-based compensation expense from continuing operations
0.01 0.01 
Change in fair value of derivatives liability— — 
Change in fair value of Bookings Commitment— 0.02 
Noncash interest expense related to convertible notes
— — 
Intangible amortization from continuing operations
0.02 0.02 
Tax benefit resulting from certain noncash tax items— — 
Total adjustments to GAAP net loss per common share from continuing operations attributable to NantHealth0.03 0.05 
Net loss per common share from continuing operations attributable to NantHealth - Non-GAAP$(0.11)$(0.09)


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Components of Our Results of Operations
Revenue
We generate our revenue from the sale of SaaS, maintenance, and services. Our systems infrastructure and platforms support the delivery and implementation of value-based care models across the healthcare continuum, and the maintenance of reliable network connections. We generate revenue from the following sources:

Software-as-a-service related - SaaS related revenue is generated from our customers’ access to and usage of our hosted software solutions on a subscription basis for a specified contract term. In SaaS arrangements, the customer cannot take possession of the software during the term of the contract and generally only has the right to access and use the software and receive any software upgrades published during the subscription period. Solutions sold under a SaaS model include our Eviti platform solutions and NaviNet.

Maintenance - Maintenance revenue includes technical support or maintenance on OpenNMS software during the contract term. Our networking monitoring solutions typically consist of a term-based subscription to the OpenNMS software license and maintenance, which entitle customers to unspecified software updates and upgrades on a when-and-if-available basis. Revenue is recognized over the maintenance or support term.

Professional services - Professional services revenue is generated from consulting services to help customers install, integrate and optimize OpenNMS, sponsored development, and training to assist customers deploy and use OpenNMS solutions. Sponsored development relates to professional services to build customer specific functionality, features, and enhancements into the OpenNMS open source platform. Typically, revenue is recognized over time using direct labor hours as a measure of progress.
Cost of Revenue
Cost of revenue includes associated salaries and fringe benefits, stock-based compensation, consultant costs, direct reimbursable travel expenses, depreciation related to software developed for internal use, depreciation related to lab equipment, and other direct engagement costs associated with the design, development, sale and installation of systems, including system support and maintenance services for customers. System support includes ongoing customer assistance for software updates and upgrades, installation, training and functionality. All service costs, except development of internal use software and deferred implementation costs, are expensed when incurred. Amortization of deferred implementation costs are also included in cost of revenue. Cost of revenue associated with each of our revenue sources consists of the following types of costs:

Software-as-a-service related - SaaS related cost of revenue includes personnel-related costs, amortization of deferred implementation costs, amortization of internal-use software, and other direct costs associated with the delivery and hosting of our subscription services.

Maintenance - Maintenance cost of revenue includes personnel-related costs, amortization of internal-use software, and other direct costs associated with the ongoing support or maintenance provided to our customers.

Professional services - Professional services cost of revenue include personnel-related costs and other direct costs associated with consulting, sponsored development, and training provided to our customers.

We plan to continue to expand our capacity to support our growth, which will result in higher cost of revenue in absolute dollars. We expect cost of revenue to decrease as a percentage of revenue over time as we expand NantHealth solutions and realize economies of scale.
Operating Expenses
Our operating expenses consist of selling, general and administrative, research and development, amortization of acquisition-related assets, and impairment of intangible assets, including internal-use software.

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Selling, general and administrative

Selling, general and administrative expense consists primarily of personnel-related expenses for our sales and marketing, finance, legal, human resources, and administrative associates, stock-based compensation, advertising and marketing promotions of NantHealth solutions, and corporate shared services fees from NantWorks. This includes amortization of deferred commission costs. It also includes trade show and event costs, sponsorship costs, point of purchase display expenses and related amortization as well as legal costs, facility costs, consulting and professional fees, insurance and other corporate and administrative costs.

We continue to review our other selling, general and administrative investments and expect to drive cost savings through greater efficiencies and synergies across our company. Additionally, we expect to continue to incur additional costs for legal, accounting, insurance, investor relations and other costs associated with operating as a public company, including costs associated with other regulations governing public companies as well as increased costs for directors’ and officers’ liability insurance and an enhanced investor relations function. However, we expect our selling, general and administrative expense to decrease as a percentage of revenue over the long term as our revenue increases and we realize economies of scale.

Research and development

Research and development expenses consist primarily of personnel-related costs for associates working on development of solutions, including salaries, benefits and stock-based compensation. Also included are non-personnel costs such as consulting and professional fees to third-party development resources.
Substantially all our research and development expenses are related to developing new software solutions and improving our existing software solutions.
We expect our research and development expenses to continue to increase in absolute dollars and as a percentage of revenue as we continue to make investments in developing new solutions and enhancing the functionality of our existing solutions. However, we expect our research and development expenses to decrease as a percentage of revenue over the long term as we realize economies of scale from our developed technology.

Amortization of acquisition related assets

Amortization of acquisition related assets consists of noncash amortization expense related to our non-revenue generating technology as well as amortization expense that we recognize on intangible assets that we acquired through our investments.
Interest Expense, Net
Interest expense, net primarily consists of interest expense associated with our outstanding borrowings, including coupon interest expense, amortization of debt discounts and amortization of deferred financing offering cost, offset by interest income earned on our cash and cash equivalents.
Other Income (Expense), Net
Other income (expense), net consists primarily of foreign currency gains (losses), changes in the fair value of the Bookings Commitment and other non-recurring items.
Provision for (Benefit from) Income Taxes
Provision for income taxes consists of U.S. federal and state and foreign income taxes. We are required to allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations. To date, we have no significant U.S. federal, state and foreign cash income taxes because of our current and accumulated net operating losses ("NOLs").
We record a valuation allowance when it is more likely than not that some portion or all of a deferred tax asset will not be realized. In making such a determination, we consider all the available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, and ongoing prudent and feasible tax planning strategies in assessing the amount of the valuation allowance. When we establish or reduce the valuation allowance against the deferred tax assets, our provision for income taxes will increase or decrease, respectively, in the period such determination is made.
Net Loss Attributable to Noncontrolling Interests
Net loss attributable to noncontrolling interests consists of losses related to minority ownership of components of our business.
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Results of Operations
The following table sets forth our Consolidated Statements of Operations data for each of the periods indicated (Unaudited):
(Dollars in thousands)
Three Months Ended
March 31,
20222021
Revenue
Software-as-a-service related$15,771 $15,757 
Maintenance464 383 
Professional services138 27 
Total software-related revenue16,373 16,167 
Other— 
Total net revenue16,373 16,170 
Cost of Revenue
Software-as-a-service related5,563 5,535 
Maintenance369 207 
Professional services— 
Amortization of developed technologies1,247 1,247 
Total software-related cost of revenue7,179 6,996 
Other— 47 
Total cost of revenue7,179 7,043 
Gross Profit9,194 9,127 
Operating Expenses
Selling, general and administrative14,980 12,502 
Research and development5,715 5,013 
Amortization of acquisition-related assets
985 985 
Total operating expenses21,680 18,500 
Loss from operations(12,486)(9,373)
Interest expense, net(3,450)(3,568)
Other income (expense), net(2,570)
Loss from continuing operations before income taxes(15,930)(15,511)
Provision for (benefit from) income taxes20 (8)
Net loss from continuing operations(15,950)(15,503)
Income from discontinued operations, net of tax attributable to NantHealth— 
Net loss(15,950)(15,499)
Net loss attributable to noncontrolling interests— (91)
Net loss attributable to NantHealth$(15,950)$(15,408)
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The following table sets forth our Consolidated Statements of Operations data as a percentage of revenue for each of the periods indicated (Unaudited):
Three Months Ended
March 31,
20222021
Revenue
Software-as-a-service related96.3 %97.4 %
Maintenance2.8 %2.4 %
Professional services0.8 %0.2 %
Total software-related revenue99.9 %100.0 %
Other— %— %
Total net revenue100.0 %100.0 %
Cost of Revenue
Software-as-a-service related34.0 %34.2 %
Maintenance2.3 %1.3 %
Professional services— %0.1 %
Amortization of developed technologies7.5 %7.7 %
Total software-related cost of revenue43.8 %43.3 %
Other— %0.3 %
Total cost of revenue43.8 %43.6 %
Gross Profit56.2 %56.4 %
Operating Expenses
Selling, general and administrative91.6 %77.3 %
Research and development34.9 %31.0 %
Amortization of acquisition-related assets
6.0 %6.1 %
Total operating expenses132.5 %114.4 %
Loss from operations(76.3)%(58.0)%
Interest expense, net(21.1)%(22.1)%
Other income (expense), net— %(15.9)%
Loss from continuing operations before income taxes(97.3)%(95.9)%
Provision for (benefit from) income taxes0.1 %— %
Net loss from continuing operations(97.4)%(95.9)%
Income from discontinued operations, net of tax attributable to NantHealth— %— %
Net loss(97.4)%(95.9)%
Net loss attributable to noncontrolling interests— %(0.6)%
Net loss attributable to NantHealth(97.4)%(95.3)%
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Comparison of the Three Months Ended March 31, 2022 and 2021 (Unaudited)
Revenue
(Dollars in thousands)Three Months Ended
March 31,
Period-To-Period Change
20222021AmountPercent
Software-as-a-service related$15,771 $15,757 $14 0.1 %
Maintenance464 383 81 21.1 %
Professional services138 27 111 411.1 %
Total software-related revenue16,373 16,167 206 1.3 %
Other— (3)(100.0)%
Total net revenue$16,373 $16,170 $203 1.3 %
Total revenue increased $0.2 million, or 1.3%, for the three months ended March 31, 2022, compared to the prior year period, due to a $0.2 million increase in software-related revenue.
The increase of $0.1 million in maintenance revenue and $0.1 million increase in professional services revenue were attributable to growth in the OpenNMS business.
We believe that significant opportunities exist for expanded cross-selling across our products and across our existing customer base, including Eviti, NaviNet, and OpenNMS customer bases.

Cost of Revenue
(Dollars in thousands)Three Months Ended
March 31,
Period-To-Period Change
20222021AmountPercent
Software-as-a-service related$5,563 $5,535 $28 0.5 %
Maintenance369 207 $162 78.3 %
Professional services— (7)(100.0)%
Amortization of developed technologies1,247 1,247 — — %
Total software-related cost of revenue7,179 6,996 183 2.6 %
Other— 47 (47)(100.0)%
Total cost of revenue$7,179 $7,043 $136 1.9 %
Total cost of revenue increased $0.1 million, or 1.9%, for the three months ended March 31, 2022, compared to the prior year period. The increase was primarily related to higher maintenance cost attributable to the growth in the OpenNMS business.

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Selling, General and Administrative
(Dollars in thousands)Three Months Ended
March 31,
Period-To-Period Change
20222021AmountPercent
Selling, general and administrative
$14,980 $12,502 $2,478 19.8 %
Selling, general and administrative expenses increased $2.5 million, or 19.8% for the three months ended March 31, 2022, compared to the prior year period. The increase was driven by $1.4 million in higher consulting and professional costs attributable to the migration of our information technology infrastructure to the cloud, our enterprise resource planning implementation project, compliance expenses and legal fees. In addition, higher personnel costs totaling $1.0 million were attributable to growth in the OpenNMS business and an increase in stock-based compensation.

Research and Development
(Dollars in thousands)Three Months Ended
March 31,
Period-To-Period Change
20222021AmountPercent
Research and development
$5,715 $5,013 $702 14.0 %
Research and development expenses increased $0.7 million or 14.0% for the three months ended March 31, 2022, compared to the prior year period. The increase was primarily driven by $0.9 million in higher costs attributable to the OpenNMS business to drive product development initiatives.

Amortization of Acquisition-related Assets
(Dollars in thousands)Three Months Ended
March 31,
Period-To-Period Change
20222021AmountPercent
Amortization of acquisition-related assets$985 $985 $— — %
Amortization of acquisition-related assets was flat at $1.0 million for three months ended March 31, 2022 compared to $1.0 million for three months ended March 31, 2021.

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Interest Expense, net
(Dollars in thousands)Three Months Ended
March 31,
Period-To-Period Change
20222021AmountPercent
Interest expense, net
$3,450 $3,568 $(118)(3.3)%

Interest expense, net decreased by $0.1 million, or 3.3% for the three months ended March 31, 2022, compared to the prior year period. This decrease was driven by $0.3 million in less noncash interest expense attributable to the lower debt issuance costs on the 2021 Notes issued in April 2021 as compared to the 5.5% senior convertible notes that matured in December 2021 (the "2016 Notes"). This decrease was partially offset by $0.1 million in higher convertible debt interest driven by the convertible notes issued in 2021, and an increase in additional interest on the Nant Capital Note of $0.1 million.
See the section entitled "Liquidity and Capital Resources" below and refer to Note 8 and Note 16 to the accompanying Consolidated Financial Statements for further discussion of our convertible notes and the note with Nant Capital.

Other Income (Expense), net
(Dollars in thousands)Three Months Ended
March 31,
Period-To-Period Change
20222021AmountPercent
Other income (expense), net$$(2,570)$2,576 (100.2)%
The decrease of $2.6 million Other income (expense), net for the three months ended March 31, 2022 compared to the prior year period was driven by the change in the fair value of the Bookings Commitment. The change in the fair value of the Bookings Commitment is a result of macroeconomic factors. The change in fair value for the three months ended March 31, 2022 was a loss of $0.1 million, compared to a loss of $2.5 million for the three months ended March 31, 2021.

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Liquidity and Capital Resources
Sources of Liquidity
As of March 31, 2022, we had cash and cash equivalents of $16.1 million, compared to $29.1 million as of December 31, 2021, of which $0.6 million and $0.8 million, respectively, related to foreign subsidiaries.
We believe our existing cash and cash equivalents, and our ability to borrow on the $125.0 million promissory note with Nant Capital, LLC ("Nant Capital") (see Note 16) will be sufficient to fund operations through at least 12 months following the issuance date of the financial statements. We continue to have our Chairman and CEO’s intent and ability to support our operations with additional funds as required. We 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, we may not be able to secure such financing in a timely manner or on favorable terms. We may also consider selling off components of our business. Without additional funds, we may choose to delay or reduce our operating or investment expenditures. Further, because of the risk and uncertainties associated with the commercialization of our existing products as well as products in development, we may need additional funds to meet our needs sooner than planned. To date, our primary sources of capital have been the private placement of membership interests prior to our IPO, debt financing agreements, including promissory notes with Nant Capital and affiliates, convertible notes, the sale of our common stock, revenue generated from our products and services, and proceeds from the sale of components of our business.
Convertible Notes
On April 13, 2021, we and our wholly owned subsidiary, NaviNet entered into a Note Purchase Agreement with Highbridge and Nant Capital and issued $137.5 million in aggregate principal amount of our 2021 Notes in a private placement. The 2021 Notes were issued on April 27, 2021. The total net proceeds from this offering were approximately $136.8 million, after deducting Highbridge’s debt issuance costs of $0.1 million and $0.6 million in debt issuance costs paid to third parties in connection with the 2021 Notes offering. The 2021 Notes will mature on April 15, 2026, unless earlier repurchased, redeemed or converted.

On April 27, 2021, concurrent with the 2021 Notes issuance, we used the proceeds to prepay the remaining $31.9 million of principal amount of the 2016 Notes held by Highbridge and $0.6 million of accrued interest on such 2016 Notes. On April 27, 2021, in connection with the issuance of the 2021 Notes, we provided a notice of a fundamental change (as defined in the indenture governing the 2016 Notes) and an offer to repurchase all our outstanding 2016 Notes. On May 25, 2021, we purchased $55.6 million of the outstanding 2016 Notes, including accrued and unpaid interest thereon. On December 15, 2021, the maturity date of the 2016 notes, we paid the remaining $9.5 million of the outstanding principal balance on the 2016 Notes, including accrued and unpaid interest thereon.

Open Market Sale Agreement

On November 12, 2021, we entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (the “Sales Agent”) under which we may offer and sell up to $30.0 million of shares of our common stock, par value $0.0001 per share (the “Shares”), from time to time through the Sales Agent. The sales and issuances of the Shares under the Sale Agreement will be made pursuant to our effective shelf registration statement on Form S-3 (the “Registration Statement”) that was declared effective on May 6, 2021.

The Sales Agent is not required to sell any specific amount of securities, but will act as our sales agent using commercially reasonable efforts to sell the Shares from time to time, consistent with their normal trading and sales practices, applicable state and federal laws, rules and regulations and the rules of The Nasdaq Stock Market LLC, based upon instructions from us (including any price, time or size limits or other customary parameters or conditions we may impose). We have agreed to pay the Sales Agent a commission of 3.0% of the aggregate gross proceeds from each sale of the Shares pursuant to the Sale Agreement and to provide the Sales Agent with customary indemnification and contribution rights, including for liabilities under the Securities Act of 1933, as amended.

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Nant Capital Notes

In January 2016, we executed a demand promissory note with Nant Capital (the "Nant Capital Note"), a personal investment vehicle for Dr. Soon-Shiong. As of March 31, 2022, the total advances made by Nant Capital to us pursuant to the note was approximately $112.7 million. The Nant Capital Note bears interest at a per annum rate of 5.0% compounded annually and computed on the basis of the actual number of days in the year. When a repayment is made, Nant Capital has the option, but not the obligation, to require us to repay any such amount in cash, Series A-2 units of NantOmics (based on a per unit price of $1.484) held by us, shares of our common stock based on a per share price of $18.6126 (if such equity exists at the time of repayment), or any combination of the foregoing at the sole discretion of Nant Capital. On April 27, 2021, in connection with the issuance of the 2021 Notes, we entered into a Third Amended and Restated Promissory Note which amends and restates its promissory note, dated January 4, 2016, as amended on May 9, 2016, and on December 16, 2016, between us and Nant Capital, to, among other things, extend the maturity date of the promissory note to October 1, 2026 and to subordinate the promissory note in right of payment to the 2021 Notes.

On August 8, 2018, we executed a promissory note in favor of Nant Capital, with a maturity date of June 15, 2022. On December 31, 2020, we executed an agreement with Nant Capital to amend and restate the original promissory note, allowing us to request advances up a maximum commitment of $125.0 million that bears interest at a per annum rate of 5.5%, extended the maturity date to December 31, 2023, and created an option for the securitization of the debt under the promissory note upon full repayment of the 2016 Notes. Interest payments on outstanding amounts are due on December 15th of each calendar year. On April 27, 2021, in connection with the issuance of the 2021 Notes, we and Nant Capital entered into a Second Amended and Restated Promissory Note which amends and restates its promissory note, dated August 8, 2018, as amended on December 31, 2020, between us and Nant Capital, to, among other things, extend the maturity date of the promissory note to December 31, 2026 and to subordinate the promissory note in right of payment to the 2021 Notes. The promissory note includes customary negative covenants. No advances have currently been made under the promissory note. As of March 31, 2022, we were in compliance with the covenants.

If we raise additional funds by issuing equity securities or securities convertible into equity, our stockholders could experience dilution. Additional debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any additional debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders and require significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our products and scale back our business and operations.

Capital Expenditures

There have been no material changes during the three months ended March 31, 2022 to our capital expenditure obligations disclosed in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2021. Our principal material cash requirements consist of obligations under our outstanding debt obligations related to the 2021 Notes, Nant Capital Note, Bookings Commitment, and noncancelable leases for our office space. Refer to Note 8, Note 9, Note 10, and Note 16 to the accompanying Consolidated Financial Statements.

Additionally, our estimated noncancelable contractual obligations for our enterprise resource planning implementation project through the shared services agreement with NantWorks total approximately $0.7 million. See Note 11 and Note 16 to the accompanying Consolidated Financial Statements.
Cash Flows
The following table sets forth our primary sources and uses of cash for the periods indicated:
(Dollars in thousands)Three Months Ended
March 31,
20222021
Cash (used in) provided by:
Operating activities$(11,049)$(9,692)
Investing activities(1,203)(1,141)
Financing activities(758)(204)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(46)
Net decrease in cash, cash equivalents and restricted cash$(13,056)$(11,034)
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To date, our operations have been primarily financed through the proceeds from related party promissory notes, the issuance of convertible notes, the sale of components of our business, revenue generated from the sales of our products and services, and through equity issuances, including net cash proceeds from our IPO. In June 2016, we sold 6,900,000 shares of common stock at a price of $14.00 per share, which includes 400,000 shares sold to the underwriter upon exercise of their overallotment option to purchase additional shares of common stock. We raised net proceeds of $83.6 million from our IPO, after underwriting fees, discounts and commissions of $4.9 million and other offering costs of $8.1 million. In December 2016, we issued convertible notes to a related party and others for aggregate net proceeds of $102.7 million, $9.9 million from Cambridge, and $92.8 million from others, after deducting underwriting discounts and commissions and offering costs of $4.3 million. In February 2020, we received $47.3 million in proceeds from the sale of our Connected Care Business. In April 2021, we issued convertible notes to a related party and others for aggregate net proceeds of $136.8 million, $62.2 million from Nant Capital, and $74.6 million from Highbridge, after deducting offering costs of $0.7 million.
Operating Activities
Our cash flows from operating activities have been driven by rate of revenue, billings, and collections, the timing and extent of spending to support product development efforts and enhancements to existing services, the timing of general and administrative expenses, and the continuing market acceptance of our solutions.
In addition, our net loss in the three months ended March 31, 2022 has been greater than our use of cash for operating activities due to the inclusion of noncash charges.
Cash used in operating activities of $11.0 million during the three months ended March 31, 2022 was a result of our continued investments in enhancements to current products, research and development, sales and marketing, and expenses incurred as a public company, including costs associated with public company reporting and corporate governance requirements. During the three months ended March 31, 2022, our net loss of $16.0 million consisted of noncash items largely due to $4.0 million of depreciation and amortization, $1.4 million of stock-based compensation, and a $0.1 million increase in the fair value of the Bookings Commitment liability.
Changes in working capital decreased cash $0.6 million during the three months ended March 31, 2022. The decrease in cash was primarily attributable to a $3.7 million decrease in accrued and other current liabilities and a $0.6 million increase in prepaid expenses and other current assets, largely offset by a $2.1 million increase in accounts payable, a $0.9 million increase in related party payables, and a $0.8 million decrease in accounts receivable.
Cash used in operating activities of $9.7 million during the three months ended March 31, 2021 was a result of our continued investments in enhancements to current products, research and development, sales and marketing, and expenses incurred as a public company, including costs associated with public company reporting and corporate governance requirements. During the three months ended March 31, 2021, our net loss of $15.5 million consisted of noncash items largely due to $3.8 million of depreciation and amortization and a $2.5 million increase in the fair value of the Bookings Commitment liability.

Changes in working capital decreased cash $1.6 million during the three months ended March 31, 2021. The decrease in cash was primarily attributable to a $3.5 million decrease in accounts payable and a $1.4 million increase in accounts receivable, largely offset by a $1.8 million increase in accrued and other current liabilities and a $1.7 million increase in related party payables.
Investing Activities
For the three months ended March 31, 2022, net cash used in investing activities was comprised of $1.2 million for the purchase of property and equipment, including internal-use software.
For the three months ended March 31, 2021, net cash used in investing activities was comprised of $1.1 million for the purchase of property and equipment, including internal-use software.
Financing Activities
Cash used in financing activities during the three months ended March 31, 2022 of $0.8 million was due to repayments of an insurance promissory note, offset by proceeds from exercises of stock options.

Cash used in financing activities during the three months ended March 31, 2021 of $0.3 million was related to the payment of principal for the insurance promissory note, offset by proceeds from exercises of stock options.
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New Accounting Pronouncements
See Note 2 to the accompanying Consolidated Financial Statements for a discussion of new accounting standards.
Related Party Transactions
See Note 16 to the accompanying Consolidated Financial Statements for a discussion of related party transactions.
Critical Accounting Policies and Significant Judgments and Estimates
This Management’s Discussion and Analysis of our Results of Operations and Liquidity and Capital Resources is based on our Consolidated Financial Statements, which we have prepared in accordance with U.S. GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements, as well as the reported revenues and expenses during the reported periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the critical accounting policies and estimates discussed in Note 2 to the Consolidated Financial Statements of our Annual Report on 10-K that was filed with the SEC on February 26, 2021, reflect our more significant judgments and estimates used in the preparation of the Consolidated Financial Statements. Refer to Note 2 to the accompanying Consolidated Financial Statements for a discussion of any significant changes to our critical accounting policies and estimates as disclosed in our 10-K.
Smaller Reporting Company Status
Currently, we qualify as a smaller reporting company. As a smaller reporting company, we are eligible and have taken advantage of certain exemptions from various reporting requirements that are not available to public reporting companies that do not qualify for this classification, including, but not limited to:
An opportunity for reduced disclosure obligations regarding executive compensation in our periodic and annual reports, including without limitation exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures,
An opportunity for reduced financial statement disclosure in registration statements and in annual reports on Form 10-K, which only requires two years of audited financial statements rather than the three years of audited financial statements that are required for other public companies,
An opportunity for reduced audit and other compliance expenses as we are not subject to the requirement to obtain an auditor’s report on internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002, and
An opportunity to utilize the non-accelerated filer time-line requirements beginning with our annual report for the year ending December 31, 2021 and quarterly filings thereafter.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
As of March 31, 2022, we had $16.1 million in cash and cash equivalents which were held for working capital purposes. Our cash and cash equivalents are comprised primarily of mutual funds listed on active exchanges, U.S. treasury securities, money market funds, and cash held in FDIC - insured institutions. Our investments are made for capital preservation purposes. We do not enter into investments for trading or speculative purposes. Primarily all of our investments are denominated in U.S. dollars. If overall interest rates had decreased by 10% during the periods presented, our interest income would not have been materially affected.
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Credit Risk
Our cash equivalents are subject to market risk due to changes in interest rates. Fixed rate securities may have their market value adversely affected due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to these factors, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rates.
Foreign Currency Risk
We maintain offices and bank accounts in the United Kingdom and Canada. However, due to the low volume of activity outside the United States, the foreign currency risk is minimal. The effect of a 10% adverse change in exchange rates on foreign currency denominated cash and payables as of March 31, 2022 would not have been material. However, fluctuations in currency exchange rates could harm our business in the future.


Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the quarter covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations in the Effectiveness of Controls
Management recognizes that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



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PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We are, from time to time, subject to claims and litigation that arise in the ordinary course of our business. Except as discussed in Note 11, in the opinion of management, the ultimate outcome of proceedings of which management is aware, even if adverse to us, would not have a material adverse effect on our consolidated financial condition or results of operations. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. See Note 11 to the accompanying Consolidated Financial Statements for a discussion of our legal proceedings.
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Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below, as well as all other information included in our Annual Report on Form 10-K, including our financial statements and the related notes thereto and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, any of which may be relevant to decisions regarding an investment in or ownership of our common stock. Our future operating results may vary substantially from anticipated results due to a number of risks and uncertainties, many of which are beyond our control. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us. The following discussion highlights some of these risks and uncertainties and the possible impact of these risks on future results of operations. If any of the following risks actually occurs, our business, financial condition, operating results, prospects and ability to accomplish our strategic objectives could be materially harmed. As a result, the trading price of our common stock could decline and you could lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations and the market price of our common stock.
Risk Factor Summary
Risks related to our business approach
We are an early, commercial-stage company attempting to integrate complex platforms and systems to address a wide range of healthcare issues, and we may not be successful in doing so.
The success of NantHealth solutions is dependent upon the robustness of the information we and others input into our platforms and systems to achieve maximum network effects, and if we are unable to amass and input the requisite data to achieve these effects, our business will be adversely affected.
We may be unable to appropriately allocate our financial and human resources across our broad array of product and service offerings.
Risks related to our financial condition and capital requirements
We have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.
We have a history of significant losses, which we expect to continue, and we may never achieve or sustain profitability in the future.
We may need to raise additional capital to fund our existing operations, develop our solutions, commercialize new products and expand our operations.
Risks related to our system infrastructure and software solutions business:
The market for our systems infrastructure and software solutions is new and unproven and may not grow.
The data and information that we provide to our customers, and their constituents, could be inaccurate or incomplete, which could harm both patients and our business, financial condition and results of operations.
Our use of open source technology could impose limitations on our ability to commercialize our offerings.

Risks related to our OpenNMS open source business:

Our OpenNMS business incorporates third-party open source software, which could negatively affect our ability to sell our OpenNMS solutions and subject us to possible litigation.
Because of the characteristics of open source software, there may be fewer technology barriers to entry in the open source market by new competitors and it may be relatively easy for new and existing competitors with greater resources than we have to compete with our OpenNMS business.
Risks related to our relationships with other companies:
We rely on third-party computer hardware and software that may be difficult to replace or which could cause errors or failures of our service which could damage our reputation, harm our ability to attract and maintain customers and decrease our revenue.
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We are heavily dependent on our senior management, particularly Dr. Patrick Soon-Shiong, and a loss of a member of our senior management team in the future could harm our business.
Risks related to our business generally:
We have in the past and may in the future acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders and otherwise disrupt our operations and adversely affect our operating results.
Business disruptions, including from natural disasters and the COVID-19 pandemic, among other things, could seriously harm our future revenue and financial condition and increase our costs and expenses.
If we fail to develop widespread brand awareness, our business may suffer.
Our marketing efforts depend significantly on our ability to receive positive references from our existing customers.
Our estimates of market opportunity and forecasts of market growth may prove to be inaccurate, and even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
Risks related to intellectual property:
We may be unable to adequately protect, and we may incur significant costs in enforcing, our intellectual property and other proprietary rights.
Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money and could prevent us from selling our products and services.


Risks related to government regulation:

The healthcare industry is highly regulated, and thus, we are subject to several laws, regulations and industry initiatives, non-compliance with certain of which could materially adversely affect our operations or otherwise adversely affect our business, results of operations and financial condition.
If we fail to comply with applicable health information privacy and security laws and other state and federal privacy and security laws, we may be subject to significant liabilities, reputational harm and other negative consequences, including decreasing the willingness of current and potential customers to work with us.
If we, including our employees, suppliers, distributors, independent contractors, and agents acting on our behalf, fail to comply with federal and state healthcare laws and regulations, including those governing submissions of false or fraudulent claims to government healthcare programs and financial relationships with healthcare providers, we may be subject to significant civil and criminal penalties and/or loss of eligibility to participate in government healthcare programs.

Risks related to our convertible notes:

Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.
The accounting method for convertible debt securities that may be settled in cash, such as the notes, could have a material effect on our reported financial results.

Risks related to our common stock:

Dr. Soon-Shiong, our Chairman and Chief Executive Officer and our principal stockholder, and entities affiliated with him, collectively own a significant majority of our common stock and will exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders.
Dr. Soon-Shiong has significant interests in other companies which may conflict with our interests.
The trading price of our common stock has been and may continue to be volatile. This volatility may affect the price at which you could sell our common stock, the notes and any common stock you receive upon conversion of your notes.
Our common stock may be delisted from The Nasdaq Global Select Market if we cannot regain compliance with Nasdaq’s continued listing requirements.



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Risks related to our business approach
We are an early, commercial-stage company attempting to integrate complex platforms and systems to address a wide range of healthcare issues, and we may not be successful in doing so.
We are an early, commercial-stage company with a business model based upon a novel approach to healthcare. NantHealth solutions are designed to address many of the key challenges healthcare constituents face by enabling them to move, interpret, and visualize complex and highly sensitive information, combine diagnostic inputs with phenotypic and cost data, analyze datasets and clinical research, securely deliver data to providers in a clinical setting to aid selection of the appropriate treatments, and demonstrate improved patient outcomes and costs. Integration across our systems infrastructure and platforms may take longer than we expect or may never occur at all.
We have engaged and may in the future engage in the acquisition or disposition of other companies, technologies, and businesses which could divert our management’s attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.
Based on the above factors, it may take longer than we expect, or we may never be able, to fully integrate our system as planned. If our integration efforts are not successful, we may not be able to attract new customers and to expand our offerings to existing customers.
The success of NantHealth solutions is dependent upon the robustness of the information we and others input into our platforms and systems to achieve maximum network effects, and if we are unable to amass and input the requisite data to achieve these effects, our business will be adversely affected.
NantHealth solutions become more valuable as more accurate and clinically relevant information is integrated into them, and our ultimate outputs and recommendations to a patient, provider or payer are therefore highly dependent on the information that is input into our platforms and systems. As a result, we need to consistently and continuously have access to and integrate the most medically relevant and cutting-edge clinical data and research studies with patient-specific data. Further, to have access to certain other data points, we rely in part on third parties to supply or in some instances to generate more data to be integrated into NantHealth solutions. These third parties may never develop data interfaces or applications compatible with our software solutions or may develop them at a slower rate than our ability to address shifts in healthcare. In addition, if such third-party solutions are not produced to specification, are produced in accordance with modified specifications, or are defective, they may not be compatible with our systems. In such case, the reliability and performance of our products may be compromised. To the extent we are unable to amass sufficient data, keep an inflow of current and continuous data or integrate and access the data we currently have to continue to populate NantHealth solutions, the network effects we expect will not be fully realized and our business may be adversely affected.
We may be unable to appropriately allocate our financial and human resources across our broad array of product and service offerings.
We have a broad array of product and service offerings. Our management team is responsible for allocating resources across these products and services and may forego or delay pursuit of opportunities with certain products or services that later prove to have greater commercial potential. In July 2020, we acquired The OpenNMS Group, Inc. ("OpenNMS"), expanding our collective offerings to include networking monitoring solutions. These and other resource allocation decisions may cause us to fail to capitalize on attractive products or services or market opportunities. Our spending on current and future research and development programs and future products or services may not yield commercially viable products or services or may fail to optimize the anticipated network effects of NantHealth solutions. If our management team is unable to appropriately prioritize the allocation of our resources among our broad range of products and services in an efficient manner, our business may be adversely affected.
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Risks related to our financial condition and capital requirements
We have a limited operating history, which may make it difficult to evaluate our current business and predict our future performance.
We were organized as a limited liability company in Delaware and began operations in 2010. In June 2016, we converted to a Delaware corporation. Additionally, our business has operated as part of the larger NantWorks, LLC ("NantWorks") group of affiliated companies. Our limited independent operating history, particularly in light of the increasingly complex and rapidly evolving healthcare and technology markets in which we operate, may make it difficult to evaluate our current business and predict our future performance. In addition, we have acquired numerous companies or businesses over the past five years, including certain assets of NaviNet, NantHealth Labs, and most recently OpenNMS. In addition, in August 2017, we sold our provider/patient engagement solutions business to Allscripts and in February 2020, we sold assets relating to our connected care business to Masimo. We have had limited experience operating these businesses as a whole and as such, it may be difficult to evaluate our current business and predict our future operating performance. In light of the foregoing, any assessment of our profitability or prediction about our future success or viability is subject to significant uncertainty. We have encountered and will continue to encounter risks and difficulties frequently experienced by early, commercial-stage companies in rapidly evolving industries. If we do not address these challenges successfully, our business results will suffer.
We have a history of significant losses, which we expect to continue, and we may never achieve or sustain profitability in the future.
We have incurred significant net losses in each fiscal year since inception and expect to continue to incur net losses for the foreseeable future. We experienced net losses of $58.5 million and $56.4 million during the years ended December 31, 2021 and 2020, respectively, and $16.0 million for the three months ended March 31, 2022. As of March 31, 2022, we had an accumulated deficit of $1.1 billion. The losses and accumulated deficit were primarily due to the substantial investments we made to grow our business and enhance our systems infrastructure and platforms. We have grown our business through research and development and the acquisition of assets, businesses and customers. We anticipate that our operating expenses will increase substantially in the foreseeable future as we seek to continue to grow our business, including through strategic acquisitions, and build and further penetrate our customer base and develop our product and service offerings, including (i) expansion of the features and capabilities of our NaviNet and Eviti product lines and (ii) expanding the OpenNMS solutions through the creation of cloud solutions and the addition of hardware devices for edge monitoring. These efforts may prove more expensive than we currently anticipate, and we may not succeed in increasing our revenue sufficiently to offset these higher expenses.

Our prior losses, combined with our expected future losses, have had and will continue to have an adverse effect on our stockholders’ deficit and working capital. We expect to continue to incur operating losses for the foreseeable future and may never become profitable on a quarterly or annual basis, or if we do, we may not be able to sustain profitability in subsequent periods. Our failure to achieve and sustain profitability in the future would negatively affect our business, financial condition, results of operations and cash flows, and could cause the market price of our common stock to decline.
We may need to raise additional capital to fund our existing operations, develop our solutions, commercialize new products and expand our operations.

Based on our current business plan, we believe our current cash, cash equivalents, marketable securities, and our ability to borrow from affiliated entities, will be sufficient to meet our anticipated cash requirements over at least the next 12 months. If our available cash balances and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, we may seek to sell common or preferred equity or convertible debt securities, enter into a credit facility or another form of third-party funding, or seek other debt financing.

We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities, or for other reasons, including to:

increase our sales and marketing efforts to drive market adoption of NantHealth solutions;
address competitive developments;
fund development and marketing efforts of any future platforms and solutions;
expand adoption of Eviti platform solutions into critical illnesses outside of oncology;
acquire, license or invest in complimentary businesses, technologies or service offerings; and
finance capital expenditures and general and administrative expenses.

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Our present and future funding requirements will depend on many factors, including:

our ability to achieve revenue growth;
the cost of expanding our products and service offerings, including our sales and marketing efforts;
our ability to achieve interoperability across all of our acquired businesses, technologies and service offerings to deliver networking effects to our customers;
the effect of competing technological and market developments;
costs related to international expansion; and
the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products.

The various ways we could raise additional capital carry potential risks. If we raise funds by issuing equity securities, dilution to our stockholders could result. Any equity securities issued also could provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds by issuing debt securities, those debt securities would have rights, preferences and privileges senior to those of holders of our common stock. The terms of debt securities issued or borrowings pursuant to a credit agreement could impose significant restrictions on our operations.
Risks related to our system infrastructure and software solutions business
The market for our systems infrastructure and software solutions is new and unproven and may not grow.
We believe our future success will depend in large part on establishing and growing a market for our systems infrastructure and that our solutions and systems are able to provide operational intelligence, particularly designed to collect and index machine data. Our systems infrastructure and software solutions are designed to address interoperability challenges across the healthcare continuum. They integrate big data with real time resources and, for some functions and features apply machine learning algorithms to inform and optimize treatment decisions. In order to grow our business, we intend to expand the functionality of our offerings to increase acceptance and use by the broader market. In particular, our Eviti and NaviNet systems infrastructure and software solutions are targeted at those in the healthcare continuum that are transitioning from fee-for-service to a value-based reimbursement model. While we believe this to be the current trend in healthcare, this trend may not continue in the future. Our systems infrastructure and software solutions are less effective with a traditional fee-for-service model and if there is a reversion in the industry towards fee-for-service, or a shift to another model, we would need to update our offerings and we may not be able to do so effectively or at all. It is difficult to predict customer adoption and renewal rates, customer demand for our software, the size and growth rate of the market for our solutions, the entry of competitive products or the success of existing competitive products. Many of our potential customers may already be party to existing agreements for competing offerings that may have lengthy terms or onerous termination provisions, and they may have already made substantial investments into those platforms which would result in high switching costs. Any expansion in our market depends on several factors, including the cost, performance and perceived value associated with our solutions, particularly considering the shifting market dynamics. The rate of adoption of our systems infrastructure and software solutions, may slow or decline in the future, which would harm our business and operating results. In addition, while many large payers use our solutions, many of these entities use only certain of our offerings, and we may not be successful in driving broader adoption of our solutions among these existing users, which would limit our revenue growth.

If the market for our offerings does not achieve widespread adoption or there is a reduction in demand for our offerings caused by a lack of customer acceptance, technological challenges, lack of accessible machine data, competing technologies or products, decreases in corporate spending, weakening economic conditions, or otherwise, it could result in reduced customer orders, early terminations, reduced renewal rates or decreased revenues, any of which would adversely affect our business operations and financial results. You should consider our business and prospects in light of the risks and difficulties we may encounter in this new and unproven market.
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The data and information that we provide to our customers, and their constituents, could be inaccurate or incomplete, which could harm both patients and our business, financial condition and results of operations.
Some of our software solutions store and display data from a variety of third-party sources for use in treating patients and to search and compare options for healthcare services and treatments. As part of our Eviti platform, we provide up-to-date information regarding research in the diseases that our solutions support (e.g. cancer and autoimmune disease). along with a list of potential treatments and relevant clinical trials seeking enrollment. Most of this data comes from health plans, our customers, published guidelines, peer-reviewed journals and other third parties. Because data in the healthcare industry is often fragmented in origin, inconsistent in format and often incomplete, the overall quality of certain types of data we receive can be poor. If this data is incorrect or incomplete or if we make mistakes in the capture or input of their data, or in our interpretation or analysis of such data, adverse consequences, including patient death and serious injury, may occur and give rise to product liability and other claims against us. In addition, a court or government agency may take the position that our storage and display of health information exposes us to personal injury liability or other liability for wrongful delivery or handling of healthcare services or erroneous health information. While we maintain insurance coverage, we cannot assure that this coverage will prove to be adequate or will continue to be available on acceptable terms, if at all. Even unsuccessful claims could result in substantial costs, reputational damage, and diversion of management resources. A claim brought against us that is uninsured or under-insured could harm our business, financial condition and results of operations.
Our use of open source technology could impose limitations on our ability to commercialize our offerings.
Our offerings incorporate open source software components that are licensed to us under various public domain licenses. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software or make available any derivative works of the open source code on unfavorable terms or at no cost. There is little or no legal precedent governing the interpretation of many of the terms of these licenses and therefore the potential impact of such terms on our business is not fully known or predictable. There is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to market our software products and services. While we monitor our use of open source software and try to ensure that none is used in a manner that would require us to disclose the source code of our proprietary solutions or that would otherwise breach the terms of an open source agreement, such use could inadvertently occur and we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer one or more of our offerings, discontinue sales of one or more of our offerings in the event re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our development efforts, any of which could cause us to breach obligations to our customers, harm our reputation, result in customer losses or claims, increase our costs or otherwise adversely affect our business and operating results.
If we are not able to enhance our systems infrastructure or software solutions to achieve market acceptance and keep pace with technological developments, our business will be harmed.
Our ability to attract new subscribers and licensees, and increase revenue from existing subscribers and licensees, depends in large part on our ability to enhance and improve our existing offerings and to introduce new products and services, including products and services designed for a mobile user environment. To grow our business, we must develop products and services that reflect the changing nature of business management software and expand our offerings. The success of any enhancements to our offerings depends on several factors, including timely completion, adequate quality testing and sufficient demand. Any new product or service that we develop may not be introduced in a timely or cost-effective manner, may contain defects or may not achieve the market acceptance necessary to generate sufficient revenue. If we are unable to successfully develop new products or services, enhance our existing offerings to meet subscriber requirements or otherwise gain market acceptance, our business and operating results will be harmed.

In addition, because many of our offerings are available over the Internet, we need to continuously modify and enhance them to keep pace with changes in Internet-related hardware, software, communications and database technologies and standards. If we are unable to respond in a timely and cost-effective manner to these rapid technological developments and changes in standards, our offerings may become less marketable, less competitive or obsolete, and our operating results will be harmed. If new technologies emerge that are able to deliver competitive products and applications at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely impact our ability to compete. Our offerings must also integrate with a variety of network, hardware, mobile, and software platforms and technologies, and we need to continuously modify and enhance them to adapt to changes and innovation in these technologies. Any failure of our offerings to operate effectively with future infrastructure platforms and technologies could reduce the demand for such offerings. If we are unable to respond to these changes in a cost-effective manner, our offerings may become less marketable, less competitive or obsolete, and our operating results may be adversely affected.
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Our data suppliers might restrict our use of or refuse to license data, which could lead to our inability to provide certain products or services.
A portion of the data that we use is either purchased or licensed from third parties or is obtained from our customers for specific customer engagements. Although we typically enter into long-term contractual arrangements with many of these suppliers of data, at the time of entry into a new contract or renewal of an existing contract, suppliers may increase restrictions on our use of such data, increase the price they charge us for data or refuse altogether to license the data to us. In addition, during the term of any data supply contract, suppliers may fail to adhere to our data quality control standards or fail to deliver data. Further, although no single individual data supplier is material to our business, if a number of suppliers collectively representing a significant amount of data that we use for one or more of our services were to impose additional contractual restrictions on our use of or access to data, fail to adhere to our quality-control standards, repeatedly fail to deliver data or refuse to provide data, now or in the future, our ability to provide those services to our customers could be materially adversely impacted, which may harm our operating results and financial condition.

We believe that we have rights necessary to use the data that is incorporated into our offerings. However, in the future, data providers could withdraw their data from us if there is a competitive reason to do so, or if legislation is passed restricting the use of such data, or if judicial interpretations are issued restricting the use of the data that we currently use in our products and services. If a substantial number of data providers were to withdraw their data, our ability to provide our offerings to our customers could be materially adversely impacted.

For example, in order to deliver the full functionality offered by some of our solutions, we need access, on behalf of our customers, to sources of pricing and claims data, much of which is managed by a limited number of health plans and other third parties. We have developed various long-term and short-term data sharing relationships with certain health plans and other third parties, including some of the largest health plans in the United States. The health plans and other third parties that we currently work with may, in the future, change their position and limit or eliminate our access to pricing and claims data, increase the costs charged to us for access to data, provide data to us in more limited or less useful formats, or restrict our permitted uses of data. Furthermore, some health plans have developed or are developing their own proprietary price and quality estimation tools and may perceive continued cooperation with us as a competitive disadvantage and choose to limit or discontinue our access to pricing and claims data. Failure to continue to maintain and expand our access to pricing and claims data will adversely impact our ability to continue to serve existing customers and expand our offerings to new customers.
Failure by our customers to obtain proper permissions and waivers may result in claims against us or may limit or prevent our use of data which could harm our business.
We require our customers and business associates to provi