Income Taxes The Company records the federal and state tax provision of the consolidated group and foreign tax provision of its foreign subsidiaries. ASC 740, Income Taxes, provides the accounting treatment for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 also provides guidance on derecognizing, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As part of the process of preparing its Consolidated Financial Statements, the Company is required to estimate its provision for income taxes in each of the tax jurisdictions in which the Company conducts business. This process involves estimating the actual current tax expense in conjunction with the evaluation and measurement of temporary differences resulting from differing treatment of certain items for tax and accounting purposes. These temporary differences result in the establishment of deferred tax assets and liabilities, which are recorded on a net basis and included in the Company's Consolidated Balance Sheets. The Company then evaluates on a periodic basis the probability that the net deferred tax assets will be recovered and therefore realized from future taxable income and to the extent the Company believes that recovery is not more likely than not, a valuation allowance is established to address such risk resulting in an additional related provision for income taxes during the period. Significant management judgment is required in determining its provision for income taxes, its deferred tax assets and liabilities, tax contingencies, unrecognized tax benefits, and any required valuation allowance, including taking into consideration the probability of the tax contingencies being incurred. Management assesses this probability based upon information provided by its tax advisers, its legal advisers and similar tax cases. If at a later time its assessment of the probability of these tax contingencies changes, its accrual for such tax uncertainties may increase or decrease. The Company has a valuation allowance due to management’s overall assessment of risks and uncertainties related to its future ability to realize and, hence, utilize certain deferred tax assets, primarily consisting of net operating losses ("NOLs"), carry forward temporary differences and future tax deductions. The effective tax rate for annual and interim reporting periods could be impacted if uncertain tax positions that are not recognized are settled at an amount which differs from the Company's estimate. Finally, if the Company is impacted by a change in the valuation allowance resulting from a change in judgment regarding the realizability of deferred tax assets, such effect will be recognized in the interim period in which the change occurs. Net Loss Per Share Basic net loss per common share attributable to NantHealth is computed by dividing the net loss attributable to NantHealth by the weighted average number of shares of common stock outstanding during the respective periods, without consideration of common stock equivalents. Diluted net loss per common share attributable to NantHealth is computed by dividing the net loss attributable to NantHealth by the weighted average number of shares of common stock outstanding during the respective periods, adjusted to give effect to potentially dilutive securities. However, potentially dilutive securities are excluded from the computation of diluted net loss per common share attributable to NantHealth to the extent that their effect is anti-dilutive. If there is a net loss from continuing operations attributable to NantHealth, diluted net loss per share attributable to NantHealth is computed in the same manner as basic net loss per share attributable to NantHealth is computed, even if the Company reports net income as a result of discontinued operations attributable to NantHealth. The Company applies treasury method in calculating weighted average dilutive number of shares for its stock plans. The convertible notes will be reflected in diluted loss per share using the if-converted method until the Company makes an irrevocable settlement election requiring the future settlement of the convertible notes to have the principal amount settled in cash. Foreign Currency Translation The Company has operations and holds assets in various foreign countries. The local currency is the functional currency for the Company’s subsidiaries in the United Kingdom and Canada. Assets and liabilities are translated at end-of-period exchange rates while revenues and expenses are translated at the average exchange rates in effect during the period. Equity is translated at historical rates and the resulting cumulative translation adjustments are included as a component of accumulated other comprehensive income/loss until the translation adjustments are realized. NantHealth, Inc. Notes to Consolidated Financial Statements (Dollars in thousands, except per share amounts) - 107 -
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