XTNT US Equity☆

Item 1A. Risk Factors 15

Item 1B. Unresolved Staff Comments 49

Item 2. Properties 50

Item 3. Legal Proceedings 50

Item 4. Mine Safety Disclosures 50

Item 6. Reserved 51

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 59

Item 8. Financial Statements and Supplementary Data 60

Item 9A. Controls and Procedures 83

Item 9B. Other Information 83

PART III 84

Item 10. Directors, Executive Officers and Corporate Governance 84

Item 11. Executive Compensation 90

Item 14. Principal Accounting Fees and Services 103

Item 15. Exhibit and Financial Statement Schedules 104

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 (“Exchange Act”), 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.

We

are a “smaller reporting company” as that term is defined in Rule 12b-2 promulgated under the Exchange Act. Accordingly,

this report reflects the scaled reporting requirements of smaller reporting companies as set forth in Regulation S-K, promulgated under

the Exchange Act.

i

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.

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. 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.

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. Fixation provides the constructive support necessary for reestablishing

stability, by immobilizing the regenerative site, and relieving stress. Fixation also can 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. Fixation products may be made from various metals and polymer materials.

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

Interlaminar

Stabilization 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. As of December 31, 2022, we had over 300 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.

We do not have any operations in or sales to Europe.

Donor

Procurement

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.”

In

furtherance of our mission, 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.

Competition

There

are various public and private organizations that offer both fixation and orthobiologics to their customers. Our primary competitors

include Medtronic plc, Johnson and Johnson, Zimmer Biomet Holdings, Inc., Stryker Corporation, Nuvasive, Inc., Bioventus Inc., Globus

Medical, Inc., 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.

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, 2022, our biologics patent

portfolio includes 13 issued patents in the US and 6 pending US patent applications, and our fixation portfolio includes 51 issued patents

in the US and one pending US patent application. 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®, Circle of Life®, Coflex® and CoFixTM. 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. 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 product 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;

3)

The manufacture of the HCT/P does not involve the combination of the cells or tissues with another article (with limited exceptions);

and

4)

The HCT/P does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function;

or the HCT/P has a systemic effect or is dependent upon the metabolic activity of living cells for its primary function and: is for autologous

use; is for allogeneic use in a first-degree or second-degree blood relative; or is for reproductive use.

Several

of our products, including OsteoSponge and OsteoWrap, are regulated as HCT/Ps and are therefore subject to the following regulatory requirements

under section 361 of the PHSA and 21 CFR Part 1271:

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 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

The

Center for Devices and Radiological Health regulates 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.

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.

If the de novo application is denied, the device remains in Class III and PMA approval may be required before the device may be legally

marketed in the United States. 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 and

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. 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.

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.

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. 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 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. 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”). 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. 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.

Our

operations are also 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.

Human

Capital

Mission,

Quality Policy and Core Values

Our

Mission is to “honor the gift of donation, by allowing our patients to live as full, and complete a life as possible.” Through

an effective quality system, we prioritize our commitment to our patients and donor families.

Our

Mission and quality policy reflect our core values of:

● Respect for the individual,

● Responsiveness to our customers, and

● Responsibility to our stakeholders.

Employees

As

of December 31, 2022, Xtant had 135 employees, 134 of whom were full time employees, and of whom 63 were in operations, 21 were in sales

and marketing, 3 in research and development and engineering, 16 in regulatory and quality affairs, and 23 were in administrative functions.

In addition, we utilize various 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.

Code

of Conduct

Each

employee agrees to follow our Code of Conduct, which is on our corporate website, and covers a wide range of business practices and procedures.

Recognizing that our Code of Conduct may not address every situation our employees may encounter, other resources exist to assist our

employees in their decision-making, including our management team, training and a hotline pursuant to which employees can ask questions

or report issues on an anonymous basis.

Employee

Safety, Health and Wellness

We

are committed to maintaining a safe workplace and promoting the health and wellness of our employees. We have an employee Health &

Safety Committee that is comprised of employees and recommends improvements in furtherance of employee health and safety. We also have

implemented multiple safety programs and regularly perform safety hazard evaluations within our manufacturing facility. We publish a

quarterly Safety Standard newsletter that reiterates our commitment to safety, highlights actions we have taken and intend to take to

improve employee safety, and provides practical advice to employees to keep them and their families safe. Throughout the COVID-19 pandemic,

our employees have been our first and foremost focus as we implemented a number of measures to provide a safe work environment, including

social distancing and remote work schedules.

With

respect to health and wellness, we provide our employees a variety of flexible and convenient health and wellness programs designed to

support their physical and mental health. These include, among others, medical, dental and vision coverage, health savings and flexible

spending accounts, flexible work schedules, family leave and care resources, and an employee assistance program. With respect to COVID-19,

we have encouraged our employees to get a COVID-19 vaccine by sharing information on the vaccines and where to obtain one.

Compensation

and Benefits

We

provide competitive compensation and benefits to attract and retain superior talent and to give our employees the tools to succeed both

on and off the job. In addition to salaries, our compensation and benefits, typically include annual bonuses; commission programs; a

401(k) plan with employer matching opportunities; tuition assistance; and company-sponsored short-term and long-term disability, life

and accidental death and dismemberment insurance, among others.

Employee

Engagement

We

provide all employees with the opportunity to anonymously share their opinions and feedback directly with senior management and human

resources. Submissions are analyzed to enhance the employee experience, promote retention, drive change, and leverage the overall success

of our organization.

Employee

Development and Training

We

recognize that successful execution of our strategy is dependent on attracting, developing and retaining top talent in all areas of the

business. We have a robust learning management system platform that includes several modules for employee development and training. In

addition, we have a professional development policy intended to promote professional development opportunities and provide support to

employees who want to increase the effectiveness of their performance in their current position. We encourage employees to obtain skills,

knowledge and abilities which may improve their opportunities for career advancement within our Company and the purpose of our professional

development policy is to provide our employees with the requirements for approval, time off, and reimbursement for employee training

and professional development activities.

Diversity,

Equity and Inclusion

We

strive to create a diverse workplace in which all employees feel respected, valued and empowered to reach their full potential. We define

diversity as the range of human differences, including but not limited to race, ethnicity, gender, gender identity, sexual orientation,

age, social class, physical ability or attributes, religious or ethical values system, national origin, and political beliefs.

Community

Engagement

Throughout

the year, we encourage our employees to engage in community outreach programs and we sponsor various community organizations in the Belgrade,

Montana area. As a company, we work closely with the Donate Life Community to support our industry and promote the gift of donation.

We have been an active sponsor for the Donate Life Rose Parade event since 2012 and sponsor a donor family and select employees to attend

that event each year.

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. and we immediately then changed

our corporate name to “Xtant Medical Holdings, Inc.” Soon thereafter, 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.”

Controlled

Company Status

As

a result of debt restructuring transactions completed in 2018 and 2020, OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”)

and ROS Acquisition Offshore LP (“ROS”), which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”), collectively

own approximately 67.2% of our outstanding common stock as of December 31, 2022. Because more than

50% of the combined voting power of all of our outstanding common stock is beneficially owned by OrbiMed, we are a “controlled

company” as defined in section 801(a) of the NYSE American Company Guide. 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, 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 Business

● Our growth and inventory initiatives involve risks.

● We are highly dependent on the continued availability of our facilities.

● We may be subject to product liability litigation that could be expensive.

● Our quarterly operating results are subject to substantial fluctuations.

● Our ability to deduct interest is limited.

Risks

Related to Governmental Regulation

● Loss of AATB accreditation would have a material adverse effect on us.

Risks

Related to Our Reliance on Third Parties

● We depend on third-party suppliers for products, components and raw materials.

Risks

Related to Human Capital Management

● We have limited staffing and are dependent upon key employees.

Risks

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

Risks

Related to Intellectual Property

Risks

Related to Our Information Technology, Cybersecurity and Data Protection

Risks

Related to Our Controlled Company Status

Risks

Related to Our Common Stock

● The market price of our common stock is extremely volatile.