UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 001-34951
Xtant Medical Holdings, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
664 Cruiser Lane
Belgrade, Montana
(Address of Principal Executive Offices)
20-5313323
(IRS Employer
Identification No.)
59714
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
(406) 388-0480
(Registrant’s Telephone Number, Including Area Code)
Title of each class
Common stock, par value $.000001 per share
Trading symbol(s)
XTNT
Name of each exchange on which registered
NYSE American LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer
Non-accelerated filer
☐
☒
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☒
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared
or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of the common stock held by non-affiliates as of June 30, 2021 was $22.0 million (based on the closing price of the
Company’s common stock on the last business day of the Company’s most recently completed second fiscal quarter, as reported on the NYSE American).
The number of shares of the Company’s common stock, $0.000001 par value, outstanding as of March 8, 2022 was 87,313,701.
None.
DOCUMENTS INCORPORATED BY REFERENCE
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
TABLE OF CONTENTS
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibit and Financial Statement Schedules
Form 10-K Summary
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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 ™ 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.
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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.
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Item 1. Business
Overview
PART I
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. During 2021, we launched four
new products, including most recently, a bone marrow aspirate concentrate offering, which was introduced in November 2021. We expanded our
distribution network by bringing on over 40 new agents during 2021. In furtherance of our goal to penetrate adjacent markets, we added new sales
personnel to leverage certain adjacent non-spine markets, such as the foot and ankle, cranio-maxilofacial, oncology, joint reconstruction and trauma
markets and we made progress towards this goal during 2021 by expanding our private label and original equipment manufacturer (“OEM”) sales into these
adjacent markets. Finally, one of our key growth initiatives is to add depth to our product offering through targeted 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:
● OsteoSponge is a form of demineralized bone matrix (“DBM”) made from 100% human bone. Derived from trabecular (cancellous) bone,
OsteoSponge is designed to provide a natural scaffold for cellular in-growth and expose bone-forming proteins to the healing environment.
The malleable properties of OsteoSponge enable it to conform to, and fill, most defects. Upon compressing the allograft, OsteoSponge springs
back to fill the void. OsteoSponge’s unique mechanical and osteoconductive properties in tandem with its osteoconductive potential make
OsteoSponge an ideal bone graft for use in various orthopedic practices including spine, neurology, cranial/maxillofacial, trauma,
plastic/reconstruction and general procedures where new bone growth is needed.
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● OsteoSponge SC is a form of OsteoSponge designed to fill bony defects in the subchondral region of joints.
● OsteoSelect DBM Putty is designed to be easily molded into any shape and compressed into bony voids. We have validated a low-dose, low-
temperature gamma sterilization process designed to provide maximum osteoinductive potential while still affording device level sterility.
● OsteoSelect PLUS DBM Putty combines the exceptional cohesive characteristics of OsteoSelect DBM Putty with demineralized cortical
chunks. OsteoSelect PLUS is designed to deliver differentiated handling properties and ensure patient safety through validated, terminal
sterilization. Each lot of OsteoSelect PLUS DBM is tested for osteoinductivity in vivo prior to being released. OsteoSelect PLUS is indicated
as a bone void filler and bone graft substitute in the pelvis, extremities, and posterolateral spine.
● 3Demin is a family of allografts that maximizes osteoconductivity and the osteoinductive potential of human bone. They consist of 100%
demineralized cortical bone with excellent, malleable handling characteristics, and are distributed as a sterile allograft. Our 3Demin products
are easily hydrated with any biocompatible liquid, making them an ideal option for various bone grafting applications. They are most
commonly used in spinal fusion procedures.
● OsteoFactor is a uniquely processed allograft that contains retained growth factors found within the endosteum layer of allograft bone. Unlike
the various growth factor-based products on the market today, OsteoFactor is not limited to a single growth factor but contains a wide array of
naturally occurring proteins and peptides that support bone formation and remodeling.
● OsteoVive Plus is a growth factor enriched cellular bone matrix created through a proprietary processing method. The combination of viable
cells, growth factors and DBM fibers results in an allograft containing higher concentrations of growth factors than other cellular 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
● The Certex Spinal Fixation System consists of screws, hooks, rods, and cross connectors. Various sizes of these implants are available so that
adaptations can be made to take into account pathology and individual patient anatomy. It is intended to promote fusion of the subaxial
cervical spine and cervico-thoracic junction (C3 − T3 inclusive).
● The Spider Cervical Plating System consists of simple, single step locking with 3 forms of locking feedback providing confidence in Spider
System construct and performance. Self-drilling screws preserve cancellous bone for secure screw purchase. If drilling is desired, instruments
offer optional drill guides and drill bits. A full sweep of 15° angulation can be achieved with Spider System variable screws.
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Thoracolumbar Products
● The Axle Interspinous Fusion System is a fully modular interspinous device matched to the patient’s individual anatomy and available in
multiple implantable configurations.
● The Silex Sacroiliac Joint Fusion System is a sacroiliac fixation system which actively compresses across the SI joint. Sacroiliac dysfunction
is increasingly recognized as a frequent contributor to chronic low back pain.
● The Xpress Minimally Invasive Pedicle Screw System combines minimally invasive functionality to the most common lumbar fixation
procedures — pedicle screw fixation.
● The Fortex Pedicle Screw System consists of titanium alloy bone screws, rods, cross-connectors and associated instruments. The system is
indicated for attachment to the pedicles of the thoracic, lumbar, and sacral spine.
Interbody Products
● Calix is a family of PEEK interbody spacers and precision instruments for both cervical and thoracolumbar applications. Calix PC is a
frictional titanium plasma-coated PEEK implant that provides additional biomechanical performance and end-plate visualization.
● The Axle-X Interspinous Fusion System is an internal fixation device for spinal surgery in the non-cervical spine (T1 − S1 inclusive). It is a
minimally invasive, modular interspinous fusion system with angled spikes that allows for adequate L5 − S1 engagement and other variations
in patient anatomy. The Axle-X Interspinous Fusion System is designed to provide spinal stability for lumbar fusion procedures, including the
treatment of degenerative disc disease, spinal tumors and trauma.
● The Irix-C Cervical Integrated Fusion System consists of an integrated titanium ring, surrounded by an outer PEEK ring and two screws. It is
intended for spinal fusion procedures at one level (C3 − T1 inclusive) in skeletally mature patients for the treatment of degenerative disc
disease.
● The Irix-A Lumbar Integrated Fusion System consists of an integrated titanium ring, surrounded by an outer PEEK ring and three screws. It is
intended for spinal fusion procedures at one or two contiguous levels of the lumbosacral spine (L2 − S1 inclusive) in skeletally mature
patients for the treatment of degenerative disc disease.
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, 2021, 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.
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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. 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.
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, 2021, our fixation patent portfolio includes 60 issued
patents globally, and our biologics patent portfolio includes 19 issued patents globally and 7 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.
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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. 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.
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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:
● Registration and Listing: Establishments that engage in the manufacture of HCT/Ps are required to register annually with the FDA and list
their HCT/Ps. New establishments are required to register and list their HCT/Ps within 5 days after beginning operations.
● Donor Eligibility: HCT/P establishments must screen donors for risk factors for, and clinical evidence of, relevant communicable disease
agents and diseases and communicable disease risks associated with xenotransplantation, as well as test donors for relevant communicable
disease agents.
● Good Tissue Practices: HCT/P establishments must comport with the regulatory requirements for preventing the introduction, transmission, or
spread of communicable disease. These regulations cover facilities, environmental control, equipment, supplies and reagents, recovery,
processing and process controls, labeling controls, storage, receipt, predistribution shipment, and distribution of HCT/Ps.
● Adverse Reaction Reporting: Establishments are required to investigate any adverse reaction involving a communicable disease related to an
HCT/P that the manufacturer made available for distribution. The regulatory criteria call for reporting such adverse reactions involving a
communicable disease if it is fatal, life-threatening, results in permanent impairment of a body function or permanent damage to a body
structure, or necessitates medical or surgical intervention, including hospitalization.
● Inspections: The FDA has broad post-market and regulatory enforcement powers. HCT/P manufacturers are subject to unannounced
inspections by the FDA and other state, local and foreign regulatory authorities to assess compliance with the cGTP regulations.
● Violative Product: Upon an FDA finding that there are reasonable grounds to believe that an HCT/P is a violative HCT/P because it was
manufactured in violation of applicable regulations; the HCT/P is infected or contaminated so as to be a source of dangerous infection to
humans; or an establishment is in violation of applicable regulations, the FDA may issue an order that the HCT/Ps be recalled, destroyed or
retained, take possession of and/or destroy the violative HCT/Ps, or serve upon the establishment an order to cease manufacturing.
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.
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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.
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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:
● The FDA’s Quality System Regulation (“QSR”) requirements, which require manufacturers, including third-party manufacturers, to follow
stringent design, testing, production, control, supplier/contractor selection, complaint handling, documentation and other quality assurance
procedures during all aspects of the manufacturing process;
● Labeling regulations, unique device identification requirements and FDA prohibitions against the promotion of devices for uncleared,
unapproved or off-label uses;
● Advertising and promotion requirements;
● Restrictions on sale, distribution or use of a device;
● The potential for new 510(k) clearances for certain modifications to previously 510(k) cleared devices;
● Medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a
death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to
recur;
● Medical device correction and removal reporting regulations, which require that manufacturers report to the FDA their field corrections and
product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA;
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● Recall requirements, including a mandatory recall, if there is a reasonable probability that the device would cause serious adverse health
consequences or death;
● An order of repair, replacement or refund;
● Device tracking requirements; and
● Post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness
data for the device.
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, 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.
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.
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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.
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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.
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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.” Our quality policy and core
values, which we strive to achieve and which govern how we and our employees conduct business, prioritize, make decisions, and work with one another
to achieve our Mission, are:
● Quality. Quality is first in everything we do. Our products and services will meet regulatory requirements through our effective quality
system.
● Integrity and Compliance. We do the right thing. We know and follow procedures and regulations.
● Accountability & Ownership. We make and meet our commitments.
● Teamwork & Continuous Improvement. We work together and strive to get better at everything we do.
● Respect the Gift of Donation. We serve as stewards of the safety and use of donated human tissue.
We recognize that our employees are key to our ability to achieve our Mission and live out our quality policy and core values.
Employees
As of December 31, 2021, Xtant had 118 employees, 116 of whom were full time employees, and of whom 54 were in operations, 20 were in sales
and marketing, 4 in research and development and engineering, 11 in regulatory and quality affairs, and 29 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 the COVID-19 pandemic, we have
encouraged our employees to get a COVID-19 vaccine by sharing information on the vaccines and where to obtain one.
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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 employee
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 83.7% of
our outstanding common stock as of December 31, 2021. 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.
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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
● The COVID-19 pandemic has adversely affected our business, operating results and financial condition.
● Prolonged inflation and supply chain disruptions could result in delayed product launches, lost revenue, higher costs and decreased profit
margins.
● We may not be able to compete successfully because we are smaller and have fewer financial resources and less ability to invest in the
development of new products.
● If we are unable to innovate, develop, introduce and market new products and technologies, our business may be negatively affected.
● We have completed business combinations in the past which involve risks and may do so in the future.
● Our private label and OEM business involves risks and may be subject to significant fluctuation.
● Our growth and inventory reduction initiatives may involve risks.
● Our biologics business is dependent on the availability of human donors and negative publicity could reduce demand for our biologics
products and impact the supply of available donor tissue.
● 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.
● We operate in some markets outside the United States that expose us to additional risks.
● Our ability to deduct interest is limited.
Risks Related to Governmental Regulation
● Our business is subject to extensive governmental regulation, including product approvals and clearances and healthcare fraud and abuse
laws, false claims laws, and physician payment transparency laws.
● Governmental regulation could restrict the use of our tissue products or our procurement of tissue.
● Outside of the United States, our medical devices must comply with the laws and regulations of the foreign countries in which they are
marketed, and compliance may be costly and time-consuming.
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● Modifications to our products may require new regulatory clearances or approvals or may require us to recall or cease marketing our products
until clearances or approvals are obtained.
● Our manufacturing operations are required to comply with the FDA’s and other governmental authorities’ laws and regulations regarding the
manufacture and production of medical devices.
● Even if our products are cleared or approved by regulatory authorities, they could be subject to restrictions or withdrawal from the market.
● The use, misuse or off-label use of our products may harm our image in the marketplace or result in injuries that lead to product liability suits.
● If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting
regulations and likely litigation.
● Any future product recall or voluntary market withdrawal of a product due to defects, enhancements and modifications or other reasons could
adversely affect our business and operating results.
● If we or our suppliers fail to comply with regulations pertaining to human cells, tissues, and cellular and tissue-based products or are deemed
to be biological products requiring approval of a BLA prior to being marketed, these products could be subject to withdrawal from the market
or other enforcement action.
● Loss of AATB accreditation would have a material adverse effect on us.
● Federal regulatory reforms may adversely affect our ability to sell our products and our business.
● Product pricing is subject to regulatory control, which could impact our revenue and other operating results.
● Our revenues depend upon prompt and adequate coverage and reimbursement from public and private insurers and national health systems.
● We may not receive regulatory approvals, or may experience delays in receiving regulatory approvals, from governmental authorities.
Risks Related to Our Reliance on Third Parties
● Substantially all of our revenue is conducted through independent distributors and sales agents who we do not control.
● 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 and qualified personnel, and competition for such talent is intense, especially
around Belgrade, Montana.
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Risks Related to Our Outstanding Indebtedness, Need for Additional Financing and Financial Condition
● We have incurred significant losses, expect to continue to incur losses and may need additional financing to satisfy our anticipated future
liquidity requirements.
● We have indebtedness that we may be unable to refinance or extend the maturity date of and which may substantially limit our ability to
conduct and invest in our business and the anticipated replacement of the LIBOR benchmark interest rate could affect our interest rates.
Risks Related to Intellectual Property
● We could be required to pay damages or prevented from selling our products due to intellectual property lawsuits.
● We may not be able to obtain or protect our proprietary rights relating to our products and if our patents and other intellectual property rights
do not adequately protect our products, we may lose market share to our competitors and be unable to operate our business profitably.
Risks Related to Our Information Technology, Cybersecurity and Data Protection
● We are dependent on various information technology systems, which are outdated and in need of significant upgrades or conversion to a new
enterprise resource planning system.
Risks Related to Our Controlled Company Status
● We are a “controlled company” within the meaning of the NYSE American rules since OrbiMed funds own a significant percentage of our
common stock. As such, they have the right to designate a majority of our Board of Directors, and are able to exert significant control over
our Company and management.
Risks Related to Our Common Stock
● Shares of our common stock are equity securities and subordinate to our outstanding indebtedness.
● The market price of our common stock is extremely volatile.
● We may issue additional common stock resulting in dilution, and the sale or availability for sale of substantial amounts of our common stock
or other equity securities could adversely affect the market price of our common stock.
● Our common stock may be delisted if we do not comply with the NYSE American continued listing requirements.
● Anti-takeover provisions may discourage or prevent a change in control.
● Our Amended and Restated Certificate of Incorporation (“Charter”) authorizes us to issue and designate shares of our preferred stock without
stockholder approval and designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be
initiated by our stockholders.
● We have never paid dividends and do not expect to do so in the foreseeable future.
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General Risk Factors
● We are subject to several other general risk factors, including risk regarding worldwide economic instability and social unrest; climate change;
changes in accounting standards; public company requirements; securities litigation and increased environmental, social and governance
practices scrutiny.
Risks Related to Our Business
Our business, operating results and financial condition have been and will likely continue to be materially adversely affected by the COVID-19
pandemic.
Since March 2020, the COVID-19 pandemic has caused business closures, severe travel restrictions and the implementation of social distancing
measures. In addition, the pandemic has resulted in a nationwide shortage of nurses and other healthcare and medical support personnel as well as a more
general labor shortage. At the onset of the COVID-19 pandemic and subsequently as a result of surges in cases and hospitalizations caused by the Delta and
Omicron variants, hospitals and other medical facilities have 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. Because of these circumstances, surgeons and their
patients have been, and may continue to be, required, or are choosing, to defer procedures in which our products otherwise would be used. In addition,
many facilities that specialize in procedures in which our products are used have experienced staffing shortages, temporary closures and/or reduced
operating hours. These circumstances have negatively impacted, and may continue to negatively impact, the number of elective procedures being
conducted and the ability of our employees, independent sales representatives and distributors to effectively market and sell our products, which has had
and will likely continue to have a material adverse effect on our revenues.
The resurgence in cases and hospitalizations during the second half of 2021 caused our revenues to decline as compared to the prior year periods
and the second quarter of 2021. Throughout the second half of 2021, and most acutely starting in August 2021, spine and other surgery procedure volumes
were negatively impacted in many of our key markets, due to cancellations and/or postponements of procedures as a result of increased hospitalizations,
restrictions on elective procedures, and staffing shortages, which negatively impacted our second half 2021 revenues. This reduction in elective procedures
and staffing issues have continued into the beginning of 2022, thereby continuing to negatively impact our revenues. Additionally, it is possible that
restrictions could be reinstated if there is a resurgence of cases and hospitalizations or staffing shortages could continue to persist or worsen, which would
continue to adversely impact our revenues.
The COVID-19 pandemic has also caused adverse effects on general commercial activity and the global economy, which has led to an economic
slowdown and could cause other unpredictable events in the future, any of which could adversely affect our business, operating results or financial
condition. The adverse effect of the pandemic on the broader economy has also negatively affected demand for procedures using our products and may
continue to negatively affect demand both in the near- and long-term. The pandemic also has disrupted the global supply chain, impacting our ability to
obtain raw materials, components and products. The pandemic has also adversely affected, and may continue to adversely affect, our distributors,
independent sales representatives, customers, contract manufacturers and suppliers and their respective businesses, which, in turn, have adversely affected
and may continue to adversely affect, our business and operations. As a result of this negative effect of the pandemic on the economy, one or more of our
distributors, independent sales representatives, customers, contract manufacturers and suppliers may experience financial distress, cancel, postpone or delay
orders, be unable to perform under a contract, file for bankruptcy protection, go out of business, or suffer disruptions in their business or we may need to
offer special payment terms or relief to our distributors, independent sales representatives and customers. Accordingly, we believe we are exposed to
heightened credit risk as a result of the pandemic. This could adversely impact our ability to manufacture and provide products and otherwise operate our
business, as well as increase our costs and expenses.
The COVID-19 pandemic has also led to and could continue to lead to severe disruption and volatility in the global capital markets, which could
increase our cost of future capital and adversely affect our ability to access the capital markets in the future. The decline in our revenues and adverse impact
of the pandemic on our other operating results may impact our ability to comply with our debt covenants under our credit agreements with MidCap
Financial Trust (“MidCap”) and our ability to access funding thereunder or refinance that debt or extend its maturity date. We may need to borrow funds
from alternative sources, such as other lenders and institutions or government agencies. There can be no guarantee that such borrowing will be available or
available on favorable terms or without restrictions that may otherwise impair our operating flexibility.
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The foregoing and other continued disruptions to our business as a result of COVID-19 have resulted, and could continue to result, in a material
adverse effect on our business, operating results, financial condition, prospects and the trading price of our common stock throughout 2022. Although we
continue to monitor the impact of the COVID-19 pandemic on our business, operations and financial results, the full extent to which the COVID-19
pandemic will continue to impact our business will depend on future developments that are highly uncertain and cannot be accurately predicted, including
new information that may emerge concerning COVID-19, new variants of COVID-19 that may emerge, such as Delta and Omicron, the availability,
effectiveness and acceptance of vaccines, the need for and availability of boosters, actions that federal, state and local governmental or regulatory agencies
take in response to COVID-19, the actions to contain it or treat its impact, future resurgences of the virus and its variants, the speed at which government
restrictions are lifted, patient capacity at hospitals and healthcare systems, and the willingness and ability of patients to seek care and treatment due to
safety concerns or financial hardship.
No assurance can be provided that our revenues will ever return to pre-COVID-19 levels. If our revenues continue to decline and do not recover to
pre-COVID-19 pandemic levels, we may be required to incur impairment charges to our long-lived assets and goodwill, and we could experience an
increase in the amount of excess inventory quantities on hand and be required to recognize inventory write-downs, each or all of which could adversely
affect our future results of operations.
The COVID-19 pandemic also heightens the risks in certain of the other risk factors described in this Form 10-K.
Prolonged inflation and supply chain disruptions could result in delayed product launches, lost revenue, higher costs and decreased profit margins.
A majority of our products are manufactured and sold inside of the United States, which increases our exposure to domestic inflation and fuel
price increases. Recent inflationary pressures stemming from supply chain disruptions and increased demand have resulted in increased fuel, raw material
and other costs which, if they continue for a prolonged period, may adversely affect our results of operations. We have begun to experience shortages in
certain raw materials, suppliers have been unable to meet delivery schedules due to excess demand and labor shortages, and lead times have lengthened
throughout our supply chain. Our efforts to mitigate supply chain weaknesses may not be successful or may have unfavorable effects. For example, efforts
to purchase raw materials in advance for product manufacturing may result in increased storage costs or excess supply. If our costs rise due to continuing
significant inflationary pressures or supply chain disruptions, we may not be able to fully offset such higher costs through price increases. In addition,
delays in obtaining materials from our suppliers could delay product launches or result in lost opportunities to sell our products due to their availability.
Increased costs and decreased product availability due to supply chain issues could adversely impact our revenue and/or gross margin, and could thereby
harm our business, financial condition, and results of operations.
Many competitive products exist, and we expect more will be developed. Our operating results have suffered during the past few years due to intense
competition and we may not be able to compete successfully because we are smaller and have fewer financial resources and less ability to invest in the
development of new products.
The markets for our products are highly competitive and subject to rapid and profound technological change. Our success depends, in part, on our
ability to maintain a competitive position in the development of technologies and products for use by our customers. Many of the companies developing or
marketing competitive products enjoy several competitive advantages over us, including greater financial and human resources for product development
and sales and marketing; greater name recognition; established relationships with surgeons, hospitals and third-party payors; broader product lines and the
ability to offer rebates or bundle products to offer greater discounts or incentives to gain a competitive advantage; and established sales and marketing and
distribution networks. Our competitors may develop and patent processes or products earlier than us, obtain regulatory clearances or approvals for
competing products more rapidly than us, develop more effective or less expensive products or technologies that render our technology or products
obsolete or non-competitive or acquire technologies and technology licenses complementary to our products or advantageous to our business, which could
adversely affect our business and operating results. Not all of our sales and other personnel have non-compete agreements. We also compete with other
organizations in recruiting and retaining qualified sales and management personnel. If our competitors are more successful than us in these matters, we may
be unable to compete successfully against our existing or future competitors. Our industry has been subject to increasing consolidation. Consolidation in
our industry not involving our Company could result in existing competitors increasing their market share through business combinations and result in
stronger competitors, which could have a material adverse effect on our business, financial condition, and operating results. We may be unable to compete
successfully in an increasingly consolidated industry and cannot predict with certainty how industry consolidation will affect our competitors or us.
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If we are unable to innovate, develop, introduce and market new products and technologies, we may experience a decrease in market share or revenue
if our products become obsolete, and our business and operating results would suffer.
Due to lack of funding, our research and development efforts and ability to develop new products have suffered during the past several years. We
may be unable to compete effectively with our competitors unless we can keep up with existing or new products and technologies in the markets in which
we compete. If we do not continue to innovate, develop, introduce and market new products and technologies, or if those products and technologies are not
accepted, we may not be successful. Moreover, research and development efforts require a substantial investment of time and resources before we are
adequately able to determine the commercial viability of a new product, technology, material, or innovation and our current and recent annual operating
plans have not provided for any significant investment in new products. Demand for our products also could change in ways we may not anticipate due to
evolving customer needs, changing demographics, slow industry growth rates, declines in our markets, the introduction of new products and technologies,
evolving surgical philosophies, and evolving industry standards, among others. Additionally, our competitors’ new products and technologies may beat our
products to market, may be more effective or less expensive than our products, or may render our products obsolete. It is also important that we carefully
manage our introduction of new and enhanced products and technologies. If potential customers delay purchases until new or enhanced products are
available, it could negatively impact our revenue. Our new products and technologies also could reduce demand for or render our existing products obsolete
and thus adversely affect sales of our existing products and lead to increased expense for excess and obsolete inventory.
We have completed acquisitions and business combinations in the past and our current business strategy includes targeted strategic acquisitions in the
future. Acquisitions and business combinations are risky and may harm our business, reputation, operating results and financial condition.
We have completed acquisitions and business combinations in the past, including the acquisition of X-spine Systems, Inc. in 2015, and may
complete acquisitions and business combinations in the future, especially since one of our key growth initiatives is to add depth to our product offerings
through targeted strategic acquisitions. Our ability to complete acquisitions and business combinations will depend, in part, on the availability of suitable
candidates at acceptable prices, terms, and conditions; our ability to compete effectively for acquisition candidates; and the availability of capital and
personnel to complete such acquisitions and run the acquired business effectively. Any acquisition or business combination could impair our business,
reputation, operating results and financial condition. The benefits of an acquisition or business combination may take more time than expected to develop
or integrate into our operations, and we cannot guarantee that previous or future acquisitions or business combinations will, in fact, produce any benefits.
Acquisitions and business combinations may involve a number of risks, the occurrence of which could adversely affect our business, reputation, operating
results and financial condition, including:
● diversion of management’s attention;
● disruption to our existing operations and plans;
● inability to effectively manage our expanded operations;
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● difficulties or delays in integrating and assimilating information and financial systems, operations, manufacturing processes and products of
an acquired business or other business venture or in realizing projected efficiencies, growth prospects, cost savings, and synergies;
● inability to successfully integrate or develop a distribution channel for acquired product lines;
● potential loss of key employees, customers, distributors, or sales representatives of the acquired businesses or adverse effects on existing
business relationships with suppliers, customers, distributors, and sales representatives;
● adverse impact on overall profitability if our expanded operations do not achieve the financial results projected in our valuation models;
● reallocation of amounts of capital from other operating initiatives and/or an increase in our leverage and debt service requirements to pay
acquisition purchase prices or other business venture investment costs, which could in turn restrict our ability to access additional capital
when needed or pursue other important elements of our business strategy;
● infringement by acquired businesses or other business ventures of intellectual property rights of others;
● violation of confidentiality, intellectual property and non-compete obligations or agreements by employees of an acquired business or lack of
or inadequate formal intellectual property protection mechanisms in place at an acquired business;
● inaccurate assessment of additional post-acquisition investments, undisclosed, contingent or other liabilities or problems, unanticipated costs
associated with an acquisition, and an inability to recover or manage such liabilities and costs;
● incorrect estimates made in the accounting for acquisitions and incurrence of non-recurring charges; and
● write-off of significant amounts of goodwill or other assets as a result of deterioration in the performance of an acquired business or product
line, adverse market conditions, changes in the competitive landscape, changes in laws or regulations that restrict activities of an acquired
business or product line, or as a result of a variety of other circumstances.
In addition, effective internal controls are necessary for us to provide reliable and accurate financial reports and to effectively prevent fraud. The
integration of acquired businesses may result in our systems and controls becoming increasingly complex and more difficult to manage. We devote
significant resources and time to comply with the internal control over financial reporting requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-
Oxley Act”). However, we cannot be certain that these measures will ensure that we design, implement, and maintain adequate control over our financial
processes and reporting in the future, especially in the context of acquisitions of other businesses. Any difficulties in the assimilation of acquired businesses
into our control system could harm our operating results or cause us to fail to meet our financial reporting obligations. Also, some acquisitions may require
the consent of the lenders under our credit agreements with MidCap and /or the consent of Royalty Opportunities and ROS under the Investor Rights
Agreement. We cannot predict whether such approvals would be forthcoming or the terms on which the lenders or these investors would approve such
acquisitions. These risks, among others, could be heightened if we complete a large acquisition or other business combination or multiple transactions
within a relatively short period of time.
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Our private label and OEM business, which we expect to account for an increasing percentage of our revenue, involves risks and may be subject to
significant fluctuation on a product to product basis from period to period since our customers could decide to use other OEMs.
We expect an increasing portion of our future revenues to be derived from our private label and original equipment manufacturer, or OEM,
business. This expectation is based on our plan to focus on expanding this business. We may not be successful, however, in retaining or expanding our
private label and OEM business. Our private label and OEM business, although not subject to commissions, involves lower gross margins which, if this
business increases as a percentage of our revenue, will put pressure on our future gross margins. In addition, our private label and OEM business involves
other additional risks. For example, we generally do not have long-term supply agreements covering this business so our customers could periodically
decide to use other OEMs based on cost, quality, delivery time, production capacities, competitive and regulatory considerations or other factors. Thus,
revenues from our private label and OEM customers and the products we provide them are subject to significant fluctuation on a product to product basis
from period to period. The success of our private label and OEM business is dependent upon the success of our private label and OEM customers in
creating demand for and selling the products that we manufacture for them. If our private label and OEM business significantly increases, we may
experience difficulties in staffing our manufacturing facility and meeting demand.
Our growth initiatives designed to increase our revenue and scale may not be successful and involve risks.
During 2021, we focused primarily on and during 2022 we 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. Also our key growth initiatives involve risks, including effects on our product
sales mix, which may adversely affect our gross margins and operating results. For example, a decrease in sales of our hardware products typically reduces
our gross margins. In addition, margins vary among our biologics products, so the current trend towards our fiber-based products as opposed to our
cancellous-based products may also reduce our future gross margins.
Our inventory reduction initiatives designed to improve our working capital may adversely affect our ability to fulfill demand in the future, which may
harm our business and operating results.
During 2021, we focused on inventory reduction initiatives designed to improve our working capital. While we intend to continue these initiatives
in 2022, our ability to fulfill demand may be adversely affected as a result. These initiatives may have other adverse effects on our business and operating
results, including adverse effects on our cost of sales and margins. No assurance can be provided that we will be successful in implementing our inventory
reduction initiatives or that they will improve our working capital.
Our biologics business is highly dependent on the availability of human donors. Any disruptions could cause our customers to seek alternative
providers or technologies and harm our business and operating results.
Our mission is, “honoring the gift of donation, by allowing our patients to live as full, and complete a life as possible.” Accordingly, our biologics
business is highly dependent on our ability to obtain donor cadavers as the raw material for many of our biologics products. The availability of acceptable
donors is relatively limited, and we compete with many other companies for this limited availability. The availability of donors is also impacted by
regulatory changes, general public opinion of the donor process and our reputation for our handling of the donor process. In addition, due to seasonal
changes in the mortality rates, some scarce tissues are at times in short supply. A disruption in the supply of this crucial raw material could have significant
consequences for our revenue, operating results and continued operations.
Negative publicity concerning methods of tissue recovery and screening of donor tissue in our industry could reduce demand for our biologics products
and impact the supply of available donor tissue.
Media reports or other negative publicity concerning both alleged improper methods of tissue recovery from donors and disease transmission from
donated tissue could limit widespread acceptance of some of our biologics products. Unfavorable reports of improper or illegal tissue recovery practices,
both in the United States and internationally, as well as incidents of improperly processed tissue leading to the transmission of disease, may broadly affect
the rate of future tissue donation and market acceptance of technologies incorporating human tissue. In addition, such negative publicity could cause the
families of potential donors to become reluctant to agree to donate tissue to for-profit tissue processors.
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We are highly dependent on the continued availability of our facilities and would be harmed if they were unavailable for any prolonged period of time.
Any failure in the physical infrastructure of our facilities or services could lead to significant costs and disruptions that could reduce our revenues
and harm our business, reputation and financial results. We are highly reliant on our Belgrade, Montana facilities. Any natural or man-made event that
impacts our ability to utilize these facilities could have a significant impact on our operating results, reputation and ability to continue operations. The
regulatory process for approval of facilities is time-consuming and our ability to rebuild facilities would take a considerable amount of time and expense
and cause a significant disruption in service to our customers. Further, the FDA or some other regulatory agency could identify deficiencies in future
inspections of our facilities or our supplies that could disrupt our business and harm our operating results.
We may be party to product liability litigation that could be expensive, and our insurance coverage may not be adequate in a catastrophic situation.
The manufacture and sale of medical devices and biologics expose us to significant risk of product liability claims, which are made against us
from time to time. We may incur material liabilities relating to product liability claims, including product liability claims arising out of the use of our
products, if the liabilities exceed or are not covered under our insurance program. No assurance can be provided that any amounts that we may be required
to pay to resolve such matters in the future will be within our insurance limits.
We also could experience a material design or manufacturing failure in our products, a quality system failure, other safety issues, or heightened
regulatory scrutiny that would warrant a recall of some of our products. Product liability lawsuits and claims, safety alerts and product recalls, regardless of
their ultimate outcome, could result in decreased demand for our products, injury to our reputation, significant litigation and other costs, substantial
monetary awards to or costly settlements with patients, product recalls, loss of revenue, increased regulatory scrutiny, and the inability to commercialize
new products or product candidates, and otherwise have a material adverse effect on our business and reputation and on our ability to attract and retain
customers. We currently carry product liability insurance; however, our insurance coverage may not be adequate, and our business could suffer material
adverse consequences due to product liability claims.
Our quarterly operating results are subject to substantial fluctuations, and you should not rely on them as an indication of our annual or future results.
Our quarterly revenue and operating results have varied and in the future may vary significantly, and period-to-period comparisons of our results
of operations are not necessarily meaningful and should not be relied upon as indications of our annual results or future performance. Any shortfalls in
revenue or earnings from levels expected by industry analysts or investors, as a result of such quarterly fluctuations or otherwise, could have an immediate
and significant adverse effect on the market price of our common stock in any given period. Our quarterly operating results may vary significantly due to a
combination of factors, many of which are beyond our control. These factors include, among others:
● demand for our products;
● the impact of COVID-19 on the number of elective procedures and our business and operating results;
● the level of competition;
● the number, timing, and significance of new products and product introductions and enhancements by us and our competitors;
● our ability to develop, introduce, and market new and enhanced versions of our products on a timely basis;
● the timing of or failure to obtain regulatory clearances or approvals for our products;
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● changes in pricing policies by us and our competitors;
● changes in the treatment practices of our customers;
● changes in independent sales representative or distributor relationships and sales force size and composition;
● the timing of material expense- or income-generating events and the related recognition of their associated financial impact;
● the number and mix of products sold in the quarter and the geographies in which they are sold;
● the number of selling days;
● the availability and cost of components and materials;
● the timing of orders and shipments;
● ability to obtain reimbursement for our products and the timing of patients’ use of their calendar year medical insurance deductibles;
● work stoppages or strikes in our industry;
● changes in FDA and foreign governmental regulatory policies, requirements, and enforcement practices;
● changes in accounting standards, policies, estimates, and treatments;
● restructuring, impairment, and other special charges;
● costs associated with pending and any future litigation;
● variations in cost of sales due to the amount and timing of excess and obsolete inventory charges and manufacturing variances;
● income tax fluctuations and changes in tax rules;
● general economic, social and other external factors, such as the COVID-19 pandemic, supply chain disruptions and labor shortages; and
● increases of interest rates, which can increase the cost of borrowings under our credit agreements, and generally affect the level of economic
activity.
Although our international business is not substantial, we do operate in some markets outside the United States that are subject to political, economic,
and social instability and expose us to additional risks.
Although our revenue from outside the United States comprised only 1% of our total revenue for the year ended December 31, 2021 after we
ceased selling products in the EU after concluding that the cost to maintain our regulatory approvals and sell our products in the EU, especially in light of
extensive new legislation, exceeded the benefits of doing business there for Xtant, our international sales operations nevertheless expose us and our
representatives, agents, and distributors to the following risks inherent in operating in foreign jurisdictions:
● the imposition of additional U.S. and foreign governmental controls or regulations on orthopedic implants and biologic products;
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● withdrawal from or revision to international trade policies or agreements and the imposition or increases in import and export licensing and
other compliance requirements, customs duties and tariffs, import and export quotas and other trade restrictions, license obligations, and other
non-tariff barriers to trade;
● economic instability, including economic instability caused by the COVID-19 pandemic and currency risk between the U.S. dollar and foreign
currencies, in our markets;
● a shortage of high-quality international salespeople and distributors;
● loss of any key personnel who possess proprietary knowledge or are otherwise important to our success in international markets;
● changes in third-party reimbursement policy that may require some of the patients who receive our products to directly absorb medical costs
or that may necessitate our reducing selling prices for our products;
● transportation delays and interruptions, including due to recent supply chain and shipping disruptions; and
● exposure to different legal and political standards.
Our ability to deduct interest is limited.
Our ability to deduct interest on indebtedness properly allocable to our trade or business (which excludes investment interest) is limited to an
amount equal to the sum of (i) our business interest income during the taxable year and (ii) 30% of our adjusted taxable income for such taxable year. For
taxable years beginning after 2021, our adjusted taxable income for purposes of computing the 30% limitation will be reduced by depreciation,
amortization and depletion deductions thereby causing a more restrictive limitation than that which existing for taxable years beginning prior to 2022.
Disallowed interest deductions may be carried forward indefinitely and treated as business interest paid or accrued in the succeeding taxable year.
A shift in performing more procedures in ambulatory surgical centers from hospitals as a result of the COVID-19 pandemic or otherwise would likely
put pressure on the prices of our products and margins.
To protect health care professionals involved in surgical care and their patients, we anticipate that more outpatient eligible procedures may be
performed in ambulatory surgery centers during the COVID-19 pandemic, and as its acuity declines and the healthcare system returns to a more normalized
state. We anticipate that this trend will nevertheless continue as a cost control measure with the healthcare system. Because ambulatory surgery center
facility fee reimbursement is typically less than facility fee reimbursement for hospitals and due to surgeons’ potential ownership interests in ambulatory
surgery centers, we typically experience more pressure on the pricing of our products by ambulatory surgery centers than by hospitals, and the average
price for which we sell our products to ambulatory surgery centers is less than the average prices we charge to hospitals. In addition, some surgeons may
choose to use fewer implants due to their interest in the profitability of the ambulatory surgery center. An accelerated shift of procedures using our products
to ambulatory surgery centers as a result of the COVID-19 pandemic could adversely impact the average selling prices of our products and our revenues
could suffer as a result.
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Risks Related to Governmental Regulation
Our business is subject to extensive regulation, including requirements for regulatory clearances or approvals prior to commercial distribution of our
products. If we fail to maintain regulatory clearances and approvals, or are unable to obtain, or experience significant delays in obtaining, FDA
clearances or approvals for our future products or product enhancements, our ability to commercially distribute and market these products could
suffer.
Our medical device products and operations are subject to extensive regulation by the FDA and various other federal, state and foreign
governmental authorities. Government regulation of medical devices is meant to assure their safety and effectiveness, and includes regulation of, among
other things:
● design, development and manufacturing;
● testing, labeling, packaging, content and language of instructions for use, and storage;
● clinical trials;
● product safety;
● premarket clearance and approval;
● marketing, sales and distribution (including making product claims);
● advertising and promotion;
● product modifications;
● recordkeeping procedures;
● reports of corrections, removals, enhancements, recalls and field corrective actions;
● post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or
serious injury;
● complying with the federal law and regulations requiring Unique Device Identifiers (“UDI”) on devices and their labeling and also requiring
the submission of certain information about each device to FDA’s Global Unique Device Identification Database (“GUDID”); and
● product import and export
Before a new medical device, or a new use of, or claim for, an existing product can be marketed in the United States, it must first receive either
premarket clearance under Section 510(k) of the FDCA, a de novo classification or a PMA, from the FDA, unless an exemption applies. The process of
obtaining regulatory clearances or approvals to market a medical device can be costly and time-consuming, and we may not be able to obtain these
clearances or approvals on a timely basis, if at all.
Most of our currently commercialized products have received premarket clearances under Section 510(k) of the FDCA. In the future, the FDA
may determine that our products will require the more costly, lengthy and uncertain de novo or PMA processes. If the FDA requires us to go through a
lengthier, more rigorous examination for future products or modifications to existing products than we had expected, our product introductions or
modifications could be delayed or canceled, which could adversely affect our revenue. Although we do not currently market any devices under PMA and
have not gone through the de novo classification process for marketing authorization, we cannot assure you that the FDA will not demand that we obtain a
PMA or de novo classification prior to marketing or that we will be able to obtain 510(k) clearances with respect to future products.
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The FDA can delay, limit or deny clearance or approval of a device for many reasons, including:
● we may not be able to demonstrate to the FDA’s satisfaction that our products meet the standard of “substantial equivalence” for a 510(k) or
meet the standard for the FDA to grant a petition for de novo classification;
● we may not be able to demonstrate to the FDA’s satisfaction that our products are safe and effective for their intended uses;
● the data from our pre-clinical studies (bench and/or animal) and clinical trials may be insufficient to support clearance or approval in general
or for specific, commercially desirable indications, where required;
● the manufacturing process or facilities we use may not meet applicable requirements; and
● changes in FDA clearance or approval policies or the adoption of new regulations may require additional data.
In addition, even if we do obtain clearance or approval, the FDA may not approve or clear these products for the indications that are necessary or
desirable for successful commercialization. Any delay in, or failure to receive or maintain, clearances or approvals for our products under development
could prevent us from generating revenue from these products or achieving profitability.
We are subject, directly and indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, and physician payment transparency
laws. Failure to comply with these laws may subject us to substantial penalties.
We are subject to federal and state healthcare laws and regulations pertaining to fraud and abuse, and physician payment transparency, including
false claims laws, anti-kickback laws and physician self-referral laws. Many states require compliance with different types of pricing transparency
requirements such as having a code of conduct, as well as reporting remuneration paid to health care professionals or entities in a position to influence
prescribing behavior. Violations of these federal and state laws can result in criminal and/or civil punishment, including fines, imprisonment and, in the
United States, exclusion from participation in government healthcare programs. Greater scrutiny of marketing practices in our industry has resulted in
numerous government investigations, prosecutions and settlements by various government authorities and this industry-wide enforcement activity is
expected to continue. If a governmental authority were to determine that we do not comply with these laws and regulations, the Company and our directors,
officers and employees could be subject to criminal and civil penalties, including exclusion from participation in U.S. federal healthcare reimbursement
programs.
Many of these healthcare laws inevitably influence company standards of conduct. Other laws tie into these standards as well, such as compliance
with the advertising and promotion regulations under the FDCA, the U.S. Federal Anti-Kickback Statute, the Federal False Claims Act, the Federal
Physician Payments Sunshine Act and other laws. We use many distributors and independent sales representatives in certain territories and thus rely upon
their compliance with applicable laws and regulations, such as with the advertising and promotion regulations or similar laws under countries located
outside the United States and other applicable federal, state or international laws. These laws include:
● the U.S. Federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase,
order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare
and Medicaid programs. A person or entity does not need to have actual knowledge of the Federal Anti-Kickback Statute or specific intent to
violate it to have committed a violation. In addition, 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 U.S. Federal False Claims Act; this
may constrain our marketing practices and those of our independent sales agencies, educational programs, pricing, bundling and rebate
policies, grants for physician-initiated trials and continuing medical education, and other remunerative relationships with healthcare providers;
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● federal false claims laws (such as the U.S. Federal False Claims Act) which prohibit, among other things, individuals or entities from
knowingly presenting, or causing to be presented, claims seeking payment from Medicare, Medicaid or other federal-funded third-party
payors that are false or fraudulent; this may impact the reimbursement advice we give to our customers as it cannot be inaccurate and must
relate to on-label uses of our products;
● federal criminal laws that prohibit executing a scheme to defraud any federal healthcare benefit program or making false statements relating
to healthcare matters;
● the Federal Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which
payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to
CMS, information related to payments or other “transfers of value” made to physicians (defined to include doctors, dentists, optometrists,
podiatrists and chiropractors) and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report
annually to CMS ownership and investment interests held by the physicians described above and their immediate family members and
payments or other “transfers of value” to such physician owners. We 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 CMS;
● analogous state and foreign law equivalents of each of the above federal laws, such as state anti-kickback prohibitions and false claims
prohibitions which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require
device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the
federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws
that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare
providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many
of which differ from each other and federal law in significant ways and may not have the same effect, thus complicating compliance efforts;
and
● the Federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and its implementing regulations, which created federal
criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare
matters and which also imposes certain regulatory and contractual requirements regarding the privacy, security and transmission of
individually identifiable health information.
Certain of these laws have exceptions and “safe harbors” which if met may protect certain arrangements from liability. For example, certain
financial payments that might otherwise implicate the Federal Anti-Kickback Statute will be permitted under the state if they are structured to comply with
one of various statutory exceptions or regulatory safe harbors established by the Office of Inspector General (“OIG”) of the U.S. Department of Health and
Human Services. These safe harbors include, for example, the “Discount” safe harbor which allows manufacturers of goods covered by federal payor
programs to provide discounts to their customers in the form of rebates, volume discounts and the like as long as those discounts meet the express
requirements of the safe harbor. Other safe harbors under the Anti-Kickback Statute may also apply to consulting, teaching and other personal service
arrangements we may have with physicians and marketing personnel. These safe harbors are technical in nature and failure to meet any element of a safe
harbor will cause an arrangement to lose safe harbor protection. In addition, there may not be safe harbors or exceptions for every potential financial
arrangement we may enter into and, and even if there are, no assurances can be given that any of our arrangements or relationships will meet an otherwise
applicable safe harbor.
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Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that
some of our business activities, including our relationships with customers, marketing personnel, physicians and other healthcare providers, some of whom
have or may have ownership interests in the Company and recommend and/or use our products, could be subject to challenge under one or more of such
laws. We are also exposed to the risk that our employees, independent contractors, principal investigators, consultants, vendors, and distributors may
engage in fraudulent or other illegal activity. Misconduct by these parties could include, among other infractions or violations, intentional, reckless and/or
negligent conduct or unauthorized activity that violates FDA regulations, manufacturing standards, federal and state healthcare fraud and abuse laws and
regulations, laws that require the true, complete and accurate reporting of financial information or data or other commercial or regulatory laws or
requirements. It is not always possible to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and
prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or
other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations.
In addition, state and federal healthcare regulations are constantly evolving. Existing laws and regulations are subject to new and sometimes more
restrictive interpretations on a regular basis so that arrangements we believe to be legally compliant could be deemed to be non-compliant under new
interpretations. Similarly, new federal and state health care laws and regulations are being adopted on a regular basis. While we endeavor to identify and
comply with these new laws and regulations, it is possible that we may be unaware of new legal requirements or interpretations which could result in our
violation of these laws and/or regulations.
There is also an increasing trend toward more criminal prosecutions and compliance enforcement activities for noncompliance with the HIPAA
and state data privacy laws as well as for data breaches involving protected health information (“PHI”). In the ordinary course of our business, we may
receive PHI. If we are unable to comply with HIPAA or experience a data breach involving PHI, we could be subject to criminal and civil sanctions and
incur substantial investigation, defense and remediation costs.
If our operations are found to violate any of the laws described above or any other laws and regulations that apply to us, we may be subject to
penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in
federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to market our products and materially adversely
affect our business, results of operations and financial condition. Any action against us for violation of these laws, even if we successfully defend against it,
could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business.
U.S. governmental regulation could restrict the use of our tissue products or our procurement of tissue.
In the United States, the procurement and transplantation of allograft bone tissue is subject to federal law pursuant to the National Organ
Transplant Act (“NOTA”), a criminal statute which prohibits the purchase and sale of human organs used in human transplantation, including bone and
related tissue, for “valuable consideration.” NOTA permits reasonable payments associated with the removal, transportation, processing, preservation,
quality control, implantation and storage of human bone tissue. We provide services in all of these areas in the United States, with the exception of removal
and implantation, and receive payments for all such services. We make payments to certain of our clients and tissue banks for their services related to
recovering allograft bone tissue on our behalf. If NOTA is interpreted or enforced in a manner which prevents us from receiving payment for services we
render, or which prevents us from paying tissue banks or certain of our clients for the services they render for us, our business could be materially and
adversely affected.
We are engaged through our marketing employees, independent sales agents and sales representatives in ongoing efforts designed to educate the
medical community as to the benefits of our products, and we intend to continue our educational activities. Although we believe that NOTA permits
payments in connection with these educational efforts as reasonable payments associated with the processing, transportation and implantation of our
products, payments in connection with such education efforts are not exempt from NOTA’s restrictions and our inability to make such payments in
connection with our education efforts may prevent us from paying our sales representatives for their education efforts and could adversely affect our
business and prospects. No federal agency or court has determined whether NOTA is, or will be, applicable to every allograft bone tissue-based material
which our processing technologies may generate. Assuming that NOTA applies to our processing of allograft bone tissue, we believe that we comply with
NOTA, but there can be no assurance that more restrictive interpretations of, or amendments to, NOTA will not be adopted in the future which would call
into question one or more aspects of our method of operations.
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Outside of the United States, our medical devices must comply with the laws and regulations of the foreign countries in which they are marketed, and
compliance may be costly and time-consuming. Failure to obtain and maintain regulatory approvals in jurisdictions outside the United States will
prevent us from marketing our products in such jurisdictions.
We currently market, and intend to continue to market, our products outside the United States, with the exception of the EU. To market and sell
our product in countries outside the United States, we must seek and obtain regulatory approvals, certifications or registrations and comply with the laws
and regulations of those countries. These laws and regulations, including the requirements for approvals, certifications or registrations and the time required
for regulatory review, vary from country to country. We may not obtain regulatory approvals or certifications outside the United States on a timely basis, if
at all. Clearance or approval by the FDA does not ensure approval or certification by regulatory authorities in other countries, and approval or certification
by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA. Obtaining and maintaining foreign
regulatory approvals, certifications or registrations are expensive, and we cannot be certain that we will receive or maintain regulatory approvals,
certifications or registrations in any foreign country in which we currently or plan to market our products. For example, during 2020, we ceased selling
products in the EU since the cost to maintain our regulatory approvals in the EU exceeded the benefit of doing business there. In addition, the regulatory
approval process outside the United States may include all of the risks associated with obtaining FDA clearance or approval in addition to other risks.
Modifications to our products may require new regulatory clearances or approvals or may require us to recall or cease marketing our products until
clearances or approvals are obtained.
Any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, including significant changes to a device’s
design, materials, chemical composition, energy source, or manufacturing process, or that would constitute a major change in its intended use, may require
a new 510(k) clearance, a de novo classification, or possibly a PMA. Modifications to our products that were implemented without obtaining clearance or
approval and for which FDA subsequently concludes that clearance or approval was required, may require us to recall or cease marketing the modified
devices until clearance or approval is obtained. The FDA requires device manufacturers to initially make and document a determination of whether or not a
modification requires a new approval, supplement or clearance. To do that, a manufacturer must determine if a change/modification to labeling of the
device is a “major” change to the intended use statement (previously cleared by the FDA) or if a physical change/modification to the device itself “could
significantly affect safety or effectiveness.” If the labeling change is major and/or the physical change significantly affects safety and effectiveness, the
manufacturer must file for an additional 510(k) clearance, de novo classification, or PMA for those changes before the modified device can be lawfully
marketed. If the Company concludes in its own self-determination that the changes do not meet either of the thresholds of “major “or “significantly
affects,” it may simply document those changes by way of an internal letter-to-file as part of the manufacturer’s quality system recording keeping.
However, the FDA can review a manufacturer’s decision and may disagree. The FDA will normally review a decision made by a manufacturer in a letter-
to-file during a routine plant inspection, which FDA targets to conduct every two years for high-risk (Class III) device manufacturers and certain low and
moderate risk (Class I and II) device manufacturers. In such a review the FDA may determine that a new clearance or approval was required before the
device was put into commercial distribution.
We have made modifications to our products in the past that we concluded did not require a new clearance or approval, and we may make
additional modifications in the future that we believe do not or will not require additional clearances or approvals. No assurance can be given that the FDA
would agree with any of our decisions not to seek 510(k) clearance, de novo classification, or PMA approval. The issue of whether a product modification
requires clearance or approval, as opposed to a “letter-to-file” documenting the change, is not always clear and companies rely on FDA guidance to assist
in making such decisions.
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If the FDA requires us to cease marketing and recall a modified device until we obtain a new 510(k) clearance, de novo classification, or PMA,
our business, financial condition, operating results and future growth prospects could be materially and adversely affected. Further, our products could be
subject to recall if the FDA determines, for any reason, that our products are not safe or effective. Any recall or FDA requirement that we seek additional
approvals or clearances could result in significant delays, fines, increased costs associated with modification of a product, loss of revenue and potential
operating restrictions imposed by the FDA. Obtaining clearances and approvals can be a time-consuming process, and delays in obtaining required future
clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future
growth.
Our manufacturing operations are required to comply with the FDA’s and other governmental authorities’ laws and regulations regarding the
manufacture and production of medical devices, which is costly and could subject us to enforcement action.
We and certain of our third-party manufacturers and suppliers are required to comply with the FDA’s current Good Manufacturing Practices
(“cGMP”) requirements and Quality System Regulations (“QSR”), which cover, among other things, the methods of documentation of the design, testing,
production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products. We and certain of our suppliers also are
subject to the regulations of foreign jurisdictions regarding the manufacturing process for our products marketed outside of the United States. The FDA
enforces the QSR through periodic announced (routine) and unannounced (for cause or directed) inspections of manufacturing facilities. The failure by us
or one of our third-party manufacturers or suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory
bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other
things, any of the following enforcement actions:
● untitled letters, warning letters, fines, injunctions, consent decrees, disgorgement of profits, criminal and civil penalties;
● customer notifications or repair, replacement, refunds, recall, detention or seizure of our products;
● operating restrictions or partial suspension or total shutdown of production;
● refusing or delaying our requests for 510(k) clearance, de novo classification, or PMA approval of new products or modified products;
● withdrawing 510(k) clearances, de novo classifications, or PMAs that have already been granted;
● refusal to grant export certificates for our products; or
● criminal prosecution.
Any of these actions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’
demands. We also may be required to bear other costs or take other actions that may have a negative impact on our future revenue and other operating
results. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatory
requirements, which could result in our failure to produce our products on a timely basis and in the required quantities, if at all.
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Even if our medical device products are cleared or approved by regulatory authorities, if we or our suppliers fail to comply with ongoing FDA or other
foreign regulatory authority requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions
or withdrawal from the market.
Any product that we market will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and
foreign regulatory bodies. Such oversight will cover, among other things, the product’s design and manufacturing processes, our quality system and
compliance with reporting requirements, our compliance with post-approval clinical data requirements, and our promotional activities related to our
products.
Even if regulatory clearance or approval of a product is granted, such clearance or approval may be subject to limitations on the intended uses for
which the product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the product. If the FDA
determines that our promotional materials, labeling, training or other marketing or educational activities constitute promotion of an unapproved use, it
could request that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other
federal, state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of an
unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for
reimbursement.
In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products. Later
discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or
frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR, may result in, among other things, changes to labeling,
restrictions on such products or manufacturing processes, product corrections, removal of the products from the market, voluntary or mandatory recalls, a
requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, withdrawal of regulatory clearance or approvals,
delays in or refusals of new 510(k)s, de novo requests or PMA applications, untitled letters, warning letters, refusal to grant export certificates for our
products, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and
prospects.
The use, misuse or off-label use of our products may harm our image in the marketplace or result in injuries that lead to product liability suits, which
could be costly to our business or result in FDA sanctions if we are deemed to have engaged in improper promotion of our products.
Our products currently marketed in the United States have been cleared through the FDA’s 510(k) process for use under specific circumstances.
Our promotional materials and training methods must comply with FDA and other applicable laws and regulations, including the prohibition on the
promotion of a medical device for a use that has not been cleared or approved by the FDA. We believe that the specific surgical procedures for which our
products are marketed fall within the general intended use of the surgical applications that have been cleared by the FDA. However, the FDA could
disagree and require us to stop promoting our products for those specific indications/procedures until we obtain FDA clearance or approval for them. Use
of a device outside of its cleared or approved indication is known as “off-label” use. We cannot prevent a surgeon from using our products for off-label use,
as the FDA does not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if the FDA determines that our
promotional activities, reimbursement advice or training of sales representatives or physicians constitute promotion of an off-label use, the FDA could
request that we modify our training or promotional or reimbursement materials or subject us to regulatory or enforcement actions, including, among other
things, the issuance of an untitled letter, a warning letter, injunction, seizure, disgorgement of profits, a civil fines and criminal penalties. Other federal,
state or foreign governmental authorities also might take action if they consider our promotion or training materials to constitute promotion of an uncleared
or unapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for
reimbursement. For example, the government may take the position that off-label promotion resulted in inappropriate reimbursement for an off-label use in
violation of the Federal False Claims Act for which it might impose a civil fine and even pursue criminal action. In those possible events, our reputation
could be damaged, and adoption of the products would be impaired. Although we train our sales force not to promote our products for off-label uses, and
our instructions for use in all markets specify that our products are not intended for use outside of those indications cleared for use, the FDA or another
regulatory agency could conclude that we have engaged in off-label promotion.
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There may be increased risk of injury and product liability if surgeons attempt to use our products off-label, misuse our products or do not follow
recommended user techniques and guidelines. Product liability claims are expensive to defend and could divert our management’s attention and result in
substantial damage awards against us. Furthermore, the use of our products for indications other than those indications for which our products have been
cleared by the FDA may not effectively treat such conditions, which could harm our reputation in the marketplace among surgeons and patients. Any of
these events could harm our business and operating results.
If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting
regulations, which can result in voluntary corrective actions or agency enforcement actions.
Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device
has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to a death or serious
injury if the malfunction of the device or one of our similar devices were to recur. Under the FDA’s reporting regulations applicable to HCT/Ps, we are
required to report all adverse reactions involving a communicable disease if it is fatal, life threatening, results in permanent impairment of a body function
or permanent damage to body structure, or necessitates medical or surgical intervention, including hospitalization. If we fail to report these events to the
FDA within the required timeframes, or at all, the FDA could take enforcement action against us. Any such adverse event involving our products also could
result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, such as mandatory recalls, destruction, cessation of
manufacturing, inspection or other enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit,
would require the dedication of our time and capital, distract management from operating our business, and may harm our reputation and financial results.
We are currently subject to certain product liability litigation, which could harm our business, financial condition or results of operations, especially if this
litigation requires payments in amounts that exceed our product liability insurance coverage.
Any future product recall or voluntary market withdrawal of a product due to defects, enhancements and modifications or other reasons would
significantly increase our costs.
The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products. In addition, foreign
governmental bodies have the authority to require the recall of our products in the event of material deficiencies or defects in design or manufacture.
Manufacturers may, under their own initiative, recall a product if any material deficiency in a device is found or for other reasons. A government-mandated
or voluntary recall by us or one of our distributors could occur as a result of component failures, manufacturing errors, design or labeling defects or other
deficiencies and issues. Recalls of any of our products would divert managerial and financial resources and could have an adverse effect on our financial
condition and results of operations. The FDA requires that certain recalls undertaken to reduce a risk to health be reported to the FDA within 10 working
days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are not reportable to the FDA. We may initiate
voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If the FDA disagrees with our
determinations, they could require us to report those actions as recalls. In addition, the FDA could take enforcement action for failing to report the recalls
when they were conducted.
If we or our suppliers fail to comply with regulations pertaining to human cells, tissues, and cellular and tissue-based products, these products could be
subject to withdrawal from the market or other enforcement action.
Certain of our products are regulated as HCT/Ps. Section 361 of the PHSA authorizes the FDA to issue regulations to prevent the introduction,
transmission or spread of communicable disease. HCT/Ps regulated as “361” HCT/Ps are subject to requirements relating to registering facilities and listing
products with the FDA; screening and testing for tissue donor eligibility; and current Good Tissue Practice (“cGTPs”), when processing, storing, labeling,
and distributing HCT/Ps, including required labeling information, stringent record keeping, and adverse event reporting, among other applicable
requirements and laws. The FDA regulations also have additional requirements that address sub-contracted tissue services, tracking, and donor records
review. If a tissue-based product is considered human tissue, the FDA requirements focus on preventing the introduction, transmission and spread of
communicable diseases. A product regulated solely as a 361 HCT/P is not required to undergo 510(k) premarket clearance, de novo classification or PMA.
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The FDA may inspect facilities engaged in manufacturing 361 HCT/Ps and may issue untitled letters, warning letters, or otherwise authorize
orders of retention, recall, destruction and cessation of manufacturing if the FDA has reasonable grounds to believe that an HCT/P or the facilities where it
is manufactured are in violation of applicable regulations. There also are requirements relating to the import of HCT/Ps that allow the FDA to make a
decision as to the HCT/Ps’ admissibility into the United States.
An HCT/P is eligible for regulation solely as a 361 HCT/P if it is: (i) minimally manipulated; (ii) intended for homologous use as reflected by
labeling, advertising or other indications of the manufacturer’s objective intent; (iii) the manufacture does not involve the combination of the HCT/P with
another article, except for water, crystalloids or a sterilizing, preserving, or storage agent (not raising new clinical safety concerns for the HCT/P); and (iv)
it does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function or, if it has a systemic effect or is
dependent upon the metabolic activity of living cells for its primary function, it is intended for autologous use or allogeneic use in a first or second degree
relative or for reproductive use. If any of these requirements are not met, then the HCT/P is also subject to applicable biologic, device, or drug regulation
under the FDCA or the PHSA. These biologic, device or drug HCT/Ps must comply with the requirements exclusively applicable to 361 HCT/Ps and, in
addition, with requirements applicable to biologics under the PHSA, or devices or drugs under the FDCA, including licensure, clearance or approval, as the
case may be.
Over the course of several years, the FDA issued regulations that address manufacturer activities associated with HCT/Ps. The first requires that
companies that manufacture HCT/Ps register with the FDA. This set of regulations also includes the criteria that must be met in order for the HCT/P to be
eligible for regulation solely under Section 361 of the PHSA and the regulations in 21 CFR Part 1271, rather than under the drug or device provisions of
the FDCA or the biological product licensing provisions of the PHSA. The second set of regulations provides criteria that must be met for donors to be
eligible to donate tissues and is referred to as the “Donor Eligibility” rule. The third rule governs the processing and distribution of the tissues and is often
referred to as the cGTP rule. The cGTP rule covers all stages of allograft processing, from procurement of tissue to distribution of final allografts. Together
these regulations are designed to ensure that sound, high quality practices are followed to reduce the risk of tissue contamination and of communicable
disease transmission.
At the time they came into effect approximately 15 years ago, these regulations increased regulatory scrutiny within the industry in which we
operate and have led to increased enforcement action which affects the conduct of our business. In addition, these regulations can increase the cost of tissue
recovery activities. The FDA periodically inspects tissue processors to determine compliance with these requirements. Allegations of violations of
applicable regulations noted by the FDA during facility inspections could adversely affect the continued marketing of our products. We believe we comply
with all aspects of 21 CFR Part 1271 that we are required to comply with, although there can be no assurance that we will be deemed by FDA to be in
compliance. Entities that provide us with allograft bone tissue are responsible for performing donor recovery, donor screening and donor testing and our
compliance with those aspects of the cGTP regulations that regulate those functions are dependent upon the actions of these independent entities. If our
suppliers fail to comply with applicable requirements, our products and our business could be negatively affected. If the FDA determines that we have
failed to comply with applicable regulatory requirements, it can impose a variety of regulatory actions, or enforcement actions from public warning letters,
fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals, seizure of our products, total or partial shutdown of
our production, withdrawal of approvals, and criminal prosecutions. If any of these events were to occur, it could materially adversely affect us.
In addition, the FDA could disagree with our conclusion that one or more of our HCT/Ps meet the criteria for marketing solely under Section 361
of the PHSA, and therefore that one or more of the HCT/Ps require licensure, approval or clearance of a marketing application. The FDA could conclude
that the tissue is more than minimally manipulated, that the product is intended for a non-homologous use, that the product is combined with another
article, or that the product has a systemic effect or is dependent on the metabolic activity of living cells for its primary function. The FDA could also
determine that a modification to an HCT/P makes it ineligible for regulation solely as a 361 HCT/P. If the FDA were to draw these conclusions, it would
likely require clinical studies conducted pursuant to an investigational new drug application (“IND”) and the submission and licensure, approval or
clearance of a marketing application in order for us to continue to market the product. Such an action by the FDA could cause negative publicity, decreased
or discontinued product sales, and significant expense in obtaining required marketing licensure, approval or clearance.
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Procurement of certain human organs and tissue for transplantation, including allograft tissue we may use in future products, is subject to federal
regulation under National Organ Transplant Act. NOTA prohibits the acquisition, receipt, or other transfer of certain human organs, including bone and
other human tissue, for valuable consideration within the meaning of NOTA. NOTA permits the payment of reasonable expenses associated with the
removal, transportation, implantation, processing, preservation, quality control and storage of human organs. For any future products implicating NOTA’s
requirements, we would reimburse tissue banks for their expenses associated with the recovery, storage and transportation of donated human tissue that
they would provide to us. NOTA payment allowances may be interpreted to limit the amount of costs and expenses that we may recover in our pricing for
our services, thereby negatively impacting our future revenue and profitability. If we were to be found to have violated NOTA’s prohibition on the sale or
transfer of human tissue for valuable consideration, we would potentially be subject to criminal enforcement sanctions, which could materially and
adversely affect our operating results. Further, in the future, if NOTA is amended or reinterpreted, we may not be able to pass these expenses on to our
customers and, as a result, our business could be adversely affected.
Other regulatory entities with authority over our products and operations include state agencies enforcing statutes and regulations covering tissue
banking. Regulations issued by Florida, New York, California and Maryland are particularly relevant to our business. Most states do not currently have
tissue banking regulations. It is possible that others may make allegations against us or against donor recovery groups or tissue banks about non-
compliance with applicable FDA regulations or other relevant statutes or regulations. Allegations like these could cause regulators or other authorities to
take investigative or other action or could cause negative publicity for our business and the industry in which we operate.
Loss of AATB accreditation would have a material adverse effect on us.
We are accredited with the American Association of Tissue Banks, a private non-profit organization that accredits tissue banks and sets industry
standards. Although AATB accreditation is voluntary and not required by law, as a practical matter, many of our customers would not purchase our
products if we failed to maintain our AATB accreditation. Although we make every effort to maintain our AATB accreditation, the accreditation process is
somewhat subjective and lacks regulatory oversight. There can be no assurance that we will continue to remain accredited with the AATB and any loss of
our AATB accreditation would adversely affect our business and operating results.
Federal regulatory reforms may adversely affect our ability to sell our products and our business.
From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the
regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are often
revised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or
reinterpretations of existing regulations may impose additional costs or lengthen review times of future products. In addition, FDA regulations and
guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict
whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be.
For example, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take other
actions which may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently cleared products
on a timely basis. Any change in the laws or regulations that govern the clearance and approval processes relating to our current and future products could
make it more difficult and costly to obtain clearance or approval for new products, or to produce, market and distribute existing products. Significant delays
in receiving clearance or approval or the failure to receive clearance or approval for our new products would have an adverse effect on our ability to sell our
products and our business.
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Product pricing is subject to regulatory control, which could impact our revenue and other operating results.
The pricing of our products may become subject to control by the government and other third-party payors. The continuing efforts of
governmental and other third-party payors to contain or reduce the cost of healthcare through various means may adversely affect our ability to successfully
commercialize our products. In most foreign markets, the pricing of certain diagnostics and prescription pharmaceuticals are subject to governmental
control. In the United States, we expect that there will continue to be federal and state proposals to implement similar governmental control, though it is
unclear which proposals will ultimately become law, if any. Changes in prices, including any mandated pricing, could impact our revenue and other
operating results.
Our revenues depend upon prompt and adequate coverage and reimbursement from public and private insurers and national health systems.
Political, economic and regulatory influences are subjecting the healthcare industry, including the medical device industry, in the United States to
fundamental change. The ability of healthcare providers to purchase our products depends in part on the extent to which reimbursement for the costs of
such materials and related treatments is and will continue to be available from governmental health administration authorities, private health coverage
insurers and other organizations. In the United States, healthcare providers who purchase our products generally rely on these third-party payors to pay for
all or a portion of the cost of our products as a component of a single bundled payment amount for the procedures in which the products are used. Because
there is often no separate third-party payor reimbursement to the provider for our products, the additional cost associated with purchasing our products can
impact the provider’s profit margin for delivering the treatment that includes are product as a component. If third-party payor reimbursement to providers
for procedures involving our products is eliminated or reduced, some of our target customers may be unwilling to purchase our products and may choose to
instead purchase less expensive alternatives from our competitors. In addition, third-party payors for hospital services and hospital outpatient services,
including Medicare, Medicaid and private healthcare insurers, typically revise their coverage and payment policies, methodologies and amounts on an
annual basis, which can result in noncoverage, stricter standards for reimbursement of hospital charges for certain medical procedures or the elimination of
or reduction in reimbursement. Further, Medicare, Medicaid and private healthcare insurer cutbacks could create downward price pressure on our products.
Healthcare reform legislation at the federal and state levels could result in changes in coverage of and reimbursement for our products. Finally, our
revenues also depend upon timely reimbursement data input from our independent agents. All of these factors could adversely affect our business.
Although the results of our clinical studies may support our product candidate claims, we may not receive regulatory approvals, or may experience
delays in receiving regulatory approvals, from governmental authorities.
Our ongoing research and development, pre-clinical testing and clinical study activities are subject to extensive regulation and review by
numerous governmental authorities. We are currently conducting post-market clinical studies of some of our products to gather information about these
products’ performance or optimal use. Clinical studies must be conducted in compliance with FDA regulations and local regulations, and according to
principles and standards collectively referred to as “Good Clinical Practices.” Non-compliance could result in regulatory and legal enforcement action and
also could invalidate the data. Even if our clinical studies are completed as planned, and even if our clinical studies demonstrate our product claims and that
our products are safe and effective for the proposed new indicated use, we cannot be certain that the FDA or foreign authorities and notified bodies will
agree with our conclusions. It is possible that the FDA or foreign authorities and notified bodies may deny clearance or approval of a device for any of the
following reasons:
● our inability to demonstrate to the satisfaction of the FDA or the applicable foreign authority or notified body that our products are safe or
effective for their intended uses;
● the disagreement of the FDA or foreign authorities and notified bodies with the design or implementation of our clinical trials or the
interpretation of data from pre-clinical studies or clinical trials;
● serious and unexpected adverse device effects experienced by participants in our clinical trials;
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● the data from our pre-clinical studies and clinical trials may be insufficient to support clearance or approval, where required;
● our inability to demonstrate that the clinical and other benefits of the device outweigh the risks; or
● the manufacturing process or facilities we use may not meet applicable requirements.
Delays in obtaining regulatory clearances and approvals may:
● delay or prevent commercialization of products we develop;
● require us to perform costly tests or studies;
● diminish any competitive advantages that we might otherwise have obtained; and
● reduce our ability to collect revenue.
Any delay or termination of our clinical studies will delay the filing of our product submissions and, ultimately, our ability to commercialize our
products and generate revenues. It is also possible that patient subjects enrolled in our clinical studies of our marketed products will experience adverse side
effects that are not currently part of the product’s profile and, if so, these findings may result in lower market acceptance, which could have a material and
adverse effect on our business, results of operations and financial condition.
Risks Related to our Reliance on Third Parties
Substantially all of our revenue is conducted through independent sales agents and distributors who we do not control.
Substantially all of our revenue is conducted through independent sales agents and distributors. Because the independent sales agent or distributor
often controls the customer relationships within its territory (and, in certain countries outside the United States, the regulatory relationship), there is a risk
that if our relationship with the independent sales agent or distributor ends, our relationship with the customer will be lost (and, in certain countries outside
the United States, that we could experience delays in amending or transferring our product registrations). Also, because we do not control the independent
sales agent or field sales agents of a distributor, there is a risk we will be unable to ensure that our sales processes, compliance, and other priorities will be
consistently communicated and executed by the sales agent or distributor. If we fail to maintain relationships with our key independent sales agents and
distributors or fail to ensure that our independent sales agent and distributors adhere to our sales processes, compliance, and other priorities, this could have
an adverse effect on our operations. Changes to or turnover within our independent sales agent or distributor organization or transitions to direct selling
models also could adversely affect our business if these transitions are not managed effectively. Further, independent sales agents and distributors of
companies we have acquired may decide not to renew or may decide to seek to terminate, change and/or renegotiate their relationships with us. A loss of a
significant number of our sales agent or distributors could have a material adverse effect on our business and results of operations.
One of our independent sales agents was associated with approximately 19% and 21% of our revenues during 2021 and 2020, respectively. In any
one reporting period, this independent sales agent may contribute an even larger percentage of our revenues. We do not have a long-term agreement with
this independent sales agent that requires this agent to continue selling our products on our behalf. While we anticipate that we would retain most of the
sales associated with this independent sales agent in the event that we lose this independent sales agent, the loss of this independent sales agent and the
agent’s strong relationships with customers could adversely affect our revenues and other operating results.
In addition, our success is partially dependent upon our ability to retain and motivate our independent sales agents and distributors, and their
representatives to sell our products in certain territories. They may not be successful in implementing our marketing plans. Some of our independent sales
agents and distributors do not sell our products exclusively and may offer similar products from other companies. Our independent sales agents and
distributors may terminate their contracts with us, may devote insufficient sales efforts to our products, or may focus their sales efforts on other products
that produce greater commissions or revenues for them, which could have an adverse effect on our operations and operating results.
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We depend on a limited number of third-party suppliers for products, components and raw materials and losing any of these suppliers, or their inability
to provide us with an adequate supply of materials that meet our quality and other requirements or our failure to order a sufficient supply of products,
components and raw materials, could harm our business and operating results.
Outside suppliers, some of whom are sole-source suppliers, provide us with products and raw materials and components used in manufacturing
our orthobiologics and spinal implant products. We strive to maintain sufficient inventory of products, raw materials and components so that our production
will not be significantly disrupted if a particular product, raw material or component is not available to us for a period of time, including as a result of a
supplier’s loss of its ISO or other certification, long required lead times, or other reasons, such as the supply chain and shipping disruptions experienced
throughout 2021. Despite our efforts, we sometimes experience an insufficient inventory of products, raw materials and/or components. At the end of 2019
and beginning of 2020, we experienced a supply issue with certain of our biologics and hardware products. Although this supply issue subsequently
resolved, if we fail to plan our procurement accordingly or are unable to obtain sufficient quantities of raw materials and components used in
manufacturing our orthobiologics and spinal implant products that meet our quality and other requirements on a timely basis for any reason, we may not
produce sufficient quantities of our products to meet market demand until a new or alternative supply source is identified and qualified and, as a result, we
could lose customers, our reputation could be harmed, and our business could suffer. Furthermore, an uncorrected defect or supplier’s variation in a
component or raw material that is incompatible with our manufacturing, unknown to us, could harm our ability to manufacture products.
Although we believe there are alternative supply sources, replacing our suppliers may be impractical or difficult in many instances. For example,
we could have difficulty obtaining similar products from other suppliers that are acceptable to the FDA or other foreign regulatory authorities. In addition,
if we are required to transition to new suppliers for certain components or raw materials of our products, the use of components or materials furnished by
these alternative suppliers could require us to alter our operations, and if we are required to change the manufacturer of a critical component of our
products, we will have to verify that the new manufacturer maintains facilities, procedures and operations that comply with our quality and applicable
regulatory requirements, which could further impede our ability to manufacture our products in a timely manner. Transitioning to a new supplier could be
time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performance specifications of our
products or could require that we modify the design of those systems.
Risks Related to Human Capital Management
We have limited staffing and are dependent upon key employees. In addition, our business is dependent upon a sufficient number of qualified workers
and competition for such talent is intense, especially around Belgrade, Montana, where the population is small and the labor market is tight. If we
cannot attract and retain qualified personnel or if we must increase substantially our labor costs to attract and retain qualified personnel, the growth
and success of our business, as well as our operating results and financial condition, may be adversely affected.
Our success is dependent upon the efforts of a relatively small management team and staff. We have experienced a high level of employee
turnover in past years, including members of our management team. Most recently, on January 3, 2022, we appointed a new Interim Chief Financial
Officer. We have employment arrangements in place with our executive and other officers, but none of these executive and other officers are bound legally
to remain employed with Xtant for any specific term. We do not have key person life insurance policies covering our executive and other officers or any of
our other employees. If key individuals were to leave Xtant, our business could be affected adversely if suitable replacement personnel are not recruited
quickly.
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The population around Belgrade, Montana, where our headquarters and production facilities are located, is small, and as a result, there is a limited
number of qualified personnel available in all functional areas, which has made it difficult for us to attract and retain the qualified personnel necessary for
the development and growth of our business. We have been further impacted by the recent labor shortage, which arose, in part, as a result of the COVID-19
pandemic. Our ability to maintain our productivity at competitive levels and increase production in the future may be limited by our ability to employ, train
and retain personnel necessary to meet our requirements. Companies in our industry, including us, are dependent upon an available labor pool of qualified
employees. We compete for qualified personnel with other companies, academic institutions, governmental entities, and other organizations. A shortage in
the labor pool of workers, which we believe currently exists in Belgrade, Montana, and which has worsened due to the recent labor shortage, has made it
more difficult for us to attract and retain qualified personnel. We cannot be certain that we will be able to maintain an adequate qualified labor force
necessary to operate efficiently and to support our growth strategy and operations. A tight labor market in the Belgrade, Montana area also has required us
to enhance our wages and benefit packages to attract a sufficient number of workers, and it is possible that these increased labor costs may not be effective
in recruiting and retaining a sufficient number of qualified personnel. There can be no assurance that we will be successful in retaining our current
personnel or in hiring or retaining a sufficient number of qualified personnel in the future. If we cannot attract and retain qualified personnel or if we must
increase substantially our labor costs to attract and retain qualified personnel, the growth and success of our business, as well as our operating results and
financial condition, will be adversely affected.
Risks Related to Our Outstanding Indebtedness, Need for Additional Financing and Financial Condition
We have incurred significant losses, expect to continue to incur losses and may not achieve or sustain profitability.
We have a history of incurring net losses, and at December 31, 2021, we had an accumulated deficit of $235.3 million. During the year ended
December 31, 2021, we incurred a net loss of $5.0 million. Our ability to achieve profitability will be influenced by many factors, including, among others,
the level and timing of future revenues and expenditures; development, commercialization, market acceptance and availability and supply of our products;
competing technologies and market developments; our ability to develop and introduce new products; regulatory requirements and delays; the strength of
our relationships with our independent sales agents and distributors; and our ability to attract and retain key personnel. As a result, we may continue to
incur operating losses for the foreseeable future. These losses will continue to have an adverse impact on our stockholders’ equity, and we may never
achieve or sustain profitability.
We may need additional financing to satisfy our anticipated future liquidity requirements, which financing may not be available on favorable terms, or
at all, at the time it is needed and which could reduce our operational and strategic flexibility.
Although it is difficult for us to predict our future liquidity requirements, we believe that our cash and cash equivalents and restricted cash balance
of approximately $18.4 million as of December 31, 2021, together with existing credit availability under our Credit, Security and Guarantee Agreement
(Term Loan) (the “Term Credit Agreement”) and Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Credit Agreement” and,
together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust (“MidCap”), in its capacity as agent, will be sufficient to
meet our anticipated cash requirements through at least the end of March 2023. Although we have availability under our Term Credit Agreement, our
ability to obtain additional term loans under this agreement is in the sole and absolute discretion of MidCap and the lenders. Additionally, although we have
availability under our Revolving Credit Agreement, the availability of such funds is determined based on a borrowing base equal to percentages of certain
accounts receivable and inventory. These credit facilities have a maturity date of May 1, 2026, and all of our indebtedness thereunder matures on such date.
We may require or we may seek additional funds to fund our future operations and business strategy prior to March 2023. Accordingly, there is no
assurance that we will not need or seek additional funding at any time. We may elect to raise additional funds even before we need them if market
conditions for raising additional capital are favorable. We may seek to raise additional funds through various sources, such as equity and debt financings,
additional debt restructurings or refinancings, or through strategic collaborations, license agreements or acquisition transactions. We can give no assurances
that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will
be sufficient to meet our needs or on terms acceptable to us. This is particularly true if economic and market conditions deteriorate. Any failure by us to
raise additional funds on terms favorable to us, or at all, could result in our inability to pay our expenses as they come due, limit our ability to expand our
business operations, and harm our overall business prospects. If adequate funds are not otherwise available, we could be required to curtail operations
significantly, including reducing our sales and marketing expenses, which could negatively impact product sales, delaying new product initiatives, and we
could even be required to cease operations, liquidate our assets and possibly seek bankruptcy protection.
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To the extent we raise additional financing through the sale of equity or convertible debt securities or the restructuring or refinancing of our
outstanding debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage,
or liquidation or other preferences that adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices
that represent a discount to our trading price and/or we may issue warrants to purchasers, which could dilute our current stockholders. If we issue preferred
stock, it could affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights granted to future holders of
preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and
restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include
covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Prior to raising additional equity or debt financing, we must obtain the consent of MidCap and ROS and Royalty Opportunities, parties to an Investor
Rights Agreement dated February 14, 2018 with the Company (the “Investor Rights Agreement”), and no assurance can be provided that MidCap, ROS or
Royalty Opportunities would provide such consent, which could limit our ability to raise additional financing.
We have indebtedness which matures on May 1, 2026. We may not be able to extend the maturity date of or replace our Credit Agreements or generate
enough cash flow from our operations to service our indebtedness, and we may incur additional indebtedness in the future, which could adversely
affect our business, financial condition, and operating results.
As of December 31, 2021, we had $15.6 million of principal outstanding under our Credit Agreements, which such indebtedness matures on May
1, 2026. Although we believe that we will be able to pay off our outstanding indebtedness or extend the maturity date of that facility at the appropriate time,
no assurance can be provided that we will do so on terms that are favorable to us or at all. Our ability to make payments on, and to refinance, our
indebtedness, including amounts borrowed under our Credit Agreements, and our ability to fund planned capital expenditures, contractual cash obligations,
known and unknown liabilities, research and development efforts, working capital, any future acquisitions and business combinations, and other general
corporate purposes depends on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory, and other factors, some of which are beyond our control. If we do not generate sufficient cash flow from operations or if future
borrowings are not available to us in an amount sufficient to pay our indebtedness or to fund our liquidity needs, we may be forced to refinance all or a
portion of our indebtedness on or before the maturity dates thereof, sell assets, reduce or delay capital expenditures, seek to raise additional capital, or take
other similar actions. We may not be able to execute any of these actions on commercially reasonable terms or at all. Our ability to refinance our
indebtedness will depend on our financial condition at the time, the restrictions in the instruments governing our indebtedness, the consent of our lender,
and other factors, including market conditions. Our inability to generate sufficient cash flow to satisfy our debt service obligations, or to refinance or
restructure our obligations on commercially reasonable terms or at all, would likely have an adverse effect, which could be material, on our business,
financial condition, and operating results.
In addition, our significant indebtedness, combined with our other financial obligations and contractual commitments, could have other important
consequences. For example, it could:
● make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse
changes in government regulation;
● limit our flexibility in planning for, or reacting to, changes in our business and our industry;
● restrict our ability to make strategic acquisitions, business combinations or dispositions or to exploit business opportunities;
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● place us at a competitive disadvantage compared to our competitors who have less debt; and
● limit our ability to borrow additional amounts or raise financing for working capital, capital expenditures, contractual obligations, research
and development efforts, acquisitions or business combinations, debt service requirements, execution of our business strategy, or other
purposes.
Any of these factors could materially and adversely affect our business, financial condition, and operating results. In addition, we may incur
additional indebtedness, and if we do, the risks related to our business and our ability to service our indebtedness would increase.
A failure to comply with the covenants and other provisions of our Credit Agreements may cause suspension or termination of the Credit
Agreements and/or require the immediate repayment of our outstanding indebtedness. If we are at any time unable to generate sufficient cash flows from
operations to service our indebtedness when payment is due, we may be required to attempt to renegotiate the terms of the Credit Agreements, seek to
refinance all or a portion of the indebtedness, or obtain additional financing. There can be no assurance that we will be able to successfully renegotiate such
terms, that any such refinancing would be possible, or that any additional financing could be obtained on terms that are favorable or acceptable to us.
The terms of our Credit Agreements substantially limit our ability to conduct and invest in our business, take advantage of business opportunities, and
respond to changing business, market, and economic conditions.
Our Credit Agreements include a number of significant financial and operating restrictions. For example, the agreements contain financial
covenants that, among other things, require us to maintain a minimum liquidity covenant, as defined in the agreements, and contain provisions that restrict
our ability, subject to specified exceptions, to, among other things:
● create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to any debt, except for permitted debt;
● create, assume, incur or suffer to exist any contingent obligations, except for permitted contingent obligations;
● purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any debt prior to its
scheduled maturity;
● create, assume or suffer to exist any lien on our assets;
● declare, order, pay, make or set apart any sum for any distribution, except for permitted distributions;
● enter into or assume any agreement prohibiting the creation or assumption of any lien upon our properties or assets or create or otherwise
cause or suffer to exist or become effective certain consensual encumbrances or restrictions of any kind;
● declare, pay, make or set aside any amount for payment in respect of subordinated debt;
● engage in mergers or consolidations;
● acquire, make, own, hold or otherwise consummate any investment, other than permitted investments;
● enter into certain transactions with affiliates;
● amend or otherwise modify any organizational documents; and
● make certain amendments or modifications to certain material contracts.
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We may be unable to comply with these covenants, which could result in a default under the Credit Agreements. In addition, these provisions may
limit our ability to conduct and invest in our business, take advantage of business opportunities, and respond to changing business, market, and economic
conditions. In addition, they may place us at a competitive disadvantage relative to other companies that may be subject to fewer, if any, restrictions or may
otherwise adversely affect our business. Transactions that we may view as important opportunities, such as significant acquisitions or business
combinations, may be subject to the consent of the lenders, which consent may be withheld or granted subject to conditions specified at the time that may
affect the attractiveness or viability of the transaction. In addition, our Investor Rights Agreement with ROS and Royalty Opportunities further substantially
limits the operation of our business and the ability of our management to conduct and invest in our business.
Our Credit Agreements involve additional risks that may adversely affect our liquidity, results of operations, and financial condition.
Availability of additional term loans under the Term Credit Agreement is based solely on the discretion of MidCap and the lenders, and additional
funds are for the purposes agreed to between us, the borrowers and the lenders in advance of the making of loans under this additional tranche. Availability
of additional funds under the Revolving Credit Agreement is determined based on a borrowing base equal to percentages of certain accounts receivable and
inventory of the borrowers in advance with a formula set forth in the Revolving Credit Agreement. As a result, our access to credit under the Credit
Agreements is subject to the discretion of MidCap and the lenders as well as fluctuations to our accounts receivable and inventory. Our inability to borrow
additional amounts under the Credit Agreements if and when we need them may adversely affect our liquidity, results of operations, and financial
condition.
Our outstanding indebtedness under the Credit Agreements bears interest at variable rates, which subjects us to interest rate risk and could increase
the cost of servicing our indebtedness. The impact of increases in interest rates could be more significant for us than it would be for some other companies
because of the amount of our outstanding indebtedness, thereby affecting our profitability. Upon the occurrence and during the continuance of an event of
default under the Credit Agreements, MidCap may terminate its commitments to lend additional money thereunder and declare all amounts outstanding
thereunder to be immediately due and payable. Subject to certain exceptions, amounts outstanding under the Credit Agreements are secured by a senior first
priority security interest in substantially all existing and after-acquired assets of our Company and each borrower. Accordingly, under certain
circumstances, MidCap could seek to enforce security interests in our assets securing our indebtedness under the Credit Agreements, including restricting
our access to collections on our accounts receivable. Any acceleration of amounts due under our Credit Agreements or the exercise by MidCap of its rights
under the security documents, would have a material adverse effect on us.
We may be unable to meet financial or other covenant requirements in our Credit Agreements, and we may be unable to successfully negotiate waivers
to cure any covenant violations.
Our Credit Agreements contain representations, warranties, fees, affirmative and negative covenants, including a minimum liquidity covenant and
substantial operating covenants, and default provisions. A breach of any of these covenants could result in a default under the agreement. Upon the
occurrence and during the continuance of an event of default under the Credit Agreements, MidCap could elect to declare all amounts outstanding under
the credit facility to be immediately due and payable and suspend or terminate all commitments to extend further credit. If MidCap accelerates the
repayment of borrowings, we may not have sufficient assets to repay our indebtedness. Also, should there be an event of default, or should we need to
obtain waivers following an event of default, we may be subject to higher borrowing costs and/or more restrictive covenants in future periods. In addition,
to secure the performance of our obligations under the Credit Agreements, we pledged substantially all of our assets, including our intellectual property, to
MidCap and the lenders. Our failure to comply with the covenants under the Credit Agreements could result in an event of default, the acceleration of our
debt and the loss of our assets.
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The anticipated replacement of the LIBOR benchmark interest rate could affect interest rates under our Credit Agreements, which may adversely
impact our business, operating results and financial condition.
In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”), which
is widely used as a reference for setting the interest rates on loans, announced its intention to phase out LIBOR by the end of 2021. On November 30, 2020
the ICE Benchmark Administration (“IBA”), with the support of the United States Federal Reserve and the FCA, announced its intention to extend
publication of most U.S. dollar LIBOR tenors to June 30, 2023. On March 5, 2021, IBA confirmed it would cease publication of Overnight, 1, 3, 6 and 12
month U.S. dollar LIBOR tenors immediately following the LIBOR publication on June 30, 2023. IBA also ceased publishing 1 Week and 2 Month USD
LIBOR settings immediately following the LIBOR publication on December 31, 2021. The U.S. Federal Reserve, in conjunction with the Alternative
Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing LIBOR with the Secured
Overnight Financing Rate (“SOFR”), a new index calculated based on transactions in the market for short-term treasury securities.
If LIBOR ceases to exist before our Credit Agreements are terminated, MidCap may choose to replace LIBOR with a reasonably comparable
index or source together with corresponding adjustments to the applicable margin or scale factor, spread adjustment or floor such that the new index
preserves the current all-in yield as the basis of such margin, consistent with such determinations made by MidCap with respect to other arrangements in
which it serves in a similar capacity. The result of this adjustment may cause us to attempt to renegotiate the Credit Agreements, since borrowings
thereunder are indexed to LIBOR. Any such adjustment or renegotiation may increase or otherwise affect interest rates under our Credit Agreements. We
are evaluating the potential impact of the eventual replacement of LIBOR, including the possibility of SOFR as the dominant replacement. However, we
are not able to predict whether LIBOR will cease to be available after June 30, 2023, the effective of any replacement for LIBOR that may be chosen by
MidCap, whether SOFR will become a widely accepted benchmark in place of LIBOR and if so, whether it will be chosen by MidCap as the replacement
for LIBOR, or what the impact of a transition from LIBOR may be on our business, results of operations and financial condition.
Risks Related to Intellectual Property
If we lose any future intellectual property lawsuits, a court could require us to pay significant damages or prevent us from selling our products.
The medical device industry is litigious with respect to patents and other intellectual property rights. Companies in the medical device industry
have used intellectual property litigation to gain a competitive advantage. Legal proceedings, regardless of the outcome, could drain our financial resources
and divert the time and effort of our management. If we lose this litigation or any other similar legal proceedings of which we may become subject, a court
could require us to pay significant damages to third parties, indemnify third parties from loss, require us to seek licenses from third parties, pay ongoing
royalties, redesign our products, or prevent us from manufacturing, using, selling, offering for sale, or importing our products. 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 been subject to patent infringement claims in the
past. There can be no assurances that we do not infringe any patents or other proprietary rights. In addition to being costly, protracted litigation to defend or
prosecute our intellectual property rights could result in our customers or potential customers deferring or limiting their purchase or use of the affected
products until resolution of the litigation.
If our patents and other intellectual property rights do not adequately protect our products, we may lose market share to our competitors and be unable
to operate our business profitably.
We rely on patents, trade secrets, copyrights, know-how, trademarks, license agreements, and contractual provisions to establish our intellectual
property rights and protect our products. These legal means, however, afford only limited protection and may not completely protect our rights. For
example, competitors may be able to design around some of our intellectual property rights to develop competing but non-infringing technologies. In
addition, we cannot be assured that any of our pending patent applications will issue. The U.S. Patent and Trademark Office (or an applicable foreign
intellectual property office) may deny or require a significant narrowing of the claims in its pending patent applications and the patents issuing from such
applications. Any patents issuing from pending patent applications may not provide us with significant commercial protection or sufficient commercial
protection to prevent competitors from utilizing similar but non-infringing technologies. We could incur substantial costs in proceedings before the U.S.
Patent and Trademark Office. These proceedings could result in adverse decisions as to the priority of our inventions and the narrowing or invalidation of
claims in issued patents. In addition, 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 U.S. laws or at all. We also may be unable to protect our rights in trade secrets and unpatented proprietary technology in these countries.
Additionally, patents and certain other intellectual property rights are not perpetual, and third parties will be able to utilize the subject rights upon
expiration.
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In addition, we hold licenses from third parties that are necessary to utilize certain technologies used in the design and manufacturing of some of
our products. The loss of such licenses could prevent us from manufacturing, marketing, and selling these products, which could harm our business. If we,
or the other parties from whom we would license intellectual property, fail to obtain and maintain adequate patent or other intellectual property protection
for intellectual property used in our products, or if any protection is reduced or eliminated, others could use the intellectual property used in our products,
resulting in harm to our competitive business position.
We seek to protect our trade secrets, know-how, and other unpatented proprietary technology, in part, with confidentiality agreements with our
employees, independent distributors, and consultants. We cannot be assured, however, that the agreements will not be breached, adequate remedies for any
breach would be available, or our trade secrets, know-how, and other unpatented proprietary technology will not otherwise become known to or
independently developed by our competitors.
We may not be able to obtain or protect our proprietary rights relating to our products without resorting to costly and time-consuming litigation.
We may not be able to obtain, maintain and protect certain proprietary rights necessary for the development and commercialization of our products
or product candidates. Our commercial success will depend in part on obtaining and maintaining patent protection on our products, successfully asserting
these patents against competitors employing infringing technology, and successfully defending these patents against third-party challenges. Even if our
patents cover a competing technology, a competitor may not accede to our demands to cease and desist or license our patent rights, which will then require
us to pursue costly and time-consuming litigation. Even if we were successful in any such litigation, a court may not issue an injunction, or the infringing
competitor may alter its technology to no longer infringe. Our ability to commercialize our products will also depend in part on the patent positions of third
parties, including those of our competitors. The patent positions of medical device and biotechnology companies can be highly uncertain and involve
complex legal and factual questions. Accordingly, we cannot predict with certainty the scope and breadth of patent claims that may be afforded to other
companies’ patents. We could incur substantial costs in litigation if we are required to defend against patent suits brought by third parties, or if we initiate
suits to protect our patent rights. Such suits that we may need to defend extend beyond suits by our competitors and may include patent assertion entities,
which acquire and assert patents as a means to generate income, due to the expensive nature of patent litigation. In the ordinary course of litigation,
attorney fees are not recoverable.
In addition to the risks involved with patent protection, we also face the risk that our competitors will infringe on our trademarks. Any
infringement could lead to a likelihood of confusion and could result in lost sales. Similarly, while we are cautious to avoid infringing the rights of third
parties, we cannot control a third party asserting its trademarks against us. There can be no assurance that we will prevail in any claims we make to protect
our intellectual property, or in defense of any claims brought against us.
Future protection for our proprietary rights is uncertain which may impact our ability to successfully compete in our industry. The degree of future
protection for our proprietary rights is uncertain. We cannot ensure that:
● we were the first to make the inventions covered by each of our patent applications;
● we were the first to file patent applications for these inventions;
● others will not independently develop similar or alternative technologies or duplicate any of our technologies;
● any of our pending patent applications will result in issued patents;
● any of our issued patents or those of our licensors will be valid and enforceable;
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● any patents issued to us or our collaborators will provide a basis for commercially viable products or will provide us with any competitive
advantages or will not be challenged by third parties;
● any of our patent or other intellectual property rights in the U.S. and the technologies embodied therein will provide or be subject to similar or
any protection in foreign markets;
● we will develop additional proprietary technologies that are patentable;
● the patents of others will not have a material adverse effect on our business rights; or
● the measures we rely on to protect the intellectual property underlying our products will be adequate to prevent third parties from using our
technology, all of which could harm our ability to compete in the market.
Risks Related to Information Technology, Cybersecurity and Data Protection
We are dependent on various information technology (“IT”) systems, and failures of, interruptions to, or unauthorized tampering with those systems
could have a material adverse effect on our business.
We rely extensively on IT systems to conduct business. Our reliance on IT systems increased as work from home arrangements were necessitated
by the COVID-19 pandemic. These systems include, but are not limited to, ordering and managing materials from suppliers, converting materials to
finished products, invoicing and shipping products to customers, processing transactions, summarizing and reporting results of operations, complying with
regulatory, legal or tax requirements, and providing data security and other processes necessary to manage our business.
In addition, if our systems are damaged or cease to function properly due to any number of causes, ranging from catastrophic events to power
outages to security breaches, and our business continuity plans do not effectively compensate for this on a timely basis, we may suffer interruptions in our
ability to manage operations. Increased global cybersecurity vulnerabilities, threats and more sophisticated and targeted cybersecurity attacks pose a risk to
the security of our systems and networks and those of our customers, suppliers, independent sales agents, distributors and third-party service providers, and
the confidentiality, availability and integrity of any underlying information and data. Work from home arrangements may increase cybersecurity risks
related to phishing, malware, and other similar cybersecurity attacks. We have programs, processes and technologies in place to prevent, detect, contain,
respond to and mitigate security related threats and potential incidents. We undertake considerable ongoing improvements to our IT systems in order to
minimize vulnerabilities, in accordance with industry and regulatory standards. Because the techniques used to obtain unauthorized access change
frequently and can be difficult to detect, anticipating, identifying or preventing these intrusions or mitigating them if and when they occur may be
challenging. During 2021, one of our employees was the victim of phishing scheme and as a result we paid three fraudulent invoices. Although the amount
involved was immaterial, management brought the matter to the attention of the Audit Committee of the Board of Directors and immediately implemented
a remediation plan in response thereto. Despite the remediation plan, no assurance can be provided that we will not become subject to another or similar
attack, especially when our cybersecurity protection is dependent at least to some extent on the lack of human error.
Our IT systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new
systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards. We also outsource certain
elements of our IT systems to third parties that, as a result of this outsourcing, could have access to certain confidential information and whose systems
may also be vulnerable to these types of attacks or disruptions. There can be no assurance that our protective measures or those of these third parties will
prevent or detect security breaches that could have a significant impact on our business, reputation, operating results and financial condition. The failure of
these systems to operate or integrate effectively with other internal, customer, supplier or third-party service provider systems and to protect the underlying
IT system and data integrity, including from cyber-attacks, intrusions or other breaches or unauthorized access of these systems, or any failure by us to
remediate any such attacks or breaches, may also result in damage to our reputation or competitiveness, delays in product fulfillment and reduced
efficiency of our operations, and could require significant capital investments to remediate any such failure, problem or breach, all of which could
adversely affect our business, operating results and financial condition. We maintain cyber liability insurance; however, this insurance may not be sufficient
to cover the financial, legal, business or reputational losses that may result from an interruption or breach of our systems.
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Our current enterprise resource planning (“ERP”) system is outdated and in need of a, upgrade or conversion to a new ERP system.
Although we have made upgrades to our ERP system, it is still outdated and in need of significant additional upgrades or conversion to a new ERP
system. Implementing new or upgraded systems carries substantial risk, including failure to operate as designed, failure to properly integrate with our
systems, potential loss of data or information, cost overruns, implementation delays, and disruption of operations. Third-party vendors are also relied upon
to design, program, maintain, and service the ERP system. Any failures of these vendors to properly deliver their services could have a material adverse
effect on our business. In addition, any disruptions or malfunctions affecting our ERP system implementation plan could cause critical information upon
which we rely to be delayed, defective, corrupted, inadequate, or inaccessible. We may experience difficulties in our business operations, or difficulties in
operating our business under these systems, either of which could disrupt our operations, including our ability to timely invoice customers, ship and track
product orders, project inventory requirements, manage our supply chain, effectively manage customer accounts receivable and pay suppliers within terms
and otherwise adequately service our customers, and could lead to increased costs and other difficulties. In the event we experience significant disruptions
as a result of the implementation or upgrade of new systems or otherwise, we may not be able to fix our systems in an efficient and timely manner. We may
not realize the benefits we anticipate should all or part of the ERP system upgrade implementation process prove to be ineffective. Accordingly, such events
may disrupt or reduce the efficiency of our entire operations and have a material adverse effect on our operating results and cash flows.
Risks Related to Our Controlled Company Status
Funds affiliated with OrbiMed own a significant percentage of our common stock, have the right to designate a majority of our Board of Directors, and
are able to exert significant control over matters subject to stockholder approval, preventing other stockholders and new investors from influencing
significant corporate decisions.
ROS and Royalty Opportunities collectively owned approximately 84% of our outstanding common stock as of December 31, 2021. We are party
to an Investor Rights Agreement with ROS and Royalty Opportunities under which they are permitted to nominate a majority of the directors and designate
the chairperson of our Board of Directors at subsequent annual meetings, as long as they maintain an ownership threshold in our Company of at least 40%
of our then outstanding common stock. If ROS and Royalty Opportunities are unable to maintain this ownership threshold, the Investor Rights Agreement
contemplates a reduction of nomination rights commensurate with their ownership interests. In addition, under the Investor Rights Agreement, for so long
as the ownership threshold is met, we must obtain the approval of a majority of our common stock held by ROS and Royalty Opportunities to proceed with
the following actions: (i) issue new securities; (ii) incur over $250,000 of debt in a fiscal year; (iii) sell or transfer over $250,000 of our assets or businesses
or our subsidiaries in a fiscal year; (iv) acquire over $250,000 of assets or properties in a fiscal year; (v) make capital expenditures over $125,000
individually, or $1,500,000 in the aggregate during a fiscal year; (vi) approve our annual budget; (vii) hire or terminate our chief executive officer; (viii)
appoint or remove the chairperson of our Board of Directors; and (ix) make loans to, investments in, or purchase, or permit any subsidiary to purchase, any
stock or other securities in another entity in excess of $250,000 in a fiscal year. As long as the ownership threshold is met, we may not increase the size of
our Board of Directors beyond seven directors without the approval of a majority of the directors nominated by ROS and Royalty Opportunities. The
Investor Rights Agreement also grants ROS and Royalty Opportunities the right to purchase from us a pro rata amount of any new securities that we may
propose to issue and sell.
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Because of their significant share ownership and control, OrbiMed has the ability to exert substantial influence or actual control over our
management and affairs and over substantially all matters requiring action by our stockholders and Board of Directors, including amendments to our
Charter, Second Amended and Restated Bylaws (“Bylaws”), election and removal of directors, the appointment of management, future issuances of our
common stock or other securities, payment of dividends, if any, on our common stock, the incurrence or modification of indebtedness by us, any proposed
merger, consolidation or sale of all or substantially all of our assets and other corporate transactions, as well as certain day-to-day decisions involved in
operating our business, such as annual operating plans, capital expenditures and other investments in our business. The interests of OrbiMed may not
necessarily in all cases be aligned with management’s views on the operation of our business or the interests of our other stockholders. In addition,
OrbiMed and their affiliates may have an interest in pursuing acquisitions, divestitures and other transactions or not pursuing such transactions that, in their
judgment, could enhance or reduce their investment, even though such transactions might involve risks to our other stockholders. For example, OrbiMed
could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue-generating assets. In addition, OrbiMed and their affiliates
are able to determine the outcome of all matters requiring stockholder approval and are able to cause or prevent a change of control of our Company or a
change in the composition of our Board of Directors and could preclude any acquisition of our Company. This concentration of voting control could
deprive our other stockholders of an opportunity to receive a premium for their shares of common stock as part of a sale of our Company and ultimately
might affect the market price of our common stock.
We are a “controlled company” within the meaning of the NYSE American rules and rely on exemptions from various corporate governance
requirements that provide protection to stockholders of other companies.
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 Advisors LLC. As a “controlled company,” 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. These independence standards are intended to ensure that
directors who meet those standards are free of any conflicting interest that could influence their actions as directors. We rely on NYSE American’s
controlled company exemptions and do not have a majority of independent directors on the Board of Directors, an independent nomination and governance
committee or an independent compensation committee. Accordingly, our stockholders do not have the same protections afforded to stockholders of
companies that are subject to all of the corporate governance requirements of the NYSE American rules.
Risks Related to Our Common Stock
Shares of our common stock are equity securities and are subordinate to our outstanding indebtedness.
Shares of our common stock are common equity interests. This means that our common stock will rank junior to any outstanding shares of our
preferred stock that we may issue in the future or to the indebtedness under our Credit Agreements and any future indebtedness we may incur and to all
creditor claims and other non-equity claims against us and our assets available to satisfy claims on us, including claims in a bankruptcy or similar
proceeding. Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of our common
stock, (i) dividends are payable only when and if declared by our Board of Directors, and (ii) as a corporation, we are restricted to making dividend
payments and redemption payments out of legally available assets. We have never paid a dividend on our common stock and have no current intention to
pay dividends in the future. In addition, our Credit Agreements preclude us from paying dividends. Furthermore, our common stock places no restrictions
on our business or operations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to
stockholders generally.
Our inability to comply with the continued listing requirements of the NYSE American could result in our common stock being delisted, which could
affect its market price and liquidity and reduce our ability to raise capital.
We are required to meet certain qualitative and financial tests to maintain the listing of our common stock on the NYSE American. If we do not
maintain compliance with the continued listing requirements for the NYSE American within specified periods and subject to permitted extensions, our
common stock may be recommended for delisting (subject to any appeal we would file). On October 5, 2020, we regained compliance with these continued
listing requirements as a result of the completion of our August 2020 debt restructuring. No assurance can be provided that we will continue to comply with
these continued listing requirements, especially in light of the significant decrease in the value of our common stock during the past year. If our common
stock were delisted, it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our stock could suffer a
material decline. Delisting would also impair our ability to raise capital.
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The market price of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of the
investment of our stockholders to sudden decreases.
The market price for securities of medical device and biotechnology companies, including ours, historically has been highly volatile, and the
market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. The
trading volume and prices of our common stock have been and may continue to be volatile and could fluctuate widely due to factors both within and
beyond our control. During 2021, the sale price of our common stock ranged from $0.56 to $6.58 per share, and our daily trading volume ranged from 12.9
thousand to 218.8 million shares. Such volatility may be the result of broad market and industry factors. Future fluctuations in the trading price or liquidity
of our common stock may harm the value of the investment of our stockholders in our common stock. Factors that may have a significant impact on the
market price and marketability of our common stock include, among others:
● the terms of any potential future transaction(s) related to debt financing, debt restructuring or capital raising;
● our ability to make interest payments under our Credit Agreements;
● our observance of covenants under our Credit Agreements;
● announcements of technological innovations or new commercial products by us or our present or potential competitors;
● developments or disputes concerning patent or other proprietary rights;
● developments in our relationships with employees, suppliers, distributors, sales representatives and customers;
● acquisitions or divestitures;
● litigation and government proceedings;
● adverse legislation, including changes in governmental regulation;
● third-party reimbursement policies;
● additions or departures of key personnel;
● sales of our equity securities by our significant stockholders or management or sales of additional equity securities by our Company;
● changes in securities analysts’ recommendations;
● short selling;
● changes in health care policies and practices;
● the delisting of our common stock or halting or suspension of trading in our common stock by the NYSE American;
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● economic, social and other external factors, such as the COVID-19 pandemic, supply chain disruptions, labor shortages and persistent
inflation; and
● general market conditions.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted.
These lawsuits often seek unspecified damages, and as with any litigation proceeding, one cannot predict with certainty the eventual outcome of pending
litigation. Furthermore, we may have to incur substantial expenses in connection with any such lawsuits and our management’s attention and resources
could be diverted from operating our business as we respond to any such litigation. We maintain insurance to cover these risks for us and our directors and
officers, but our insurance is subject to high deductibles to reduce premium expense, and there is no guarantee that the insurance will cover any specific
claim that we currently face or may face in the future, or that it will be adequate to cover all potential liabilities and damages.
We may issue additional common stock resulting in stock ownership dilution.
Future dilution may occur due to additional future equity issuances and/or equity financing events by us, including any potential future
restructuring of our outstanding indebtedness. In addition, we may raise additional capital through the sale of equity or convertible debt securities, which
would further dilute the ownership interests of our stockholders. As of December 31, 2021, we had outstanding warrants to purchase approximately
7,111,112 shares of our common stock, stock options to purchase 3,188,355 shares of our common stock and restricted stock unit awards covering
2,970,104 shares of our common stock under the Xtant Medical Holdings, Inc. Amended and Restated 2018 Equity Incentive Plan, options to purchase
13,311 shares of our common stock under our prior equity compensation plan, and 1,246,080 shares available for issuance under the Xtant Medical
Holdings, Inc. Amended and Restated 2018 Equity Incentive Plan. If these or any future warrants, options or restricted stock units are exercised or
otherwise converted into shares of our common stock, our stockholders will experience additional dilution.
The sale or availability for sale of substantial amounts of our common stock or other equity securities could adversely affect the market price of our
common stock.
Sales of substantial amounts of our common stock or a preferred stock in the public market, or the perception that these sales could occur, could
adversely affect the market price of our common stock and could materially impair our ability to raise capital through equity offerings in the future. We
cannot predict what effect, if any, market sales of securities beneficially owned by OrbiMed or any other stockholder or the availability of these securities
for future sale will have on the market price of our common stock.
Anti-takeover provisions in our organizational documents and agreements may discourage or prevent a change in control, even if a sale of the
Company could be beneficial to our stockholders, which could cause our stock price to decline and prevent attempts by our stockholders to replace or
remove our current management.
Several provisions of our Charter and Bylaws and our Investor Rights Agreement could make it difficult for our stockholders to change the
composition of our Board of Directors, preventing them from changing the composition of management. In addition, several provisions of our Charter and
Bylaws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable. These provisions include:
● We have shares of common stock and preferred stock available for issuance without stockholder approval. The existence of unissued and
unreserved common stock and preferred stock may enable the Board of Directors to issue shares to persons friendly to current management or
to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a
merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management.
● Shares of our common stock do not have cumulative voting rights in the election of directors, so our stockholders holding a majority of the
shares of common stock outstanding will be able to elect all of our directors.
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● Special meetings of the stockholders may be called only by the Board of Directors, the chairman of the Board of Directors or the chief
executive officer.
● The Board of Directors may adopt, alter, amend or repeal our Bylaws without stockholder approval.
● Unless otherwise provided by law, any newly created directorship or any vacancy occurring on the Board of Directors for any cause may be
filled by the affirmative vote of a majority of the remaining members of the Board of Directors even if such majority is less than a quorum,
and any director so elected shall hold office until the expiration of the term of office of the director whom he or she has replaced or until his or
her successor is elected and qualified.
● The affirmative vote of the holders of at least two-thirds of the voting power of the then outstanding shares of our capital stock entitled to vote
generally in the election of directors, voting together as a single class, is required to amend or repeal the provisions of our Charter related to
the amendment of our Bylaws, the Board of Directors and our stockholders as well as the general provisions of our Charter.
● Stockholders must follow advance notice procedures to submit nominations of candidates for election to the Board of Directors at an annual
or special meeting of our stockholders and must follow advance notice procedures to submit other proposals for business to be brought before
an annual meeting of our stockholders.
● Unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for (i) any
derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director,
officer or other employee to us or our stockholders, (iii) any action asserting a claim arising under any provision of the General Corporation
Law of the State of Delaware, our Charter or our Bylaws, or (iv) any action asserting a claim governed by the internal-affairs doctrine.
● The Investor Rights Agreement includes director nomination rights, which provide that so long as the Ownership Threshold (as defined in the
Investor Rights Agreement) is met, Royalty Opportunities and ROS are entitled to nominate such individuals to the Board of Directors
constituting a majority of the directors. In addition, under the Investor Rights Agreement, so long as the Ownership Threshold is met, certain
matters require the approval of Royalty Opportunities and ROS to proceed with such a transaction, including without limitation, the sale,
transfer or other disposition of our assets or businesses or our subsidiaries with a value in excess of $250,000 in the aggregate during any
fiscal year (other than sales of inventory or supplies in the ordinary course of business, sales of obsolete assets (excluding real estate), sale-
leaseback transactions and accounts receivable factoring transactions).
These anti-takeover provisions could substantially impede the ability of our stockholders to benefit from a change in control and, as a result, could
materially adversely affect the market price of our common stock and the ability of our stockholders to realize any potential change-in-control premium.
Our Board of Directors is authorized to issue and designate shares of our preferred stock without stockholder approval.
Our Charter authorizes our Board of Directors, without the approval of our stockholders, to issue up to 10 million shares of our preferred stock,
subject to limitations prescribed by applicable law, rules and regulations and the provisions of our Charter, as shares of preferred stock in series, to establish
from time to time the number of shares to be included in each such series and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof. The powers, preferences and rights of these series of preferred stock may be senior to
or on parity with our common stock, which may reduce its value.
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Our Charter designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our
stockholders, which could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us.
Our Charter provides that the Court of Chancery of the State of Delaware will be the exclusive forum for (i) any derivative action or proceeding
brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed to us or our stockholders by any of our directors, officers, or
other employees, (iii) any action asserting a claim against us arising under the Delaware General Corporation Law (“DGCL”) or (iv) any action asserting a
claim against us that is governed by the internal affairs doctrine. Stockholders in our Company will be deemed to have notice of and have consented to the
provisions of our Charter related to choice of forum. The choice of forum provision in our Charter may limit the ability of our stockholders to obtain a
favorable judicial forum for disputes with us.
Notwithstanding the foregoing, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or
liability created by the Exchange Act or the rules and regulations thereunder and Section 22 of the Securities Act of 1933, as amended (the “Securities
Act”), creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the
rules and regulations thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the
Exchange Act, the Securities Act, or any other claim for which the federal courts have exclusive jurisdiction.
We have never paid dividends and do not expect to do so in the foreseeable future.
We have not declared or paid any cash dividends on our common stock. The payment of dividends in the future will be dependent on our earnings
and financial condition and on such other factors as our Board of Directors considers appropriate. Unless and until we pay dividends, stockholders may not
receive a return on their shares of our common stock. There is no present intention by our Board of Directors to pay dividends on our common stock. We
currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of our Credit
Agreements preclude us from paying dividends. As a result, appreciation, if any, in the market price of our common stock will be the sole source of gain for
our stockholders for the foreseeable future.
General Risk Factors
Worldwide economic and social instability could adversely affect our revenue, financial condition, or results of operations.
The health of the global economy, and the credit markets and the financial services industry in particular, as well as the stability of the social fabric
of our society, affects our business and operating results. For example, the credit and financial markets may be adversely affected by the current conflict
between Russia and Ukraine and measures taken in response thereto. If the credit markets are not favorable, we may be unable to raise additional financing
when needed or on favorable terms. Our customers may experience financial difficulties or be unable to borrow money to fund their operations, which may
adversely impact their ability to purchase our products or to pay for our products on a timely basis, if at all. In addition, adverse economic conditions, such
as the recession caused by the COVID-19 pandemic, recent supply chain disruptions and labor shortages and persistent inflation, could also adversely
impact our suppliers’ ability to provide us with materials and components, which may negatively impact our business. As with our customers and vendors,
these economic conditions make it more difficult for us to accurately forecast and plan our future business activities.
Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and
business operations.
Climate change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to our
future operations from natural disasters and extreme weather conditions, such as hurricanes, tornadoes, wildfires or flooding. Concern over climate change
could result in new legal or regulatory requirements designed to reduce or mitigate the effects of greenhouse gases, as well as more stringent regulation of
water rights. Inconsistency of regulations in the states in which we operate may affect the costs of compliance with such legal or regulatory requirements.
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In addition, public company stockholders are increasingly sensitive to the climate change impacts and mitigation efforts of companies, are
increasingly seeking enhanced disclosure on the risks, challenges, governance implications, and financial impacts of climate change faced by companies
and are demanding that companies take a proactive approach to addressing perceived environmental risks, including risks associated with climate change,
relating to their operations. Adverse publicity or climate-related litigation that impacts us could have a negative impact on our business.
Changes in accounting standards, policies, or assumptions utilized in determining accounting estimates could adversely affect our financial statements,
including our operating results and financial condition.
In preparing our consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”), we must make
decisions that impact our results of operations and/or financial condition. Such decisions include the selection of the appropriate accounting principles to be
applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and
analysis of the relevant circumstances, historical experience, and expert valuations, as appropriate. As a result, actual amounts could differ from those
estimated at the time our consolidated financial statements are prepared. Our critical accounting estimates are described later in this report under Part II.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. In addition, various authoritative accounting or
regulatory entities, including the Financial Accounting Standards Board (“FASB”), , and the SEC may amend, expand, and/or eliminate the financial
accounting or reporting standards that govern the preparation of our consolidated financial statements or could reverse their previous interpretations or
positions on how various financial accounting and/or reporting standards should be applied. We disclose the impact of accounting pronouncements that
have been issued but not yet adopted within our Annual and Quarterly Reports on Form 10-K and Form 10-Q, respectively. However, we do not provide an
assessment of proposed accounting pronouncements, as such proposals are subject to change through the exposure process and therefore, we cannot
meaningfully assess their effects on our consolidated financial statements. Future changes to accounting standards could modify the accounting policies and
procedures that are currently utilized in the preparation of our consolidated financial statements. Such changes may be difficult to predict and implement
and could materially, or otherwise, impact how we prepare and report our consolidated financial statements, results of operations, and financial condition.
The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the
Sarbanes-Oxley Act and the NYSE American, may strain our resources, increase our costs and divert management’s attention, and we may be unable
to comply with these requirements in a timely or cost-effective manner.
As a public company, we are subject to the reporting requirements of the Exchange Act and the corporate governance standards of the Sarbanes-
Oxley Act and the NYSE American. These requirements place a strain on our management, systems and resources and we will continue to incur significant
legal, accounting, insurance and other expenses. The Exchange Act requires us to file annual, quarterly and current reports with respect to our business and
financial condition within specified time periods and to prepare a proxy statement with respect to our annual meeting of stockholders. The Sarbanes-Oxley
Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. The NYSE American requires that
we comply with various corporate governance requirements. To maintain and improve the effectiveness of our disclosure controls and procedures and
internal controls over financial reporting and comply with the Exchange Act and NYSE American requirements, significant resources and management
oversight are required. This may divert management’s attention from other business concerns and lead to significant costs associated with compliance,
which could have a material adverse effect on us and the market price of our common stock. Furthermore, as we grow our business both organically and
through acquisitions, our disclosure controls and procedures and internal control over financial reporting will become more complex, and we may require
significantly more resources to ensure that these controls and procedures remain effective.
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These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer
liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar
coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors or its
committees or as our executive officers. Advocacy efforts by stockholders and third parties may also prompt even more changes in governance and
reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of these costs. Furthermore, if we are
unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action
and potentially civil litigation.
Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social
and governance practices may impose additional costs on us or expose us to new or additional risks.
Companies are facing increasing scrutiny from customers, regulators, investors, and other stakeholders related to their environmental, social and
governance (“ESG”) practices and disclosure. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these
practices, especially as they relate to the environment, climate change, health and safety, supply chain management, diversity, labor conditions and human
rights, both in our own operations and in our supply chain. Increased ESG-related compliance costs could result in material increases to our overall
operational costs. Our ESG practices may not meet the standards of all of our stakeholders and advocacy groups may campaign for further changes. A
failure, or perceived failure, to adapt to or comply with regulatory requirements or to respond to investor or stakeholder expectations and standards could
negatively impact our business and reputation and have a negative impact on the trading price of our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our headquarters and manufacturing facility are located at 664 Cruiser Lane, Belgrade, Montana 59714. We also have two other facilities on the
Montana campus, located at 600 Cruiser Lane, Belgrade, Montana 59714, and at 732 Cruiser Lane, Belgrade, Montana 59714. All our properties are leased.
We lease an approximately 14,000 square foot facility at 664 Cruiser Lane, Belgrade, Montana, which runs through October 2025. This building is
an FDA registered facility with a Class 10,000 (ISO 7) environmentally controlled area. The validated manufacturing areas and laboratory facilities located
in this facility provide processing, final packaging and testing space to manufacture medical devices pursuant to FDA, GMP regulations, and ISO
13485:2003. The facility is registered with the FDA for device design, device manufacture, and contract manufacture, as well as for screening, testing,
storing, and distributing biological tissues. We also lease approximately 17,700 square feet in a building located at 600 Cruiser Lane, Belgrade, Montana.
This space includes six Class 100 (ISO 5) clean rooms, a fully equipped diagnostics laboratory, microbiology laboratory and testing laboratory. We lease
the building under a ten-year operating lease which runs through August 2023 and has a ten-year renewal option. We also lease approximately 21,000
square feet in a building located at 732 Cruiser Lane, Belgrade, Montana, where one Class 1,000 (ISO 6) clean room is located, which runs through January
2024.
In addition to our facilities in Belgrade, Montana, we lease approximately 100 square feet of office space in Minnetonka, Minnesota.
Item 3. Legal Proceedings
Our legal proceedings are discussed in Note 11 – Commitments and Contingencies in the notes to our consolidated financial statements in this
Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is listed on the NYSE American under the ticker symbol “XTNT.”
PART II
Holders of Record
As of March 8, 2022, we had 173 holders of record.
Dividends
We have not paid any cash dividends and do not expect to do so in the foreseeable future. In addition, our credit agreements with MidCap preclude
us from paying dividends.
Recent Sales of Unregistered Securities
We did not sell any unregistered equity securities of our Company during the quarter ended December 31, 2021.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any shares of our common stock or other equity securities of our Company during the quarter ended December 31, 2021.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users
to assess our financial condition and results of operations. The following discussion should be read in conjunction with our consolidated financial
statements and accompanying notes included in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion
and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Some of the numbers included herein have been
rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result
of many factors, including those discussed in the “Cautionary Statement Regarding Forward-Looking Statements” and under the heading “Part I. Item 1A.
Risk Factors.”
Business Overview
We develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our products
serve the specialized needs of orthopedic and neurological surgeons, including orthobiologics for the promotion of bone healing, implants and
instrumentation for the treatment of spinal disease. We promote our products in the United States through independent distributors and stocking agents,
supported by direct employees.
We have an extensive sales channel of independent commissioned agents and stocking distributors in the United States representing some or all of
our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery network hospitals (“IDNs”) and
through group purchasing organizations (“GPOs”). We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United
States for both biologics and spine hardware systems. While our focus is the United States market, we promote and sell our products internationally
through stocking distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries.
We have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products; (2) expand our distribution
network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions. During 2021, we launched four
new products, including most recently, a bone marrow aspirate concentrate offering, which was introduced in November 2021. We expanded our
distribution network by bringing on over 40 new agents during 2021. In furtherance of our goal to penetrate adjacent markets, we added new sales
personnel to leverage certain adjacent non-spine markets, such as the foot and ankle, cranio-maxilofacial, oncology, joint reconstruction and trauma
markets and we made progress towards this goal during 2021 by expanding our private label and original equipment manufacturer (“OEM”) sales into these
adjacent markets. Finally, one of our key growth initiatives is to add depth to our product offering through targeted 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.
Impact of the COVID-19 Pandemic
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 and more recently as a result of the surge in cases and hospitalizations caused primarily by the Delta
and Omicron variants, hospitals and other medical facilities have 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. Because of these circumstances, surgeons and their
patients have, and may continue to, defer procedures in which our products otherwise would be used. In addition, many facilities that specialize in
procedures in which our products are used have experienced staffing shortages, temporary closures, and/or reduced operating hours. These circumstances
have negatively impacted, and may continue to negatively impact, the number of elective procedures being conducted and the ability of our employees,
independent sales representatives and distributors to effectively market and sell our products, which has had and will likely continue to have a material
adverse effect on our revenues.
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While eased COVID-19 restrictions caused our revenues to improve in the year ended December 31, 2021 as compared to the prior year, the
resurgence in cases and hospitalizations during the third and fourth quarters of 2021 caused our revenues to decline during the third and fourth quarters of
2021 as compared to the respective prior year periods and the second quarter of 2021. Throughout the third and fourth quarter of 2021, and most acutely
starting in August 2021, spine and other surgery procedure volumes were negatively impacted in many of our key markets, due to cancellations and/or
postponements of procedures as a result of increased hospitalizations, restrictions on elective procedures and staffing shortages, which negatively impacted
our 2021 revenues. This reduction in elective procedures and staffing issues have continued into the beginning of first quarter 2022 and could continue to
persist or worsen, which would continue to adversely impact our revenues. Additionally, it is possible that additional restrictions could be reinstated if there
is another sustained resurgence of COVID-19 cases and hospitalizations.
The COVID-19 pandemic also has caused adverse effects on general commercial activity and the global economy and supply chain, disrupting our
ability to obtain raw materials, components and products. The pandemic has also adversely affected, and may continue to adversely affect, our distributors,
independent sales representatives, customers, contract manufacturers and suppliers and their respective businesses, which in turn, have adversely affected,
and may continue to adversely affect, our business and operations.
Although we continue to monitor the impact of the COVID-19 pandemic on our business, operations and financial results, the full extent to which
the COVID-19 pandemic will continue to impact our business during 2022 will depend on future developments that are highly uncertain and cannot be
accurately predicted, including new information that may emerge concerning COVID-19 variants, the actions to contain it or treat its impact, the
availability, acceptance and effectiveness of vaccines, future resurgences of the virus and its variants, the speed at which government restrictions are lifted,
patient capacity at hospitals and healthcare systems, and the willingness and ability of patients to seek care and treatment due to safety concerns or financial
hardship. If our revenues continue to decline and do not recover to pre-COVID-19 pandemic levels, we may be required to incur impairment charges to our
long-lived assets and goodwill and write-off excess inventory, which would likely adversely affect our future operating results.
Results of Operations
Comparison of Years Ended December 31, 2021 and December 31, 2020
The following table sets forth our results of operations for 2021 and 2020 (dollars in thousands):
Year Ended December 31,
2021
% of
Revenue
Amount
2020
% of
Revenue
Amount
$
55,146
117
55,263
22,773
32,490
14,449
21,025
870
36,344
(3,854)
(995)
(995)
99.8% $
0.2%
100.0%
41.2%
58.8%
26.1%
38.0%
1.6%
65.8%
(7.0)%
(1.8)%
(1.8)%
53,188
149
53,337
18,945
34,392
13,503
20,983
657
35,143
(751)
(5,976)
(5,976)
99.7%
0.3%
100.0%
35.5%
64.5%
25.3%
39.4%
1.2%
65.9%
(1.4)%
(11.2)%
(11.2)%
(4,849)
(8.8)%
(6,727)
(12.6)%
Revenue
Orthopedic product sales
Other revenue
Total Revenue
Cost of Sales
Gross Profit
Operating Expenses
General and administrative
Sales and marketing
Research and development
Total Operating Expenses
Loss from Operations
Other Expense
Interest expense
Total Other Expense
Net Loss from Operations Before Provision for
Income Taxes
Provision for Income Taxes
Current and Deferred
Net Loss
$
(4,849)
(8.8)% $
(7,023)
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—
(0.0)%
(296)
(0.6)%
(13.2)%
Revenue
Total revenue for the year ended December 31, 2021 increased 3.6% to $55.3 million compared to $53.3 million for the prior year. The increase of
$1.9 million is largely attributed to additional private label and OEM orthobiologics sales of $2.4 million, bringing total private label and OEM sales to
$4.9 million, compared to $2.6 million for the prior year. This increase was partially offset by reduced implant sales of $1.0 million versus the prior year.
Cost of Sales
Cost of sales consists primarily of manufacturing cost, product purchase costs and depreciation of surgical instruments. Cost of sales also includes
reserves for estimated excess inventory, inventory on consignment that may be missing and not returned, and reserves for estimated missing and damaged
consigned surgical instruments. Cost of sales increased by 20.2%, or $3.8 million, to $22.8 million for the year ended December 31, 2021 from $18.9
million for the year ended December 31, 2020. This is primarily due to increased under-absorption of labor and overhead of $1.0 million driven by
initiatives to reduce inventory, with the remaining increase resulting primarily from sales mix and sell through of product subject to greater production
costs during prior periods.
Gross profit as a percentage of sales decreased to 58.8% for the year ended December 31, 2021 compared to 64.5% for the year ended December
31, 2020. Of the 5.7% decrease for the year ended December 31, 2021, 1.9% was due to increased under-absorption of labor and overhead, 1.3% was due
to sales mix including greater sales of lower margin private label and OEM sales, and 2.6% was due to sell through of product subject to greater production
costs during prior periods. We expect higher product costs to continue in future periods but otherwise expect gross profit to improve as the effect of
COVID-19 on surgical procedures diminishes.
General and Administrative
General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation
related costs and corporate expenses for legal, accounting and other professional fees, as well as occupancy costs. General and administrative expenses
increased 7.0%, or $0.9 million, to $14.4 million for the year ended December 31, 2021 compared to $13.5 million for the year ended December 31, 2020.
This increase is primarily attributable to additional stock-based compensation expense of $1.1 million, additional legal settlement expenses of $0.5 million
and increased salaries and wages of $0.5 million. These increases were partially offset by reduced expense of $0.8 million related to various employee
compensation plans and reduced severance expense of $0.3 million.
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Sales and Marketing
Sales and marketing expenses consist primarily of sales commissions, personnel costs for sales and marketing employees, costs for trade shows,
sales conventions and meetings, travel expenses, advertising and other sales and marketing related costs. Sales and marketing expenses totaled $21.0
million for each of the years ended December 31, 2021 and 2020. The year-over-year comparison included reduced commissions expense of $0.3 million
resulting from a greater mix of private label and OEM sales versus 2020, which offset additional expense of $0.3 million associated with tradeshows and
related travel.
Research and Development
Research and development expenses consist primarily of internal costs for the development of new product technologies. Research and
development expenses increased $0.2 million, or 32.4%, to $0.9 million for the year ended December 31, 2021 from $0.7 million for the year ended
December 31, 2020. This increase was due primarily to an increase in research and development headcount in 2021 compared to 2020.
Interest Expense
Interest expense for the year ended December 31, 2021 decreased $5.0 million to $1.0 million as compared to $6.0 million for the year ended
December 31, 2020. This decrease resulted from our October 1, 2020 debt restructuring which, among other things, reduced our outstanding principal and
paid-in-kind interest by $61.7 million.
Income Tax Provision
Income tax provision for the year ended December 31, 2021 decreased $0.3 million to $0 as compared to $0.3 million for the year ended
December 31, 2020. This decrease was due to certain states suspending the utilization of net operating losses as offsets to taxable income in the prior year.
Liquidity and Capital Resources
Working Capital
Since our inception, we have financed our operations through primarily operating cash flows, private placements of equity securities and
convertible debt, debt facilities, common stock rights offerings, and other debt transactions. The following table summarizes our working capital as of
December 31, 2021 and December 31, 2020 (in thousands):
Cash and cash equivalents
Accounts receivable, net
Inventories
Total current assets
Accounts payable
Accrued liabilities
Line of credit
Current portion of long-term debt
Total current liabilities
Net working capital
$
December 31,
2021
2020
18,387 $
7,154
17,945
44,330
2,615
4,349
3,620
—
11,077
33,253
2,341
6,880
21,408
31,365
2,947
5,462
—
16,797
25,649
5,716
Our increase in cash and cash equivalents is due primarily to the completion of a private placement of shares of common stock and warrants in
February 2021. On February 24, 2021, we issued in a private placement to a single healthcare-focused institutional accredited investor 8,888,890 shares of
our common stock at a purchase price of $2.25 per share, and a warrant to purchase up to 6,666,668 shares of our common stock. The warrant has an
exercise price of $2.25 per share, subject to customary anti-dilution, but not price protection, adjustments, was immediately exercisable and expires on the
five-year anniversary of the date of issuance. We received net proceeds of approximately $18.4 million, after deducting fees and other estimated offering
expenses, from the private placement. We expect to use these net proceeds for working capital and other general corporate purposes. On May 6, 2021, we
refinanced our outstanding debt due December 31, 2021 with a line of credit and $12.0 million term loan.
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Cash Flows
Net cash provided by operating activities for the year ended December 31, 2021 was $0.4 million compared to $0.7 million used in operating
activities for the year ended December 31, 2020. This increase was due primarily to greater generation of cash from initiatives to reduce inventory levels in
response to reduced lead times, which was partially offset by the effect of collection of accounts receivable for the year ended December 31, 2020.
Net cash used in investing activities for the year ended December 31, 2021 was $1.9 million, primarily representing purchases of property and
equipment of $2.1 million, partially offset by proceeds from sale of fixed assets of $0.2 million. Net cash used in investing activities for the year ended
December 31, 2020 was $1.3 million, primarily representing purchases of property and equipment of $1.5 million, partially offset by proceeds from sale of
fixed assets of $0.2 million.
Net cash provided by financing activities was $17.5 million for the year ended December 31, 2021, which was primarily attributable to $18.4
million of proceeds from our February 2021 private placement, net of issuance costs. Net cash used in financing activities was $0.9 million for the year
ended December 31, 2020 consisting primarily of $1.0 million of costs associated with our debt restructuring.
Current and Prior Credit Facilities
On May 6, 2021, the Company, as guarantor, and our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into a Credit, Security and
Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) and Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Credit
Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust, in its capacity as agent (“MidCap”).
The Term Credit Agreement provides for a secured term loan facility (the “Term Facility”) in an aggregate principal amount of $12.0 million (the
“Term Loan Commitment”), which was funded to the Borrowers immediately, and an additional $5.0 million tranche available solely at the discretion of
MidCap and the lenders, for the purposes agreed to between the Company, the Borrowers and the lenders in advance of the making of loans under such
additional tranche. The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together with the Term
Facility, the “Facilities”) under which the Borrowers may borrow up to $8.0 million (such amount, the “Revolving Loan Commitment”) at any one time,
the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the Borrowers in
accordance with a formula set forth in the Revolving Credit Agreement. All borrowings under the Revolving Facility are subject to the satisfaction of
customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an
updated borrowing base certificate.
The Facilities have a maturity date of May 1, 2026. Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all
of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the Company’s obligations as a
guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory,
equipment, accounts, intellectual property and other assets of the Company and the Borrowers.
The proceeds of the Term Facility were used to pay transaction fees in connection with the Facilities and to pay in full all outstanding indebtedness
and accrued interest under the Company’s prior credit facility, which is described below. The proceeds of the Revolving Facility may be used to pay
transaction fees in connection with the Facilities, to pay in full all outstanding indebtedness and accrued interest under the Company’s prior credit facility,
and for working capital and general corporate purposes.
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The loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the LIBOR rate, as such
term is defined in the Credit Agreements, plus the applicable margin of 7.00% in the case of the Term Credit Agreement, and 4.50% in the case of the
Revolving Credit Agreement, subject in each case to a LIBOR floor of 1.00%.
The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants
that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens
on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness,
enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Credit Agreements require the
Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a minimum adjusted EBITDA and a minimum
liquidity, in each case at levels specified in the Credit Agreements. As of December 31, 2021, we were in compliance with all covenants under the Credit
Agreements.
On March 7, 2022, the Credit Agreements were amended to, among other things, (i) provide for a waiver of compliance with respect to the
Company’s minimum adjusted EBITDA requirement if and so long as the Company’s liquidity (as specifically defined in the Credit Agreements) is in
excess of $14 million and there is not otherwise an event of default under the Credit Agreements, commencing with the next delivery of the compliance
certificate required under the Credit Agreements, and (ii) re-set the date certain fees payable in connection with optional prepayments are determined to the
date the amendment was executed and consequently extend such fees’ original expiration. In addition, the exit fees were increased by 25 basis points.
On May 6, 2021, contemporaneously with the execution and delivery of the Credit Agreements, that certain Second Amended and Restated Credit
Agreement, dated March 29, 2019, among the Company, the Borrowers, OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP, as
subsequently amended (the “Second A&R Credit Agreement”), which was scheduled to mature on December 31, 2021, was terminated in accordance with
the terms thereof and all outstanding amounts were repaid by the Borrowers to Royalty Opportunities in its role as sole lender thereunder.
Cash Requirements
We believe that our $18.2 million of cash and cash equivalents as of December 31, 2021, together with amounts available under the Facilities, will
be sufficient to meet our anticipated cash requirements through at least March 2023. However, we may require or seek additional capital to fund our future
operations and business strategy prior to March 2023. Accordingly, there is no assurance that we will not need or seek additional financing prior to such
time.
We may elect to raise additional financing even before we need it if market conditions for raising additional capital are favorable. We may seek to
raise additional financing through various sources, such as equity and debt financings, additional debt restructurings or refinancings, or through strategic
collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if
such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if
economic and market conditions deteriorate.
To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt,
the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or
other preferences that would adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices that
represent a discount to our trading price and/or we may issue warrants to the purchasers, which could dilute our current stockholders. If we issue preferred
stock, it could adversely affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights granted to future
holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund
provisions, and restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements
that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring
dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of the Agent under our Credit Agreements and/or
ROS and Royalty Opportunities under our Investor Rights Agreement with them, and no assurance can be provided that they would provide such consent,
which could limit our ability to raise additional financing and the terms thereof.
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Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is included in Note 1 to our consolidated financial statements in “Item 8. Financial
Statements and Supplementary Data.”
Critical Accounting Estimates
All of our significant accounting policies and estimates are described in Note 1 to our consolidated financial statements in “Item 8. Financial
Statements and Supplementary Data.” Certain of our more critical accounting estimates require the application of significant judgment by management in
selecting the appropriate assumptions in determining the estimate. By their nature, these judgments are subject to an inherent degree of uncertainty. We
develop these judgments based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by
our customers, and information available from other outside sources, as appropriate. Actual results may differ from these estimates under different
assumption conditions.
We believe that the following financial estimates are both important to the portrayal of our financial condition and results of operations and require
subjective or complex judgments. Further, we believe that the items discussed below are properly recorded in our consolidated financial statements for all
periods presented. Our management has discussed the development, selection, and disclosure of our most critical financial estimates with the Audit
Committee of the Board of Directors and with our independent registered public accounting firm. The judgments about those financial estimates are based
on information available as of the date of our financial statements. Those financial estimates include:
Goodwill and Intangible Assets
Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase
business combination and determined to have indefinite useful lives are not amortized, instead they are tested for impairment annually and whenever events
or circumstances indicate the carrying amount of the asset may not be recoverable. We conduct our impairment test on an annual basis and review the
analysis assumptions on a quarterly basis. We test goodwill for impairment at the reporting unit level, which is an operating segment or one level below an
operating segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which
discrete financial information is available and segment management regularly reviews the operating results of that component.
We chose December 31 to assess our annual goodwill for any impairment in order to closely align with the timing of our annual planning process.
In testing goodwill for impairment we perform a quantitative impairment test, including computing the fair value of the reporting unit and comparing that
value to its carrying value. If the fair value is less than its carrying value, then the goodwill is determined to be impaired. In the event that goodwill is
impaired, an impairment charge to earnings would become necessary. There was no impairment of goodwill recorded in 2021 or 2020.
We evaluate other intangible assets whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset
group may not be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of
the underlying assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of
related assets, a charge might be required to reduce the carrying amount to equal estimated fair value. We did not have a triggering event in 2021 or 2020.
62
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method and includes
materials, labor and overhead. We calculate an inventory reserve for estimated obsolescence and excess inventory based on historical usage and sales, as
well as assumptions about anticipated future demand for products. A significant sustained decrease in demand could result in an increase in the amount of
excess inventory quantities on hand. Additionally, our industry is characterized by regular new product development and introductions that could result in
an increase in the amount of obsolete inventory quantities on hand due to cannibalization of existing products. Our estimates for excess and obsolete
inventory are reviewed and updated on a quarterly basis. Our estimates of anticipated future product demand may prove to be inaccurate in which case we
may be required to incur charges for excess and obsolete inventory. Increases in our inventory reserves result in a corresponding expense, which is recorded
to cost of sales. We believe the total reserve at December 31, 2021 of $10.3 million is adequate.
Accounts Receivable and Allowances
Accounts receivable represents amounts due from customers for which revenue has been recognized. Normal terms on trade accounts receivable
are net 30 days, and some customers are offered discounts for early pay. We perform credit evaluations when considered necessary, but generally do not
require collateral to extend credit.
The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing receivables. We determine the
allowance based on factors such as historical collection experience, customers’ current creditworthiness, customer concentration, age of accounts
receivable balance, general economic conditions that may affect a customer’s ability to pay, and management judgment. In addition, we include provision
for current expected credit loss based on historical collection experience adjusted for current economic conditions affecting collectability. Actual customer
collections could differ from our estimates. Account balances are charged to the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. Provisions to the allowance for doubtful accounts are charged to expense. We do not have any off-balance sheet
credit exposure related to our customers.
Deterioration in the financial condition of any key customer or a significant slowdown in the economy could have a material negative impact on
our ability to collect a portion or all of our accounts receivable. We believe that an analysis of historical trends and our current knowledge of potential
collection issues provide us with sufficient information to establish a reasonable estimate for an allowance for doubtful accounts. However, since we cannot
predict with certainty future changes in the financial stability of our customers, our actual future losses from uncollectible accounts may differ from our
estimates. In the event we determined that a smaller or larger uncollectible accounts reserve is appropriate, we would record a credit or charge, as
applicable, to bad debt expense in the period that we made such a determination. We believe our allowance for doubtful accounts at December 31, 2021 of
$0.6 million is adequate.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal course of business and do not include any adjustments relating to the recoverability or
classification of assets or the amounts of liabilities that might result from the outcome of these uncertainties. Our ability to continue as a going concern,
realize the carrying value of our assets and discharge our liabilities in the ordinary course of business is dependent upon a number of factors, including, the
level and timing of future revenues and expenditures; development, commercialization and market acceptance of our products; competing technologies and
market developments; regulatory requirements and delays; and ability to attract and retain key personnel.
Management’s evaluation of going concern was conducted as part of its discussions with and the review by the Board of Directors of our 2022
Annual Operating Plan. Management believes that our $18.4 million of cash and cash equivalents as of December 31, 2021, together with amounts
available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least March 2023.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This Item 7A is inapplicable to Xtant as a smaller reporting company.
63
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 166)
Consolidated Statements of Operations
Consolidated Balance Sheets
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
64
65
67
68
69
70
71
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of
Xtant Medical Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Xtant Medical Holdings, Inc. (the “Company”) as of December 31, 2021 and 2020 and
the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31,
2021; and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December 31, 2021 and 2020 and the results of its operations and its cash flows for
each of the years in the two-year period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of
America.
Basis for Opinion
The Company’s management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (the
“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
65
Valuation of Inventory
Critical Audit Matter Description
As explained in Note 1 to the consolidated financial statements, the Company reviews the components of its inventory on a quarterly basis for estimated
obsolescence and excess inventory adjusts inventory to its net realizable value as necessary. Net inventory at December 31, 2021 totaled $18 million.
Auditing management’s calculation of estimated excess and obsolete inventory involved a high degree of auditor judgment due to the sensitivity of
significant assumptions. Such assumptions include product life cycle, sales forecasts, and timing of competitors introducing new or enhanced products.
The impact of competition and the continuing impact of the COVID-19 pandemic on the sales forecast further increased the difficulty in auditing the
reasonableness of management’s estimates and assumptions and required a significant amount of audit effort.
How the Critical Audit Matter Was Addressed in the Audit
Our procedures related to management’s forecasts of product demand used to record the excess and obsolete inventories reserve included the following,
among others:
● Gained an understanding of the Company’s internal control over developing its excess and obsolete inventories reserve to identify the types of
potential misstatement, assessed the factors that affect the risks of material misstatement, and designed further audit procedures.
● Evaluated the appropriateness and consistency of management’s methods and assumptions used in developing their estimate of the excess and obsolete
inventory reserve, which included consideration of reserve trends by product category and the impact of changes in inventory management processes
on the estimate.
● Evaluated the appropriateness of specified inputs supporting management’s estimate, including the age of on-hand inventory items; historic inventory
trends; historic write-off activity; and revenue forecasts, including the Company’s ability to forecast sales by comparing prior period sales forecasts to
actual amounts, taking into consideration the COVID-19 pandemic impact on current and future demand through sensitivity analysis.
● Developed an independent expectation of the excess and obsolete inventory reserve using historical inventory activity and compared our independent
expectation to the amount recorded in the financial statements.
/s/ Plante & Moran, PLLC
We have served as the Company’s auditor since 2011.
Denver, Colorado
March 8, 2022
66
XTANT MEDICAL HOLDINGS, INC.
Consolidated Statements of Operations
(In thousands, except number of shares and per share amounts)
Year Ended December 31,
2021
2020
Revenue
Orthopedic product sales
Other revenue
Total Revenue
Cost of Sales
Gross Profit
Operating Expenses
General and administrative
Sales and marketing
Research and development
Total Operating Expenses
Loss from Operations
Other Expense
Interest expense
Total Other Expense
Net Loss from Operations Before Provision for Income Taxes
Provision for Income Taxes Current and Deferred
Net Loss
Net loss per share:
Basic
Dilutive
Shares used in the computation:
Basic
Dilutive
$
$
$
$
55,146 $
117
55,263
22,773
32,490
14,449
21,025
870
36,344
(3,854)
(995)
(995)
(4,849)
—
(4,849) $
(0.06) $
(0.06) $
53,188
149
53,337
18,945
34,392
13,503
20,983
657
35,143
(751)
(5,976)
(5,976)
(6,727)
(296)
(7,023)
(0.25)
(0.25)
85,456,175
85,456,175
28,499,847
28,499,847
See notes to audited consolidated financial statements.
67
XTANT MEDICAL HOLDINGS, INC.
Consolidated Balance Sheets
(In thousands, except number of shares and par value)
As of
December 31,
2021
As of
December 31,
2020
ASSETS
Current Assets:
Cash and cash-equivalents
Restricted cash
Trade accounts receivable, net of allowance for credit losses of $552 and $653, respectively
Inventories
Prepaid and other current assets
Total current assets
Property and equipment, net
Right of use asset, net
Other assets
Intangible assets, net
Goodwill
Total Assets
LIABILITIES & STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable
Accrued liabilities
Current portion of lease liability
Current portion of finance lease obligations
Line of credit
Current portion of long-term debt
Total current liabilities
Long-term Liabilities:
Lease liability, net
Financing lease obligations, net
Long-term debt, plus premium and less issuance costs
Total Liabilities
Commitments and Contingencies (note 11)
Stockholders’ Equity:
Preferred stock, $0.000001 par value; 10,000,000 shares authorized; no shares issued and
outstanding
Common stock, $0.000001 par value; 300,000,000 shares authorized; 87,068,980 share
issued and outstanding as of December 31, 2021 and 300,000,000 shares authorized;
77,573,680 shares issued and outstanding as of December 31, 2020
Additional paid-in capital
Accumulated deficit
Total Stockholders’ Equity
$
$
$
18,243 $
144
7,154
17,945
844
44,330
5,212
1,258
287
400
3,205
54,692 $
2,615 $
4,349
462
31
3,620
—
11,077
842
103
11,787
23,809
2,341
—
6,880
21,408
736
31,365
4,347
1,690
402
457
3,205
41,466
2,947
5,462
423
20
—
16,797
25,649
1,303
—
—
26,952
—
—
—
266,068
(235,185)
30,883
—
244,850
(230,336)
14,514
41,466
Total Liabilities & Stockholders’ Equity
$
54,692 $
See notes to audited consolidated financial statements.
68
XTANT MEDICAL HOLDINGS, INC.
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)
(In thousands, except number of shares)
Common Stock
Shares
Amount
Additional
Paid-In-
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
(Deficit)
Balance at December 31, 2019
13,161,762 $
— $
179,061 $
(223,266) $
(44,205)
ASU 2016-13 cumulative effect adjustment
Stock-based compensation
Common stock issued on vesting of restricted stock
units
Issuance of warrant
Debt exchange, net of exchange costs of $1,058
Issuance of common shares, net of issuance costs of
$143
Exercise of warrants
Net loss
Balance at December 31, 2020
Private placement of common stock, net of issuance
costs of $1,926
Warrants issued in connection with the private
placement
Warrants issued in connection with the private
placement to placement agents
Common stock issued on vesting of restricted stock
units
Gain on debt extinguishment
Withholding of common stock upon vesting of
restricted stock units
Stock-based compensation
Net loss
Balance at December 31, 2021
—
—
144,878
—
58,754,394
712,646
4,800,000
—
77,573,680 $
8,888,890
—
—
782,596
—
(176,186)
—
—
87,068,980 $
—
—
—
—
—
—
—
—
— $
—
—
—
—
—
—
—
—
— $
—
1,084
—
1,862
62,175
620
48
—
244,850 $
12,831
5,243
351
—
785
(47)
—
—
—
—
—
—
(7,023)
(230,336) $
—
—
—
—
—
(201)
2,209
—
266,068 $
—
—
(4,849)
(235,185) $
(47)
1,084
—
1,862
62,175
620
48
(7,023)
14,514
12,831
5,243
351
—
785
(201)
2,209
(4,849)
30,883
See notes to audited consolidated financial statements.
69
XTANT MEDICAL HOLDINGS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
$
(4,849) $
Year Ended December 31,
2021
2020
Depreciation and amortization
Non-cash interest
Non-cash rent
Gain on sale of fixed assets
Stock-based compensation
Provision for reserve on accounts receivable
Provision for excess and obsolete inventory
Changes in operating assets and liabilities:
Trade accounts receivable
Inventories
Prepaid and other assets
Accounts payable
Accrued liabilities
Net cash provided by (used in) operating activities
Investing activities:
Purchases of property and equipment
Proceeds from sale of fixed assets
Net cash used in investing activities
Financing activities:
Payment of taxes from withholding of common stock on vesting of restricted stock units
Payments on financing leases
Costs associated with refinancing
Payments on long-term debt
Borrowings on line of credit
Repayments on line of credit
Proceeds from issuance of common stock, net of issuance costs
Proceeds from exercise of common stock warrants
Net cash provided by (used in) financing activities
Net change in cash and cash equivalents and restricted cash
Cash and cash equivalents and restricted cash at beginning of year
Cash and cash equivalents and restricted cash at end of year
Reconciliation of cash and cash equivalents and restricted cash reported in the consolidated
balance sheets
Cash and cash equivalents
Restricted cash
Total cash and cash equivalents and restricted cash reported in the consolidated balance
sheets
$
$
$
See notes to audited consolidated financial statements.
70
1,332
147
9
(86)
2,209
45
839
(319)
2,624
(67)
(332)
(1,113)
439
(2,115)
225
(1,890)
(201)
(50)
(136)
(411)
36,361
(36,492)
18,426
—
17,497
16,046
2,341
18,387 $
18,243 $
144
18,387 $
(7,023)
2,079
5,963
16
(369)
1,084
307
485
2,890
(5,792)
40
101
(512)
(731)
(1,545)
241
(1,304)
—
(156)
(1,058)
(315)
—
—
620
48
(861)
(2,896)
5,237
2,341
2,341
—
2,341
(1) Business Description and Summary of Significant Accounting Policies
Business Description
Notes to Consolidated Financial Statements
The accompanying consolidated financial statements include the accounts of Xtant Medical Holdings, Inc., formerly known as Bacterin
International Holdings, Inc., a Delaware corporation, and its wholly owned subsidiaries, Xtant Medical, Inc., a Delaware corporation, Bacterin
International, Inc., (“Bacterin”) a Nevada corporation, and X-Spine Systems, Inc. (“X-spine”), an Ohio corporation (Xtant Medical Inc., Bacterin and X-
spine are jointly referred to herein as “Xtant” or the “Company”). The terms “we,” “us” and “our” also refer to Xtant.
All intercompany balances and transactions have been eliminated in consolidation.
Xtant products serve the combined specialized needs of orthopedic and neurological surgeons, including orthobiologics for the promotion of bone
healing, implants and instrumentation for the treatment of spinal disease, tissue grafts for the treatment of orthopedic disorders to promote healing
following spine, cranial and foot surgeries and the development, manufacturing and sale of medical devices for use in orthopedic spinal surgeries.
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. Because of the COVID-19
pandemic, surgeons and their patients have been, and may continue to be, required, or are choosing, to defer procedures in which our products otherwise
would be used, and many facilities that specialize in the procedures in which our products otherwise would be used have experienced temporary closures or
reduced operating hours. These circumstances have negatively impacted, and may continue to negatively impact, the ability of our employees, independent
sales representatives and distributors to effectively market and sell our products, which has had and will likely continue to have a material adverse effect on
our revenues.
At December 31, 2021, the Company had cash and cash equivalents of $18.2 million, and an accumulated deficit of $235.2 million and has
incurred significant losses in the current and prior periods.
Management’s evaluation of going concern was conducted as part of its discussions with the Xtant Board of Directors’ review of the 2022 Annual
Operating Plan. Management believes that our $18.2 million of cash and cash equivalents as of December 31, 2021, together with amounts available under
our line of credit, will be sufficient to meet our anticipated cash requirements through at least March 2023.
Investor Rights Agreement
We are party to an Investor Rights Agreement with ROS Acquisition Offshore (“ROS”) and OrbiMed Royalty Opportunities II, LP (“Royalty
Opportunities”), which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”). Under the Investor Rights Agreement, Royalty Opportunities and
ROS are permitted to nominate a majority of the directors and designate the chairperson of our Board of Directors at subsequent annual meetings, as long
as they maintain an ownership threshold in our Company of at least 40% of our then outstanding common stock (the “Ownership Threshold”). If Royalty
Opportunities and ROS are unable to maintain the Ownership Threshold, the Investor Rights Agreement contemplates a reduction of nomination rights
commensurate with our ownership interests. In addition, for so long as the Ownership Threshold is met, we must obtain the approval of a majority of our
common stock held by Royalty Opportunities and ROS to proceed with the following actions: (i) issue new securities; (ii) incur over $250,000 of debt in a
fiscal year; (iii) sell or transfer over $250,000 of our assets or businesses or our subsidiaries in a fiscal year; (iv) acquire over $250,000 of assets or
properties in a fiscal year; (v) make capital expenditures over $125,000 individually, or $1.5 million in the aggregate during a fiscal year; (vi) approve our
annual budget; (vii) hire or terminate our chief executive officer; (viii) appoint or remove the chairperson of our Board of Directors; and (ix) make, loans
to, investments in, or purchase, or permit any subsidiary to purchase, any stock or other securities in another entity in excess of $250,000 in a fiscal year.
As long as the Ownership Threshold is met, we may not increase the size of our Board or Directors beyond seven directors without the approval of a
majority of the directors nominated by Royalty Opportunities and ROS.
71
The Investor Rights Agreement grants Royalty Opportunities and ROS the right to purchase from us a pro rata amount of any new securities that
we may propose to issue and sell. The Investor Rights Agreement may be terminated (a) upon the mutual written agreement of all the parties, (b) upon our
written notice, ROS or Royalty Opportunities if the ownership percentage of our then outstanding common stock of ROS and Royalty Opportunities is less
than 10%, or (c) upon written notice of ROS and Royalty Opportunities.
Concentrations and Credit Risk
The Company’s accounts receivables are from a variety of health care organizations and distributors throughout the world. No single customer
accounted for more than 10% of our revenue or accounts receivable in the fiscal years 2021 or 2020. Management believes that all significant credit risks
have been identified at December 31, 2021.
Use of Estimates
The preparation of the financial statements requires management of the Company to make a number of estimates and assumptions relating to the
reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the period. Significant estimates include the carrying amount of property and equipment, goodwill, and intangible
assets and liabilities; valuation allowances for trade receivables, inventory and deferred income tax assets and liabilities; current and long-term lease
obligations and corresponding right-of-use asset; and estimates for the fair value of long-term debt, stock option grants and other equity awards upon which
the Company determines stock-based compensation expense. Actual results could differ from those estimates.
Cash, Cash Equivalents, and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity date of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market value. At times, the Company maintains deposits in financial institutions in excess of federally
insured limits.
Cash and cash equivalents classified as restricted cash on our condensed consolidated balance sheets are restricted as to withdrawal or use under
the terms of certain credit agreements. The December 31, 2021 balance included lockbox deposits that are temporarily restricted due to timing at the period
end. The lockbox deposits are applied against our line of credit the next business day.
Trade Accounts Receivable
Accounts receivable represents amounts due from customers for which revenue has been recognized. Normal terms on trade accounts receivable
are net 30 days, and some customers are offered discounts for early pay. The Company performs credit evaluations when considered necessary, but
generally does not require collateral to extend credit.
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial
Instruments–Credit Losses: Measurement of Credit Losses on Financial Instruments to change the impairment model for most financial assets and certain
other instruments. For trade and other receivables, held to maturity debt securities, loans, and other instruments, entities are required to use a new forward-
looking “expected loss” model that generally will result in the earlier recognition of allowances for losses. The Company adopted the guidance on January
1, 2020 and recognized a cumulative effect adjustment of $47,000 to retained earnings and accounts receivable, net as a result of adoption. The Company
has included the additional disclosures required by ASU 2016-13 in Note 2, “Receivables.”
72
The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing receivables.
The Company determines the allowance based on factors such as historical collection experience, customers’ current creditworthiness, customer
concentration, age of accounts receivable balance, general economic conditions that may affect a customer’s ability to pay, and management judgment. In
addition, we include provision for current expected credit loss based on historical collection experience adjusted for current economic conditions affecting
collectability. Actual customer collections could differ from estimates. Account balances are charged to the allowance after all means of collection have
been exhausted and the potential for recovery is considered remote. Provisions to the allowance for doubtful accounts are charged to expense. The
Company does not have any off-balance sheet credit exposure related to its customers.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method and includes
materials, labor and overhead. The Company calculates an inventory reserve for estimated obsolescence and excess inventory based on historical usage and
sales, as well as assumptions about future demand for its products. These estimates for excess and obsolete inventory are reviewed and updated on a
quarterly basis. Increases in the inventory reserves result in a corresponding expense, which is recorded to cost of sales.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, generally three to seven years for computers and equipment and five years for surgical instruments. Leasehold
improvements are depreciated over the shorter of their estimated useful life or the remaining term of the lease. Repairs and maintenance are expensed as
incurred.
Intangible Assets
Intangible assets with estimable useful lives are amortized over their respective estimated useful lives to their estimated residual values and
reviewed for impairment whenever events or circumstances indicate their carrying amount may not be recoverable. Intangible assets include trademarks
and patents and include costs to acquire and protect Company patents. Intangible assets are carried at cost less accumulated amortization. The Company
amortizes these assets on a straight-line basis over their estimated useful lives.
Other Assets
Other assets consist of the short-term and the long-term portion of prepaid expenses and security deposits.
Long-Lived Asset Impairment
Long-lived assets, including property and equipment and intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the
assets.
Goodwill
Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a business
combination and determined to have indefinite useful lives are not amortized, instead they are tested for impairment at least annually and whenever events
or circumstances indicate the carrying amount of the asset may not be recoverable. The Company conducts its impairment test on an annual basis and
reviews the assumptions on a quarterly basis. We test goodwill for impairment at the reporting unit level, which is an operating segment or one level below
an operating segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for
which discrete financial information is available and segment management regularly reviews the operating results of that component.
73
Revenue Recognition
In the United States, we generate most of our revenue from independent commissioned sales agents. We consign our orthobiologics products to
hospitals and consign or loan our spinal implant sets to the independent sales agents. The spinal implant sets typically contain the instruments, disposables,
and spinal implants required to complete a surgery. Consigned sets are managed by the sales agent to service hospitals that are high volume users for
multiple procedures. We ship replacement inventory to independent sales agents to replace the consigned inventory used in surgeries. Loaned sets are
returned to the Company’s distribution center, replenished, and made available to sales agents for the next surgical procedure.
For each surgical procedure, the sales agent reports use of the product by the hospital and, as soon as practicable thereafter, ensures that the
hospital provides a purchase order to the Company. Upon receipt of the hospital purchase order, the Company invoices the hospital, and revenue is
recognized in the proper period.
Additionally, the Company sells product directly to domestic and international stocking resellers, original equipment manufacturer resellers and
private label resellers. Upon receipt and acceptance of a purchase order from a stocking reseller, the Company ships product and invoices the reseller. The
Company recognizes revenue when the products are shipped, and the transfer of title and risk of loss occurs. There is generally no customer acceptance or
other condition that prevents the Company from recognizing revenue in accordance with the delivery terms for these sales transactions. In the normal
course of business, the Company accepts returns of product that have not been implanted. Product returns are not material to the Company’s consolidated
statements of operations. The Company accounts for shipping and handling activities as a fulfillment cost rather than a separate performance obligation.
The Company’s policy is to record revenue net of any applicable sales, use, or excise taxes. Payment terms are generally net 30 days from invoice date and
some customers are offered discounts for early pay.
Disaggregation of revenue
The Company operates in one reportable segment with its net revenue derived primarily from the sale of orthobiologics and spinal implant
products across North America. Sales are reported net of returns. No rebates, group purchasing organization fees or other customer allowances are present,
and so are not relevant to net revenue determination. The following table presents revenues from these product lines for the years ended December 31, 2021
and 2020 (dollars in thousands):
Year Ended
December 31, 2021
42,259
12,887
117
55,263
$
$
Percentage of
Total Revenue
Year Ended
December 31, 2020
39,308
13,880
149
53,337
77% $
23%
0%
100% $
Percentage of
Total Revenue
74%
26%
0%
100%
Orthobiologics
Spinal implant
Other revenue
Total revenue
Research and Development
Research and development costs, which are principally related to internal costs for the development of new products, are expensed as incurred.
Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding. Shares issued
during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted net loss per share is
computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive shares of common stock outstanding
during the period, which include the assumed exercise of stock options and warrants using the treasury stock method. Diluted net loss per share was the
same as basic net loss per share for the years ended December 31, 2021 and 2020, as shares issuable upon the exercise of stock options and warrants and
settlement of restricted stock units were anti-dilutive as a result of the net losses incurred for those periods. Diluted net loss per share is not reported as the
effects of including 13,282,882 and 5,115,868 outstanding stock options, warrants and restricted stock units for the years ended December 31, 2021 and
2020, respectively, are anti-dilutive.
74
Fair Value of Financial Instruments
The carrying values of financial instruments, including trade accounts receivable, accounts payable, accrued liabilities and long-term debt,
approximate their fair values based on terms and related interest rates.
The Company follows a framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities
(Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value
measurement. During the years ended December 31, 2021 and 2020, there was no reclassification in financial assets or liabilities between Level 1, 2 or 3
categories.
Reclassification
Certain prior year amounts have been reclassified to conform with current year presentation.
(2) Receivables
Concurrent with the adoption of ASU 2016-13, the Company’s allowance for doubtful accounts was expanded to include provision for current
expected credit loss (“CECL”). The Company’s provision for CECL is determined based on historical collection experience adjusted for current economic
conditions affecting collectability. Actual customer collections could differ from estimates. Account balances are charged to the allowance after all means
of collection have been exhausted and the potential for recovery is considered remote. Provisions to the allowance for credit losses are charged to expense.
Activity within the allowance for credit losses was as follows for years ended December 31, 2021 and 2020 (in thousands):
Balance at January 1
Provision for current expected credit losses
Write-offs against allowance
December 31,
2021
December 31,
2020
653 $
45
(146)
552 $
547
307
(201)
653
$
$
75
(3) Inventories
Inventories consist of the following (in thousands):
Raw materials
Work in process
Finished goods
(4) Property and Equipment, Net
Property and equipment, net are as follows (in thousands):
Equipment
Computer equipment
Computer software
Furniture and fixtures
Leasehold improvements
Other
Surgical instruments
Total cost
Less: accumulated depreciation
December 31,
2021
December 31,
2020
5,613 $
571
11,761
17,945 $
3,757
1,733
15,918
21,408
December 31,
2021
December 31,
2020
5,541 $
828
490
94
3,994
10
11,424
22,381
(17,169)
5,212 $
4,807
649
570
133
3,987
10
11,291
21,447
(17,100)
4,347
$
$
$
$
Depreciation expense related to property and equipment, including property under capital lease, for the years ended December 31, 2021 and 2020
was $1.3 million and $2.0 million, respectively.
(5) Goodwill and Intangible Assets
The results of the Company’s annual goodwill impairment tests for the years ended December 31, 2021 and 2020 indicated that no goodwill
impairment existed as of the test date.
The following table sets forth information regarding intangible assets (in thousands):
Patents
Accumulated amortization
Net carrying value
December 31,
2021
December 31,
2020
847 $
(447)
400 $
847
(390)
457
$
$
76
Amortization expense was $0.1 million for both of the years ended December 31, 2021 and 2020. The following is a summary of estimated future
amortization expense for intangible assets as of December 31, 2021 (in thousands):
2022
2023
2024
2025
2026
Thereafter
Total
(6) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
Wages/commissions payable
Other accrued liabilities
Accrued liabilities
(7) Debt
Long-term debt consists of the following (in thousands):
Amounts due under the Term Facility
Accrued end-of-term payments
Amounts due under the Second A&R Credit Agreement
Premium related to Second Amendment
Less: unamortized debt issuance costs
Less: current maturities
Long-term debt, less issuance costs
Current Credit Facilities
$
$
54
53
52
52
49
140
400
December 31,
2021
December 31,
2020
3,184 $
1,165
4,349 $
4,057
1,405
5,462
December 31,
2021
December 31,
2020
12,000 $
83
—
—
(296)
—
11,787 $
—
—
15,556
1,241
—
(16,797)
—
$
$
$
$
On May 6, 2021 (the “Closing Date”), the Company, as guarantor, and its subsidiaries, as borrowers (collectively, the “Borrowers”), entered into a
(i) Credit, Security and Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) with MidCap Financial Trust, in its capacity as agent (the
“Agent”), and a lender and the additional lenders from time to time party thereto and (ii) Credit, Security and Guaranty Agreement (Revolving Loan) (the
“Revolving Credit Agreement,” and, together with the Term Credit Agreement, the “Credit Agreements”), with the Agent and the lenders from time to time
party thereto. Contemporaneously with the execution and delivery of the Credit Agreements, that certain Second Amended and Restated Credit Agreement,
dated March 29, 2019, among the Company, the Borrowers, OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”) and ROS Acquisition
Offshore LP (“ROS”), as subsequently amended (the “Second A&R Credit Agreement”), which was scheduled to mature on December 31, 2021, was
terminated in accordance with the terms thereof and all outstanding amounts were repaid by the Borrowers to Royalty Opportunities in its role as sole
lender thereunder.
The Term Credit Agreement provides for a secured term loan facility (the “Term Facility”) in an aggregate principal amount of $12.0 million (the
“Term Loan Commitment”), which was funded to the Borrowers on the Closing Date, and an additional $5.0 million tranche available solely at the
discretion of the Agent and the lenders, for the purposes agreed to between the Company, the Borrowers and the lenders in advance of the making of loans
under such additional tranche. The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together
with the Term Facility, the “Facilities”) under which the Borrowers may borrow up to $8,000,000 (such amount, the “Revolving Loan Commitment”) at
any one time, the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the
Borrowers in accordance with a formula set forth in the Revolving Credit Agreement. As of December 31, 2021, the Company had $3.2 million available
under the Revolving Credit Agreement. All borrowings under the Revolving Facility are subject to the satisfaction of customary conditions, including the
absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate.
77
The Facilities have a maturity date of May 1, 2026. The proceeds of the Term Facility were used to pay transaction fees in connection with the
Facilities and to pay in full all outstanding indebtedness and accrued interest under the Second A&R Credit Agreement. The proceeds of the Revolving
Facility were used to pay transaction fees in connection with the Facilities, to pay in full all outstanding indebtedness and accrued interest under the Second
A&R Credit Agreement, and for working capital and general corporate purposes. As a result of the refinancing, we recorded a gain on extinguishment
totaling $0.8 million. The gain represents the difference between the carrying value of our outstanding loans under the Second A&R Credit Agreement
prior to the extinguishment and $15.6 million, the reacquisition price. Because of the related party affiliation between the Company and ROS, this debt
extinguishment resulted in an increase in additional paid-in capital rather than flowing through our consolidated statements of operations as a gain on
extinguishment.
The loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the LIBOR rate, as such
term is defined in the Credit Agreements, plus the applicable margin of 7.00% in the case of the Term Credit Agreement, and 4.50% in the case of the
Revolving Credit Agreement, subject in each case to a LIBOR floor of 1.00%. The Company is also required to make a final payment in an amount equal
to 3.75% of the principal amount borrowed under the Term Facility. The final payment is being accreted to interest expense over the term of the Term
Facility using the effective interest method. The effective rate of the Term Facility, inclusive of amortization of debt issuance costs and accretion of the
final payment, was 9.87% as of December 31, 2021. In addition to paying interest on the outstanding loans under the Facilities, the Borrowers are also
required to pay an unused line fee equal to 0.50% per annum in respect of unutilized commitments under the Revolving Facility, a fee for failure to
maintain a minimum balance under the Revolving Facility, a collateral management fee under the Revolving Facility equal to 0.50% of the amount
outstanding under the Revolving Facility, an origination fee equal to 0.50% of the Revolving Loan Commitment and 0.50% of the Term Loan
Commitment, and if activated, of any additional term loan tranche, and certain other customary fees related to the Agent’s administration of the Facilities.
The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants
that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens
on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness,
enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Credit Agreements require the
Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a minimum adjusted EBITDA and a minimum
liquidity, in each case at levels specified in the Credit Agreements.
On March 7, 2022, the Credit Agreements were amended to, among other things, (i) provide for a waiver of compliance with respect to the
Company’s minimum adjusted EBITDA requirement if and so long as the Company’s liquidity (as specifically defined in the Credit Agreements) is in
excess of $14 million and there is not otherwise an event of default under the Credit Agreements, commencing with the next delivery of the compliance
certificate required under the Credit Agreements, and (ii) re-set the date certain fees payable in connection with optional prepayments are determined to the
date the amendment was executed and consequently extend such fees’ original expiration. In addition, the exit fees were increased by 25 basis points.
Prior Credit Facilities
Under the Second A&R Credit Agreement, we could make requests for term loans from ROS and Royalty Opportunities in their sole discretion in
amounts equal to the remaining commitment for additional delayed draw loans, which was approximately $2.2 million as of the date of the Second A&R
Credit Agreement, and could request additional term loans with ROS and Royalty Opportunities in their sole discretion in an aggregate amount of up to
$10.0 million. No interest was scheduled to accrue on the Second A&R Credit Agreement through March 31, 2020.
78
On May 6, 2020, we entered into a First Amendment to the Second A&R Credit Agreement (the “First Amendment”) with ROS and Royalty
Opportunities which, among other things, provided that:
● No interest would accrue on the Loans from and after March 31, 2020 until September 30, 2020;
● Beginning October 1, 2020 through the maturity date of the Second A&R Credit Agreement, interest payable in cash would accrue on the
Loans under the Second A&R Credit Agreement at a rate per annum equal to the sum of (i) 10.00% plus (ii) the higher of (x) the LIBO Rate
(as such term is defined in the Second A&R Credit Agreement) and (y) 2.3125%;
● The maturity date of the Loans was December 31, 2021.
On May 6, 2020, we issued warrants to purchase an aggregate of 2.4 million shares of our common stock to ROS and Royalty Opportunities, with
an exercise price of $0.01 per share and an expiration date of May 6, 2030 (collectively, the “2020 Warrants”). The issuance of the 2020 Warrants was a
condition to the effectiveness of the First Amendment. The First Amendment was accounted for as a debt modification whereby the recorded debt balance
was discounted for the fair value of the 2020 Warrants issued and interest expense is accrued through the maturity date of the Loans at the post-amendment
effective interest rate of 10.02%. These 2020 Warrants were exercised in full in November 2020.
On October 1, 2020, we entered into a Second Amendment to the Second A&R Credit Agreement (the “Second Amendment”) with ROS and
Royalty Opportunities, which among other things, provided for:
● Extinguishment by ROS and Royalty Opportunities of approximately $61.9 million of principal and paid-in-kind interest outstanding on the
Loans in exchange for approximately 57.8 million shares of our common stock and the addition of a principal amount equal to prepayment
fees associated with the Loans not paid in cash or exchanged for shares of our common stock;
● Exchange of approximately $0.9 million of prepayment fees associated with the Loans for approximately 0.9 million shares of our common
stock (the “Prepayment Fee Shares”);
● Elimination of the availability of additional draw loan advances and reduction of available additional term loans to $5.0 million, the
availability of which is in the sole and absolute discretion of the lender;
● Accrual of interest payable in cash for the remaining term of the Second A&R Credit Agreement at a rate per annum equal to the sum of (i)
7.00% plus (ii) the higher of (x) the LIBO Rate (as such term is defined in the Second A&R Credit Agreement) and (y) 1.00%; and
● Elimination of certain financial covenants.
As a result of the debt restructuring, as previously described, we recorded a gain on restructuring totaling $15.1 million during the year ended
December 31, 2020. The gain represents the excess of the carrying value of our outstanding loans under the Second A&R Credit Agreement prior to the
extinguishment of such debt in the debt restructuring transaction, $80.3 million, over the sum of the fair value of the 57.8 million shares issued therewith,
$48.2 million based on the closing price of our common stock on October 1, 2020, and $17.1 million of undiscounted future cash payments associated with
the Second Amendment. Because of the related party affiliation between the Company and ROS and Royalty Opportunities, this debt extinguishment
resulted in an increase in additional paid-in capital rather than flowing through our consolidated statements of operations as a gain on extinguishment.
The carrying value of loans outstanding under the Second A&R Credit Agreement was equal to the undiscounted future cash payments associated
with the Second Amendment and principal associated with loans thereunder. Cash interest payments in connection with the Second A&R Credit Agreement
reduced the carrying value of associated loans; and accordingly, no interest expense related to cash interest payments was recorded for the remaining
duration of the Second A&R Credit Agreement.
79
(8) Equity
Charter Amendments
On August 7, 2020, the Company’s stockholders, upon recommendation of the Board, approved an amendment to the Company’s Charter to
increase the number of authorized shares of common stock from 75 million to 300 million. This Charter amendment was effective upon the filing of a
Certificate of Amendment with the Office of the Secretary of State of the State of Delaware on October 1, 2020.
Debt Restructuring
On October 1, 2020, we issued 58.7 million shares of our common stock in connection with our debt restructuring. See Note (7) Debt.
Rights Offering
On November 6, 2020, we distributed to holders of our common stock, at no charge, non-transferable subscription rights to purchase up to an
aggregate of 14,018,690 shares of our common stock (the “Rights Offering”). In the Rights Offering, holders received 0.194539 subscription rights for each
share of common stock held on the record date, November 5, 2020. Each whole subscription right entitled the holder to purchase one share of our common
stock for $1.07 in cash. The Rights Offering was commenced on November 6, 2020 and expired on December 4, 2020, at which time the rights were no
longer exercisable. We issued 712,646 shares of our common stock in the Rights Offering, resulting in $0.8 million in gross proceeds to us.
Warrant Exercises
On November 17, 2020, ROS and Royalty Opportunities exercised warrants representing an aggregate of 4.8 million shares of our common stock
and in connection therewith we received aggregate proceeds of $48,000. See Note (10) Warrants.
Private Placement
On February 24, 2021, we issued in a private placement (the “Private Placement”) to a single healthcare-focused institutional accredited investor
(the “Investor”) 8,888,890 shares of our common stock at a purchase price of $2.25 per share, and warrants to purchase up to 6,666,668 shares of our
common stock (the “Investor Warrant”). We received net cash proceeds of approximately $18.4 million, after deducting fees and other estimated offering
expenses, from the Private Placement.
The Investor Warrant, described in more detail in Note (10), Warrants, has an exercise price of $2.25 per share, subject to customary anti-dilution,
but not price protection, adjustments, is immediately exercisable and expires on the five-year anniversary of the date of issuance.
In connection with the Private Placement, we entered into a placement agent agreement with a placement agent (the “Placement Agent”) pursuant
to which the Placement Agent served as our exclusive placement agent in connection with the Private Placement (the “Placement Agent Agreement”).
Pursuant to the Placement Agent Agreement, we agreed to pay the Placement Agent a fee equal to a certain percentage of the aggregate gross proceeds
from the Private Placement. In addition to the cash fee, we agreed to issue to the Placement Agent a warrant to purchase up to 5.0% of the shares sold to the
Investor in the Private Placement, or 444,444 shares of our common stock (the “Placement Agent Warrant”). The Placement Agent Warrant, described in
more detail in Note 10, “Warrants”, has an exercise price of $2.8125 per share, subject to customary anti-dilution, but not price protection, adjustments, is
immediately exercisable and expires on the five-year anniversary of the date of issuance.
80
(9) Stock-Based Compensation
Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan
On August 1, 2018, our stockholders approved the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan at the 2018 annual meeting of
stockholders of Xtant and on October 30, 2019 at our 2019 annual meeting of stockholders, our stockholders approved an amendment to increase the
number of shares of common stock available thereunder by 1,500,000 shares. On October 27, 2020, at our 2020 annual meeting of stockholders, our
stockholders approved an amendment to further increase the number of shares of our common stock available for issuance under the 2018 Plan by an
additional 5,550,308 shares (as amended, the “2018 Plan”). The 2018 Plan became effective immediately upon initial approval of the plan by our
stockholders on August 1, 2018 and will expire on July 31, 2028, unless terminated earlier. The 2018 Plan replaced the Amended and Restated Xtant
Medical Equity Incentive Plan (the “Prior Plan”) with respect to future grants of equity awards, although the Prior Plan continues to govern equity awards
granted under the Prior Plan. The 2018 Plan permits the Board, or a committee thereof, to grant to eligible employees, non-employee directors, and
consultants of the Company non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred
stock units, performance awards, non-employee director awards, and other stock-based awards. The Board may select 2018 Plan participants and determine
the nature and amount of awards to be granted. Subject to adjustment as provided in the 2018 Plan, the number of shares of our common stock available for
issuance under the 2018 Plan is 8,358,055 shares, of which 1,246,080 shares remained available for grant as of December 31, 2021. Under the 2018 Plan,
shares of our common stock related to awards granted under the plan that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance
of the shares become available again for grant under the plan.
Stock options granted under the 2018 Plan may be either incentive stock options to employees, as defined in Section 422A of the Internal Revenue
Code of 1986, or non-qualified stock options. The exercise price of all stock options granted under the 2018 Plan must be at least equal to the fair market
value of the shares of common stock on the date of the grant. The 2018 Plan is administered by the Board. Stock options granted under the 2018 Plan are
generally not transferable, vest in installments over the requisite service period, and are exercisable during the stated contractual term of the option only by
the optionee.
Stock option activity, including options granted under the 2018 Plan and the Prior Plan was as follows:
2021
Weighted
Average
Exercise
Price
Shares
Weighted
Average
Fair
Value at
Grant
Date
2020
Weighted
Average
Exercise
Price
Weighted
Average
Fair
Value at
Grant
Date
Shares
2,190,892 $
1,012,083
(1,309)
3,201,666 $
649,042 $
2.25 $
1.27
345.82
1.80 $
3.36 $
1.65
1.07
170.89
1.40
2.37
602,966 $
1,708,743
(120,817)
2,190,892 $
122,739 $
6.07 $
1.24
6.95
2.25 $
14.74 $
3.99
1.01
4.31
1.65
8.95
Outstanding at January 1
Granted
Cancelled or expired
Outstanding at December 31
Exercisable at December 31
The estimated fair value of stock options granted is determined using the Black-Scholes-Merton method applied to individual grants. Key
assumptions used to estimate the fair value of stock awards are as follows:
Risk free interest rate
Dividend yield
Expected term
Expected volatility
Year Ended
December 31,
2021
2020
0.97%
0%
6.3 years
113%
0.54%
0%
6.3 years
105%
81
Restricted stock unit activity for awards granted under the 2018 Plan was as follows:
Outstanding at January 1
Granted
Vested
Outstanding at December 31
2021
2020
Weighted
Average Fair
Value at Grant
Date Per
Share
1.54
1.27
1.72
1.39
Shares
2,503,698
1,249,002
(782,596)
2,970,104
$
$
$
$
Weighted
Average Fair
Value at Grant
Date Per Share
2.87
1.29
2.52
1.54
Shares
499,914 $
2,148,662 $
(144,878) $
2,503,698 $
Total stock-based compensation expense recognized for employees and directors was $2.2 million and $1.1 million for the years ended December
31, 2021 and 2020, respectively, and was recognized as general and administrative expense. As of December 31, 2021, total compensation expense related
to unvested employee stock options not yet recognized was $2.7 million, which is expected to be allocated to expenses over a weighted-average period of
3.1 years. Total compensation expense related to unvested restricted stock units not yet recognized was $3.4 million as of December 31, 2021, which is
expected to be allocated to expenses over a weighted-average period of 2.8 years.
(10) Warrants
2021 Warrants
As noted in Note 8, “Equity,” on February 22, 2021, the Company issued the Investor Warrants and Placement Agent Warrants. The Investor and
Placement Agent Warrants meet all the requirements to be classified as equity awards in accordance with Accounting Standards Codification (“ASC”) No.
815-40. The number of shares of Company common stock issuable upon exercise of the Investor Warrants and Placement Agent Warrants is subject to
standard and customary anti-dilution provisions for stock splits, stock dividends, or similar transactions. In addition, the Investor Warrants include a buy-
out right whereby the holders of such warrants may put the warrants back to the Company or its successor in the event of a purchase, tender or exchange
offer accepted by 50% or more of the Company’s holders of common stock and not approved by the Company’s board of directors. The buy-out amount is
equal to the Black-Scholes value of the warrants on the date the triggering transaction is consummated based on certain inputs as defined in the Investor
Warrant agreement. The consideration to be paid if the buy-out provision is triggered shall be in the same type or form of consideration that is being offered
and paid to the holders of Company common stock in connection with the triggering transaction.
While the Investor Warrants are classified as a component of equity, we were required to allocate the proceeds of the Private Placement between
the shares of common stock and Investor Warrants issued based on their relative fair values. We utilized a lattice valuation model to determine the fair
value of the Investor Warrants. The fair value of the Placement Agent Warrants issued in connection with the Private Placement was determined using a
Black Scholes model. Significant assumptions in both models included contractual term (5 years) and the estimated volatility factor based on a weighted
average of comparable published betas of peer companies (61%).
2020 Warrants
As noted in Note 7, “Debt,” on May 6, 2020, we issued warrants to purchase an aggregate 2.4 million shares of our common stock to ROS and
Royalty Opportunities with an exercise price of $0.01 per share and an expiration date of May 6, 2030. The issuance of the 2020 Warrants was a condition
to the effectiveness of the First Amendment. The fair value of the 2020 Warrants upon issuance was determined to be $1.9 million. The 2020 Warrants met
all the requirements to be classified as equity awards in accordance with ASC No. 815-40. The number of shares of our common stock issuable upon
exercise of the 2020 Warrants was subject to standard and customary anti-dilution provisions for stock splits, stock dividends, or similar transactions. The
2020 Warrants were exercised in full on November 17, 2020.
82
The following table summarizes our warrant activities for the years ended December 31, 2021 and 2020:
Outstanding as of January 1, 2020
Issued
Exercised
Expired
Outstanding as of December 31, 2020
Issued
Expired
Outstanding at December 31, 2021
(11) Commitments and Contingencies
Operating Leases
Common
Stock
Warrants
Weighted
Average
Exercise
Price
2,908,874 $
2,400,000
(4,800,000)
(87,596)
421,278 $
7,111,112
(421,278)
7,111,112 $
4.16
0.01
0.01
85.92
10.80
2.29
10.80
2.29
We currently lease four office facilities. These leases are under non-cancelable operating lease agreements with expiration dates between 2023 and
2025. We have the option to extend certain leases to five or ten-year term(s) and we have the right of first refusal on any sale.
The Company records lease liabilities within current liabilities or long-term liabilities based upon the length of time associated with the lease
payments. The Company records its long-term operating leases as right-of-use assets. Upon initial adoption, using the modified retrospective transition
approach, no leases with terms less than 12 months have been capitalized to the consolidated balance sheet consistent with ASC 842. Instead, these leases
are recognized in the consolidated statement of operations on a straight-line expense throughout the lives of the leases. No Company leases contain
common area maintenance or security agreements.
We have made certain assumptions and judgments when applying ASC 842, the most significant of which is that we elected the package of
practical expedients available for transition, which allow us to not reassess whether expired or existing contracts contain leases under the new definition of
a lease, lease classification for expired or existing leases, and whether previously capitalized initial direct costs would qualify for capitalization under ASC
842. Additionally, we did not elect to use hindsight when considering judgments and estimates such as assessments of lessee options to extend or terminate
a lease or purchase the underlying asset.
As of December 31, 2021, the weighted-average remaining lease term was 3 years. Lease expense related to operating leases was $0.6 million for
both of the years ended December 31, 2021 and 2020. The Company’s lease agreements do not provide a readily determinable implicit rate nor is it
available to the Company from its lessors. Instead, as of December 31, 2021, the Company estimates the weighted-average discount rate for its operating
leases to be 5.2% to present value based on the incremental borrowing rate.
83
Future minimum payments as of December 31, 2021 under these long-term operating leases are as follows (in thousands):
2022
2023
2024
2025
Total future minimum lease payments
Less amount representing interest
Present value of obligations under operating leases
Less current portion
Long-term operating lease obligations
Litigation
$
$
521
489
224
180
1,414
(110)
1,304
(462)
842
In November 2020, we received a letter from a third party’s legal counsel alleging that some of our hardware products allegedly infringe an
expired patent and offering to discuss settlement terms. Without admitting any liability, in July 2021, we entered into a confidential settlement agreement
and release that included, among other things, a full release of all asserted patent claims from the third party and otherwise settled the dispute in exchange
for a one-time lump sum payment of $550,000, which was recorded as a special charge in general and administrative expense.
In addition, we may be subject to potential liabilities under government regulations and various claims and legal actions that are pending but we
believe are immaterial at this time or may be asserted in the future from time to time.
These matters arise in the ordinary course and conduct of our business and may include, for example, commercial, product liability, intellectual
property, and employment matters. We intend to continue to defend the Company vigorously in such matters and when warranted, take legal action against
others. Furthermore, we regularly assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our
financial statements. An estimated loss contingency is accrued in our financial statements if it is probable that a liability has been incurred and the amount
of the loss can be reasonably estimated. Based on our assessment, we have adequately accrued an amount for contingent liabilities currently in existence.
We do not accrue amounts for liabilities that we do not believe are probable or that we consider immaterial to our overall financial position. Litigation is
inherently unpredictable, and unfavorable resolutions could occur. As a result, assessing contingencies is highly subjective and requires judgment about
future events. The amount of ultimate loss may exceed the Company’s current accruals, and it is possible that its cash flows or results of operations could
be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.
Indemnifications
Our arrangements generally include limited warranties and certain provisions for indemnifying customers against liabilities if our products or
services infringe a third-party’s intellectual property rights. To date, we have not incurred any material costs as a result of such warranties or
indemnification provisions and have not accrued any liabilities related to such obligations in the accompanying consolidated financial statements.
We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines and
settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by
reason of the person’s service as a director or officer, including any action by us, arising out of that person’s services as our director or officer or that
person’s services provided to any other company or enterprise at our request.
84
(12) Income Taxes
The Company’s provision for income taxes differs from applying the statutory U.S. Federal income tax rate to income before taxes. The primary
difference results from providing for state income taxes and from deducting certain expenses for financial statement purposes but not for federal income tax
purposes.
The components of income (loss) before provision for income taxes consist of the following (in thousands):
United States
Total
The components of the income tax provision are as follows (in thousands):
Current:
Federal
State
Total current
Deferred:
Federal
State
Total deferred
$
$
$
Year Ended December 31,
2021
2020
(4,849) $
(4,849) $
(6,727)
(6,727)
Year Ended December 31,
2021
2020
(51) $
51
—
—
—
—
51
245
296
—
—
—
296
Total provision for income taxes
$
— $
The reconciliation of income tax attributable to operations computed at the U.S. Federal statutory income tax rate of 21% to income tax expense is
as follows (in thousands):
Statutory Federal tax rate
Valuation allowance
State income taxes, net of Federal benefit
Attribute reduction related to Sec. 382
Change in state income tax rate
Gain on extinguishment of debt
Stock compensation adjustment and other reconciling items
Nondeductible executive compensation
Nondeductible meals and entertainment expense
Year Ended December 31,
2021
2020
$
(1,018) $
315
(110)
—
(33)
165
557
124
—
Total provision for income taxes
$
— $
85
(1,413)
(10,968)
619
8,607
(61)
3,488
14
—
10
296
Deferred tax components are as follows (in thousands):
At December 31,
2021
2020
Deferred tax assets:
Accrued liability for vacation
Accrued commissions and bonuses / compensation
Accrued contingencies
Amortization
Bad debt reserve
Charitable contributions carryforward
Lease liability
Interest expense
Inventory reserve
Net operating loss carryovers
Stock option compensation
Other
Total deferred tax assets
Deferred tax liabilities:
Right of use asset
Prepaids
Depreciation
Total deferred tax liabilities
Valuation allowance
Net deferred tax assets
$
130 $
284
52
27
148
15
350
1,968
2,777
13,164
783
113
19,811
(338)
(83)
(111)
(532)
(19,279)
$
— $
123
565
42
32
174
—
459
2,342
2,975
12,114
653
109
19,588
(450)
(73)
(100)
(623)
(18,965)
—
The ultimate realization of deferred tax assets is dependent upon the existence, or generation, of taxable income in the periods when those
temporary differences and net operating loss carryovers are deductible. Management considers the scheduled reversal of deferred tax liabilities, taxes paid
in carryover years, projected future taxable income, available tax planning strategies, and other factors in making this assessment. Based on available
evidence, management does not believe it is more likely than not that all of the deferred tax assets will be realized. Accordingly, the Company has
established a valuation allowance equal to the net deferred tax assets. The valuation allowance increased by $0.3 million in 2021 and decreased by $11.0
million in 2020.
At December 31, 2021 and 2020, the Company had total domestic Federal and state net operating loss carryovers of approximately $101.8 million
and $97.0 million, respectively. Federal net operating losses generated prior to 2018 and State net operating loss carryovers expire at various dates between
2024 and 2040. Federal net operating losses generated after 2017 have an indefinite carryforward and are only available to offset 80% of taxable income
beginning in 2021.
On March 27, 2020 the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act provided
for an increased interest deduction for tax years 2019 and 2020, as well as the deferral of the employer portion of social security taxes.
The Company has completed a study to assess whether an ownership change, as defined by Section 382 of the Internal Revenue Code, had
occurred from the Company’s formation through December 31, 2019. Based upon this study, the Company determined that an ownership change occurred
during 2018. Accordingly, the Company reduced its deferred tax assets related to the federal net operating loss carryforwards that are anticipated to expire
unused as a result of these ownership changes. These tax attributes were excluded from deferred tax assets with a corresponding reduction of the valuation
allowance with no net effect on income tax expense or the effective tax rate. Future ownership changes may further limit the Company’s ability to utilize its
remaining tax attributes.
The 2018 through 2020 tax years remain open to examination by the Internal Revenue Service and various other state tax agencies. These taxing
authorities have the authority to examine those tax years until the applicable statute of limitations expire.
The Company did not recognize any material interest or penalties related to income taxes for the years ended December 31, 2021 and 2020.
86
(13) Employee Benefit Plans
We have a 401(k) plan for our employees. The 401(k) plan is a defined contribution plan covering substantially all of our employees. Employees
are eligible to participate in the plan on the first day of any month after starting employment. Employees are allowed to contribute a percentage of their
wages to the 401(k) plan, subject to statutorily prescribed limits and are subject to a discretionary employer match of 100% of their wage deferrals not in
excess of 4% of their wages. The 401(k) plan matching contributions by the Company were temporarily suspended at the onset of the COVID-19
pandemic, but future plan matching contributions were subsequently restored effective July 1, 2020. The Company contributed $0.3 million and $0.2
million as part of the employer match program for the years ended December 31, 2021 and 2020, respectively.
(14) Supplemental Disclosure of Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
Cash paid during the period for:
Interest
Non-cash activities:
Gain on extinguishment of Second A&R Credit Agreement
Extinguishment of Second A&R Credit Agreement financed by line of credit
Prepaid debt issuance costs
Fixed assets acquired under finance lease
Warrants issued in connection with the Private Placement to placement agents
ASU 2016-13 cumulative effect adjustment
Recognition of 2020 Warrants
Partial extinguishment of Second Amended and Restated Credit Agreement
(including debt issuance costs)
(15) Related Party Transactions
$
$
$
$
$
$
$
$
$
Year Ended
December 31,
2021
2020
846 $
785 $
3,755 $
75 $
163 $
351 $
— $
— $
13
—
—
—
—
—
47
1,862
— $
63,233
Royalty Opportunities, which owns approximately 20% of the Company’s outstanding common stock, was the sole holder of our outstanding
long-term debt and a party to the Second A&R Credit Agreement, which was terminated in connection with our debt refinancing described under Note 8,
“Debt”. In addition, as described in more detail under Note 1, “Business Description and Summary of Significant Accounting Policies,” we are party to an
Investor Rights Agreement and Registration Rights Agreement with Royalty Opportunities and ROS. Transactions between the Company and Royalty
Opportunities and ROS are conducted under the provisions of the Second A&R Credit Agreement, the Prior Credit Agreement, the Investor Rights
Agreement, and the Registration Rights Agreement, as noted above.
The Company was party to a Sublease Agreement wherein the Company leased from Cardialen, Inc., a portion of Cardialen’s office space on a
month-to-month. The rent was approximately $1,000 per month. The agreement was terminated effective September 30, 2021. Because Jeffrey Peters is
both a member of our Board of Directors and the Chief Executive Officer, President, and a director of Cardialen, this transaction qualified as a related party
transaction.
All related party transactions are reviewed and approved by the Audit Committee or the disinterested members of the full Board.
(16) Segment and Geographic Information
The Company’s management reviews our financial results and manages the business on an aggregate basis. Therefore, financial results are
reported in a single operating segment: the development, manufacture and marketing of orthopedic medical products and devices.
The Company attributes revenues to geographic areas based on the location of the customer. Approximately 99% and 98% of revenue was in the
United States for the years ended December 31, 2021 and 2020, respectively. Total revenue by major geographic area is as follows (in thousands):
United States
Rest of World
Total
Year Ended
December 31,
2021
2020
54,570 $
693
55,263 $
52,147
1,190
53,337
$
$
87
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management with the participation of our Chief Executive Officer and Interim Chief Financial Officer evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of December 31, 2021. Based upon that evaluation, our Chief
Executive Officer and Interim Chief Financial Officer concluded that as of December 31, 2021, our disclosure controls and procedures were effective.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-
15(f) under the Exchange Act. Under the supervision and with the participation of senior and executive management, we conducted an evaluation of our
internal control over financial reporting based upon the framework Internal Control - Integrated Framework (2013) as outlined by COSO, the Committee of
Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of an evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Based on our evaluation under the framework Internal Control - Integrated Framework (2013), management concluded that our internal control
over financial reporting was effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the fourth quarter ended December 31, 2021 that have
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
On March 7, 2022, Xtant Medical Holdings, Inc., as guarantor, and its subsidiaries, Bacterin International, Inc., Xtant Medical, Inc. and X-spine
Systems, Inc., as borrowers (collectively, the “Borrowers”), entered into a (i) Amendment No. 1 (the “Term Loan Amendment”) to Credit, Security and
Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) with MidCap Financial Trust, in its capacity as agent (the “Agent”), and a lender and the
additional lenders from time to time party thereto and (ii) Amendment No. 1 (the “Revolving Loan Amendment” and collectively, with the Term Loan
Amendment, the “Amendments”) to Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Credit Agreement” and, together with the
Term Credit Agreement, the “Credit Agreements”), with the Agent and the lenders from time to time party thereto.
The Amendments provide for a waiver of compliance with respect to the Company’s minimum adjusted EBITDA requirement if and so long as the
Company’s liquidity (as specifically defined in the Credit Agreements) is in excess of $14 million and there is not otherwise an event of default under the
Credit Agreements, commencing with the next delivery of the compliance certificate required under the Credit Agreements, and (ii) re-set the date certain
fees payable in connection with optional prepayments are determined to the date the amendment was executed and consequently extend such fees’ original
expiration. In addition, the exit fees were increased by 25 basis points.
The foregoing description of the Amendments is only a summary of their material terms and do not purport to be complete and is qualified in their
entirety by reference to the full text of the Term Loan Amendment and the Revolving Loan Amendment, which are filed as Exhibit 10.19 and 10.20,
respectively, to this Annual Report on Form 10-K and incorporated herein by reference.
88
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
PART III
The table below sets forth certain information concerning our current directors and executive officers as of February 25, 2022. No family
relationships exist among our directors or executive officers. We sometimes refer to the Board of Directors of Xtant as the “Board.”
Name
Jeffrey Peters
Sean E. Browne
John Bakewell(1)
Michael Eggenberg(2)
Robert McNamara(1)(2)
Matthew Rizzo(2)
Kevin D. Brandt
Scott C. Neils
Age
53
56
60
52
65
49
56
37
Position
Chairman of the Board and Director
President and Chief Executive Officer and Director
Director
Director
Director
Director
Chief Commercial Officer
Interim Chief Financial Officer
Director/ Officer Since
2018
2019
2018
2018
2018
2018
2018
2022
(1)
(2)
Member of the Audit Committee
Member of the Compensation Committee
The business experience of each director and executive officer is summarized below.
Jeffrey Peters has served as Chairman of the Board and a member of our Board since February 2018. Mr. Peters was initially elected to the Board
in connection with our restructuring in February 2018. Mr. Peters has over 25 years of medical device experience. Mr. Peters is a designee of Royalty
Opportunities and ROS under the Investor Rights Agreement. Since December 2017, Mr. Peters has served as the President and Chief Executive Officer of
Cardialen, Inc., a private medical device company developing low-energy therapy for cardiac arrhythmias. Mr. Peters is also a Venture Partner for OrbiMed
Advisors LLC, a private equity and venture capital firm, a position he has held since January 2018. Mr. Peters served as Executive Chairman of Neurovasc
Technologies, Inc. an interventional neuroradiology ischemic stroke technology company, from December 2015 to May 2017, and served as Chief
Executive Officer of Anulex Technologies Inc., a former privately held medical device manufacturer, from April 2011 until May 2016. From 2013 to
December 2017, Mr. Peters also served as an independent medical device consultant. From 2001 to 2007, Mr. Peters served in various positions at ev3 Inc.,
an endovascular company now owned by Medtronic plc, and its predecessor companies, including Chief Technology Officer, Vice President, Research and
Development, Cardio Peripheral Division and Vice President, Business Development. Mr. Peters’ financial roles include portfolio manager at Black River
Asset Management LLC from 2007 to 2008, an entrepreneur-in-residence at Foundation Medical Partners from 2009 to 2011, and an equity research
analyst at Dain Rauscher Wessels from 1997 to 2001. Mr. Peters previously served as a member of the board of directors of Children’s Minnesota from
2016 to 2019. Mr. Peters received his BS in Mechanical Engineering and MBA from the University of Minnesota. Mr. Peters brings substantial medical
device experience, including having served in several executive roles with start-up and emerging medical device companies, and significant financial and
operating experience to the Board.
Sean E. Browne was appointed our President and Chief Executive Officer in October 2019 and has served as a member of our Board since
October 2019. Prior to this, Mr. Browne served as Chief Revenue Officer of CCS Medical, Inc., a provider of home delivery medical supplies, from
September 2014 to June 2019. Prior to CCS Medical, Mr. Browne served as Chief Operating Officer of The Kini Group, an integrated cloud-based software
analytics and advisory firm, from March 2013 to August 2014. From November 2007 to March 2016, Mr. Browne served as President and Chief Executive
Officer and a director of Neuro Resource Group, a venture start-up medical device company that was sold to a strategic buyer. In other roles, Mr. Browne
served as President, Miltex Surgical Instrument Division for Integra LifeSciences Holdings Corporation, a publicly held medical device company that
acquired Miltex Holdings, Inc. Mr. Browne served as Vice President, Sales and Marketing of Esurg.com, an e-commerce company serving physician and
ambulatory surgery markets. Prior to Esurg.com, Mr. Browne served as Senior Vice President, Health Systems Division of McKesson Corporation, a drug
company, and prior to McKesson, served in various positions with increasing responsibility at Baxter Healthcare. Mr. Browne holds a Masters of Business
Administration from the Kellogg School of Management at Northwestern University and a Bachelor of Science degree, with a major in Finance and minor
in Statistics, from Boston University. We believe that Mr. Browne’s day-to-day operations experience as a result of his role as our President and Chief
Executive Officer enable him to make valuable contributions to the Board of Directors. In addition, in his role as President and Chief Executive Officer,
Mr. Browne provides unique insight into our business strategies, opportunities and challenges, and serves as the unifying element between the leadership
and strategic direction provided by the Board of Directors and the implementation of our business strategies by management.
89
John Bakewell has served as a member of our Board since February 2018. Mr. Bakewell was initially elected to the Board in connection with our
restructuring in February 2018. Mr. Bakewell is an independent board member and consultant to the medical technology industry. He also serves on the
board of directors of Treace Medical Concepts, Inc. (TMCI) and Neuronetics, Inc. (STIM), both publicly held companies and Impulse Dynamics, N.V., a
privately held medical device company. Mr. Bakewell served as the Chief Financial Officer of Exact Sciences Corporation, a molecular diagnostics
company, from January 2016 to November 2016. Mr. Bakewell previously served as the Chief Financial Officer of Lantheus Holdings, Inc., a diagnostic
medical imaging company, from June 2014 to December 2015, as the Chief Financial Officer of Interline Brands, Inc., a distributor and direct marketer of
broad-line maintenance, repair and operations products, from June 2013 to May 2014, and as the Executive Vice President and Chief Financial Officer of
RegionalCare Hospital Partners, an owner and operator of non-urban hospitals, from January 2010 to December 2011. In addition, Mr. Bakewell held the
position of Chief Financial Officer with Wright Medical Group, Inc., an orthopaedic company, from 2000 to 2009, with Altra Energy Technologies, Inc.
from 1998 to 2000, with Cyberonics, Inc. from 1993 to 1998 and with Zeos International, Ltd. from 1990 to 1993. Mr. Bakewell began his career in the
public accounting profession, serving seven years, collectively, with Ernst & Young and KPMG Peat Marwick. Mr. Bakewell previously served on the
board of directors of Entellus Medical, Inc., a public ENT-focused medical device company, until its acquisition by Stryker Corp.; ev3 Inc., a public
endovascular medical device company, until its acquisition by Covidien plc; Keystone Dental, Inc., a private dental implant medical device company; and
Corindus Vascular Robotics, Inc., a public cardiovascular robotics medical technology company and now a Siemens Healthineers company. Mr. Bakewell
holds a Bachelor of Arts in Accounting from the University of Northern Iowa and is a certified public accountant (current status inactive). Mr. Bakewell’s
extensive financial and managerial experience as a senior executive of several publicly traded medical technology companies, as well as his experience
serving on the board of directors of other companies contributes valuable experience to our Board.
Michael Eggenberg has served as a member of our Board since February 2018. Mr. Eggenberg was initially elected to the Board in connection
with our restructuring in February 2018. Mr. Eggenberg is a designee of Royalty Opportunities and ROS under the Investor Rights Agreement. Since
December 2016, Mr. Eggenberg has been a Managing Director with OrbiMed Advisors LLC, a private equity and venture capital firm, focusing on
healthcare royalty and structured finance investments. From May 2005 to December 2016, Mr. Eggenberg was with Fortress Investment Group LLC, a
global investment manager, most recently as a Managing Director focused on special opportunities funds. Mr. Eggenberg previously held positions at CIT
Group Inc., Wells Fargo Bank, N.A. and Bank of America, formerly NationsBank. Mr. Eggenberg received his BS in Finance and General Business from
Drexel University. Mr. Eggenberg brings valuable experience in the life science industry and finance experience to the Board.
Robert McNamara has served as a member of our Board since February 2018. He has over 25 years experience in the medical device industry.
Mr. McNamara was initially elected to the Board in connection with our restructuring in February 2018. He also serves as Audit Committee Chairman of
Axonics, Inc. (AXNX) and as a board member of Alpha Teknova, Inc. (TKNO). From January 2013 to July 2016, Mr. McNamara served as Executive Vice
President and from April 2012 to July 2016 as the Chief Financial Officer for LDR Holding Corporation, a publicly held medical device (spinal implants)
company acquired by Zimmer Biomet Holdings, Inc. In addition, Mr. McNamara has previously served as the Senior Vice President and Chief Financial
Officer for publicly traded medical device companies including Accuray Inc., a stereotactic radiation company focused on treating cancer using AI
robotics, Somnus Medical Technologies Inc., a RF energy company focused on treating upper airway breathing disorders, and Target Therapeutics, Inc., a
minimally invasive catheter and device company treating vascular diseases of the brain. Mr. McNamara has been a member of the board of directors of
Northstar Neurosciences Inc. and is the former Mayor of Menlo Park, California. Mr. McNamara began his career in public accounting and is a certified
public accountant (current status inactive). Mr. McNamara holds a Bachelor of Science in Accounting from the University of San Francisco and a Masters
of Business Administration in Finance from The Wharton School at the University of Pennsylvania. Mr. McNamara brings valuable finance and accounting
experience in the medical device industry to the Board.
90
Matthew Rizzo has served as a member of our Board since February 2018. Mr. Rizzo was initially elected to the Board in connection with our
restructuring in February 2018. Mr. Rizzo is a designee of Royalty Opportunities and ROS under the Investor Rights Agreement. Since December 2021,
Mr. Rizzo has served as a General Partner with OrbiMed Advisors LLC, a private equity and venture capital firm, and is focused on healthcare royalty and
structured finance investments. From April 2010 to December 2021, Mr. Rizzo served as a Partner with OrbiMed Advisors LLC. From 2009 to 2010, Mr.
Rizzo was a Senior Director in Business Development at Ikaria, a biotherapeutics company. From 2006 to 2009, Mr. Rizzo was Vice President at Fortress
Investment Group LLC, a global investment manager, focused on healthcare investments in the Drawbridge Special Opportunities Funds. From 2001 to
2006, Mr. Rizzo was at GlaxoSmithKline, where he worked in business and commercial analysis. Mr. Rizzo received his MBA from Duke University and
his BS from University at Buffalo. Mr. Rizzo brings valuable experience in the life science industry and finance experience to the Board.
Kevin D. Brandt was appointed our Chief Commercial Officer in July 2018. From January 2017 to June 2018, Mr. Brandt served as Executive
Vice President, Chief Commercial Officer – Domestic Direct of RTI Surgical, Inc., a surgical implant company. Mr. Brandt joined RTI as Vice President
and General Manager, Emerging Technologies Commercialization in June 2012 and assumed additional responsibilities in January 2013 as head of RTI’s
direct spine business. Following the acquisition of Pioneer Surgical, from July 2013 to December 2016, Mr. Brandt assumed additional responsibility when
he began overseeing all North American and Canadian spine hardware and spine biologics portfolios. Mr. Brandt has over 28 years of commercial
leadership experience in the global orthopedic industry focusing on building sustainable growth and value. Mr. Brandt’s expertise includes experience in
sales, marketing, business development, mergers and acquisitions and integration leadership. Prior to joining RTI, Mr. Brandt held various senior leadership
roles over an 18-year period in the orthopedic and spinal divisions at Stryker Corporation. In his most recent position at Stryker, he was President of
Osteokinetics Corp. from January 2002 to June 2012. From June 2000 to December 2001, Mr. Brandt was Senior Director, US Spinal Sales, in which he
was responsible for divesting and subsequently leading the Stryker Spine US Sales organization. Prior to joining Stryker, Mr. Brandt was a sales leader at
Zimmer in a flagship office piloting a direct sales model from January 1990 to April 1994. Mr. Brandt earned a master’s degree in business administration
in corporate finance and investments with distinction from Adelphi University, a bachelor of science degree in business administration from New York
Institute of Technology, and has taken executive education courses at the Wharton School of Business, US Naval Academy and the Gallup organization.
Scott C. Neils, was appointed our Interim Chief Financial Officer January 3, 2022. From August 2019 until January 2022, Mr. Neils served as our
Controller. Mr. Neils’ has 15 years of experience focused on public accounting and corporate finance. In this role, Mr. Neils gained extensive experience
managing our finance and accounting functions. Prior to joining Xtant, Mr. Neils served as Audit Senior Manager at Baker Tilly US, LLP (formerly Baker
Tilly Virchow Krause, LLP), an advisory, tax and assurance firm, from November 2015 to August 2019. Prior to that position, Mr. Neils was at Grant
Thornton LLP, an accounting and advisory organization, from September 2007 to November 2015, most recently as Audit Manager. Mr. Neils is a Certified
Public Accountant. He holds a Bachelor of Science in Business in Accounting and a Master of Accountancy from the Carlson School of Management at the
University of Minnesota.
Controlled Company Status
We are a “controlled company” as defined in section 801(a) of the NYSE American Company Guide, and 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. While we have a compensation committee, it is not
comprised of a majority of independent directors. Since we do not have a nominating committee, the Board of Directors performs the functions of a
nominating committee.
91
Investor Rights Agreement
We are party to an Investor Rights Agreement with OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP, which are funds
affiliated with OrbiMed Advisors LLC. Under the Investor Rights Agreement, Royalty Opportunities and ROS are permitted to nominate a majority of the
directors and designate the chairperson of our Board of Directors at subsequent annual meetings, as long as they maintain an ownership threshold in our
Company of at least 40% of our then outstanding common stock. If Royalty Opportunities and ROS are unable to maintain the Ownership Threshold, as
defined in the Investor Rights Agreement, the Investor Rights Agreement contemplates a reduction of nomination rights commensurate with our ownership
interests. For so long as the Ownership Threshold is met, we must obtain the approval of a majority of our common stock held by Royalty Opportunities
and ROS to proceed with the following actions: (i) issue new securities; (ii) incur over $250,000 of debt in a fiscal year; (iii) sell or transfer over $250,000
of our assets or businesses or our subsidiaries in a fiscal year; (iv) acquire over $250,000 of assets or properties in a fiscal year; (v) make capital
expenditures over $125,000 individually, or $1,500,000 in the aggregate during a fiscal year; (vi) approve our annual budget; (vii) hire or terminate our
chief executive officer; (viii) appoint or remove the chairperson of our Board of Directors; and (ix) make, loans to, investments in, or purchase, or permit
any subsidiary to purchase, any stock or other securities in another entity in excess of $250,000 in a fiscal year. As long as the Ownership Threshold is met,
we may not increase the size of our Board or Directors beyond seven directors without the approval of a majority of the directors nominated by Royalty
Opportunities and ROS.
The Investor Rights Agreement grants Royalty Opportunities and ROS the right to purchase from us a pro rata amount of any new securities that
we may propose to issue and sell. The Investor Rights Agreement may be terminated (a) upon the mutual written agreement of all the parties, (b) upon our
written notice or the written notice of ROS or Royalty Opportunities if the ownership percentage of our then outstanding common stock of ROS and
Royalty Opportunities is less than 10%, or (c) upon written notice of ROS and Royalty Opportunities.
Director Independence
The Board has affirmatively determined that John Bakewell and Robert McNamara are “independent directors,” as defined under the
independence standards of the NYSE American.
Board Leadership Structure
Under the terms of the Investor Rights Agreement, Royalty Opportunities and ROS have the right to designate the Chairman of the Board and
have so designated Jeffrey Peters. Accordingly, Mr. Peters serves as Chairman of the Board. Sean E. Browne serves as our President and Chief Executive
Officer. We believe this leadership structure is in the best interests of the Company and our stockholders and strikes the appropriate balance between the
Chief Executive Officer’s responsibility for the strategic direction, day-to day-leadership, and performance of the Company and the Chairman of the
Board’s responsibility to guide the overall strategic direction of the Company, provide oversight of our corporate governance and guidance to our Chief
Executive Officer, and to set the agenda for and preside over Board meetings. We recognize that different leadership structures may be appropriate for
companies in different situations and believe that no one structure is suitable for all companies. We believe that we are currently well-served by this
leadership structure.
Board Committees
We currently maintain two Board committees, an Audit Committee and a Compensation Committee. We are a controlled company and have
elected not to comply with the NYSE American corporate governance requirements, which require an independent nomination and governance committee
and an independent compensation committee. We currently do not maintain a nomination and governance committee. While we maintain a Compensation
Committee, it is not independent according to NYSE American corporate governance requirements.
92
The table below summarizes the current membership of each of our two standing board committees as of February 25, 2022. We also currently
have a Strategic Transactions Committee on which Mr. McNamara is Chair and Messrs. Eggenberg and Rizzo serve as members.
Director
John Bakewell
Sean Browne
Michael Eggenberg
Robert McNamara
Jeffrey Peters
Matthew Rizzo
Audit Committee
Audit Committee
Chair
●
Compensation Committee
●
Chair
●
The organization and primary responsibilities of the Audit Committee are set forth in its charter, posted on our website at www.xtantmedical.com
(click “Investors” and “Corporate Governance”), and include various matters with respect to the oversight of our accounting and financial reporting process
and audits of our financial statements. The primary purposes of the Audit Committee include:
● to oversee the accounting and financial reporting processes of the Company and audits of the financial statements of the Company;
● to provide assistance to the Board with respect to its oversight of the following:
○ integrity of the Company’s financial statements and internal controls;
○ the Company’s compliance with legal and regulatory requirements;
○ the qualifications and independence of the Company’s independent registered public accounting firm; and
○ the performance of the Company’s internal audit function, if any, and independent registered public accounting firm.
● to prepare the report required to be prepared by the Audit Committee pursuant to the rules of the Securities and Exchange Commission.
The Audit Committee currently consists of Mr. Bakewell (Chair) and Mr. McNamara. The Audit Committee met five times during fiscal 2021.
Under the NYSE American listing standards, all Audit Committee members must be independent directors and meet heightened independence
requirements under the federal securities laws. In addition, all Audit Committee members must be financially literate, and at least one member must be
financially sophisticated. Further, under SEC rules, the Board must determine whether at least one member of the Audit Committee is an “audit committee
financial expert,” as defined by the SEC’s rules. The Board has determined that both Mr. Bakewell and Mr. McNamara are independent, financially literate,
and sophisticated and qualify as “audit committee financial experts” in accordance with the applicable rules and regulations of the SEC.
Compensation Committee
The organization and responsibilities of the Compensation Committee are set forth in its charter, which is posted on our website at
www.xtantmedical.com (click “Investors” and “Corporate Governance”). The primary purposes of the Compensation Committee include:
● recommending to the Board all compensation for the Company’s Chief Executive Officer and other executive officers;
93
● administering the Company’s equity-based compensation plans;
● reviewing, assessing, and approving overall strategies for attracting, developing, retaining, and motivating Company management and
employees;
● overseeing the development and implementation of succession plans for the Chief Executive Officer and other key executive officers and
employees;
● reviewing, assessing, and approving overall compensation structure on an annual basis; and
● recommending and leading a process for the determination of non-employee director compensation.
The Compensation Committee consists of Mr. McNamara (Chair), Mr. Eggenberg and Mr. Rizzo. The Compensation Committee met six times
during fiscal 2021.
Director Nomination Process
Since we are not required under the NYSE rules to maintain a nominating committee and we do not have a nominating committee, the Board
oversees our director nomination process. In identifying and evaluating candidates for membership on the Board, the Board may take into account all
factors it considers appropriate, which may include strength of character, mature judgment, career specialization, relevant technical skills, diversity
(including, but not limited to, gender, race, ethnicity, age, experience, and skills), and the extent to which the candidate would fill a present need on the
Board. We do not have a formal diversity policy for directors. The Board identifies director candidates based on input provided by a number of sources,
including Board members, stockholders, management, and third parties. The Board does not distinguish between nominees recommended by our
stockholders and those recommended by other parties. Any stockholder recommendation must be sent to our Corporate Secretary at Xtant Medical
Holdings, Inc., 664 Cruiser Lane, Belgrade, Montana 59714, and must include certain information concerning the nominee as specified in the Company’s
Second Amended and Restated Bylaws. During the fourth quarter of 2021, we made no material changes to the procedures by which stockholders may
recommend nominees to the Board.
Code of Ethics and Code of Conduct
We have adopted a Code of Ethics for the CEO and Senior Financial Officers as well as a Code of Conduct that applies to all directors, officers,
and employees. Our corporate governance materials, including our Code of Ethics for the CEO and Senior Financial Officers and Code of Conduct, are
available on our website at www.xtantmedical.com (click “Investors” and “Corporate Governance”). We intend to disclose on our corporate website any
amendment to, or waiver from, a provision of our Code of Ethics for the CEO and Senior Financial Officers that applies to directors and executive officers
and that is required to be disclosed pursuant to the rules of the SEC and the NYSE American.
94
Item 11. Executive Compensation
Executive Compensation
Summary Compensation Table
The table below provides summary information concerning all compensation awarded to, earned by, or paid to the individuals that served as a
principal executive officer of the Company during the year ended December 31, 2021, and the two most highly compensated executives for the year ended
December 31, 2021.
Name and Principal Position
Sean E. Browne
President and Chief
Executive Officer
Greg Jensen)(7)
Former Vice President,
Finance and Chief Financial
Officer
Kevin D. Brandt
Chief Commercial Officer
Year Salary(1) Bonus(2)
2021 $ 590,228 $
2020 603,692
Stock
Awards(3)
Option
Awards(4)
Non-Equity
Incentive Plan
Compensation(5)
All
Other
Compensation(6)
Total
— $
— $
— $
— 1,850,762 1,508,484
201,900 $
510,000
39,362 $ 831,490
76,116 4,549,054
2021 393,846
2020 402,462
—
—
198,438
107,557
206,543
108,469
100,200
170,000
55,883
72,616
954,910
861,104
2021 408,615
2020 417,554
—
—
205,878
107,557
214,288
108,469
85,243
176,375
9,992
11,400
924,016
821,355
(1)
(2)
(3)
(4)
All salaries for 2020 reflect a 20% temporary reduction during second quarter of 2020 as part of our cost-savings measures in response to the
COVID-19 pandemic. Additional detail on these measures and their impact on executive compensation is below under “Impact of COVID-19
Pandemic.”
We generally do not pay any discretionary bonuses or bonuses that are subjectively determined and did not pay any such bonuses to any named
executive officers in 2021. Annual cash incentive bonus payouts based on performance against pre-established performance goals are reported in
the “Non-equity incentive plan compensation” column.
Amounts reported represent the aggregate grant date fair value for restricted stock unit (“RSU”) awards computed in accordance with FASB ASC
Topic 718. The grant date fair value is determined based on the per share closing sale price of our common stock on the grant date for 2021 and
2020.
Amounts reported represent the aggregate grant date fair value for option awards granted to each named executive officer computed in accordance
with FASB ASC Topic 718. The grant date fair value is determined based on our Black-Scholes option pricing model. The table below sets forth
the specific assumptions used in the valuation of each such option award:
Grant Date
08/15/2021
11/15/2020
08/15/2020
$
Grant Date Fair
Value Per Share
1.27
1.03
0.90
Risk Free
Interest Rate
0.97%
0.56%
0.43%
Expected
Life
6.25 years
6.25 years
6.25 years
Expected
Volatility
112.66%
105.28%
101.99%
Expected
Dividend Yield
—
—
—
(5)
Amounts reported represent payouts under our annual bonus plan and for each year reflect the amounts earned for that year but paid during the
following year.
95
(6)
The table below provides information concerning amounts reported in the “All Other Compensation” column of the Summary Compensation
Table for 2021 with respect to each named executive officer. Additional detail on these amounts is provided in the table below.
Name
Sean E. Browne
Greg Jensen
Kevin D. Brandt
401(k) Match
Commuting
Expenses
$
11,600 $
11,600
9,992
27,762 $
44,283
—
Total
39,362
55,883
9,992
(8)
Mr. Jensen’s status as Vice President, Finance and Chief Financial Officer terminated effective January 3, 2022. From August 2019 to January
2022, Mr. Jensen served as our Vice President, Finance and Chief Financial Officer. From February 2019 to August 2019, Mr. Jensen served as
our Vice President, Finance and Interim Chief Financial Officer, and from March 18, 2019 until the appointment of Mr. Browne as President and
Chief Executive Officer on October 7, 2019, Mr. Jensen served in the capacity as our principal executive officer.
Executive Employment and Other Agreements
Employment Agreements
Effective October 7, 2019, we entered into an employment agreement with Sean E. Browne, our President and Chief Executive Officer, which
provides for an annual base salary $600,000 and a target annual bonus opportunity equal to 100% of his annual base salary. We agreed to reimburse his
reasonable travel and business expenses. In addition, we agreed to grant him an option to purchase 329,044 shares of our common stock and an RSU unit
award covering 329,044 shares of our common stock under the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan, as amended (the “2018 Plan”),
effective as of October 15, 2019, consistent with our equity grant policy. The total number of shares subject to these equity awards represented 5% of our
then outstanding common stock. We also agreed to grant Mr. Browne additional stock options and RSU awards, in the same proportionate split, in the event
OrbiMed (including its affiliates) converts any of our outstanding indebtedness into equity of the Company within five years. Accordingly, in response to
the completion of our October 2020 debt restructuring, on November 15, 2020, we granted Mr. Browne an additional option to purchase 1,468,859 shares
of our common stock and an RSU award covering 1,468,859 shares of our common stock. The terms of these awards are described under “Outstanding
Equity Awards at Fiscal Year-End.” Our agreement with Mr. Browne also contains standard confidentiality, non-competition, non-solicitation and
assignment of intellectual property provisions, as well as standard severance and change in control provisions, which are described under “—Potential
Payments upon Termination or Change in Control.”
We were a party to an employment agreement with Mr. Jensen, our former Vice President, Finance and Chief Financial Officer. This agreement
provided for an annual base salary $400,000 and a target annual bonus opportunity equal to 50% of his annual base salary. This agreement also contained
standard confidentiality, non-competition, non-solicitation and assignment of intellectual property provisions, as well as standard severance and change in
control benefits, which are described under “—Potential Payments upon Termination or Change in Control.” In connection with Mr. Jensen’s departure on
January 3, 2022, the Company and Mr. Jensen entered into a standard and customary resignation agreement and release pursuant to which the Company
agreed to provide Mr. Jensen certain severance benefits, as provided in his employment agreement effective as of August 8, 2019 with the Company,
conditioned upon his execution and non-revocation of a release of claims against the Company.
Effective July 9, 2018, we entered into an employment agreement with Kevin D. Brandt, our Chief Commercial Officer, which provided for an
initial annual base salary of $400,000 (which was subsequently increased to $415,000 in April 2019) with a target annual bonus of 50% of his annual base
salary, and a $90,000 signing bonus, which was required to be paid back if Mr. Brandt terminated his employment with Xtant prior to the one-year
anniversary of his hire date. In addition, the agreement provided for the grant of an RSU award covering 40,000 shares of our common stock, which will
vest in full on July 9, 2021, the three-year anniversary date of Mr. Brandt’s hire date, assuming continued employment. The agreement also provides that
Mr. Brandt is eligible to receive an annual equity award, subject to the approval of the Board, provided that the grant value of such equity award shall not
be less than 50% of his annual base salary. Accordingly, on August 15, 2020, Mr. Brandt was granted an option to purchase 119,942 shares of our common
stock and an RSU award covering 95,183 shares of our common stock, which are described under “Outstanding Equity Awards at Fiscal Year-End.” This
agreement contains standard confidentiality, non-competition, non-solicitation, and assignment of intellectual property provisions, as well as standard
severance and change in control provisions, which are described under “—Potential Payments upon Termination or Change in Control.”
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Indemnification Agreements
We have entered into indemnification agreements with our executive officers that require us to indemnify them against certain liabilities that may
arise by reason of their status or service as directors or executive officers to the fullest extent not prohibited by Delaware law.
401(k) Retirement Plan
We have a 401(k) plan for our employees. The 401(k) plan is a defined contribution plan covering substantially all of our employees. Employees
are eligible to participate in the plan on the first day of any month after starting employment. Employees are allowed to contribute a percentage of their
wages to the 401(k) plan, subject to statutorily prescribed limits and are subject to a discretionary employer match of 100% of their wage deferrals not in
excess of 4% of their wages.
Outstanding Equity Awards at Fiscal Year-End
The table below provides information regarding unexercised option awards and unvested stock awards held by each of our named executive
officers that remained outstanding at our fiscal year-end, December 31, 2021. All of the outstanding equity awards described below were granted under the
2018 Plan.
Option Awards
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
Stock Awards
Number of
Shares or Units
of Stock that
Have Not
Vested
Market Value
of Shares or
Units of Stock
that Have Not
Vested(2)
Option
Exercise
Price
Option
Expiration
Date(1)
Number of Securities
Underlying Unexercised
Options (#) Exercisable
131,618
367,215
19,530
29,985
—
23,077
20,263
29,985
—
197,426(3) $
1,101,644(5)
19,533(7)
89,957(9)
192,308(11)
7,693(13)
20,264(7)
89,957(9)
199,519(11)
2.70 10/15/2029
1.26 11/15/2030
2.76 08/15/2029
1.13 08/15/2030
1.27 08/15/2031
6.20 08/15/2028
2.76 08/15/2029
1.13 08/15/2030
1.27 08/15/2031
197,426(4) $
1,101,644(6)
16,950(8)
71,387(10)
156,250(12)
—
17,585(8)
71,387(10)
162,109(12)
110,559
616,921
9,492
39,977
87,500
—
9,848
39,977
90,781
Name
Sean E. Browne
Greg Jensen
Kevin D. Brandt
(1)
All options awards have a 10-year term, but may terminate earlier if the recipient’s employment or service relationship with the Company
terminates. All of Mr. Jensen’s options that were unvested as of his termination date were cancelled and his options that were vested as of his
termination date will expire on April 4, 2022.
(2)
Based on the closing price of our common stock on December 31, 2021 ($0.56), as reported by the NYSE American.
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(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
This stock option vests in nearly equal installments annually over a five-year period beginning on October 15, 2020. In addition, this option will
vest in full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro rata
percentage will vest immediately if Mr. Browne dies.
This RSU award vests in nearly equal installments annually over a five-year period beginning on October 15, 2020. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro
rata percentage will vest immediately if Mr. Browne dies.
This stock option vests in nearly equal installments annually over a four-year period beginning on October 15, 2021. In addition, this option will
vest in full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro rata
percentage will vest immediately if Mr. Browne dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on October 15, 2021. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro
rata percentage will vest immediately if Mr. Browne dies.
This stock option vests in nearly equal installments annually over a four-year period beginning on August 15, 2020. In addition, this option will
vest in full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro rata
percentage will vest immediately if the executive dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on August 15, 2020. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to 12 months following a change in control and a
pro rata percentage will vest immediately if the executive dies.
This stock option vests with respect to 25% of the shares on August 15, 2021 and with respect to the remaining 75% of such shares over the three-
year period thereafter in 12 as nearly equal as possible quarterly installments. In addition, this option will vest in full immediately in the event that
it is discontinued upon a change in control or up to one year following a change in control and a pro rata percentage will vest immediately if the
executive dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on August 15, 2021. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to 12 months following a change in control and a
pro rata percentage will vest immediately if the executive dies.
This stock option vests with respect to 25% of the shares on August 15, 2022 and with respect to the remaining 75% of such shares over the three-
year period thereafter in 12 as nearly equal as possible quarterly installments. In addition, this option will vest in full immediately in the event that
it is discontinued upon a change in control or up to one year following a change in control and a pro rata percentage will vest immediately if the
executive dies.
This RSU award vests in nearly equal installments annually over a four-year period beginning on August 15, 2022. In addition, this RSU award
will vest in full immediately in the event that it is discontinued upon a change in control or up to 12 months following a change in control and a
pro rata percentage will vest immediately if the executive dies.
This stock option vests in equal installments annually over a four-year period beginning on August 15, 2019. In addition, this option will vest in
full immediately in the event that it is discontinued upon a change in control or up to one year following a change in control and a pro rata
percentage will vest immediately if Mr. Brandt dies.
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Xtant Medical Holdings, Inc. Amended and Restated 2018 Equity Incentive Plan
In 2020, the Board approved and the Company’s stockholders approved and adopted the Xtant Medical Holdings, Inc. Amended and Restated
2018 Equity Incentive Plan (the “2018 Plan”). The purpose of the 2018 Plan is to advance the interests of the Company and our stockholders by enabling us
to attract and retain qualified individuals to perform services, provide incentive compensation for such individuals in a form that is linked to the growth and
profitability of our company and increases in stockholder value, and provide opportunities for equity participation that align the interests of participants
with those of our stockholders.
The 2018 Plan replaced the Amended and Restated Xtant Medical Equity Incentive Plan (the “Prior Plan”). However, the terms of the Prior Plan,
as applicable, continue to govern awards outstanding under the Prior Plan until exercised, expired, paid, or otherwise terminated or canceled.
The 2018 Plan permits the Board, or a committee or subcommittee thereof, to grant to eligible employees, non-employee directors, and consultants
of the Company non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, RSUs, deferred stock units, performance
awards, non-employee director awards, and other stock-based awards. Subject to adjustment, the maximum number of shares of our common stock
authorized for issuance under the 2018 Plan is 8,358,055 shares. To date, the Company has granted stock options, restricted stock and RSUs under the 2018
Plan. As of December 31, 2021, 1,246,080 shares of Xtant common stock remained available for issuance under the 2018 Plan.
Potential Payments upon Termination or Change in Control
Executive Employment Agreements
Under the terms of the employment agreements we have entered into with our named executive officers, if the executive’s employment is
terminated by the Company without “cause” (as defined in the agreement), the executive will be entitled to receive a severance payment equal to 12 months
of his annual base salary, payable as salary continuation, reimbursement of COBRA payments for up to 12 months, and the prorated amount of any unpaid
bonus for the calendar year in which his termination of employment occurs, if earned pursuant to the terms thereof. If the executive’s employment is
terminated by the Company without “cause” or by the executive for “good reason” in connection with or within 12 months after a “change in control” (as
such terms are defined in the agreement), the executive’s severance payment, as previously described, will be paid in one lump sum, and in the case of Mr.
Brandt, will equal two times his base salary. To be eligible to receive these payments, the executive will be required to execute and not revoke a release of
claims against the Company.
In connection with Mr. Jensen’s departure on January 3, 2022, the Company and Mr. Jensen entered into a standard and customary resignation
agreement and release pursuant to which the Company agreed to provide Mr. Jensen certain severance benefits, as provided in his employment agreement
effective as of August 8, 2019 with the Company conditioned upon his execution and non-revocation of a release of claims against the Company.
Equity Award Agreements
All equity awards held by our named executive officers have been granted under 2018 Plan. Under the terms of the 2018 Plan and the award
agreements governing these awards, if an executive’s employment or other service with the Company is terminated for cause, then all outstanding awards
held by such executive will be terminated and forfeited. In the event an executive’s employment or other service with the Company is terminated by reason
of death, then:
● All outstanding stock options will vest and become exercisable immediately as to a pro rata percentage of the unvested portion of the option
scheduled to vest on the next applicable vesting date, and the vested portion of the options will remain exercisable for a period of one year
after the date of such termination (but in no event after the expiration date).
99
● The outstanding unvested RSU awards will vest and become immediately issuable as to a pro rata percentage of the unvested portion of the
RSU awards scheduled to vest on the next applicable vesting date and the unvested portion of the RSU awards will terminate.
In the event an executive’s employment or other service with the Company is terminated by reason of disability, then:
● All outstanding stock options will remain exercisable to the extent exercisable on the termination date for a period of one year after the date of
such termination (but in no event after the expiration date).
● All outstanding unvested RSU awards will terminate.
In the event an executive’s employment or other service with the Company is terminated for any other reason, then:
● All outstanding stock options will remain exercisable to the extent exercisable on the termination date for a period of 90 days after the date of
such termination (but in no event after the expiration date).
● All outstanding unvested RSU awards will terminate.
In addition, the equity award agreements governing the equity awards held by our named executive officers contain “change in control”
provisions. Under the award agreements, without limiting the authority of the Compensation Committee to adjust awards, if a “change in control” of the
Company (as defined in the 2018 Plan) occurs, then, unless otherwise provided in the award or other agreement, if an award is continued, assumed, or
substituted by the successor entity, the award will not vest or lapse solely as a result of the change in control but will instead remain outstanding under the
terms pursuant to which it has been continued, assumed, or substituted and will continue to vest or lapse pursuant to such terms. If the award is continued,
assumed, or substituted by the successor entity and within one year following the change in control, the executive is either terminated by the successor
entity without “cause” or, if the executive resigns for “good reason,” each as defined in the award agreement, then the outstanding option will vest and
become immediately exercisable as of the termination or resignation and will remain exercisable until the earlier of the expiration of its full specified term
or the first anniversary of the date of such termination or resignation, and the outstanding RSU award will be fully vested and will be converted into shares
of our common stock immediately thereafter. If an award is not continued, assumed, or substituted by the successor entity, then the outstanding option will
be fully vested and exercisable, and the Compensation Committee will either give the executive a reasonable opportunity to exercise the option prior to the
change in control transaction or will pay the difference between the exercise price of the option and the per share consideration paid to similarly situated
stockholders. Under these conditions, the outstanding RSU award will be fully vested and will be converted into shares of our common stock immediately
thereafter.
100
Director Compensation
Director Compensation Program
Our director cash compensation consists of an annual cash retainer paid to each non-employee director and an additional annual cash retainer paid
to the Chairman of the Board, the Audit Committee Chair, and the Compensation Committee Chair and annual RSU equity grants.
The table below sets forth the annual cash retainers for 2021:
Description
Non-Employee Director
Chairman of the Board Premium
Audit Committee Chair Premium
Compensation Committee Chair Premium
$
Annual Cash
Retainer
50,000
32,500
32,500
32,500
In addition, during a portion of 2021, we maintained a Strategic Transactions Committee on which Mr. McNamara served as Chair and received a
pro rata portion of an annual cash retainer of $25,000.
In 2021, we revised our non-employee director compensation program to provide for annual RSU equity grants, and accordingly, on August 15,
2021, each of our non-employee directors received an RSU award valued at $165,000 for 85,337 shares of our common stock. All of these RSU awards
will vest on the one-year anniversary of the date of grant, August 15, 2022.
Director Compensation Table for Fiscal 2021
The table below describes the compensation earned by our directors during fiscal 2021, other than Sean E. Browne, our President and Chief
Executive Officer. Mr. Browne is not compensated separately for his service as a director, and his compensation is discussed under “Executive
Compensation.”
Name
John Bakewell
Michael Eggenberg
Robert McNamara
Jeffrey Peters
Matthew Rizzo
Fees Earned
or Paid in
Cash
Stock
Awards(1)(2)
Option
Awards
All Other
Compensation
$
82,500 $
50,000
95,000
82,500
50,000
108,378 $
108,378
108,378
108,378
108,378
— $
—
—
—
—
— $
—
—
—
—
Total
190,878
158,378
203,378
190,878
158,378
(1)
(2)
The amount reported in the “Stock Awards” column represents the aggregate grant date fair value for the RSU awards granted to our non-
employee directors in 2021. The grant date fair value for the RSU awards was determined based on the closing sale price of our common stock on
the grant date.
As of December 31, 2021, each non-employee director held the following number of unvested stock awards (all of which are in the form of RSU
awards): Mr. Bakewell (143,436); Mr. Eggenberg (120,549); Mr. McNamara (143,436); Mr. Peters (143,146); and Mr. Rizzo (120,549).
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Significant Beneficial Owners
The table below sets forth information as to beneficial owners that have reported to the SEC or have otherwise advised us that they are a beneficial
owner, as defined by the SEC’s rules and regulations, of more than 5% of our outstanding common stock.
Title of Class
Name and Address of Beneficial Owner
Common Stock
Common Stock
OrbiMed Advisors LLC(2)
601 Lexington Avenue, 54th Floor
New York, NY 10022
Altium Capital Management, LP(3)
152 West 57th Street, Floor 20
New York, NY 10019
Amount and
Nature of
Beneficial
Ownership
Percent of Class(1)
72,943,918
83.5%
12,744,209(4)
7.2%(4)
(1)
(2)
(3)
(4)
Percent of class is based on 87,313,701 shares of our common stock outstanding as of February 25, 2022.
Based in-part on information contained in a Schedule 13D/A filed with the SEC on February 14, 2022. Includes 55,874,240 shares of common
stock held of record by ROS Acquisition Offshore LP. OrbiMed Advisors LLC, a registered adviser under the Investment Advisors Act of 1940, as
amended, is the investment manager of ROS. OrbiMed is also the investment manager of Royalty Opportunities S.àr.l., of which ROS is a wholly-
owned subsidiary. By virtue of such relationships, OrbiMed may be deemed to have voting and investment power with respect to the securities
held by ROS noted above and as a result may be deemed to have beneficial ownership over such securities. OrbiMed exercised this investment
and voting power through a management committee comprised of Carl L. Gordon, Sven H. Borho, and Jonathan T. Silverstein, each of whom
disclaims beneficial ownership of the securities held by ROS.
Also includes 17,069,678 shares of common stock held of record by OrbiMed Royalty Opportunities II, LP. OrbiMed ROF II LLC (“ROF II”) is
the sole general partner of Royalty Opportunities, and OrbiMed is the sole managing member of ROF II. By virtue of such relationships, OrbiMed
may be deemed to have voting and investment power with respect to the securities held by Royalty Opportunities noted above and as a result may
be deemed to have beneficial ownership over such securities. OrbiMed exercised this investment and voting power through a management
committee comprised of Carl L. Gordon, Sven H. Borho, and Jonathan T. Silverstein, each of whom disclaims beneficial ownership of the
securities held by Royalty Opportunities.
Based on information contained in a Schedule 13G filed with the SEC on March 8, 2021 and other information known to the Company. Altium
Growth Fund, LP (the “Fund”), Altium Capital Management, LLC, and Altium Growth GP, LLC each have shared dispositive power and voting
power over the shares. The Fund is the record and direct beneficial owner of the shares. Altium Capital Management, LP is the investment adviser
of, and may be deemed to beneficially own the shares owned by the Fund. Altium Growth GP, LLC is the general partner of, and may be deemed
to beneficially own the shares owned by the Fund. The number of shares consists of 6,246,291 shares of our common stock and 6,497,918 shares
of our common stock issuable upon exercise of a warrant (the “Investor Warrant”).
While the total number of shares of our common stock issuable upon exercise of the Investor Warrant is reflected in this table, the Fund is not
permitted to exercise such Investor Warrant to the extent that such exercise would result in the Fund and its affiliates beneficially owning more
than 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the issuance of shares of common stock
issuable upon exercise of such warrants. The Fund has the right to increase this beneficial ownership limitation in its discretion on 61 days’ prior
written notice to us.
102
Security Ownership of Management
The table below sets forth information relating to the beneficial ownership of our common stock as of February 25, 2022, by:
● each of our directors;
● each of our named executive officers; and
● all directors and executive officers as a group.
The number of shares beneficially owned by each person is determined in accordance with the SEC’s rules and regulations, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under the SEC’s rules and regulations, beneficial ownership includes any shares
over which the individual has sole or shared voting power or investment power as well as any shares that the individual has the right to acquire within 60
days of February 25, 2022, through the exercise of any stock option, warrants, or other rights or the vesting of any RSU awards. Except as otherwise
indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all
shares of common stock held by that person.
The percentage of shares beneficially owned is computed on the basis of 87,313,701 shares of our common stock outstanding as of February 25,
2022. Shares of our common stock that a person has the right to acquire within 60 days of February 25, 2022, are deemed outstanding for purposes of
computing the percentage ownership of the person holding such rights, but are not deemed outstanding for purposes of computing the percentage
ownership of any other person.
Title of Class
Name of Beneficial Owner
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
Common Stock
John Bakewell
Sean E. Browne
Michael Eggenberg
Robert McNamara
Jeffrey Peters
Matthew Rizzo
Greg Jensen
Kevin D. Brandt
All executive officers and directors as a group (8 persons)
Amount and
Nature of
Beneficial
Ownership (1)
147,794
837,447
—
146,057
147,794
—
90,259
138,737
1,428,083
Percent of Class
*
1.0%
—
*
*
—
*
*
1.6%
*
(1)
Less than 1% of outstanding shares of common stock.
Includes for the persons listed below the following shares subject to options and RSUs held by that person that are currently exercisable or become
exercisable within 60 days of February 25, 2022:
Name
Sean E. Browne
Greg Jensen
Kevin D. Brandt
All directors and executive officers as a group (8 persons)
103
Options
RSUs
498,833
49,515
73,326
582,413
—
—
—
—
Securities Authorized for Issuance under Equity Compensation Plans
The table below provides information about our common stock that may be issued under our equity compensation plans as of December 31, 2021.
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
Number of Securities to
Be Issued upon Exercise
of Outstanding Options,
Warrants and Rights
(a)
Weighted Average
Exercise Price of
Outstanding Options,
Warrants and Rights
(b)
Number of Securities
Remaining Available for
Future Issuance under
Equity Compensation
Plans (Excluding
Securities Reflected in
Column (a))
(c)
6,171,771 $
—
6,171,771 $
1.80
—
1.80
1,246,080
—
1,246,080
(1)
(2)
(3)
Amount includes 3,188,355 shares of our common stock issuable upon the exercise of stock options granted under the 2018 Plan, 13,311 shares of
our common stock issuable upon the exercise of stock options granted under the Prior Plan and 3,970,105 shares of our common stock issuable
upon the vesting of RSU awards granted under the 2018 Plan.
Not included in the weighted-average exercise price calculation are 3,970,105 RSU awards.
Amount includes 1,246,080 shares of our common stock remaining available for future issuance under the 2018 Plan. No shares remain available
for grant under the Prior Plan since such plan has been terminated with respect to future grants.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Policies and Procedures for Review and Approval of Related Party Transactions
Pursuant to its charter, the Audit Committee reviews and approves all related party transactions and makes recommendations to the full Board
regarding approval of such transactions, unless the Board specifically delegates this responsibility to the Compensation Committee. The Audit Committee
reviewed the transactions described below and determined that they were fair, just, and reasonable to the Company and in the best interests of the Company
and its stockholders.
In addition, because of its significance, the debt restructuring described below was also approved by a Special Restructuring Committee composed
solely of the two Audit Committee members and prior to approving the transaction the Special Restructuring Committee received a written opinion dated
August 7, 2020 from its advisor, Duff & Phelps, LLC, that, as of the date of such opinion, the exchange price of the debt restructuring was fair, from a
financial point of view, to the stockholders of the Company unaffiliated with Royalty Opportunities and ROS, without giving effect to any impact of the
proposed transaction on any particular stockholder other than in its capacity as a stockholder.
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Related Party Transactions
Below is a description of transactions that have occurred during the past two fiscal years, or any currently proposed transactions, to which we were
or are a participant and in which:
● the amounts involved exceeded or will exceed the lesser of: $120,000 or one percent (1%) of the average of our total assets at year end for the
last two completed fiscal years; and
● a related person (including any director, director nominee, executive officer, holder of more than 5% of our common shares or any member of
their immediate family) had or will have a direct or indirect material interest.
Investor Rights Agreement
We are party to an Investor Rights Agreement with OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”) and ROS Acquisition
Offshore LP (“ROS”) pursuant to which Royalty Opportunities and ROS are permitted to nominate a majority of the directors and designate the
chairperson of our Board of Directors at subsequent annual meetings, as long as they maintain an ownership threshold in our Company of at least 40% of
our then outstanding common stock. If Royalty Opportunities and ROS are unable to maintain the Ownership Threshold, as defined in the Investor Rights
Agreement, the Investor Rights Agreement contemplates a reduction of nomination rights commensurate with our ownership interests. For so long as the
Ownership Threshold is met, we must obtain the approval of a majority of our common stock held by Royalty Opportunities and ROS to proceed with the
following actions: (i) issue new securities; (ii) incur over $250,000 of debt in a fiscal year; (iii) sell or transfer over $250,000 of our assets or businesses or
our subsidiaries in a fiscal year; (iv) acquire over $250,000 of assets or properties in a fiscal year; (v) make capital expenditures over $125,000 individually,
or $1,500,000 in the aggregate during a fiscal year; (vi) approve our annual budget; (vii) hire or terminate our chief executive officer; (viii) appoint or
remove the chairperson of our Board of Directors; and (ix) make loans to, investments in, or purchase, or permit any subsidiary to purchase, any stock or
other securities in another entity in excess of $250,000 in a fiscal year. As long as the Ownership Threshold is met, we may not increase the size of our
Board or Directors beyond seven directors without the approval of a majority of the directors nominated by Royalty Opportunities and ROS.
The Investor Rights Agreement grants Royalty Opportunities and ROS the right to purchase from us a pro rata amount of any new securities that
we may propose to issue and sell. The Investor Rights Agreement may be terminated (a) upon the mutual written agreement of all the parties, (b) upon our
written notice or the written notice of ROS or Royalty Opportunities if the ownership percentage of our then outstanding common stock of ROS and
Royalty Opportunities is less than 10%, or (c) upon written notice of ROS and Royalty Opportunities.
Debt Restructuring
On August 7, 2020, we entered into a Restructuring and Exchange Agreement (the “Restructuring Agreement”) with Royalty Opportunities and
ROS, pursuant to which the parties thereto agreed, subject to the terms and conditions set forth therein, to take certain actions as set forth therein and as
described below (collectively, the “Restructuring Transactions”) in furtherance of a restructuring of our outstanding indebtedness under that certain Second
A&R Credit Agreement, as defined below under “—Second Amended and Restated Credit Agreement and Warrant Issuance”. The primary purpose of the
Restructuring Transactions was to improve our capital structure by reducing the amount of our indebtedness and cost to service our debt, which should
make it easier for us to refinance or replace this debt in the future, as well as facilitate easier access to capital markets for investment in our growth
initiatives. The Restructuring Transactions also allowed us to regain compliance with the NYSE American continued listing standards, which we achieved
on October 5, 2020. The Restructuring Transactions included, among others:
● an amendment to the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Charter”), to increase the number of
authorized shares of our common stock from 75 million to 300 million (the “Charter Amendment”);
105
● the exchange by the Company of shares of our common stock for approximately $40.8 million of the aggregate outstanding principal amount
of loans outstanding held by the Royalty Opportunities and ROS under the Second A&R Credit Agreement, as well as, without duplication,
approximately $21.1 million of the outstanding amount of PIK Interest (as defined in the Second A&R Credit Agreement) (such loans and
PIK Interest, the “Exchanging Loans”), plus all other accrued and unpaid interest on the Exchanging Loans outstanding as of the closing date,
at an exchange price of $1.07 per share, representing the average closing price of our common stock over the 10 trading days immediately
prior to the parties entering into the Restructuring Agreement, and resulting in the issuance of approximately 57.8 million shares of our
common stock (the “Share Issuance”);
● the execution of an amendment to the Second A&R Credit Agreement by the parties thereto to change certain provisions therein, including
extinguishing loans in an aggregate principal amount equal to the Exchanging Loans outstanding thereunder together with all accrued and
unpaid interest thereon, paying a portion of the prepayment fee payable thereunder in respect of the Exchanging Loans with proceeds of
additional loans under the Second A&R Credit Agreement, with the remaining portion of the prepayment fee exchanged for an additional 0.9
million shares of our common stock, reducing the amount of credit availability thereunder, decreasing the interest rate and eliminating certain
financial covenants; and
● the launch by the Company of a rights offering to allow stockholders of the Company to purchase up to an aggregate of $15 million of our
common stock at the same price per share as the $1.07 per share exchange price used to exchange the Exchanging Loans into our common
stock as part of the Share Issuance (the “Rights Offering”).
Immediately after the execution of the Restructuring Agreement by the parties thereto, we solicited and obtained the written consent of Royalty
Opportunities and ROS, the holders of an aggregate of 9,248,678 shares of our common stock as of August 7, 2020 (the “Consenting Majority
Stockholders”), representing a majority of the outstanding shares of our common stock as of such date, for the approval of the Charter Amendment and the
Share Issuance, in accordance with applicable provisions of the Delaware General Corporation Law and the Company’s Second Amended and Restated
Bylaws. The written consent of the Consenting Majority Stockholders was sufficient to approve the Charter Amendment and the Share Issuance. Therefore,
no proxies or additional consents were solicited by us in connection with the Charter Amendment and the Share Issuance. Pursuant to Section 14(c) of the
Exchange Act, and the rules and regulations promulgated thereunder, on September 10, 2020, we sent a definitive information statement to all holders of
our common stock as of August 7, 2020 for the purpose of informing such stockholders of the written actions taken by the Consenting Majority
Stockholders. In accordance with Exchange Act Rule 14c-2, the stockholder consent of the Consenting Majority Stockholders could not become effective
until at least 20 calendar days following the mailing of the information statement.
On October 1, 2020, the closing of the Restructuring Transactions, other than the Rights Offering, occurred, and in connection therewith, the
following actions took place:
● the Charter Amendment was filed with the Office of the Secretary of State of the State of Delaware;
● the Share Issuance occurred;
● an amendment to the Second A&R Credit Agreement was executed by the parties thereto, and in connection therewith, the Company issued
an additional 0.9 million shares of our common stock in exchange for a portion of the prepayment fee payable under the Second A&R Credit
Agreement in respect of the Exchanging Loans; and
● the Registration Rights Agreement, as described in more detail below, was executed by the parties thereto.
Pursuant to the terms of the Restructuring Agreement, we commenced the Rights Offering to allow our stockholders as of the November 5, 2020
record date to purchase up to an aggregate of 14,018,690 shares of our common stock at a subscription price of $1.07 per share, the same price per share as
the $1.07 per share exchange price used in the Share Issuance. The Rights Offering expired on December 4, 2020. We issued 712,646 shares of common
stock in the Rights Offering and received $762,531 in gross proceeds.
As a result of the completion of these Restructuring Transactions, Royalty Opportunities and ROS owned immediately thereafter, in the aggregate,
approximately 93.9% of our outstanding common stock.
106
2020 Registration Rights Agreement
Effective October 1, 2020, we entered into a Registration Rights Agreement with Royalty Opportunities and ROS, which required us, among other
things, to file with the SEC a shelf registration statement covering the resale, from time to time, of our common stock that was issued pursuant to the Share
Issuance no later than December 30, 2020 and use our best efforts to cause the shelf registration statement to become effective under the Securities Act no
later than March 30, 2021. This registration statement was filed on December 18, 2020 and was declared effective by the SEC on December 23, 2020.
Second Amended and Restated Credit Agreement and Warrant Issuance
On March 29, 2019, the Company and our subsidiaries, Bacterin International, Inc., Xtant Medical, Inc. and X-spine Systems, Inc., entered into a
Second Amended and Restated Credit Agreement with Royalty Opportunities and ROS (the “Second A&R Credit Agreement”). On April 1, 2019, we
issued warrants to purchase an aggregate of 1.2 million shares of our common stock to Royalty Opportunities and ROS with an exercise price of $0.01 per
share and an expiration date of April 1, 2029. The issuance of these warrants occurred on April 1, 2019 and was a condition to the effectiveness of the
Second A&R Credit Agreement. These warrants were exercised in full in November 2020. The Second A&R Credit Agreement, as subsequently amended,
has been terminated, as described below.
First Amendment to Second A&R Credit Agreement and Warrant Issuance
On May 6, 2020, the Company and our subsidiaries, Bacterin International, Inc., Xtant Medical, Inc. and X-spine Systems, Inc., entered into a
First Amendment to the Second Amended and Restated Credit Agreement with Royalty Opportunities and ROS, which among other things, provided that:
● No interest would accrue on outstanding loans thereunder from and after March 31, 2020 until September 30, 2020;
● Beginning October 1, 2020 through the maturity date, interest payable in cash would accrue on the loans thereunder at a rate per annum equal
to the sum of (i) 10.00% plus (ii) the higher of (x) the LIBO Rate (as such term is defined in the Second A&R Credit Agreement) and (y)
2.3125%;
● The maturity date of the loans thereunder was extended to December 31, 2021;
● The Revenue Base (as such term is defined in the Second A&R Credit Agreement) financial covenant was revised through December 31,
2021; and
● The key person event default provision was revised to refer specifically to Sean Browne in lieu of a former executive.
In conjunction therewith, we issued warrants to purchase an aggregate of 2.4 million shares of our common stock to Royalty Opportunities and
ROS, with an exercise price of $0.01 per share and an expiration date of May 6, 2030. The issuance of these warrants was a condition to the effectiveness
of this amendment. These warrants were exercised in full in November 2020.
107
Second Amendment to Second A&R Credit Agreement
On October 1, 2020, pursuant to the Restructuring Transactions discussed above, the Company and our subsidiaries, Bacterin International, Inc.,
Xtant Medical, Inc. and X-spine Systems, Inc., entered into a Second Amendment to the Second A&R Credit Agreement with Royalty Opportunities and
ROS, which among other things, provided for:
● Extinguishment by Royalty Opportunities and ROS of approximately $61.9 million of principal and paid-in-kind interest outstanding on the
loans under the Second A&R Credit Agreement in exchange for approximately 57.8 million shares of our common stock and the addition of a
principal amount equal to prepayment fees associated with the loans thereunder not paid in cash or exchanged for shares of our common
stock;
● Exchange of approximately $0.9 million of prepayment fees associated with the loans thereunder for approximately 0.9 million shares of our
common stock;
● Elimination of the availability of additional draw loan advances and reduction of available additional term loans to $5.0 million, the
availability of which is in the sole and absolute discretion of the lender;
● Accrual of interest payable in cash for the remaining term of the Second A&R Credit Agreement at a rate per annum equal to the sum of (i)
7.00% plus (ii) the higher of (x) the LIBO Rate (as such term is defined in the Second A&R Credit Agreement) and (y) 1.00%; and
● Elimination of the base revenue financial covenant.
After execution of the Second Amendment to the Second A&R Credit Agreement, Royalty Opportunities was the sole holder of our outstanding
long-term debt and the sole lender under the Second A&R Credit Agreement, as amended.
On May 6, 2021, contemporaneously with the execution and delivery of the new Credit Agreements, the Second A&R Credit Agreement, as
amended, was terminated in accordance with the terms thereof and all outstanding amounts were repaid by the borrowers to Royalty Opportunities in its
role as sole lender thereunder.
During the year ended December 31, 2021, the largest amount of principal outstanding under this credit facility was $15.6 million, and as of
December 31, 2021, the amount of principal outstanding was $0.00. The Company paid $1.2 million in interest under the credit facility and $15.6 million
in principal amount during the year ended December 31, 2021.
During the year ended December 31, 2020, the largest amount of principal outstanding under this credit facility was $55.8 million. Other than
principal and interest paid in Xtant common stock as part of the debt restructuring transaction described above under ““—Debt Restructuring,” the
Company paid $0.3 million in interest under the credit facility and no principal amount during the year ended December 31, 2020.
Warrant Exercises
On November 17, 2020, ROS and Royalty Opportunities exercised warrants representing an aggregate of 4.8 million shares of Xtant common
stock and in connection therewith the Company received aggregate proceeds of $48,000.
Termination of Second A&R Credit Agreement
On May 6, 2021, contemporaneously with the execution and delivery of the new Credit Agreements, the Second A&R Credit Agreement, as
amended, was terminated in accordance with the terms thereof and all outstanding amounts were repaid by the borrowers to Royalty Opportunities in its
role as sole lender thereunder.
Lock-Up Agreements
On February 24, 2021, we entered into Lock-Up Agreements with each of our directors and executive officers, pursuant to the Securities Purchase
Agreement, dated as of February 22, 2021, between us and the purchasers signatory thereto. Pursuant to the Lock-Up Agreements, our directors and
executive officers, among other things, agreed not to offer, sell, contract to sell, hypothecate, pledge or otherwise dispose of (or enter into any transaction
which is designated to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to
cash settlement or otherwise) by the undersigned or any affiliate or any person in privity), directly or indirectly, or establish or increase a put equivalent
position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act with respect to any shares of our common
stock, or securities convertible, exchangeable or exercisable into, our common stock beneficially owned, held or acquired by each of our executive officers
or directors. The lock-up period has a 90-day duration and expired on May 25, 2021.
108
Sublease Agreement
We were party to a Sublease Agreement with Cardialen, Inc., under which we leased a portion of Cardialen’s office space in Brooklyn Center,
Minnesota. The Sublease Agreement was amended several times to change the amount of office space and monthly rent. Under the amended Sublease
Agreement, we agreed to pay rent ranging from $500 to $1,350 per month for 2020, $950 per month for 2021, $975 per month for 2022 and $1,000 per
month thereafter through the expiration date of January 31, 2024. During fiscal 2021 and 2020, we paid a total of $7,600 and $11,215, respectively, to
Cardialen under this lease agreement. This lease agreement has been terminated. Because Jeffrey Peters is both a member of our Board and the Chief
Executive Officer, President, and a director of Cardialen, this transaction qualified as a related party transaction.
Director Independence
The Board has affirmatively determined that John Bakewell and Robert McNamara are “independent directors,” as defined under the
independence standards of the NYSE American.
Item 14. Principal Accounting Fees and Services
Audit and Non-Audit Fees
Plante & Moran, PLLC (“Plante Moran”) served as the independent registered public accounting firm to audit our books and accounts for the
fiscal years ended December 31, 2021 and 2020.
The table below presents the aggregate fees billed for professional services rendered by Plante Moran for the years ended December 31, 2021 and
December 31, 2020.
Audit fees
Audit-related fees
Tax fees
All other fees
Total fees
$
$
2021
2020
284,317 $
—
—
8,000
292,317 $
262,116
—
—
18,500
280,616
In the above table, “audit fees” are fees billed for services provided related to the audit of our annual financial statements, quarterly reviews of our
interim financial statements, and services normally provided by the independent accountant in connection with statutory and regulatory filings or
engagements for those fiscal periods. “Audit-related fees” are fees not included in audit fees that are billed by the independent accountant for assurance and
related services that are reasonably related to the performance of the audit or review of our financial statements. These audit-related fees also consist of the
review of our registration statements filed with the SEC and related services normally provided in connection with statutory and regulatory filings or
engagements. “Tax fees” are fees billed by the independent accountant for professional services rendered for tax compliance, tax advice, and tax planning.
“All other fees” are fees billed by the independent accountant for products and services not included in the foregoing categories.
Pre-Approval Policy
It is the Audit Committee’s policy to approve in advance the types and amounts of audit, audit-related, tax, and any other services to be provided
by our independent registered public accounting firm. In situations where it is not practicable to obtain full Audit Committee approval, the Audit
Committee has delegated authority to the Chair of the Audit Committee to grant pre-approval of auditing, audit-related, tax, and all other services up to
$20,000. Any pre-approved decisions by the Chair are required to be reviewed with the Audit Committee at its next scheduled meeting. The Audit
Committee approved 100% of all services provided by Plante Moran during 2021 and 2020.
109
Item 15. Exhibit and Financial Statement Schedules
Financial Statements
PART IV
Our consolidated financial statements are included in “Part II, Item 8. Financial Statements and Supplementary Data.”
Financial Statement Schedules
All financial statement schedules are omitted because they are inapplicable since we are a smaller reporting company.
Exhibits
The exhibits being filed or furnished with this report are listed below, along with an indication as to each management contract or compensatory
plan or arrangement.
A copy of any exhibits listed or referred to herein will be furnished at a reasonable cost to any person who is a stockholder upon receipt from any
such person of a written request for any such exhibit. Such request should be sent to: Scott Neils, Interim Chief Financial Officer, Xtant Medical Holdings,
Inc., 664 Cruiser Lane, Belgrade, MT 59714, Attn: Stockholder Information.
Exhibit No.
3.1
Description
Amended and Restated Certificate of Incorporation of Xtant Medical Holdings, Inc. (filed as Exhibit 3.1 to the Registrant’s Current Report
on Form 8-K filed with the SEC on February 13, 2018 (SEC File No. 001-34951) and incorporated by reference herein)
3.2
3.3
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Xtant Medical Holdings, Inc. (filed as Exhibit 3.1 to
the Registrant’s Current Report on Form 8-K filed with the SEC on October 31, 2019 (SEC File No. 001-34951) and incorporated by
reference herein)
Certificate of Amendment of the Amended and Restated Certificate of Incorporation of Xtant Medical Holdings, Inc., as amended (filed as
Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 1, 2020 (SEC File No. 001-34951) and
incorporated by reference herein)
3.4
Second Amended and Restated Bylaws of Xtant Medical Holdings, Inc. (filed as Exhibit 3.1 to the Registrant’s Current Report on Form 8-K
filed with the SEC on February 16, 2018 (SEC File No. 001-34951) and incorporated by reference herein)
4.1*
4.2*
4.3
4.4
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
Form of Common Stock Certificate
Investor Rights Agreement dated February 14, 2018 among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities II, LP, ROS
Acquisition Offshore LP, Park West Partners International, Limited and Park West Investors Master Fund, Limited (filed as Exhibit 10.3 to
the Registrant’s Current Report on Form 8-K filed with the SEC on February 16, 2018 (SEC File No. 001-34951) and incorporated by
reference herein)
Registration Rights Agreement (for Common Stock underlying the Indenture Notes) dated January 17, 2017 among Xtant Medical
Holdings, Inc., ROS Acquisition Offshore LP and OrbiMed Royalty Opportunities II, LP. (filed as Exhibit 10.9 to the Registrant’s Current
Report on Form 8-K filed with the SEC on January 20, 2017 (SEC File No. 001-34951) and incorporated by reference herein)
110
Exhibit No.
4.5
Description
Registration Rights Agreement (for Common Stock underlying the PIK Notes) dated January 17, 2017 among Xtant Medical Holdings, Inc.,
ROS Acquisition Offshore LP and OrbiMed Royalty Opportunities II, LP. (filed as Exhibit 10.13 to the Registrant’s Current Report on Form
8-K filed with the SEC on January 20, 2017 (SEC File No. 001-34951) and incorporated by reference herein)
4.6
4.7
4.8
Registration Rights Agreement (for Common Stock issued upon the exchange of the Notes and pursuant to the Private Placement) dated as
of February 14, 2018 among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities II, LP, ROS Acquisition Offshore LP, Telemetry
Securities, L.L.C., Bruce Fund, Inc., Park West Investors Master Fund, Limited, and Park West Partners International, Limited (filed as
Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 16, 2018 (SEC File No. 001-34951) and
incorporated by reference herein)
Registration Rights Agreement dated October 1, 2020 among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities II, LP, and
ROS Acquisition Offshore LP (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on October 1, 2020
(SEC File No. 001-34951) and incorporated by reference herein)
Registration Rights Agreement, dated February 24, 2021, by and between Xtant Medical Holdings, Inc. and the investor party thereto (filed
as Exhibit 4.4 to the Registrant’s Registration Statement on Form S-3 filed with the SEC on April 6, 2021 (Sec File No. 333-255074) and
incorporated by reference herein).
4.9
Form of Investor Warrant (filed as Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 22, 2021
(SEC File No. 001-34951) and incorporated by reference herein)
4.10
Form of Placement Agent Warrant (filed as Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 22,
2021 (SEC File No. 001-34951) and incorporated by reference herein)
10.1●
Xtant Medical Holdings, Inc. Amended and Restated 2018 Equity Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current Report on
Form 8-K filed with the SEC on October 28, 2020 (SEC File No. 001-34951) and incorporated by reference herein)
10.2●
10.3●
10.4●
Form of Employee Stock Option Award Agreement for use with the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan (filed as
Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 3, 2018 (SEC File No. 001-34951) and
incorporated by reference herein)
Form of Employee Restricted Stock Unit Award Agreement for use with the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan (filed
as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on August 3, 2018 (SEC File No. 001-34951) and
incorporated by reference herein)
Form of Non-Employee Director Restricted Stock Unit Award Agreement for use with the Xtant Medical Holdings, Inc. 2018 Equity
Incentive Plan (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019 (SEC File
No. 001-34951) and incorporated by reference herein)
10.5●
Amended and Restated Xtant Medical Equity Incentive Plan (filed as Exhibit 10.8 to the Registrant’s Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 2015 (SEC File No. 001-34951) and incorporated by reference herein)
10.6●
Form of Indemnification Agreement for Directors and Officers (filed as Exhibit 10.6 to the Registrant’s Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 2017 (SEC File No. 001-34951) and incorporated by reference herein)
111
Exhibit No.
10.7●
Description
Employment Agreement dated as of October 7, 2019 between Xtant Medical Holdings, Inc. and Sean E. Browne (filed as Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed with the SEC on October 7, 2019 (SEC File No. 001-34951) and incorporated by reference
herein)
10.8●
10.9●
Employment Agreement effective as of July 9, 2018 between Xtant Medical Holdings, Inc. and Kevin D. Brandt (filed as Exhibit 10.18 to
the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018 (SEC File No. 001-34951) and incorporated by
reference herein)
Amended and Restated Employment Agreement effective as of August 8, 2019 between Xtant Medical Holdings, Inc. and Greg Jensen
(filed as Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019 (SEC File No. 001-
34951) and incorporated by reference herein)
10.10●*
Resignation Agreement and Release effective as of January 3, 2022 between Xtant Medical Holdings, Inc. and Greg Jensen
10.11●
Offer Letter dated as of January 3, 2022 between Xtant Medical Holdings, Inc. and Scott Neils (filed as Exhibit 10.1 to the Registrant’s
Current Report on Form 8-K filed with the SEC on January 3, 2021 (SEC File No. 001-34951) and incorporated by reference herein)
10.12
10.13
10.14
10.15
10.16
10.17
Restructuring and Exchange Agreement dated as of January 11, 2018 among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities
II, LP, ROS Acquisition Offshore LP, Bruce Fund, Inc., Park West Partners International, Limited, Park West Investors Master Fund,
Limited, and Telemetry Securities, L.L.C. (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on
January 12, 2018 (SEC File No. 001-34951) and incorporated by reference herein)
Restructuring and Exchange Agreement, dated as of August 7, 2020, by and among Xtant Medical Holdings, Inc., OrbiMed Royalty
Opportunities II, LP and ROS Acquisition Offshore LP (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the
SEC on August 10, 2020 (SEC File No. 001-34951) and incorporated by reference herein)
Securities Purchase Agreement dated as of February 14, 2018 among Xtant Medical Holdings, Inc., OrbiMed Royalty Opportunities II, LP
and ROS Acquisition Offshore LP. (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 16,
2018 (SEC File No. 001-34951) and incorporated by reference herein)
Securities Purchase Agreement, dated February 22, 2021, by and between Xtant Medical Holdings, Inc. and the investor party thereto (filed
as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 22, 2021 (SEC File No. 001-34951) and
incorporated by reference herein)
Placement Agent Agreement, dated February 22, 2021, by and between Xtant Medical Holdings, Inc. and A.G.P./Alliance Global Partners
(filed as Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed with the SEC on February 22, 2021 (SEC File No. 001-34951)
and incorporated by reference herein)
Credit, Security and Guaranty Agreement (Term Loan), dated as of May 6, 2021, by and among Xtant Medical, Inc., Bacterin International,
Inc., X-spine Systems, Inc., and any additional borrower that hereafter becomes party thereto, Xtant Medical Holdings, Inc., and any
additional guarantor that hereafter becomes party thereto, and MidCap Financial Trust, as agent, and the lenders from time to time party
thereto (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 6, 2021 (SEC File No. 001-34951)
and incorporated by reference herein)
112
Exhibit No.
10.18
Description
Credit, Security and Guaranty Agreement (Revolving Loan), dated as of May 6, 2021, by and among Xtant Medical, Inc., Bacterin
International, Inc., X-spine Systems, Inc., and any additional borrower that hereafter becomes party thereto, Xtant Medical Holdings, Inc.,
and any additional guarantor that hereafter becomes party thereto, and MidCap Financial Trust, as agent, and the lenders from time to time
party thereto (filed as Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the SEC on May 6, 2021 (SEC File No. 001-
34951) and incorporated by reference herein)
10.19*
10.20*
Amendment No. 1 to Credit, Security and Guaranty Agreement (Term Loan), dated as of March 7, 2022, by and among Xtant Medical, Inc.,
Bacterin International, Inc., X-spine Systems, Inc., and any additional borrower that hereafter becomes party thereto, Xtant Medical
Holdings, Inc., and any additional guarantor that hereafter becomes party thereto, and MidCap Financial Trust, as agent, and the lenders
from time to time party thereto
Amendment No. 1 to Credit, Security and Guaranty Agreement (Revolving Loan), dated as of March 7, 2022, by and among Xtant Medical,
Inc., Bacterin International, Inc., X-spine Systems, Inc., and any additional borrower that hereafter becomes party thereto, Xtant Medical
Holdings, Inc., and any additional guarantor that hereafter becomes party thereto, and MidCap Financial Trust, as agent, and the lenders
from time to time party thereto
21.1
Subsidiaries of the Registrant (filed as Exhibit 21.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020
(SEC File No. 001-34951) and incorporated by reference herein)
23.1*
31.1*
Consent of Independent Registered Public Accounting Firm, Plante & Moran, PLLC
Certification of Chief Executive Officer Pursuant to SEC Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2*
Certification of Chief Financial Officer Pursuant to SEC Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32.1**
Certification of Chief Executive Officer Pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
32.2**
Certification of Chief Financial Officer Pursuant to Rule 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
101.INS*
Inline XBRL INSTANCE DOCUMENT (the instance document does not appear in the interactive data file because its XBRL tags are
embedded within the inline XBRL document)
101.SCH*
Inline XBRL TAXONOMY EXTENSION SCHEMA
101.CAL*
Inline XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF*
Inline XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB*
Inline XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE*
Inline XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE
104
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
●
*
**
Indicates a management contract or compensatory plan
Filed herewith
Furnished herewith
Item 16. Form 10-K Summary
Optional disclosure, not included in this Annual Report on Form 10-K.
113
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
March 8, 2022
XTANT MEDICAL HOLDINGS, INC.
/s/ Sean E. Browne
By:
Name: Sean E. Browne
Title: President and Chief Executive Officer
(principal executive officer)
/s/ Scott Neils
By:
Name: Scott Neils
Title:
Interim Chief Financial Officer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 8, 2022.
Signature
/s/ Sean E. Browne
Sean E. Browne
/s/ Scott Neils
Scott Neils
/s/ John Bakewell
John Bakewell
/s/ Michael Eggenberg
Michael Eggenberg
/s/ Robert McNamara
Robert McNamara
/s/ Jeffrey Peters
Jeffrey Peters
/s/ Matthew Rizzo
Matthew Rizzo
Title
President and Chief Executive Officer
(principal executive officer)
Interim Chief Financial Officer
(principal financial and accounting officer)
Director
Director
Director
Director
Director
114
XTANT MEDICAL HOLDINGS, INC.
Exhibit 4.1
DESCRIPTION OF SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934
Xtant Medical Holdings, Inc., a Delaware corporation (Xtant, we, us and our), has only one class of securities registered under Section 12 of the Securities
Exchange Act of 1934, as amended (Exchange Act): our common stock, par value $0.000001 (common stock).
The following description summarizes the material terms and provisions of our common stock and does not purport to be complete. It is subject to and
qualified in its entirety by reference to the provisions of our Amended and Restated Certificate of Incorporation, as amended (Certificate of Incorporation),
our Second Amended and Restated Bylaws (Bylaws) and the Investor Rights Agreement dated as of February 14, 2018, by and among Xtant and certain
stockholders (Investor Rights Agreement), which are filed as exhibits to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and
are incorporated by reference herein. We encourage you to read our Certificate of Incorporation, our Bylaws, the Investor Rights Agreement and the
applicable provisions of the General Corporation Law of the State of Delaware for additional information.
Authorized Shares
Our Certificate of Incorporation provides that we have authority to issue 300,000,000 shares of common stock and 10,000,000 shares of preferred stock,
par value $0.000001 per share (preferred stock).
Our preferred stock may be issued from time to time in one or more series. The Board of Directors of Xtant (the Board) is authorized, by resolution or
resolutions, to fix the number of shares of any series of preferred stock and to determine the designation, powers, rights, preferences, qualifications,
limitations, privileges and restrictions, if any, of any wholly unissued series of preferred stock, including without limitation, authority to fix by resolution or
resolutions the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions),
redemption price or prices and liquidation preferences of any such series, and the number of shares constituting any such series and the designation thereof,
or any of the foregoing.
We may amend from time to time our Certificate of Incorporation to increase the number of authorized shares of common stock or preferred stock. Any
such amendment would require the approval of the holders of a majority of the voting power of the shares entitled to vote thereon. In addition, pursuant to
our Certificate of Incorporation, the Board is authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not
below the number of shares of any such series then outstanding) the number of shares of any series (including a series of preferred stock), the number of
which was fixed by it, subsequent to the issuance of shares of such series then outstanding, subject to certain limitations, without the vote of our
stockholders.
Voting Rights
Each holder of our common stock is entitled to one vote per share on each matter submitted to a vote at a meeting of stockholders, including in all elections
for directors. Stockholders are not entitled to cumulative voting in the election of directors. Subject to applicable law and the rights, if any, of the holders of
outstanding shares of any series of preferred stock we may designate and issue in the future, holders of our common stock are entitled to vote on all matters
on which stockholders are generally entitled to vote.
Our stockholders may vote either in person or by proxy. At all meetings of stockholders for the election of directors at which a quorum is present, a
plurality of the votes cast shall be sufficient to elect. All other elections and questions presented to the stockholders at a meeting at which a quorum is
present shall, unless otherwise provided by our Certificate of Incorporation, our Bylaws, the rules or regulations of any stock exchange applicable to us or
applicable law or pursuant to any regulation applicable to us or our securities, be decided by the affirmative vote of the holders of a majority in voting
power of the shares of our stock that are present in person or by proxy and entitled to vote thereon.
Dividends
The Board may authorize, and we may make, distributions to our stockholders, subject to any restriction in our Certificate of Incorporation and to those
limitations prescribed by law and contractual restrictions. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the
holders of our common stock will be entitled to share equally, identically and ratably in any dividends that the Board may determine to issue from time to
time.
Liquidation Rights
Upon liquidation, dissolution or winding up, all holders of our common stock are entitled to participate pro rata in our assets available for distribution,
subject to applicable law and the rights, if any, of the holders of any class of preferred stock then outstanding.
Other Rights and Preferences
Under the terms of our Certificate of Incorporation and Bylaws, holders of our common stock have no preemptive rights, conversion rights or subscription
rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our
common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that the Board may
designate and issue in the future. Our Certificate of Incorporation and Bylaws do not restrict the ability of a holder of our common stock to transfer his, her
or its shares of common stock. All shares of our common stock currently outstanding are fully paid and non-assessable.
Transfer Agent
The transfer agent for our common stock is Broadridge Corporate Issuer Solutions, Inc.
Exchange Listing
Our common stock is listed on NYSE American under the symbol “XTNT.”
Anti-Takeover Effects of Certain Provisions of our Certificate of Incorporation, Bylaws and Investor Rights Agreement and Our Status as a
Controlled Company
Anti-takeover provisions in our Certificate of Incorporation, Bylaws and Investor Rights Agreement and our status as a controlled company may
discourage or prevent a change in control, even if such a sale could be beneficial to our stockholders.
Certificate of Incorporation and Bylaws
Our Certificate of Incorporation and Bylaws contain the following anti-takeover provisions that may have an anti-takeover effect of delaying, deferring or
preventing a change in control of Xtant:
● We have shares of common stock and preferred stock available for issuance without stockholder approval. The existence of unissued and
unreserved common stock and preferred stock may enable the Board to issue shares to persons friendly to current management or to issue
preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger,
tender offer, proxy contest or otherwise, thereby protecting the continuity of our management.
● Shares of our common stock do not have cumulative voting rights in the election of directors, so our stockholders holding a majority of the
shares of common stock outstanding will be able to elect all of our directors.
● Special meetings of the stockholders may be called only by the Board, the chairman of the Board or the chief executive officer.
● The Board may adopt, alter, amend or repeal our Bylaws without stockholder approval.
● Unless otherwise provided by law, any newly created directorship or any vacancy occurring on the Board for any cause may be filled by the
affirmative vote of a majority of the remaining members of the Board, even if such majority is less than a quorum, and any director so elected
shall hold office until the expiration of the term of office of the director whom he or she has replaced or until his or her successor is elected
and qualified.
● The affirmative vote of the holders of at least two-thirds of the voting power of the then outstanding shares of our capital stock entitled to vote
generally in the election of directors, voting together as a single class, is required to amend or repeal the provisions of our Certificate of
Incorporation related to the amendment of our Bylaws, the Board and our stockholders as well as the general provisions of our Certificate of
Incorporation.
● Stockholders must follow advance notice procedures to submit nominations of candidates for election to the Board at an annual or special
meeting of our stockholders and must follow advance notice procedures to submit other proposals for business to be brought before an annual
meeting of our stockholders.
● Unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for (i) any
derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director,
officer or other employee of Xtant to us or our stockholders, (iii) any action asserting a claim arising under any provision of the General
Corporation Law of the State of Delaware, our Certificate of Incorporation or our Bylaws, or (iv) any action asserting a claim governed by the
internal-affairs doctrine. Notwithstanding the foregoing, Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits
brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder and Section 22 of the Securities
Act of 1933, as amended (Securities Act), creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty
or liability created by the Securities Act or the rules and regulations thereunder. As a result, the exclusive forum provision will not apply to
suits brought to enforce any duty or liability created by the Exchange Act, the Securities Act, or any other claim for which the federal courts
have exclusive jurisdiction.
Investor Rights Agreement
We are party to an Investor Rights Agreement, which includes certain provisions that may have an anti-takeover effect of delaying, deferring or preventing
a change in control of Xtant. The Investor Rights Agreement includes director nomination rights, which provide that so long as the Ownership Threshold
(as defined in the Investor Rights Agreement) is met, OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP (collectively, the Investors)
are entitled to nominate such individuals to the Board constituting a majority of the directors. In addition, under the Investor Rights Agreement, so long as
the Ownership Threshold is met, certain matters require the approval of the Investors to proceed with such a transaction, including without limitation, the
sale, transfer or other disposition of assets or businesses of the Company or its subsidiaries with a value in excess of $250,000 in the aggregate during any
fiscal year (other than sales of inventory or supplies in the ordinary course of business, sales of obsolete assets (excluding real estate), sale-leaseback
transactions and accounts receivable factoring transactions).
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 Advisors LLC. Our status as a controlled company may have an anti-takeover
effect of delaying, deferring or preventing a change in control of Xtant.
Exhibit 4.2
RESIGNATION AGREEMENT AND RELEASE
EXHIBIT 10.10
This Resignation Agreement (“Agreement”) and the Release, which is attached and incorporated by reference as Exhibit A (“Release”), are made
by and between Greg Jensen (“Employee”), and Xtant Medical Holdings, Inc., its affiliates, related or predecessor corporations, subsidiaries, successors
and assigns (“Employer”).
Employer and Employee (collectively, “Parties”) wish to end their employment relationship in an honorable, dignified and orderly fashion.
Toward that end, the Parties have agreed to separate according to the following terms.
IN CONSIDERATION OF THIS AGREEMENT, THE PARTIES AGREE AS FOLLOWS:
1. Resignation. Employee’s employment shall end effective as of January 3, 2022 and be considered by the Parties as a resignation by Employee
(“Resignation Date”).
2. Accrued Obligations. Employer will pay to Employee his accrued by unpaid base salary and any unreimbursed business expenses through
Employee’s Resignation Date (“Accrued Obligations”) as set forth in Section 12.A. of Employee’s Employment Agreement. Employer will pay the
Accrued Amounts to Employee in a lump sum payment on the first regularly scheduled payday following Employee’s Resignation Date, subject to payroll
deductions and withholdings as reasonably determined by the Employer to be required by applicable law.
3. Consideration. Employer shall, (1) after receipt of a fully executed Agreement and Release; (2) after expiration of all applicable rescission
periods; and (3) provided Employee complies with his obligations under this Agreement, provide Employee with separation benefits (“Consideration”) set
forth in Section 12.B. of Employee’s Employment Agreement (“Exhibit B”) as follows:
A. Severance. Employer will pay to Employee severance in the total gross amount of Four-Hundred Thousand Dollars ($400,000), less required
payroll deductions and withholdings, (“Severance”), payable in substantially equal installments for a period of eighteen (18) months pursuant
to Employer’s standard payroll process. The Severance payments will commence with the first payroll period in July 2022 but only after the
expiration of the rescission periods described in the Release have expired.
B. 2021 Bonus. Employee will continue to be eligible for his bonus for 2021 subject to the terms thereof, which will be determined and paid in
the same manner and at the same time as the Board of Directors, in its sole discretion, determines for the other executive officers of Employer,
but no later than March 15, 2022.
C. COBRA Continuation. Group health benefits end as of the month in which Employee’s Resignation Date occurs. If Employee timely elects
continuation coverage under Employer’s group medical and dental plans pursuant to section 4980B of the Internal Revenue Code of 1986, as
amended (“COBRA”), in accordance with ordinary plan practices, and so long as Employee remains eligible for such coverage, for the
“Premium Subsidy Period,” Employer shall pay, or reimburse Employee, for such coverage of Employee (and his dependents, as applicable)
at the same rate it pays for active employees enrolled under the Employer’s plans as of the Resignation Date. For purposes of the preceding
sentence, the “Premium Subsidy Period” is the twelve (12) month period commencing with the month following the end of the month in
which the Employee’s Resignation Date occurs.
Employee will receive the necessary enrollment forms and further information about rights and responsibilities from the Employer’s COBRA
administrator shortly after Employee’s Resignation Date. In order to receive these benefits, Employee must enroll in the COBRA program.
4. Equity Awards. Employer and Employee acknowledge and agree that Employee holds options to purchase an aggregate of 351,313 shares of
Common Stock of Employer, 49,515 shares of which are vested as of the Resignation Date and 301,798 shares of which are unvested as of the Resignation
Date. Such vested options shall remain exercisable by Employee through April 4, 2022, at which time such options shall expire if not exercised. Such
unvested options are terminated as of the Resignation Date. Employer and Employee further acknowledge and agree that Employee holds 285,331
Restricted Stock Units of Employer, 244,587 of which are unvested as of the Resignation Date. Such unvested Restricted Stock Units will be terminated
and forfeited as of the Resignation Date.
5. Termination of Benefits. Except as otherwise provided by this Agreement, Employee’s participation in Employer’s employee benefits, bonus,
and all other compensation or commission plans, will terminate on the Resignation Date, unless otherwise provided by law, or benefit plan. Employee shall
receive no compensation or benefits under such plans, except as specifically provided in Section 3 of this Agreement.
6. Execution of Agreement and Release of all Claims. Employee agrees to execute the Release on or after Employee’s Resignation Date, but not
earlier. Employee agrees to fully execute this Agreement, and the Release attached as Exhibit A, releasing any and all actual or potential claims which may
have arisen at any time during his employment with or separation from employment with Employer. Employee’s failure to execute this Agreement and/or
Release, or any attempt to rescind this Agreement or that Release, shall terminate this Agreement, and the Parties’ respective rights and obligations under
this Agreement.
7. Satisfactory Performance and Cooperation During Transition. Employee shall fully cooperate with Employer in responding to questions,
providing assistance and information, and defending against claims of any type, and will otherwise assist Employer as Employer may request through
Employee’s Resignation Date (“Transition Period”). More specifically:
(a) During the Transition Period, Employee shall reasonably cooperate with Employer as it meets and otherwise communicates/works,
with Employer’s employees, customers, strategic relationships, consultants, and vendors on the transition of Employee’s duties to other individuals.
Employee shall be available, upon reasonable notice, during business hours to respond to Employer’s questions and electronic communications. Employer
shall reimburse Employee for Employee’s reasonable out-of-pocket expenses (such reimbursement shall not include compensation for any such time or
Employee’s attorney’s fees) incurred in accordance with this paragraph upon submission of receipts to Employer for such expenses.
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(b) Employee shall not, absent Employer’s specific approval, initiate any form of communication with Employer’s employees, customers
or strategic partners regarding Employer, Employer’s products or Employees, and shall communicate with such persons in the above capacity only in
conjunction with person(s) who Employer has designated to participate in such communications.
8. Stipulation of No Charges. Employee affirmatively represents that he has not filed nor caused to be filed any charges, claims, complaints, or
actions against Employer before any federal, state, or local administrative agency, court, or other forum. Except as expressly provided in this Agreement or
required by law, Employee acknowledges and agrees that he has been paid all wages, bonuses, compensation, benefits and other amounts that are due, with
the exception of any vested right under the terms of a written ERISA-qualified benefit plan. Employee waives any right to any form of recovery or
compensation from any legal action, excluding any action claiming this Agreement and Release violate the Age Discrimination in Employment Act
(“ADEA”) and/or the Older Workers Benefit Protection Act (“OWBPA”), filed or threatened to be filed by Employee or on Employee’s behalf based on
Employee’s employment, terms of employment, or resignation or separation from, Employer. Employee understands that any Consideration paid to
Employee pursuant to this Agreement may be deducted from any monetary award he may receive as a result of a successful ADEA and/or OWBPA claim
or challenge to this Agreement and Release. This does not preclude Employee from eligibility for unemployment benefits, and does not preclude or
obstruct Employee’s right to file a Charge with the Equal Employment Opportunity Commission (“EEOC”).
9. Return of Property. Employee shall return, on or before the Resignation Date, all Employer property in Employee’s possession or control,
including but not limited to any drawings, orders, files, documents, notes, computers, laptop computers, fax machines, cell phones, smart devices, access
cards, fobs, keys, reports, manuals, records, product samples, correspondence and/or other documents or materials related to Employer’s business that
Employee has compiled, generated or received while working for Employer, including all electronically stored information, copies, samples, computer
data, disks, or records of such materials. Employee must return to Employer, and Employee shall not retain, any Employer property as previously defined
in this section.
10. Agreement Not to Seek Future Employment. Employee agrees that he will never knowingly seek nor accept employment or a
consulting/independent contractor relationship with Employer, nor any other entity owned by Xtant Medical Holdings, Inc., either directly or through a
consulting firm.
11. Withholding For Amounts Owed to Employer. Execution of this Agreement shall constitute Employee’s authorization for Employer to make
deductions from Employee’s Consideration, for Employee’s indebtedness to Employer, or to repay Employer for unaccrued Paid Time Off already taken,
employee purchases, wage or benefit overpayment, or other Employer claims against Employee, to the extent permitted by applicable law.
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12. Non-Disparagement. Employee agrees that, unless it is in the context of an EEOC or other civil rights or other government enforcement
agency investigation or proceeding, Employee will make no critical, disparaging or defamatory comments regarding Employer or any Released Party, as
defined in the Release, in any respect or make any comments concerning the conduct or events which precipitated Employee’s resignation. Furthermore,
Employee agrees not to assist or encourage in any way any individual or group of individuals to bring or pursue a lawsuit, charge, complaint, or grievance,
or make any other demands against Employer or any Released Party. This provision does not prohibit Employee from participating in an EEOC or other
civil rights or other government enforcement agency charge, investigation or proceeding, or from providing testimony or documents pursuant to a lawful
subpoena or as otherwise required by law. Employer also agrees that it will make no critical, disparaging or defamatory comments regarding Employee.
13. Compliance with Employment Agreement and Protection of Confidential Information. Employee agrees to comply with the provisions of and
the restrictions set forth in his Employment Agreement (Exhibit B). Employee agrees to never divulge or use any trade secrets, confidential information, or
other proprietary information of Employer which Employee obtained or to which Employee had access during his employment with Employer. For
purposes of this latter obligation, “Confidential Information” means information that is not generally known and that is proprietary to Employer or that
Employer is obligated to treat as proprietary. It includes, but is not limited to, information or data of Employer concerning its business, financial statements,
patient contact information and data, products, plans, ideas, drawings, designs, concepts, inventions, discoveries, improvements, patent applications, know-
how, trade secrets, prototypes, processes, techniques and other proprietary information. It does not include information that Employee can establish: (i) is
already lawfully in the possession of Employee through independent means at the time of disclosure thereof; (ii) is or later becomes part of the public
domain through no fault of Employee; (iii) is lawfully received by Employee from a third party having no obligations of confidentiality to Employer; or
(iv) is required to be disclosed by order of a governmental agency or by a court of competent jurisdiction. Any information that Employee knows or should
reasonably know is Confidential Information, or that Employer treats as Confidential Information, will be presumed to be Confidential Information.
14. Confidentiality. It is the intent of Employer and Employee that the terms of this Agreement be treated as Confidential, except to the extent this
Agreement is required to be disclosed under applicable federal securities laws, as determined by Employer. Employee warrants that he has not and agrees
that he will not in the future disclose the terms of this Agreement, or the terms of the Consideration to be paid by Employer to Employee as part of this
Agreement, to any person other than his attorney, tax advisor, spouse, or representatives of any state or federal regulatory agency, who shall be bound by
the same prohibitions against disclosure as bind Employee, and Employee shall be responsible for advising those individuals or agencies of this
confidentiality provision. Employee shall not provide or allow to be provided to any person this Agreement, or any copies thereof, nor shall Employee now
or in the future disclose the terms of this Agreement to any person, with the sole exception of communications with Employee’s spouse, attorney and tax
advisor, unless otherwise ordered to do so by a court or agency of competent jurisdiction.
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15. Invalidity. In case any one or more of the provisions of this Agreement or Release shall be held invalid, illegal or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions contained in this Agreement and Release will not in any way be affected or impaired
thereby.
16. Non-Admissions. The Parties expressly deny any and all liability or wrongdoing and agree that nothing in this Agreement or the Release shall
be deemed to represent any concession or admission of such liability or wrongdoing or any waiver of any defense.
17. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of Minnesota, without reference to its choice
of law rules. Any action for breach of this Agreement shall be brought in the federal or state court, as appropriate, located in Minnesota.
18. Voluntary and Knowing Action. Employee acknowledges that he has had sufficient opportunity to review the terms of this Agreement and
attached Release, and that he has voluntarily and knowingly entered into this Agreement. Employer shall not be obligated to provide any Consideration to
Employee pursuant to this Agreement in the event Employee elects to rescind/revoke the Release. The Release becomes final and binding on the Parties
upon expiration of the rescission/revocation period, provided Employee has not exercised his option to rescind/revoke the Release. Any attempt by
Employee to rescind any part of the Release obligates Employee to immediately return all Consideration under this Agreement to counsel for Employer.
19. Legal Counsel and Fees. Except as otherwise provided in this Agreement and the Release, the Parties agree to bear their own costs and
attorneys’ fees, if any. Employee acknowledges that Employer, by this Agreement, has advised his that he may consult with an attorney of his choice prior
to executing this Agreement and the Release. Employee acknowledges that he has had the opportunity to be represented by legal counsel during the
negotiation and execution of this Agreement and the Release, and that he understands he will be fully bound by this Agreement and the Release.
20. Modification. This Agreement may be modified or amended only by a writing signed by both Employer and Employee.
21. Successors and Assigns. This Agreement is binding on and inures to the benefit of the Parties’ respective successors and assigns.
22. Notices. Any notice, request or demand required or desired to be given hereunder shall be in writing and shall be addressed as follows:
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If to Employer:
With a copy to:
If to Employee:
Xtant Medical Holdings, Inc.
664 Cruiser Lane
Belgrade, MT 59714
Attention: Chief Executive Officer
Thomas A. Letscher
Fox Rothschild LLP
Two22 Building - Suite 2000
222 South Ninth Street
Minneapolis, MN 55402-3338
Greg Jensen
1308 Summit Oaks Drive
Burnsville, MN 55337
Either party may change its address by giving the other Party written notice of its new address.
23. Waivers. No failure or delay by either Party in exercising any right or remedy under this Agreement will waive any provision of this
Agreement.
24. Miscellaneous. This Agreement may be executed simultaneously in counterparts, each of which shall be an original, but all of which shall
constitute but one and the same agreement.
25. Entire Agreement. Except for any continuing, post-employment, obligations under Exhibit B, or employment related Employer policy, or as
otherwise provided in this Agreement, this Agreement, the attached Release, and Exhibit B are the entire Agreement between Employer and Employee
relating to his employment and his resignation. Employee understands that this Agreement and the Release cannot be changed unless it is done in writing
and signed by both Employer and Employee.
EMPLOYEE
/s/ Greg Jensen
Greg Jensen
Dated: 01/27/22
XTANT MEDICAL HOLDINGS, INC.
By:
/s/ Sean E. Browne
Its:
President, CEO
Dated: 01/28/22
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I.
Definitions. I, Greg Jensen, intend all words used in this release (“Release”) to have their plain meanings in ordinary English. Technical legal
words are not needed to describe what I mean. Specific terms I use in this Release have the following meanings:
RELEASE
EXHIBIT A
A.
B.
C.
D.
“I,” “Me,” and “My” individually and collectively mean Greg Jensen and anyone who has or obtains or asserts any legal rights or claims
through Me or on My behalf.
“Employer” as used in this Release, shall at all times mean Xtant Medical Holdings, Inc. and any affiliates, related or predecessor
corporations, parent corporations or subsidiaries, successors and assigns.
“Released Party” or “Released Parties” as used in this Release, shall at all times mean Xtant Medical Holdings, Inc. and its affiliates,
related or predecessor corporations, subsidiaries, successors and assigns, present or former officers, directors, shareholders, agents,
employees, representatives and attorneys, whether in their individual or official capacities, and its affiliates, related or predecessor
corporations, parent corporations or subsidiaries, successors and assigns, present or former officers, directors, shareholders, agents,
employees, representatives and attorneys, whether in their individual or official capacities, benefit plans and plan administrators, and
insurers, insurers’ counsel, whether in their individual or official capacities, and the current and former trustees or administrators of any
pension, 401(k), or other benefit plan applicable to the employees or former employees of Employer, in their official and individual
capacities.
“My Claims” mean any and all of the actual or potential claims of any kind whatsoever I may have had, or currently may have against
Employer or any Released Party, whether known or unknown, that are in any way related to My employment with or separation from
employment with Employer, including, but not limited to any claims for: invasion of privacy; breach of written or oral, express or
implied, contract; fraud; misrepresentation; violation of the Age Discrimination in Employment Act of 1967 (“ADEA”), 29 U.S.C. § 626,
as amended; the Genetic Information Nondiscrimination Act of 2008 (“GINA”), 42 U.S.C. § 2000, et seq., the Older Workers Benefit
Protection Act of 1990 (“OWBPA”), 29 U.S.C. § 626(f), Title VII of the Civil Rights Act of 1964 (“Title VII”), 42 U.S.C. § 2000e, et
seq., the Americans with Disabilities Act (“ADA”), 29 U.S.C. § 2101, et seq., and as amended (“ADAAA”), the Employee Retirement
Income Security Act of 1974 (“ERISA”), as amended, 29 U.S.C. § 1001, et seq., Equal Pay Act (“EPA”), 29 U.S.C. § 206(d), the Worker
Adjustment and Retraining Notification Act (“WARN”), 29 U.S.C. § 2101, et seq., the Family and Medical Leave Act (“FMLA”), 29
U.S.C. § 2601, et seq.; National Labor Relations Act, 29 U.S.C. § 141, et seq., the False Claims Act, 31 U.S.C. § 3729, et seq., Anti-
Kickback Statute, 42 U.S.C. § 1320a, et seq., the Minnesota Human Rights Act, Minn. Stat. § 363A.01, et seq., Minn. Stat. § 181, et seq.,
the Minnesota Whistleblower Act, Minn. Stat. § 181.931, et seq., the Montana Human Rights Act, Mont. Code Ann. § 49-1-101, et seq.,
the Montana Wrongful Discharge for Employment Act, Mont. Code Ann. § 39-2-901, et seq., the Montana Wage Payment Act, Mont.
Code Ann. § 39-3-201, et. seq., or any and all other Minnesota, Montana, and other state human rights or fair employment practices
statutes, administrative regulations, or local ordinances, and any other Minnesota, Montana, or other federal, state, local or foreign
statute, law, rule, regulation, ordinance or order, all as amended. This includes, but is not limited to, claims for violation of any civil
rights laws based on protected class status; claims for assault, battery, defamation, intentional or negligent infliction of emotional distress,
breach of the covenant of good faith and fair dealing; promissory estoppel; negligence; negligent hiring; retention or supervision;
retaliation; constructive discharge; violation of whistleblower protection laws; unjust enrichment; violation of public policy; and, all other
claims for unlawful employment practices, and all other common law or statutory claims.
Ex. A-1
II.
III.
IV.
Agreement to Release My Claims. Except as stated in Section V of this Release, I agree to release all My Claims and waive any rights to My
Claims. I also agree to withdraw any and all of My charges and lawsuits against Employer; except that I may, but am not required to, withdraw or
dismiss, or attempt to withdraw or dismiss, any charges that I may have pending against Employer with the Employment Opportunity Commission
(“EEOC”) or other civil rights enforcement agency. In exchange for My agreement to release My Claims, I am receiving satisfactory
Consideration from Employer to which I am not otherwise entitled by law, contract, or under any Employer policy. The Consideration I am
receiving is a full and fair consideration for the release of all My Claims. Employer does not owe Me anything in addition to what I will be
receiving according to the Separation Agreement which I have signed.
Unknown Claims. In waiving and releasing any and all actual, potential, or threatened claims against Employer, whether or not now known to
me, I understand that this means that if I later discover facts different from or in addition to those facts currently known by me, or believed by me
to be true, the waivers and releases of this Release will remain effective in all respects – despite such different or additional facts and my later
discovery of such facts, even if I would not have agreed to the Separation Agreement and this Release if I had prior knowledge of such facts.
Confirmation of No Claims, Etc. I am not aware of any other facts, evidence, allegations, claims, liabilities, or demands relating to alleged or
potential violations of law that may give rise to any claim or liability on the part of any Released Party under the Securities Exchange Act of 1934,
the Sarbanes–Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the False Claims Act, the Anti-kickback
Statute. I understand that nothing in this Release interferes with My right to file a complaint, charge or report with any law enforcement agency,
with the Securities and Exchange Commission (“SEC”) or other regulatory body, or to participate in any manner in an SEC or other governmental
investigation or proceeding under any such law, statute or regulation, or to require notification or prior approval by Employer of any such a
complaint, charge or report. I understand and agree, however, that I waive My right to recover any whistleblower award under the Securities
Exchange Act of 1934, the Sarbanes–Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or other individual
relief in any administrative or legal action whether brought by the SEC or other governmental or law enforcement agency, Me, or any other party,
unless and to the extent that such waiver is contrary to law. I agree that the Released Parties reserve any and all defenses which they might have
against any such allegations or claims brought by Me or on My behalf. I understand that Employer is relying on My representations in this Release
and related Separation Agreement.
Ex. A-2
V.
Exclusions from Release.
A.
B.
C.
D.
The term “Claims” does not include My rights, if any, to claim the following: unemployment insurance benefits; workers compensation
benefits; claims for My vested post-termination benefits under any 401(k) or similar retirement benefit plan; My rights to group medical
or group dental insurance coverage pursuant to section 4980B of the Internal Revenue Code of 1986, as amended (“COBRA”); My rights
to enforce the terms of this Release; or My rights to assert claims that are based on events occurring after this Release becomes effective.
Nothing in this Release interferes with My right to file or maintain a charge with the Equal Employment Opportunity Commission or
other local civil rights enforcement agency, or participate in any manner in an EEOC or other such agency investigation or proceeding. I,
however, understand that I am waiving My right to recover individual relief including, but not limited to, back pay, front pay,
reinstatement, attorneys’ fees, and/or punitive damages, in any administrative or legal action whether brought by the EEOC or other civil
rights enforcement agency, Me, or any other party.
Nothing in this Release interferes with My right to challenge the knowing and voluntary nature of this Release under the ADEA and/or
OWBPA.
I agree that Employer reserves any and all defenses, which it has or might have against any claims brought by Me. This includes, but is
not limited to, Employer’s right to seek available costs and attorneys’ fees as allowed by law, and to have any monetary award granted to
Me, if any, reduced by the amount of money that I received in consideration for this Release.
VI.
Older Workers Benefit Protection Act. The Older Workers Benefit Protection Act applies to individuals age 40 and older and sets forth certain
criteria for such individuals to waive their rights under the Age Discrimination in Employment Act in connection with an exit incentive program
or other employment termination program. I understand and have been advised that, if applicable, the above release of My Claims is subject to the
terms of the OWBPA. The OWBPA provides that a covered individual cannot waive a right or claim under the ADEA unless the waiver is
knowing and voluntary. If I am a covered individual, I acknowledge that I have been advised of this law, and I agree that I am signing this Release
voluntarily, and with full knowledge of its consequences. I understand that Employer is giving Me twenty-one (21) days from the date I received a
copy of this Release to decide whether I want to sign it. I acknowledge that I have been advised to use this time to consult with an attorney about
the effect of this Release. If I sign this Release before the end of the twenty-one (21) day period it will be My personal, voluntary decision to do
so, and will be done with full knowledge of My legal rights. I agree that material and/or immaterial changes to the Separation Agreement or this
Release will not restart the running of this consideration period. I also acknowledge that the Separation Agreement, this Release and any other
attachments or exhibits have each been written in a way that I understand.
Ex. A-3
VII.
Right to Rescind and/or Revoke. I understand that insofar as this Release relates to My rights under the Age Discrimination in Employment Act
(“ADEA”) I have the right to revoke the Release until seven (7) days after I sign it, and insofar as it relates to My rights under the Minnesota
Human Rights Act (“MHRA”), I have the right to rescind the Release until fifteen (15) days after I sign it. Any such revocation or rescission must
be in writing and hand-delivered to Employer or, if sent by mail, postmarked within the applicable time period, sent by certified mail, return
receipt requested, and addressed as follows:
A.
B.
post-marked within the applicable seven (7) or fifteen (15) day period;
properly addressed to:
Xtant Medical Holdings, Inc.
664 Cruiser Lane
Belgrade, MT 59714
Attn: Chief Executive Officer
and
C.
sent by certified mail, return receipt requested.
I understand that the Consideration I am receiving for settling and releasing My Claims is contingent upon My agreement to be bound by the terms
of this Release. Accordingly, if I decide to rescind or revoke this Release, I understand that I am not entitled to the Consideration described in the
Separation Agreement. I further understand that if I attempt to rescind or revoke My release of any claim, I must immediately return to Employer
all Consideration I have received under My Agreement.
[Remainder of page intentionally left blank; signature page follows]
Ex. A-4
VIII.
I Understand the Terms of this Release. I have had the opportunity to read this Release carefully and understand all its terms. I have had the
opportunity to review this Release with My own attorney. In agreeing to sign this Release, I have not relied on any oral statements or explanations
made by Employer, including its employees or attorneys. I understand and agree that this Release and the attached Agreement contain all the
agreements between Employer and Me. We have no other written or oral agreements.
/s/ Greg Jensen
Greg Jensen
Dated: 01/28/22
Ex. A-5
EXHIBIT B
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 TO CREDIT, SECURITY AND GUARANTY AGREEMENT (TERM LOAN)
This AMENDMENT NO. 1 TO CREDIT, SECURITY AND GUARANTY AGREEMENT (TERM LOAN) (this “Agreement”) is made as of
March 7, 2022, by and among XTANT MEDICAL HOLDINGS, INC., a Delaware corporation (“Holdings”) as a Guarantor, each of Holdings’ direct and
indirect Subsidiaries set forth on the signature pages hereto as a “Borrower” (collectively, the “Borrowers” and each individually, a “Borrower”), MidCap
Financial Trust, a Delaware statutory trust, as Agent (in such capacity, together with its successors and assigns, “Agent”) and the other financial institutions
or other entities from time to time parties to the Credit Agreement referenced below, each as a Lender.
Exhibit 10.19
RECITALS
A. Agent, Lenders, and the Credit Parties have entered into that certain Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Term
Loan) (the “Original Credit Agreement” and as amended hereby and as it may be further amended, modified, supplemented and restated from time to
time, the “Credit Agreement”), pursuant to which the Lenders have agreed to make certain advances of money and to extend certain financial
accommodations to Borrowers in the amounts and manner set forth in the Credit Agreement.
B. The Credit Parties have requested, and Agent and all Lenders have agreed, to amend certain provisions of the Original Credit Agreement, all in
accordance with the terms and subject to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, Lenders and the Credit Parties hereby agree as follows:
1. Recitals. This Agreement shall constitute a Financing Document and the Recitals and each reference to the Credit Agreement, unless otherwise
expressly noted, will be deemed to reference the Credit Agreement as amended hereby. The Recitals set forth above shall be construed as part of this
Agreement as if set forth fully in the body of this Agreement and capitalized terms used but not otherwise defined herein shall have the meanings ascribed
to them in the Credit Agreement (including those capitalized terms used in the Recitals hereto).
2. Amendments to Original Credit Agreement. Subject to the terms and conditions of this Agreement, including, without limitation, the
conditions to effectiveness set forth in Section 4 below, the Original Credit Agreement is hereby amended as follows:
(a) Section 1.1 of the Original Credit Agreement is hereby amended by adding the following definitions in alphabetical order:
“First Amendment” shall mean that certain Amendment No. 1 to Credit, Security and Guaranty Agreement (Term Loan), dated as of the
First Amendment Effective Date, by and among Holdings, as Guarantor, each of direct and indirect Subsidiaries of Holdings set forth on
the signature pages thereto as a Borrower, Agent and Lenders.
“First Amendment Effective Date” shall mean March 7, 2022.
“Liquidity Threshold” means $14,000,000.
“Minimum EBITDA Covenant Waiver Period” means the period (x) beginning on the date upon which the Credit Parties deliver to
Agent a Compliance Certificate in accordance with Section 4.1(i) evidencing that the Liquidity of the Credit Parties as of such date is greater than
the Liquidity Threshold and (y) ending on the earlier to occur of (i) the occurrence of any Default or Event of Default or (ii) the date upon which
the Credit Parties deliver to Agent a Compliance Certificate in accordance with Section 4.1(i) evidencing that the Liquidity of the Credit Parties as
of such date is equal to or less than the Liquidity Threshold; provided that the financial covenant described in Section 6.3 shall be tested on any
date upon which the Minimum EBITDA Covenant Waiver Period is terminated by operation of clause (y)(ii) of this definition.
(b) Section 2.2(h) of the Original Credit Agreement is hereby amended by replacing each occurrence of the words “Closing Date” with
the words “First Amendment Effective Date”.
(c) Section 6.3 of the Original Credit Agreement is hereby amended and restated in its entirety as follows:
“Minimum EBITDA. Credit Parties will not permit the consolidated EBITDA of the Credit Parties for any Defined Period, as tested
quarterly on the last day of the applicable Defined Period (other than any Defined Period ending during a Minimum EBITDA Covenant Waiver
Period that has not been terminated on such date of determination as a result of the Credit Parties’ failure to maintain Liquidity in excess of the
Liquidity Threshold), to be less than $500,000.
3. Representations and Warranties; Reaffirmation of Security Interest. Each Credit Party hereby confirms that all of the representations and
warranties set forth in the Credit Agreement are true and correct in all material respects (without duplication of any materiality qualifier in the text of such
representation or warranty) with respect to such Credit Party as of the date hereof except to the extent that any such representation or warranty relates to a
specific date in which case such representation or warranty shall be true and correct as of such earlier date. Nothing herein is intended to impair or limit the
validity, priority or extent of Agent’s security interests in and Liens on the Collateral. Each Credit Party acknowledges and agrees that the Credit
Agreement, the other Financing Documents and this Agreement constitute the legal, valid and binding obligation of such Credit Party, and are enforceable
against such Credit Party in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws
relating to the enforcement of creditors’ rights generally and by general equitable principles.
4. Conditions to Effectiveness. This Agreement shall become effective as of the date on which each of the following conditions have been
satisfied, as determined by Agent in its sole discretion:
an authorized officer of such Credit Party;
(d) Each Credit Party shall have delivered to Agent this Agreement and the Amended and Restated Fee Letter, in each case, executed by
(e) all representations and warranties of Credit Parties contained herein shall be true and correct in all material respects (without
duplication of any materiality qualifier in the text of such representation or warranty) as of the date hereof except to the extent that any such representation
or warranty relates to a specific date in which case such representation or warranty shall be true and correct as of such earlier date (and such parties’
delivery of their respective signatures hereto shall be deemed to be its certification thereof); and
2
Documents.
(f) prior to and after giving effect to the agreements set forth herein, no Default or Event of Default shall exist under any of the Financing
5. Release. In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Credit Party, voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent,
for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and assigns, and each of
their respective current and former directors, officers, shareholders, agents, and employees, and each of their respective predecessors, successors, heirs, and
assigns (individually and collectively, the “Releasing Parties”) does hereby fully and completely release, acquit and forever discharge each of Agent,
Lenders, and each their respective parents, subsidiaries, affiliates, members, managers, shareholders, directors, officers and employees, and each of their
respective predecessors, successors, heirs, and assigns (individually and collectively, the “Released Parties”), of and from any and all actions, causes of
action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether
matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them)
has against the Released Parties or any of them (whether directly or indirectly). Each Credit Party acknowledges that the foregoing release is a material
inducement to Agent’s and each Lender’s decision to enter into this Agreement and agree to the modifications contemplated hereunder, and has been relied
upon by Agent and Lenders in connection therewith.
6. No Waiver or Novation. The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided in this
Agreement, operate as a waiver of any right, power or remedy of Agent, nor constitute a waiver of any provision of the Credit Agreement, the Financing
Documents or any other documents, instruments and agreements executed or delivered in connection with any of the foregoing. Nothing herein is intended
or shall be construed as a waiver of any existing Defaults or Events of Default under the Credit Agreement or the other Financing Documents or any of
Agent’s rights and remedies in respect of such Defaults or Events of Default. This Agreement (together with any other document executed in connection
herewith) is not intended to be, nor shall it be construed as, a novation of the Credit Agreement.
7. Affirmation. Except as specifically amended pursuant to the terms hereof, each Credit Party hereby acknowledges and agrees that the Credit
Agreement and all other Financing Documents (and all covenants, terms, conditions and agreements therein) shall remain in full force and effect, and are
hereby ratified and confirmed in all respects by such Credit Party. Each Credit Party covenants and agrees to comply with all of the terms, covenants and
conditions of the Credit Agreement and the Financing Documents, notwithstanding any prior course of conduct, waivers, releases or other actions or
inactions on Agent’s or any Lender’s part which might otherwise constitute or be construed as a waiver of or amendment to such terms, covenants and
conditions.
8. Miscellaneous.
(a) Reference to the Effect on the Credit Agreement. Upon the effectiveness of this Agreement, each reference in the Credit Agreement to
“this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall mean and be a reference to the Credit Agreement, as amended by this
Agreement. Except as specifically amended above, the Credit Agreement, and all other Financing Documents (and all covenants, terms, conditions and
agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by each Credit Party.
3
(b) Governing Law. THIS AGREEMENT AND ALL DISPUTES AND OTHER MATTERS RELATING HERETO OR ARISING
THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES
(c) Incorporation of Credit Agreement Provisions. The provisions contained in Section 11.6 (Indemnification), Section 13.8(b)
(Submission to Jurisdiction) and Section 13.9 (Waiver of Jury Trial) of the Credit Agreement are incorporated herein by reference to the same extent as if
reproduced herein in their entirety.
Agreement for any other purpose.
(d) Headings. Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this
(e) Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be deemed an original and all of
which when taken together shall constitute one and the same instrument. Signatures by facsimile or by electronic mail delivery of an electronic version of
any executed signature page shall bind the parties hereto.
(f) Entire Agreement. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any
and all prior agreements and understandings, oral or written, relating to the subject matter hereof.
(g) Severability. In case any provision of or obligation under this Agreement shall be invalid, illegal or unenforceable in any applicable
jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby.
parties hereto, subject to the provisions of the Credit Agreement and the other Financing Documents.
(h) Successors/Assigns. This Agreement shall bind, and the rights hereunder shall inure to, the respective successors and assigns of the
[SIGNATURES APPEAR ON FOLLOWING PAGES]
4
IN WITNESS WHEREOF, intending to be legally bound, and intending that this document constitute an agreement executed under seal, the
undersigned have executed this Agreement under seal as of the day and year first hereinabove set forth.
AGENT:
MIDCAP FINANCIAL TRUST,
as Agent
By: Apollo Capital Management, L.P.,
its investment manager
By: Apollo Capital Management GP, LLC,
its general partner
/s/ Maurice Amsellem
By:
Name: Maurice Amsellem
Title: Authorized Signatory
[Signatures Continue on Following Page]
5
LENDERS:
ELM 2020-3 TRUST
By: MidCap Financial Services Capital Management,
LLC, as Servicer
/s/ John O’Dea
By:
Name: John O’Dea
Title: Authorized Signatory
ELM 2020-4 TRUST
By: MidCap Financial Services Capital Management,
LLC, as Servicer
/s/ John O’Dea
By:
Name: John O’Dea
Title: Authorized Signatory
[Signatures Continue on Following Page]
6
BORROWERS:
GUARANTOR:
XTANT MEDICAL, INC.
/s/ Sean E. Browne
By:
Name Sean E. Browne
Title: President, CEO
BACTERIN INTERNATIONAL, INC.
/s/ Sean E. Browne
By:
Name Sean E. Browne
Title: President, CEO
X-SPINE SYSTEMS, INC.
/s/ Sean E. Browne
By:
Name Sean E. Browne
Title: President, CEO
XTANT MEDICAL HOLDINGS, LLC
/s/ Sean E. Browne
By:
Name Sean E. Browne
Title: President, CEO
7
AMENDMENT NO. 1 TO CREDIT, SECURITY AND GUARANTY AGREEMENT (REVOLVING LOAN)
This AMENDMENT NO. 1 TO CREDIT, SECURITY AND GUARANTY AGREEMENT (REVOLVING LOAN) (this “Agreement”) is made
as of March 7, 2022, by and among XTANT MEDICAL HOLDINGS, INC., a Delaware corporation (“Holdings”) as a Guarantor, each of Holdings’ direct
and indirect Subsidiaries set forth on the signature pages hereto as a “Borrower” (collectively, the “Borrowers” and each individually, a “Borrower”),
MidCap Funding IV Trust, a Delaware statutory trust, individually as a Lender and as Agent (in such capacity, together with its successors and assigns,
“Agent”) and the other financial institutions or other entities from time to time parties to the Credit Agreement referenced below, each as a Lender.
Exhibit 10.20
RECITALS
A. Agent, Lenders, and the Credit Parties have entered into that certain Credit, Security and Guaranty Agreement, dated as of May 6, 2021
(Revolving Loan) (the “Original Credit Agreement” and as amended hereby and as it may be further amended, modified, supplemented and restated from
time to time, the “Credit Agreement”), pursuant to which the Lenders have agreed to make certain advances of money and to extend certain financial
accommodations to Borrowers in the amounts and manner set forth in the Credit Agreement.
B. The Credit Parties have requested, and Agent and all Lenders have agreed, to amend certain provisions of the Original Credit Agreement, all in
accordance with the terms and subject to the conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, Lenders and the Credit Parties hereby agree as follows:
1. Recitals. This Agreement shall constitute a Financing Document and the Recitals and each reference to the Credit Agreement, unless otherwise
expressly noted, will be deemed to reference the Credit Agreement as amended hereby. The Recitals set forth above shall be construed as part of this
Agreement as if set forth fully in the body of this Agreement and capitalized terms used but not otherwise defined herein shall have the meanings ascribed
to them in the Credit Agreement (including those capitalized terms used in the Recitals hereto).
2. Amendments to Original Credit Agreement. Subject to the terms and conditions of this Agreement, including, without limitation, the
conditions to effectiveness set forth in Section 4 below, the Original Credit Agreement is hereby amended as follows:
(a) Section 1.1 of the Original Credit Agreement is hereby amended by adding the following definitions in alphabetical order:
“First Amendment” shall mean that certain Amendment No. 1 to Credit, Security and Guaranty Agreement (Revolving Loan), dated as
of the First Amendment Effective Date, by and among Holdings, as Guarantor, each of direct and indirect Subsidiaries of Holdings set
forth on the signature pages thereto as a Borrower, Agent and Lenders.
“First Amendment Effective Date” shall mean March 7, 2022.
“Liquidity Threshold” means $14,000,000.
“Minimum EBITDA Covenant Waiver Period” means the period (x) beginning on the date upon which the Credit Parties deliver to
Agent a Compliance Certificate in accordance with Section 4.1(i) evidencing that the Liquidity of the Credit Parties as of such date is greater than
the Liquidity Threshold and (y) ending on the earlier to occur of (i) the occurrence of any Default or Event of Default or (ii) the date upon which
the Credit Parties deliver to Agent a Compliance Certificate in accordance with Section 4.1(i) evidencing that the Liquidity of the Credit Parties as
of such date is equal to or less than the Liquidity Threshold; provided that the financial covenant described in Section 6.3 shall be tested on any
date upon which the Minimum EBITDA Covenant Waiver Period is terminated by operation of clause (y)(ii) of this definition.
the words “First Amendment Effective Date”.
(b) Section 2.2(g) of the Original Credit Agreement is hereby amended by replacing each occurrence of the words “Closing Date” with
(c) Section 6.3 of the Original Credit Agreement is hereby amended and restated in its entirety as follows:
“Minimum EBITDA. Credit Parties will not permit the consolidated EBITDA of the Credit Parties for any Defined Period, as tested
quarterly on the last day of the applicable Defined Period (other than any Defined Period ending during a Minimum EBITDA Covenant Waiver
Period that has not been terminated on such date of determination as a result of the Credit Parties’ failure to maintain Liquidity in excess of the
Liquidity Threshold), to be less than $500,000.
3. Representations and Warranties; Reaffirmation of Security Interest. Each Credit Party hereby confirms that all of the representations and
warranties set forth in the Credit Agreement are true and correct in all material respects (without duplication of any materiality qualifier in the text of such
representation or warranty) with respect to such Credit Party as of the date hereof except to the extent that any such representation or warranty relates to a
specific date in which case such representation or warranty shall be true and correct as of such earlier date. Nothing herein is intended to impair or limit the
validity, priority or extent of Agent’s security interests in and Liens on the Collateral. Each Credit Party acknowledges and agrees that the Credit
Agreement, the other Financing Documents and this Agreement constitute the legal, valid and binding obligation of such Credit Party, and are enforceable
against such Credit Party in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws
relating to the enforcement of creditors’ rights generally and by general equitable principles.
4. Conditions to Effectiveness. This Agreement shall become effective as of the date on which each of the following conditions have been
satisfied, as determined by Agent in its sole discretion:
(d) Each Credit Party shall have delivered to Agent this Agreement and the Amended and Restated Fee Letter, in each case, executed by
an authorized officer of such Credit Party;
(e) all representations and warranties of Credit Parties contained herein shall be true and correct in all material respects (without
duplication of any materiality qualifier in the text of such representation or warranty) as of the date hereof except to the extent that any such representation
or warranty relates to a specific date in which case such representation or warranty shall be true and correct as of such earlier date (and such parties’
delivery of their respective signatures hereto shall be deemed to be its certification thereof); and
2
(f) prior to and after giving effect to the agreements set forth herein, no Default or Event of Default shall exist under any of the Financing
Documents.
5. Release. In consideration of the agreements of Agent and Lenders contained herein and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Credit Party, voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent,
for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and assigns, and each of
their respective current and former directors, officers, shareholders, agents, and employees, and each of their respective predecessors, successors, heirs, and
assigns (individually and collectively, the “Releasing Parties”) does hereby fully and completely release, acquit and forever discharge each of Agent,
Lenders, and each their respective parents, subsidiaries, affiliates, members, managers, shareholders, directors, officers and employees, and each of their
respective predecessors, successors, heirs, and assigns (individually and collectively, the “Released Parties”), of and from any and all actions, causes of
action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether
matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them)
has against the Released Parties or any of them (whether directly or indirectly). Each Credit Party acknowledges that the foregoing release is a material
inducement to Agent’s and each Lender’s decision to enter into this Agreement and agree to the modifications contemplated hereunder, and has been relied
upon by Agent and Lenders in connection therewith.
6. No Waiver or Novation. The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided in this
Agreement, operate as a waiver of any right, power or remedy of Agent, nor constitute a waiver of any provision of the Credit Agreement, the Financing
Documents or any other documents, instruments and agreements executed or delivered in connection with any of the foregoing. Nothing herein is intended
or shall be construed as a waiver of any existing Defaults or Events of Default under the Credit Agreement or the other Financing Documents or any of
Agent’s rights and remedies in respect of such Defaults or Events of Default. This Agreement (together with any other document executed in connection
herewith) is not intended to be, nor shall it be construed as, a novation of the Credit Agreement.
7. Affirmation. Except as specifically amended pursuant to the terms hereof, each Credit Party hereby acknowledges and agrees that the Credit
Agreement and all other Financing Documents (and all covenants, terms, conditions and agreements therein) shall remain in full force and effect, and are
hereby ratified and confirmed in all respects by such Credit Party. Each Credit Party covenants and agrees to comply with all of the terms, covenants and
conditions of the Credit Agreement and the Financing Documents, notwithstanding any prior course of conduct, waivers, releases or other actions or
inactions on Agent’s or any Lender’s part which might otherwise constitute or be construed as a waiver of or amendment to such terms, covenants and
conditions.
8. Miscellaneous.
(a) Reference to the Effect on the Credit Agreement. Upon the effectiveness of this Agreement, each reference in the Credit Agreement to
“this Agreement,” “hereunder,” “hereof,” “herein,” or words of similar import shall mean and be a reference to the Credit Agreement, as amended by this
Agreement. Except as specifically amended above, the Credit Agreement, and all other Financing Documents (and all covenants, terms, conditions and
agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by each Credit Party.
3
(b) Governing Law. THIS AGREEMENT AND ALL DISPUTES AND OTHER MATTERS RELATING HERETO OR ARISING
THEREFROM (WHETHER SOUNDING IN CONTRACT LAW, TORT LAW OR OTHERWISE), SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES
(c) Incorporation of Credit Agreement Provisions. The provisions contained in Section 11.6 (Indemnification), Section 13.8(b)
(Submission to Jurisdiction) and Section 13.9 (Waiver of Jury Trial) of the Credit Agreement are incorporated herein by reference to the same extent as if
reproduced herein in their entirety.
(d) Headings. Section headings in this Agreement are included for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
(e) Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be deemed an original and all of
which when taken together shall constitute one and the same instrument. Signatures by facsimile or by electronic mail delivery of an electronic version of
any executed signature page shall bind the parties hereto.
and all prior agreements and understandings, oral or written, relating to the subject matter hereof.
(f) Entire Agreement. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any
(g) Severability. In case any provision of or obligation under this Agreement shall be invalid, illegal or unenforceable in any applicable
jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby.
(h) Successors/Assigns. This Agreement shall bind, and the rights hereunder shall inure to, the respective successors and assigns of the
parties hereto, subject to the provisions of the Credit Agreement and the other Financing Documents.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
4
IN WITNESS WHEREOF, intending to be legally bound, and intending that this document constitute an agreement executed under seal, the
undersigned have executed this Agreement under seal as of the day and year first hereinabove set forth.
AGENT:
LENDER:
MIDCAP FUNDING IV TRUST,
as Agent
By: Apollo Capital Management, L.P.,
its investment manager
By: Apollo Capital Management GP, LLC,
its general partner
/s/ Maurice Amsellem
By:
Name: Maurice Amsellem
Title: Authorized Signatory
MIDCAP FUNDING IV TRUST,
as a Lender
By: Apollo Capital Management, L.P.,
its investment manager
By: Apollo Capital Management GP, LLC,
its general partner
/s/ Maurice Amsellem
By:
Name: Maurice Amsellem
Title: Authorized Signatory
[Signatures Continue on Following Page]
5
BORROWERS:
GUARANTOR:
XTANT MEDICAL, INC.
/s/ Sean E. Browne
By:
Name Sean E. Browne
Title: President, CEO
BACTERIN INTERNATIONAL, INC.
/s/ Sean E. Browne
By:
Name Sean E. Browne
Title: President, CEO
X-SPINE SYSTEMS, INC.
/s/ Sean E. Browne
By:
Name Sean E. Browne
Title: President, CEO
XTANT MEDICAL HOLDINGS, LLC
/s/ Sean E. Browne
By:
Name Sean E. Browne
Title: President, CEO
6
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Xtant Medical Holdings, Inc.’s Registration Statements on Form S-3 (File Nos. 333-255988 and 333-
255074), Form S-1 (File Nos. 333-224940 and 333-251515) and on Form S-8 (File Nos. 333-172891, 333-187563, 333-191248, 333-212510, 333-226588,
333-234595 and 333-249762) of our report dated March 8, 2022, relating to the December 31, 2021 and 2020 consolidated financial statements which
appears in this Annual Report on Form 10-K.
Exhibit 23.1
/s/ Plante & Moran, PLLC
Denver, Colorado
March 8, 2022
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO EXCHANGE ACT RULES 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Sean E. Browne, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Xtant Medical Holdings, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 8, 2022
By: /s/ Sean E. Browne
Sean E. Browne
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO EXCHANGE ACT RULES 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Scott Neils, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Xtant Medical Holdings, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date: March 8, 2022
By: /s/ Scott Neils
Scott Neils
Interim Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2021 of Xtant Medical Holdings, Inc. (the “Company”), as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Sean E. Browne, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and
belief:
Exhibit 32.1
(1)
(2)
March 8, 2022
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Sean E. Browne
Sean E. Browne
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K for the year ended December 31, 2021 of Xtant Medical Holdings, Inc. (the “Company”), as filed with
the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Neils, Interim Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
Exhibit 32.2
(1)
(2)
March 8, 2022
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Scott Neils
Scott Neils
Interim Chief Financial Officer
(Principal Financial Officer)