Xtant Medical Holdings, Inc.

Previous wording

During the first quarter of 2025, we entered into a manufacture and license agreement with a distributor pursuant to which we agreed to manufacture and supply to the distributor our SimpliGraft® product under the distributor’s name and brand in exchange for a one-time $1.5 million cash payment and minimum SimpliGraft® product purchase obligations of the distributor. During the fourth quarter of 2024, we entered into a license agreement with a distributor granting an exclusive right and license to manufacture and commercialize in the United States our SimpliMax™ product in exchange for a one-time $1.5 million cash payment and minimum quarterly royalty payments based on the volume of product sold by the distributor. The Centers for Medicare and Medicaid Services (“CMS”) issued a Local Coverage Determination implementing significant changes to reimbursement for cellular and tissue-based products, which would impact our SimpliMax™ and SimpliGraft® products and constitute a CMS Policy Change under these license agreements, which changes were initially intended to become effective in February 2025 but were delayed to April 2025 and then again recently delayed to January 1, 2026. These changes limit the amount of revenue to be recognized beyond 2025 and any further changes to CMS policy may reduce the amount of revenue to be recognized during 2025.

Current wording

During the first quarter of 2025, we entered into a manufacture and license agreement with a distributor pursuant to which we agreed to manufacture and supply to the distributor our SimpliGraft® product under the distributor’s name and brand in exchange for a one-time $1.5 million cash payment and minimum SimpliGraft® product purchase obligations of the distributor. During the fourth quarter of 2024, we entered into a license agreement with a distributor granting an exclusive right and license to manufacture and commercialize in the United States our SimpliMax™ product in exchange for a one-time $1.5 million cash payment and minimum quarterly royalty payments based on the volume of product sold by the distributor. The Centers for Medicare and Medicaid Services (“CMS”) issued a Local Coverage Determination implementing significant changes to reimbursement for cellular and tissue-based products, which would impact our SimpliMax™ and SimpliGraft® products and constitute a CMS Policy Change under these license agreements, which changes were initially intended to become effective in February 2025 but were delayed to April 2025 and then again delayed to January 1, 2026. On July 14 and 15, 2025, CMS released the CY 2026 Physician Fee Schedule (“PFS”) proposal and the CY 2026 Hospital Outpatient Prospective Payment System (“OPPS”) proposal. Under these proposed rules, which are scheduled for implementation on January 1, 2026, CMS is calling for a consistent payment approach for skin substitutes across the private office and HOPD settings with a fixed price of $125.38 per square centimeter. The PFS and OPPS proposals are currently in a comment period, ending in mid-September, after which CMS will publish its final rules for reimbursement in these care settings. Together with the Local Coverage Determinations and the recently announced Wasteful and Inappropriate Service Reduction model, there are several significant potential changes to reimbursement of skin substitutes that could begin impacting the industry and the Company, beginning January 1, 2026.

Previous wording

Comparison of Three Months Ended March 31, 2025 and March 31, 2024

Current wording

Comparison of Three and Six Months Ended June 30, 2025 and June 30, 2024

Previous wording

Total revenue for the three months ended March 31, 2025 was $32.9 million, which represents an increase of 18% compared to $27.9 million in the same quarter of the prior year. The increase is attributed primarily additional orthobiologics sales and $3.6 million of licensing revenue during the three months ended March 31, 2025

Current wording

Total revenue for the three and six months ended June 30, 2025 was $35.4 million and $68.3 million, respectively, which represent increases of 18%, compared to $30.0 million and $57.8 million for the three and six months ended June 30, 2024, respectively. These increases are attributed primarily to an increase in orthobiologics sales during the current year periods and $5.0 million and $8.6 million of licensing revenue recognized during the three and six months ended June 30, 2025, respectively.

Previous wording

Cost of sales consists primarily of manufacturing costs, 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 $2.1 million to $12.7 million for the three months ended March 31, 2025 from $10.6 million for the prior year period. The increase in cost of sales is primarily due to greater revenue in the current year period compared to the prior year period, as described above, and the write-off of approximately $0.6 million of inventory in the prior year period.

Current wording

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 decreased by $0.2 million to $11.2 million for the three months ended June 30, 2025 from $11.4 million for the three months ended June 30, 2024. Cost of sales increased by $1.9 million to $23.8 million for the six months ended June 30, 2025 from $21.9 million for the six months ended June 30, 2024. The decrease associated with the three-month comparison was due primarily to reduced product costs resulting from transition to internal production, partially offset by greater revenue during the current year period compared to the prior year period. The increases associated with the six-month comparison are primarily due to greater revenue in the current year periods compared to the prior year periods, as described above.

Previous wording

General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related costs, amortization, and corporate expenses for legal, accounting and professional fees, as well as occupancy costs. General and administrative expenses decreased 3%, or $0.3 million, to $7.5 million for the three months ended March 31, 2025, compared to $7.8 million for the prior year period. This decrease is primarily attributable to $0.4 million of reduced accounting and consultant fees during the current year period.

Current wording

General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related costs, amortization, and corporate expenses for legal, accounting and professional fees, as well as occupancy costs. General and administrative expenses decreased 3%, or $0.2 million, to $7.5 million for the three months ended June 30, 2025, compared to $7.7 million for the same period in 2024. General and administrative expenses decreased 3%, or $0.5 million, to $15.0 million for the six months ended June 30, 2025, compared to $15.5 million for the same period in 2024. The decrease for the three-month comparison is primarily attributable to $0.5 million of reduced stock-based compensation expense, partially offset by $0.3 million of additional legal fees associated with the Transactions with Companion. The decrease for the six-month comparison is primarily attributable to $0.6 million of reduced stock-based compensation expense and $0.3 million of reduced audit fees, partially offset by $0.4 million of additional legal fees associated primarily with the Transactions with Companion.

Previous wording

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 decreased 10%, or $1.3 million, to $11.2 million for the three months ended March 31, 2025, compared to $12.5 million for the prior year period. This decrease is primarily due to a decrease in independent agent commissions expense of $0.8 million resulting from sales mix and a $0.7 million decrease in compensation expense related to reduced headcount. These decreases were partially offset by $0.4 million of additional professional fees during the current year period.

Current wording

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 decreased 12%, or $1.6 million, to $11.6 million for the three months ended June 30, 2025, compared to $13.2 million for the same period in 2024. Sales and marketing expenses decreased 11%, or $2.8 million, to $22.9 million for the six months ended June 30, 2025, compared to $25.6 million for the same period in 2024. The decrease for the three-month comparison is primarily due to reduced commission expense of $1.5 million resulting from revenue mix and $0.7 million of reduced compensation expense related to headcount, partially offset by $0.9 million of additional consulting fees during the current year period. The decrease for the six-month comparison is primarily due to reduced commission expense of $2.3 million resulting from revenue mix and $1.3 million of reduced compensation expense related to headcount, partially offset by $1.4 million of additional consulting fees.

Previous wording

Research and development expenses consist primarily of internal costs for the development of new technologies. Research and development expenses were $0.4 million for the three months ended March 31, 2025, compared to $0.5 million for the same period in 2024. This decrease is primarily due to decreased headcount.

Current wording

Research and development expenses consist primarily of internal costs for the development of new technologies. Research and development expenses were $0.6 million for each of the three months ended June 30, 2025 and 2024. Research and development expenses were $1.0 million for the six months ended June 30, 2025, compared to $1.2 million for the same period in 2024.

Previous wording

Interest expense is related to interest incurred from our debt instruments and finance leases. Interest expense was $1.0 million for the three months ended March 31, 2025, compared to $0.8 million for the three months ended March 31, 2024. This increase resulted primarily from additional borrowings on our revolving line of credit and the additional borrowing of $5.0 million under our term credit agreement in May 2024. We expect that our annualized interest expense will increase approximately $0.1 million for every 25 basis points of increase to the reference rate associated with our credit agreements.

Current wording

Interest expense consists of interest incurred from our debt instruments and finance leases. Interest expense was $1.0 million and $2.0 million for the three and six months ended June 30, 2025, respectively, compared to $1.0 million and $1.8 million for the three and six months ended June 30, 2023. The increase for the six-month comparison resulted primarily from additional borrowings on our revolving line of credit and the additional borrowing of $5.0 million under our term credit agreement in May 2024. We expect that our annualized interest expense will increase approximately $0.1 million for every 25 basis points of increase to the reference rate associated with our credit agreements.

Previous wording

The decrease in income tax expense for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 was primarily due to a decrease in cash taxes in foreign jurisdictions in 2025.

Current wording

The increase in income tax expense for the three and six months ended June 30, 2025 compared to the three and six months ended June 30, 2024 was primarily due to an increase in cash state taxes in 2025.

Previous wording

Since our inception, we have financed our operations primarily through 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 March 31, 2025 and December 31, 2024 (in thousands):

Current wording

Since our inception, we have financed our operations through primarily operating cash flows, private placements of equity securities and convertible debt, debt facilities, common stock rights offerings, and other debt transactions. The following table summarizes our working capital as of June 30, 2025 and December 31, 2024 (in thousands):

Previous wording

Net cash provided by operating activities for the first three months of 2025 was $1.3 million compared to net cash used in operating activities of $5.8 million for the first three months of 2024. This change relates primarily to net income for the first three months of 2025 compared to a net loss in the comparable prior year period.

Current wording

Net cash provided by operating activities for the first six months of 2025 was $2.6 million compared to net cash used by operating activities of $10.8 million for the first six months of 2024. This change relates primarily to net income for the first six months of 2025 compared to a net loss in the comparable prior year period.

Previous wording

Net cash used in investing activities for the first three months of 2025 was $1.1 million compared to $0.7 million for the first three months of 2024. This increase relates primarily to increased purchases of property and equipment in the current year period.

Current wording

Net cash used in investing activities for the first six months of 2025 was $1.5 million compared to $1.2 million for the first six months of 2024. This increase relates primarily to increased purchases of property and equipment in the current year period.

Previous wording

Net cash used in financing activities for the first three months of 2025 was $0.9 million compared to net cash provided by financing activities of $5.2 million for the first three months of 2024. This change relates primarily to $6.5 million of reduced revolver borrowings, net of repayments, during the current year period compared to the prior year period.

Current wording

Net cash used in financing activities for the first six months of 2025 was $0.3 million compared to net cash provided by financing activities of $11.6 million for the first six months of 2024. This change relates primarily to $7.4 million of reduced revolver borrowings, net of repayments, during the current year period compared to the prior year period.

Previous wording

The Facilities have a maturity date of March 1, 2029. Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the Company’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets of the Company and the Borrowers. As of March 31, 2025, the Company had $11.3 million outstanding and $5.7 million of availability under the Revolving Credit Facility.

Current wording

The Facilities have a maturity date of March 1, 2029. Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the Company’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets of the Company and the Borrowers. As of June 30, 2025, the Company had $12.0 million outstanding and $5.0 million of availability under the Revolving Credit Facility.

Previous wording

The loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the SOFR Interest Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement, and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of March 31, 2025, the effective rate of the Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final payment, was 13.20%, and the effective rate of the Revolving Credit Agreement was 8.94%.

Current wording

The loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the SOFR Interest Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement, and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of June 30, 2025, the effective rate of the Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final payment, was 13.23%, and the effective rate of the Revolving Credit Agreement was 8.94%.

Previous wording

We believe that our $5.4 million of cash and cash equivalents as of March 31, 2025, together with our anticipated operating cash flows and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least May 2026. However, we may require or seek additional capital to fund our future operations and business strategy prior to May 2026. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.

Current wording

We believe that our $7.0 million of cash and cash equivalents as of June 30, 2025, together with our anticipated operating cash flows and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least August 2026. However, we may require or seek additional capital to fund our future operations and business strategy prior to August 2026. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.

Previous wording

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

Current wording

To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices that represent a discount to our trading price and/or we may issue warrants to the purchasers, which could further dilute our current stockholders. If we issue preferred stock, it could adversely affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights or preferences granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap Financial Trust and MidCap Funding IV Trust under our Credit Agreements, which could limit our ability to raise additional financing and the terms thereof.

Previous wording

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. There have been no changes in our critical accounting estimates for the three months ended March 31, 2025 as compared to the critical accounting estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Current wording

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. There have been no changes in our critical accounting estimates for the six months ended June 30, 2025 as compared to the critical accounting estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.