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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, 2021  
OR
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From                 to                
Commission file number: 001-37792
NantHealth, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
27-3019889
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
9920 Jefferson Blvd.
90232
Culver City,
California
(Zip Code)
(Address of principal executive offices)
(310) 883-1300
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading 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 filer Accelerated filer
Non-accelerated filer Smaller 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 7, 2021, the registrant had 113,400,267 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, 2021
Table of contents

Page
PART I.
Item 1.
5
Consolidated Balance Sheets
6
Consolidated Statement of Operations
7
Consolidated Statements of Comprehensive Loss
8
Consolidated Statements of Stockholders' Deficit
9
Consolidated Statements of Cash Flows
11
Notes to Consolidated Financial Statements
12
Item 2.
35
Item 3.
55
Item 4.
56
PART II.
Item 1.
56
Item 1A.
57
Item 2.
113
Item 3.
113
Item 4.
113
Item 5.
113
Item 6.
Exhibits Index
114
115

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

NantHealth, Inc.
Consolidated Balance Sheets
(Dollars in thousands)
March 31,
2021
December 31,
2020
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 10,810  $ 22,787 
Accounts receivable, net 4,705  3,273 
Related party receivables, net 990  1,031 
Prepaid expenses and other current assets 4,549  3,504 
Total current assets 21,054  30,595 
Property, plant, and equipment, net 12,859  13,102 
Goodwill 98,333  98,333 
Intangible assets, net 45,737  47,969 
Related party receivable, net of current 858  823 
Operating lease right-of-use assets 7,193  7,539 
Other assets 1,932  1,927 
Total assets $ 187,966  $ 200,288 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 1,598  $ 5,122 
Accrued and other current liabilities 15,832  13,975 
Deferred revenue 1,217  1,166 
Related party payables, net 4,092  4,238 
Notes payable —  268 
Related party convertible note, net 9,963  9,411 
Convertible notes, net 96,095  90,578 
Total current liabilities 128,797  124,758 
Deferred revenue, net of current 611  393 
Related party liabilities 32,860  31,091 
Related party promissory note 112,666  112,666 
Deferred income taxes, net 1,752  1,853 
Operating lease liabilities 7,723  8,170 
Other liabilities 35,198  32,757 
Total liabilities 319,607  311,688 
Commitments and Contingencies (Note 14)
Stockholders' deficit
Common stock, $0.0001 par value per share, 750,000,000 shares authorized; 111,366,133 and 111,284,733 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively
11  11 
Additional paid-in capital 878,241  891,583 
Accumulated deficit (1,010,046) (1,003,210)
Accumulated other comprehensive loss (140) (168)
Total NantHealth stockholders' deficit (131,934) (111,784)
Noncontrolling interests 293  384 
Total stockholders' deficit (131,641) (111,400)
Total liabilities and stockholders' deficit $ 187,966  $ 200,288 

The accompanying notes are an integral part of these Consolidated Financial Statements.
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NantHealth, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2021 2020
Revenue
Software-as-a-service related $ 15,757  $ 18,121 
Maintenance 383  — 
Professional services 27  — 
Total software-related revenue 16,167  18,121 
Sequencing and molecular analysis 59 
Total net revenue 16,170  18,180 
Cost of Revenue:
Software-as-a-service related 5,535  5,701 
Maintenance 207  — 
Professional services — 
Amortization of developed technologies 1,247  1,143 
Total software-related cost of revenue 6,996  6,844 
Sequencing and molecular analysis 47  352 
Total cost of revenue 7,043  7,196 
Gross Profit 9,127  10,984 
Operating Expenses
Selling, general and administrative 12,502  12,427 
Research and development 5,013  3,550 
Amortization of acquisition-related assets
985  867 
Total operating expenses 18,500  16,844 
Loss from operations (9,373) (5,860)
Interest expense, net (3,568) (4,657)
Other (expense) income, net (2,570) 3,454 
Loss from related party equity method investment
—  (1,784)
Loss from continuing operations before income taxes (15,511) (8,847)
(Benefit from) provision for income taxes (8) 93 
Net loss from continuing operations (15,503) (8,940)
Income from discontinued operations, net of tax attributable to NantHealth 32,005 
Net (loss) income (15,499) 23,065 
Net loss attributable to noncontrolling interests (91) — 
Net (loss) income attributable to NantHealth $ (15,408) $ 23,065 
Basic and diluted net (loss) income per share attributable to NantHealth:
Continuing operations - common stock $ (0.14) $ (0.08)
Discontinued operations - common stock $ —  $ 0.29 
Total net (loss) income per share - common stock $ (0.14) $ 0.21 
Weighted average shares outstanding
Basic and diluted - common stock 111,319,061  110,619,780 

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,
2021 2020
Net (loss) income $ (15,499) $ 23,065 
Other comprehensive income (loss), net of tax
Foreign currency translation adjustments 28  (188)
Total other comprehensive income (loss) 28  (188)
Comprehensive (loss) income (15,471) 22,877 
Less: Comprehensive loss attributable to noncontrolling interests 91  — 
Comprehensive (loss) income attributable to NantHealth $ (15,380) $ 22,877 

The accompanying notes are an integral part of these Consolidated Financial Statements.
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NantHealth, Inc.
Consolidated Statements of Stockholders’ Deficit
(Dollars in thousands)
(Unaudited)
Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Loss Total NantHealth Stockholders' Deficit Noncontrolling Interests Total Stockholders' Deficit
Shares Amount
Balance at December 31, 2020 111,284,733  $ 11  $ 891,583  $ (1,003,210) $ (168) $ (111,784) $ 384  $ (111,400)
Modified retrospective adjustment on adoption of ASU No. 2020-06 (Note 2) —  —  (14,318) 8,572  —  (5,746) —  (5,746)
Stock-based compensation cost —  —  912  —  —  912  —  912 
Shares issued in connection with employee stock plans, net of shares withheld for employee taxes
81,400  —  64  —  —  64  —  64 
Other comprehensive income —  —  —  —  28  28  —  28 
Net loss —  —  —  (15,408) —  (15,408) (91) (15,499)
Balance at March 31, 2021 111,366,133  $ 11  878,241  $ (1,010,046) $ (140) $ (131,934) $ 293  $ (131,641)
    
The accompanying notes are an integral part of these Consolidated Financial Statements.
















- 9 -

NantHealth, Inc.
Consolidated Statements of Stockholders’ Deficit
(Dollars in thousands)
(Unaudited)
Common Stock Additional
Paid-In Capital
Accumulated
Deficit
Accumulated Other
Comprehensive Loss
Total NantHealth Stockholders' Deficit Noncontrolling Interests Total Stockholders' Deficit
Shares Amount
Balance at December 31, 2019 110,619,678  $ 11  $ 889,955  $ (946,884) $ (218) $ (57,136) $ —  $ (57,136)
Stock-based compensation cost —  —  668  —  —  668  —  668 
Other comprehensive loss —  —  —  —  (188) (188) —  (188)
Net income —  —  —  23,065  —  23,065  —  23,065 
Balance at March 31, 2020 110,619,678  $ 11  $ 890,623  $ (923,819) $ (406) $ (33,591) $ —  $ (33,591)
    
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,
2021
2020 (2)
Cash flows from operating activities:
Net (loss) income $ (15,499) $ 23,065 
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Gain on sale of businesses —  (32,211)
Depreciation and amortization
3,803  4,271 
Amortization of debt discounts and deferred financing offering cost
323  1,542 
Change in fair value of derivatives liability
(4)
Change in fair value of Bookings Commitment
2,463  (3,128)
Stock-based compensation
887  653 
Deferred income taxes, net (101) (227)
Provision for bad debt expense
11 
Loss from related party equity method investment —  1,784 
Changes in operating assets and liabilities:
Accounts receivable, net (1,443) 937 
Inventories —  (18)
Related party receivables, net — 
Prepaid expenses and other current assets (48) 15,444 
Accounts payable (3,524) (282)
Accrued and other current liabilities 1,833  (14,884)
Deferred revenue 269  (1,433)
Related party payables, net 1,652  1,937 
Change in operating lease right-of-use assets and liabilities (99) (95)
Other assets and liabilities (221) (109)
Net cash used in operating activities (9,692) (2,743)
Cash flows from investing activities:
Net proceeds from sale of business —  46,401 
Purchases of property and equipment, including internal-use software (1,141) (935)
Net cash (used in) provided by investing activities (1,141) 45,466 
Cash flows from financing activities:
Repayments of insurance promissory note and notes payable (268) (238)
Proceeds from exercises of stock options 64  — 
Net cash used in financing activities (204) (238)
Effect of exchange rate changes on cash, cash equivalents and restricted cash (11)
Net (decrease) increase in cash, cash equivalents and restricted cash (11,034) 42,474 
Cash, cash equivalents and restricted cash, beginning of period (1)
24,162  6,379 
Cash, cash equivalents and restricted cash, end of period (1)
$ 13,128  $ 48,853 

(1) Cash and cash equivalents included restricted cash of $1,375 and $2,318 at December 31, 2020 and March 31, 2021, respectively, and $1,136 and $1,375 at December 31, 2019 and March 31, 2020, respectively. Restricted cash is included in prepaid expenses and other current assets and other assets and consists of funds that are contractually restricted as to usage or withdrawal related to the Company's performance bond related to a contract with a customer, security deposits in the form of standby letters of credit for leased facilities, and funds previously held in an escrow account related to the sale of the Connected Care Business (see Note 4). No amounts have been drawn upon the letters of credit as of March 31, 2021.
(2) The statements for the three months ended March 31, 2020 include the Connected Care Business (see Note 4).
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, molecular sequencing and analysis services, data analysis and network monitoring and management. The Company also markets its clinical decision support, payer engagement solutions, molecular sequencing and analysis services, data analysis and network monitoring and management on a stand-alone basis. NantHealth is a majority-owned subsidiary of NantWorks, LLC (“NantWorks”), which is a subsidiary of California Capital Equity, LLC (“Cal Cap”). The three companies were founded by and are led by Dr. Patrick Soon-Shiong.

On February 3, 2020, the Company sold certain of its assets related to its Connected Care Business (see Note 4).

The divestiture enables the Company to focus on its core competencies of clinical decision support, payer engagement, molecular analysis, and data analytics.

On July 22, 2020, the Company acquired The OpenNMS Group, Inc. ("OpenNMS") pursuant to an assignment agreement with Cambridge Equities, L.P. ("Cambridge"), a related party (see Note 19).

The Company intends to integrate OpenNMS with NantHealth’s software portfolio and service offerings, as well as expand the Company’s capabilities in cloud, SaaS, and AI technologies, providing customers with services to maintain reliable network connections for critical data flows that enable patient data collaboration and decision making at the point of care. At the same time, this transaction will allow the Company to expand penetration of OpenNMS services in the healthcare industry.

As of March 31, 2021, the Company conducted the majority of its operations in the United States, Canada, and the United Kingdom.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) a pandemic. In the same month, the President of the United States declared a State of National Emergency due to the COVID-19 pandemic. Many jurisdictions, in North America (including the United States), Europe and Asia, have adopted or are considering laws, rules, regulations or decrees intended to address the COVID-19 pandemic, including implementing travel restrictions, closing non-essential businesses and/or restricting daily activities. In addition, many communities have limited social mobility and gathering. To date, there has been no material adverse impact to the Company's business from the COVID-19 pandemic. Given the unprecedented and evolving nature of the pandemic, the future impact of these changes and potential changes on the Company and its contractors, consultants, customers, resellers and partners is unknown at this time.

However, in light of the uncertainties regarding economic, business, social, health and geopolitical conditions, the Company’s revenues, earnings, liquidity, and cash flows could be adversely affected, whether on an annual or quarterly basis. Continued impacts of the COVID-19 pandemic could materially adversely affect the Company’s current and long-term accounts receivable collectibility, 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.
For information on the CARES Act, refer to Note 15.
- 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 Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and, in the opinion of management, include all adjustments, which are normal and recurring in nature, necessary for a fair presentation of the Company's financial position and results of operations. In accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X as issued by the Securities and Exchange Commission ("SEC"), these Consolidated Financial Statements do not include all of the information and disclosures required by GAAP for complete financial statements. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements for the fiscal year ended December 31, 2020. The results of operations of the entities disposed of are included in the unaudited Consolidated Financial Statements up to the date of disposal and, where appropriate, these operations have been reflected as discontinued operations. The accompanying Consolidated Balance Sheet as of December 31, 2020 has been derived from the audited Consolidated Financial Statements at that date. Assets and liabilities of the discontinued operations are presented separately in the asset and liability sections of the prior period balance sheet. 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, cash equivalents and its ability to borrow from affiliated entities will be sufficient to fund operations through at least 12 months following the issuance date of the financial statements. The Company continues to have its Chairman and CEO’s intent and ability to support the Company’s operations with additional funds as required. The Company may also seek to sell additional equity, through one or more follow-on public offerings or in separate financings, or sell additional debt securities, or obtain a credit facility. However, the Company may not be able to secure such financing in a timely manner or on favorable terms. The Company may also consider selling off components of its business. Without additional funds, the Company may choose to delay or reduce its operating or investment expenditures. Further, because of the risk and uncertainties associated with the commercialization of the Company's existing products as well as products in development, the Company may need additional funds to meet its needs sooner than planned. To date, the Company's primary sources of capital have been the private placement of membership interests prior to its IPO, debt financing agreements, including the promissory note with Nant Capital, LLC (“Nant Capital”) and its convertible notes, the sale of its common stock, and proceeds from the sale of components of its business.


Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the Consolidated Financial Statements and accompanying notes. Actual results may differ from those estimates.
Segment Reporting

The chief operating decision maker for the Company is its Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results, or plans for levels or components below the consolidated unit level. Accordingly, management has determined that the Company operates in one reportable segment.
- 13 -

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

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

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

In November 2020, the SEC issued Release No. 33-10890, Amendments to Management's Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, to modernize, simplify, and enhance certain financial disclosure requirements in Regulation S-K. Mandatory compliance for this SEC release is required for fiscal periods ending on or after August 9, 2021. The Company adopted Item 303(a)(5), Contractual Obligations, which no longer requires the registrant to provide a contractual obligation table. The Company’s adoption of the remaining items is expected to impact the Company's fiscal 2021 Form 10-K disclosures and will not have a material impact on the Consolidated Financial Statements.

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, 2021 and 2020, there were revenues of $538 and $1,828 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 $1,024 at March 31, 2021 and $1,321 at December 31, 2020. During the three months ended March 31, 2021 and 2020, the Company recorded amortization of $160 and $242, 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.
Remaining Performance Obligations
As of March 31, 2021, the Company has allocated a total transaction price of $2,543 to unfulfilled performance obligations that are expected to be fulfilled within 10 years. Excluded from this amount are contracts of less than one year and variable consideration that relates to the value of services provided.

- 14 -

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

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

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

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

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

The operating results of the Company's discontinued operation were as follows:
Three Months Ended
March 31,
2020
Major classes of line items constituting pretax income (loss) of discontinued operations
Net revenue $ 1,165 
Cost of revenue (467)
Selling, general and administrative (524)
Research and development (592)
Other expense, net (5)
Pretax loss from discontinued operations related to major classes of pretax income (loss) (423)
Pretax gain on sale of the Connected Care Business 32,211 
Total pretax income from discontinued operations 31,788 
Benefit from income taxes (223)
Total gain from discontinued operations, net of tax $ 32,011 
- 15 -

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

The significant operating and investing cash and noncash items of the discontinued operation included on the Consolidated Statements of Cash Flows were as follows:
Three Months Ended
March 31,
2020
Cash flows from operating activities:
Depreciation and amortization $ 10 
Gain on sale of the Connected Care Business 32,211 
Cash flows from investing activities:
Net proceeds from sale of the Connected Care Business $ 46,401 
Purchases of property and equipment, including internal-use software 76 
Note 5. Accounts Receivable, net
Accounts receivable are included in the Consolidated Balance Sheets, net of the allowance for doubtful accounts. The allowance for doubtful accounts at March 31, 2021 and December 31, 2020 was $33 and $44, respectively.
Note 6. Prepaid Expenses and Other Current Assets and Accrued and Other Current Liabilities
Prepaid expenses and other current assets as of March 31, 2021 and December 31, 2020 consisted of the following:
March 31,
2021
December 31,
2020
Prepaid expenses $ 2,593  $ 2,268 
Restricted cash 1,180  238 
Other current assets 776  998 
Prepaid expenses and other current assets $ 4,549  $ 3,504 

Accrued and other current liabilities as of March 31, 2021 and December 31, 2020 consisted of the following:
March 31,
2021
December 31,
2020
Accrued payroll and related costs $ 8,235  $ 7,247 
Operating lease liabilities 1,900  1,900 
Other accrued and other current liabilities 5,697  4,828 
Accrued and other current liabilities $ 15,832  $ 13,975 
- 16 -

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

Note 7. Property, Plant and Equipment, net
Property, plant and equipment, net as of March 31, 2021 and December 31, 2020 consisted of the following:
March 31,
2021
December 31,
2020
Computer equipment and software $ 12,287  $ 12,332 
Furniture and equipment 1,168  1,168 
Leasehold improvements 4,286  4,282 
Property, plant, and equipment, excluding internal-use software, gross 17,741  17,782 
Less: Accumulated depreciation and amortization (13,225) (12,837)
Property, plant and equipment, excluding internal-use software, net 4,516  4,945 
Internal-use software 39,303  38,488 
Construction in progress - Internal-use software 1,975  1,616 
Less: Accumulated depreciation and amortization, internal-use software (32,935) (31,947)
Internal-use software, net 8,343  8,157 
Property, plant and equipment, net $ 12,859  $ 13,102 
 
Depreciation expense from continuing operations was $1,411 for the three months ended March 31, 2021, of which $989 related to internal-use software costs. Depreciation and amortization expense from continuing operations was $2,008 for the three months ended March 31, 2020, of which $1,635 related to internal-use software costs.

Amounts capitalized to internal-use software related to continuing operations for the three months ended March 31, 2021 and 2020 were $890 and $1,210, respectively.
Note 8. Intangible Assets, net
The Company’s definite-lived intangible assets as of March 31, 2021 and December 31, 2020 consisted of the following:
March 31,
2021
December 31,
2020
Customer relationships $ 53,000  $ 53,000 
Developed technologies 34,500  34,500 
Trade name 3,300  3,300 
Installed user base 1,400  1,400 
Intangible assets, gross 92,200  92,200 
Less: Accumulated amortization (46,463) (44,231)
Intangible assets, net $ 45,737  $ 47,969 

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, 2021 and 2020 was $2,232 and $2,010, respectively.

At July 22, 2020, the Company recorded $5,200 of definite-lived intangible assets and accumulated amortization of $647 related to the assignment of OpenNMS (see Note 19). These intangible assets are amortized over a period of 4 to 6 years.
- 17 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
The estimated future amortization expense over the next five years and thereafter for the intangible assets that exist as of March 31, 2021 is as follows:
Amounts
Remainder of 2021 $ 6,697 
2022 8,930 
2023 4,346 
2024 4,283 
2025 4,147 
2026 3,467 
Thereafter 13,867 
Total future intangible amortization expense $ 45,737 
Note 9. Goodwill
Goodwill as of both March 31, 2021 and December 31, 2020 was $98,333, net of goodwill allocated to the discontinued operation of $18,623 during 2020. The goodwill allocated to the discontinued operation was based on the fair value of the Connected Care Business as a percentage of the total fair value of the Connected Care Business and the Company that remains after the sales transaction (see Note 4).

On July 22, 2020, the Company recognized $1,026 of goodwill related to the assignment of OpenNMS (see Note 19).
Note 10. Investments
Equity method investment

Investment in NantOmics

In 2015, the Company purchased a total of 169,074,539 Series A-2 units of NantOmics, LLC (“NantOmics”), a related party of the Company, for an aggregate purchase price of $250,774. The Series A-2 units do not have any voting rights and, at the time of purchase, represented approximately 14.28% of NantOmics’ issued and outstanding membership interests. NantOmics is majority owned by NantWorks and delivers molecular diagnostic capabilities with the intent of providing actionable intelligence and molecularly driven decision support for cancer patients and their providers at the point of care.

At February 28, 2018, the Company transferred 9,088,362 of the Series A-2 units to NantOmics as consideration for the assignment of NantHealth Labs, Inc. (see Note 19). An additional 564,779 units were transferred by May 31, 2018. This reduced NantHealth's ownership of NantOmics to approximately 13.58%.

The Company applies the equity method to account for its investment in NantOmics as the interest in the equity is similar to a partnership interest. Further, the Company has the ability to exert significant influence over the operating and financial policies of the entity since NantWorks controls both NantHealth and NantOmics. The difference between the carrying amount of the investment in NantOmics and the Company’s underlying equity in NantOmics’ net assets relate to both definite and indefinite-lived intangible assets. At the time of the purchase, the Company attributed $28,195 and $14,382 of these differences to NantOmics’ developed technologies and its reseller agreement with the Company, respectively, prior to the application of developed technology intangibles included in NantOmics net assets, and the remaining basis differences were attributed to goodwill. The Company amortizes the basis differences related to the definite-lived intangible assets over the assets’ estimated useful lives and records these amounts as a reduction in the carrying amount of its investment and an increase in its equity method loss.

At June 30, 2020, the Company determined that an other-than-temporary-impairment of $28,227, the full remaining carrying value of the Company's investment in NantOmics, had occurred, through observation of Level 3 inputs predominantly attributed to (i) limited progress by NantOmics in completing revenue generating transactions for paid molecular analysis services for the research and pharmaceutical industries; (ii) limited progress in completing licensing transactions for proprietary molecular analysis technologies and/or intellectual property of NantOmics; and (iii) the Company's decision to shift future laboratory operations in-house related to the GPS Cancer and Omics Core products to better control the supply chain and CMS reimbursement process, which the Company expects to result in reduced fees to NantOmics.

- 18 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Pertaining to the Company's share of NantOmics' income or loss, amortization of basis differences, and other-than-temporary impairments, for the three months ended March 31, 2020, the Company recognized losses of $1,784. The Company did not recognize any income or losses during the three months ended March 31, 2021.

The Company reports its share of NantOmics’ income or loss and the amortization of basis differences using a one quarter lag. As the Company's equity method investment in NantOmics was reduced to zero during the second quarter of 2020, the Company no longer applies the equity method as NantOmics continued to generate net losses.

The Company used the following summarized financial information for NantOmics for the three months ended December 31, 2019, to record its equity method losses for the three months ended March 31, 2020:
Revenues $ 223 
Gross loss (1,163)
Loss from operations (3,856)
Net loss (1,360)
Net loss attributable to NantOmics (1,329)
Note 11. Convertible Notes
In December 2016, the Company entered into the Purchase Agreement with J.P. Morgan Securities LLC and Jefferies LLC, as representatives of the several initial purchasers named therein (collectively, the “Initial Purchasers”), to issue and sell $90,000 in aggregate principal amount of its 5.50% senior convertible notes due 2021 ("Convertible Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to non-U.S. persons pursuant to Regulation S under the Securities Act. In December 2016, the Company entered into a purchase agreement (the “Cambridge Purchase Agreement”) with Cambridge, an entity affiliated with Dr. Patrick Soon-Shiong, the Company’s Chairman and Chief Executive Officer, to issue and sell $10,000 in aggregate principal amount of the Convertible 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. In December 2016, pursuant to the exercise of the overallotment by the Initial Purchasers, the Company issued an additional $7,000 principal amount of the Convertible Notes. The total net proceeds from this offering were approximately $102,714, comprised of $9,917 from Cambridge and $92,797 from the Initial Purchasers, after deducting the Initial Purchasers’ discount and debt issuance costs of $4,286 in connection with the Convertible Notes offering.
On December 21, 2016, the Company entered into an indenture, relating to the issuance of the Convertible Notes (the “Indenture”), by and between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The interest rates are fixed at 5.50% per year, payable semi-annually on June 15th and December 15th of each year, beginning on June 15, 2017. The Convertible Notes will mature on December 15, 2021, unless earlier repurchased by the Company or converted pursuant to their terms.
In connection with the offering of the Convertible Notes, on December 15, 2016, the Company entered into a Second Amended and Restated Promissory Note which amended and restated the Amended and Restated Promissory Note, dated May 9, 2016, between the Company and Nant Capital, to, among other things, extend the maturity date of the promissory note to June 15, 2022 and to subordinate such promissory note in right of payment to the Convertible Notes (see Note 19).
The initial conversion rate of the Convertible Notes is 82.3893 shares of common stock per $1 principal amount of Convertible Notes (which is equivalent to an initial conversion price of approximately $12.14 per share). Prior to the close of business on the business day immediately preceding September 15, 2021, the Convertible Notes will be convertible only under the following circumstances:
(1) during any calendar quarter commencing after March 31, 2017 (and only during such calendar quarter), if, for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding calendar quarter, the last reported sale price of the Company’s common stock on such trading day is greater than or equal to 120% of the conversion price on such trading day;
(2) during the five business day period after any five consecutive trading day period in which, for each day of that period, the trading price per $1 principal amount of the Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on such trading day; or
(3) upon the occurrence of specified corporate transactions as described in the Indenture agreement.
- 19 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Upon conversion, the Convertible Notes will be settled in cash, shares of the Company’s common stock or any combination thereof at the Company’s option.
Upon the occurrence of a fundamental change (as defined in the Indenture), holders may require the Company to purchase all or a portion of the Convertible 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 Convertible Notes to be purchased plus any accrued and unpaid interest to, but excluding, the fundamental change purchase date. The conversion rate will be subject to adjustment upon the occurrence of certain specified events.
On or after the date that is one year after the last date of original issuance of the Convertible Notes, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during the period of 30 consecutive trading days ending within the five trading days immediately preceding a conversion date is greater than or equal to 120% of the conversion price on each applicable trading day, the Company will make an interest make-whole payment to a converting holder (other than a conversion in connection with a make-whole fundamental change in which the conversion rate is adjusted) equal to the sum of the present values of the scheduled payments of interest that would have been made on the Convertible Notes to be converted had such Convertible Notes remained outstanding from the conversion date through the earlier of (i) the date that is three years after the conversion date and (ii) the maturity date if the Convertible Notes had not been so converted. The present values of the remaining interest payments will be computed using a discount rate equal to 2.0%. The Company may pay any interest make-whole payment either in cash or in shares of its common stock, at the Company’s election as described in the Indenture.

The Company accounted for convertible debt instruments that may be settled in cash upon conversion (including partial cash settlement) by recording the liability and equity components of the convertible debt separately. The liability component was computed based on the fair value of a similar liability that does not include the conversion option. The liability component included both the value of the embedded interest make-whole derivative and the carrying value of the Convertible Notes. The equity component was computed based on the total debt proceeds less the fair value of the liability component. The equity component was also recorded as debt discount and amortized as interest expense over the expected term of the Convertible Notes.
The liability component of the Convertible Notes on the date of issuance was computed as $83,079, consisting of the value of the embedded interest make-whole derivative of $1,499 and the carrying value of the Convertible Notes of $81,580. Accordingly, the equity component on the date of issuance was $23,921. If the debt is considered current at the balance sheet date, the liability component of the convertible notes will be classified as current liabilities and presented in current portion of convertible notes debt and the equity component of the convertible debt will be considered a redeemable security and presented as redeemable equity on the Company's Consolidated Balance Sheet.
Offering costs of $4,286 related to the issuance of the Convertible Notes were allocated to the liability and equity components in proportion to the allocation of the proceeds and accounted for as deferred financing offering costs and equity issuance costs, respectively. Approximately $972 of this amount was allocated to equity and the remaining $3,314 was capitalized as deferred financing offering costs.
The Company adopted ASU No. 2020-06 on January 1, 2021 through a modified retrospective method of transition, which eliminated the separation model for convertible debt with a cash conversion feature, resulting in less noncash interest expense going forward (see Note 2). The cumulative effect of the adoption on January 1, 2021 was a decrease of $5,746 to unamortized debt discount and deferred financing offering costs. The debt discounts and deferred financing offering costs on the Convertible Notes are being amortized to interest expense over the contractual terms of the Convertible Notes, using the effective interest method at an effective interest rate of 6.78%.
As of March 31, 2021, the remaining life of the Convertible Notes is approximately 9 months.

On April 13, 2021, Highbridge and Cambridge each agreed to exchange $5,000 of its $36,945 and $10,000 in existing convertible notes, respectively, for shares of the Company’s common stock, par value $0.0001, pursuant to the Exchange Agreement (see Note 20).

The following table summarizes how the issuance of the Convertible Notes is reflected in the Company's Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020.
- 20 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Related Party Others Total
Balance as of March 31, 2021
Gross proceeds
$ 10,000  $ 97,000  $ 107,000 
Unamortized debt discounts and deferred financing offering costs
(37) (905) (942)
Net carrying amount
$ 9,963  $ 96,095  $ 106,058 
Balance as of December 31, 2020
Gross proceeds
$ 10,000  $ 97,000  $ 107,000 
Unamortized debt discounts and deferred financing offering costs
(589) (6,422) (7,011)
Net carrying amount
$ 9,411  $ 90,578  $ 99,989 
 
The following tables set forth the Company's interest expense recognized in the Company's Consolidated Statements of Operations:
Three Months Ended March 31, 2021
Related Party
Others
Total
Accrued coupon interest expense $ 137  $ 1,334  $ 1,471 
Amortization of debt discounts 76  84 
Amortization of deferred financing offering costs
234  239 
Total convertible notes interest expense $ 150  $ 1,644  $ 1,794 
Three Months Ended March 31, 2020
Related Party Others Total
Accrued coupon interest expense $ 137  $ 1,334  $ 1,471 
Amortization of debt discounts 127  1,238  1,365 
Amortization of deferred financing offering costs 174  177 
Total convertible notes interest expense $ 267  $ 2,746  $ 3,013 

Note 12. Fair Value Measurements
Liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 consisted of the following:
March 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 $ 35,114  $ —  $ —  $ 35,114 
December 31, 2020
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 $ 32,651  $ —  $ —  $ 32,651 
Interest make-whole derivative —  — 
- 21 -

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, 2021 and December 31, 2020, 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 between 8% and 10% at March 31, 2021 and between 10% and 11% at December 31, 2020. 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, 2021, the fair value of the liability would increase by $4,511.
Convertible Note derivative liability
In December 2016, the Company issued $107,000 in aggregate principal amount of Convertible Notes due December 15, 2021, of which $10,000 issued to a related party (see Note 11). The Convertible Notes include an interest make-whole feature whereby if a noteholder converts any of the Convertible Notes one year after the last date of original issuance of the Convertible Notes, they are entitled, in addition to the other consideration payable or deliverable in connection with such conversion, to an interest make-whole payment equal to the sum of the present values of the scheduled payments, computed using a discount rate equal to 2.0%, of interest that would have been made on the Convertible Notes to be converted had such Convertible Notes remained outstanding from the conversion date through the earlier of (i) the date that is three years after the conversion date and (ii) the maturity date if the Convertible Notes had not been so converted. The Company may pay any interest make-whole payment either in cash or in shares of its common stock, at the Company’s election as described in the Indenture. The Company has determined that this feature is an embedded derivative.

- 22 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
The fair value of the derivative liability includes the estimated volatility and risk-free rate. The higher/lower the estimated volatility, the higher/lower the value of the liability. The higher/lower the risk-free interest rate, the higher/lower the value of the liability.

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.

The following tables set forth a summary of changes in the fair value of Level 3 liabilities for the three months ended March 31, 2021:
December 31, 2020 Transfers in (out)   Change in fair value recognized in earnings March 31, 2021
Liabilities
Interest make-whole derivative - related party and others $ $ —  $ (4) $ — 
Bookings Commitment 32,651  —  2,463  35,114 
$ 32,655  $ —  $ 2,459  $ 35,114 
Fair Value of Convertible Notes held at amortized cost
As of March 31, 2021 and December 31, 2020, the fair value and carrying value of the Company's Convertible Notes were:
 
Fair value Carrying value Face value
5.5% convertible senior notes due December 15, 2021:
Balance as of March 31, 2021
Related party
$ 9,896  $ 9,963  $ 10,000 
Others
95,991  96,095  97,000 
$ 105,887  $ 106,058  $ 107,000 
Balance as of December 31, 2020
Related party
$ 9,553  $ 9,411  $ 10,000 
Others
92,660  90,578  97,000 
$ 102,213  $ 99,989  $ 107,000 

The fair value shown above represents the fair value of the debt instrument, inclusive of both the debt and equity components, but excluding the derivative liability. The carrying value represents only the carrying value of the debt component.

The fair value of the Convertible 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.
- 23 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 13. Leases
Future minimum lease payments under the Company's operating leases at March 31, 2021 were:
Maturity Analysis Amounts
Remainder of 2021 $ 2,147 
2022 2,683 
2023 2,691 
2024 2,537 
2025 684 
2026 613 
Thereafter 1,087 
Total future minimum lease payments 12,442 
Less: imputed interest (2,819)
Total $ 9,623 
As reported in the Consolidated Balance Sheet
Accrued and other current liabilities $ 1,900 
Operating lease liabilities 7,723 
$ 9,623 
Note 14. Commitments and Contingencies
The Company's principal commitments consist of obligations under its outstanding debt obligations, noncancelable leases for its office space, data centers 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 19). 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 and the Company subordinated the promissory note in right of payment to the Convertible Notes (see Note 11). On April 27, 2021, in connection with the issuance of the 2026 Notes, the Company entered into a Third Amended and Restated Promissory Note (see Note 20).
Indenture Obligations Under Convertible Notes
On December 21, 2016, the Company entered into the Indenture relating to the issuance of the $107,000 Convertible Notes, by and between the Company and U.S. Bank National Association the Trustee. The interest rates are fixed at 5.50% per year, payable semi-annually on June 15th and December 15th of each year, beginning on June 15, 2017. The Convertible Notes will mature on December 15, 2021, unless earlier repurchased by the Company or converted pursuant to their terms (see Note 11).

On April 27, 2021, the Company entered into the 2021 Indenture by and among the Company, the Guarantor and the Trustee pursuant to which NantHealth issued the 2026 Notes (see Note 20).
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 19). As of March 31, 2021, the Company’s estimated unconditional purchase obligations total approximately $500 for the remainder of 2021, $600 in 2022, and $100 in 2023. During the three months ended March 31, 2021, the Company made payments of approximately $111 for the amounts purchased related to the unconditional purchase obligations for the ERP implementation project.
- 24 -

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

- 25 -

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

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.
Insurance Recoveries
The Company has reflected its right to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with the Company’s third-party insurers and receipt is deemed probable. This includes instances where the Company’s third-party insurers have agreed to pay, on the Company’s behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund. The amount of such receivable related to the securities litigation recorded at March 31, 2021 and December 31, 2020 was $98 and $253, respectively, and is included in prepaid expenses and other current assets in the Consolidated Balance Sheets.

Note 15. Income Taxes

Income taxes for the three months ended March 31, 2021 and 2020 from continuing operations was a benefit of $8 and a provision of $93, respectively. The (benefit from) provision for income taxes for the three months ended March 31, 2021 and 2020 from continuing operations included an income tax (benefit) provision for the consolidated group based on an estimated annual effective tax rate.

The effective tax rates for the three months ended March 31, 2021 and 2020 from continuing operations were a benefit of 0.05% and a provision of 1.05%, respectively. The effective tax rates for the three months ended March 31, 2021 and 2020 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.

- 26 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
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 full valuation allowance against substantially all deferred tax assets. 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, 2015 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 16. 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, 2021 and December 31, 2020, 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, 2021, and December 31, 2020, there were no outstanding shares of preferred stock.
- 27 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 17. 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,
2021 2020
Phantom units:
Cost of revenue $ —  $ 16 
Selling, general and administrative
Research and development 17 
Total phantom units stock-based compensation expense 42 
Stock options:
Cost of revenue 42  15 
Selling, general and administrative 698 237
Research and development 98 24
Total stock options stock-based compensation expense 838 276
Restricted stock units:
Cost of revenue 7
Selling, general and administrative 49 389
Research and development 18
Total restricted stock units stock-based compensation expense 49 414
Discontinued operations —  (79)
Total stock-based compensation expense 887 653 
Amount capitalized to internal-use software 25 19 
Total stock-based compensation cost $ 912  $ 672 
2016 Equity Incentive Plan
Stock Options
The following table summarizes the activity related to stock options during the three months ended March 31, 2021:
 
Number of 
Shares
Weighted-Average 
Exercise Price
Stock options outstanding - December 31, 2020 10,025,124  $ 2.19 
Exercised (103,900) $ 0.55 
Forfeited (242,500) $ 3.05 
Stock options outstanding - March 31, 2021 9,678,724  $ 2.18 
Stock options exercisable - March 31, 2021 2,707,474  $ 0.57 
As of March 31, 2021, the Company had $10,111 of unrecognized stock-based compensation expense related to stock options. This cost is expected to be recognized over a weighted-average period of 2.5 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.
- 28 -

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, 2021:
 
Number of
Units
Weighted-Average Grant Date
Fair Value
Unvested restricted stock units outstanding - December 31, 2020 253,308  $ 1.64 
Vested (59,853) $ 1.81 
Unvested restricted stock units outstanding - March 31, 2021 193,455  $ 1.59 
As of March 31, 2021, the Company had $227 of unrecognized stock-based compensation expense related to restricted stock units. This cost is expected to be recognized over a weighted-average period of 0.5 years.
During the three months ended March 31, 2021, the Company issued 59,853 shares of common stock to participants of the 2016 Plan based in the United States.
Note 18. Net (Loss) Income Per Share
The following table sets forth reconciliations of the numerators and denominators used to compute basic and diluted net (loss) income per share of common stock attributable to NantHealth for the three months ended March 31, 2021 and 2020:
Three Months Ended
March 31,
2021 2020
Common Stock Common Stock
Net (loss) income per share numerator:
Net loss from continuing operations
$ (15,503) $ (8,940)
Net loss attributable to noncontrolling interests (91) — 
Net loss from continuing operations attributable to NantHealth (15,412) (8,940)
Income from discontinued operations attributable to NantHealth 32,005 
Net (loss) income attributable to NantHealth for basic and diluted net loss per share $ (15,408) $ 23,065 
Weighted-average shares for basic and diluted net (loss) income per share 111,319,061  110,619,780 
Basic and diluted net (loss) income per share attributable to NantHealth:
Continuing operations - common stock $ (0.14) $ (0.08)
Discontinued operations - common stock $ —  $ 0.29 
Total net (loss) income per share - common stock $ (0.14) $ 0.21 

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,
2021 2020
Unvested phantom units —  115,108 
Unvested restricted stock units 193,455  874,019 
Unexercised stock options 9,678,724  5,545,724 
Convertible notes 8,815,655  8,815,655 
- 29 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Note 19. 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, 2021, the Company recognized $106 of expenses in selling, general and administrative expenses for services provided to the Company by NantWorks and affiliates, net of services provided to NantWorks and affiliates. During the three months ended March 31, 2020, the Company incurred $486 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.
Related Party Receivables and Payables
As of March 31, 2021 and December 31, 2020, the Company had related party receivables of $1,848 and $1,854, respectively, primarily consisting of a receivable from Ziosoft KK of $1,477 in both periods, which was related to the sale of Qi Imaging. As of March 31, 2021 and December 31, 2020, respectively, the Company had related party payables and related party liabilities of $36,952 and $35,329, respectively, which primarily relate to amounts owed to NantWorks pursuant to the Shared Services Agreement, amounts owed to NantOmics under the Second Amended Reseller Agreement (defined below), and interest payable. The balance of the related party receivables and payables represent amounts paid by affiliates on behalf of the Company or vice versa.
Assignment of The OpenNMS Group, Inc.
On July 22, 2020, the Company entered into an assignment agreement (the “Assignment Agreement”) with Cambridge to acquire approximately 91% of The OpenNMS Group, Inc. for $5,577 in cash. Contemporaneously with the closing of the Assignment Agreement, OpenNMS issued call options to the Company consisting of, when exercised, cash payment of $278 and issuance of 56,769 shares of the Company's common stock in exchange for the 9% of the shares of OpenNMS common stock held by the remaining shareholders. These call options expired unexercised on September 30, 2020.

As the Company and Cambridge are controlled by the Company's Chairman and CEO, the acquisition was treated as a transaction between entities under common control. The Company recognized the assets and liabilities transferred under the Assignment Agreement at their carrying amounts on July 22, 2020 based on Cambridge's historical cost, including the effects of purchase accounting from the November 1, 2019 acquisition of OpenNMS by Cambridge. The transaction did not cause a material change in the reporting entity, and the Company has not retrospectively adjusted its previously issued financial statements.

The intangible assets acquired are amortized over the weighted-average useful life of 5.9 years. These definite-lived intangible assets include developed technology of $2,500 (6-year useful life), installed user base of $1,400 (6-year useful life), customer relationship of $1,000 (6-year useful life), and trade name of $300 (4-year useful life).

Amounts
Total cash consideration $ 5,577 
Assets and liabilities of OpenNMS at assignment:
Cash and cash equivalents 102 
Goodwill 1,026 
Intangible asset, net 4,553 
Other assets 1,097 
Other liabilities assumed (1,227)
Net assets acquired at assignment 5,551 
Noncontrolling interests (503)
Recorded as distribution from additional paid-in capital $ 529 
- 30 -

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

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, 2021 and December 31, 2020, the Company had $0 and $3, respectively, of outstanding related party payables under the Second Amended Reseller Agreement. During the three months ended March 31, 2021, direct costs of $0 were recorded as cost of revenue related to the Second Amended Reseller Agreement. During the three months ended March 31, 2020, direct costs of $36 were recorded as cost of revenue related to the Second Amended Reseller Agreement.
Cambridge Purchase Agreement
On December 15, 2016, the Company entered into the Cambridge Purchase Agreement with Cambridge, an entity affiliated with the Company's Chairman and CEO, Dr. Patrick Soon-Shiong, to issue and sell $10,000 in aggregate principal amount of the Convertible 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 Cambridge Purchase Agreement includes customary representations, warranties and covenants by the Company and customary closing conditions (see Note 11). The accrued and unpaid interest on the Convertible Notes held by Cambridge was $162 and $24 at March 31, 2021 and December 31, 2020, respectively, as part of current related party payables, net in the Consolidated Balance Sheets. On April 13, 2021, Cambridge agreed to exchange $5,000 of its $10,000 in Convertible Notes due 2021 for shares of the Company’s common stock, par value $0.0001 (see Note 20).
- 31 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Liquid Tumor Profiling Services Agreements
In March 2018, NantHealth Labs, a wholly-owned subsidiary of the Company, and NantKwest, Inc. ("NantKwest"), an affiliate, entered into agreements whereby NantHealth Labs is providing liquid tumor profiling services to NantKwest for clinical trials, on an annual, stand-ready, basis from the date of the first test of each participant, with revenues recognized ratably over time for the period of the stand-ready obligation.

In June 2018, NantHealth Labs entered into similar agreements to provide liquid tumor profiling services to Altor BioScience ("Altor"), NantCell, Inc. ("NantCell"), and NantBioScience, Inc. ("NantBio"), all affiliates of the Company.

During both the three months ended March 31, 2021 and 2020, the Company did not record any revenue under these agreements. As of both March 31, 2021 and December 31, 2020, the Company had accounts receivable from related parties due to these agreements of $110.
Related Party Promissory Notes
On January 4, 2016, the Company executed a $112,666 demand promissory note in favor of Nant Capital to fund the acquisition of NaviNet. The note bears interest at a per annum rate of 5.0%, compounded annually and computed on the basis of the actual number of days elapsed and a year of 365 or 366 days, as the case may be. The unpaid principal and any accrued and unpaid interest on the note were originally due and payable on demand in either (i) cash, (ii) shares of the Company's common stock based on per share price of $18.6126, (iii) Series A-2 units of NantOmics based on a per unit price of $1.484 to the extent such equity is owned by the Company or (iv) any combination of the foregoing, all at the option of Nant Capital. Subject to the preceding sentence, the Company may prepay the outstanding amount at any time, either in whole or in part, without premium or penalty and without the prior consent of Nant Capital. On May 9, 2016, the promissory note with Nant Capital was amended to provide that all outstanding principal and accrued interest is due and payable on June 30, 2021, and not on demand. On December 15, 2016, in connection with the offering of the Convertible Notes, the Company entered into a Second Amended and Restated Promissory Note which amends and restates the Amended and Restated Promissory Note, dated May 9, 2016, between the Company and Nant Capital, to, among other things, extend the maturity date of the promissory note to June 15, 2022 and to subordinate the promissory note in right of payment to the Convertible Notes (see Note 11). No other terms of the promissory note were changed. As of March 31, 2021 and December 31, 2020, the total principal and interest outstanding on the promissory note amounted to $145,526 and $143,756, respectively. The accrued and unpaid interest on the promissory note as of March 31, 2021 and December 31, 2020 was $32,860 and $31,090, respectively, included as part of noncurrent related party liabilities in the Consolidated Balance Sheets. The Company can request additional advances subject to Nant Capital approval. There are no other stated restrictions or maximum commitment for advances. Nant Capital has the option, but not the obligation, to require the Company to repay any such amount in cash, Series A-2 units of NantOmics (based on a per unit price of $1.484) held by the Company, shares of the Company's 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 2026 Notes, the Company entered into a Third Amended and Restated Promissory Note (see Note 20).

On January 22, 2016, the Company executed a demand promissory note in favor of NantOmics. The principal amount of the initial advance totaled $20,000. On March 8, 2016, NantOmics made a second advance to the Company for $20,000. The note bears interest at a per annum rate of 5.0% and is compounded annually. In May and June of 2016, the Company executed amendments to the demand promissory note with NantOmics, which provide that all unpaid principal of each advance owed to NantOmics and any accrued and unpaid interest would convert automatically into shares of the Company’s common stock after pricing of the Company’s IPO and immediately after conversion of the Company from a limited liability company to a corporation. On June 1, 2016, approximately $40,590 of principal and accrued interest under the promissory note with NantOmics was converted into 2,899,297 shares of the Company’s common stock in connection with the IPO. The amendments also provided a maturity date for the promissory note of June 30, 2021. The Company can request additional advances subject to NantOmics approval. There are no other stated restrictions or maximum commitment for advances. As of March 31, 2021, there was no outstanding balance on the promissory note. On April 26, 2021, in connection with the issuance of the 2026 Notes, the Company and NantOmics entered into an agreement to terminate the promissory note (see Note 20).

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 the Company 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 Convertible Notes. Interest payments on outstanding amounts are due on December 15th of each calendar year. The promissory note is subordinated to the Convertible Notes (see Note 11). The promissory note includes customary negative covenants. No advances have currently been made under the note. At March 31, 2021, the Company was in compliance with the covenants. On April 27, 2021, in connection with the issuance of the 2026 Notes, the Company and Nant Capital entered into a Second Amended and Restated Promissory Note (see Note 20).

- 32 -

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. Patrick 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 nonemployees of the company and its affiliates, including certain NantHealth employees, which vests 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 not material for the three months ended March 31, 2021.
Note 20. Subsequent Events
Equitization and Exchange Agreement
On April 13, 2021, NantHealth entered into a transaction with Highbridge Capital Management, LLC and one of its affiliates (“Highbridge”) to exchange $5,000 of its $36,945 in existing convertible notes and with Cambridge to exchange $5,000 of its $10,000 in existing convertible notes for shares of the Company’s common stock, par value $0.0001 (the “Common Stock”), pursuant to an exchange agreement dated as of April 13, 2021 (the “Exchange Agreement”).
Note Purchase Agreement
On April 13, 2021, NantHealth entered into a note purchase agreement (the “Note Purchase Agreement”) with NaviNet (the “Guarantor”) and certain buyers, including Highbridge and Nant Capital, to issue and sell $137,500 in aggregate principal amount of its 4.50% convertible senior notes due 2026 (the “2026 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 the Company and customary closing conditions. Under the terms of the Note Purchase Agreement, the Company has agreed to indemnify the buyers against certain liabilities. The 2026 Notes were issued on April 27, 2021. The total net proceeds from this offering were approximately $137,382, comprised of $62,500 from Nant Capital and $74,882 from Highbridge, after deducting Highbridge’s debt issuance costs of $118 in connection with the 2026 Notes offering.
Termination of NantOmics Promissory Note
On April 26, 2021, in connection with the issuance of the 2026 Notes, the Company entered into an agreement with NantOmics to terminated its demand promissory note in favor of NantOmics, dated January 22, 2016, as amended during May and June of 2016.
Amended and Restated Promissory Notes
On April 27, 2021, in connection with the issuance of the 2026 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 15, 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 2026 Notes.

On April 27, 2021, in connection with the issuance of the 2026 Notes, the Company 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 Second Promissory Note in right of payment to the 2026 Notes.
- 33 -

NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
Registration Rights Agreement
On April 27, 2021, in connection with the issuance of the 2026 Notes, the Company and each of the investors listed on the schedule of buyers entered into a Resale Registration Rights Agreement (the “Registration Rights Agreement”). Pursuant to the terms of the Registration Rights Agreement, the Company is obligated to, among other things, file a registration statement under the Securities Act to register the resale of all Registrable Securities (as defined in the Registration Rights Agreement).
Indenture
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 2026 Notes. The 2026 Notes will bear interest at a rate of 4.50% per year, payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. The 2026 Notes will mature on April 15, 2026, unless earlier repurchased, redeemed or converted.

The 2026 Notes are the Company’s general unsecured obligations and are initially guaranteed on a senior unsecured basis by the Guarantor.

The initial conversion rate of the 2026 Notes is 259.8753 shares of common stock per $1 principal amount of 2026 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 2026 Notes may convert all or a portion of their 2026 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 2026 Notes will be settled in cash, shares of the Company's common stock or any combination thereof at the Company's option.

The Company may not redeem the 2026 Notes prior to April 20, 2024. The Company may redeem for cash all or any portion of the 2026 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 2026 Notes to be redeemed, plus any accrued and unpaid special interest to, but excluding, the redemption date. No sinking fund is provided for the 2026 Notes, which means that the Company is not required to redeem or retire the 2026 Notes periodically.

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 2026 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 2026 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 2026 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 5.50% Convertible Notes due 2021 or the 2026 Notes held by the Company’s affiliates), or prepaying any such indebtedness, subject to certain exceptions, unless certain conditions described in the 2021 Indenture have been satisfied.

The following events are considered “events of default” with respect to the 2026 Notes, which may result in the acceleration of the maturity of the 2026 Notes:

(1) the Company defaults in any payment of interest on the 2026 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 2026 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 2026 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 2026 Notes;

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NantHealth, Inc.
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
(Unaudited)
(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 2026 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 2026 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 2026 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 2026 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 2026 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 2026 Notes will automatically become due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest on the 2026 Notes, if any, will be due and payable immediately.
Repurchase Offer
In connection with the issuance of the 2026 Notes and the amended and restated promissory notes, on April 27, 2021, the Company provided a notice of a fundamental change (as defined in the indenture governing the Company's 5.50% Convertible Notes due 2021) and an offer to repurchase all of the Company's outstanding Convertible Notes. Any Convertible Notes properly tendered pursuant to such offer to purchase shall be purchased on May 25, 2021 (the “Repurchase Date”) at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest thereon to, but not including, the Repurchase Date.

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, or 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. (“NantHealth” or the “Company”) provides enterprise solutions that help businesses transform complex data into actionable insights. By offering efficient ways to move, interpret, and visualize complex and highly sensitive information, 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.

NantHealth’s product portfolio comprises the latest technology in payer/provider collaboration platforms for real-time coverage decision support (NaviNet and Eviti), molecular analysis services (GPS Cancer and Omics Core), and data solutions that include multi-data analysis, reporting and professional services offerings (Quadris). In addition, The OpenNMS Group, Inc. ("OpenNMS"), a NantHealth subsidiary, helps businesses monitor and manage network health and performance. Altogether, we generally derive
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revenue from SaaS subscription fees, support services, professional services, molecular analysis 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, molecular sequencing and analysis services, data analysis and network monitoring and management. We also market our clinical decision support, payer engagement solutions, molecular sequencing and analysis services, 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 NantHealth products and services;
strengthen our commercial organization to increase our NantHealth solutions client base and to broaden usage of our solutions by existing clients;
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 clients, as well as logistics, telecommunications and other clients through OpenNMS;
pursue reimbursement of molecular sequencing and analysis services from regional and national third-party payers and government payers; and
publish scientific and medical advances.

The acquisition of OpenNMS, an enterprise-grade open-source network management company, expands and diversifies NantHealth’s software portfolio and service offerings, adding AI technologies, and enhancing cloud and SaaS capabilities. We believe OpenNMS will provide NantHealth 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, as well as the commercial launch and expansion of our molecular sequencing and analysis business. 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, 2021, our accumulated deficit was approximately $1.0 billion. We expect to continue to incur operating losses over the near term as we expand our commercial operations, invest further in NantHealth solutions, and support adoption of our molecular sequencing and analysis solutions (including GPS Cancer).
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 clients through maintaining and expanding sales, marketing and solution development activities, (iv) expand our relationships with existing clients through delivery of add-on and complementary solutions and services and (v) continue our commitment of service in support of our client satisfaction programs.
Equitization and Exchange Agreement
On April 13, 2021, we entered into a transaction with Highbridge Capital Management, LLC and one of its affiliates (“Highbridge”) to exchange $5.0 million of its $36.9 million in existing convertible notes and with Cambridge to exchange $5.0 million of its $10.0 million in existing convertible notes for shares of our common stock, par value $0.0001 (the “Common Stock”), pursuant to an exchange agreement dated as of April 13, 2021 (the “Exchange Agreement”).
Note Purchase Agreement
On April 13, 2021, we entered into a note purchase agreement (the “Note Purchase Agreement”) with NaviNet (the “Guarantor”) and certain buyers, including Highbridge and Nant Capital, to issue and sell $137.5 million in aggregate principal amount of our 4.50% convertible senior notes due 2026 (the “2026 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 and customary closing conditions. Under the terms of the Note Purchase Agreement, we have agreed to indemnify the buyers against certain liabilities. The 2026 Notes were issued on April 27, 2021.
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Amended and Restated Promissory Notes
On April 27, 2021, in connection with the issuance of the 2026 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 2026 Notes.

On April 27, 2021, in connection with the issuance of the 2026 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 2026 Notes.
Indenture
On April 27, 2021, we and the Guarantor entered into an indenture (the “2021 Indenture”) by and among us, the Guarantor and U.S. Bank National Association, as trustee (the “Trustee”), pursuant to which we issued the 2026 Notes. The 2026 Notes will bear interest at a rate of 4.50% per year, payable semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021. The 2026 Notes will mature on April 15, 2026, unless earlier repurchased, redeemed or converted. See Note 20 to the accompanying Consolidated Financial Statements.
Repurchase Offer
In connection with the issuance of the 2026 Notes and the amended and restated promissory notes, on April 27, 2021, we provided a notice of a fundamental change (as defined in the indenture governing the Company's 5.5% Convertible Notes due 2021) and an offer to repurchase all our outstanding Convertible Notes. Any Convertible Notes properly tendered pursuant to such offer to purchase shall be purchased on May 25, 2021 (the “Repurchase Date”) at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest thereon to, but not including, the Repurchase Date.
2020 Acquisition of The OpenNMS Group, Inc.
On July 22, 2020, we entered into an assignment agreement (the “Assignment Agreement”) with Cambridge to acquire approximately 91% of OpenNMS for $5.6 million in cash. Contemporaneously with the closing of the Assignment Agreement, OpenNMS issued call options to the Company consisting of, when exercised, cash payment of $0.3 million and issuance of 56,769 shares of the Company's common stock in exchange for the 9% of the shares of OpenNMS common stock held by the remaining shareholders. These call options expired unexercised on September 30, 2020.
COVID-19 Pandemic
In March 2020, the World Health Organization declared the novel coronavirus (COVID-19) a pandemic. In the same month, the President of the United States declared a State of National Emergency due to the COVID-19 pandemic. Many jurisdictions, in North America (including the United States), Europe and Asia, have adopted or are considering laws, rules, regulations or decrees intended to address the COVID-19 pandemic, including implementing travel restrictions, closing non-essential businesses and/or restricting daily activities. In addition, many communities have limited social mobility and gathering. To date, there has been no material adverse impact to 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 the Company 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 account receivable collectibility, 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.
For information on the CARES Act, refer to Note 15 to the accompanying Consolidated Financial Statements.
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2020 Sale of the Connected Care Business
On January 13, 2020, we entered into an asset purchase agreement (the “Purchase Agreement”) with Masimo Corporation (“Masimo”), VCCB Holdings, Inc., a wholly owned subsidiary of Masimo (collectively with Masimo, the “Purchaser”), and, solely with respect to certain provisions of the Purchase Agreement, NantWorks, LLC, an affiliate of ours. Pursuant to the Purchase Agreement, we agreed to sell to the Purchaser certain of our assets related to our “Connected Care” business, including the products known as DCX (formerly DeviceConX), VCX (formerly VitalsConX), HBox and Shuttle Cable (collectively, the “Connected Care Business”). On February 3, 2020, we completed the sale of the Connected Care Business for $47.3 million of cash consideration in exchange for assets primarily related to the Connected Care Business (as defined under the terms of the Purchase Agreement). The cash consideration is subject to adjustment based upon the final amount of working capital as of the closing date.

The sale of the Connected Care Business qualified as a discontinued operation because it comprised operations and cash flows that could be distinguished, operationally and for financial reporting purposes, from the rest of the Company. The disposal of the Connected Care Business represented a strategic shift in our operations as the sale enables us to focus on molecular analysis, clinical decision support, payer engagement, and data analytics.
Evolution of GPS Cancer Test Platform
NantHealth and NantOmics (our technology partner for the GPS Cancer test) are continually taking steps to optimize the utility and value of our tests for physicians and their patients. To this end, we have leveraged our deep experience with RNA sequencing, bioinformatics and statistics to expand the clinical utility of the GPS Cancer test, while also streamlining and improving our lab workflow by consolidating to next-generation sequencing as our sole testing platform. A fundamental result of this work is that the key cancer treatment biomarkers previously assessed using our proprietary quantitative proteomics platform are, beginning in April 2018, now assessed solely via RNA sequencing, gene expression and statistical analysis. This change is based on the established clinical and scientific utility of tumor RNA sequencing. The tumor RNA transcriptome reveals gene and somatic variant expression, identifies gene fusions and validates their expression, and determines the relevance of gene copy number alterations. GPS Cancer currently assesses RNA expression of over 19,000 genes in a tumor sample and we have shown significant concordance between our RNA and proteomics expression platforms. We believe this change will result in operational efficiencies, an improved cost structure and more rapid transfer of scientific advancements in expression analysis to our clinical report.

In November of 2019, FDA awarded 510(k) clearance to Omics Core, which is the technical foundation of the DNA component of the GPS Cancer test. In May 2020, MolDx provided a positive coverage determination for Omics Core creating a path for Medicare reimbursement for a portion of the GPS Cancer test.
2017 Asset Purchase Agreement with Allscripts
On August 3, 2017, we entered into an asset purchase agreement, which we refer to as the "APA," with Allscripts Healthcare Solutions, Inc., or “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.

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, the Company 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 12 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 $36.3 million and $33.9 million as of March 31, 2021 and December 31, 2020, 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) loss from equity method investments including impairment losses, (2) stock-based compensation expense, (3) change in fair value of derivatives liability, (4) change in fair value of the Bookings Commitment, (5) noncash interest expense related to convertible notes, (6) intangible amortization, (7) securities litigation costs, and (8) 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, 2021 and 2020 (Unaudited):
(Dollars in thousands, except per share amounts)
Three Months Ended
March 31,
2021 2020
Net loss from continuing operations attributable to NantHealth $ (15,412) $ (8,940)
Adjustments to GAAP net loss from continuing operations attributable to NantHealth:
Loss from related party equity method investment
—  1,784 
Stock-based compensation expense from continuing operations
883  732 
Change in fair value of derivatives liability (4)
Change in fair value of Bookings Commitment 2,463  (3,128)
Noncash interest expense related to convertible notes
323  1,542 
Intangible amortization from continuing operations
2,212  2,010 
Securities litigation costs —  (103)
Tax (benefit) provision resulting from certain noncash tax items (43) — 
Total adjustments to GAAP net loss from continuing operations attributable to NantHealth 5,834  2,842 
Net loss from continuing operations attributable to NantHealth - Non-GAAP $ (9,578) $ (6,098)
Weighted average basis common shares outstanding 111,319,061  110,619,780 
Net loss per common share from continuing operations attributable to NantHealth - Non-GAAP $ (0.09) $ (0.06)

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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, 2021 and 2020 (Unaudited):
(Dollars in thousands, except per share amounts) Three Months Ended
March 31,
2021 2020
Net loss per common share from continuing operations attributable to NantHealth $ (0.14) $ (0.08)
Adjustments to GAAP net loss per common share from continuing operations attributable to NantHealth:
Loss from related party equity method investment
—  0.01 
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  (0.03)
Noncash interest expense related to convertible notes
—  0.01 
Intangible amortization from continuing operations
0.02  0.02 
Securities litigation costs —  — 
Tax (benefit) provision resulting from certain noncash tax items —  — 
Total adjustments to GAAP net loss per common share from continuing operations attributable to NantHealth 0.05  0.02 
Net loss per common share from continuing operations attributable to NantHealth - Non-GAAP $ (0.09) $ (0.06)


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Components of Our Results of Operations
Revenue
We generate our revenue from the sale of software-as-a-service ("SaaS"), maintenance, and services. Our systems infrastructure and platforms support the delivery of both personalized comprehensive sequencing and molecular analysis, the implementation of value-based care models across the healthcare continuum, and maintenance of reliable network connections. We generate revenue from the following sources:

Software-as-a-service related - SaaS related revenue is generated from our clients’ 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.

Sequencing and molecular analysis - Sequencing and molecular analysis revenue is generated by providing customers with reports of the results of performing sequencing and molecular analysis of DNA and RNA (and previously proteomic testing) under our reseller agreement with NantOmics and from blood samples via our liquid/blood-based tumor profiling platform through our subsidiary, NantHealth Labs, Inc. Revenue is recognized at a point in time, when reports of results are transferred to the ordering physician or institution, or on a cash basis, or ratably over time for the period of a stand-ready obligation to provide blood-based tumor profiling services.
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.

Sequencing and molecular analysis - Sequencing and molecular analysis cost of revenue includes personnel-related costs associated with fulfillment of these services, including those of our subsidiary, NantHealth Labs, and amounts due to NantOmics under the reseller agreement for the sequencing and molecular analysis of DNA and RNA (and previously proteomic results). It also includes amortization of internal-use software and depreciation of lab equipment.

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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.

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.
Impairment of intangible assets, including internal-use software

Impairment of intangible assets consists of the impairment loss from the NantHealth Labs definite-lived intangible assets and certain internal-use software.
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, changes in the fair value of our derivative liability, and other non-recurring items.
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Loss from Equity Method Investment
Loss from equity method investment consists of our pro rata share of losses of a company that we have an ownership interest in and account for under the equity method of accounting, amortization of basis differences, and other-than-temporary impairments in the value of our investment. We regularly evaluate our investment, which is not carried at fair value, for other-than-temporary impairment in accordance with U.S. GAAP.
Provision for (Benefit from) Income Taxes
Provision for (benefit from) 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.
Income (Loss) from Discontinued Operations, Net of Tax, Attributable to NantHealth
Income (loss) from discontinued operations, net of tax, attributable to NantHealth consists of earnings or losses related to the disposition of components of our business.
Net Income (Loss) Attributable to Noncontrolling Interests
Net income (loss) attributable to noncontrolling interests consists of earnings or 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,
2021 2020
Revenue
Software-as-a-service related $ 15,757  $ 18,121 
Maintenance 383  — 
Professional services 27  — 
Total software-related revenue 16,167  18,121 
Sequencing and molecular analysis 59 
Total net revenue 16,170  18,180 
Cost of Revenue
Software-as-a-service related 5,535  5,701 
Maintenance 207  — 
Professional services — 
Amortization of developed technologies 1,247  1,143 
Total software-related cost of revenue 6,996  6,844 
Sequencing and molecular analysis 47  352 
Total cost of revenue 7,043  7,196 
Gross Profit 9,127  10,984 
Operating Expenses
Selling, general and administrative 12,502  12,427 
Research and development 5,013  3,550 
Amortization of acquisition-related assets
985  867 
Total operating expenses 18,500  16,844 
Loss from operations (9,373) (5,860)
Interest expense, net (3,568) (4,657)
Other (expense) income, net (2,570) 3,454 
Loss from related party equity method investment
—  (1,784)
Loss from continuing operations before income taxes (15,511) (8,847)
(Benefit from) provision for income taxes (8) 93 
Net loss from continuing operations (15,503) (8,940)
Income from discontinued operations, net of tax attributable to NantHealth 32,005 
Net (loss) income (15,499) 23,065 
Net loss attributable to noncontrolling interests (91) — 
Net (loss) income attributable to NantHealth $ (15,408) $ 23,065 
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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,
2021 2020
Revenue
Software-as-a-service related 97.4  % 99.7  %
Maintenance 2.4  % —  %
Professional services 0.2  % —  %
Total software-related revenue 100.0  % 99.7  %
Sequencing and molecular analysis —  % 0.3  %
Total net revenue 100.0  % 100.0  %
Cost of Revenue
Software-as-a-service related 34.2  % 31.4  %
Maintenance 1.3  % —  %
Professional services —  % (0.1) %
Amortization of developed technologies 7.8  % 6.3  %
Total software-related cost of revenue 43.3  % 37.6  %
Sequencing and molecular analysis 0.3  % 2.0  %
Total cost of revenue 43.6  % 39.6  %
Gross Profit 56.4  % 60.4  %
Operating Expenses
Selling, general and administrative 77.3  % 68.3  %
Research and development 31.0  % 19.5  %
Amortization of acquisition-related assets
6.1  % 4.8  %
Total operating expenses 114.4  % 92.6  %
Loss from operations (58.0) % (32.2) %
Interest expense, net (22.1) % (25.6) %
Other (expense) income, net (15.9) % 19.0  %
Loss from related party equity method investment
0.1  % (9.9) %
Loss from continuing operations before income taxes (95.9) % (48.7) %
(Benefit from) provision for income taxes —  % 0.5  %
Net loss from continuing operations (95.9) % (49.2) %
Income from discontinued operations, net of tax attributable to NantHealth —  % 176.1  %
Net (loss) income (95.9) % 126.9  %
Net loss attributable to noncontrolling interests (0.6) % —  %
Net (loss) income attributable to NantHealth (95.3) % 126.9  %





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Comparison of Three Months Ended March 31, 2021 and 2020 (Unaudited)
Revenue
Period-To-Period Change
(Dollars in thousands) Three Months Ended
March 31,
Three Months Ended
March 31,
2021 2020 2021 2020
Amount Amount Amount Percent
Software-as-a-service related $ 15,757  $ 18,121  $ (2,364) (13.0) %
Maintenance 383  —  383  —  %
Professional services 27  —  27  —  %
Total software-related revenue 16,167  18,121  (1,954) (10.8) %
Sequencing and molecular analysis 59  (56) (94.9) %
Total net revenue $ 16,170  $ 18,180  $ (2,010) (11.1) %
Comparison of the three-month periods ended March 31, 2021 and 2020
Total revenue decreased $2.0 million, or 11.1%, for the three months ended March 31, 2021, compared to the prior year period, due to a $2.0 million decrease in software-related revenue and a $0.1 million decrease in sequencing and molecular analysis.
Total software-related revenue decreased by $2.0 million, or 10.8%, for the three months ended March 31, 2021, compared to the prior year period, due to a decrease of $2.4 million in SaaS revenue primarily due to completion of amortization on higher value professional services projects in 2020. The decrease was partially offset by an increase of $0.4 million in maintenance revenue due to the acquisition of OpenNMS (see Note 19 to the accompanying Consolidated Financial Statements).

One of our NaviNet customers representing approximately 14.9% of our total revenue for the year ended December 31, 2020, and approximately 15.0% of our total revenue for the three months ended March 31, 2021, did not renew its contract. While the contract expired in January 2021, the customer has requested that we continue to provide our SaaS services and transition assistance through at least June 30, 2021. Further, we continue to engage in discussions with the customer regarding supplemental services and business opportunities that may extend beyond the service termination date. Customer churn is a natural part of our business and, while there is no guarantee that we will be able to offset the loss of this customer in the short term, we continue to develop new product enhancements and offerings to help drive customer acquisition and expansion opportunities to replace this lost revenue in the long term.
Sequencing and molecular analysis revenue decreased $0.1 million, or 94.9%, for the three months ended March 31, 2021, compared to the prior year period. This decrease reflected lower volume of GPS samples sequenced and recognized as we moved to a cash basis model until full CMS billing can be established.
Currently, we recognize revenue from customers with executed contracts, and from customers without a contractual agreement where we recognize revenue on a cash basis given the uncertainty over reimbursement. As we gain additional insurance coverage, including coverage under government insurance programs, we expect to be able to reduce the portion of sequencing and molecular analysis revenue which is recognized on a cash basis.
In May 2020, we received notice of molecular diagnostic services coverage for Omics Core, which opens the path for us to receive coverage of advanced diagnostic laboratory testing at our full listing price.
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. We also believe that our customer base and our product solutions provide unique opportunities to expand the volume of GPS Cancer analysis reporting to our customer base.
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Cost of Revenue
Period-To-Period Change
(Dollars in thousands) Three Months Ended
March 31,
Three Months Ended
March 31,
2021 2020 2021 2020
Amount Amount Amount Percent
Software-as-a-service related $ 5,535  $ 5,701  $ (166) (2.9) %
Maintenance 207  —  207  —  %
Professional services —  —  %
Amortization of developed technologies 1,247  1,143  104  9.1  %
Total software-related cost of revenue 6,996  6,844  152  2.2  %
Sequencing and molecular analysis 47  352  (305) (86.6) %