XTNT US Equity☆

Item 1A. Risk Factors 17

Item 1B. Unresolved Staff Comments 48

Item 2. Properties 49

Item 3. Legal Proceedings 49

Item 4. Mine Safety Disclosures 49

Item 6. Selected Financial Data 50

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 60

Item 8. Financial Statements and Supplementary Data 61

Item 9A. Controls and Procedures 88

Item 9B. Other Information 88

PART III 89

Item 10. Directors, Executive Officers and Corporate Governance 89

Item 11. Executive Compensation 94

Item 14. Principal Accounting Fees and Services 109

Item 15. Exhibit and Financial Statement Schedules 110

_________

This

Annual Report on Form 10-K 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, the terms “we,” “us,” “our,” “Xtant,” “Xtant Medical,”

and the “Company” mean Xtant Medical Holdings, Inc. and our consolidated wholly-owned subsidiaries, unless the context

indicates another meaning.

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 TM 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.

CAUTIONARY

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

The

statements contained in this Annual Report on Form 10-K 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,” “might,” “plan,” “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.

A

forward-looking statement is neither a prediction nor a guarantee of future events or circumstances and those future events or

circumstances may not occur. You should not place undue reliance on forward-looking statements, which speak only as of the date

of this Form 10-K. The forward-looking statements contained in this Form 10-K are based on currently available operating, financial

and competitive information and our current expectations and beliefs concerning future developments and their potential effects

on us. 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 “Part I. Item

1.A. Risk Factors” section of this Form 10-K. 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 are including this cautionary statement to make applicable and take advantage of the safe harbor provisions of

the Private Securities Litigation Reform Act of 1995 for 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.

PART

I

Item

1. Business

Overview

Xtant

Medical Holdings, Inc. is a global medical technology company focused on the design, development, and commercialization of a comprehensive

portfolio of orthobiologics and spinal implant fixation systems to facilitate spinal fusion in complex spine, deformity, and degenerative

procedures. Our products are used by orthopedic spine surgeons and neurosurgeons to treat a variety of spinal disorders in the

cervical, thoracolumbar, and interbody spine.

We

promote and sell our products in the United States through independent distributors and stocking agents, supported by direct employees.

We have an extensive distribution channel of commissioned independent agents and stocking agents 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 independent health

delivery network hospitals and through group purchasing organizations (“GPOs”). We have biologics contracts with major

GPOs, as well as extensive access to integrated delivery networks (“IDNs”) across the United States for both our biologics

and spine hardware products. We promote and sell our products internationally through distribution partners in Canada, Mexico,

South America, Australia, and certain Pacific region countries.

Since

March 2020, the COVID-19 pandemic has caused business closures, severe travel restrictions and implementation of social distancing

measures. At the onset of the COVID-19 pandemic, hospitals and other medical facilities cancelled or deferred elective procedures,

diverted resources to patients suffering from infections and limited access for non-patients, including our direct and indirect

sales representatives. Our response since the onset of COVID-19 has been undertaken with the objective of positioning Xtant for

long-term success by:

Industry

and Market Overview

The

orthopedic biomaterials market consists of materials that are organic, inorganic or synthetic in nature. These materials are implanted

or applied in or near the indicated bone to aid in healing, encourage bone tissue augmentation, compensate in areas where bone

tissue is depleted and restore structure to allow for repair. These materials are often used as substitutes to autograft materials,

which are taken from a harvest site in the patient to patch or repair the wounded or unhealthy site.

Fixation

is often instrumental in allowing the body to heal and regenerate tissue. It provides the constructive support necessary for reestablishing

stability, by immobilizing the regenerative site, and relieving stress. Fixation can also help hold the biomaterial in place in

order to achieve a better outcome. Examples of fixation products can include, but are not limited to, plates, screws, pins, rods,

spacers, and staples, and may be made from various metals and polymer materials.

How

We Compete

We

believe the following allow us to compete in the marketplace:

Our

Orthobiologics Products

Our

biomaterial products include OsteoSponge, OsteoSponge SC, OsteoSelect DBM putty, OsteoSelect Plus DBM putty, OsteoWrap, and our

line of 3Demin products, as described below, as well as other allografts:

We

also process and distribute (i) sports allografts which are processed specifically for anterior and posterior cruciate ligament

repairs, anterior cruciate ligament reconstruction and meniscal repair, (ii) milled spinal allografts which are comprised of cortical

bone milled to desired shapes and dimensions, and (iii) traditional allografts for multi-disciplinary applications including orthopedics,

neurology, podiatry, oral/maxillofacial, genitourinary and plastic/reconstructive.

Our

Spinal Implant Products

We

offer a comprehensive line of products that are used to treat a variety of spinal and sacroiliac conditions, including trauma,

degeneration, deformity and tumor, including use of minimally invasive surgery techniques. Some of our key spinal implant product

lines include:

Cervical

Products

Thoracolumbar

Products

Interbody

Products

Sales

and Marketing

We

distribute our products in the United States through an extensive distribution network of commissioned independent sales agents

and stocking agents. We also maintain a national accounts program to enable our agents to gain access to IDN hospitals and through

GPOs. We have biologics contracts with major GPOs, including Vizient, Premier, and HealthTrust Purchasing Group, as well as extensive

access to IDNs across the United States for both biologics and spine hardware systems.

Our

international footprint includes distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region

countries.

Donor

Procurement

We

have agreements with multiple recovery agencies, and we continue to explore options to expand our network for access to donor

tissue in anticipation of increased demand for our biologics products. We expect to be able to continue to build our network for

donor tissue as our processing capabilities and sales increase. Xtant’s mission with respect to donor procurement is: “Honoring

the gift of donation, by helping our patients live as full, and complete a life as possible.”

Competition

There

are various public and private organizations that offer both fixation and orthobiologics to their customers. The market is dominated

by large competitors, including Medtronic plc, Johnson and Johnson, Zimmer Biomet Holdings, Inc., Stryker Corporation, Nuvasive,

Inc., and Globus Medical, Inc. Together, we believe these large competitors have approximately 80% market share. We compete with

these larger competitors and several others, including Surgalign Holdings, Inc., SeaSpine Holdings Corporation, OrthoFix Medical

Inc., Alphatec Holdings, Inc., as well as dozens of privately-owned companies. We also compete with tissue banks that do not offer

spinal fixation products, such as AlloSource International, Inc., LifeNet Health, and MTF Biologics.

Intellectual

Property

We

rely upon patents, trademarks, trade secrets and other proprietary rights to maintain and improve our competitive position. We

review third-party proprietary rights, including patents and patent applications, as available, to develop an effective intellectual

property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual

property owned by others.

We

protect our proprietary rights through a variety of methods. As a condition of employment, we generally require employees to execute

an agreement relating to the confidential nature of and company ownership of proprietary information and assigning intellectual

property rights to us. We generally require confidentiality agreements with vendors, consultants, and others who may have access

to proprietary information. We generally limit access to our facilities and review the release of company information in advance

of public disclosure. There can be no assurances, however, that confidentiality agreements with employees, vendors, and consultants

will not be breached, adequate remedies for any breach would be available, or competitors will not discover or independently develop

our trade secrets. Litigation also may be necessary to protect trade secrets or techniques we own.

Patents

Although

we believe that, in the aggregate, our patents are valuable, and patent protection is beneficial to our business and competitive

positioning, our patent protection will not necessarily deter or prevent competitors from attempting to develop similar products.

There can be no assurances that our patents will provide competitive advantages for our products or that competitors will not

challenge or circumvent these rights. In addition, there can be no assurances that the United States Patent and Trademark Office

(“USPTO”) or foreign patent offices will issue any of our pending patent applications. The USPTO and foreign patent

offices may deny or require a significant narrowing of the claims in our pending patent applications and the patents issuing from

such applications. Any patents issuing from the pending patent applications may not provide us with significant commercial protection.

We could incur substantial costs in proceedings before the USPTO or foreign patent offices, including opposition and other post-grant

proceedings. These proceedings could result in adverse decisions as to the patentability, priority of our inventions, and the

narrowing or invalidation of claims in issued patents. Additionally, the laws of some of the countries in which our products are

or may be sold may not protect our intellectual property to the same extent as the laws in the United States or at all.

While

we do not believe that any of our products infringe any valid claims of patents or other proprietary rights held by others, we

have an outstanding claim of patent infringement litigation which we are analyzing. In addition, we were recently subject to patent

infringement litigation that we settled in February 2020. There can be no assurances that we do not infringe any patents or other

proprietary rights. If our products were found to infringe any proprietary right of another party, we could be required to pay

significant damages, license fees or royalties to such party and/or cease production, marketing, and distribution of those products.

Litigation also may be necessary to defend infringement claims of third parties or to enforce patent rights we hold or to protect

trade secrets or techniques we own.

Our

policy is to file patent applications in the United States and other countries when we believe it is commercially advantageous

to do so. We do not consider our business to be materially dependent upon any individual patent. As of December 31, 2020, our

fixation patent portfolio includes 51 issued patents globally, and our biologics patent portfolio includes 19 issued patents globally

and 4 patent applications pending. We expect that additional patent applications will be filed and prosecuted as inventions are

discovered, technological improvements and processes are developed, and specific applications are identified. There can be no

assurance that we will be able to obtain final approval of any patents.

Trademarks

We

have registered, and continue to seek registration, of trademarks and continuously monitor and aggressively pursue users of names

and marks that potentially infringe upon our registered trademarks. We currently own the following registered trademarks: OsteoSponge®,

OsteoVive®, OsteoWrap®, OsteoLock®, BacFast®, OsteoSelect®, Elutia®, OsteoSTX®, hMatrix®, 3Demin®,

BACTERINSE®, and Circle of Life®. Under the X-spine name, we own the following registered trademarks: SILEX®, X-SPINE®,

IRIX®, CAPLESS®, CERTEX®, CALIX®, H-GRAFT®, SPIDER, X90®, HYDRAGRAFT®, BUTREX®, FORTEX®, AXLE®,

FIXCET®, XTANT®, Capless® and X-spine’s square design logo.

Trade

Secrets and Other Proprietary Rights

To

safeguard our proprietary knowledge and technology, we rely upon trade secret protection and non-disclosure/confidentiality agreements

with employees, consultants and third-party collaboration partners with access to our confidential information. There can be no

assurance, however, that these measures will adequately protect against the unauthorized disclosure or use of confidential information,

or that third parties will not be able to independently develop similar technology. Additionally, there can be no assurance that

any agreements concerning confidentiality and non-disclosure will not be breached, or if breached, that we will have an adequate

remedy to protect us against losses. Although we believe our proprietary technology has value, because of rapid technological

changes in the medical industry, we also believe that proprietary protection is of less significance than factors such as the

intrinsic knowledge and experience of our management, advisory board, consultants and personnel and their ability to identify

unmet market needs and to create, invent, develop and market innovative and differentiated products.

Government

Regulation

We

are registered with the U.S Food and Drug Administration (“FDA”) as a manufacturer of human cellular and tissue products

(“HCT/Ps”) as well as medical devices, and we are an accredited member in good standing of the American Association

of Tissue Banks (“AATB”). We meet all licensing requirements for the distribution of HCT/Ps in states with licensing

requirements, including Florida, California, Delaware, Illinois, Louisiana, Maryland, Oregon, and New York. Our industry is highly

regulated, and we cannot predict the impact of future regulations on either us or our customers.

Our

fixation products and instrumentation systems are regulated as medical devices and therefore are subject to extensive regulation

by the FDA, as well as by other domestic and international regulatory bodies. These regulations govern multiple activities that

Xtant and our suppliers, licensors and partners perform and will continue to perform. These regulated activities include product

design and development, testing, manufacturing, labeling, storage, safety, premarket clearance, advertising and promotion, product

marketing, sales and distribution, post-market surveillance and post-market adverse event reporting. All products currently marketed

by Xtant are regulated as HCT/Ps and/or have received 510(k) clearances.

Human

Tissue

Human

tissue products have been regulated by the FDA since 1993. These regulations are designed to ensure that sound, high quality practices

are followed to prevent the introduction, transmission or spread of communicable disease. Among other things, the regulations

require that companies that recover, process, store, label, package or distribute HCT/Ps register with the FDA. In addition, regulations

provide criteria that must be met for donors to be eligible to donate tissues and is referred to as the “Donor Eligibility”

rule. Regulations also govern the processing and distribution of the tissues and are often referred to as the “Current Good

Tissue Practices” (“cGTP”) regulations.

An

HCT/P is regulated solely under section 361 of the Public Health Service Act (“PHSA”) and 21 CFR Part 1271 if it meets

the following four criteria:

1) The HCT/P is minimally manipulated;

2) The HCT/P is intended for homologous use only;

Several

of our products, including OsteoSponge and OsteoWrap, are regulated as HCT/Ps because they meet these four criteria. The FDA’s

Tissue Reference Group confirmed this in non-binding recommendations provided to us.

Products

that are regulated solely under Section 361 of the PHSA and 21 CFR Part 1271 are subject to the following regulatory requirements:

Failure

to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include sanctions such

as warning or untitled letters, injunctions, or other action.

There

are many HCT/P products that do not meet the criteria to be classified solely under Section 361 of the PHSA and 21 CFR Part 1271

and therefore must undergo regulatory review and licensure by the FDA. The approval process for a Biologics License Application

(“BLA”) includes a rigorous review of the safety and efficacy of the biological product. Successful applications typically

require testing and validation through a series of clinical and non-clinical studies taking place over multiple years of product

development. We refer to all of our HCT/P products as biologics.

Medical

Devices

A

medical device is an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related

article, including any component part, or accessory which is: (i) recognized in the official National Formulary, or the United

States Pharmacopoeia, or any supplement to them; (ii) intended for use in the diagnosis of disease or other conditions, or in

the cure, mitigation, treatment, or prevention of disease, in man or other animals; or (iii) intended to affect the structure

or any function of the body of man or other animals, and which does not achieve any of its primary intended purposes through chemical

action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of

any of its primary intended purposes. The Center for Devices and Radiological Health governs the clearance and approval of conventional

medical devices, such as our spinal hardware, as well as some of the HCT/Ps that are also regulated as medical devices, such as

our OsteoSelect DBM putty.

In

the United States, medical devices are subject to extensive regulation by the FDA under the Federal Food, Drug, and Cosmetic Act

(“FDCA”) and its implementing regulations, and certain other federal and state statutes and regulations. The laws

and regulations govern, among other things, the design, manufacture, storage, recordkeeping, approval, labeling, promotion, post-approval

monitoring and reporting, distribution and import and export of medical devices. Failure to comply with applicable requirements

may subject a device and/or its manufacturer to a variety of administrative sanctions, such as FDA refusal to approve pending

pre-market approval applications (“PMAs”), issuance of warning letters, mandatory product recalls, import detentions,

civil monetary penalties, and/or judicial sanctions, such as product seizures, injunctions, and criminal prosecution.

Under

the FDCA, medical devices are classified into one of three classes based on the risk associated with the device and the level

of control necessary to provide a reasonable assurance of safety and effectiveness. Class I devices are deemed to be low risk

and are subject to the fewest regulatory controls. Class III devices are generally the highest risk devices and are subject to

the highest level of regulatory control to provide reasonable assurance of safety and effectiveness. Class III devices must typically

be approved by the FDA before they are marketed.

Most

Class I devices and a minority of Class II devices are completely exempt from premarket review by the FDA. Most Class II devices

and a minority of Class I devices require 510(k) clearance. Devices that pose the highest risk, including life sustaining, life-supporting

or implantable devices, or devices deemed not substantially equivalent to a previously 510(k)-cleared device or a “pre-amendment”

Class III device in commercial distribution before May 28, 1976 for which PMA applications are not required, are placed in Class

III requiring PMA approval. A novel device is placed in Class III by default, but it may be eligible to be placed in Class I or

Class II via “de novo” classification if it can be shown to pose only low to moderate risk with appropriate regulatory

controls.

The

PMA approval pathway requires proof of the safety and effectiveness of the device to the FDA’s satisfaction. The 510(k)

clearance pathway is much less burdensome and time-consuming than the PMA approval pathway. The de novo pathway has an enhanced

burden compared to the 510(k) clearance pathway, but is much less burdensome than a PMA approval process.

Under

the 510(k) clearance pathway, the applicant must submit to the FDA a premarket notification demonstrating that the medical device

is substantially equivalent to a legally marketed predicate device. A predicate device may be a previously 510(k) cleared device,

Class II de novo device, or a pre-amendment device (unless the FDA has issued a regulation calling for PMA applications for this

device type). To be substantially equivalent, the proposed device must have the same intended use as the predicate device, and

either have the same technological characteristics as the predicate device or have different technological characteristics and

be shown to be equally safe and effective and not raise different questions of safety and effectiveness than the predicate device.

After

the FDA accepts the 510(k) premarket notification, it begins a substantive review. By statute, the FDA is required to complete

its review within 90 days of receiving the 510(k) notification. As a practical matter, clearance often takes longer, typically

ranging from three to nine months or more, and clearance is never assured. The FDA’s 510(k) review generally compares a

proposed device to a predicate device with respect to intended use and technology. The information necessary to show substantial

equivalence will depend on the differences between the proposed device and the predicate device, which may include bench, animal,

and/or clinical studies. The discussion of what data is needed is sometimes conducted in a voluntary process called the Pre-Submission

process whereby companies meet with the FDA to discuss the data needed for clearance.

If

the FDA finds the applicant’s device is substantially equivalent to the predicate device, it will send a letter to the applicant

stating that fact. This allows the applicant’s device to be commercially distributed in the United States. Otherwise, the

applicant must fulfill the much more rigorous premarketing requirements of the PMA approval process or seek reclassification of

the device through the de novo process.

After

a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would

constitute a major change in its intended use, requires a new 510(k) clearance or could require reclassification through the de

novo process or a PMA approval. The FDA requires each manufacturer to make this determination in the first instance, but the FDA

can review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance, the

agency may require the manufacturer to seek 510(k) clearance, de novo classification, or PMA approval. The FDA can also require

a manufacturer to cease marketing and/or recall the modified device until 510(k) clearance, de novo classification, or PMA approval

is obtained.

Another

procedure for obtaining marketing authorization for a medical device is the “de novo classification” procedure. Devices

of a new type that the FDA has not previously classified based on risk are automatically classified into Class III, regardless

of the level of risk they pose. Additionally, in response to a 510(k) premarket notification, if the FDA determines that the device

is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class

III device. The device sponsor must then fulfill more rigorous PMA requirements or can request a risk-based classification determination

for the device in accordance with the de novo process, which is a route to market for novel medical devices that are low to moderate

risk and are not substantially equivalent to a predicate device.

Generally,

a de novo application contains a device description, indications for use statement, proposed labeling, data/performance testing

(e.g., bench testing and/or clinical study data), the proposed classification, and a risk/benefit analysis. The risk/benefit analysis

is the key element of a de novo petition and typically includes a summary of the benefits of the device, a summary of the known

and potential risks, any risk mitigations, and an explanation of whether the benefits outweigh the risks. The applicant must also

outline special controls, which can include data and labeling requirements that subsequent applicants under the new device classification

regulation must follow to obtain a 510(k) clearance.

The

timing for review of a de novo application is less certain than a 510(k). As a practical matter, de novo marketing authorization

often ranges from a year or more, and marketing authorization is never assured. If the FDA authorizes the de novo petition, the

device may be legally marketed and used as a predicate device for future 510(k) submissions. If the de novo application is denied,

the device remains in Class III and a PMA approval may be required before the device may be legally marketed in the United States.

The

advantage of the de novo classification is that it generally requires less data than a PMA. The disadvantage is that it may require

more data than a 510(k) and most often will include human clinical data. A request for de novo classification also has a longer

review time. The FDA is increasingly moving devices with slightly different proposed indication statements or different technological

features off the 510(k) path and onto the de novo path, resulting in more time and expense for the company.

A

device not eligible for 510(k) clearance or de novo classification must follow the PMA approval pathway, which requires proof

of the safety and effectiveness of the device to the FDA’s satisfaction. The cost of preparing and submitting a PMA is substantial.

Under federal law, the submission of most PMAs is additionally subject to a substantial annually adjusted application user fee.

Satisfaction of FDA PMA requirements typically takes years, and the actual time required may vary substantially based upon the

type, complexity, and novelty of the device or disease. In the future, Xtant may decide to strategically commercialize products

in the United States that would require a PMA, but there are no plans to do so at the present time.

A

PMA application must provide extensive preclinical and clinical trial data and also detailed information about the device and

its components regarding, among other things, device design, manufacturing and labeling. There is sometimes advisory panel review

of the clinical data. The FDA typically conducts a pre-approval inspection of the manufacturer’s facilities and may also

inspect the clinical trial documentation. The FDA will not approve the device unless compliance is shown with Quality System Regulation

(“QSR”) requirements, which impose elaborate testing, control, documentation and other quality assurance procedures.

During the review period, the FDA may also request additional information or clarification of information already provided, and

the FDA may issue a major deficiency letter to the applicant, requesting the applicant’s response to deficiencies communicated

by the FDA.

By

statute, the FDA has 180 days to review a filed PMA application, although the review more often occurs over a significantly longer

period of time. If its evaluation of a PMA is favorable, the FDA will issue either an approval letter, or an approvable letter.

An approvable letter usually contains a number of conditions that must be met in order to secure a final approval of the PMA application.

When and if these conditions have been fulfilled to the satisfaction of the FDA, the FDA will issue a PMA approval letter authorizing

commercial marketing of the device, subject to the conditions of approval and the limitations established in this approval letter,

if any. If the FDA’s evaluation of a PMA application or the relevant manufacturing facilities is not favorable, the FDA

will deny approval of the PMA application or issue a not approvable letter.

Even

after approval of a PMA, new PMA applications or PMA supplements may also be required for modifications to any approved device,

including modifications to the manufacturing processes, device labeling and device design, based on the findings of post-approval

studies. Supplements to a PMA often require the submission of the same type of information required for an original PMA, except

that the supplement is generally limited to that information needed to support the proposed change from the product covered by

the original PMA.

After

a medical device enters commercial distribution, numerous regulatory requirements continue to apply. These include:

● Advertising and promotion requirements;

● Restrictions on sale, distribution or use of a device;

● An order of repair, replacement or refund;

● Device tracking requirements; and

The

FDA has broad post-market and regulatory enforcement powers. Medical device manufacturers are subject to unannounced inspections

by the FDA and other state, local and foreign regulatory authorities to assess compliance with the QSR and other applicable regulations,

and these inspections may include the manufacturing facilities of any suppliers. Failure to comply with applicable regulatory

requirements can result in enforcement action by the FDA, which may include sanctions such as: warning letters, fines, injunctions,

consent decrees and civil penalties; unanticipated expenditures, repair, replacement, refunds, recall or seizure of our devices;

operating restrictions, partial suspension or total shutdown of manufacturing; the FDA’s refusal of our requests for 510(k)

clearances, de novo classification, or premarket approvals of new devices, new intended uses or modifications to existing devices;

the FDA’s refusal to issue certificates to foreign governments needed to export devices for sale in other countries; and

withdrawing 510(k) clearances, de novo marketing authorization, or premarket approvals that have already been granted; and criminal

prosecution.

International

Regulation

Many

foreign countries have regulatory bodies and restrictions similar to the FDA. International sales are subject to foreign government

regulation, the requirements of which vary substantially from country to country. The time required to obtain approval in a foreign

country or to obtain a CE Certificate of Conformity may be longer or shorter than that required for FDA approval and the related

requirements may differ. Some third-world countries accept CE Certificates of Conformity or FDA clearance or approval as part

of applications of approval for marketing of medical devices in their territory. Other countries, including Brazil, Canada, Australia

and Japan, require separate regulatory filings.

In

light of extensive new legislation in Europe, specifically the new European Medical Device Regulation (“MDR”), we

ceased selling products in the European Union (“EU”) during the third quarter of 2020 after concluding that the cost

to maintain our regulatory approvals and sell our products in the EU, especially in light of this extensive new legislation, exceeded

the benefits of doing business there for Xtant. Our revenues from sales of our products in the EU during 2020 were only $0.2 million.

Healthcare

Fraud and Abuse

Healthcare

fraud and abuse laws apply to Xtant’s business when a customer submits a claim for an item or service that is reimbursed

under Medicare, Medicaid or most other federally-funded healthcare programs. The Federal Anti-Kickback Statute prohibits, among

other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly,

in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of,

items or services for which payment may be made, in whole or in part, under federal health care programs, such as by Medicare

or Medicaid. The concerns that the Anti-Kickback Statute addresses are multiple, but primary among them are, first, that the federal

government pays/reimburses health care providers for the true acquisition cost of goods and services provided to patients served

by government programs. The government does not want, for example, health care providers obtaining manufacturer discounts which

are not disclosed to the government on cost report forms submitted for reimbursement to the government. The government wants to

be the beneficiary of such discounts. Second, for that reason, the government wants transparency in the billing process which

discloses such discounts to the government. Third, the government does not want purchasing, prescription or referral decisions

for medical devices biased by economics unrelated to the best choices for a patient.

The

Federal Anti-Kickback Statute is subject to evolving interpretations and has been applied by government enforcement officials

to a number of common business arrangements in the medical device industry. Remunerative relationships with physicians in which

manufacturers give health care providers gifts or pay for entertainment, sporting events, trips or other perquisites, may be viewed

as an attempt to buy loyalty to the manufacturer’s products. A number of states also have anti-kickback laws that establish

similar prohibitions that may apply to items or services reimbursed by government programs as well as any third-party payors,

including commercial insurers.

Further,

federal legislation, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation

Act (collectively “PPACA”), among other things, clarified the intent requirements of the Federal Anti-Kickback Statute

and the federal criminal statutes governing healthcare fraud. Specifically, a person or entity can be found to have violated the

statutes without actual knowledge of these statutes or specific intent to violate them. In addition, the PPACA amended the Social

Security Act to provide that the government may assert that a claim including items or services resulting from a violation of

the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the Federal False Claims Act or federal

civil money penalties statute. Recent amendments to the Federal False Claims Act provide that a violation of the Federal Anti-Kickback

Statute is also a violation of the Federal False Claims Act, subjecting healthcare entities to treble damages and mandatory penalties

for each false claim or statement.

Additionally,

the civil Federal False Claims Act prohibits, among other things, knowingly presenting or causing the presentation of a false,

fictitious or fraudulent claim for payment of federal funds, or knowingly making, or causing to be made, a false record or statement

material to a false or fraudulent claim to avoid, decrease or conceal an obligation to pay money to the federal government. The

purpose of the Federal False Claims Act is to prevent manufacturers from causing or inducing inappropriate prescriptions leading

to an inappropriate government reimbursement. It often comes into play where a manufacturer suggests or assists a health care

provider to bill for an off-label, uncovered use. It also can occur when the reimbursement advice given by a manufacturer results

in inappropriate reimbursement claims from “upcoding,” miscoding, “stretched” coding, the use of inappropriate

modifiers or inappropriate care settings. These behaviors can result in the government paying for products or procedures that

should not be reimbursed by the federal government. The manufacturer must be truthful and not misleading in the reimbursement

advice it gives to customers.

Actions

under the Federal False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the

name of the government. Violations of the Federal False Claims Act can result in very significant monetary penalties and treble

damages. The federal government is using the Federal False Claims Act, and the accompanying threat of significant liability, in

its investigations of healthcare companies throughout the country for a wide variety of Medicare billing practices, as well as

federal Anti-Kickback Statute violations and certain marketing practices, including off-label promotion, and has obtained multi-million

and multi-billion dollar settlements under the Federal False Claims Act in addition to individual criminal convictions under applicable

criminal statutes. Given the significant size of actual and potential settlements, it is expected that the government will continue

to devote substantial resources to investigating healthcare providers’ and suppliers’ compliance with the healthcare

reimbursement rules and fraud and abuse laws.

The

Federal False Claims Act amendments in 2009 and 2010 expanded the scope of the liability for health care entities generally to

potentially reach violations of regulatory duties, such as good manufacturing practices. There have been large settlements in

the life sciences arena related to FDA regulatory violations for promotional activities and good manufacturing practice.

Even

in instances where a company may have no actual liability, the Federal False Claims Act private citizen provisions (qui tam) allow

the filing of Federal False Claims Act actions under seal and impose a mandatory duty on the United States Department of Justice

to investigate such allegations. Most private citizen actions are declined by the Department of Justice or dismissed by federal

courts. However, the investigation costs for a company can be significant and material even if the allegations are without merit.

Federal

False Claims Act liability is potentially significant in the health industry because the statute, as adjusted for inflation, provides

for treble damages and mandatory minimum penalties of $11,665 to $23,331 per false claim or statement. Because of the potential

for large monetary exposure, health care companies resolve allegations without admissions of liability for significant and material

amounts to avoid the uncertainty of treble damages that may awarded in litigation proceedings. They may be required, however,

to enter into corporate integrity agreements with the government, which may impose substantial costs to companies to ensure compliance.

The

Federal Physician Payments Sunshine Act imposes annual reporting requirements on device manufacturers for payments and other transfers

of value provided by them, directly or indirectly, to physicians (including physician family members) and teaching hospitals,

as well as ownership and investment interests held by physicians. Effective January 2021, device manufactures are also required

to collect information on payments or transfers of value to physician assistants, nurse practitioners, clinical nurse specialists,

certified registered nurse anesthetists, and certified nurse midwives for reporting to the Centers for Medicare & Medicaid

Services (“CMS”) in 2022. A manufacturer’s failure to submit timely, accurately and completely the required

information for all payments, transfers of value or ownership or investment interests may result in civil monetary penalties of

up to an aggregate of $150,000 per year, and up to an aggregate of $1.0 million per year for “knowing failures.” Manufacturers

must submit reports by the 90th day of each calendar year. Certain states also mandate implementation of commercial compliance

programs, impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation

and other remuneration to healthcare professionals and entities. The shifting commercial compliance environment and the need to

build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions

increase the possibility that a healthcare company may fail to comply fully with one or more of these requirements.

If

a governmental authority were to conclude that Xtant is not in compliance with applicable laws and regulations, Xtant and its

officers and employees could be subject to severe criminal and civil penalties, including, for example, exclusion from participation

as a supplier of product to beneficiaries covered by Medicare, Medicaid and other federal health care programs. Our United States

operations are subject to the U.S. Foreign Corrupt Practices Act (“FCPA”). We are required to comply with the FCPA,

which generally prohibits covered entities and their intermediaries from engaging in bribery or making other prohibited payments

to foreign officials for the purpose of obtaining or retaining business or other benefits. In addition, the FCPA imposes accounting

standards and requirements on publicly traded United States corporations and their foreign affiliates, which are intended to prevent

the diversion of corporate funds to the payment of bribes and other improper payments, and to prevent the establishment of “off

books” slush funds from which such improper payments can be made. We also are subject to similar anticorruption legislation

implemented in certain foreign jurisdictions.

Coverage

and Reimbursement

Xtant’s

currently approved products are commonly treated as general supplies utilized in spinal and orthopedic surgery and if covered

by third-party payors, are paid for as part of the surgical procedure. Accordingly, healthcare providers in the United States

generally rely on third-party payors, principally private insurers and governmental payors such as Medicare and Medicaid, to cover

and reimburse all or part of the cost of a spine surgery in which Xtant products are used. Sales volumes and fees for Xtant products

will continue to depend in large part on the availability of coverage and reimbursement from such third-party payors. Third-party

payors perform analyses on new technologies to determine if they are medically necessary before providing coverage for them. These

third-party payors may still deny reimbursement on covered technologies if they determine that a device used in a procedure was

not used in accordance with the payor’s coverage policy. Particularly in the United States, third-party payors continue

to carefully review, and increasingly challenge, the prices charged for procedures and medical products.

In

the United States, a large percentage of insured individuals receive their medical care through managed care programs, which monitor

and often require pre-approval of the services that a member will receive. Some managed care programs pay their providers on a

per capita basis, which puts the providers at financial risk for the services provided to their patients by paying these providers

a predetermined payment per member per month and, consequently, may limit the willingness of these providers to use Xtant products.

The

overall escalating cost of medical products and services has led to, and will likely continue to lead to, increased pressures

on the healthcare industry to reduce the costs of products and services. Government or private third-party payors cannot be guaranteed

to cover and reimburse the procedures using Xtant products in whole or in part in the future or that payment rates will be adequate.

In addition, it is possible that future legislation, regulation or coverage and reimbursement policies of third-party payors will

adversely affect the demand for Xtant products or the ability to sell them on a profitable basis.

Internationally,

reimbursement and healthcare payment systems vary substantially from country to country and include single-payor, government-managed

systems as well as systems in which private payors and government managed systems exist side-by-side. Xtant’s ability to

achieve market acceptance or significant sales volume in international markets will be dependent in large part on the availability

of reimbursement for procedures performed using company products under the healthcare payment systems in such markets. A number

of countries may require Xtant to gather additional clinical data before recognizing coverage and reimbursement for its products.

ISO

Certification

Xtant

is an International Organization for Standardization (“ISO”) certified organization. To obtain ISO 13485:2016 certification,

an organization must demonstrate its ability to provide medical devices that consistently meet applicable customer and regulatory

requirements. The primary objective of ISO 13485:2016 is to facilitate harmonized medical device regulatory requirements for quality

management systems. All requirements of ISO 13485:2016 are specific to organizations providing medical devices, regardless of

the type or size of the organization. The certification assures our customers and partners of our commitment to quality, and in

the quality of our innovative products and processes. Additionally, we believe that our ISO 13485:2016 certification may offer

new markets and business opportunities for our products in the global marketplace.

Employees

As

of December 31, 2020, Xtant had 110 employees, all of whom were full time employees, and of whom 55 were in operations, 19 were

in sales and marketing, 3 in research and development and engineering, 11 in regulatory and quality affairs, and 22 were in administrative

functions. In addition, we make use of a varying number of outsourced services to manage normal business cycles. None of our employees

are covered by a collective bargaining agreement and management considers its relations with employees and service partners to

be good.

Corporate

Information

We

began operations in 1998 as a spin out of the Center for Biofilm Engineering at Montana State University, or the CBE, and incorporated

as “Bacterin, Inc.” in the state of Montana in January 2000. Through a series of transactions and corporate events,

we eventually became Bacterin International Holdings, Inc., a Delaware corporation (“Bacterin”). Bacterin’s

common stock traded on the NYSE Amex, now known as the NYSE American, under the ticker symbol “BONE.” On July 31,

2015, we acquired all of the outstanding capital stock of X-spine Systems, Inc. (“X-spine”) for approximately $60

million in cash, repayment of approximately $13 million of X-spine debt, and approximately 4.24 million shares (0.4 million shares

post reverse split) of Xtant common stock. As a result of this transaction, X-spine became a wholly owned subsidiary of Bacterin

International Holdings, Inc. At the close of business on July 31, 2015, we changed our corporate name to “Xtant Medical

Holdings, Inc.” On August 6, 2015, we formed a new wholly owned subsidiary, Xtant Medical, Inc., to facilitate the integration

of Bacterin and X-spine. On October 15, 2015, our common stock began trading on the NYSE MKT, now known as the NYSE American,

under the ticker symbol “XTNT.”

As

a result of debt restructuring transactions completed during first quarter of 2018 and, more recently, during fourth quarter of

2020, as described in more detail under “Part II. Item 7. Management’s Discussion and Analysis of Financial Condition

and Results of Operations” section of this Form 10-K, OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”),

which is the sole holder of our outstanding indebtedness and lender under our credit facility, and ROS Acquisition Offshore LP

(“ROS”), which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”), collectively own approximately

93.9% of our outstanding common stock as of December 31, 2020.

Our

corporate headquarters and manufacturing facility are located at 664 Cruiser Lane, Belgrade, Montana 59714. Our telephone number

is (406) 388-0480.

Controlled

Company Status

We

are a “controlled company” as defined in section 801(a) of the NYSE American Company Guide because more than 50% of

the combined voting power of all of our outstanding common stock is beneficially owned by OrbiMed.As

such, we are exempt from certain NYSE American rules requiring our Board of Directors to have a majority of independent members,

a compensation committee composed entirely of independent directors and a nominating committee composed entirely of independent

directors.

Available

Information

We

make available, free of charge and through our Internet website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,

Current Reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the

Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as reasonably practicable after we electronically

file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”). Reports filed with the

SEC also may be viewed at www.sec.gov. We include our website throughout this report for reference only. The information contained

on or connected to our website is not incorporated by reference into this report.

Item

1A. Risk Factors

Our

business and an investment in our common stock are subject to a variety of risks. The following risk factors describe some of

the material factors that could have a material adverse effect upon our business, financial condition, results of operations,

and the market price for our common stock. Many of these events are outside of our control. If any of these risks actually occur,

our business, financial condition or results of operations may be materially adversely affected. In such case, the market price

of our common stock could decline and investors in our common stock could lose all or part of their investment.

Risk

Factors Summary

This

summary is not complete and should be read in conjunction with the risk factors set forth below.

Risks

Related to Our Outstanding Indebtedness, Need for Additional Financing and Financial Condition

Risks

Related to Our Business