BSEM — Q2 2026 Financial Report Analysis

BioStem's second quarter of 2026 is the first full look at a company that had its main business cut out from under it. Medicare's new flat payment rate for skin substitutes, in force since January 1, 2026, cut what BioStem earns per square centimeter of wound-care product sold into doctors' offices by up to 95%. Revenue from that channel fell 90%, from $11.0 million to $1.1 million. The hospital product lines (Neox and Clarix) that BioStem bought from BioTissue in January brought in $6.7 million and covered most, but not all, of the hole. They cost far more to make, though, and came with a large sales force. A small profit a year ago became a net loss of $9.0 million, and the company now carries a going-concern warning.

At a glance

• Revenue $7.9 million, down 28% year on year but up 29% from Q1's $6.1 million. Sales are recovering from the reset, but almost all of the money now comes from a business bought five months earlier.
• Gross margin 61%, down from 94%. Gross margin is the share of revenue left after the cost of making the product. The acquired products are made by BioTissue under a supply contract instead of in BioStem's own facility, and the old high-priced physician-office channel has nearly gone.
• Cash $7.0 million at June 30, down from $29.5 million at December 31. That sits against a $10.0 million payment owed to BioTissue. Management says there is "substantial doubt" about the company's ability to keep operating for the next year without new financing.

What changed: Medicare rewrote the price of BioStem's main product

Until the end of 2025, Medicare paid doctors for placental skin substitutes on an "ASP + 6%" basis: the product's average selling price plus 6%. That rewarded high list prices. On October 31, 2025, CMS (the Centers for Medicare & Medicaid Services, the agency that runs Medicare) replaced it with one flat rate of $127.14 per square centimeter (geographically adjusted) in every site of care, and reclassified some products as "incident-to" supplies under the physician fee schedule. The filing states that this "decreased our revenue per square centimeter of our products used to treat chronic wounds in the physician office setting, in some cases, by up to 95%."

The damage shows up in three places in the filing:

• The sole distributor, Venture Medical, repriced. In 2025, Venture Medical was BioStem's only customer and accounted for 100% of revenue. From January 1, 2026, an amended contract cut the price Venture pays per unit "by at least 90%." Venture's share of revenue fell to 14% in Q2.
• A licensed product lost its partner. Hesed, which licensed the AmnioWrap2 name and Medicare billing code to BioStem, ended that agreement effective June 29, 2026. It said the new Medicare rates made the product "economically infeasible." No AmnioWrap2 sales have been recorded in 2026. The two companies are talking about new terms, and the filing flags a possible dispute over who owns the product's rights.
• Management doesn't expect it to reverse. The filing says the new method "may continue to adversely affect sales volumes and revenue in our physician office business in the future." Management expects the BioTissue products to only "partially offset" that loss.

For the half year the swing is bigger. Revenue fell 48%, from $26.9 million to $14.0 million, and physician-office revenue fell 93%, from $26.9 million to $1.9 million.

The numbers

n/m = not meaningful: a percentage change measured from a near-zero profit a year ago tells you nothing.

Where the money went, line by line (Q2 2026 vs Q2 2025):

• Cost of goods sold rose from $0.69M to $3.06M. The filing attributes $2.66M of that increase to "higher manufacturing costs associated with the Neox and Clarix products." BioStem pays BioTissue a set price to make those products for up to three years under the supply agreement. Throughout 2025, BioStem made everything in its own Pompano Beach facility.
• Sales and marketing rose 317%, from $1.28M to $5.32M, mostly because BioStem took on BioTissue's direct sales representatives and independent agents.
• Research and development fell 63%, to $0.73M, because its three clinical trials are "nearing their end."
• Amortization rose by $0.62M a quarter. This is the acquired licenses, brand names and customer relationships, valued at $22.3M, being written down over 7 to 15 years. It is an accounting charge, not cash leaving the business.

Takeaway: BioStem has swapped a 94%-gross-margin business, which Medicare's price change largely wiped out, for a 61%-margin hospital business with a much larger sales force. Revenue is about 28% smaller than a year ago, operating costs are 30% larger, and the company spent $5.5M of cash running the business in Q2 alone. It had $7.0M left at quarter-end and owed $10.0M to the seller of the acquired lines. Whether that new business can reach break-even matters less right now than whether BioStem can raise enough money to get there.

What the headline numbers hide

The going-concern warning is the key disclosure. The 10-Q says BioStem "will require additional liquidity to continue its operations and meet its obligations over the next 12 months" and that "substantial doubt exists about the Company's ability to continue as a going concern." The reasons, all from the filing:

• The $10.0M Clearance Payment. BioStem owed this to BioTissue once the FDA cleared the Catalyze product (Clarix Flo and Neox Flo), which happened on June 5, 2026. It is recorded as a current liability. An amendment pushed the deadline to as late as September 15, 2026, in exchange for $500,000 extension payments made from July onward, half of which counts as an advance against the $10.0M. BioStem's September 30, 2026 8-K says the payment "has not been made" and that the company is "in ongoing discussions with BioTissue regarding the timing and terms." Under the amendment, missing the September 15 date means the extension payments are forfeited and the full amount becomes "immediately due and payable."
• Liabilities due within a year now exceed short-term assets. Current liabilities were $21.2M against current assets of $20.8M, compared with $10.8M and $44.4M at December 31.
• New funding comes with dilution. "Dilution" means new shares shrink existing holders' percentage of the company. On May 21, BioStem sold 746,269 shares at $3.35 to raise $2.5M. That deal bars selling stock below $3.35 for nine months, with a price-reset protection that can go as low as $0.70. After the quarter, an 8-K on September 18, 2026 announced a facility letting BioStem sell up to $40M of stock to Roth Principal Investments over 36 months. It only starts once a registration statement is effective, and shares are priced at the market average less a 3%–5% discount. An 8-K on September 29, 2026 reported a private placement of 735,296 shares at $4.08, about $3.0M gross, with warrants (rights to buy more shares later) attached. That is useful money, but it is still well short of the $10.0M owed on its own.

Cash conversion was weak and partly flattered. Operating cash flow for the first half was -$6.36M against a net loss of $17.79M. That gap looks reassuring until you see what closed it:

• $3.91M of stock-based pay, which is a real cost to shareholders even though no cash leaves the business.
• About $5.0M of extra unpaid supplier bills. Accounts payable and accrued expenses grew from $4.44M to $9.46M, and BioStem can't keep stretching payments to suppliers forever.
• Cash collected from the old Venture Medical receivable. Net of an $8.8M allowance for bad debts already booked at year-end 2025, the amount Venture owed fell from $9.84M to $2.16M.

The press release says Q2 alone used $5.5M of operating cash. That implies Q1 used only about $0.9M, mostly because those Venture collections ran out over the half.

Inventory grew while sales fell. Inventory rose 64%, from $2.88M to $4.71M, almost all finished goods, while half-year revenue fell 48%. Part of this is stocking the acquired product lines, which BioStem didn't sell in 2025. Still, it took $1.83M of cash in six months.

Customer concentration is lower, but collections risk remains. Venture's share of revenue fell from 100% to 14% of Q2 sales. Today's customers are hospitals buying through group purchasing organizations (GPOs, the buying groups that negotiate prices for member hospitals, here at about a 2% fee taken out of revenue). BioStem carries an $8.8M credit-loss allowance on the Venture Medical receivable, unchanged from year-end, and the filing lists the "collectability of our outstanding accounts receivable from Venture Medical" as a forward-looking risk.

One-off items in the quarter roughly cancelled out, so the loss is not inflated by them.

• A $1.41M non-cash charge to raise the recorded Clearance Payment to its full $10.0M.
• A $0.82M gain from settling old defaulted GMA bridge loans. BioStem settled $5.32M of principal and interest with $3.5M of cash and a new $1.0M note, due April 2027 and secured by its headquarters building.
• $0.72M of deal costs.

Taken together, these added about $1.3M to the loss. Adjusted EBITDA is earnings before interest, tax, depreciation and amortization, with those items and $2.36M of stock-based pay also stripped out. On that measure BioStem still lost $4.62M, compared with a $2.51M profit a year earlier.

Taxes were zero, and that is not a sign of strength. Tax expense fell from $0.17M to zero because BioStem put a full valuation allowance on its deferred tax assets in Q4 2025. In plain terms, it no longer counts on earning profits that would let it use past losses to cut future taxes.

Even the company's own like-for-like comparison shows a decline. Pro forma figures show the results as if the acquisition had closed a year earlier. On that basis, combined revenue was $13.3M in Q2 2025, compared with $7.9M now, a drop of about 41%. The filing calls this pro forma figure "illustrative only."

Outlook

Management raised its 2026 revenue guidance slightly, to $26M–$29M from $25M–$29M. First-half revenue was $14.0M, so the guidance implies $12.0M–$15.0M in the second half, or $6.0M–$7.5M a quarter. That is at or below Q2's $7.9M. Even the top of the range assumes no growth from here, and the bottom assumes a decline. Management gave no profit or cash-flow guidance.

Our view: the order of what matters has changed. Q2's 29% rise from Q1 shows the acquired hospital lines are finding customers. At a 61% gross margin, though, the $7.9M of quarterly revenue left $4.8M of gross profit against $13.2M of operating costs. The business cannot pay for itself at its current size. Three things to watch in the Q3 10-Q, due around mid-November 2026:

1. How the $10.0M Clearance Payment gets resolved. Is it paid, restructured, or does it become immediately due? Without it BioStem has no commercial rights to Catalyze.
2. How much of the Roth equity facility gets used, and the share count. There were 17.85M shares at August 12. Every $10M raised near recent prices means roughly 2.5M new shares, so watch whether revenue grows faster than shares are issued.
3. Gross margin. Margin should only move up from 61% if the technology transfer happens. That would let BioStem make Neox and Clarix in its own facility, which the supply agreement allows "as early as twelve months following the acquisition date" (January 2027). If the transfer agreement is signed, a 7% royalty on net revenue from the acquired products, capped at $15M, would also apply.

On regulation, the CMS flat rate is already in effect and already in these numbers. The risk now is less a new cut than a second year of doctors switching away from BioStem's products in the physician-office channel. The filing says the extent and duration of that are "difficult to predict."

BioStem became an SEC-reporting company through a Form 10 in July 2026 and uplisted to Nasdaq on August 7, 2026, so this is its first 10-Q. Source: Form 10-Q for the quarter ended June 30, 2026 (filed August 12, 2026), plus the Q2 earnings release (8-K Exhibit 99.1, August 12, 2026) for adjusted EBITDA and guidance, and 8-Ks filed September 18 and September 30, 2026 for later financing and the Clearance Payment status.