[Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section outlines the nature of forward-looking statements within the report and the inherent risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements regarding future expectations, beliefs, intentions, or strategies, identified by words like 'anticipate,' 'believe,' 'expect,' 'intend,' 'may,' 'plan,' 'project,' and similar expressions[11](index=11&type=chunk) - These statements are subject to various risks and uncertainties, many beyond the company's control, which could cause actual results to differ materially. Key risks include labor shortages, inflation, increased interest rates, supply chain disruptions, the ongoing impact of COVID-19, ability to increase revenue, competition, reliance on third-party suppliers, and regulatory approvals[12](index=12&type=chunk)[13](index=13&type=chunk)[14](index=14&type=chunk) [Part I. Financial Information](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part encompasses the company's unaudited condensed consolidated financial statements, along with management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Xtant Medical Holdings, Inc. and its subsidiaries, including the balance sheets, statements of operations, statements of equity, and statements of cash flows, along with detailed notes explaining the company's business, accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2022 (Unaudited) | December 31, 2021 | | :--------------------------------- | :------------------------------ | :------------------ | | Total Assets | $56,049 | $54,692 | | Total Liabilities | $23,276 | $23,809 | | Total Stockholders' Equity | $32,773 | $30,883 | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement reports the company's revenues, expenses, and net loss over specific periods Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total Revenue | $14,462 | $13,777 | $42,699 | $41,293 | | Gross Profit | $7,896 | $7,191 | $23,831 | $24,795 | | Loss from Operations | $(1,900) | $(1,445) | $(5,031) | $(1,943) | | Net Loss | $(2,353) | $(1,804) | $(6,276) | $(2,566) | | Basic Net Loss Per Share | $(0.03) | $(0.02) | $(0.07) | $(0.03) | [Condensed Consolidated Statements of Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) This statement details changes in the company's equity accounts over specific periods Condensed Consolidated Statements of Equity Highlights (in thousands) | Metric | September 30, 2022 | December 31, 2021 | | :------------------------- | :----------------- | :---------------- | | Total Stockholders' Equity | $32,773 | $30,883 | | Additional Paid-In Capital | $274,234 | $266,068 | | Accumulated Deficit | $(241,461) | $(235,185) | - Total Stockholders' Equity increased by **$1,890 thousand** from December 31, 2021, to September 30, 2022, primarily due to a private placement of common stock and warrants (**$5,225 thousand** and **$1,116 thousand**, respectively) and stock-based compensation (**$1,825 thousand**), partially offset by a net loss of **$(6,276) thousand**[20](index=20&type=chunk)[22](index=22&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes the cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended September 30, in thousands) | Activity | 2022 | 2021 | | :------------------------ | :-------- | :-------- | | Operating activities | $(3,053) | $16 | | Investing activities | $(1,137) | $(1,295) | | Financing activities | $3,406 | $17,552 | | Net change in cash | $(784) | $16,273 | | Cash at beginning of period | $18,387 | $2,341 | | Cash at end of period | $17,603 | $18,614 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations of the company's business, significant accounting policies, and breakdowns of various financial statement line items, including revenue, receivables, inventories, debt, equity, and commitments, offering crucial context for the condensed consolidated financial statements [(1) Business Description, Basis of Presentation and Summary of Significant Accounting Policies](index=10&type=section&id=(1)%20Business%20Description,%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes the company's business, the basis of financial statement presentation, and its key accounting policies - Xtant Medical Holdings, Inc. is a global medical technology company focused on designing, developing, and commercializing orthobiologics and spinal implant systems for spinal fusion procedures[24](index=24&type=chunk) - The COVID-19 pandemic has negatively impacted revenues due to deferred elective procedures, diverted hospital resources, and limited access for sales representatives, with potential for continued adverse effects on business and supply chain[25](index=25&type=chunk) - On August 25, 2022, the company closed the first tranche of a private placement, selling approximately **14.1 million shares** of common stock and warrants for ~**3.5 million shares**, generating net cash proceeds of approximately **$6.3 million**. A second tranche closed on October 7, 2022, raising an additional **$3.0 million**[29](index=29&type=chunk)[30](index=30&type=chunk) [(2) Revenue](index=12&type=section&id=(2)%20Revenue) This note details the company's revenue recognition policies and provides a breakdown of revenue by product line - The company generates most of its U.S. revenue from independent commissioned sales agents, consigning orthobiologics products to hospitals and spinal implant sets to agents. Revenue is recognized when control of goods is transferred to the customer, typically upon receipt of a hospital purchase order[39](index=39&type=chunk)[41](index=41&type=chunk) Revenue by Product Line (in thousands) | Product Line | Three Months Ended Sep 30, 2022 | Percentage of Total Revenue | Three Months Ended Sep 30, 2021 | Percentage of Total Revenue | | :-------------- | :------------------------------ | :-------------------------- | :------------------------------ | :-------------------------- | | Orthobiologics | $12,046 | 83% | $10,795 | 78% | | Spinal implant | $2,416 | 17% | $2,948 | 22% | | Other revenue | $— | 0% | $34 | 0% | | **Total revenue** | **$14,462** | **100%** | **$13,777** | **100%** | | Product Line | Nine Months Ended Sep 30, 2022 | Percentage of Total Revenue | Nine Months Ended Sep 30, 2021 | Percentage of Total Revenue | | :-------------- | :----------------------------- | :-------------------------- | :----------------------------- | :-------------------------- | | Orthobiologics | $34,614 | 81% | $31,264 | 76% | | Spinal implant | $8,075 | 19% | $9,929 | 24% | | Other revenue | $10 | 0% | $100 | 0% | | **Total revenue** | **$42,699** | **100%** | **$41,293** | **100%** | [(3) Receivables](index=13&type=section&id=(3)%20Receivables) This note provides information on the company's accounts receivable and the allowance for credit losses Allowance for Credit Losses Activity (in thousands) | Metric | September 30, 2022 | September 30, 2021 | | :------------------------------------ | :----------------- | :----------------- | | Balance at January 1 | $552 | $653 | | Provision for current expected credit losses | $191 | $(63) | | Write-offs charged against allowance | $(173) | $(36) | | Balance at March 31 | $570 | $554 | | Provision for current expected credit losses | $(49) | $(81) | | Write-offs charged against allowance | $(11) | $(3) | | Balance at June 30 | $510 | $470 | | Provision for current expected credit losses | $54 | $118 | | Write-offs charged against allowance | $(15) | $(12) | | Balance at September 30 | $549 | $576 | [(4) Inventories](index=13&type=section&id=(4)%20Inventories) This note details the composition of the company's inventories, including raw materials, work in process, and finished goods Inventories (in thousands) | Category | September 30, 2022 | December 31, 2021 | | :-------------- | :----------------- | :---------------- | | Raw materials | $5,121 | $5,613 | | Work in process | $957 | $571 | | Finished goods | $10,915 | $11,761 | | **Total** | **$16,993** | **$17,945** | [(5) Property and Equipment, Net](index=13&type=section&id=(5)%20Property%20and%20Equipment,%20Net) This note presents the company's property and equipment, net of accumulated depreciation Property and Equipment, Net (in thousands) | Category | September 30, 2022 | December 31, 2021 | | :------------------------ | :----------------- | :---------------- | | Total cost | $23,636 | $22,381 | | Less: accumulated depreciation | $(17,967) | $(17,169) | | **Property and equipment, net** | **$5,669** | **$5,212** | - Depreciation expense for property and equipment was **$0.4 million** for the three months ended September 30, 2022, compared to **$0.3 million** for the same period in 2021. For the nine months, it was **$1 million** for both 2022 and 2021[45](index=45&type=chunk) [(6) Intangible Assets](index=14&type=section&id=(6)%20Intangible%20Assets) This note details the company's intangible assets, net of accumulated amortization Intangible Assets (in thousands) | Category | September 30, 2022 | December 31, 2021 | | :------------------------ | :----------------- | :---------------- | | Patents | $807 | $847 | | Accumulated amortization | $(449) | $(447) | | **Intangible assets, net** | **$358** | **$400** | [(7) Accrued Liabilities](index=14&type=section&id=(7)%20Accrued%20Liabilities) This note provides a breakdown of the company's accrued liabilities Accrued Liabilities (in thousands) | Category | September 30, 2022 | December 31, 2021 | | :-------------------------------- | :----------------- | :---------------- | | Cash compensation/commissions payable | $3,844 | $3,184 | | Other accrued liabilities | $1,177 | $1,165 | | **Accrued liabilities** | **$5,021** | **$4,349** | [(8) Debt](index=14&type=section&id=(8)%20Debt) This note details the company's long-term debt, including terms, amendments, and effective interest rates Long-Term Debt (in thousands) | Category | September 30, 2022 | December 31, 2021 | | :---------------------------------------- | :----------------- | :---------------- | | Amounts due under the Term Facility | $12,000 | $12,000 | | Accrued end-of-term payments | $182 | $83 | | Less: unamortized debt issuance costs | $(221) | $(296) | | Less: current maturities | $(1,335) | $— | | **Long-term debt** | **$10,626** | **$11,787** | - The term loan agreement was amended on March 7, 2022, to waive the minimum adjusted EBITDA requirement if liquidity exceeds **$14 million** and to reset certain prepayment fees. The final payment fees were increased by **25 basis points**[48](index=48&type=chunk) - Effective rates as of September 30, 2022, were **11.53%** for the term loan and **7.07%** for the revolving credit agreement. The reference rate for credit agreements transitioned from LIBOR to term SOFR on October 27, 2022, effective November 1, 2022[49](index=49&type=chunk)[50](index=50&type=chunk) [(9) Stock-Based Compensation](index=15&type=section&id=(9)%20Stock-Based%20Compensation) This note describes the company's stock-based compensation plans and activity for stock options and restricted stock units Stock Option Activity (Nine Months Ended September 30) | Metric | 2022 Shares | 2022 Avg. Exercise Price | 2021 Shares | 2021 Avg. Exercise Price | | :------------------------- | :---------- | :----------------------- | :---------- | :----------------------- | | Outstanding at January 1 | 3,201,666 | $1.80 | 2,190,892 | $2.25 | | Granted | 109,164 | $0.65 | 1,012,083 | $1.27 | | Cancelled or expired | (443,125) | $2.39 | (269) | $314.19 | | Outstanding at September 30 | 2,867,705 | $1.66 | 3,202,706 | $1.92 | | Exercisable at September 30 | 828,978 | $2.37 | 210,028 | $9.02 | Restricted Stock Unit Activity (Nine Months Ended September 30) | Metric | 2022 Shares | 2022 Avg. Fair Value at Grant Date | 2021 Shares | 2021 Avg. Fair Value at Grant Date | | :------------------------- | :---------- | :--------------------------------- | :---------- | :--------------------------------- | | Outstanding at January 1 | 2,970,104 | $1.39 | 2,503,698 | $1.54 | | Granted | 1,898,808 | $0.53 | 1,249,002 | $1.27 | | Vested | (851,955) | $1.33 | (349,572) | $1.92 | | Cancelled | (318,805) | $1.38 | — | — | | Outstanding at September 30 | 3,698,152 | $0.96 | 3,403,128 | $1.40 | - Shareholders approved an amendment to the 2018 Equity Incentive Plan on October 26, 2022, increasing available common stock shares by **8,500,000**[51](index=51&type=chunk) [(10) Warrants](index=15&type=section&id=(10)%20Warrants) This note provides details on the company's outstanding warrants, including their terms and valuation - Warrants issued in the August 25, 2022 private placement have an exercise price of **$0.48 per share**, are immediately exercisable, and expire on the **five-year** anniversary of the First Closing. They include customary anti-dilution provisions and a buy-out right in certain acquisition scenarios[31](index=31&type=chunk)[52](index=52&type=chunk) - The fair value of the warrants was determined using a Black-Scholes model, with significant assumptions including a **5-year** contractual term and **107%** estimated stock volatility[53](index=53&type=chunk) Common Stock Warrant Activity (Nine Months Ended September 30, 2022) | Metric | Common Stock Warrants | Weighted Average Exercise Price | | :------------------------- | :-------------------- | :------------------------------ | | Outstanding at January 1, 2022 | 7,111,112 | $2.29 | | Issued | 3,515,079 | $0.48 | | Outstanding at September 30, 2022 | 10,626,191 | $1.69 | [(11) Commitments and Contingencies](index=16&type=section&id=(11)%20Commitments%20and%20Contingencies) This note outlines the company's lease commitments and potential legal contingencies - The company leases three office facilities in Belgrade, Montana, with lease terms extended through October 2025 for two facilities. The weighted-average remaining lease term as of September 30, 2022, was **3.1 years**[55](index=55&type=chunk) Present Value of Long-term Leases (in thousands) | Category | September 30, 2022 | | :-------------------------------- | :----------------- | | Right-of-use assets, net | $1,490 | | Current portion of lease liability | $443 | | Lease liability, less current portion | $1,094 | | **Total lease liability** | **$1,537** | - The company is subject to various claims and legal actions in the ordinary course of business but does not believe their ultimate resolution will have a material adverse effect on its financial position, results of operations, or cash flows[57](index=57&type=chunk) [(12) Income Taxes](index=17&type=section&id=(12)%20Income%20Taxes) This note discusses the company's income tax position, including deferred tax assets and valuation allowances - A valuation allowance has been established against the entire deferred income tax asset balance due to uncertainty regarding the company's ability to generate future taxable income[60](index=60&type=chunk) [(13) Supplemental Disclosure of Cash Flow Information](index=17&type=section&id=(13)%20Supplemental%20Disclosure%20of%20Cash%20Flow%20Information) This note provides additional details on cash paid for interest and non-cash investing and financing activities Supplemental Cash Flow Information (Nine Months Ended September 30, in thousands) | Category | 2022 | 2021 | | :-------------------------------------------- | :----- | :----- | | Cash paid during the period for: Interest | $1,022 | $485 | | Non-cash activities: Fixed assets acquired under finance lease | $159 | $163 | | Non-cash activities: Revaluation of lease liability and right of use asset | $234 | $— | [(14) Related Party Transactions](index=18&type=section&id=(14)%20Related%20Party%20Transactions) This note discloses transactions and relationships with related parties, including significant stockholders - OrbiMed Advisors LLC affiliated funds (Royalty Opportunities and ROS) beneficially own **72%** of the Company's common stock. All related party transactions are reviewed and approved by the Audit Committee or disinterested Board members[63](index=63&type=chunk)[64](index=64&type=chunk) [(15) Segment and Geographic Information](index=18&type=section&id=(15)%20Segment%20and%20Geographic%20Information) This note provides information on the company's operating segments and revenue breakdown by geographic area - The company operates in a single reportable segment: the development, manufacture, and marketing of orthopedic medical products and devices[65](index=65&type=chunk) Total Revenue by Major Geographic Area (in thousands) | Geographic Area | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :-------------- | :------------------------------ | :------------------------------ | | United States | $14,370 | $13,629 | | Rest of world | $92 | $148 | | **Total revenue** | **$14,462** | **$13,777** | | Geographic Area | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :-------------- | :----------------------------- | :----------------------------- | | United States | $42,089 | $40,813 | | Rest of world | $610 | $480 | | **Total revenue** | **$42,699** | **$41,293** | - Approximately **99%** of sales for both the three and nine months ended September 30, 2022 and 2021, were in the United States[66](index=66&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial performance, condition, and future outlook, including operational highlights, financial trends, the impact of the COVID-19 pandemic, and a detailed discussion of liquidity and capital resources [Business Overview](index=19&type=section&id=Business%20Overview) This section provides an overview of Xtant Medical's business, products, sales channels, and key growth initiatives - Xtant develops, manufactures, and markets regenerative medicine products and medical devices for orthopedic and neurological surgeons, focusing on orthobiologics for bone healing and spinal implant systems[68](index=68&type=chunk) - The company's sales channel in the U.S. relies on independent commissioned agents and stocking distributors, supported by a national accounts program for GPOs and IDNs. International sales are through stocking distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries[69](index=69&type=chunk) - Key growth initiatives include introducing new products (e.g., OsteoVive® Plus, OsteoFactor™), expanding the distribution network, penetrating adjacent markets, and leveraging technology and strategic acquisitions. Penetration into adjacent markets has slowed due to limited production labor[70](index=70&type=chunk)[77](index=77&type=chunk) [Recent Private Placement](index=19&type=section&id=Recent%20Private%20Placement) This section details the company's recent private placement of common stock and warrants, including proceeds and intended use - On August 25, 2022, the company completed the first tranche of a private placement, issuing approximately **14.1 million common shares** and warrants for **3.5 million shares** at **$0.48 per share**, yielding **$6.3 million** in net cash proceeds[71](index=71&type=chunk) - A second tranche closed on October 7, 2022, selling an additional **6.2 million common shares** and warrants for **1.6 million shares**, raising **$3.0 million**. Proceeds are intended for working capital and general corporate purposes[71](index=71&type=chunk)[85](index=85&type=chunk) [Impact of the COVID-19 Pandemic](index=20&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) This section discusses the negative impact of the COVID-19 pandemic on the company's revenues, supply chain, and operations - The COVID-19 pandemic has negatively impacted revenues due to cancellations/deferrals of elective procedures, diversion of hospital resources, and staffing shortages, particularly in Q1 2022[73](index=73&type=chunk)[74](index=74&type=chunk) - The pandemic has also disrupted the global economy and supply chain, affecting the company's ability to obtain raw materials and impacting distributors, sales representatives, customers, and suppliers[75](index=75&type=chunk) - The full extent of future impact remains uncertain, depending on new variants, vaccine effectiveness, government restrictions, and hospital capacity. Continued revenue decline could lead to impairment charges and inventory write-offs[76](index=76&type=chunk) [Results of Operations](index=20&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue, cost of sales, gross profit, and operating expenses for the reported periods [Revenue](index=20&type=section&id=Revenue) This section analyzes the company's revenue performance and key drivers for the reported periods Total Revenue (in millions) | Period | 2022 | 2021 | Change (%) | | :----------------------------------- | :---- | :---- | :--------- | | Three Months Ended September 30 | $14.5 | $13.8 | +5% | | Nine Months Ended September 30 | $42.7 | $41.3 | +3% | - Revenue increases are primarily attributed to the introduction of new products, specifically OsteoVive® Plus and OsteoFactor™[77](index=77&type=chunk) [Cost of Sales and Gross Profit](index=20&type=section&id=Cost%20of%20Sales%20and%20Gross%20Profit) This section analyzes the company's cost of sales and gross profit margins, identifying factors influencing changes Cost of Sales and Gross Profit (in millions, except percentages) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :----------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Cost of Sales | $6.6 | $6.6 | $18.9 | $16.5 | | Gross Profit as a percentage of revenue | 54.6% | 52.2% | 55.8% | 60.0% | - Cost of sales for the nine months ended September 30, 2022, increased by **14%** (**$2.4 million**) primarily due to a **$1.0 million** increase in reserve expense for excess and obsolete inventory and **$0.6 million** in additional salaries and wages[78](index=78&type=chunk) - Gross profit percentage increased for the three-month comparison due to sales mix (higher margin independent agent sales) and better absorption of labor/overhead, but decreased for the nine-month comparison due to higher product costs and increased inventory reserve expense. Higher product costs are expected to continue impacting gross profit[79](index=79&type=chunk) [General and Administrative](index=21&type=section&id=General%20and%20Administrative) This section analyzes changes in general and administrative expenses and their underlying causes General and Administrative Expenses (in millions) | Period | 2022 | 2021 | Change ($M) | Change (%) | | :----------------------------------- | :---- | :---- | :---------- | :--------- | | Three Months Ended September 30 | $3.7 | $3.1 | +$0.6 | +20% | | Nine Months Ended September 30 | $11.5 | $10.3 | +$1.2 | +12% | - The three-month increase was mainly due to **$0.3 million** in product registrations and **$0.3 million** in employee compensation. The nine-month increase included **$0.3 million** in bad debt, **$0.3 million** in product registrations, **$0.3 million** in stock-based compensation, and **$0.5 million** for ERP system upgrades, partially offset by **$0.6 million** in legal settlement expenses in the prior year[80](index=80&type=chunk) [Sales and Marketing](index=21&type=section&id=Sales%20and%20Marketing) This section analyzes changes in sales and marketing expenses, primarily driven by commissions and incentives Sales and Marketing Expenses (in millions) | Period | 2022 | 2021 | Change ($M) | Change (%) | | :----------------------------------- | :---- | :---- | :---------- | :--------- | | Three Months Ended September 30 | $5.9 | $5.3 | +$0.6 | +11% | | Nine Months Ended September 30 | $16.7 | $15.7 | +$1.0 | +6% | - The increase for both periods was primarily driven by additional independent agent sales commissions and incentives due to higher revenues[81](index=81&type=chunk) [Research and Development](index=21&type=section&id=Research%20and%20Development) This section analyzes changes in research and development expenses Research and Development Expenses (in millions) | Period | 2022 | 2021 | Change ($M) | Change (%) | | :----------------------------------- | :---- | :---- | :---------- | :--------- | | Three Months Ended September 30 | $0.2 | $0.3 | -$0.1 | -13% | | Nine Months Ended September 30 | $0.7 | $0.7 | $0.0 | 0% | - The three-month decrease was primarily due to reduced equipment purchases[82](index=82&type=chunk) [Interest Expense](index=22&type=section&id=Interest%20Expense) This section analyzes changes in interest expense, attributing them to base interest rate increases and debt refinancing Interest Expense (in millions) | Period | 2022 | 2021 | Change ($M) | | :----------------------------------- | :---- | :---- | :---------- | | Three Months Ended September 30 | $0.4 | $0.3 | +$0.1 | | Nine Months Ended September 30 | $1.2 | $0.5 | +$0.7 | - The increase in interest expense for the three-month period was due to increases in the base interest rate. The nine-month increase resulted from debt refinancing in May 2021, as no interest expense related to debt instruments was incurred in 2021 prior to that[84](index=84&type=chunk) - Interest expense is expected to increase in future periods due to rising interest rates, with an estimated **$0.1 million** annual increase for every **75 basis points** rise in the reference rate[84](index=84&type=chunk) [Liquidity and Capital Resources](index=22&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's working capital, cash flows, credit facilities, and future capital requirements [Working Capital](index=22&type=section&id=Working%20Capital) This section analyzes the company's working capital position and changes in cash and cash equivalents Working Capital (in thousands) | Metric | September 30, 2022 | December 31, 2021 | | :------------------------ | :----------------- | :---------------- | | Cash and cash equivalents | $17,603 | $18,387 | | Total current assets | $45,108 | $44,330 | | Total current liabilities | $11,359 | $11,077 | | **Net working capital** | **$33,749** | **$33,253** | - The decrease in cash and cash equivalents was primarily due to net cash used in operations and reduced borrowing on the revolving line of credit, partially offset by net proceeds from the August 2022 private placement[85](index=85&type=chunk) [Cash Flows](index=22&type=section&id=Cash%20Flows) This section analyzes the company's cash flows from operating, investing, and financing activities Net Cash Flow Activities (Nine Months Ended September 30, in millions) | Activity | 2022 | 2021 | | :------------------------ | :---- | :---- | | Net cash used in operating activities | $(3.1) | $0.0 | | Net cash used in investing activities | $(1.1) | $(1.3) | | Net cash provided by financing activities | $3.4 | $17.6 | - The increase in net cash used in operating activities in 2022 was primarily due to an increased net loss. Financing activities in 2022 were driven by **$6.3 million** from the August private placement, while 2021 saw **$18.4 million** from a February private placement[86](index=86&type=chunk)[88](index=88&type=chunk) [Current and Prior Credit Facilities](index=23&type=section&id=Current%20and%20Prior%20Credit%20Facilities) This section details the company's term and revolving credit agreements, including terms, availability, and compliance with covenants - The company has a Term Credit Agreement for **$12.0 million** and a Revolving Credit Agreement for up to **$8.0 million** with MidCap Financial Trust, both maturing on May 1, 2026[89](index=89&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk) - As of September 30, 2022, **$0.7 million** was outstanding and **$7.3 million** was available under the Revolving Facility. The reference rate transitioned from LIBOR to term SOFR effective November 1, 2022[92](index=92&type=chunk) - The credit agreements contain customary affirmative and negative covenants, including minimum net product revenue, adjusted EBITDA, and liquidity levels. The company was in compliance with all covenants as of September 30, 2022[94](index=94&type=chunk) [Cash Requirements](index=24&type=section&id=Cash%20Requirements) This section outlines the company's anticipated cash requirements and potential needs for additional financing - The company believes its **$17.4 million** cash and cash equivalents (as of Sep 30, 2022), along with proceeds from the second tranche of the private placement and available credit, will be sufficient to meet anticipated cash requirements through at least **November 2023**[96](index=96&type=chunk) - Additional capital may be required or sought through equity/debt financings or strategic collaborations. Such financing could dilute current stockholders, and obtaining consent from existing lenders/investors may be required[97](index=97&type=chunk)[98](index=98&type=chunk) [Critical Accounting Estimates](index=25&type=section&id=Critical%20Accounting%20Estimates) This section highlights the significant accounting estimates and assumptions made in preparing the financial statements - The preparation of financial statements requires management to make estimates and assumptions, which are based on historical experience and other reasonable factors. Actual results may differ materially from these estimates[100](index=100&type=chunk) - There have been no changes in critical accounting estimates for the three and nine months ended September 30, 2022, compared to those described in the Annual Report on Form 10-K for the year ended December 31, 2021[101](index=101&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=25&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a smaller reporting company, Xtant Medical Holdings, Inc. is not required to provide the information typically mandated for this item - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[102](index=102&type=chunk) [Item 4. Controls and Procedures](index=25&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section addresses the effectiveness of the company's disclosure controls and procedures, acknowledging their inherent limitations, and reports on any material changes in internal control over financial reporting, noting the implementation of a new ERP system [Limitations on Effectiveness of Controls and Procedures](index=25&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) This section acknowledges the inherent limitations of any control system in providing absolute assurance of achieving objectives - Management acknowledges that any controls and procedures, regardless of design, can only provide reasonable assurance of achieving desired control objectives due to inherent limitations and resource constraints[103](index=103&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=25&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures as assessed by management - As of September 30, 2022, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[104](index=104&type=chunk) [Changes in Internal Control over Financial Reporting](index=25&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes in the company's internal control over financial reporting during the period - During the three months ended September 30, 2022, the company implemented a new enterprise resource planning (ERP) system. No other material changes in internal control over financial reporting occurred during this period[105](index=105&type=chunk) [Part II. Other Information](index=25&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers various other disclosures, including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=25&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) This section states that there are no legal proceedings applicable to the company for the reported period - Not applicable[106](index=106&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=ITEM%201A.%20RISK%20FACTORS) As a smaller reporting company, Xtant Medical Holdings, Inc. is not required to provide the information typically mandated for this item - The company is a smaller reporting company and is not required to provide risk factors[107](index=107&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=25&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This section confirms that no unregistered equity securities were sold during the quarter ended September 30, 2022, other than those issued in connection with the reported private placement - No unregistered equity securities were sold during the quarter ended September 30, 2022, other than the issuance of common stock and warrants in connection with the private placement, as reported in a Current Report on Form 8-K[108](index=108&type=chunk) [Item 3. Defaults Upon Senior Securities](index=26&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This section states that there are no defaults upon senior securities applicable to the company for the reported period - Not applicable[109](index=109&type=chunk) [Item 4. Mine Safety Disclosures](index=26&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This section states that there are no mine safety disclosures applicable to the company for the reported period - Not applicable[110](index=110&type=chunk) [Item 5. Other Information](index=26&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This section reports an amendment to the company's term loan and revolving credit agreements, transitioning the reference rate from LIBOR to term SOFR, effective November 1, 2022 - On October 27, 2022, the company's term loan and revolving credit agreements were amended to transition the reference rate from LIBOR to term SOFR, effective for amounts outstanding and draws on or after November 1, 2022[111](index=111&type=chunk) [Item 6. Exhibits](index=26&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed or furnished with the Quarterly Report on Form 10-Q, including corporate governance documents, private placement agreements, credit agreement amendments, and certifications - The report includes various exhibits such as Amended and Restated Certificate of Incorporation, Bylaws, Form of Warrant, Securities Purchase Agreement, Registration Rights Agreement, Letter Agreement, and Amendment No. 2 to both Term Loan and Revolving Loan Credit Agreements[113](index=113&type=chunk)[114](index=114&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer, pursuant to the Exchange Act and Sarbanes-Oxley Act, are also filed/furnished[117](index=117&type=chunk)

Financial Data and Key Metrics Changes - Total revenue for Q2 2022 was $15.3 million, a 2% increase from $14.9 million in Q2 2021, primarily driven by new product introductions and increased private label and OEM sales [24] - Gross margin decreased to 54.8% in Q2 2022 from 63.5% in Q2 2021, attributed to higher product costs and charges for excess and obsolete inventory [25] - Operating expenses totaled $9.7 million in Q2 2022, down from $10 million in Q2 2021, with operating expenses as a percentage of total revenue improving to 63% from 67% [25] - Net loss for Q2 2022 was $1.7 million or $0.02 per share, compared to a loss of $0.7 million or $0.01 per share in the same period of 2021 [27] - Non-GAAP adjusted EBITDA for Q2 2022 was a loss of $0.4 million, compared to a gain of $0.9 million in the prior year [27] Business Line Data and Key Metrics Changes - Revenue growth was led by biologics products, which increased by 8% year-over-year, marking the highest revenue quarter since the pandemic began [9] - Strong demand was noted for newer biologics products, particularly OsteoFactor and OsteoVive Plus [11] Market Data and Key Metrics Changes - The company has established contracts with all major group purchasing organizations (GPOs) and over 385 integrated delivery networks (IDNs) across the U.S. [14] - The adjacent market penetration represents a total market opportunity of $625 million, with current focus on existing private label and OEM business [16] Company Strategy and Development Direction - The company’s growth strategy focuses on four key initiatives: new product introductions, distribution network expansion, adjacent market penetration, and strategic acquisitions [12] - The company aims to penetrate the $2.4 billion U.S. orthobiologics market and is optimistic about building on momentum in the second half of 2022 [21] Management's Comments on Operating Environment and Future Outlook - Management noted that the second quarter represented a more normalized environment for elective procedures, with strong demand across selling channels [10] - The company is facing higher production costs due to supply chain challenges and inflationary pressures, which are expected to persist in the near term [18] - Efforts are being made to expand the production team and enhance production efficiencies to meet heightened demand [19] Other Important Information - As of June 30, 2022, the company had $16.8 million in cash and cash equivalents, $8.6 million in net accounts receivable, and $16.5 million in inventory [28] - The company is temporarily outsourcing non-core product lines to optimize capacity and enhance bottom line [19] Q&A Session Summary - The Q&A session concluded without specific questions or answers being documented in the provided content [34]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securitie ...

Financial Data and Key Metrics Changes - Total revenue for Q1 2022 was $13 million, a 3% increase from $12.5 million in Q1 2021, driven by new product introductions and higher private label and OEM sales [17] - Gross margin decreased to 58.3% in Q1 2022 from 65% in Q1 2021, attributed to higher production costs and inventory reserve expenses [17] - Operating expenses rose to $9.4 million in Q1 2022 from $8.1 million in the same period last year, with operating expenses as a percentage of total revenue increasing to 72.5% from 64.6% [18] - Net loss for Q1 2022 was $2.2 million or $0.03 per share, compared to a loss of $29,000 or $0.00 per share in Q1 2021 [19] - Adjusted EBITDA for Q1 2022 was a loss of $0.9 million, compared to adjusted EBITDA of $0.8 million in Q1 2021 [19] Business Line Data and Key Metrics Changes - Biologics revenue grew by 13% in Q1 2022, contributing significantly to overall revenue growth [9][21] - Revenue from non-spine markets now represents about 21% of biologics product revenue, up from 18% a year ago, indicating successful penetration into adjacent markets [13] Market Data and Key Metrics Changes - The first quarter of 2022 experienced fluctuations in elective surgical procedures due to the Omicron variant, but a recovery trend was noted in February and March [10] - The company is focusing on expanding its distribution network, having added 60 new distributors in Q1 2022 [12] Company Strategy and Development Direction - The company is pursuing four key growth initiatives: new product introductions, distribution network expansion, adjacent market penetration, and strategic acquisitions [10] - A robust product pipeline is in place, with plans for additional product rollouts in the intermediate and long term [11] - The company aims to increase existing distributor revenue by 10% annually and expand its distribution network, particularly in underserved areas [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery of elective surgical procedures as COVID-related constraints diminish, which is expected to accelerate organic growth [15][21] - The company remains focused on addressing operational challenges while maximizing sales coverage through a strong distribution footprint [21] Other Important Information - Scott Neils was appointed as CFO on a non-interim basis effective June 1, 2022, after serving as interim CFO since January [16] Q&A Session Summary Question: What are the expectations for future revenue growth? - Management highlighted a promising trend with 13% growth in biologics revenue and a strong pipeline of new products, indicating confidence in future revenue growth [21]

[Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This statement outlines forward-looking statements subject to risks like pandemic impacts, labor shortages, inflation, and supply chain disruptions - Forward-looking statements are subject to various risks and uncertainties, including the impact of the COVID-19 pandemic, labor and staffing shortages, inflation, supply chain disruptions, ability to increase revenue, competition, reliance on third-party suppliers, and personnel retention[10](index=10&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk) [PART I. Financial Information](index=6&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. Financial Statements](index=6&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents Q1 2022 unaudited condensed consolidated financial statements, covering balance sheets, operations, equity, cash flows, and detailed accounting notes [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :-------------------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $16.8M | $18.2M | $(1.4M) | | Total current assets | $42.8M | $44.3M | $(1.5M) | | Total Assets | $53.2M | $54.7M | $(1.5M) | | Total current liabilities | $11.2M | $11.1M | $0.1M | | Total Liabilities | $23.9M | $23.8M | $0.1M | | Total Stockholders' Equity | $29.3M | $30.9M | $(1.6M) | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) | Metric | 2022 (in millions) | 2021 (in millions) | Change (YoY, in millions) | | :------------------------------------ | :----- | :----- | :----------- | | Total Revenue | $13.0M | $12.5M | $0.4M | | Cost of sales | $5.4M | $4.5M | $0.9M | | Gross Profit | $7.6M | $8.1M | $(0.5M) | | Total Operating Expenses | $9.4M | $8.1M | $1.3M | | Loss from Operations | $(1.8M) | $(0.0M) | $(1.8M) | | Net Loss | $(2.2M) | $(0.0M) | $(2.2M) | | Net Loss Per Share (Basic & Dilutive) | $(0.03) | $(0.00) | $(0.03) | [Condensed Consolidated Statements of Equity](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) | Metric | Balance at Dec 31, 2021 (in millions) | Stock-based compensation (in millions) | Net loss (in millions) | Balance at Mar 31, 2022 (in millions) | | :----------------------- | :---------------------- | :----------------------- | :------- | :---------------------- | | Additional Paid-In Capital | $266.1M | $0.6M | — | $266.7M | | Accumulated Deficit | $(235.2M) | — | $(2.2M) | $(237.4M) | | Total Stockholders' Equity | $30.9M | $0.6M | $(2.2M) | $29.3M | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) | Metric | 2022 (in millions) | 2021 (in millions) | Change (YoY, in millions) | | :------------------------------------------ | :------- | :------- | :----------- | | Net cash used in operating activities | $(1.0M) | $(1.3M) | $0.3M | | Net cash used in investing activities | $(0.4M) | $(0.5M) | $0.1M | | Net cash (used in) provided by financing activities | $(0.021M) | $18.1M | $(18.1M) | | Net change in cash and cash equivalents and restricted cash | $(1.4M) | $16.3M | $(17.7M) | | Cash and cash equivalents at end of period | $16.8M | $18.6M | $(1.8M) | [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [(1) Business Description, Basis of Presentation and Summary of Significant Accounting Policies](index=10&type=section&id=%281%29%20Business%20Description%2C%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes Xtant's business as a medical technology company and outlines the basis of financial statement presentation and key accounting policies - Xtant is a global medical technology company focused on the design, development, and commercialization of **orthobiologics and spinal implant systems** for spinal fusion procedures[22](index=22&type=chunk) - The COVID-19 pandemic has **negatively impacted revenues** due to deferred elective procedures, staffing shortages, and supply chain disruptions, with continued uncertainty for 2022[23](index=23&type=chunk)[66](index=66&type=chunk)[68](index=68&type=chunk) - Diluted net loss per share was the **same as basic net loss per share** for Q1 2022 and 2021, as shares issuable upon the exercise of stock options and warrants were **anti-dilutive due to net losses**[32](index=32&type=chunk) [(2) Revenue](index=12&type=section&id=%282%29%20Revenue) This note details the company's revenue recognition policies and provides a breakdown of revenue by product line for 2022 and 2021 - Revenue is primarily generated from **independent commissioned sales agents, stocking resellers, and private label resellers**, with recognition upon transfer of control[34](index=34&type=chunk)[36](index=36&type=chunk) | Product Line | 2022 Revenue (in millions) | 2022 % of Total | 2021 Revenue (in millions) | 2021 % of Total | | :------------- | :----------- | :-------------- | :----------- | :-------------- | | Orthobiologics | $10.2M | 78% | $9.0M | 72% | | Spinal implant | $2.8M | 22% | $3.5M | 28% | | Other revenue | $0.0M | 0% | $0.0M | 0% | | Total revenue | $13.0M | 100% | $12.5M | 100% | [(3) Receivables](index=12&type=section&id=%283%29%20Receivables) This note provides a reconciliation of the allowance for current expected credit losses on receivables for the periods presented | Metric | March 31, 2022 (in millions) | March 31, 2021 (in millions) | | :---------------------------------- | :------------- | :------------- | | Balance at January 1 | $0.6M | $0.7M | | Provision for current expected credit losses | $0.2M | $(0.1M) | | Write-offs charged against allowance | $(0.2M) | $(0.0M) | | Balance at March 31 | $0.6M | $0.6M | [(4) Inventories](index=13&type=section&id=%284%29%20Inventories) This note presents a breakdown of inventory components, including raw materials, work in process, and finished goods, as of March 31, 2022, and December 31, 2021 | Category | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :--------------- | :------------- | :---------------- | | Raw materials | $5.3M | $5.6M | | Work in process | $0.8M | $0.6M | | Finished goods | $11.3M | $11.8M | | Total | $17.3M | $17.9M | [(5) Property and Equipment, Net](index=13&type=section&id=%285%29%20Property%20and%20Equipment%2C%20Net) This note details the composition of property and equipment, net of accumulated depreciation, and reports depreciation expense for the period | Category | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :---------------------- | :------------- | :---------------- | | Total cost | $22.8M | $22.4M | | Less: accumulated depreciation | $(17.4M) | $(17.2M) | | Property and equipment, net | $5.4M | $5.2M | - Depreciation expense related to property and equipment was **$0.3 million** for the first three months of 2022, down from **$0.4 million** in 2021[40](index=40&type=chunk) [(6) Intangible Assets](index=13&type=section&id=%286%29%20Intangible%20Assets) This note provides a breakdown of intangible assets, primarily patents, net of accumulated amortization, for the specified periods | Category | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :-------------------- | :------------- | :---------------- | | Patents | $0.8M | $0.8M | | Accumulated amortization | $(0.5M) | $(0.4M) | | Intangible assets, net | $0.4M | $0.4M | [(7) Accrued Liabilities](index=13&type=section&id=%287%29%20Accrued%20Liabilities) This note details the components of accrued liabilities, including cash compensation/commissions payable and other accrued amounts | Category | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :-------------------------- | :------------- | :---------------- | | Cash compensation/commissions payable | $3.3M | $3.2M | | Other accrued liabilities | $1.0M | $1.2M | | Accrued liabilities | $4.3M | $4.3M | [(8) Debt](index=14&type=section&id=%288%29%20Debt) This note outlines the company's debt structure, including term loans and revolving credit facilities, and details recent amendments and effective interest rates | Category | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :---------------------------------- | :------------- | :---------------- | | Amounts due under term loan | $12.0M | $12.0M | | Accrued end-of-term payments | $0.1M | $0.1M | | Less: unamortized debt issuance costs | $(0.3M) | $(0.3M) | | Long-term debt, less issuance costs | $11.8M | $11.8M | - The term loan and revolving credit agreements were amended on March 7, 2022, to waive minimum adjusted EBITDA requirements if liquidity exceeds **$14 million** and to reset prepayment fee dates, increasing final payment fees by **25 basis points**[43](index=43&type=chunk) - As of March 31, 2022, the effective rate of the term loan was **9.96%**, and the revolving credit agreement was **5.5%**, with **$3.5 million** available under the revolving facility[44](index=44&type=chunk) [(9) Stock-Based Compensation](index=14&type=section&id=%289%29%20Stock-Based%20Compensation) This note provides details on stock option and restricted stock unit activity, including shares outstanding, exercise prices, and unrecognized compensation expense | Metric | 2022 Shares | 2022 Avg Exercise Price | 2021 Shares | 2021 Avg Exercise Price | | :---------------------- | :---------- | :---------------------- | :---------- | :---------------------- | | Outstanding at January 1 | 3,201,666 | $1.80 | 2,190,892 | $2.25 | | Granted | 109,164 | $0.65 | — | — | | Cancelled or expired | (301,983) | $2.73 | (125) | $372.00 | | Outstanding at March 31 | 3,008,847 | $1.66 | 2,190,767 | $2.23 | | Metric | 2022 Shares | 2022 Avg Fair Value | 2021 Shares | 2021 Avg Fair Value | | :-------------------- | :---------- | :------------------ | :---------- | :------------------ | | Outstanding at January 1 | 2,970,104 | $1.39 | 2,503,698 | $1.54 | | Granted | 88,983 | $0.65 | — | — | | Vested | (244,721) | $1.45 | (244,716) | $1.45 | | Cancelled | (244,586) | $1.33 | — | — | | Outstanding at March 31 | 2,569,780 | $1.36 | 2,258,982 | $1.54 | - Total unrecognized compensation expense related to unvested stock options was approximately **$2.3 million** as of March 31, 2022, expected to be recognized over a weighted-average period of **2.9 years**[45](index=45&type=chunk) [(10) Warrants](index=15&type=section&id=%2810%29%20Warrants) This note discloses the number of outstanding warrants and their weighted average exercise price as of March 31, 2022 - As of March 31, 2022, there were warrants outstanding to purchase **7,111,112 shares** of common stock at a weighted average exercise price of **$2.29 per share**[48](index=48&type=chunk) [(11) Commitments and Contingencies](index=15&type=section&id=%2811%29%20Commitments%20and%20Contingencies) This note outlines the company's lease liabilities and discusses potential liabilities from government regulations, claims, and legal actions | (in thousands): | March 31, 2022 (in millions) | | :-------------------------- | :------------- | | Right-of-use assets, net | $1.1M | | Current portion of lease liability | $0.5M | | Lease liability, less current portion | $0.7M | | Total lease liability | $1.2M | - The company is subject to potential liabilities under government regulations and various claims and legal actions, but has **not incurred any material costs** from warranties or indemnification provisions to date[52](index=52&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk) [(12) Income Taxes](index=16&type=section&id=%2812%29%20Income%20Taxes) This note explains the company's income tax position, specifically the provision of a valuation allowance against deferred income tax assets - A **valuation allowance** has been provided against the entire deferred income tax asset balance due to **uncertainty regarding future profitability**[55](index=55&type=chunk) [(13) Supplemental Disclosure of Cash Flow Information](index=16&type=section&id=%2813%29%20Supplemental%20Disclosure%20of%20Cash%20Flow%20Information) This note provides additional details on cash flow activities, including cash paid for interest and non-cash investing and financing activities | Metric | 2022 (in millions) | 2021 (in millions) | | :------------------------------------------ | :----- | :----- | | Cash paid during the period for: Interest | $0.3M | $0.0M | | Non-cash activities: Fixed assets acquired under finance lease | $— | $0.2M | | Warrants issued in connection with the Private Placement to placement agents | $— | $0.4M | [(14) Related Party Transactions](index=17&type=section&id=%2814%29%20Related%20Party%20Transactions) This note describes transactions with OrbiMed, a significant beneficial owner, and confirms review and approval by the Audit Committee - OrbiMed, through its affiliated funds, beneficially owns **84%** of the Company's common stock and is party to various agreements, with all related party transactions reviewed and approved by the Audit Committee or disinterested Board members[58](index=58&type=chunk)[59](index=59&type=chunk) [(15) Segment and Geographic Information](index=17&type=section&id=%2815%29%20Segment%20and%20Geographic%20Information) This note clarifies that the company operates in a single reportable segment and provides a breakdown of revenue by geographic area - The company operates in a **single reportable segment**: the development, manufacture, and marketing of orthopedic medical products and devices[60](index=60&type=chunk) | Geographic Area | 2022 Revenue (in millions) | 2021 Revenue (in millions) | | :-------------- | :----------- | :----------- | | United States | $12.7M | $12.3M | | Rest of world | $0.3M | $0.2M | | Total revenue | $13.0M | $12.5M | [ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=18&type=section&id=ITEM%202.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial condition and results of operations for Q1 2022, covering business overview, COVID-19 impact, operating results, liquidity, and critical accounting estimates [Business Overview](index=18&type=section&id=Business%20Overview) This section describes Xtant Medical's core business of developing, manufacturing, and marketing regenerative medicine products and medical devices for orthopedic and neurological surgeons - Xtant Medical develops, manufactures, and markets regenerative medicine products and medical devices for orthopedic and neurological surgeons, focusing on **orthobiologics and spinal implant systems**[63](index=63&type=chunk) - Key growth initiatives include introducing **new products, expanding the distribution network, penetrating adjacent markets, and leveraging technology and strategic acquisitions**[65](index=65&type=chunk) [Impact of the COVID-19 Pandemic](index=18&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) This section discusses the continued negative impact of the COVID-19 pandemic on Q1 2022 revenues due to procedure cancellations, staffing shortages, and supply chain disruptions - The COVID-19 pandemic continued to **negatively impact Q1 2022 revenues** due to cancellations/postponements of elective procedures, hospital staffing shortages, and supply chain disruptions[66](index=66&type=chunk)[67](index=67&type=chunk)[68](index=68&type=chunk) - The full extent of the pandemic's future impact remains **uncertain**, depending on new variants, vaccine effectiveness, and healthcare system capacity[69](index=69&type=chunk) [Results of Operations](index=19&type=section&id=Results%20of%20Operations) [Revenue](index=19&type=section&id=Revenue) This section analyzes the company's total revenue for 2022 and 2021, highlighting the primary drivers of change | Metric | 2022 | 2021 | Change (YoY) | | :----------- | :----- | :----- | :----------- | | Total Revenue | $13.0M | $12.5M | $0.5M (3% increase) | - The increase in revenue is attributed primarily to introductions of **new products** and greater **private label and original equipment manufacturer sales**[70](index=70&type=chunk) [Cost of Sales](index=19&type=section&id=Cost%20of%20Sales) This section examines the cost of sales, gross profit, and gross profit margin, explaining the factors contributing to their changes | Metric | 2022 | 2021 | Change (YoY) | | :------------ | :----- | :----- | :----------- | | Cost of sales | $5.4M | $4.5M | $0.9M (20% increase) | | Gross profit | $7.6M | $8.1M | $(0.5M) (6.2% decrease) | | Gross profit % | 58.3% | 64.5% | (6.2 percentage points) | - Gross profit margin decreased due to **higher production costs (260 bps)**, **sales mix shift to lower-margin private label/OEM products (230 bps)**, and **increased excess/obsolete inventory reserve (130 bps)**[71](index=71&type=chunk)[72](index=72&type=chunk) [General and Administrative](index=19&type=section&id=General%20and%20Administrative) This section analyzes changes in general and administrative expenses, identifying key drivers such as bad debt, licenses, and system upgrades | Metric | 2022 | 2021 | Change (YoY) | | :-------------------------------- | :----- | :----- | :----------- | | General and administrative expenses | $4.0M | $3.0M | $1.0M (31% increase) | - The increase was primarily attributable to additional **bad debt expense ($0.3 million)**, increased **licenses and fees ($0.3 million)**, and costs related to **enterprise resource planning system upgrades ($0.2 million)**[73](index=73&type=chunk) [Sales and Marketing](index=20&type=section&id=Sales%20and%20Marketing) This section reviews sales and marketing expenses, detailing increases driven by commissions from higher revenues and additional headcount | Metric | 2022 | 2021 | Change (YoY) | | :---------------------- | :----- | :----- | :----------- | | Sales and marketing expenses | $5.2M | $4.9M | $0.3M (7% increase) | | As % of revenue | 40.2% | 38.7% | 1.5 percentage points | - The increase was primarily due to additional **sales commissions ($0.1 million)** from greater revenues and increased **salaries and wages ($0.1 million)** due to additional headcount[75](index=75&type=chunk) [Research and Development](index=20&type=section&id=Research%20and%20Development) This section reports on research and development expenses, noting their stability between 2021 and 2022 | Metric | 2022 | 2021 | Change (YoY) | | :-------------------------- | :----- | :----- | :----------- | | Research and development expenses | $0.2M | $0.2M | $0.0M (Stable) | [Interest Expense](index=20&type=section&id=Interest%20Expense) This section analyzes the significant increase in interest expense, primarily due to debt instruments refinanced in May 2021 | Metric | 2022 | 2021 | Change (YoY) | | :------------- | :----- | :----- | :----------- | | Interest expense | $0.4M | $0.0M | $0.4M (Significant increase) | - Interest expense **significantly increased** due to debt instruments refinanced in May 2021[77](index=77&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) [Working Capital](index=20&type=section&id=Working%20Capital) This section analyzes changes in working capital, identifying the primary drivers for the reduction in net working capital | Metric | March 31, 2022 (in millions) | December 31, 2021 (in millions) | Change (in millions) | | :---------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $17.0M | $18.4M | $(1.4M) | | Total current assets | $42.8M | $44.3M | $(1.6M) | | Total current liabilities | $11.2M | $11.1M | $0.2M | | Net working capital | $31.5M | $33.3M | $(1.7M) | - The decrease in cash and cash equivalents was the **primary driver** for the reduction in net working capital[78](index=78&type=chunk) [Cash Flows](index=21&type=section&id=Cash%20Flows) This section summarizes cash flows from operating, investing, and financing activities for 2022 and 2021 | Activity | 2022 | 2021 | | :------------------------------------------ | :----- | :----- | | Net cash used in operating activities | $(1.0M) | $(1.3M) | | Net cash used in investing activities | $(0.4M) | $(0.5M) | | Net cash (used in) provided by financing activities | $(0.021M) | $18.1M | [Current and Prior Credit Facilities](index=21&type=section&id=Current%20and%20Prior%20Credit%20Facilities) This section details the company's credit agreements, including new term and revolving facilities, recent amendments, and compliance with covenants - The company entered into new Term (**$12.0 million**) and Revolving (**$8.0 million**) Credit Agreements with MidCap Financial Trust on May 6, 2021, maturing May 1, 2026, and secured by substantially all company assets[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - The Credit Agreements were amended on March 7, 2022, to waive minimum adjusted EBITDA requirements if liquidity exceeds **$14 million** and to adjust prepayment fees[87](index=87&type=chunk) - As of March 31, 2022, the company was in **compliance with all covenants** and had **$3.5 million** available under the Revolving Facility[85](index=85&type=chunk)[87](index=87&type=chunk) [Cash Requirements](index=22&type=section&id=Cash%20Requirements) This section assesses the sufficiency of current cash and credit facilities to meet anticipated cash requirements and discusses potential future financing needs - The company believes its cash and cash equivalents (**$16.8 million** as of March 31, 2022), operating cash flows, and available credit facilities will be **sufficient to meet anticipated cash requirements through at least May 2023**[89](index=89&type=chunk) - Additional financing may be required or sought, potentially through equity or debt, which could **dilute current stockholders** or **impose restrictive covenants**[90](index=90&type=chunk)[91](index=91&type=chunk) [Critical Accounting Estimates](index=22&type=section&id=Critical%20Accounting%20Estimates) This section confirms that there have been no material changes in critical accounting estimates for the three months ended March 31, 2022 - There have been **no changes in critical accounting estimates** for the three months ended March 31, 2022, compared to the Annual Report on Form 10-K for the fiscal year ended December 31, 2021[93](index=93&type=chunk) [ITEM 3. Quantitative and Qualitative Disclosures About Market Risk](index=23&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a smaller reporting company, Xtant Medical Holdings, Inc. is exempt from providing quantitative and qualitative disclosures about market risk - As a **smaller reporting company**, Xtant is **exempt** from providing quantitative and qualitative disclosures about market risk[95](index=95&type=chunk) [ITEM 4. Controls and Procedures](index=23&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) This section addresses the effectiveness of the company's disclosure controls and procedures and any changes in internal control over financial reporting [Limitations on Effectiveness of Controls and Procedures](index=23&type=section&id=Limitations%20on%20Effectiveness%20of%20Controls%20and%20Procedures) Management acknowledges that controls and procedures provide only reasonable assurance due to inherent limitations, resource constraints, and judgment - Management acknowledges that any controls and procedures can only provide **reasonable assurance** due to inherent limitations, resource constraints, and the need for judgment[96](index=96&type=chunk) [Evaluation of Disclosure Controls and Procedures](index=23&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) The company's disclosure controls and procedures were deemed effective as of March 31, 2022, following evaluation by executive and financial officers - The company's disclosure controls and procedures were concluded to be **effective** as of March 31, 2022, based on an evaluation by the principal executive and financial officers[97](index=97&type=chunk) [Changes in Internal Control over Financial Reporting](index=23&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) No material changes in internal control over financial reporting occurred during the three months ended March 31, 2022 - There were **no changes in internal control over financial reporting** during the three months ended March 31, 2022, that materially affected or are reasonably likely to materially affect these controls[98](index=98&type=chunk) [PART II. Other Information](index=24&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. Legal Proceedings](index=24&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Legal proceedings are detailed in Note 11 – Commitments and Contingencies within the condensed consolidated financial statements - Legal proceedings information is **cross-referenced to Note 11** of the financial statements[100](index=100&type=chunk) [ITEM 1A. Risk Factors](index=24&type=section&id=ITEM%201A.%20RISK%20FACTORS) As a smaller reporting company, Xtant Medical Holdings, Inc. is not required to provide risk factor information in this item - Xtant is **exempt** from providing risk factor disclosures as a **smaller reporting company**[101](index=101&type=chunk) [ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=24&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) This item is not applicable to the company for the current reporting period - This item is **not applicable** for this reporting period[102](index=102&type=chunk) [ITEM 3. Defaults Upon Senior Securities](index=24&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) This item is not applicable to the company for the current reporting period - This item is **not applicable** for this reporting period[103](index=103&type=chunk) [ITEM 4. Mine Safety Disclosures](index=24&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company for the current reporting period - This item is **not applicable** for this reporting period[104](index=104&type=chunk) [ITEM 5. Other Information](index=24&type=section&id=ITEM%205.%20OTHER%20INFORMATION) This item is not applicable to the company for the current reporting period - This item is **not applicable** for this reporting period[105](index=105&type=chunk) [ITEM 6. Exhibits](index=24&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, credit agreements, and certifications - The exhibits include **corporate governance documents, amendments to credit agreements, employment agreements, and certifications**[106](index=106&type=chunk)[107](index=107&type=chunk) [Signatures](index=26&type=section&id=SIGNATURES) This section confirms the signing of the report by the President and CEO, and Interim CFO, on May 5, 2022 - The report was signed by **Sean E. Browne, President and Chief Executive Officer**, and **Scott Neils, Interim Chief Financial Officer**, on May 5, 2022[110](index=110&type=chunk)

Company Overview - Xtant Medical is a leading orthobiologics and spine fixation business based in Bozeman, MT[8] - The company has exceptional market access with contracts and nationwide distribution[8] - Xtant Medical has a financially sound structure with debt conversion and an efficient cost structure[8] Market Analysis - The total worldwide (WW) market for spine and orthobiologics is $9.7 billion[17] - The total US market is $7.5 billion[17] - The US orthobiologics market is $2.4 billion[18, 21] Growth Strategy - Xtant aims to increase distributor revenue by 10% annually[34] - The company plans to add 10+ distributors per quarter to build a national network[34] - Xtant is focusing on new product flow to expand reach into new markets[29] Adjacent Markets - 79% of Xtant's biologics revenue is focused on spine procedures, with 21% in non-spine sales[37] - Potential bone graft markets include foot & ankle ($35 million), craniomaxillofacial reconstruction ($101 million), oncology ($625 million), joint ($102 million), and trauma ($159 million)[38]

Financial Data and Key Metrics Changes - Total revenue for Q4 2021 was $14 million, comparable to the same quarter of the prior year, while total revenue for the full year 2021 was $55.3 million, an increase from $53.3 million in 2020, marking a 4% growth overall [18] - Gross margin for Q4 2021 was 55.1%, down from 64.1% in Q4 2020, and for the full year 2021, gross margin was 58.8%, compared to 64.5% in 2020, attributed to increased under-absorption of labor and overhead [19] - Operating expenses for Q4 2021 were $9.6 million, up from $8.7 million in the same period a year ago, and for the full year 2021, operating expenses were $36.3 million compared to $35.1 million in 2020 [20] - Net loss for Q4 2021 was $2.3 million or $0.3 per share, compared to a loss of $700,000 or $0.01 per share in Q4 2020; net loss for 2021 was $4.8 million or $0.06 per share, an improvement from $7 million or $0.25 per share in 2020 [21][22] Business Line Data and Key Metrics Changes - The established biologics business grew by 8% in 2021, contributing significantly to overall revenue growth [7] - Revenue benefited from additional private label and OEM orthobiologics sales, partially offset by reduced implant sales [18] Market Data and Key Metrics Changes - Overall spine procedures were down by at least 10% compared to 2019 due to COVID-19 impacts, including cancellations and postponements of procedures [8][9] - Despite challenges, the company achieved top-line growth driven by key growth initiatives and diversification of revenue streams [9] Company Strategy and Development Direction - The company focuses on four key growth initiatives: new product introductions, expansion of the distribution network, penetration of adjacent markets, and strategic acquisitions [10][12][13] - In 2021, the company launched four new products and added over 47 new agents to its distribution network, exceeding its goal [11][12] - The company aims to continue rolling out new products and expanding into new markets while exploring strategic acquisition opportunities [13] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for improved conditions as COVID-19 cases decline and restrictions are loosened, which may enhance elective procedure volumes [9][24] - The company is positioned for future growth with a solid foundation laid in 2021 and anticipates higher production costs but expects gross profit to improve as surgical procedure effects diminish [15][24] Other Important Information - As of December 31, 2021, the company had $18.2 million in cash and cash equivalents, $7.2 million in net accounts receivable, and $17.9 million in inventory [22] Q&A Session Summary Question: What are the expectations for future growth? - Management believes achieving topline annual growth for the first time in six years is the beginning of a long-term trend for the company, with several initiatives planned to drive future growth [24] Question: How is the company addressing the impact of COVID-19 on procedures? - Management noted that while the effects of COVID-19 continue to impact elective procedures, they are looking forward to easing restrictions and higher procedure volumes to ramp up sales and production [24]

[Cautionary Statement Regarding Forward-Looking Statements](index=4&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section advises readers on the inherent risks and uncertainties associated with forward-looking statements within the report [Forward-Looking Statements Disclosure](index=4&type=section&id=Forward-Looking%20Statements%20Disclosure) This section highlights that the 10-K report contains forward-looking statements, which are not guarantees of future events and are subject to risks and uncertainties - The report contains forward-looking statements, identified by words like 'expectations,' 'hopes,' 'beliefs,' 'intentions,' or 'strategies,' and any projections or forecasts of future events[11](index=11&type=chunk) - Forward-looking statements are not predictions or guarantees and are based on currently available operating, financial, and competitive information, as well as current expectations and beliefs[12](index=12&type=chunk) - These statements involve risks, uncertainties, or assumptions, many beyond the company's control, which could cause actual results to differ materially. Specific risk factors are detailed in 'Part I. Item 1.A. Risk Factors'[12](index=12&type=chunk) [PART I](index=5&type=section&id=PART%20I) This part provides a comprehensive overview of the company's business, risk factors, properties, and legal proceedings [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Xtant Medical Holdings, Inc. is a global medical technology company specializing in orthobiologics and spinal implant fixation systems for spinal fusion procedures - Xtant Medical Holdings, Inc. is a global medical technology company focused on designing, developing, and commercializing orthobiologics and spinal implant fixation systems for spinal fusion[15](index=15&type=chunk) - The company promotes and sells products in the U.S. through independent distributors and stocking agents, supported by direct employees, and internationally through distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries[16](index=16&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) - Key growth initiatives include introducing new products (**4 launched in 2021**), expanding the distribution network (**40+ new agents in 2021**), penetrating adjacent markets (foot and ankle, cranio-maxilofacial, oncology, joint reconstruction, trauma), and leveraging growth platforms with technology and strategic acquisitions[17](index=17&type=chunk) [Overview](index=5&type=section&id=Overview) Xtant Medical is a global medical technology company providing orthobiologics and spinal implant fixation systems for various spinal disorders - Xtant Medical Holdings, Inc. is a global medical technology company focused on orthobiologics and spinal implant fixation systems for complex spine, deformity, and degenerative procedures[15](index=15&type=chunk) - Products are used by orthopedic spine surgeons and neurosurgeons for various spinal disorders in the cervical, thoracolumbar, and interbody spine[15](index=15&type=chunk) - Distribution channels include independent distributors and stocking agents in the U.S., national accounts programs, and international partners in Canada, Mexico, South America, Australia, and certain Pacific region countries[16](index=16&type=chunk) [Industry and Market Overview](index=5&type=section&id=Industry%20and%20Market%20Overview) The orthopedic biomaterials market involves implantable materials aiding bone healing, often substituting autografts, with fixation products providing stability - The orthopedic biomaterials market involves organic, inorganic, or synthetic materials implanted to aid healing, augment bone tissue, compensate for depletion, and restore structure[18](index=18&type=chunk) - These materials often serve as substitutes for autograft materials, which are harvested from the patient[18](index=18&type=chunk) - Fixation products (e.g., plates, screws, rods) are crucial for reestablishing stability, immobilizing regenerative sites, relieving stress, and holding biomaterials in place[19](index=19&type=chunk) [Our Orthobiologics Products](index=5&type=section&id=Our%20Orthobiologics%20Products) Xtant offers a range of biomaterial products like OsteoSponge and OsteoSelect DBM putty, along with processed sports and spinal allografts - Xtant's biomaterial products include OsteoSponge, OsteoSponge SC, OsteoSelect DBM putty, OsteoSelect Plus DBM putty, OsteoWrap, 3Demin products, OsteoFactor, and OsteoVive Plus[20](index=20&type=chunk)[23](index=23&type=chunk) - OsteoSponge, made from **100% human bone**, provides a natural scaffold for cellular in-growth and exposes bone-forming proteins, suitable for various orthopedic practices[20](index=20&type=chunk) - The company also processes and distributes sports allografts, milled spinal allografts, and traditional allografts for multi-disciplinary applications[21](index=21&type=chunk) [Our Spinal Implant Products](index=6&type=section&id=Our%20Spinal%20Implant%20Products) Xtant provides a comprehensive line of spinal implant products for cervical, thoracolumbar, and sacroiliac conditions, including trauma and degeneration - Xtant offers a comprehensive line of spinal implant products for cervical, thoracolumbar, and sacroiliac conditions, including trauma, degeneration, deformity, and tumor treatment[22](index=22&type=chunk)[29](index=29&type=chunk) - Key cervical products include the Certex Spinal Fixation System and the Spider Cervical Plating System[24](index=24&type=chunk) - Thoracolumbar and interbody products include the Axle Interspinous Fusion System, Silex Sacroiliac Joint Fusion System, Xpress Minimally Invasive Pedicle Screw System, Fortex Pedicle Screw System, Calix PEEK interbody spacers, Axle-X Interspinous Fusion System, Irix-C Cervical Integrated Fusion System, and Irix-A Lumbar Integrated Fusion System[29](index=29&type=chunk) [Sales and Marketing](index=7&type=section&id=Sales%20and%20Marketing) The company distributes products in the U.S. through over 300 independent sales agents and internationally via partners, leveraging national accounts programs - The company distributes products in the U.S. through an extensive network of over **300 commissioned independent sales agents and stocking agents** as of December 31, 2021[27](index=27&type=chunk) - A national accounts program provides agents access to Integrated Delivery Network (IDN) hospitals and Group Purchasing Organizations (GPOs), with biologics contracts with major GPOs like Vizient, Premier, and HealthTrust Purchasing Group[27](index=27&type=chunk) - International distribution partners are located in Canada, Mexico, South America, Australia, and certain Pacific region countries, with no operations or sales in Europe[28](index=28&type=chunk) [Donor Procurement](index=8&type=section&id=Donor%20Procurement) Xtant's donor procurement mission focuses on honoring donation to help patients, expanding its network to meet increasing demand for biologics - Xtant's mission for donor procurement is 'Honoring the gift of donation, by helping our patients live as full, and complete a life as possible'[30](index=30&type=chunk) - The company has agreements with multiple recovery agencies and seeks to expand its network for donor tissue to meet anticipated increased demand for biologics products[30](index=30&type=chunk) [Competition](index=8&type=section&id=Competition) The fixation and orthobiologics market is highly competitive, dominated by large players holding approximately 80% market share - The market for fixation and orthobiologics is highly competitive, dominated by large players like Medtronic, Johnson & Johnson, Zimmer Biomet, Stryker, Nuvasive, and Globus Medical, which collectively hold approximately **80% market share**[31](index=31&type=chunk) - Xtant competes with these large companies, other public and private companies (e.g., Surgalign, SeaSpine, OrthoFix, Alphatec), and tissue banks that do not offer spinal fixation products (e.g., AlloSource, LifeNet Health, MTF Biologics)[31](index=31&type=chunk) [Intellectual Property](index=8&type=section&id=Intellectual%20Property) Xtant relies on patents, trademarks, and trade secrets to maintain its competitive position, actively developing and reviewing its intellectual property strategy - Xtant relies on patents, trademarks, trade secrets, and other proprietary rights to maintain its competitive position and develops an intellectual property strategy by reviewing third-party rights[32](index=32&type=chunk) - As of December 31, 2021, the company's fixation patent portfolio includes **60 issued patents globally**, and its biologics patent portfolio includes **19 issued patents globally** and **7 pending patent applications**[35](index=35&type=chunk) - The company owns several registered trademarks, including OsteoSponge®, OsteoVive®, SILEX®, X-SPINE®, and XTANT®[36](index=36&type=chunk) [Government Regulation](index=9&type=section&id=Government%20Regulation) Xtant is subject to extensive government regulations, including FDA and AATB standards for HCT/Ps and medical devices, alongside healthcare fraud and abuse laws - Xtant is registered with the FDA as a manufacturer of human cellular and tissue products (HCT/Ps) and medical devices, and is an accredited member of the American Association of Tissue Banks (AATB)[38](index=38&type=chunk) - HCT/Ps are regulated under Section 361 of the Public Health Service Act and 21 CFR Part 1271, requiring annual registration, donor eligibility screening, Good Tissue Practices (cGTP), and adverse reaction reporting[40](index=40&type=chunk)[42](index=42&type=chunk)[43](index=43&type=chunk) - Medical devices, such as spinal hardware, are regulated by the FDA under the Federal Food, Drug, and Cosmetic Act, classified into three classes based on risk, with most requiring 510(k) clearance[45](index=45&type=chunk)[46](index=46&type=chunk)[47](index=47&type=chunk)[49](index=49&type=chunk) - The company is subject to federal and state healthcare fraud and abuse laws, false claims laws, and physician payment transparency laws (e.g., Federal Anti-Kickback Statute, Federal False Claims Act, Physician Payments Sunshine Act)[60](index=60&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk)[65](index=65&type=chunk) - Sales volumes and fees depend on coverage and reimbursement from third-party payors (private insurers, Medicare, Medicaid), which increasingly review and challenge prices for procedures and medical products[67](index=67&type=chunk)[69](index=69&type=chunk) [Human Capital](index=16&type=section&id=Human%20Capital) Xtant's mission is to honor donation by enabling patients to live full lives, supported by core values and a focus on employee well-being and development - Xtant's mission is to 'honor the gift of donation, by allowing our patients to live as full, and complete a life, as possible,' guided by core values including Quality, Integrity and Compliance, Accountability & Ownership, Teamwork & Continuous Improvement, and Respect the Gift of Donation[73](index=73&type=chunk)[77](index=77&type=chunk) - As of December 31, 2021, the company had **118 employees** (**116 full-time**), with significant portions in operations (**54**), sales and marketing (**20**), and administrative functions (**29**)[74](index=74&type=chunk) - The company provides competitive compensation and benefits, including annual bonuses, 401(k) with matching, tuition assistance, and health/wellness programs, and fosters employee engagement and development through a learning management system[78](index=78&type=chunk)[80](index=80&type=chunk) [Corporate Information](index=17&type=section&id=Corporate%20Information) Xtant Medical, incorporated in 2000 as Bacterin, Inc., became a 'controlled company' in 2015 after acquiring X-spine Systems, Inc., with OrbiMed-affiliated funds owning 83.7% of common stock - Xtant Medical Holdings, Inc. was incorporated in January 2000 as Bacterin, Inc., and changed its name in 2015 after acquiring X-spine Systems, Inc. for approximately **$60 million cash**, **$13 million debt repayment**, and **4.24 million shares**[83](index=83&type=chunk) - As of December 31, 2021, OrbiMed-affiliated funds (Royalty Opportunities and ROS) collectively own approximately **83.7% of outstanding common stock**, making Xtant a 'controlled company' under NYSE American rules[84](index=84&type=chunk) [Item 1A. Risk Factors](index=19&type=section&id=Item%201A.%20Risk%20Factors) This section outlines various material risks that could adversely affect Xtant Medical's business, financial condition, operating results, and stock price - The COVID-19 pandemic has adversely affected business, operating results, and financial condition due to deferred elective procedures, staffing shortages, and supply chain disruptions, with revenues declining in H2 2021 and continuing into 2022[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk) - The company faces intense competition from larger players with greater resources, and its ability to innovate and introduce new products is crucial for maintaining market share[107](index=107&type=chunk)[108](index=108&type=chunk) - Extensive governmental regulation, including FDA clearances, healthcare fraud and abuse laws, and foreign regulations, poses significant compliance costs and risks of enforcement actions or market withdrawal[126](index=126&type=chunk)[130](index=130&type=chunk)[140](index=140&type=chunk) - Substantially all revenue is generated through independent sales agents and distributors, creating a dependency risk if relationships are lost or agents fail to comply with company standards[172](index=172&type=chunk) - Xtant has a history of net losses and may require additional financing, which might not be available on favorable terms and could dilute current stockholders or impose restrictive covenants[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Item 1B. Unresolved Staff Comments](index=57&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) There are no unresolved staff comments to report for the period - No unresolved staff comments were reported[236](index=236&type=chunk) [Item 2. Properties](index=57&type=section&id=Item%202.%20Properties) Xtant Medical's primary operations are based in Belgrade, Montana, where it leases three facilities for headquarters, manufacturing, and laboratory activities - Xtant's headquarters and manufacturing facility are located at 664 Cruiser Lane, Belgrade, Montana, leased through October 2025, and is an FDA registered facility with Class 10,000 (ISO 7) environmentally controlled area[237](index=237&type=chunk)[238](index=238&type=chunk) - Additional facilities in Belgrade, Montana, include **17,700 sq ft** at 600 Cruiser Lane (with Class 100 clean rooms, diagnostics, and microbiology labs, leased through August 2023) and **21,000 sq ft** at 732 Cruiser Lane (with a Class 1,000 clean room, leased through January 2024)[238](index=238&type=chunk) - The company also leases approximately **100 square feet** of office space in Minnetonka, Minnesota[239](index=239&type=chunk) [Item 3. Legal Proceedings](index=57&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding Xtant Medical's legal proceedings is detailed in Note 11 – Commitments and Contingencies within the consolidated financial statements - Legal proceedings are discussed in Note 11 – Commitments and Contingencies in the notes to the consolidated financial statements[240](index=240&type=chunk) [Item 4. Mine Safety Disclosures](index=57&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to Xtant Medical Holdings, Inc - This item is not applicable[241](index=241&type=chunk) [PART II](index=58&type=section&id=PART%20II) This part details the company's market for common equity, financial condition, results of operations, and financial statements [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=58&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Xtant Medical's common stock is listed on the NYSE American under 'XTNT', with 173 holders of record as of March 8, 2022, and no cash dividends paid - Xtant Medical's common stock is listed on the NYSE American under the ticker symbol '**XTNT**'[243](index=243&type=chunk) - As of March 8, 2022, the company had **173 holders of record**[243](index=243&type=chunk) - The company has not paid any cash dividends and does not expect to in the foreseeable future, as its credit agreements with MidCap preclude dividend payments[244](index=244&type=chunk) - No unregistered equity securities were sold, and no equity securities were purchased by the issuer or affiliated purchasers during the quarter ended December 31, 2021[245](index=245&type=chunk)[246](index=246&type=chunk) [Item 6. Reserved](index=58&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information - This item is reserved[247](index=247&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=59&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Xtant Medical's business, the impact of the COVID-19 pandemic, and a detailed analysis of its financial performance for 2021 and 2020 - Xtant develops, manufactures, and markets regenerative medicine products and medical devices for orthopedic and neurological surgeons, focusing on orthobiologics and spinal implants[249](index=249&type=chunk) - The COVID-19 pandemic negatively impacted elective procedures, staffing, and supply chains, causing revenues to decline in Q3 and Q4 2021 compared to prior periods, with continued impact into early 2022[252](index=252&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk) - The company's liquidity position improved significantly, with cash and cash equivalents increasing to **$18.4 million** as of December 31, 2021, primarily due to a **$18.4 million private placement** in February 2021[268](index=268&type=chunk) [Business Overview](index=59&type=section&id=Business%20Overview) Xtant Medical develops, manufactures, and markets regenerative medicine products and medical devices for orthopedic and neurological surgeons, focusing on orthobiologics and spinal implants - Xtant Medical develops, manufactures, and markets regenerative medicine products and medical devices for domestic and international markets, serving orthopedic and neurological surgeons[249](index=249&type=chunk) - The company's products include orthobiologics for bone healing and implants/instrumentation for spinal disease treatment[249](index=249&type=chunk) - Key growth initiatives for 2021 and 2022 include introducing new products (**4 launched in 2021**), expanding the distribution network (**40+ new agents in 2021**), penetrating adjacent non-spine markets, and strategic acquisitions[251](index=251&type=chunk) [Impact of the COVID-19 Pandemic](index=59&type=section&id=Impact%20of%20the%20COVID-19%20Pandemic) The COVID-19 pandemic negatively impacted Xtant's revenues and sales due to deferred elective procedures, staffing shortages, and supply chain disruptions - The COVID-19 pandemic led to cancellations/deferrals of elective procedures, diversion of hospital resources, and staffing shortages, negatively impacting Xtant's revenues and sales efforts[252](index=252&type=chunk) - Revenues declined in Q3 and Q4 2021 compared to prior periods due to resurgences of COVID-19 variants, increased hospitalizations, and restrictions on elective procedures[254](index=254&type=chunk) - The pandemic also disrupted the global supply chain, affecting the ability to obtain raw materials and components, and adversely impacting distributors, sales representatives, and customers[255](index=255&type=chunk) [Results of Operations](index=60&type=section&id=Results%20of%20Operations) Total revenue increased by 3.6% in 2021, but gross profit margin decreased due to higher costs and a shift towards lower-margin sales, while interest expense significantly declined Key Financial Results (2021 vs. 2020) | Metric | Year Ended Dec 31, 2021 (Amount in $ thousands) | % of Revenue (2021) | Year Ended Dec 31, 2020 (Amount in $ thousands) | % of Revenue (2020) | | :-------------------------------- | :------------------------------------- | :------------------ | :------------------------------------- | :------------------ | | Total Revenue | 55,263 | 100.0% | 53,337 | 100.0% | | Cost of Sales | 22,773 | 41.2% | 18,945 | 35.5% | | Gross Profit | 32,490 | 58.8% | 34,392 | 64.5% | | Total Operating Expenses | 36,344 | 65.8% | 35,143 | 65.9% | | Loss from Operations | (3,854) | (7.0)% | (751) | (1.4)% | | Interest expense | (995) | (1.8)% | (5,976) | (11.2)% | | Net Loss | (4,849) | (8.8)% | (7,023) | (13.2)% | | Basic Net Loss Per Share | (0.06) | - | (0.25) | - | - Total revenue increased by **3.6% to $55.3 million** in 2021, primarily driven by a **$2.4 million increase** in private label and OEM orthobiologics sales, partially offset by a **$1.0 million reduction** in implant sales[259](index=259&type=chunk) - Gross profit margin decreased to **58.8% in 2021** from **64.5% in 2020**, mainly due to increased under-absorption of labor and overhead (**1.9%**), sales mix shift towards lower-margin private label/OEM sales (**1.3%**), and higher production costs from prior periods (**2.6%**)[260](index=260&type=chunk)[261](index=261&type=chunk) - Interest expense significantly decreased by **$5.0 million to $1.0 million** in 2021, a result of the October 1, 2020 debt restructuring that reduced outstanding principal and paid-in-kind interest by **$61.7 million**[266](index=266&type=chunk) [Liquidity and Capital Resources](index=63&type=section&id=Liquidity%20and%20Capital%20Resources) Xtant's cash and cash equivalents significantly increased to $18.4 million in 2021 due to a private placement, and debt was refinanced with MidCap Financial Trust Working Capital Summary (in thousands) | Metric | December 31, 2021 | December 31, 2020 | | :-------------------------- | :------------------ | :------------------ | | Cash and cash equivalents | $18,387 | $2,341 | | Total current assets | $44,330 | $31,365 | | Total current liabilities | $11,077 | $25,649 | | Net working capital | $33,253 | $5,716 | - The increase in cash and cash equivalents to **$18.4 million** in 2021 was primarily due to **$18.4 million net proceeds** from a private placement of common stock and warrants in February 2021[268](index=268&type=chunk) - Net cash provided by operating activities was **$0.4 million** in 2021, an increase from **$0.7 million used in 2020**, mainly due to cash generation from inventory reduction initiatives[269](index=269&type=chunk) - On May 6, 2021, Xtant refinanced its debt with MidCap Financial Trust, securing a **$12.0 million term loan** and an **$8.0 million revolving credit facility**, both maturing on May 1, 2026[272](index=272&type=chunk)[273](index=273&type=chunk)[274](index=274&type=chunk) - The company believes its cash and credit facilities will meet anticipated cash requirements through at least March 2023, but may seek additional financing, which could dilute stockholders or impose new restrictions[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) [Recent Accounting Pronouncements](index=66&type=section&id=Recent%20Accounting%20Pronouncements) Information regarding recent accounting pronouncements is included in Note 1 to the consolidated financial statements - Information regarding recent accounting pronouncements is included in Note 1 to the consolidated financial statements[284](index=284&type=chunk) [Critical Accounting Estimates](index=66&type=section&id=Critical%20Accounting%20Estimates) Critical accounting estimates involve significant management judgment for goodwill, inventory valuation, and accounts receivable, with no goodwill impairment in 2021 or 2020 - Critical accounting estimates include goodwill and intangible assets, inventory valuation, and accounts receivable and allowances, all requiring significant management judgment and assumptions[285](index=285&type=chunk) - Goodwill is tested annually for impairment; no impairment was recorded in 2021 or 2020[287](index=287&type=chunk) - Inventory is valued at the lower of cost or net realizable value, with reserves for obsolescence and excess inventory based on usage, sales, and future demand. The total reserve was **$10.3 million** at December 31, 2021[290](index=290&type=chunk) - The allowance for doubtful accounts, including current expected credit loss (CECL), is estimated based on historical collection experience, creditworthiness, and economic conditions. The allowance was **$0.6 million** at December 31, 2021[292](index=292&type=chunk)[293](index=293&type=chunk) - Management believes the company can continue as a going concern, with **$18.4 million cash** and credit facility availability sufficient through at least March 2023[295](index=295&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This item is not applicable to Xtant Medical as it is a smaller reporting company - This item is inapplicable to Xtant as a smaller reporting company[296](index=296&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=68&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Xtant Medical's audited consolidated financial statements for 2021 and 2020, including statements of operations, balance sheets, and cash flows, along with detailed notes - The section includes the Report of Independent Registered Public Accounting Firm, Consolidated Statements of Operations, Consolidated Balance Sheets, Consolidated Statements of Changes in Stockholders' Equity (Deficit), and Consolidated Statements of Cash Flows[298](index=298&type=chunk) - The independent auditor, Plante & Moran, PLLC, issued an unqualified opinion on the financial statements for the two-year period ended December 31, 2021[301](index=301&type=chunk) - A critical audit matter identified was the valuation of inventory, due to the sensitivity of assumptions like product life cycle, sales forecasts, and competitor product introductions, especially with COVID-19 impacts[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk) Consolidated Statements of Operations (in thousands) | Metric | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :------------------------------------------ | :---------------------- | :---------------------- | | Orthopedic product sales | $55,146 | $53,188 | | Other revenue | $117 | $149 | | **Total Revenue** | **$55,263** | **$53,337** | | Cost of Sales | $22,773 | $18,945 | | **Gross Profit** | **$32,490** | **$34,392** | | General and administrative | $14,449 | $13,503 | | Sales and marketing | $21,025 | $20,983 | | Research and development | $870 | $657 | | **Total Operating Expenses** | **$36,344** | **$35,143** | | **Loss from Operations** | **$(3,854)** | **$(751)** | | Interest expense | $(995) | $(5,976) | | **Net Loss** | **$(4,849)** | **$(7,023)** | | Basic Net Loss per share | $(0.06) | $(0.25) | | Dilutive Net Loss per share | $(0.06) | $(0.25) | Consolidated Balance Sheets (in thousands) | Asset/Liability | As of Dec 31, 2021 | As of Dec 31, 2020 | | :------------------------------------------ | :----------------- | :----------------- | | Cash and cash-equivalents | $18,243 | $2,341 | | Total current assets | $44,330 | $31,365 | | Property and equipment, net | $5,212 | $4,347 | | Goodwill | $3,205 | $3,205 | | **Total Assets** | **$54,692** | **$41,466** | | Accounts payable | $2,615 | $2,947 | | Accrued liabilities | $4,349 | $5,462 | | Line of credit | $3,620 | — | | Current portion of long-term debt | — | $16,797 | | **Total current liabilities** | **$11,077** | **$25,649** | | Long-term debt, plus premium and less issuance costs | $11,787 | — | | **Total Liabilities** | **$23,809** | **$26,952** | | Total Stockholders' Equity | $30,883 | $14,514 | Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Year Ended Dec 31, 2021 | Year Ended Dec 31, 2020 | | :------------------------------------------ | :---------------------- | :---------------------- | | Net cash provided by (used in) operating activities | $439 | $(731) | | Net cash used in investing activities | $(1,890) | $(1,304) | | Net cash provided by (used in) financing activities | $17,497 | $(861) | | Net change in cash and cash equivalents and restricted cash | $16,046 | $(2,896) | | Cash and cash equivalents and restricted cash at end of year | $18,387 | $2,341 | [PART III](index=94&type=section&id=PART%20III) This part covers corporate governance, executive and director compensation, security ownership, related party transactions, and accounting fees [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=93&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) There were no changes in or disagreements with accountants on accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported[419](index=419&type=chunk) [Item 9A. Controls and Procedures](index=93&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded Xtant Medical's disclosure controls and internal control over financial reporting were effective as of December 31, 2021 - As of December 31, 2021, Xtant Medical's disclosure controls and procedures were evaluated and deemed effective by management, including the CEO and Interim CFO[420](index=420&type=chunk) - Management concluded that the internal control over financial reporting was effective as of December 31, 2021, based on the COSO framework[422](index=422&type=chunk) - There were no material changes in the company's internal control over financial reporting during the fourth quarter ended December 31, 2021[423](index=423&type=chunk) [Item 9B. Other Information](index=93&type=section&id=Item%209B.%20Other%20Information) On March 7, 2022, Xtant Medical amended its Credit Agreements with MidCap Financial Trust, waiving certain EBITDA requirements and adjusting fees - On March 7, 2022, Xtant Medical amended its Credit Agreements with MidCap Financial Trust[424](index=424&type=chunk) - The amendments include a waiver for the minimum adjusted EBITDA requirement if liquidity exceeds **$14 million** and no other event of default occurs[425](index=425&type=chunk) - The amendments also reset the date for certain optional prepayment fees and increased exit fees by **25 basis points**[425](index=425&type=chunk) [Item 10. Directors, Executive Officers and Corporate Governance](index=94&type=section&id=Item%2010.%20Directors,%20Executive%20Officers%20and%20Corporate%20Governance) This section details Xtant Medical's directors and executive officers, their biographies, and corporate governance structure, highlighting its 'controlled company' status Directors and Executive Officers (as of Feb 25, 2022) | Name | Age | Position | Director/Officer Since | | :------------- | :-- | :------------------------------------ | :--------------------- | | Jeffrey Peters | 53 | Chairman of the Board and Director | 2018 | | Sean E. Browne | 56 | President and Chief Executive Officer and Director | 2019 | | John Bakewell | 60 | Director | 2018 | | Michael Eggenberg | 52 | Director | 2018 | | Robert McNamara | 65 | Director | 2018 | | Matthew Rizzo | 49 | Director | 2018 | | Kevin D. Brandt | 56 | Chief Commercial Officer | 2018 | | Scott C. Neils | 37 | Interim Chief Financial Officer | 2022 | - Xtant is a 'controlled company' under NYSE American rules, with OrbiMed-affiliated funds owning over **50% of voting power**, granting them the right to designate a majority of the Board and influence significant corporate decisions[438](index=438&type=chunk)[439](index=439&type=chunk) - The Board has an Audit Committee (Chair: John Bakewell, Member: Robert McNamara) and a Compensation Committee (Chair: Robert McNamara, Members: Michael Eggenberg, Matthew Rizzo). John Bakewell and Robert McNamara are deemed independent directors[446](index=446&type=chunk)[447](index=447&type=chunk)[449](index=449&type=chunk) - The company has adopted a Code of Ethics for the CEO and Senior Financial Officers and a Code of Conduct for all directors, officers, and employees[451](index=451&type=chunk) [Item 11. Executive Compensation](index=100&type=section&id=Item%2011.%20Executive%20Compensation) This section details compensation for named executive officers for 2021 and 2020, including salaries, equity awards, and potential payments upon termination or change in control Summary Compensation Table (in thousands) | Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | | :-------------------------- | :--- | :--------- | :--------------- | :---------------- | :----------------------------------------- | :------------------------- | :-------- | | Sean E. Browne, President and CEO | 2021 | 590,228 | — | — | 201,900 | 39,362 | 831,490 | | | 2020 | 603,692 | 1,850,762 | 1,508,484 | 510,000 | 76,116 | 4,549,054 | | Greg Jensen, Former VP, Finance and CFO | 2021 | 393,846 | 198,438 | 206,543 | 100,200 | 55,883 | 954,910 | | | 2020 | 402,462 | 107,557 | 108,469 | 170,000 | 72,616 | 861,104 | | Kevin D. Brandt, Chief Commercial Officer | 2021 | 408,615 | 205,878 | 214,288 | 85,243 | 9,992 | 924,016 | | | 2020 | 417,554 | 107,557 | 108,469 | 176,375 | 11,400 | 821,355 | - Executive employment agreements include annual base salaries, target annual bonus opportunities, and equity grants, with specific terms for confidentiality, non-competition, non-solicitation, and severance/change in control provisions[459](index=459&type=chunk)[460](index=460&type=chunk) - Equity awards (stock options and restricted stock units) granted under the 2018 Plan typically vest over multi-year periods and have specific provisions for accelerated vesting upon death, disability, or certain change in control events[473](index=473&type=chunk)[474](index=474&type=chunk)[475](index=475&type=chunk) [Director Compensation](index=106&type=section&id=Director%20Compensation) Xtant Medical's non-employee directors receive annual cash retainers and annual RSU equity grants. In 2021, each non-employee director received an RSU award valued at $165,000, vesting on August 15, 2022. Specific cash retainers are provided for non-employee directors, the Chairman of the Board, and committee chairs Annual Cash Retainers for Directors (2021) | Description | Annual Cash Retainer ($) | | :-------------------------- | :----------------------- | | Non-Employee Director | 50,000 | | Chairman of the Board Premium | 32,500 | | Audit Committee Chair Premium | 32,500 | | Compensation Committee Chair Premium | 32,500 | - In 2021, each non-employee director received an RSU award valued at **$165,000** (**85,337 shares**), vesting on August 15, 2022[478](index=478&type=chunk) Director Compensation Table for Fiscal 2021 (in thousands) | Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | All Other Compensation ($) | Total ($) | | :-------------- | :------------------------------ | :--------------- | :---------------- | :------------------------- | :-------- | | John Bakewell | 82,500 | 108,378 | — | — | 190,878 | | Michael Eggenberg | 50,000 | 108,378 | — | — | 158,378 | | Robert McNamara | 95,000 | 108,378 | — | — | 203,378 | | Jeffrey Peters | 82,500 | 108,378 | — | — | 190,878 | | Matthew Rizzo | 50,000 | 108,378 | — | — | 158,378 | [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=107&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details beneficial ownership of Xtant Medical's common stock by significant shareholders and management, including securities authorized under equity plans Significant Beneficial Owners (as of Feb 25, 2022) | Name and Address of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | | :----------------------------------- | :---------------------------------------- | :--------------- | | OrbiMed Advisors LLC | 72,943,918 | 83.5% | | Altium Capital Management, LP | 12,744,209 | 7.2% | - OrbiMed Advisors LLC, through its affiliated funds ROS Acquisition Offshore LP and OrbiMed Royalty Opportunities II, LP, holds significant voting and investment power over **83.5% of Xtant's common stock**[482](index=482&type=chunk) Security Ownership of Management (as of Feb 25, 2022) | Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Class | | :----------------------- | :---------------------------------------- | :--------------- | | John Bakewell | 147,794 | * | | Sean E. Browne | 837,447 | 1.0% | | Robert McNamara | 146,057 | * | | Jeffrey Peters | 147,794 | * | | All executive officers and directors as a group (8 persons) | 1,428,083 | 1.6% | *Less than 1% of outstanding shares of common stock. Securities Authorized for Issuance under Equity Compensation Plans (as of Dec 31, 2021) | Plan Category | Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants and Rights (a) | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b) | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (c) | | :------------------------------------------ | :-------------------------------------------------------------------------------- | :---------------------------------------------------------------- | :------------------------------------------------------------------------------------------------ | | Equity compensation plans approved by security holders | 6,171,771 | $1.80 | 1,246,080 | | Total | 6,171,771 | $1.80 | 1,246,080 | [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=109&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions,%20and%20Director%20Independence) This section details Xtant Medical's policies for reviewing related party transactions, significant agreements with OrbiMed affiliates, and director independence - The Audit Committee reviews and approves all related party transactions, making recommendations to the Board, and for significant transactions like the 2020 debt restructuring, a Special Restructuring Committee obtained a fairness opinion[490](index=490&type=chunk)[491](index=491&type=chunk) - The Investor Rights Agreement grants OrbiMed affiliates (Royalty Opportunities and ROS) the right to nominate a majority of directors and requires their approval for significant corporate actions as long as they maintain at least **40% ownership**[492](index=492&type=chunk) - The 2020 debt restructuring involved exchanging approximately **$61.9 million of principal** and paid-in-kind interest for **57.8 million shares of common stock** at **$1.07 per share**, resulting in OrbiMed affiliates owning approximately **93.9% of outstanding common stock**[494](index=494&type=chunk)[497](index=497&type=chunk)[498](index=498&type=chunk) - The Second A&R Credit Agreement with Royalty Opportunities and ROS was terminated on May 6, 2021, and all outstanding amounts were repaid, replaced by new Credit Agreements with MidCap Financial Trust[505](index=505&type=chunk)[509](index=509&type=chunk) - A sublease agreement with Cardialen, Inc., a related party due to a shared director, was terminated in 2021, with payments of **$7,600 in fiscal 2021** and **$11,215 in fiscal 2020**[511](index=511&type=chunk) [Item 14. Principal Accounting Fees and Services](index=114&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Plante & Moran, PLLC served as Xtant Medical's independent registered public accounting firm for 2021 and 2020, with all services pre-approved by the Audit Committee - Plante & Moran, PLLC was the independent registered public accounting firm for Xtant Medical for fiscal years ended December 31, 2021 and 2020[513](index=513&type=chunk) Aggregate Fees Billed by Plante Moran (in thousands) | Fee Type | 2021 ($) | 2020 ($) | | :--------------- | :------- | :------- | | Audit fees | 284,317 | 262,116 | | Audit-related fees | — | — | | Tax fees | — | — | | All other fees | 8,000 | 18,500 | | **Total fees** | **292,317** | **280,616** | - The Audit Committee has a policy to pre-approve all audit, audit-related, tax, and other services, with the Chair delegated authority to pre-approve services up to **$20,000**[515](index=515&type=chunk) [PART IV](index=115&type=section&id=PART%20IV) This part lists exhibits and financial statement schedules included in the annual report [Item 15. Exhibit and Financial Statement Schedules](index=115&type=section&id=Item%2015.%20Exhibit%20and%20Financial%20Statement%20Schedules) This section lists financial statements and exhibits, noting that schedules are omitted as Xtant Medical is a smaller reporting company - Financial statements are included in 'Part II, Item 8. Financial Statements and Supplementary Data'[518](index=518&type=chunk) - All financial statement schedules are omitted because Xtant Medical is a smaller reporting company[518](index=518&type=chunk) - A copy of any listed exhibits will be furnished at a reasonable cost to any stockholder upon written request[520](index=520&type=chunk) [Item 16. Form 10-K Summary](index=118&type=section&id=Item%2016.%20Form%2010-K%20Summary) This is an optional disclosure item, and a Form 10-K Summary is not included in this Annual Report - Form 10-K Summary is an optional disclosure and is not included in this Annual Report[525](index=525&type=chunk) [SIGNATURES](index=119&type=section&id=SIGNATURES) This section contains the official signatures of the company's executive officers and directors, certifying the annual report [Report Signatures](index=119&type=section&id=Report%20Signatures) The Annual Report on Form 10-K was duly signed on March 8, 2022, by the principal executive and financial officers, along with the directors - The report was signed on March 8, 2022, by Sean E. Browne, President and Chief Executive Officer, and Scott Neils, Interim Chief Financial Officer[529](index=529&type=chunk) - Directors John Bakewell, Michael Eggenberg, Robert McNamara, Jeffrey Peters, and Matthew Rizzo also signed the report[529](index=529&type=chunk)

Investor Presentation September 2021 www.xtantmedical.com DISCLOSURE STATEMENTS Cautionary Statement Regarding Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "intends," ''expects,'' ''anticipates,'' ''plans,'' "targets," ''believes,'' '' ...

Financial Data and Key Metrics Changes - Total revenue for Q3 2021 was $13.8 million, a decrease from $14 million in Q3 2020, attributed to lower sales from the distributor sales channel due to COVID-19 impacts [25] - Gross margin for Q3 2021 was 52.2%, down from 66% in the same period of 2020, influenced by a shift in sales channel mix and lower absorption of labor and overhead expenses [27][28] - Net loss for Q3 2021 totaled $1.8 million or $0.02 per share, compared to a net loss of $1.4 million or $0.10 per share in Q3 2020 [34] Business Line Data and Key Metrics Changes - Significant increase in OEM revenue during Q3 2021, indicating early success in expanding into other vertical markets [26] - OEM channel sales, while carrying lower gross margins, provided slightly better operating margins compared to traditional independent agent channel sales [14][19] Market Data and Key Metrics Changes - The COVID Delta variant negatively impacted elective spinal procedures in core markets, particularly in August and September [11][12] - The company experienced softness in independent agent channel sales due to the pandemic, while OEM channel sales began to increase [13][19] Company Strategy and Development Direction - The company is focused on key growth initiatives including new product introductions, distribution network expansion, and penetration into adjacent markets [9][13] - A regular cadence of new product releases has been established, with the launch of OsteoFactor in September 2021, aimed at penetrating the growth factor market [15][16] - The company is pursuing strategic acquisitions to enhance its product portfolio and expand into adjacent markets [18] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the ongoing pandemic's adverse effects but believes the headwinds are temporary and that the company is well-positioned for future growth [36][38] - The company expects gross margins to improve as demand for elective procedures returns to pre-COVID levels, driven by increased independent agent channel sales [22][23] Other Important Information - The company reduced finished goods inventory by over $2 million during Q3 2021, which temporarily affected overhead absorption rates [21][29] - As of September 30, 2021, the company had $18.2 million in cash and cash equivalents, $6.3 million in net accounts receivable, and $19.7 million in inventory [34] Q&A Session Summary - No specific questions or answers were provided in the content regarding the Q&A session.