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, 2024

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________ to ___________

Commission File Number: 001-34951

XTANT MEDICAL HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	20-5313323
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
664 Cruiser Lane Belgrade, Montana	59714
(Address of principal executive offices)	(Zip Code)

(406) 388-0480

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.000001 per share	XTNT	NYSE American LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock, par value $0.000001 per share, of registrant outstanding at August 2, 2024: 130,314,372.

XTANT MEDICAL HOLDINGS, INC.

FORM 10-Q

June 30, 2023

TABLE OF CONTENTS

		Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS		ii
PART I.	FINANCIAL INFORMATION	1
ITEM 1.	FINANCIAL STATEMENTS	1
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	23
ITEM 4.	CONTROLS AND PROCEDURES	23
PART II.	OTHER INFORMATION	24
ITEM 1.	LEGAL PROCEEDINGS	24
ITEM 1A.	RISK FACTORS	24
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	24
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	24
ITEM 4.	MINE SAFETY DISCLOSURES	24
ITEM 5.	OTHER INFORMATION	25
ITEM 6.	EXHIBITS	26

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. For more information, see “Cautionary Statement Regarding Forward-Looking Statements.”

As used in this report, unless the context indicates another meaning, the terms “we,” “us,” “our,” “Xtant,” “Xtant Medical,” and the “Company” mean Xtant Medical Holdings, Inc. and its wholly owned subsidiaries, all of which are consolidated on Xtant’s condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation.

We own various unregistered trademarks and service marks, including our corporate logo. Solely for convenience, the trademarks and trade names in this report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that the owner of such trademarks and trade names will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

We include our website address throughout this report for reference only. The information contained on or connected to our website is not incorporated by reference into this report.

i

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements include, but are not limited to, statements regarding our expectations, hopes, beliefs, intentions, or strategies regarding the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “possible,” “potential,” “predict,” “project,” “should,” and “would,” as well as similar expressions, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward looking. Forward-looking statements in this Form 10-Q may include, for example, statements about the topics below and are subject to risks and uncertainties including without limitation those described below:

● our ability to increase revenue and our ability to improve our gross margins, our operating expenses as a percentage of revenue, and obtain and sustain profitability;

● our ability to become operationally self-sustaining by controlling our supply chain and becoming less reliant on production and manufacturing of our products outside of our control, which we believe will allow us to be a larger and more diverse producer of biologics;

● our ability to integrate the products acquired as part of the acquisition of Surgalign SPV, Inc., the acquisition of certain assets and liabilities of Surgalign Holdings, Inc., and the acquisition of certain assets of RTI Surgical, Inc. and achieve future sales of those products as anticipated, especially given their respective declines in sales before we acquired them, and other risks associated with those acquisitions and any future business combinations or acquisitions we may pursue;

● the effect of our private label and original equipment manufacturer (“OEM”) business on our business and operating results and risks associated therewith, including fluctuations in our operating results and decreased profit margins;

● our ability and success in implementing key growth and process improvement initiatives designed to increase our production capacity, revenue and scale and risks associated with such growth and process improvement initiatives;

● our ability to implement successfully our four key growth pillars, which are focused on introducing new products; expanding our distribution network and achieving greater contract access; leveraging and penetrating adjacent markets and completing targeted strategic acquisitions;

● risks associated with our international operations, including but not limited to the effect of foreign currency exchange rate fluctuations and compliance with foreign legal and regulatory requirements, current and future wars, related sanctions and geopolitical tensions, political risks associated with the potential instability of governments and legal systems in countries in which we or our customers or suppliers conduct business, and other potential conflicts;

● our ability to operate in international markets and effectively manage our international subsidiaries, which require management attention and financial resources;

● our ability to navigate manufacturing challenges related to the production of biologics products and recover from our prior stem cell shortage and our ability to win back stem cell customers and achieve future stem cell revenue as anticipated;

● our ability to retain and expand our agreements with group purchasing organizations (“GPOs”) and independent delivery networks (“IDNs”) and sell products to members of such GPOs and IDNs;

● the effect of inflation and supply chain disruptions, which could result in delayed product launches, lost revenue, higher costs, decreased profit margins, and other adverse effects on our business and operating results;

● the effect of labor and staffing shortages at hospitals and other medical facilities on the number of elective procedures in which our products are used and as a result our revenues, as well as global and local labor shortages and loss of personnel, which have adversely affected and may continue to adversely affect our ability to produce product to meet demand;

● our ability to remain competitive;

● our ability to rebrand and integrate acquired products with our existing product line and successfully transition our customers from some of our older legacy hardware products to these new products and the anticipated adverse effect of these transitions on our organic revenue growth rate;

● our ability to innovate, develop, introduce and market new products and technologies and the success of such new products and technologies, including our recently launched amniotic membrane allografts, SimpliGraft™ and SimpliMax™;

● our dependence on and ability to retain and recruit independent sales agents and distributors and motivate and incentivize them to sell our products, including in particular our dependence on key independent agents for a significant portion of our revenue;

ii

● the ability of our sales personnel, including our independent sales agents and distributors, to achieve expected results;

● our reliance on third party suppliers and manufacturers;

● the effect of product liability claims and other litigation to which we may be subjected and product recalls and defects;

● the effect of infectious diseases on our business, operating results and financial condition;

● the effect of fluctuations in foreign currency exchange rates on our earnings and our foreign currency translation adjustments;

● risks associated with and the effect of a shift in procedures using our products from hospitals to ambulatory surgical centers, which would put pressure on the price of our products and margins;

● our ability to obtain and maintain regulatory approvals in the United States and abroad and the effect of government regulations and our compliance with government regulations;

● the ability of our clinical trials to demonstrate competent and reliable evidence of the safety and effectiveness of our products;

● our ability to remain accredited with the American Association of Tissue Banks and continue to obtain a sufficient number of donor cadavers for our products;

● our ability to obtain and maintain government and third-party coverage and reimbursement for our products;

● our ability to attract, retain and engage qualified technical, sales and processing personnel and members of our management team, especially in light of a tight labor market and increasing cost of living in and around the Belgrade, Montana area;

● our ability to maintain sufficient liquidity to fund our operations and obtain financing on reasonable terms when needed and the effect of such additional financing on our business, results of operations, financial condition and stockholders;

● our ability to service our debt and comply with the covenants in our credit agreements and the effect of our significant indebtedness on our business, results of operations, financial condition and prospects;

● our expectations regarding operating trends, future financial performance and expense management and our estimates of our future revenue, expenses, ongoing losses, gross margins, operating leverage, capital requirements and our need for, or ability to obtain, additional financing and the availability of our credit facilities;

● our ability to effectively remediate our outstanding material weaknesses and maintain effective internal control over financial reporting;

● our ability to obtain and protect our intellectual property and proprietary rights and operate without infringing the intellectual property rights of others;

● our ability to maintain our stock listing on the NYSE American Exchange;

● risks inherent in being a controlled company; and

● the effect of a global economic slowdown, rising interest rates and the prospects for recession, a possible U.S. government shutdown, as well as past and potential future disruptions in access to bank deposits or lending commitments due to bank failures, which could materially and adversely affect our revenue, liquidity, financial condition and results of operations.

The forward-looking statements contained in this Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties, or assumptions, many of which are beyond our control, which may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2023 and this Form 10-Q.

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.

iii

PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS

XTANT MEDICAL HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except number of shares and par value)

	As of June 30, 2024			As of December 31, 2023
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	5,379		$	5,715
Restricted cash		99			208
Trade accounts receivable, net of allowance for credit losses and doubtful accounts of $1,012 and $920, respectively		21,187			20,731
Inventories		40,507			36,885
Prepaid and other current assets		1,800			1,330
Total current assets		68,972			64,869
Property and equipment, net		8,837			8,692
Right-of-use asset		1,117			1,523
Goodwill		7,302			7,302
Intangible assets, net		9,220			10,085
Other assets		130			141
Total Assets	$	95,578		$	92,612
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	6,875		$	7,054
Accrued liabilities		8,676			10,419
Current portion of lease liability		794			830
Current portion of finance lease obligations		67			65
Line of credit		11,899			4,622
Total current liabilities		28,311			22,990
Long-term Liabilities:
Lease liability, less current portion		376			759
Finance lease obligation, less current portion		82			116
Long-term debt, plus premium and less issuance costs		21,770			17,167
Other liabilities		34			231
Total Liabilities		50,573			41,263
Commitments and Contingencies (note 14)
Stockholders’ Equity:
Preferred stock, $0.000001 par value; 10,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.000001 par value; 300,000,000 shares authorized; 130,314,372 shares issued and outstanding as of June 30, 2024 and 130,180,031 shares issued and outstanding as of December 31, 2023		—			—
Additional paid-in capital		296,451			294,330
Accumulated other comprehensive (loss) income		(175	)		29
Accumulated deficit		(251,271	)		(243,010	)
Total Stockholders’ Equity		45,005			51,349
Total Liabilities & Stockholders’ Equity	$	95,578		$	92,612

See notes to unaudited condensed consolidated financial statements.

1

XTANT MEDICAL HOLDINGS, INC.

Condensed Consolidated Statements of Operations

(Unaudited, in thousands, except number of shares and per share amounts)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Revenue	$	29,943		$	20,232		$	57,816		$	38,176
Cost of sales		11,361			7,773			21,932			15,180
Gross Profit		18,582			12,459			35,884			22,995
Operating Expenses
General and administrative		7,713			4,954			15,498			9,839
Sales and marketing		13,179			8,716			25,639			15,770
Research and development		636			180			1,163			354
Total Operating Expenses		21,528			13,850			42,300			25,963
Loss from Operations		(2,946	)		(1,391	)		(6,416	)		(2,967	)
Other Expense
Interest expense		(992	)		(786	)		(1,827	)		(1,360	)
Interest income		—			—			—			85
Foreign currency exchange gain		118			—			79			—
Other (expense) income		(5	)		—			7			—
Total Other Expense		(879	)		(786	)		(1,741	)		(1,275	)
Net Loss from Operations Before Provision for Income Taxes		(3,825	)		(2,177	)		(8,157	)		(4,242	)
Provision for Income Taxes Current and Deferred		(36	)		(13	)		(104	)		(26	)
Net Loss	$	(3,861	)	$	(2,190	)	$	(8,261	)	$	(4,268	)
Net Loss Per Share:
Basic	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.04	)
Dilutive	$	(0.03	)	$	(0.02	)	$	(0.06	)	$	(0.04	)
Shares used in the computation:
Basic		130,269,710			108,897,048			130,291,796			108,895,327
Dilutive		130,269,710			108,897,048			130,291,796			108,895,327

See notes to unaudited condensed consolidated financial statements.

2

XTANT MEDICAL HOLDINGS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited, in thousands)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Net Loss	$	(3,861	)	$	(2,190	)	$	(8,261	)	$	(4,268	)
Other Comprehensive Loss
Foreign currency translation adjustments		(42	)		—			(204	)		—
Comprehensive Loss	$	(3,903	)	$	(2,190	)	$	(8,465	)	$	(4,268	)

See notes to unaudited condensed consolidated financial statements.

3

XTANT MEDICAL HOLDINGS, INC.

Condensed Consolidated Statements of Equity

(Unaudited, in thousands, except number of shares)

	Common Stock					Additional Paid-In-			Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares			Amount		Capital			Loss			Deficit			Equity
Balance at December 31, 2022		108,874,803		$	—	$	277,841		$	—		$	(243,670	)	$	34,171
Common stock issued on vesting of restricted stock units		22,245			—		—			—			—			—
Stock-based compensation		—			—		617			—			—			617
Net loss		—			—		—			—			(2,078	)		(2,078	)
Balance at March 31, 2023		108,897,048			—		278,458			—			(245,748	)		32,710
Stock-based compensation		—			—		439			—			—			439
Net loss		—			—		—			—			(2,190	)		(2,190	)
Balance at June 30, 2023		108,897,048			—		278,897			—			(247,938	)		30,959
Balance at December 31, 2023		130,180,031		$	—	$	294,330		$	29		$	(243,010	)	$	51,349
Common stock issued on vesting of restricted stock units		44,496			—		—			—			—			—
Withholding on common stock upon vesting of restricted stock units		(7,986	)		—		(17	)		—			—			(17	)
Stock-based compensation		—			—		910			—			—			910
Foreign currency translation adjustment		—			—		—			(162	)		—			(162	)
Net loss		—			—		—			—			(4,400	)		(4,400	)
Balance at March 31, 2024		130,216,541			—		295,223			(133	)		(247,410	)		47,680
Common stock issued on vesting of restricted stock units		97,831			—		—			—			—			—
Stock-based compensation		—			—		1,228			—			—			1,228
Foreign currency translation adjustment		—			—		—			(42	)		—			(42	)
Net loss		—			—		—			—			(3,861	)		(3,861	)
Balance at June 30, 2024		130,314,372			—		296,451			(175	)		(251,271	)		45,005

See notes to unaudited condensed consolidated financial statements.

4

XTANT MEDICAL HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited, in thousands)

	Six Months Ended June 30,
	2024			2023
Operating activities:
Net loss	$	(8,261	)	$	(4,268	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,003			1,274
Gain on sale of fixed assets		(142	)		(21	)
Non-cash interest		218			189
Stock-based compensation		2,138			1,056
Provision for reserve on accounts receivable		178			225
Provision for excess and obsolete inventory		388			243
Other		1			3
Changes in operating assets and liabilities, net of the effects of the acquisition:
Accounts receivable		(688	)		(3,116	)
Inventories		(4,130	)		(1,733	)
Prepaid and other assets		(469	)		(330	)
Accounts payable		(15	)		954
Accrued liabilities		(2,064	)		758
Net cash used in operating activities		(10,843	)		(4,766	)
Investing activities:
Purchases of property and equipment		(1,337	)		(870	)
Proceeds from sale of fixed assets		183			55
Acquisition of Surgalign SPV, Inc.		—			(17,000	)
Net cash used in investing activities		(1,154	)		(17,815	)
Financing activities:
Payments on financing leases		(32	)		(30	)
Borrowings on line of credit		59,565			36,256
Repayments on line of credit		(52,288	)		(34,603	)
Proceeds from issuance of long term debt		5,000			5,000
Debt issuance costs		(615	)		(101	)
Payment of taxes from withholding of common stock on vesting of restricted stock units		(17	)		—
Net cash provided by financing activities		11,613			6,522
Effect of exchange rate changes on cash and cash equivalents and restricted cash		(61	)		—
Net change in cash and cash equivalents and restricted cash		(445	)		(16,059	)
Cash and cash equivalents and restricted cash at beginning of period		5,923			20,507
Cash and cash equivalents and restricted cash at end of period	$	5,478		$	4,448
Reconciliation of cash and cash equivalents and restricted cash reported in the condensed consolidated balance sheets
Cash and cash equivalents	$	5,379		$	4,138
Restricted cash		99			310
Total cash and restricted cash reported in condensed consolidated balance sheets	$	5,478		$	4,448

See notes to unaudited condensed consolidated financial statements.

5

Notes to Unaudited Condensed Consolidated Financial Statements

(1) Business Description, Basis of Presentation and Summary of Significant Accounting Policies

Business Description and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Xtant Medical Holdings, Inc. (“Xtant”), a Delaware corporation, and its wholly owned subsidiaries, which are jointly referred to herein as “Xtant” or the “Company”. The terms “we,” “us” and “our” also refer to Xtant. All intercompany balances and transactions have been eliminated in consolidation.

Xtant is a global medical technology company focused on the design, development, and commercialization of a comprehensive portfolio of orthobiologics and spinal implant systems to facilitate spinal fusion in complex spine, deformity, and degenerative procedures.

The accompanying condensed consolidated balance sheet as of December 31, 2023, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. They do not include all disclosures required by generally accepted accounting principles for annual consolidated financial statements, but in the opinion of management include all adjustments, consisting only of normal recurring items, necessary for a fair presentation.

Interim results are not necessarily indicative of results that may be achieved in the future for the full year ending December 31, 2024.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, which are included in Xtant’s Annual Report on Form 10-K for the year ended December 31, 2023. The accounting policies set forth in those annual consolidated financial statements are the same as the accounting policies utilized in the preparation of these condensed consolidated financial statements, except as modified for appropriate interim consolidated financial statement presentation.

Liquidity

Since our inception, we have financed our operations through primarily operating cash flows, private placements of equity securities and convertible debt, debt facilities, common stock rights offerings, and other debt transactions. For the six months ended June 30, 2024, we incurred a net loss of $8.3 million and negative cash flows from operating activities of $10.8 million. We believe that our $5.5 million of cash and cash equivalents as of June 30, 2024, together with our anticipated operating cash flows and amounts available under our recently amended credit facilities, as discussed further in Note 11, “Debt,” will be sufficient to meet our anticipated cash requirements through at least August 2025. However, we may require or seek additional capital to fund our future operations and business strategy prior to August 2025. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time. Additionally, we can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if economic and market conditions deteriorate or our business, financial performance or prospects deteriorate. In addition, prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap Financial Trust and MidCap Funding IV Trust under our Credit Agreements and/or OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”) and ROS Acquisition Offshore LP (“ROS”) under our Investor Rights Agreement with them, and no assurance can be provided that they would provide such consent, which could limit our ability to raise additional financing and the terms thereof.

6

Use of Estimates

The preparation of the condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Significant estimates include the carrying amount of property and equipment; goodwill, intangible assets and liabilities; valuation allowances for trade receivables, inventory, deferred income tax assets and liabilities; current and long-term lease obligations and corresponding right-of-use asset; estimates for the fair value of assets acquired as part of business combinations; and estimates for the fair value of long-term debt, stock options and other equity awards upon which the Company determines stock-based compensation expense. Actual results could differ from those estimates.

Restricted Cash

Cash and cash equivalents classified as restricted cash on the Company’s condensed consolidated balance sheets are restricted as to withdrawal or use under the terms of certain contractual agreements. The June 30, 2024 and December 31, 2023 balances included lockbox deposits that are temporarily restricted due to timing at the period end. The lockbox deposits are applied against the Company’s line of credit the next business day.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains its cash balances primarily with two financial institutions. These balances generally exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents.

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. No impairments of long-lived assets were recorded for the three and six months ended June 30, 2024 and 2023.

Goodwill

Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase business combination and determined to have indefinite useful lives are not amortized. Instead, they are tested for impairment at least annually, and whenever events or circumstances indicate, the carrying amount of the asset may not be recoverable. No impairments of goodwill were recorded for the three and six months ended June 30, 2024 and 2023.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification (“ASC”) 718, Compensation-Stock Compensation. ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options, restricted stock units, performance stock units, and shares issued under its employee stock purchase plan. ASC 718 requires companies to estimate the fair value of all share-based payment option awards on the date of grant using an option pricing model. The fair value of stock options is recognized over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period (usually the vesting period), on a straight-line basis. The Company accounts for option forfeitures as they occur.

The Company accounts for stock-based compensation for restricted stock units at their fair value, based on the closing market price of the Company’s common stock on the date of grant. These costs are recognized on a straight-line basis over the requisite service period, which is usually the vesting period.

The Company accounts for stock-based compensation for performance stock units with market-based conditions at their fair value on the date of the award using the Monte Carlo simulation model. These costs are recognized over the requisite service period, which is usually the vesting period, regardless of the likelihood of achievement of the market-based performance criteria.

7

Net Loss Per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted net loss per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive shares of common stock outstanding during the period, which include the assumed exercise of stock options and warrants using the treasury stock method. Diluted net loss per share was the same as basic net loss per share for the three and six months ended June 30, 2024 and 2023, as shares issuable upon the exercise of stock options and warrants were anti-dilutive as a result of the net losses incurred for those periods. Our diluted earnings per share is the same as basic earnings per share, as the effects of including 24,597,501 and 18,885,572 outstanding stock options, restricted stock units and warrants for the three and six months ended June 30, 2024 and 2023, respectively, are anti-dilutive.

Foreign Currency

The Company generates revenues outside the United States in multiple foreign currencies including euros, Swiss francs, British pounds and in U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. The Company also incurs operating expenses in euros, Swiss francs and British pounds. All assets and liabilities of foreign subsidiaries which have a functional currency other than the U.S. dollar are translated at the rate of exchange at period-end, while elements of the income statement are translated at the average exchange rates in effect during the period. The net effect of these translation adjustments is shown as a component of accumulated other comprehensive income. Foreign currency transaction gains and losses are reported in other income, net.

Fair Value of Financial Instruments

The carrying values of financial instruments, including trade accounts receivable, accounts payable, accrued liabilities, and long-term debt, approximate their fair values based on terms and related interest rates as of June 30, 2024 and December 31, 2023.

(2) Acquisition of Coflex and CoFix Product Lines

On February 28, 2023, the Company entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Surgalign SPV, Inc. (“Surgalign SPV”), a wholly owned subsidiary of Surgalign Spine Technologies, Inc., (“Seller”), Seller and Surgalign Holdings, Inc., pursuant to which the Company purchased all of the issued and outstanding shares of common stock of Surgalign SPV, which shares constituted all of the outstanding equity of Surgalign SPV, for an aggregate purchase price of $17.0 million in cash (the “Purchase Price”). The closing contemplated by the Equity Purchase Agreement occurred on February 28, 2023 (the “Closing”).

Immediately prior to the Closing, Seller and its affiliates transferred and assigned to Surgalign SPV, a newly formed entity wholly owned by Seller, certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of Seller’s Coflex and CoFix products in the United States (the “Coflex Business”). The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.

In conjunction with the Equity Purchase Agreement, on February 28, 2023, the Company entered into a Transition Services Agreement with Surgalign SVP and Seller, whereby Seller agreed to provide, or cause to be provided, to the Company on and after the effective date of the Equity Purchase Agreement, after giving effect to the Closing, certain transitional services related to the transition of the Coflex Business.

The Company funded the Purchase Price with cash on hand and approximately $5.0 million of indebtedness incurred under our term loan, refer to Note 11, “Debt,” for additional information.

8

The Company recorded the purchase of this acquisition using the acquisition method of accounting and, accordingly, recognized the assets acquired at their fair values as of the date of acquisition. The table below represents the allocation of the total consideration for Surgalign SPV’s assets and liabilities based on management’s estimates of their respective fair values as of February 28, 2023 (in thousands):

Inventories	$	1,589
Equipment		947
Intangible assets		10,940
Net assets acquired		13,476
Goodwill		3,524
Total purchase consideration	$	17,000

The acquisition was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The fair values were based on management’s analysis, including work performed by third-party valuation specialists.

The acquisition strengthened the Company’s spine portfolio with the addition of the Coflex Business. Coflex is a differentiated and minimally invasive motion preserving stabilization implant that is premarket approved by the U.S. Food and Drug Administration for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression. This potential benefit resulted in the Company paying a premium for the acquisition resulting in the recognition of $3.5 million in goodwill. For tax purposes, goodwill is deductible.

(3) Acquisition of Surgalign Holdings, Inc.’s Hardware and Biologics Business

On August 10, 2023, the Company completed the acquisition (the “Transaction”) of the assets of Surgalign Holdings, Inc. (“Surgalign Holdings”), and its subsidiaries used in Surgalign Holdings’ hardware and biologics business. The acquired assets included specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property, records, the outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles that were related to Surgalign Holdings’ hardware and biologics business (collectively, the “Assets”). As part of the Transaction, the Company assumed and certain specified liabilities of Surgalign Holdings (collectively, the “Liabilities”), all pursuant to the Asset Purchase Agreement, dated June 18, 2023, between Surgalign Holdings and us (as amended, the “Asset Purchase Agreement”).

The Transaction was conducted through a process supervised by the United States Bankruptcy Court for the Southern District of Texas, Houston Division (the “Bankruptcy Court”) in connection with Surgalign Holdings’ bankruptcy proceedings; and therefore, the Company acquired the Assets with limited representations and warranties. The Bankruptcy Court issued a Sale Order on August 9, 2023 approving and authorizing the Transaction. The Company funded the purchase price of $5.0 million, plus Liabilities, with cash on hand.

The Company recorded the purchase of the Transaction using the acquisition method of accounting and, accordingly, recognized the assets acquired at their fair values as of the date of acquisition. The table below represents the allocation of the total consideration for Surgalign Holdings’ assets and liabilities based on management’s estimates of their respective fair values as of August 10, 2023 (in thousands):

Cash	$	1,087
Accounts receivable		1,627
Inventories		15,300
Prepaids and other current assets		825
Equipment		2,067
Right-of-use asset		576
Accounts payable		(530	)
Accrued liabilities		(1,170	)
Current portion of lease liability		(238	)
Lease liability, less current portion		(338	)
Net assets acquired		19,206
Bargain purchase gain		(11,694	)
Deferred tax liability		(1,922	)
Total purchase consideration	$	5,590

9

The Transaction was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The fair values were based on management’s analysis, including work performed by third-party valuation specialists.

ASC 805, Business Combinations, requires that any excess of purchase price over the fair value of assets acquired, including identifiable intangibles and liabilities assumed, be recognized as goodwill and any excess of fair value of acquired net assets, including identifiable intangible assets over the acquisition consideration, results in a gain from bargain purchase. Prior to recording a gain, the acquiring entity must reassess whether all assets acquired and assumed liabilities have been identified and recognized and perform re-measurements to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued. The Transaction resulted in a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $11.7 million and is shown as a gain on bargain purchase on our consolidated statement of operations. Upon completion of our assessment, the Company concluded that recording a gain on bargain purchase was appropriate and required under ASC 805. The bargain purchase was primarily attributable to the Transaction occurring as part of bankruptcy proceedings.

The Company believes that the Transaction will strengthen our growing orthobiologics and spinal fusion device portfolio, while expanding the Company’s commercial footprint with new contracts and distributors.

(4) Acquisition of NanOss Production Operations

On October 23, 2023, the Company acquired the nanOss production operations from RTI Surgical, Inc. (“RTI”) pursuant to an Asset Purchase Agreement dated October 23, 2023 between the Company and RTI (the “Asset Purchase Agreement”). Under the terms of the Asset Purchase Agreement, the Company acquired certain assets, including equipment and inventory, used in RTI’s synthetic bone graft business and assumed from RTI the lease for the nanOss production facility located in Greenville, North Carolina. The purchase price for the assets was $2 million in cash on hand plus $0.2 million of contingent payments based on future sales of next generation nanOss products. The Company previously acquired nanOss distribution rights and certain nanOss intellectual property with the acquisition of assets related to the biologics and spinal fixation business of Surgalign Holdings, Inc. in August 2023. The potential benefit associated with the improved economics of internal production of nanOss products resulted in the Company paying a premium for the acquisition resulting in the recognition of $0.6 million of goodwill. For tax purposes, goodwill is deductible.

The Company recorded the purchase of this acquisition using the acquisition method of accounting and, accordingly, recognized the assets acquired at their fair values as of the date of acquisition. The table below represents the allocation of the total consideration for certain RTI assets based on management’s estimates of their respective fair values as of October 23, 2023 (in thousands):

Inventories	$	1,150
Fixed assets		267
Intangible assets		220
Net assets acquired		1,637
Goodwill		573
Total purchase consideration	$	2,210

10

The following unaudited pro forma combined financial information summarizes the results of operations for the periods indicated as if the acquisition of the assets of Surgalign Holdings, Inc., the acquisition of Surgalign SPV, Inc. and the acquisition of nanOss production operations from RTI Surgical, Inc. had been completed as of January 1, 2023 (in thousands):

	Six Months Ended
	June 30, 2023
Revenues	$	68,191
Net loss		(5,962	)

Pro forma information reflects adjustments that are expected to have a continuing impact on the Company’s results of operations and are directly attributable to the acquisition of the assets of Surgalign Holdings, Inc., the acquisition of Surgalign SPV, Inc. and the acquisition of nanOss production operations from RTI Surgical, Inc. The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up and the incremental intangible asset amortization to be incurred based on the values of each identifiable intangible asset. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the transactions had occurred as of January 1, 2023 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings.

(5) Revenue

In the United States, the Company generates most of its revenue from independent commissioned sales agents. The Company consigns its orthobiologics products to hospitals and consign or loans its spinal implant sets to independent sales agents. The spinal implant sets typically contain the instruments, disposables, and spinal implants required to complete a surgery. Consigned sets are managed by the sales agent to service hospitals that are high volume users for multiple procedures.

The Company ships replacement inventory to independent sales agents to replace the consigned inventory used in surgeries. Loaned sets are returned to the Company’s distribution center, replenished, and made available to sales agents for the next surgical procedure.

For each surgical procedure, the sales agent reports use of the product by the hospital and, as soon as practicable thereafter, ensures that the hospital provides a purchase order to the Company. Revenue is recognized upon utilization of product.

Additionally, the Company sells product directly to domestic and international stocking resellers, original equipment manufacturer resellers and private label resellers. Upon receipt and acceptance of a purchase order from a stocking reseller, the Company ships product and invoices the reseller. The Company recognizes revenue when the control is transferred upon shipment or upon delivery, based on the customer contract terms and legal requirements, and the transfer of title and risk of loss occurs. There is generally no customer acceptance or other condition that prevents the Company from recognizing revenue in accordance with the delivery terms for these sales transactions. In the normal course of business, the Company accepts returns of product that have not been implanted. Product returns are not material to the Company’s consolidated statements of operations. The Company accounts for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. The Company’s policy is to record revenue net of any applicable sales, use, or excise taxes. Payment terms are generally net 30 days from invoice date and some customers are offered discounts for early pay. The consideration for goods or services reflects any fixed amount stated per the contract and estimates for any variable consideration, such as returns, discounts or rebates, to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. For certain sales transactions, we incur GPO fees that are based on a contractual percentage of applicable sales and are treated as consideration payable to a customer and recorded as a reduction of revenue.

11

The Company operates in one reportable segment with its net revenue derived primarily from the sale of orthobiologics and spinal implant products across North America, Europe, Asia Pacific, and Latin America. Sales are reported net of returns, discounts and rebates. The following table presents revenues from these product lines for the three and six months ended June 30, 2024 and 2023 (in thousands):

	Three Months Ended		Percentage of			Three Months Ended		Percentage of
	June 30, 2024		Total Revenue			June 30, 2023		Total Revenue
Orthobiologics	$	16,128		54	%	$	14,315		71	%
Spinal implant		13,815		46	%		5,917		29	%
Total revenue	$	29,943		100	%	$	20,232		100	%

	Six Months Ended		Percentage of			Six Months Ended		Percentage of
	June 30, 2024		Total Revenue			June 30, 2023		Total Revenue
Orthobiologics	$	31,544		55	%	$	27,867		73	%
Spinal implant		26,272		45	%		10,309		27	%
Total revenue	$	57,816		100	%	$	38,176		100	%

(6) Receivables

The Company’s provision for current expected credit loss is determined based on historical collection experience adjusted for current economic conditions affecting collectability. Actual customer collections could differ from estimates. Account balances are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions to the allowance for credit losses are charged to expense.

(7) Inventories

Inventories consist of the following (in thousands):

	June 30, 2024		December 31, 2023
Raw materials	$	6,834	$	7,269
Work in process		2,636		1,562
Finished goods		31,037		28,054
Total	$	40,507	$	36,885

(8) Property and Equipment, Net

Property and equipment, net are as follows (in thousands):

	June 30, 2024			December 31, 2023
Equipment	$	7,015		$	6,858
Computer equipment		1,372			1,330
Computer software		392			230
Leasehold improvements		4,355			4,347
Surgical instruments		15,376			14,648
Assets not yet in service		877			959
Total cost		29,387			28,372
Less: accumulated depreciation		(20,550	)		(19,680	)
Property and equipment, net	$	8,837		$	8,692

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Depreciation expense related to property and equipment, including property under finance leases, for the three months ended June 30, 2024 and 2023 was $0.5 million and $0.4 million, respectively, and $1.1 million and $0.7 million for the six months ended June 30, 2024 and 2023, respectively.

(9) Intangible Assets

The following table sets forth information regarding intangible assets (in thousands):

June 30, 2024:	Weighted Average Life		Cost		Accumulated Amortization			Net
Patents		11 years	$	2,777	$	(810	)	$	1,967
Customer List		6 years		8,000		(1,778	)		6,222
Tradenames		10 years		1,190		(159	)		1,031
			$	11,967	$	(2,747	)	$	9,220

December 31, 2023:	Weighted Average Life		Cost		Accumulated Amortization			Net
Patents		11 years	$	2,777	$	(672	)	$	2,105
Customer List		6 years		8,000		(1,111	)		6,889
Tradenames		10 years		1,190		(99	)		1,091
			$	11,967	$	(1,882	)	$	10,085

Amortization expense for both the three months ended June 30, 2024 and 2023 was $0.5 million, and $0.9 million and $0.6 million for the six months ended June 30, 2024 and 2023, respectively.

(10) Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

	June 30, 2024		December 31, 2023
Cash compensation/commissions payable	$	7,144	$	8,890
Other accrued liabilities		1,532		1,529
Accrued liabilities	$	8,676	$	10,419

(11) Debt

Long-term debt consists of the following (in thousands):

	June 30, 2024			December 31, 2023
Amounts due under the term loan	$	22,000		$	17,000
Accrued end-of-term payments		254			456
Less: unamortized debt issuance costs		(484	)		(289	)
Long-term debt, less issuance costs	$	21,770		$	17,167

On March 7, 2024, the Company’s term credit agreement was amended and restated to, among other things, extend the maturity date to March 1, 2029. An additional $10.0 million tranche, available solely at the discretion of MidCap Financial Trust and the lenders, was added to the term credit agreement and the applicable margin used to determine the per annum interest rate was reduced from 7.00% to 6.50%. The date of certain fees payable in connection with optional prepayments were also reset by the amendment to be determined based on the date the amendment. The Company’s revolving credit agreement was also amended and restated on March 7, 2024, to among other things, increase the commitment amount from $8.0 million to $17.0 million. The maturity of the revolving credit agreement was also extended to March 1, 2029. Minimum net product revenue requirements specified in the credit agreements were reset and minimum adjusted EBITDA requirements were removed.

13

On May 14, 2024, the term credit agreement was amended to increase the amount of term loans that may be borrowed by $5.0 million to a maximum of $22.0 million, which were fully drawn as of May 14, 2024. In addition, the amendments to the term credit agreement and revolving credit agreement re-set the date certain fees payable in connection with optional prepayments are determined to May 14, 2024 and consequently extend such fees’ original expiration. The exit fees were increased by 2.50% to 6.50% of the principal amount borrowed pursuant to the term credit agreement. The terms of borrowing under the term credit agreement and revolving credit agreement otherwise remain materially unchanged.

The effective rate of the term loan, inclusive of amortization of debt issuance costs and accretion of the final payment, was 14.65% as of June 30, 2024. The effective rate of the revolving credit agreement was 9.94% as of June 30, 2024. As of June 30, 2024, the Company had $5.1 million available under the revolving credit agreement and was in compliance with all covenants under the credit agreements.

(12) Stock-Based Compensation

On July 26, 2023, our stockholders approved and adopted the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan (the “2023 Plan”), which replaced the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan (the “2018 Plan”) with respect to future grants of equity awards, although the 2018 Plan continues to govern equity awards granted under the 2018 Plan. The 2023 Plan permits the Board of Directors, or a committee thereof, to grant to eligible employees, non-employee directors, and consultants of the Company non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, and other stock-based awards. The Board of Directors may select 2023 Plan participants and determine the nature and amount of awards to be granted. The maximum number of shares of our common stock available for issuance under the 2023 Plan, subject to adjustment pursuant to the terms of the 2023 Plan, is (i) 5,500,000 shares of common stock; (ii) 7,695,812 shares of common stock remaining available for issuance under the 2018 Plan but not subject to outstanding awards under the 2018 Plan as of July 26, 2023; and (iii) up to 6,686,090 shares of common stock subject to awards outstanding under the 2018 Plan as of July 26, 2023 but only to the extent such awards are subsequently forfeited, cancelled, expire, or otherwise terminate without the issuance of such shares of common stock after such date.

Stock Options

Stock option activity, including options granted under the 2023 Plan and 2018 Plan, was as follows for the six months ended June 30, 2024 and 2023:

	2024							2023
	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (years)		Shares			Weighted Average Exercise Price		Weighted Average Remaining Contract Term (years)
Outstanding at January 1		4,875,828		$	1.31				3,360,664		$	1.51
Granted		—			—				130,000			0.74
Cancelled or expired		(156,243	)		1.03				(75,460	)		18.61
Outstanding at June 30		4,719,585			1.32		7.28		3,415,204			1.49		7.7
Exercisable at June 30		2,313,011			1.46		6.22		1,438,894			1.93		7.3

As of June 30, 2024, there was approximately $1.6 million of total unrecognized compensation expense related to unvested stock options. These costs are expected to be recognized over a weighted-average period of 2.4 years.

14

Restricted Stock Units

Restricted stock unit activity for awards granted under the 2023 Plan and 2018 Plan was as follows for the six months ended June 30, 2024 and 2023:

	2024					2023
	Shares			Weighted Average Fair Value at Grant Date Per Share		Shares			Weighted Average Fair Value at Grant Date Per Share
Outstanding at January 1		3,524,675		$	1.07		3,612,433		$	0.88
Granted		2,641,549			0.98		186,831			0.71
Vested		(142,327	)		0.67		(22,245	)		0.65
Cancelled		(155,668	)		1.03		(494,121	)		0.54
Outstanding at June 30		5,868,229		$	1.04		3,282,898		$	0.92

Total compensation expense related to unvested restricted stock units not yet recognized was $4.2 million as of June 30, 2024, which is expected to be allocated to expenses over a weighted-average period of 3.1 years.

Performance Stock Units

In April 2024, the Company began awarding performance stock units, or PSUs, under the 2023 Plan to certain executive officers and key employees. The Company has awarded an aggregate of 1,772,217 PSUs, assuming target performance, and each PSU award can be earned and vested at the end of a three-year performance period based on the total stockholder return, or TSR, of the Company’s common stock price relative to a group of peer companies and subject to continued service to the Company. The number of shares of the Company’s common stock to be issued upon vesting and settlement of the PSUs range from 0% to 200% of the target number of shares underlying the award, depending on the Company’s performance against the group of peer companies. The fair value of the PSUs was estimated using the Monte Carlo simulation model and the following assumptions: peer companies volatility was unique to each company used in simulation, Company volatility of 93.34%, risk-free interest rate of 4.53%, correlation with index of 0.06, and dividend yield of 0%.

Activity for PSU awards granted under the 2023 Plan was as follows for the six months ended June 30, 2024:

	2024
	Shares		Weighted Average Fair Value
Outstanding at January 1		—	$	—
Granted		1,772,217		1.49
Forfeited		—		—
Vested		—		—
Outstanding at June 30		1,772,217	$	1.49

The total compensation cost related to unvested PSUs was $2.4 million as of June 30, 2024, which is expected to be allocated to expenses over a weighted-average period of 2.7 years.

(13) Warrants

As of June 30, 2024 and December 31, 2023, there were outstanding and exercisable warrants to purchase 12,237,470 and 12,187,470 shares of our common stock at a weighted average exercise price of $1.53 per share with a weighted average remaining contractual term of 2.3 years and 2.8 years, respectively.

15

(14) Commitments and Contingencies

Litigation

We are subject to potential liabilities under government regulations and various claims and legal actions that are pending or may be asserted from time to time. These matters arise in the ordinary course and conduct of our business and may include, for example, commercial, product liability, intellectual property, and employment matters. We intend to continue to defend the Company vigorously in such matters and, when warranted, take legal action against others. Furthermore, we regularly assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in our financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on our assessment, we have adequately accrued an amount for contingent liabilities currently in existence. We do not accrue amounts for liabilities that we do not believe are probable or that we consider immaterial to our overall financial position. Litigation is inherently unpredictable, and unfavorable resolutions could occur. As a result, assessing contingencies is highly subjective and requires judgment about future events. While we do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations or cash flows, it is possible that the amount of ultimate loss may exceed our current accruals and that our cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.

Indemnification Arrangements

Our indemnification arrangements generally include limited warranties and certain provisions for indemnifying customers against liabilities if our products or services infringe a third-party’s intellectual property rights. To date, we have not incurred any material costs as a result of such warranties or indemnification provisions and have not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements.

We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by us, arising out of that person’s services as our director or officer or that person’s services provided to any other company or enterprise at our request.

(15) Income Taxes

Information on the Company’s income taxes for the periods reported is as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Income tax expense from continuing operations	$	36		$	13		$	104		$	26
Income from continuing operations before income taxes	$	(3,825	)	$	(2,177	)	$	(8,157	)	$	(4,242	)
Effective income tax rate		-1.0	%		-0.6	%		-1.3	%		-0.6	%

Our effective tax rate for the for the three and six months ended June 30, 2024 differs from the statutory rate due to a valuation allowance against deferred tax assets, offset by the impact of cash state and foreign taxes.

Our effective tax rate for the three and six months ended June 30, 2023 differs from the statutory rate due to a valuation allowance against deferred tax assets, offset by the impact of cash state taxes.

As of June 30, 2024, the Company is not currently under examination by tax authorities.

16

(16) Supplemental Disclosure of Cash Flow Information

Supplemental cash flow information is as follows (in thousands):

	Six Months Ended
	June 30,
	2024		2023
Cash paid during the period for:
Interest	$	774	$	1,171

(17) Related Party Transactions

As described in more detail under Note 1, “Business Description and Summary of Significant Accounting Policies,” and Note 19, “Related Party Transactions,” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, we are party to an Investor Rights Agreement, as amended, Registration Rights Agreements and certain other agreements with OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP, which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”). OrbiMed beneficially owns 56.2% of the Company’s common stock.

All related party transactions are reviewed and approved by the Audit Committee or the disinterested members of the full Board of Directors.

(18) Segment and Geographic Information

The Company operates in one segment based upon the Company’s organizational structure, the way in which the operations and investments are managed and evaluated by the chief operating decision maker (“CODM”). The Company shares common, centralized support functions which report directly to the CODM and decision-making regarding the Company’s overall operating performance and allocation of Company resources is assessed on a consolidated basis. Net revenue by geographic region are as follows:

	Three Months Ended June 30,
	2024		2023
United States	$	26,276	$	19,987
Rest of world		3,667		245
Total revenue	$	29,943	$	20,232

	Six Months Ended June 30,
	2024		2023
United States	$	51,409	$	37,501
Rest of world		6,407		675
Total revenue	$	57,816	$	38,176

(19) Subsequent Event

On August 7, 2024, the Company entered into a securities purchase agreement with an accredited investor to sell shares of its common stock in a private placement. The Company agreed to issue an aggregate of 7.8 million shares of common stock at a purchase price of $0.64 per share, resulting in gross proceeds of $5.0 million. The Company expects to use the net proceeds from the private placement for working capital and other general corporate purposes. The closing of the private placement is expected to occur on or about August 9, 2024, subject to the satisfaction of customary closing conditions.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed above in “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere in this Form 10-Q.

Business Overview

We develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our products serve the specialized needs of orthopedic and neurological surgeons, including orthobiologics for the promotion of bone healing, implants and instrumentation for the treatment of spinal disease. We promote our products in the United States through independent distributors and stocking agents, supported by direct employees.

We have an extensive sales channel of independent commissioned agents and stocking distributors in the United States representing some or all of our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery network hospitals (“IDNs”) and through group purchasing organizations (“GPOs”). We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. While our focus is the United States market, we promote and sell our products internationally through direct sales representatives and stocking distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries.

We have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products; (2) expand our distribution network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions. In furtherance of our growth initiatives, and as described elsewhere in this report, we made the following three acquisitions last year:

● On February 28, 2023, we acquired all of the issued and outstanding capital stock of Surgalign SPV, Inc. (“Surgalign SPV”), a then indirect wholly owned subsidiary of Surgalign Holdings, Inc. (“Surgalign Holdings”), which held certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of the Coflex and CoFix products in the United States, for a purchase price of $17.0 million in cash.

● On August 10, 2023, we acquired out of a bankruptcy proceeding certain additional assets of Surgalign Holdings and its subsidiaries, including specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property, records, all outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles related to the business of designing, developing and manufacturing hardware medical technology and distributing biologics medical technology, and assume certain related liabilities, for a purchase price of $5 million in cash.

● On October 23, 2023, we acquired the nanOss production operations from RTI Surgical, Inc. (“RTI”) including certain equipment and inventory used in RTI’s synthetic bone graft business and assumed from RTI the lease for the nanOss production facility located in Greenville, North Carolina. The purchase price for the assets was $2 million in cash plus a low single digit royalty on sales prior to October 23, 2028 of next generation nanOss products.

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While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future revenues.

Since one of our key growth initiatives is to leverage our growth platform with technology and strategic acquisitions and explore other strategic transactions with respect to our products and our company, including licenses, business collaborations and other business combinations or transactions with other companies, we, as a matter of course, often engage in discussions with third parties regarding such matters.

Results of Operations

Comparison of Three and Six Months Ended June 30, 2024 and June 30, 2023

Revenue

Total revenue for the three and six months ended June 30, 2024 was $29.9 million and $57.8 million, respectively, which represents an increase of 48% and 51%, respectively, compared to $20.2 million and $38.2 million for the three and six months ended June 30, 2023, respectively. These increases are attributed primarily to the contribution of additional sales resulting from the acquisition of the Surgalign Holdings’ hardware and biologics business.

Cost of Sales

Cost of sales consists primarily of manufacturing cost, product purchase costs and depreciation of surgical instruments. Cost of sales also includes reserves for estimated excess inventory, inventory on consignment that may be missing and not returned, and reserves for estimated missing and damaged consigned surgical instruments. Cost of sales increased by 46%, or $3.6 million, to $11.4 million for the three months ended June 30, 2024 from $7.8 million for the three months ended June 30, 2023. Cost of sales increased by 44%, or $6.8 million, to $21.9 million for the six months ended June 30, 2024 from $15.2 million for the six months ended June 30, 2023. These increases are primarily due to greater revenue in the 2024 periods compared to the comparable 2023 periods, as mentioned above.

Gross Profit

Gross profit as a percentage of revenue increased to 62.1% for the three months ended June 30, 2024 compared to 61.6% for the same period in 2023 and increased to 62.1% for the six months ended June 30, 2024 compared to 60.2% for the same period in 2023. Of the increase for the three-month comparison, 550 basis points were due to greater scale and improved production efficiency, partially offset by 260 basis points related to increased charges for excess and obsolete inventory and non-absorbed costs and 110 basis points related to sales mix. Of the increase for the six-month comparison, 570 basis points were due to greater scale and improved production efficiency, partially offset by 200 basis points related to increased charges for excess and obsolete inventory and non-absorbed costs and 100 basis points related to higher product cost.

General and Administrative

General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related costs, amortization, and corporate expenses for legal, accounting and professional fees, as well as occupancy costs. General and administrative expenses increased 56%, or $2.8 million, to $7.7 million for the three months ended June 30, 2024, compared to $5.0 million for the same period in 2023. General and administrative expenses increased 58%, or $5.7 million, to $15.5 million for the six months ended June 30, 2024, compared to $9.8 million for the same period in 2023. The increase for the three-month comparison is primarily attributable to $0.7 million of additional compensation expense related to additional headcount, $0.8 million additional stock-based compensation, $0.3 million additional professional service fees and $0.2 million of additional hardware and software expense. The increase for the six-month comparison is primarily attributable to $1.7 million of additional compensation expense related to additional headcount, $1.1 million of additional stock-based compensation expense, $0.7 million of additional professional service fees, $0.5 million of additional consultant fees and $0.4 million of additional hardware and software expense.

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Sales and Marketing

Sales and marketing expenses consist primarily of sales commissions, personnel costs for sales and marketing employees, costs for trade shows, sales conventions and meetings, travel expenses, advertising, and other sales and marketing related costs. Sales and marketing increased 51%, or $4.5 million, to $13.2 million for the three months ended June 30, 2024, compared to $8.7 million for the same period in 2023. Sales and marketing expenses increased 63%, or $9.9 million, to $25.6 million for the six months ended June 30, 2024, compared to $15.8 million for the same period in 2023. The increase for the three-month comparison is primarily due to additional commission expense of $2.8 million resulting from revenue growth and $1.2 million of additional compensation expense related to additional headcount. The increase for the six-month comparison is primarily due to additional commission expense of $5.7 million resulting from revenue growth, $2.8 million of additional compensation expense related to additional headcount and $0.6 million of additional consulting fees.

Research and Development

Research and development expenses consist primarily of internal costs for the development of new technologies. Research and development expenses were $0.6 million for the three months ended June 30, 2024, compared to $0.2 million for the same period in 2023. Research and development expenses were $1.2 million for the six months ended June 30, 2024, compared to $0.4 million for the same period in 2023. The increases for the three- and six-month comparisons are primarily due to $0.2 million and $0.4 million, respectively, of compensation expense related to additional headcount.

Interest Expense

Interest expense consists of interest incurred from our debt instruments and finance leases. Interest expense was $1.0 million and $1.8 million for the three and six months ended June 30, 2024, respectively, compared to $0.8 million and $1.4 million for the three and six months ended June 30, 2023. The increase in interest expense during the three- and six-month comparisons resulted primarily from additional borrowings on our revolving line of credit and the additional borrowing of $5.0 million under our term credit agreement in May 2024.

Provision for Income Taxes Current and Deferred

The increase in income tax expense for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 was primarily due to an increase in cash taxes in the domestic and foreign jurisdictions in 2024.

Liquidity and Capital Resources

Working Capital

Since our inception, we have financed our operations through primarily operating cash flows, private placements of equity securities and convertible debt, debt facilities, common stock rights offerings, and other debt transactions. The following table summarizes our working capital as of June 30, 2024 and December 31, 2023 (in thousands):

	June 30, 2024		December 31, 2023
Cash and cash equivalents	$	5,478	$	5,923
Accounts receivable, net		21,187		20,731
Inventories		40,507		36,885
Total current assets		68,972		64,899
Accounts payable		6,875		7,054
Accrued liabilities		8,676		10,419
Line of credit		11,899		4,622
Total current liabilities		28,311		22,990
Net working capital		40,661		41,879

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Cash Flows

Net cash used in operating activities for the first six months of 2024 was $10.8 million compared to $4.8 million for the first six months of 2023. This increase in net cash used in operating activities relates primarily to the combination of the increase in net losses during the first six months of 2024 compared to the prior year period and the effects of changes in operating assets and liabilities.

Net cash used in investing activities for the first six months of 2024 was $1.2 million compared to $17.8 million for the first six months of 2023. This decrease relates primarily to the use of $17.0 in cash for the acquisition of Surgalign SPV, Inc. during the first six months of 2023.

Net cash provided by financing activities for the first six months of 2024 was $11.6 million compared to $6.5 million for the first six months of 2023. This increase relates primarily to $5.6 million of additional borrowings under the Revolving Facility, as defined below, net of repayments.

Current and Prior Credit Facilities

On March 7, 2024, the Company, as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into an Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) (as amended from time to time, the “Term Credit Agreement”) and an Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) (as amended from time to time, the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust and MidCap Funding IV Trust, each in its respective capacity as agent, and lenders from time to time party thereto. These Credit Agreements amend and restate the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Term Loan), as amended (the “Prior Term Credit Agreement”), and the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Revolving Loan), as amended (the “Prior Revolving Credit Agreement” and, together with the Prior Term Credit Agreement, the “Prior Credit Agreements”), in each case, by and among the Borrowers, the Company and MidCap Financial Trust and MidCap Funding IV Trust, as respective agents, and the lenders from time to time party thereto.

On May 14, 2024, we entered into Amendment No. 1 to Amended and Restated Credit, Security and Guarantee Agreement (Term Loan) (“Term Amendment No. 1”), which amends the Term Credit Agreement, and Amendment No. 1 to Amended and Restated Credit, Security and Guarantee Agreement (Revolving Loan) (“Revolving Amendment No. 1” and, together with Term Amendment No. 1, the “Amendments No. 1”), which amends the Revolving Credit Agreement. The Term Amendment No. 1 increases the amount of term loans that may be borrowed by $5.0 million to a maximum of $22.0 million, which are fully drawn as of June 30, 2024. In addition, the Amendments No. 1 re-set the date certain fees payable in connection with optional prepayments are determined to May 14, 2024 and consequently extend such fees’ original expiration. The exit fees were increased by 2.50% to 6.50% of the principal amount borrowed pursuant to the Term Credit Agreement. The terms of borrowing under the Credit Agreements otherwise remain materially unchanged.

The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together with the secured term credit facility under the Term Credit Agreement, the “Facilities”) under which the Borrowers may borrow up to $17.0 million (such amount, the “Revolving Loan Commitment”) at any one time, the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the Borrowers in accordance with a formula set forth in the Revolving Credit Agreement. All borrowings under the Revolving Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate.

The Facilities have a maturity date of March 1, 2029 (the “Maturity Date”). Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the Company’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets of the Company and the Borrowers. As of June 30, 2024, the Company had $11.9 million outstanding and $5.1 million of availability under the Revolving Facility.

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The loans and other obligations pursuant to the Credit Agreements will bear interest at a per annum rate equal to the sum of the SOFR Interest Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement, and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of December 31, 2023, the effective rate of the Prior Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final payment, was 14.42%, and the effective rate of the Prior Revolving Credit Agreement was 9.94%.

The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Credit Agreements require the Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a certain minimum liquidity level, in each case as specified in the Credit Agreements. As of June 30, 2024, we were in compliance with all covenants under the Credit Agreements.

Cash Requirements

We believe that our $5.5 million of cash and cash equivalents as of June 30, 2024, together with the net proceeds to our recent $5.0 million private placement, our anticipated operating cash flows and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least August 2025. However, we may require or seek additional capital to fund our future operations and business strategy prior to August 2025. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.

We may elect to raise additional financing even before we need it if market conditions for raising additional capital are favorable. We may seek to raise additional financing through various sources, such as equity and debt financings, additional debt restructurings or refinancings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if economic and market conditions deteriorate or our business, financial performance or prospects deteriorate.

To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices that represent a discount to our trading price and/or we may issue warrants to the purchasers, which could further dilute our current stockholders. If we issue preferred stock, it could adversely affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights or preferences granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap Financial Trust and MidCap Funding IV Trust under our Credit Agreements and/or ROS and Royalty Opportunities under our Investor Rights Agreement with them, and no assurance can be provided that they would provide such consent, which could limit our ability to raise additional financing and the terms thereof.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.

There have been no changes in our critical accounting estimates for the three months ended June 30, 2024 as compared to the critical accounting estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information required by this Item.

item 4. controls and procedures

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2024. Based upon that evaluation, and as a result of the material weakness in our internal control over financial reporting discussed below, our principal executive officer and principal financial officer concluded that as of June 30, 2024, our disclosure controls and procedures were not effective.

Previously Reported Material Weakness in Internal Control over Financial Reporting

As previously described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, in connection with the audit of our consolidated financial statements for the fiscal year ended December 31, 2023, we identified certain control deficiencies in the design and implementation of our internal control over financial reporting, which constituted two material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

More specifically, our controls surrounding the completeness and accuracy of information utilized in determining the open balance sheet fair value of inventory, which includes the establishment of inventory reserves, related to the acquisition of the hardware and biologics business of Surgalign Holdings. were insufficient and did not operate at an appropriate level of precision. Our review of certain data and assumptions utilized in our valuation of opening balance sheet inventory failed to identify inconsistent assumptions related to inventory utilization and inventory costing. This constituted a material weakness. In addition to the foregoing material weakness, due to insufficient time and resources, we did not appropriately design, implement and execute sufficient controls and procedures to verify the existence of inventory on consignment that was acquired in connection with our acquisitions of Surgalign SPV. and the hardware and biologics business of Surgalign Holdings during the year ended December 31, 2023, resulting in a second material weakness.

The material weaknesses described above, if not remediated, could result in a material misstatement of one or more disclosures in our annual or interim consolidated financial statements that would not be prevented or detected in a timely manner.

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Our management, under the oversight of the Audit Committee of the Board of Directors, is continuing to implement measures designed to improve our internal control over financial reporting to remediate the identified material weaknesses. The remediation actions we are taking, and expect to take, include the following:

● Precision of Controls Related to Completeness and Accuracy of Information Utilized in Determining the Opening Balance Sheet Fair Value of Inventory. To prevent similar occurrences in the future, we plan to add additional accounting personnel to allow for more robust review of nonrecurring, complex transactions. We expect to have additional headcount in place by end of fiscal 2024. Additionally, if necessary, we may utilize external accounting resources to review future valuations of acquired inventory.

● Insufficient Procedures to Confirm the Existence of Acquired Consigned Inventory. Beginning in the first quarter of 2024, we began subjecting our acquired consigned inventory to our ongoing inventory field audits, with the goal of verifying all consigned inventory acquired during the year ended December 31, 2024. We expect this process to be completed by the end of fiscal 2024.

As management continues to evaluate and work to remediate the material weaknesses, we may determine to take additional measures to address the material weaknesses. However, we cannot provide assurance that the measures we have taken to date, or that we may take in the future, will be sufficient to remediate the material weaknesses or avoid potential future material weaknesses.

Changes in Internal Control over Financial Reporting

Other than the remediation steps described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.	OTHER INFORMATION
item 1.	legal proceedings

Our legal proceedings are discussed in Note 14, “Commitments and Contingencies,” in the notes to our condensed consolidated financial statements in this Form 10-Q.

item 1a. risk factors

As a smaller reporting company, we are not required to provide the information required by this Item.

item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On June 24, 2024, we issued a warrant to purchase 50,000 shares of our common stock to one of our vendors in exchange for anticipated services to be rendered, which warrant has an $0.82 per share exercise price, a term through April 22, 2029 and vests in equal monthly installments from April 22, 2024. The offer and sale of the warrant to the vendor was exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) as it did not involve any public offering and was made without general solicitation or general advertising.

We did not sell any other unregistered equity securities of our Company during the quarter ended June 30, 2024.

item 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

item 4. MINE SAFETY DISCLOSURES

Not applicable.

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item 5. OTHER INFORMATION

Rule 10b5-1 Plan and Non-Rule 10b5-1 Trading Arrangement Adoptions, Terminations, and Modifications

During the three months ended June 30, 2024, none of our directors or “officers” (as defined in Rule 16a-1(f) under the Exchange Act) adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Securities and Exchange Commission (“SEC”) Regulation S-K.

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Departure of Chief Commercial Officer

As part of the integration activities undertaken following our acquisition of the hardware and biologics business of Surgalign Holdings, we are restructuring and streamlining our sales organization and in connection thereto are eliminating the position of Chief Commercial Officer held by Kevin D. Brandt effective as of August 16, 2024. As a result of the elimination of this position, Sean E. Browne, the Company’s Chief Executive Officer, will assume the role of head of sales.

In connection with Mr. Brandt’s termination and pursuant to the terms of his employment agreement with the Company, we anticipate entering into a Separation Agreement with Mr. Brandt (the “Separation Agreement”) pursuant to which and in exchange for his execution and non-revocation of a general release of claims against the Company and its subsidiaries and affiliates and his compliance with certain covenants contained in his employment agreement and the Separation Agreement, he will be entitled to receive: (i) continuing severance pay at a rate equal to his base salary for 12 months from the date of termination of employment, less all required tax withholdings and other applicable deductions, payable in accordance with our standard payroll procedures, and (ii) if timely elected, payment of COBRA continuation coverage premiums for up to 12 months. The Separation Agreement also will include customary non-disparagement and confidentiality undertakings by Mr. Brandt.

The foregoing summary of the Separation Agreement is not complete and is qualified in its entirety by reference to the full text of the Separation Agreement, which if executed by the parties thereto will be filed as an exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024.

Amendment to Sean Browne Employment Agreement

Effective as of August 8, 2024, we entered into Amendment No. 1 to Employment Agreement with Sean E. Browne, the Company’s Chief Executive Officer (the “Amendment”), which Amendment reflects the following changes to Mr. Browne’s employment agreement:

● In the event Mr. Browne is terminated by the Company without “cause” or by Mr. Browne for “good reason” in connection with or within 12 months after a “change in control” (as such terms are defined in the agreement), the Amendment entitles Mr. Browne to receive (i) a lump-sum severance payment equal to 1.5 times the sum of his base salary plus his annual target bonus, rather than a lump-sum severance payment equal to his base salary; and (ii) if timely elected, payment of COBRA continuation coverage premiums for up to 18 months, instead of 12 months. To be eligible to receive these payments, Mr. Browne will be required to execute and not revoke a release of claims against the Company.

● The definition of “change in control” has been revised to clarify that a “change in control” for purposes of Mr. Browne’s employment agreement does not include any change in percentage ownership of the Company held by OrbiMed Advisors LLC or any of its affiliates, whether as a result of the sale or other transfer of its shares, a conversion of debt into equity, or otherwise, or the sale or other transfer of shares of capital stock of the Company by OrbiMed Advisors LLC or any of its affiliates to one or more third parties regardless of the percentage ownership of the Company acquired by such third party or third parties.

The foregoing summary of the Amendment is not complete and is qualified in its entirety by reference to the full text of the Amendment, which is filed as an exhibit to this Quarterly Report on Form 10-Q.

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item 6. EXHIBITS

The following exhibits are being filed or furnished with this Quarterly Report on Form 10-Q:

Exhibit No.	Description
2.1†	Equity Purchase Agreement, dated February 28, 2023, by and among Xtant Medical Holdings, Inc, Surgalign SPV, Inc., Surgalign Spine Technologies, Inc., and Surgalign Holdings, Inc. (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on March 1, 2023 (SEC File No. 001-34951) and incorporated by reference herein).
2.2†	Asset Purchase Agreement, dated as of June 18, 2023, between Surgalign Holdings, Inc. and Xtant Medical Holdings, Inc. (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on June 20, 2023 (SEC File No. 001-34951) and incorporated by reference herein).
2.3†	First Amendment to Asset Purchase Agreement, dated as of July 10, 2023, between Xtant Medical Holdings, Inc. and Surgalign Holdings, Inc. (filed as Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 11, 2023 (SEC File No. 001-34591) and incorporated by reference herein).
2.4†	Second Amendment to Asset Purchase Agreement, dated as of July 20, 2023, between Xtant Medical Holdings, Inc. and Surgalign Holdings, Inc. (filed as Exhibit 2.4 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2023 (SEC File No. 001-34591) and incorporated by reference herein).
2.5†	Third Amendment to Asset Purchase Agreement, dated as of July 24, 2023, between Xtant Medical Holdings, Inc. and Surgalign Holdings, Inc. (filed as Exhibit 2.5 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2023 (SEC File No. 001-34591) and incorporated by reference herein).
3.1	Restated Certificate of Incorporation of Xtant Medical Holdings, Inc. (filed as Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (SEC File No. 001-34591) and incorporated by reference herein).
3.2	Third Amended and Restated Bylaws of Xtant Medical Holdings, Inc. (Effective as of June 1, 2023) (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 19, 2023 (SEC File No. 001-34951) and incorporated by reference herein).
4.1	Form of Vendor Common Stock Purchase Warrant (filed herewith).
10.1	Form of Employee Performance Stock Unit Award Agreement for use with the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan (filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (SEC File No. 001-34951) and incorporated by reference herein).
10.2	Amendment No. 1 to Employment Agreement effective as of August 8, 2024 between Xtant Medical Holdings, Inc. and Sean E. Browne (filed herewith).
31.1	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
31.2	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
101	The following materials from Xtant’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2024, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Operations, (iii) the unaudited Condensed Consolidated Statements of Equity (Deficit), (iv) the unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Condensed Consolidated Financial Statements (filed herewith).
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

† All exhibits and schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish the omitted exhibits and schedules to the SEC upon request by the SEC.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	XTANT MEDICAL HOLDINGS, INC.
Date: August 8, 2024	By:	/s/ Sean E. Browne
	Name:	Sean E. Browne
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

Date: August 8, 2024	By:	/s/ Scott C. Neils
	Name:	Scott C. Neils
	Title:	Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

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