Registrant’s Telephone Number, Including Area Code:~~(385) 237-2279~~(800) 560-3983

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

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 [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.4.05 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] 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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of ~~September 12, 2018,~~May 3, 2019, there were ~~21,475,370~~24,722,212 shares of the Registrant’s common stock outstanding.

This Quarterly Report on Form 10-Q contains forward-looking statements. Risks and uncertainties are inherent in forward-looking statements. Furthermore, such statements may be based on assumptions that fail to materialize or prove incorrect. Consequently, our business development, operations, and results could differ materially from those expressed in forward-looking statements made in this Quarterly Report. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

Given the known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by our forward-looking statements, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

	July 31, 2018			October 31, 2017			March 31, 2019			December 31, 2018
		(Unaudited)					(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	84,827		$	17,667		$	34,948		$	55,673
Short-term investments								9,706			6,162
Accounts receivable		329			-			788			712
Inventory		255			-			309			336
Prepaid expenses and other current assets		715			237			1,844			1,432
Receivable from Zift		30			60
Total current assets		86,156			17,964			47,595			64,315
Non-current assets:
Property and equipment, net		10,307			2,173			16,528			13,736
Receivable from Zift, non-current		-			15
Security deposits		139			-
Operating lease right-of-use assets								4,960			–
Intangible assets, net								873			924
Goodwill		278			-			278			278
Intangible assets, net		1,007			-
Other assets								378			913
Total non-current assets		11,731			2,188			23,017			15,851
TOTAL ASSETS	$	97,887		$	20,152		$	70,612		$	80,166

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	3,867		$	1,939		$	5,344		$	6,508
Contingent consideration		268			-
Current portion of long-term notes payable		533			-
Warrant liability and embedded derivative		-			13,502
Other current liabilities								2,550			316
Current portion of long-term note payable								529			529
Deferred revenue								90			170
Total current liabilities		4,668			15,441			8,513			7,523
Long-term notes payable		705			-
Long-term note payable, net								494			479
Operating lease liabilities								3,566			–
Other long-term liabilities		89			-			1,446			131
Total liabilities		5,462			15,441			14,019			8,133

Commitments and Contingencies

Redeemable convertible preferred stock - Series F - 0 and 6,455 shares authorized, issued and outstanding at July 31, 2018 and October 31, 2017; liquidation preference - $0 and $17,750.		-			4,541

STOCKHOLDERS’ EQUITY:
Convertible preferred stock - 25,000,000 shares authorized, 0 and 3,230,655 shares issued and outstanding at July 31, 2018 and October 31, 2017, aggregate liquidation preference $0 and $2,140, respectively		-			109,995
Common stock - $.001 par value; 250,000,000 shares authorized; 21,475,370 and 6,515,524 shares issued and outstanding at July 31, 2018 and October 31, 2017, respectively		21			7
Preferred stock - 25,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2019 and December 31, 2018								–			–
Common stock - $.001 par value; 250,000,000 shares authorized; 21,749,239 and 21,447,088 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively								22			21
Additional paid-in capital		394,362			149,173			424,955			414,840
Accumulated other comprehensive income								53			36
Accumulated deficit		(301,958	)		(259,005	)		(368,437	)		(342,864	)
Total stockholders’ equity		92,425			170			56,593			72,033
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	97,887		$	20,152		$	70,612		$	80,166

~~See~~The accompanying notes toare an integral part of these condensed consolidated financial ~~statements.~~statements

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~CHANGES IN~~COMPREHENSIVE LOSS

The accompanying notes are an integral part of these condensed consolidated financial statements

~~See~~The accompanying notes toare an integral part of these condensed consolidated financial ~~statements.~~statements

	For the nine months ended July 31,						For the three months ended March 31,
	2018			2017			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(42,953	)	$	(121,221	)	$	(25,573	)	$	(11,777	)
Loss from discontinued operations		-			(349	)
Loss from continuing operations		(42,953	)		(120,872	)
Adjustments to reconcile net loss from continuing operations to net cash used in continuing operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Stock based compensation expense								10,289			7,445
Change in fair value of derivatives								–			(1,850	)
Depreciation and amortization								676			318
Loss on extinguishment of warrant liability		520			-			–			520
Depreciation and amortization		1,052			295
Stock based compensation expense		27,674			10,696
Amortization of intangible assets								51			–
Amortization of debt discount		18			-			15			–
Change in fair value of contingent consideration		20			-			20			–
Research and development - intellectual property acquired		-			104,693
Change in fair value of derivatives		(3,814	)		8
Other non-cash adjustments								(7	)		–
Changes in operating assets and liabilities:
Accounts receivable		(329	)		-			(76	)		–
Inventory		(255	)		-			27			–
Prepaid expenses and other current assets		(478	)		-			(412	)		(108	)
Security deposits		(139	)		(364	)
Operating lease right-of-use assets								355			–
Other assets								–			(137	)
Accounts payable and accrued expenses		1,575			857			(1,929	)		1,648
Other current liabilities								425			–
Deferred revenue								(80	)		–
Operating lease liabilities								(343	)		–
Other long-term liabilities		89			-			(4	)		–
Net cash used in continuing operating activities		(17,020	)		(4,687	)
Net cash provided by discontinued operating activities		-			33
Net cash used in operating activities		(17,020	)		(4,654	)		(16,566	)		(3,941	)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		(6,392	)		(2,253	)		(1,539	)		(3,042	)
Acquisition of IBEX		(2,258	)		-
Net cash used in continuing investing activities		(8,650	)		(2,253	)
Net cash provided by discontinued investing activities		45			10
Purchase of available-for-sale securities								(5,220	)		–
Proceeds from maturities of available-for-sale securities								1,700			–
Net cash used in investing activities		(8,605	)		(2,243	)		(5,059	)		(3,042	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock options exercised		109			1,123			1,127			–
Net proceeds from the sale of common stock		92,676			2,278
Payment of contingent consideration liability								(109	)		–
Principal payments on financing leases								(118	)		–
Net cash provided by financing activities		92,785			3,401			900			–
Net (decrease) in cash and cash equivalents								(20,725	)		(6,983	)

Net increase (decrease) in cash and cash equivalents		67,160			(3,496	)
Cash and cash equivalents - beginning of period		17,667			6,523			55,673			12,517
Cash and cash equivalents - end of period	$	84,827		$	3,027		$	34,948		$	5,534

Supplemental schedule of non-cash investing and financing activities:
Conversion of Series A preferred stock to common stock	$	769		$	976
Conversion of Series B preferred stock to common stock	$	4,020		$	549
Conversion of Series C preferred stock to common stock	$	201		$	609
Conversion of Series D preferred stock to common stock	$	312		$	1,517
Conversion of Series E preferred stock to common stock	$	104,693		$	-
Conversion of Series A, B, E preferred stock to common stock							$	–		$	109,104
Exchange of Series F preferred stock for common stock	$	13,061		$	-			–			13,061
Extinguishment of warrant liability	$	2,525		$	-			–			2,525
Unpaid liability for acquisition of property and equipment	$	368		$	108			170			363
Warrant exchange for common stock shares	$	-		$	78
Deemed dividend - accretion of discount on preferred stock	$	1,290		$	-
Deemed dividend – accretion of discount on Series F preferred stock								–			698
Cumulative dividends on Series F preferred stock	$	373		$	-			–			191
Series F preferred stock dividends paid in common stock	$	306		$	-			–			306
Contingent consideration for IBEX acquisition	$	278		$	-
Contingent consideration earned and recorded in accounts payable	$	30		$	-
Note payable issued as partial consideration for IBEX acquisition	$	1,220		$
Unpaid tax liability related to net share settlement of restricted stock units								1,338			–
Unrealized gain on short-term investments and cash equivalents								17			–
Reclassification of stock based compensation expense that was previously classified as a liability to paid-in capital								38			–

~~See~~The accompanying notes toare an integral part of these condensed consolidated financial ~~statements.~~statements

PolarityTE, Inc. and subsidiaries (the “Company”) is a commercial-stage biotechnology and regenerative biomaterials company focused on transforming the lives of patients by discovering, designing and developing a range of regenerative tissue products and biomaterials for the fields of medicine, biomedical engineering and material sciences.

~~Discontinued Operations~~Change in Fiscal Year end.. On ~~June 23, 2017,~~January 11, 2019, the ~~Company sold Majesco Entertainment Company, a Nevada corporation and wholly-owned subsidiary~~Board approved an amendment to the Restated Bylaws of the Company ~~(“Majesco Sub”),~~changing the Company’s fiscal year end from October 31 to ~~Zift Interactive LLC, a Nevada limited liability company (“Zift”), pursuant to a purchase agreement. Pursuant to~~December 31. As such, the ~~terms~~end of the ~~agreement,~~quarters in the ~~Company sold 100%~~new fiscal year do not coincide with the end of the ~~issued and outstanding shares of common stock of Majesco~~quarters in the Company’s previous fiscal years. The Company made this change to Zift, including all of the right, title and interest in and to Majesco Sub’s business of developing, publishing and distributing video game products through mobile and online digital downloading. Pursuant to the terms of the agreement, the Company will receive total cash consideration of approximately $100,000 ($5,000 upon signing the agreement and 19 additional monthly payments of $5,000) plus contingent consideration based on net revenuesalign its fiscal year end with ~~a fair value of $0. As of July 31, 2018, the Company received $70,000 in cash consideration and $30,000 remains receivable.~~

~~Segments~~~~. The Company’s operations involve dissimilar products which are managed separately. Accordingly, it operates in two segments: 1) regenerative medicine and 2) veterinary sciences (“IBEX”).~~other companies within its industry.

The accompanying interim condensed consolidated financial statements of the Company are unaudited, but in the opinion of management, reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim period. Accordingly, they do not include all information and notes required by generally accepted accounting principles for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year. The balance sheet at ~~October~~December 31, ~~2017~~2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the ~~Company’s~~audited consolidated financial statements and notes thereto for the ~~year~~two-month period ended ~~October~~December 31, ~~2017~~2018 included in the Company’s Transition Report on Form 10-KT filed with the Securities and Exchange Commission on ~~Form 10-K on January 30, 2018.~~March 18, 2019.

Principles of ~~Consolidation~~Consolidation.. The accompanying ~~condensed~~ consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: PolarityTE, Inc., a Nevada corporation, Utah CRO Services, Inc., IBEX Preclinical Research, Inc., IBEX Property, LLC, Majesco Acquisition Corp. II and Majesco Sub (through the date sold). Majesco Sub was sold on June 23, 2017.subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. ~~Utah CRO Services, Inc., IBEX Preclinical Research, Inc.,~~

Use of estimates.The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) requires management to make estimates and ~~IBEX Property, LLC are included from~~assumptions that affect the reported amounts of assets and liabilities or the disclosure of gain or loss contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Among the more significant estimates included in these financial statements is the extent of progress toward completion of contracts, stock-based compensation, the valuation allowances for deferred tax benefits, and the valuation of tangible and intangible assets included in acquisitions. Actual results could differ from those estimates.

Segments.The Company’s operations are based in the United States and involve products and services which are managed separately. Accordingly, it operates in two segments: 1) regenerative medicine products and 2) contract services. The Chief Operating Decision Maker (CODM) is our Chief Executive Officer (CEO). The CODM allocates resources to and assesses the performance of each operating segment using information about its revenue and operating income (loss). Prior to the acquisition ~~May 3, 2018.~~of IBEX, the Company operated in one segment.

Cash and ~~Cash Equivalents~~cash equivalents.. Cash equivalents consist of highly liquid investments with original maturities of three months or less atfrom the date of purchase. ~~At various times, the Company has deposits in excess of the Federal Deposit Insurance Corporation limit. The Company has not experienced any losses on these accounts.~~

~~Accounts Receivable.~~Accounts receivable consists of amounts due to the Company related to the sale of the Company’s core product SkinTE and veterinary science services. Accounts that are outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance for doubtful accounts by considering a number of factors, including the length of time trade accounts receivable are past due and the customer’s current ability to pay its obligation to the Company. The Company writes off accounts receivable when they become uncollectible. As of July 31, 2018, there was no allowance for doubtful accounts.

~~Inventory.~~Investments~~Inventory comprises finished goods, which~~. Investments in debt securities have been classified as available-for-sale and are ~~valued~~carried at fair value, with unrealized gains and losses reported as a component of accumulated other comprehensive income. Realized gains and losses are included in other income, net. The cost of securities sold is based on the ~~lower~~specific-identification method. Interest on marketable securities is included in interest income, net. Investments with original maturities of ~~cost or net realizable value, on a first-in, first-out basis. The Company evaluates~~greater than three months but less than one year from the ~~carrying value~~date of ~~its inventory on a regular basis, taking into account anticipated future sales compared~~purchase are classified as current. Investments with ~~quantities on hand, and~~original maturities of greater than one year from the ~~remaining shelf life~~date of ~~goods on hand.~~purchase are classified as non-current.

~~Property and Equipment~~Loss Per Share.~~. Property and equipment~~Basic loss per share of common stock is ~~stated at cost. Depreciation and amortization is being provided for~~computed by dividing net loss attributable to common stockholders by the ~~straight-line method~~weighted average number of shares of common stock outstanding for the period. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share since the effects of potentially dilutive securities are antidilutive.

Leases. The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The classification of the Company’s leases as operating or finance leases along with the initial measurement and recognition of the associated ROU assets and lease liabilities is performed at the lease commencement date. The measurement of lease liabilities is based on the present value of future lease payments over the ~~estimated useful lives~~lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The ROU asset is based on the measurement of the ~~assets, generally range from three~~lease liability and also includes any lease payments made prior to ~~eight years. Amortization of leasehold improvements~~or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. The lease terms may include options to extend or terminate the lease when it is ~~provided~~reasonably certain the Company will exercise any such options. Rent expense for the Company’s operating leases is recognized on a straight-line basis over the ~~shorter of~~lease term. Amortization expense for the ROU asset associated with its finance leases is recognized on a straight-line basis over the term of the lease orand interest expense associated with its finance leases is recognized on the ~~life~~balance of the ~~asset.~~

~~Capitalized Software Development Costs~~. Software development costs are capitalized once technological feasibility is established and management expects such costs to be recoverable against future revenues. Amounts related to software development that are not capitalized are charged immediately to expense. Capitalized costs are amortized straight-line overlease liability using the effective interest method based on the estimated ~~useful life of three years.~~

~~Goodwill and Intangible Assets.~~Goodwill represents the excess acquisition cost over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing at the end of the third fiscal quarter or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. If the Company concludes otherwise, it is required to perform the two-step impairment test. The goodwill impairment test is performed at the reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired. If the estimated fair value is less than carrying value, further analysis is necessary to determine the amount of impairment, if any, by comparing the implied fair value of the reporting unit’s goodwill to the carrying value of the reporting unit’s goodwill.incremental borrowing rate.

The ~~fair value of reporting units is based on widely accepted valuation techniques that~~Company has lease agreements with lease and non-lease components. As allowed under Topic 842, the Company ~~believes market participants would use, although~~has elected not to separate lease and non-lease components for any leases involving real estate and office equipment classes of assets and, as a result, accounts for the ~~valuation process requires significant judgment~~lease and ~~often involves the use of significant estimates and assumptions.~~non-lease components as a single lease component. The Company ~~utilizes~~has also elected not to apply the recognition requirement of Topic 842 to leases with a ~~market cap approach in estimating the fair value~~term of ~~reporting units. The estimates and assumptions used in determining fair value could have a significant effect on whether~~12 months or ~~not an impairment charge is recorded and the magnitude~~less for all classes of ~~such a charge. Adverse market or economic events could result in impairment charges in future periods.~~assets.

Intangible assets deemed to have finite lives are amortized on a straight-line basis over their estimated useful lives, which generally range from one to eleven years. The useful life is the period over which the asset is expected to contribute directly, or indirectly, to its future cash flows. Intangible assets are reviewed for impairment on an interim basis when certain events or circumstances exist. For amortizable intangible assets, impairment exists when the undiscounted cash flows exceeds its carrying value. At least annually, the remaining useful life is evaluated.

~~Impairment of Long-Lived Assets.~~The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.

~~Income Taxes~~. The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the potential for realization of deferred tax assets at each quarterly balance sheet date and records a valuation allowance for assets for which realization is not more likely than not.

~~Stock~~Stock- Based ~~Compensation~~Compensation.. The Company measures all stock-based compensation to employees using a fair value method and records such expense in general and administrative and research and development expenses. Compensation expense for stock options with cliff vesting is recognized on a straight-line basis over the vesting period of the award, based on the fair value of the option on the date of grant. For stock options with graded vesting, the Company recognizes compensation expense over the service period for each separately vesting tranche of the award as though the award were in substance, multiple awards. ~~Forfeitures are recognized as they occur.~~

The fair value for options issued is estimated at the date of grant using a Black-Scholes option-pricing model. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of the grant. The volatility factor is determined based on the Company’s historical stock prices. Forfeitures are recognized as they occur.

The value of restricted stock ~~and restricted stock unit~~ grants is measured based on the fair market value of the Company’s common stock on the date of grant and amortized over the vesting period of, generally, six months to three years.

~~Loss Per Share~~~~. Basic loss per share of common~~The accounting for non-employee options and restricted stock is ~~computed by dividing net loss attributable~~similar to ~~common stockholders by the weighted average number~~that of ~~shares of common stock outstanding~~employees. Stock-based compensation expense for the period. Diluted loss per share excludes the potential impact of common stock options, unvested shares of restricted stock and outstanding common stock purchase warrants because their effect would be anti-dilutive due to our net loss.

~~Commitments and Contingencies~~~~. We are~~nonemployee services has historically been subject to claims and litigation in the ordinary course of our business. We record a liability for contingencies when the amount is both probable and reasonably estimable. We record associated legal fees as incurred.

~~Accounting for Warrants~~. The Company accounts for the issuance of common stock purchase warrants issued in connection with the equity offerings in accordance with the provisions of ASC 815, Derivatives and Hedging (“ASC 815”). The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) gives the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net-cash settle the contract if an event occurs and if that event is outside the control of the Company) or (ii) gives the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). In addition, under ASC 815, registered common stock warrants that require the issuance of registered shares upon exercise and do not expressly preclude an implied right to cash settlement are accounted for as derivative liabilities. The Company classifies these derivative warrant liabilities on the condensed consolidated balance sheet as a current liability.

~~Change in Fair Value of Derivatives~~. The Company assessed the classification of common stock purchase warrants as of the date of each offering and determined that certain instruments met the criteria for liability classification. Accordingly, the Company classified the warrants as a liability at their fair value and adjusts the instruments to fair valueremeasurement at each reporting ~~period. This liability is subject to re-measurement at each balance sheet~~ date ~~until~~as the ~~warrants are exercised or expire,~~underlying equity instruments vest and ~~any change in fair value is~~was recognized as ~~“change in fair value~~an expense over the period during which services are received. Upon the adoption of ~~derivatives” in~~ASU 2018-07, Compensation – Stock Compensation on January 1, 2019, the ~~consolidated statements of operations. The fair value of~~valuation was fixed at the ~~warrants~~implementation date and will be recognized as ~~well as other derivatives have been estimated using~~an expense on a ~~Monte-Carlo or Black-Scholes valuation model.~~straight-line basis over the remaining service period.

Revenue ~~Recognition~~Recognition.. Revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

In the regenerative medicine products segment, the Company records products revenues primarily from the sale of its regenerative tissue products. The Company sells its products to healthcare providers, primarily through direct sales representatives. Products revenues consists of a single performance obligation that the Company satisfies at a point in time. In general, the Company recognizes ~~revenue~~products revenues upon delivery to the ~~shipment~~customer.

In the contract services segment, the Company records service revenues from the sale of ~~products or~~its contract research services, which includes delivery of preclinical studies and other research services to unrelated third parties. Service revenues generally consist of a single performance obligation that the Company satisfies over time using an input method based on costs incurred to date relative to the total costs expected to be required to satisfy the performance obligation. The Company believes that this method provides a faithful depiction of the transfer of services ~~when each~~over the term of the ~~following four criteria~~performance obligation based on the remaining services needed to satisfy the obligation. This requires the Company to make reasonable estimates of the extent of progress toward completion of the contract. As a result, unbilled receivables and deferred revenue are recognized based on payment timing and work completed. Generally, a portion of the payment is ~~met: (i) persuasive evidence~~due upfront and the remainder upon completion of ~~an arrangement exists; (ii)~~the study, with most studies completing in less than a year. As of March 31, 2019 and December 31, 2018, the Company had unbilled receivables of $225,000 and $157,000 and deferred revenue of $90,000 and $170,000 respectively. The unbilled receivables balance is included in consolidated accounts receivable. Revenues of $151,000 was recognized during the three months ended March 31, 2019 that was included in the deferred revenue balance as of December 31, 2018.

Costs to obtain the contract are incurred for products revenues as they are ~~delivered or services~~shipped and are ~~performed; (iii) the sales price is fixed or determinable; and (iv) collectability is reasonably assured.~~expensed as incurred.

In August 2018, the FASB issued ASU 2018-13,~~Estimates~~Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities orASU modifies the disclosure ~~of gain~~requirements for fair value measurements by removing, modifying or ~~loss contingencies at~~adding certain disclosures. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the ~~date of~~impact that the standard will have on its consolidated financial statements and related disclosures.

In June 2016, the ~~reported amounts of revenues and expenses during~~FASB issued ASU No. 2016-13,Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting ~~periods. Among~~date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the ~~more significant estimates included in these~~existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements ~~are the valuation of warrant liability, valuation of derivative liability, stock-based compensation~~ and ~~the valuation allowances for deferred tax benefits. Actual results could differ from those estimates.~~related disclosures.

~~In April 2016,~~On January 1, 2019 the ~~Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,~~~~Share-Based Payment: Simplifying the Accounting for Share-Based Payments~~. The standard addresses several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company adopted ASU ~~2016-09 during the first quarter of fiscal 2018~~2016-02,Leases (ASC 842) and ~~the Company elected~~related amendments, which require lease assets and liabilities to ~~account for forfeitures as they occur. The amendment was applied using a modified retrospective transition method. The provisions of ASU 2016-09 had no impact~~be recorded on the ~~Company’s consolidated financial statements.~~

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~. This new standard clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This new standard is effectivebalance sheet for the Company on November 1, 2018 but may be adopted early. The ASU is applied prospectively to any transaction occurring within the period of adoption. The Company early adopted this guidance effective November 1, 2017. The adoption of this standard did not have a material impact on the Company's financial position, results of operations, or cash flows.

~~In May 2014, the FASB issued ASU 2014-09,~~~~Revenue from Contracts~~leases with ~~Customers (Topic 606~~), a new accounting standard that requires recognition of revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The FASB has also issued several updates to ASU 2014-09. The new standard supersedes U.S. GAAP guidance on revenue recognition and requires the use of more estimates and judgmentsterms greater than the present standards. It also requires additional disclosures regarding the nature, amount, timing and uncertainty of cash flows arising from contracts with customers. Topic 606 is effective for our fiscal year 2019 beginning on November 1, 2018. The Company is currently evaluating the overall effect that the standard will have on our consolidated financial statements and accompanying notes to the consolidated financial statements and which transition method to apply. As of July 31, 2018, the Company has completed and documented a preliminary assessment of the impact of the new revenue standard on its contracts with customers. The Company plans to finalize its assessment of the impact of the new revenue standard on its results of operations, internal controls and disclosures in the fourth quarter of 2018. The Company does not expect this new standard to have a material effect on the Company’s financial statements.

~~In February 2016, FASB issued ASU 2016-02,~~~~Leases (Topic 842)~~~~, which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.~~twelve months. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. ~~A lessee is also required~~The standard was adopted using the modified retrospective transition approach by applying the new standard to ~~record a right-of-use asset and a lease liability for~~ all leases ~~with a term~~existing at the date of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annualthe initial application and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. The Company is currently assessing the potential impact of this guidance, but expects it to have a material impact on the Company’s balance sheet.not restating comparative periods.

~~In August 2016,~~We elected the ~~FASB issued ASU 2016-15,~~~~Statement~~package of ~~Cash Flows - Classification~~practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, our assessment on whether a contract was or contains a lease, and our initial direct costs for any leases that existed prior to January 1, 2019. The impact of ~~Certain Cash Receipts~~the adoption of ASC 842 on the accompanying Condensed Consolidated Balance Sheet as of January 1, 2019 was as follows (in thousands):

The adjustments due to the adoption of ASC 842 related to the recognition of operating lease right-of-use assets and ~~Cash Payments~~~~, which addresses eight specific cash flow issues with the objective of reducing~~operating lease liabilities for the existing ~~diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years~~operating leases. A cumulative-effect adjustment to beginning ~~after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The adoption of this update is~~accumulated deficit was not ~~expected to have a material impact on the Company’s consolidated financial statements and related disclosures.~~

~~In January 2017, the FASB issued ASU No. 2017-04,~~~~Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.~~ASU No. 2017-04 removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard will be applied prospectively and is effective for the Company beginning November 1, 2020. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company is currently evaluating the impact this standard will have on its financial statements.

~~In May 2017, the FASB issued ASU 2017-09,~~~~Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting~~. ASU 2017-09 provides clarity and reduces both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718, to a change to the terms or conditions of a share-based payment award. The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after the adoption date. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company is currently assessing the potential impact of adopting ASU 2017-09 on its consolidated financial statements and related disclosures.required.

In June 2018, the FASB issued ASU 2018-07,Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting. The standard expands the scope of Topic 718 to include share-based payments issued to nonemployees for goods or services, simplifying the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period. The Company ~~does not believe the~~adopted this ASU on January 1, 2019. The adoption of this ~~standard will~~ASU did not have a ~~significant~~material impact on ~~its~~the Company’s consolidated financial statements ~~given the limited number of nonemployee stock-based awards outstanding.~~and related disclosures.

3~~. LIQUIDITY~~The Company has experienced recurring losses and cash outflows from operating activities. For the three months ended March 31, 2019 and 2018, the Company incurred net losses of $25.7 million and $11.8 million, respectively, with cash used in operating activities of $16.6 million and $3.9 million, respectively.

On April 12, 2018, the Company completed a public offering providing for the issuance and sale of 2,335,937 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $16.00 per share, for net proceeds of approximately $34.6 million, after deducting offering expenses payable by the Company (see Note 10).

~~On June 7, 2018,~~10, 2019, the Company completed an underwritten offering with Cantor Fitzgerald & Co., as underwriter, providing for the issuance and sale of ~~2,455,882~~3,418,918 shares of the Company’s common stock, par value $0.001 per share, at an offering price of ~~$23.65~~$8.51 per share, for net proceeds of approximately ~~$58.0~~$28.7 million, after deducting offering expenses payable by the ~~Company (see Note 10).~~Company.

Based upon the current status of ~~our~~the Company’s product development and commercialization plans, ~~we believe~~the Company believes that ~~our~~its existing cash, ~~and~~ cash equivalents and short-term investments will be adequate to satisfy ~~our~~its capital needs for at least the next 12 months from the date of filing. ~~We anticipate~~However, the Company anticipates needing substantial additional financing to continue clinical deployment and commercialization of ~~our~~its lead product SkinTE, development of ~~our~~its other product candidates, and scaling the manufacturing capacity for ~~our~~its products and product candidates and prepare for commercial readiness. WeHowever, the Company will continue to pursue fundraising opportunities when available, but such financing may not be available in the future on terms favorable to ~~us,~~the Company, if at all. If adequate financing is not available, wethe Company may be required to delay, reduce the scope of, or eliminate one or more of ~~our~~its product development programs. ~~We plan~~The Company plans to meet ~~our~~its capital requirements primarily through issuances of equity securities, debt financing, revenue from product sales and future collaborations. Failure to generate revenue or raise additional capital would adversely affect ~~our~~the Company’s ability to achieve ~~our~~its intended business objectives.

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~4. FAIR VALUE

4~~. IBEX ACQUISITION~~In accordance withASC 820, Fair Value Measurements and Disclosures, financial instruments were measured at fair value using a three-level hierarchy which maximizes use of observable inputs and minimizes use of unobservable inputs:

Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There were no transfers within the hierarchy for any of the periods presented.

In connection with the offering of Units in September 2017 (see Note 10), the Company issued warrants to purchase an aggregate of 322,727 shares of common stock. These warrants were exercisable at $30.00 per share and expire in two years. The warrants were liabilities pursuant to ASC 815. The warrant agreement provided for an adjustment to the number of common shares issuable under the warrant or adjustment to the exercise price, including but not limited to, if: (a) the Company issues shares of common stock as a dividend or distribution to holders of its common stock; (b) the Company subdivides or combines its common stock (i.e., stock split); or (c) the Company issues new securities for consideration less than the exercise price. Under ASC 815, warrants that provide for down-round exercise price protection are recognized as derivative liabilities.

The Series F Preferred Shares contained an embedded conversion feature that was not clearly and closely related to the identified host instrument and, as such, was recognized as a derivative liability measured at fair value. The Company classified these derivatives on the consolidated balance sheet as a current liability.

As discussed in Note 10, both the warrants and the Series F Preferred Shares were exchanged for common stock on March 2,6, 2018.

The fair value of the bifurcated embedded conversion feature was estimated to be approximately $7.2 million at March 5, 2018, as calculated using the Monte Carlo simulation with the following assumptions:

The fair value of the warrant liability was estimated to be approximately $2.5 million at March 5, 2018 as calculated using the Monte Carlo simulation with the following assumptions:

The following table sets forth the changes in the estimated fair value for our Level 3 classified derivative liabilities (in thousands):

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy as of March 31, 2019 and December 31, 2018 (in thousands):

In May 2018, the Company ~~along with its wholly owned subsidiary, Utah CRO Services, Inc.,~~purchased the assets of a ~~Nevada corporation (“Acquisition Co.”), entered into agreements with~~preclinical research sciences business and related real estate from Ibex Group, L.L.C., a Utah ~~limited~~ liability company, and Ibex Preclinical Research, Inc., a Utah corporation (collectively, ~~the “Seller” or~~ “IBEX”) for the purchase of the assets and rights to the Seller’s preclinical research and veterinary sciences business and related real estate. The Company acquired this preclinical biomedical research facility in order to accelerate research and development of PolarityTE pipeline products. The business consists of a “good laboratory practices” (GLP) compliant preclinical research facility, including vivarium, operating rooms, preparation rooms, storage facilities, and surgical and imaging equipment. The real property includes two parcels in Cache County, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property located on the real property. The above was accounted for as a business combination.

~~The acquisition closed on May 3, 2018.~~. The aggregate purchase price was $3.8 million, of which $2.3 million was paid at closing and the balance satisfied by a promissory note payable to ~~the Seller~~IBEX with an initial fair value of $1.2 million ~~(see Note 9, for a description of the promissory note)~~ and contingent consideration with an initial fair value of ~~approximately~~ $0.3 million. During the three and nine months ended July 31, 2018, the Company recorded approximately $38,000 of direct and incremental costs associated with acquisition-related activities. These costs were incurred primarily for banking, legal, and professional fees associated with the IBEX acquisition. These costs were recorded in general and administrative expenses in the consolidated statement of operations.million

~~During the three and nine months ended July 31, 2018, IBEX contributed approximately $172,000 to net revenues and approximately $124,000 to gross profit, respectively.~~

~~The following table summarizes the preliminary purchase price allocation for the IBEX acquisition (in thousands):~~

~~As part of the acquisition of IBEX, the Company recorded a contingent consideration liability of $0.3 million in current liabilities in the condensed consolidated balance sheets.~~ The contingent consideration represents the estimated fair value of future payments due to the Seller of IBEX based on IBEX’s revenue generated from studies quoted prior to but completed after the transaction. Contingent consideration iswas initially recognized at fair value as purchase consideration and is subsequently remeasured at fair value through earnings. The initial fair value of the contingent consideration was based on the present value of estimated future cash flows using a 20% discount rate. The contingent consideration is the payment of 15% of the actual revenues received for work on any study initiated within 18 months following the closing of the purchase on the basis of certain specific customer prospects that received service proposals prior to the closing, provided that the total ~~amount~~payments will not exceed $650,000. Adjustments to the fair value of the contingent consideration ~~to be paid will not exceed $650,000. The subsequent increase in fair value of contingent consideration from acquisition to July 31, 2018 of approximately $20,000 was recognized~~liability is included in general and administrative expense in the ~~Company’s condensed~~accompanying consolidated ~~statement~~statements of operations for the three and nine months ended July 31, 2018. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill, including the value of the assembled workforce.operations.

The purchase price allocation for the IBEX acquisition is preliminary and subject to revision as additional information about fair value of assets acquired becomes available. Additional information that existed as of the acquisition date but at that time was unknown may become known during the remainder of the measurement period, a period not to exceed 12 months from the acquisition date.

Disclosure of pro-forma revenues and earnings attributable to the acquisition is excluded because it is impracticable to obtain complete historical financial records for IBEX Preclinical Research, Inc.

The following table ~~shows~~sets forth the ~~valuation~~changes in the estimated fair value of our contingent consideration liability (in thousands) which is included in other current liabilities:

Cash equivalents and available-for-sale marketable securities consisted of the ~~individual identifiable intangible assets acquired along with their estimated remaining useful lives~~following as of March 31, 2019 and December 31, 2018 (in thousands):

~~Prepaid expenses~~All investments in debt securities held as of March 31, 2019 and ~~other current assets consist~~December 31, 2018 had maturities of less than one year. For the ~~following (in thousands):~~three months ended March 31, 2019, the Company recognized no material realized gains or losses on available-for-sale marketable securities.

~~Property~~The following table presents the components of property and equipment, net ~~consists of the following~~ (in thousands):

Depreciation and amortization expense for property and equipment, including assets acquired under financing leases for the three months ended ~~July~~March 31, 2019 and March 31, 2018 ~~and 2017~~ was ~~approximately $396,000 and $122,000, respectively. Depreciation expense for the nine months ended July 31, 2018 and 2017 was approximately $1,002,000 and $295,000, respectively.~~

~~Amortization expense for the three months and nine months ended July 31, 2018 was approximately $50,000.~~

~~The future amortization of these intangible assets is expected to be~~ as follows (in thousands):

The Company leases facilities and certain equipment under noncancelable leases that expire at various dates through November 2024. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases may include options to extend or terminate the lease at the election of the Company. These optional periods have not been considered in the determination of the right-of-use-assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.

As of March 31, 2019, the maturities of our operating and finance lease liabilities were as follows (in thousands):

Supplemental balance sheet information related to leases was as follows (in thousands):

Supplemental cash flow information related to leases was as follows (in thousands):

As of March 31, 2019, the weighted average remaining operating lease term is 3.3 years and the weighted average discount rate used to determine the operating lease liability was 9.90%. The weighted average remaining finance lease term is 4.0 years and the weighted average discount rate used to determine the finance lease liability was 9.68%.

~~Accounts~~The following table presents the major components of accounts payable and accrued expenses ~~consist of the following~~ (in thousands):

	July 31, 2018		October 31, 2017		March 31, 2019		December 31, 2018
Accounts payable	$	82	$	25	$	1,967	$	2,918
Due to Zift		-		36
Medical study and supplies		186		362
Property and equipment purchases		368		54
Salaries and other compensation		1,108		574		1,323		1,280
Other accruals						1,302		1,670
Legal and accounting		1,050		555		752		640
Other accruals		1,073		333
Total accounts payable and accrued expenses	$	3,867	$	1,939	$	5,344	$	6,508

Salaries and other compensation include accrued payroll expense, accrued bonus, and estimated employer ~~401K~~401(k) plan contributions.

Other current liabilities is comprised of the current portion of operating lease liabilities and finance lease liabilities, contingent consideration, and short term debt. The short term debt had a balance of $0.4 million as of March 31, 2019, while the other components are disclosed in the footnotes above.

In connection with the IBEX Acquisition ~~described~~ in ~~Note 4,~~May 2018, the Company issued a promissory note payable to the Seller with an initial fair value of ~~$1.22~~$1.2 million. The promissory note has a principal balance of ~~$1,333,333~~$1.3 million and bears interest at a rate of 3.5% interest per annum. Principal and interest are payable in five equal installments ~~beginning~~that began on November 3, 2018 and continuing on each six-month anniversary thereafter (“Payment Date”). The promissory note may be prepaid by the Company at ~~anytime~~any time and becomes due and payable at the earlier of the maturity date of November 3, 2020 or upon an event of default, which includes failure to pay any installment on each Payment Date, breach of any negative covenants, insolvency or bankruptcy. Upon the occurrence of an event of default, the promissory note will bear an accelerated interest rate of 7% per annum from the date of the event of default.

The Company initially recognized the promissory note at its fair value, using an estimated market rate of interest for the Company, which was higher than the promissory note’s stated rate. The result of imputing a market rate of interest resulted in an initial discount to the principal balance of approximately $113,000, which is being amortized to interest expense over the term of the promissory note using the effective interest method. The unamortized debt discount was $53,000 and $68,000 at March 31, 2019 and December 31, 2018, respectively. Amortization of debt discount of ~~$18,000~~$15,000 was included in interest ~~expense~~income, net for the three ~~and nine~~ months ended ~~July~~March 31, ~~2018.~~2019

On September 20, 2017, the Company sold an aggregate of $17,750,000 worth of units ~~(the “Units”)~~ of the Company’s securities (the “Units”) to accredited investors at a purchase price of $2,750 per Unit. Each Unit ~~with each Unit consisting~~consisted of (i) one share of the Company’s newly authorized 6% Series F Convertible Preferred Stock, par value $0.001 per share (the “Series F Preferred Shares”), ~~which were each~~ convertible into one hundred (100) shares of the Company’s common stock, and (ii) a two-year warrant to purchase up to 322,727 shares of the Company’s common stock, at an exercise price of $30.00 per share.

The Series F Preferred Shares were convertible into shares of the Company’s common stock based on a conversion calculation equal to the stated value of the Series F Preferred Shares, plus all accrued and unpaid dividends, if any, on such Series F Preferred Shares, as of such date of determination, divided by the conversion price. The stated value of each Series F Preferred Share was $2,750 and the initial conversion price was $27.50 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events.

On the two-year anniversary of the initial issuance date, any Series F Preferred Shares outstanding and not otherwise already converted, ~~shall,~~would, at the option of the holder, ~~will~~ either (i) automatically convert into common stock of the Company at the conversion price then in effect or (ii) be repaid by the Company based on the stated value of such outstanding Series F Preferred Shares.

The warrants issued in connection with the Series F Preferred Shares were determined to be liabilities pursuant to ASC 815. The warrant agreement provided for an adjustment to the number of common shares issuable under the warrant ~~and/~~or adjustment to the exercise price, including but not limited to, if: (a) the Company issued shares of common stock as a dividend or distribution to holders of its common stock; (b) the Company subdivided or combined its common stock (i.e., stock split); or (c) ~~adjustment of exercise price upon issuance of~~the Company issues new securities atfor consideration less than the exercise price. Under ASC 815, warrants that provide for down-round exercise price protection are recognized as derivative liabilities.

The conversion feature within the Series F Preferred Shares was determined to not be clearly and closely related to the identified host instrument and, as such, was recognized as a derivative liability measured at fair value pursuant to ASC 815.

The initial fair value of the warrants and bifurcated embedded conversion feature, estimated to be approximately $4.3 million and $9.3 million, respectively, was deducted from the gross proceeds of the Unit offering to arrive at the initial discounted carrying value of the Series F Preferred Shares. The resulting discount to the aggregate stated value of the Series F Preferred Shares of approximately $13.6 million was recognized as accretion using the effective interest method similar to preferred stock dividends, over the two-year period prior to optional redemption by the holders.

On March 6, 2018, the Company entered into separate exchange agreements (the “Exchange Agreements”) with holders (each a “Holder”, and collectively the “Holders”) of 100% of the Company’s outstanding Series F Preferred Shares, and the Company’s warrants to purchase shares of the Company’s common stock issued in connection with the Series F Preferred Shares (such “Warrants” and Series F Preferred Shares collectively referred to as the “Exchange Securities”) to exchange the Exchange Securities and unpaid dividends on the Series F Preferred Shares for common stock (the “Exchange”).

The Exchange resulted in the following issuances: (A) all outstanding Series F Preferred Shares were converted into 972,070 shares of restricted common stock at an effective conversion price of $18.26 per share of common stock (the closing price of Common Stock on the NASDAQ Capital Market on February 26, 2018); (B) the right to receive 6% dividends underlying Series F Preferred Shares was terminated in exchange for 31,321 shares of restricted common stock; (C) 322,727 Warrants to purchase common stock were exchanged for 151,871 shares of restricted common stock; and (D) the Holders of the Warrants relinquished any and all other rights pursuant to the Warrants, including exercise price adjustments.

As part of the Exchange, the Holders also relinquished ~~any and~~ all other rights related to the issuance of the Exchange Securities, the respective governing agreements and certificates of designation, including any related dividends, adjustment of conversion and exercise price, and repayment option. The existing registration rights agreement with the holders of the Series F Preferred Shares was also terminated and the holders of the Series F Preferred Shares waived the obligation of the Company to register the common shares issuable upon conversion of Series F Preferred Shares or upon exercise of the warrants, and waived any damages, penalties and defaults related to the Company failing to file or have declared effective a registration statement covering those shares.

The exchange of all outstanding Series F Preferred Shares, and the holders’ right to receive 6% dividends, for common stock of the Company was recognized as follows:

Fair market value of 1,003,391 shares of common stock issued at $20.05 (Company’s closing stock price on March 5, 2018) in exchange for Series F Preferred Shares and accrued dividends	$	20,117,990
Fair market value of 1,003,393 shares of common stock issued at $20.05 (Company’s closing stock price on March 5, 2018) in exchange for Series F Preferred Shares and accrued dividends				$	20,117,990
Carrying value of Series F Preferred Shares at March 5, 2018, including dividends		(5,898,274	)		(5,898,274	)
Carrying value of bifurcated conversion option at March 5, 2018		(7,162,587	)		(7,162,587	)
Deemed dividend on Series F Preferred Shares exchange	$	7,057,129		$	7,057,129

As the Warrants were classified as a liability, the exchange of the Warrants for common shares ~~should be~~was recognized as a liability extinguishment. As of March 5, 2018, the fair market value of the 151,871 common shares issued in the Exchange was $3,045,034 and the fair value of the common stock warrant liability was $2,525,567 resulting in a loss on extinguishment of warrant liability of $519,467 during the ~~nine~~three months ended ~~July~~March 31, 2018.

The Company recognized accretion of the discount to the stated value of the Series F Preferred Shares of approximately ~~$1,290,000 in~~$698,000 during the ~~nine~~three months ended ~~July~~March 31, 2018, ~~respectively,~~ as a reduction of additional paid-in capital and an increase in the carrying value of the Series F Preferred Shares. The accretion is presented in the Statement of Operations as a deemed dividend, increasing net loss to arrive at net loss attributable to common stockholders.

On February 6, 2018, 15,756 shares of Series B Convertible Preferred Stock (“Series B Preferred Shares”) were converted into 262,606 shares of common stock.

On March 6, 2018, the Company received conversion notices (in accordance with original terms) from holders of 100% of the outstanding shares of Series A Convertible Preferred Stock (the “Series A Preferred Shares”), Series B Preferred Shares and Series E Convertible Preferred Stock (the “Series E Preferred Shares”) and issued an aggregate of 7,945,250 shares of common stock to such holders.

The shares of Series E Preferred ~~Shares~~Stock were held by Dr. Denver Lough, the Company’s Chief Executive Officer. On March 6, 2018, the Company entered into a new registration rights agreement (the “Lough Registration Rights Agreement”) with Dr. Lough, pursuant to which the Company agreed to file a registration statement to register the resale of 7,050,000 shares of Common Stock issued upon conversion of the Series E Preferred Shares within six months, to cause such registration statement to be declared effective by the Securities and Exchange Commission as promptly as possible following its filing and, with certain exceptions set forth in the Lough Registration Rights Agreement, to maintain the effectiveness of the registration statement until all of such shares have been sold or are otherwise able to be sold pursuant to Rule 144 under the Securities Act without restriction. ~~Any sales of shares under~~On March 14, 2019, the Company’s registration ~~statement were subject to certain limitations as specified with more particularity in~~obligation was waived, and the Lough Registration Rights ~~Agreement. In April 2018,~~Agreement amended to provide that Dr. Lough ~~entered into~~may demand registration by written request to the Company. Dr. Lough has not made a ~~lock up agreement~~demand for ~~180 days, which prohibits him from selling any shares that may be registered until October 2018.~~filing a registration statement.

On March 7, 2018, the Company filed a Certificate of Elimination with the Secretary of State of the State of Delaware terminating the Company’s Series A, Series B, Series C, Series D, Series E and Series F Preferred Stock. As a result, the Company has ~~10,000,000~~25,000,000 shares of authorized and unissued preferred stock as of March 31, 2019 with no designation as to series.

~~Convertible~~There was no convertible preferred stock ~~activity for the nine months ended July~~outstanding as of March 31, ~~2018 consisted of the following:~~

In accordance with ASC 820, Fair Value Measurements, financial instruments were measured at fair value using a three-level hierarchy which maximizes use of observable inputs and minimizes use of unobservable inputs:

In connection with the offering of Units in September 2017, the Company issued warrants to purchase an aggregate of 322,727 shares of common stock. These warrants were exercisable at $30.00 per share and expire in two years. The warrants were liabilities pursuant to ASC 815. The warrant agreement provided for an adjustment to the number of common shares issuable under the warrant and/or adjustment to the exercise price, including but not limited to, if: (a) the Company issues shares of common stock as a dividend or distribution to holders of its common stock; (b) the Company subdivides or combines its common stock (i.e., stock split); (c) adjustment of exercise price upon issuance of new securities at less than the exercise price. Under ASC 815, warrants that provide for down-round exercise price protection are recognized as derivative liabilities.

~~As noted in Note 10. above, both the warrants and the Series F Preferred Shares were exchanged for common stock on March 6, 2018.~~

The fair value of the bifurcated embedded conversion feature was estimated to be approximately $7.2 million and $9.2 million, respectively, at March 5, 2018 and October 31, 2017 as calculated using a Monte Carlo simulation with the following assumptions:

The fair value of the warrant liability was estimated to be approximately $2.5 million and $4.3 million, respectively, at March 5, 2018 and October 31, 2017 as calculated using the Monte Carlo simulation with the following assumptions:

~~Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.~~

~~The fair value hierarchy of financial instruments, measured at fair value on a recurring basis on the consolidated balance sheets as of July 31, 2018 is as follows (in thousands):~~

~~The fair value hierarchy of financial instruments, measured at fair value on a recurring basis on the consolidated balance sheets as of October 31, 2017 is as follows (in thousands):~~

~~The following table sets forth the changes in the estimated fair value for our Level 3 classified contingent consideration (in thousands):~~

~~The following table sets forth the changes in the estimated fair value for our Level 3 classified derivative liabilities (in thousands):~~

The carrying value of the long-term promissory note approximates fair value, due to the imputation of interest on the note to an estimated market rate of interest. The carrying amounts of accounts payable, accrued expenses, and accounts receivable approximate fair value as these accounts are largely current and short term in nature.

InFor the three ~~and nine~~ months ended ~~July~~March 31, ~~2018~~2019 and ~~2017,~~2018, the Company recorded stock-based compensation expense related to restricted stock awards and stock options as follows (in thousands):

On October 5, 2018, the Company’s Board of Directors (the “Board”) approved the Company’s 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other types of stock-based awards to the Company’s employees, officers, directors and consultants. The Compensation Committee of the Board will administer the 2019 Plan, including determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Up to 3,000,000 shares of common stock are issuable pursuant to awards under the 2019 Plan. Unless earlier terminated by the Board, the 2019 Plan shall terminate at the close of business on October 5, 2028. As of March 31, 2019, the Company had approximately 2,032,001 shares available for future issuances under the 2019 Plan.

On December 1, 2016, the Company’s Board of Directors (the “Board”) approved the Company’s 2017 Equity Incentive Plan (the “2017 Plan”). The purpose of the 2017 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees, consultants and other eligible persons. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other types of stock-based awards to the Company’s employees, officers, directors and consultants. The Compensation Committee of the Board will administer the 2017 Plan, including determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Up to 7,300,000 (increased from 3,450,000 in October 2017) shares of common stock are issuable pursuant to awards under the 2017 Plan. Unless earlier terminated by the Board, the 2017 Plan shall terminate at the close of business on December 1, 2026. As of March 31, 2019, the Company had approximately 171,767 shares available for future issuances under the 2017 Plan.

In the fiscal year ended October 31, 2015, the Company adopted the 2014 Plan, an omnibus equity incentive plan administered by the Company’s board of directors, or by one or more committees of directors appointed by the Board, pursuant to which the Company may issue up to 2,250,000 shares of the Company’s common stock under equity-linked awards to certain officers, employees, directors and consultants. The 2014 Plan permits the grant of stock options, including incentive stock options and nonqualified stock options, stock appreciation rights, restricted shares, restricted share units, cash awards, or other awards, whether at a fixed or variable price, upon the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any combination thereof. As of March 31, 2019, the Company had approximately 1,927,453 shares available for future issuances under the 2014 Plan.

A summary of the Company’s employee and non-employee stock option activity ~~in the nine~~for three months ended ~~July~~March 31, ~~2018~~2019 is presented below:

~~A summary of the Company’s non-employee stock option activity in the nine months ended July 31, 2018 is presented below:~~

Stock options are generally granted to employees or non-employees at exercise prices equal to the fair market value of the Company’s ~~common~~ stock atof the ~~dates of~~day prior to the grant. Stock options generally vest over one to three years and have a term of five to ten years. The total fair value of ~~employee~~all options granted during the ~~nine~~three months ended ~~July~~March 31, ~~2018~~2019 was approximately ~~$32.4~~$6.6 million. The intrinsic value of options outstanding at ~~July~~March 31, ~~2018~~2019 was ~~$60.1~~$18.5 million. The intrinsic value of options exercised during the ~~nine~~three months ended ~~July~~March 31, ~~2018~~2019 was ~~$583,000.~~$1.9 million. The weighted average remaining contractual term of outstanding and exercisable options at ~~July~~March 31, ~~2018~~2019 was ~~8.8~~8.6 years and ~~8.5~~8.1 years, respectively. As of July 31, 2018, there was approximately $19.6 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a remaining weighted-average vesting period of 0.6 years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions for the ~~nine~~three months ended ~~July~~March 31, ~~2018:~~2019:

The fair value of employee and non-employee stock option grants is recognized over the vesting period of, generally, one to three years. As of March 31, 2019, there was approximately $17.0 million of unrecognized compensation cost related to non-vested employee and ~~restricted~~non-employee stock ~~units~~option awards, which is expected to be recognized over a remaining weighted-average vesting period of 0.7 years.

Restricted-stock activity for employees and non-employees infor the ~~nine~~three months ended ~~July~~March 31, ~~2018:~~2019:

	Number of shares			Weighted-Average Grant-Date Fair Value		Number of shares			Weighted-Average Grant-Date Fair Value
Unvested - October 31, 2017		227,132		$	7.83
Unvested - December 31, 2018							651,110		$	23.65
Granted		308,387		$	27.48		40,000			16.43
Vested(1)		(187,488	)	$	11.53		(129,235	)		21.14
Unvested – July 31, 2018		348,031		$	23.25
Forfeited							(45,000	)		24.43
Unvested – March 31, 2019							516,875			23.98

The total fair value of restricted stock ~~and restricted stock units granted~~vested during the ~~nine~~three months ended ~~July~~March 31, ~~2018~~2019, was approximately ~~$8.5~~$2.7 million.

The ~~fair~~ value of restricted stock ~~and restricted stock unit~~ grants is measured based on the fair market value of the Company’s common stock on the date of grant and ~~amortized~~recognized over the vesting period of, generally, six months to three years. As of ~~July~~March 31, ~~2018,~~2019, there was approximately ~~$6.0~~$6.6 million of unrecognized compensation cost related to unvested restricted stock ~~and restricted stock unit~~ awards, which is expected to be recognized over a remaining weighted-average vesting period of 1.0 year.

The Company ~~calculates~~has evaluated its ~~provision for federal~~income tax positions and ~~state income taxes based on current~~determined that no material uncertain tax ~~law.~~positions existed at March 31, 2019. The ~~Tax Cuts~~Company does not expect a significant change in its unrecognized tax benefits within the next twelve months.

As of March 31, 2019 and ~~Jobs Act (tax reform) was enacted on~~ December 22, 2017 (“Enactment Date”), and has several key provisions impacting accounting for and reporting of income taxes. The most significant provision reduces the U.S. corporate statutory tax rate from 35% to 21% beginning on January 1, 2018. Although most provisions of tax reform are not effective until31, 2018, the Company ~~is required to record the effect of~~maintained a ~~change in tax law as of the Enactment Date on its deferred tax assets. As the Company maintains a full~~ valuation allowance ~~against~~to fully offset its net deferred tax assets ~~there is no~~primarily attributable to operations in the United States, as the realization of such assets was not considered more likely than not.

The Company files income tax ~~expense recorded related to this change. As of~~returns in the ~~Enactment Date, the Company estimated that its deferred tax asset~~U.S. Federal and ~~related valuation allowance were each reduced by approximately $2.2 million.~~various state and local jurisdictions.

In accordance with Staff Accounting Bulletin 118 (“SAB 118”), income tax effects of the Tax Act may be refined upon obtaining, preparing, or analyzing additional information during the measurement period and such changes could be material. During the measurement period, provisional amounts may be adjusted for the effects, if any, of interpretative guidance issued after December 31, 2017, by U.S. regulatory and standard-setting bodies. While we are able to make reasonable estimates of the impact of the reduction in corporate rate and the deemed repatriation transition tax, the final impact of the Tax Act may differ from these estimates, due to, among other things, changes in our interpretations and assumptions, additional guidance that may be issued by the I.R.S., and actions we may take. We are continuing to gather additional information to determine the final impact.

Due to the Company’s history of losses and uncertainty of future taxable income, a valuation allowance sufficient to fully offset net operating losses and other deferred tax assets has been established. The valuation allowance will be maintained until sufficient positive evidence exists to support a conclusion that a valuation allowance is not necessary. The issuance of the Series E Preferred Stock in connection with its original acquisition of the PolarityTE, Inc., a Nevada corporation in April 2017, will likely result in limitations on the utilization of the Company’s net operating loss carryforwards under IRS section 382.

~~Shares of common stock issuable under convertible preferred stock, warrants and options and~~The following outstanding potentially dilutive shares ~~subject to restricted stock grants were not included in~~have been excluded from the calculation of diluted ~~earnings~~net loss per ~~common~~ share for the ~~three and nine months ended July 31, 2018 and 2017, as the effect of~~periods presented due to their ~~inclusion would be anti-dilutive.~~anti-dilutive effect:

For periods when shares of participating preferred stock (as defined in ASC 260 earnings per share) are outstanding, the two-class method is used to calculate basic and diluted earnings (loss) per common share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Under the two-class method, basic earnings (loss) per common share is computed by dividing net earnings (loss) attributable to common shares after allocation of earnings to participating securities by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings (loss) per common share, when applicable, is computed using the more dilutive of the two-class method or the if-converted method. In periods of net loss, no effect is given to participating securities since they do not contractually participate in the losses of the Company.

~~The table below provides total potential shares outstanding, including those that are anti-dilutive, on July 31, 2018 and 2017:~~

On June 26, 2018, a class action complaint alleging violations of the Federal securities laws was filed in the United States District Court, District of Utah, by Jose Moreno against the Company and two directors of the Company, Case No. 2:18-cv-00510-JNP (the “Moreno Complaint”). On July 6, 2018, a similar complaint was filed in the same court against the same defendants by Yedid Lawi, Case No. 2:18-cv-00541-PMW (the “Lawi Complaint”). Both the Moreno Complaint and Lawi Complaint allege that the defendants made or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 10 and 20(a) of the ~~Securities~~ Exchange Act ~~of 1934~~ and Rule 10b-5 adopted thereunder. Specifically, both complaints allege that the defendants misrepresented the status of one of the Company’s patent applications while touting the unique nature of the Company’s technology and its effectiveness. Plaintiffs are seeking damages suffered by them and the class consisting of the persons who acquired the publicly-traded securities of the Company between March 31, 2017, and June 22, 2018. Plaintiffs have filed motions to consolidate and for appointment as lead plaintiff. On November 28, 2018, the Court consolidated the Moreno and Lawi cases under the caption In re PolarityTE, Inc. Securities Litigation (the “Consolidated Securities Litigation”), and requested the appointment of the plaintiff ~~which are pending, so~~in Lawi as the lead plaintiff. On January 16, 2019, the Court granted the motion of Yedid Lawi for appointment as lead plaintiff, and on February 1, 2019, the Court granted the lead plaintiff’s motion for approval of lead counsel and liaison counsel. The Court ordered that the lead plaintiff file and serve a consolidated complaint no later than 60 days after February 1, 2019, the defendants shall have ~~not~~60 days after filing and service of the consolidated complaint to answer or otherwise respond, and the lead plaintiff must file a motion for class certification within 90 days of service of the consolidated complaint. The Lead Plaintiff filed ~~any responsive pleadings to~~a consolidated complaint on April 2, 2019, and asserted essentially the same violations of Federal securities laws recited in the original complaints. The Company believes the allegations in the ~~Moreno Complaint and Lawi Complaint~~consolidated complaint are without merit, and intends to defend the litigation, vigorously. The Company expects its first response will be to file a motion to dismiss the consolidated complaint. At this early stage of the proceedings the Company is unable to make any prediction regarding the outcome of the litigation.

On February 26, 2015, a complaint for patent infringement was filed in the United States District Court for the Eastern District of Texas by Richard Baker, an individual residing in Australia, against Microsoft, Nintendo, Majesco Sub, and a number of other game publisher defendants. The complaint alleged that the Zumba Fitness Kinect game infringed plaintiff’s patents in motion tracking technology. The plaintiff is representing himself pro se in the litigation and is seeking monetary damages in the amount of $1.3 million. The case was subsequently transferred to the Western District of Washington. On June 16, 2017, final judgment was entered in favor of the defendants finding that the accused products did not literally infringe the asserted patent and that plaintiff was barred from pursing infringement under the doctrine of equivalents due to prosecution history estoppel. The plaintiff appealed that decision to the Court of Appeals for the Federal Circuit. On April 9, 2018, the Court of Appeals for the Federal Circuit affirmed the judgment of the District Court for the Western District of Washington. On May 7, 2018, the plaintiff filed a petition for panel rehearing and rehearing en banc by the Court of Appeals. The petition for rehearing was denied on June 8, 2018. The plaintiff subsequently filed a petition for a writ of certiorari with the Supreme Court of the United States. That petition was placed on the docket September 4, 2018 as No. 18-276 and is currently pending. On June 23, 2017, as part of a purchase agreement, liabilities and claims relating to this litigation were assumed by Zift. The Company cannot be certain about the outcome of the appeal, or whether litigation regarding the assumption of liabilities by Zift may occur.

In ~~addition to the items above, the Company at times may be a party to claims and suits in~~ the ordinary course of ~~business. We record a liability when it is both probable~~business, we may become involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements, regulatory compliance, and other matters. Except as noted above, at March 31, 2019, we were not party to any legal or arbitration proceedings that a liability has been incurred and the amount of the loss or range of loss can be reasonably estimated. The Company has not recorded a liability with respect to the matter above. While the Company believes that it has valid defenses with respect to the legal matter pending and intends to vigorously defend the matter above, given the uncertainty surrounding litigation and our inability to assess the likelihood of a favorable or unfavorable outcome, it is possible that the resolution of the matter couldmay have ~~a material adverse effect~~significant effects on our ~~consolidated~~ financial position ~~cash flows~~ or results of operations. We are not a party to any material proceedings in which any director, member of senior management or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.

~~The Company leases office space in Hazlet, New Jersey at a cost of approximately $1,100 per month under a lease agreement that expires on March 31, 2019.~~

The Company also leased space in Salt Lake City, Utah at a cost of approximately $24,000 per month under a lease agreement that expired on March 31, 2018. The Company will continue to lease space in Salt Lake City, Utah at a cost of approximately $12,400 per month under a lease agreement that expires on September 30, 2018. The Company will exit the property at the termination of the lease.

On December 27, 2017, the Company signed a five-year lease with one five-year option to renew on approximately 178,528 rentable square feet in Salt Lake City, Utah. The base rent for the first year of the lease is $1,178,285 and escalates at the rate of 3% per annum thereafter.

On July 11, 2018, the Company signed a two-year lease with one five-year option to renew on approximately 44,695 rentable square feet in Salt Lake City, Utah. The base rent, including building maintenance fees is $478,237 per annum. As of July 31, 2018, this lease had not commenced and is expected to commence during the fiscal quarter ending October 31, 2018.

Rent expense for the three months ended July 31, 2018 and 2017 was approximately $356,000 and $87,000, respectively. Rent expense for the nine months ended July 31, 2018 and 2017 was approximately $994,000 and $147,000, respectively.

The Company has entered into employment agreements with key executives that contain severance terms and change of control provisions.

~~The results of operations from the discontinued business for the three and nine months ended July 31, 2018 and 2017 are as follows (in thousands):~~

~~The cash flows from the discontinued business for the nine months ended July 31, 2018 and 2017 are as follows (in thousands):~~

~~The Company’s operations involve dissimilar products which are managed separately. Accordingly, it operates in two segments: 1) regenerative medicine and 2) veterinary sciences.~~

~~Certain information concerning our segments for the three and nine months ended July 31, 2018 and 2017 and as of July 31, 2018 and 2017 is presented in the following table (in thousands):~~

~~Changes~~In October 2018, the Company entered into an office lease covering approximately 7,250 square feet of rental space in ~~Board~~the building located at 40 West 57^th Street in New York City. The lease is for a term of ~~Directors~~three years. The annual lease rate is $60 per square foot. Initially the Company will occupy and ~~Officers~~pay for only 3,275 square feet of space, and the Company is not obligated under the lease to pay for the remaining 3,975 square feet covered by the lease unless we elect to occupy that additional space. Comparable annual lease rates for similar office space in the area range between $67 and $110 per square foot. The Company believes the terms of the lease are very favorable to us, and the Company obtained these favorable terms through the assistance of Peter A. Cohen, a director, which he provided so that the company he owns, Peter A. Cohen, LLC (“Cohen LLC”), could sublease a portion of the office space.

~~On August 7, 2018, Edward Swanson resigned~~Initially, the Company is using three offices and two work stations in the office and share common areas representing approximately 2,055 square feet. Cohen LLC is using approximately 1,220 square feet. The monthly lease payment for 3,275 square feet is $16,377. Of this amount $6,103 is allocated pro rata to Cohen LLC based on square footage occupied. Additional lease charges for operating expenses and taxes are allocated under the sublease based on the ratio of rent paid by the Company and Cohen LLC to total rent.

Cohen LLC identified two associated entities that may wish to occupy an additional 2,753 square feet of space in the office. Under the terms of the sublease Cohen LLC can add this additional space to the 1,220 square feet occupied, which would bring the total space occupied by us and Cohen LLC to 6,028 square feet. Because a portion of the additional space subleased to Cohen LLC is less private and attractive, the Company agreed to reduce the overall annual lease rate for the Cohen LLC space to $58.60 per square foot, which means the Company will be paying an annual lease rate for the space the Company uses of $62.70. Assuming Cohen LLC subleases the additional office space, our annual lease payment to the lessor would be $361,680, and Cohen LLC would pay to the Company $232,830 under the sublease. During the three months ended March 31, 2019, the Company recognized $51,000 of sublease income related to this agreement. As of March 31, 2019, there was $28,000 due from the ~~position of director of the Company, and~~related party under this agreement.

In August 2018 David Seaburg was elected by the Board of Directors ~~of the Company (the “Board”) elected Rainer Erdtmann~~to serve as a director of the ~~Company to fill~~Company. Subsequently the Class III director vacancy left by the resignation of Dr. Swanson. The Board determined that Mr. Erdtmann is “independent” pursuant to the definition of independence under Rule 5605(a)(2) of the Nasdaq Listing Rules. In consideration of Mr. Erdtmann’s agreement to join the Board the Company issued to Mr. Erdtmann an option to purchase 50,000 shares of the Company’s common stock exercisable over a term of 10 years and vests in 24 equal monthly installments commencing September 7, 2018, subject to continued service on the Board. The option was issued under the Company’s 2017 Equity Incentive Plan (the “Plan”), and the exercise price is $20.47 per share, which is fair value determined under the Plan. Mr. Erdtmann will also be entitled to participate in the annual compensation package the Company provides to its non-employee directors.

On August 7, 2018, pursuant to Article II, Section 1.B of the Company’s Bylaws the Board approved an increase in the number of persons comprising the Board from seven to eight by adding one new director position to Class II of the Board, and the Board elected David Seaburg a director of the Company to fill the vacancy in Class II of the Board. The Company entered into a written consulting agreement with Mr. Seaburg pursuant to which he will provide investor relations and other services to the Company over a period of two years for a fee consisting of ~~(a)~~(i) quarter-annual cash payment of $10,000, ~~(b)~~(ii) 60,000 restricted stock units issued under the ~~Plan~~Company equity incentive plan that vest in four equal installments every six months during the term of the agreement subject to continued service, and ~~(c)~~(iii) an annual award under the ~~Plan~~Company equity incentive plan of options exercisable over a term of 10 years to purchase common stock in number equal to the number of shares of common stock with a value of $150,000 at the time of the award based on a Black-Scholes calculation.

~~John Stetson~~ The agreement terminated effective March 11, 2019, when he joined the Company as President of Corporate Development. Upon termination of the consulting agreement, Mr. Seaburg was ~~an executive officer Company serving as the Chief Investment Officer. On September 7, 2018, the~~issued new awards. The new awards related to his employment ~~of John Stetson in any capacity~~were entered into concurrently with the cancellation of the original awards under his consulting agreement. The modification is accounted for by calculating the incremental value of the new award as of the modification date. The incremental value will be expensed over the new award service period while the original value will continue to be expensed over the original term. As of the date the consulting agreement terminated 15,000 restricted stock units were vested and $6,667 of cash payments were accrued. The total value of Mr. Seaburg’s consulting agreement was approximately $1.7 million, which was being recognized as expense over the 24-month consulting period. Under this consulting agreement, the Company ~~including as Chief Investment Officer, was terminated.~~recognized approximately $121,000 of expense prior to the termination of the consulting agreement during the three months ended March 31, 2019.

The Company’s current operations involve products and services which are managed separately. Accordingly, it operates in two segments: 1) regenerative medicine and 2) contract services.

There was only one segment for the three months ended March 31, 2018. Certain information concerning our segments for the three months ended March 31, 2019 is presented in the following table (in thousands):

On April 10, 2019, the Company completed an underwritten offering with Cantor Fitzgerald & Co., as underwriter, providing for the issuance and sale of 3,418,918 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $8.51 per share, for net proceeds of approximately $28.7 million, after deducting offering expenses payable by the Company.

On April 22, 2019, PolarityTE MD, Inc., a subsidiary of PolarityTE, Inc., entered into a sublease agreement with Joseph M. Still Burn Centers, Inc., for 6,307 square feet of manufacturing, laboratory, and office space located at 3647 J. Dewey Grey Circle, Augusta, Georgia (the “Facility”). The initial term of the sublease for the Facility is five years commencing April 22, 2019, and the Company has an option to renew for three years after the initial term and a second option to renew for an additional two years thereafter. The annual base rental rate during the initial term is $9,986 per month, or a total of $119,833 per year, with a 3% annual increase as determined by a third-party fair market value analysis. In addition, the Company is obligated to pay (i) maintenance, repairs, replacements, and restorations to the Facility, (ii) its own utilities, and (iii) its share of operating expenses for the building based on the ratio of space leased by the Company to the total leasable square footage of the building. The Company intends to use the Facility to establish a manufacturing node for SkinTE™, with the potential to manufacture other regenerative tissue products in the Company’s pipeline.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Statements~~The following information should be read in conjunction with the consolidated financial statements and related notes thereto included in this ~~quarterly report~~Quarterly Report on Form ~~10-Q that are not~~10-Q.

In addition to historical ~~facts constitute~~information, this report contains forward-looking statements that are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”. Examples of forward-looking statements include statements relating to industry prospects, our future economic performance including anticipated revenues and expenditures, results of operations or financial position, and other financial items, our business plans and objectives, including our intended product releases, and may include certain assumptions that underlie forward-looking statements. Risksinvolve risks and uncertainties that may ~~affect~~cause our ~~future~~actual results ~~levels~~to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the section entitled “Forward-Looking Statements” included at the beginning of ~~activity, performance or achievements expressed~~this Quarterly Report on Form 10-Q and under Part I, Item 1A. Risk Factors of our Transition Report on Form 10-K filed with the Securities and Exchange Commission on March 18, 2019. The risks and uncertainties can cause actual results to differ significantly from those in our forward-looking statements or implied ~~by these~~in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements ~~include, among other things, those discussed in this section~~made by us, which speak only as well as factors described in Part II, Item 1A-“Risk Factors”. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are subject to business and economic risk and reflect management’s current expectations and involve subjects that are inherently uncertain and difficult to predict. Actual events or results may differ materially. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of these statements. We are under no duty to update any of the ~~forward-looking statements after~~date they are made. We disclaim any obligation, except as specifically required by law and the ~~date~~rules of ~~this report~~the SEC, to ~~conform these~~publicly update or revise any such statements to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that may affect the likelihood that actual ~~results. References herein to “we,” “us,” and “the Company” are to PolarityTE, Inc. and its consolidated subsidiaries.~~results will differ from those set forth in the forward-looking statements.

~~PolarityTE, Inc. is~~We are a commercial-stage biotechnology and regenerative biomaterials company focused on transforming the lives of patients by discovering, designing and developing a range of regenerative tissue products and biomaterials for the fields of medicine, biomedical engineering and material sciences. We operate two segments; the regenerative medicine business segment and the contract research segment.

The regenerative medicine business segment over the last year has established and advanced our core “TE” program, which includes our first commercial product, SkinTE. The commercial launch of SkinTE has included the build out of commercial, manufacturing, and corporate structure to support the growth of SkinTE revenue and deployments in 2019 and beyond. This includes equipment, personnel, systems, and leased properties. Research and development continue to expand to advance the product development pipeline.

In May 2018 ~~the Company, along with its wholly owned subsidiary, Utah CRO Services, Inc.,~~we acquired assets of a Nevada corporation (“Acquisition Co.”), entered into agreements with Ibex Group, L.L.C., a Utah limited liability company, and Ibex Preclinical Research, Inc., a Utah corporation (collectively, the “Seller”) for the purchase of the assets and rights to the Seller’s preclinical research and veterinary sciences business and related real estate. The business consists of a “good laboratory practices” (GLP) compliant preclinical research facility, including vivarium, operating rooms, preparation rooms, storage facilities, and surgical and imaging equipment. The real property includes two parcels in Cache County, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property located on the real property.

~~The acquisition closed on May 3, 2018.~~estate, which we now operate through our subsidiary, Ibex Preclinical Research, Inc. The aggregate purchase price was $3.8 million, of which $2.3 million was paid at closing and the balance satisfied by a promissory note payable to the Seller with an initial fair value of ~~$1.22~~$1.2 million and contingent consideration with an initial fair value of approximately $0.3 million.

As a result, we have significant research facilities and a well-educated and skilled team of scientists and researchers that comprise the contract research segment of our business. These resources are highly beneficial to the work we are doing on our TE products and other research initiatives. We also offer research services to unrelated third parties on a contract basis, which we offer under the trademark POLARITYRD. Contract research services help us defray the costs of maintaining a first-rate research facility and allow us to meet companies pursuing new technologies that may be opportunities for collaborative or strategic relationships going forward.

Research and Development Expenses. Research and development expenses primarily represent employee related costs, including stock compensation, for research and development executives and staff, lab and office expenses and other overhead charges.

General and Administrative Expenses. General and administrative expenses primarily represent employee related costs, including stock compensation, for corporate executive and support staff, general office expenses, professional fees and various other overhead charges. Professional fees, including legal and accounting expenses, typically represent one of the largest components of our general and administrative expenses. These fees are partially attributable to our required activities as a publicly traded company, such as ~~SEC~~ filings with the Securities and Exchange Commission (SEC), and corporate- and business-development initiatives.

Income Taxes. Income taxes consist of our provisions for income taxes, as affected by our net operating loss carryforwards. Future utilization of our net operating loss, or NOL, carryforwards may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code. The annual limitation may result in the expiration of NOL carryforwards before utilization. Due to our history of losses, a valuation allowance sufficient to fully offset our NOL and other deferred tax assets has been established under current accounting pronouncements, and this valuation allowance will be maintained unless sufficient positive evidence develops to support its reversal.

Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

The preparation of ~~these condensed consolidated~~ financial statements in conformity with accounting principles generally accepted in the United States of America requires usmanagement to make estimates and ~~judgments~~assumptions that affect the reported amounts of assets and liabilities or the disclosure of gain or loss contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Among the more significant estimates included in these financial statements are the valuation of warrant liability, valuation of derivative liability, stock-based compensation, the valuation allowances for deferred tax benefits, and ~~related disclosure~~the valuation of ~~contingent~~tangible and intangible assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.included in acquisitions. Actual results could differ ~~materially~~ from ~~these estimates under different assumptions or conditions.~~those estimates.

We have identified the policies below as critical to our business operations and to the understanding of our financial results. The impact and any associated risks related to these policies on our business operations is discussed throughout management’s discussion and analysis of financial condition and results of operations when such policies affect our reported and expected financial results.

~~Accounting~~Goodwill and Intangible Assets.Goodwill represents the excess acquisition cost over the fair value of net tangible and intangible assets acquired. Goodwill is not amortized and is subject to annual impairment testing or between annual tests if an event or change in circumstance occurs that would more likely than not reduce the fair value of a reporting unit below its carrying value. In testing for ~~Stock-Based Compensation.~~ ~~Stock-based compensation expense~~goodwill impairment, the Company has the option to first assess qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is ~~measured~~more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, the Company concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is not required. If the Company concludes otherwise, the first step of the two-step process must be performed. The goodwill impairment test is performed at the ~~grant~~reporting unit level by comparing the estimated fair value of a reporting unit with its respective carrying value. If the estimated fair value exceeds the carrying value, goodwill at the reporting unit level is not impaired and the second step of the impairment test in unnecessary. If the estimated fair value is less than carrying value, the second step of the impairment test must be performed. The second step of the goodwill impairment test would be to record an impairment charge, if any, based on the excess of a reporting unit’s carrying amount over its fair value.

The fair value of reporting units is based on widely accepted valuation techniques that the Company believes market participants would use, although the valuation process requires significant judgment and often involves the use of significant estimates and assumptions. The Company utilizes a market cap approach in estimating the fair value of reporting units. The estimates and assumptions used in determining fair value could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge. Adverse market or economic events could result in impairment charges in future periods.

Intangible assets deemed to have finite lives are amortized on a straight-line basis over their estimated useful lives, which generally range from one to eleven years. The useful life is the period over which the asset is expected to contribute directly, or indirectly, to its future cash flows. Intangible assets are reviewed for impairment when certain events or circumstances exist. For amortizable intangible assets, impairment exists when the undiscounted cash flows exceed its carrying value. At least annually, the remaining useful life is evaluated.

Impairment of Long-Lived Assets.The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. No impairment loss has been recognized.

Income Taxes. The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company evaluates the potential for realization of deferred tax assets at each quarterly balance sheet date and records a valuation allowance for assets for which realization is not more likely than not.

Stock Based Compensation. The Company measures all stock-based compensation using a fair value method and records such expense in research and development, general and administrative and sales and marketing expenses. Compensation expense for stock options with cliff vesting is recognized on a straight-line basis over the vesting period of the award, based on the fair value of the ~~award and is recognized as~~option on the date of grant. For stock options with graded vesting, the Company recognizes compensation expense over the service period for each separately vesting ~~period. Determining~~tranche of the award as though the award were in substance, multiple awards.

The value of restricted stock grants is measured based on the fair market value of ~~stock-based awards~~the Company’s common stock on the date of grant and amortized over the vesting period of, generally, six months to three years.

Revenue Recognition. In the regenerative medicine products segment, the Company records product revenues primarily from the sale of its regenerative tissue products. The Company sells its products to healthcare providers, primarily through direct sales representatives. Product revenues consist of a single performance obligation that the Company satisfies at a point in time. In general, the ~~grant~~Company recognizes product revenue upon delivery to the customer. In the contract services segment, the Company earns service revenues from the provision of contract research services, which includes delivery of preclinical studies and other research services to unrelated third parties. Service revenues generally consist of a single performance obligation that the Company satisfies over time using an input method based on costs incurred to date ~~requires judgment, including, in~~relative to the ~~case of stock option awards, estimating~~total costs expected ~~stock volatility.~~to be required to satisfy the performance obligation.

~~Accounting~~Leases.On January 1, 2019 the Company adopted ASU 2016-02,Leases (ASC 842) and related amendments, which require lease assets and liabilities to be recorded on the balance sheet for ~~Common and Preferred Stock and Warrant transactions.~~ ~~We issued units consisting~~leases with terms greater than twelve months. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of ~~preferred shares and warrants and common stock and warrants and subsequently remeasured certain of those warrants. Determining~~whether or not the ~~fair value~~lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the ~~securities~~lease, respectively. The standard was adopted using the modified retrospective transition approach by applying the new standard to all leases existing at the date of the initial application and not restating comparative periods. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. See Note 2 – Summary of Significant Accounting Policies and Note 7 – Leases in ~~these transactions requires significant judgment, including adjustments~~the notes to ~~quoted share prices and expected stock volatility. Such estimates may significantly impact our results~~the condensed consolidated financial statements included in Part I, Item 1, of ~~operations and losses applicable to common stockholders.~~this Quarterly Report on Form 10-Q for additional information regarding the adoption.

Three months ended ~~July~~March 31, ~~2018~~2019 versus three months ended ~~July~~March 31, ~~2017~~2018

Net ~~Revenues.~~Revenues. For the three-month period ended ~~July~~March 31, ~~2018,~~2019, total net revenues were $1.465 million including net revenues from ~~product~~products sales ~~were $0.4 million, which represents approximately $0.2~~of $0.3 million from the sale of the Company’s core product SkinTE ~~and approximately $0.2~~in the regenerative medicine business segment. Regenerative medicine revenues for the three-month period ended March 31, 2018 were $0.003 million. Net revenues from services sales were $1.168 million from the contract research segment operations driven primarily by the Ibex preclinical research business, which was acquired in ~~Veterinary Sciences.~~the second quarter of 2018 and, therefore, not a contributor to revenue in the first quarter of 2018.

Cost of ~~Sales.~~Sales. For the three-month period ended ~~July~~March 31, ~~2018,~~2019, cost of sales was approximately ~~$0.2 million and approximately 55% of net revenues.~~

~~Research and Development Expenses.~~ For the three-month period ended July 31, 2018, research and development expenses were approximately $2.3 million, mostly consisting of stock-based compensation of approximately $1.2 million, salaries of approximately $0.5 million and depreciation of approximately $0.3 million. For the three-month period ended July 31, 2017, research and development expenses were approximately $1.6 million and mostly consisted of salaries of approximately $0.5 million, stock-based compensation of approximately of $0.5 million, travel relates expenses of approximately $0.3 million and depreciation of approximately $0.1 million.

~~General and Administrative Expenses.~~ For the three-month period ended July 31, 2018, general and administrative expenses were approximately $15.2 million compared to $3.6 million for the three months ended July 31, 2017. The increase is primarily due to an increase of approximately $6.3 million in stock-based compensation, $0.6 million in legal and accounting and $0.6 million in consulting expenses.

~~Other (Expenses) Income.~~ For the three-month period ended July 31, 2018, other (expenses) income mainly included an interest income of approximately $0.1 million. For the three-month period ended July 31, 2017, other (expenses) income was insignificant.

~~Net Loss from continuing operations.~~ Net loss from continuing operations for the three months ended July 31, 2018 was approximately $17.2 million, compared to a loss of approximately $5.3 million in the comparable period in 2017, primarily reflecting the increase in stock-based compensation and other product research and development and general and administrative expenses.

~~Nine months ended July 31, 2018 versus nine months ended July 31, 2017~~

~~Net Revenues.~~ For the nine-month period ended July 31, 2018, net revenues from product sales were $0.4 million, which represents approximately $0.2 million from the sale of the Company’s core product SkinTE and approximately $0.2 million from contract research operations in Veterinary Sciences.

~~Cost of Sales.~~ ~~For the nine-month period ended July 31, 2018, cost of sales was approximately $0.2~~$0.776 million and approximately 53% of net revenues. Products cost of sales were $0.273 million or 92% of products sales due to fixed overhead costs. Services cost of sales were $0.503 million or 43% of service sales. Regenerative medicine cost of sales for the three-month period ended March 31, 2018 were $0.001 million.

Research and Development ~~Expenses.~~ ~~For the nine-month period ended July 31, 2018, research and development expenses were approximately $14.6 million.~~Expenses. Research and development expenses mostly consist of stock-based compensation of approximately $4.9 million, salaries of approximately $4.1 million, medical studies of approximately $0.5 million, bonuses of approximately $0.5 million, medical samples of approximately $0.5 million, depreciation of approximately $0.9 million, rent of approximately $0.7 million, office expense of approximately $0.5 million, business meals and transportation of approximately $0.3 million, consulting of approximatelydecreased $0.2 million, ~~and health insurance of approximately $0.2 million. For~~or 4%, in the ~~nine-month~~three-month period ended ~~July~~March 31, ~~2017,~~2019, compared to the three-month period ended March 31, 2018. The decrease is primarily driven by a shift in mix between commercial and operational infrastructure build out in the current period as well as research and development expenses were approximately $3.4 million and mostly consist of salaries of approximately $1.3 million, stock-based compensation of approximately of $0.6 million, travel relates expenses of approximately $0.5 million and depreciation of approximately $0.3 million.costs in the prior period.

General and Administrative ~~Expenses.~~Expenses. General and administrative expenses increased $9.6 million, or 127%, in the three-month period ended March 31, 2019 compared to the three-month period ended March 31, 2018. The Company expanded its infrastructure to support the commercial launch of SkinTE. The resulting increase in expenses is driven primarily by employee-related costs, including stock-based compensation, salaries, and benefits, and increased outside services expense, including legal and accounting fees and consulting expenses.

Sales and Marketing Expenses. For the three-month period ended March 31, 2019, sales and marketing expenses were $4.0 million. This represents sales personnel and marketing costs primarily driven by the initial regional release of SkinTE. There were no sales personnel and marketing costs during the three-month period ended March 31, 2018.

Other Income (Expenses). For the ~~nine-month~~three-month period ended ~~July~~March 31, ~~2018, general and administrative expenses were approximately $32.1~~2019, other income (expenses) decreased $1.1 million or 83% compared to ~~$12.8 million for~~ the nine months ended July 31, 2017. The increase is primarily due to an increase of $12.7 million in stock-based compensation, $1.1 million in legal and accounting and $1.0 million in consulting expenses.

~~Other (Expenses) Income.~~ ~~For the nine-month~~three-month period ended ~~July~~March 31, ~~2018, other (expenses) income mainly included~~2018. This decrease was primarily driven by a change in the fair value of derivatives of ~~approximately a $3.8~~$1.9 million ~~gain and a~~recorded, offset by loss on extinguishment of warrant liability of ~~approximately~~ $0.5 ~~million. For~~million in the ~~nine-month~~three months ended March 31, 2018. There were no warrants outstanding for the three-month period ended ~~July~~March 31, ~~2017, other (expenses) income was insignificant.~~2019.

Net loss ~~from continuing operations.~~. Net loss ~~from continuing operations~~ for the ~~nine months~~three-month period ended ~~July~~March 31, ~~2018~~2019 was approximately ~~$43.0~~$25.6 million compared to a net loss of approximately ~~$120.9~~$11.8 million infor the ~~comparable~~three-month period ~~in 2017,~~ended March 31, 2018, primarily reflecting the ~~decrease of $104.7 million in research and development - intellectual property acquired expenses offset by the~~ increase in ~~stock-based compensation.~~sales and operating expenses driven by expanding operations discussed above.

As of ~~July~~March 31, ~~2018,~~2019, our cash, ~~and~~ cash equivalents and short-term investments balance was approximately ~~$84.8~~$44.7 million and our working capital was approximately ~~$81.5~~$39.1 million, compared to cash and cash equivalents and short term investments of ~~$17.7~~$61.8 million and working capital of ~~$2.5~~$56.8 million at ~~October~~December 31, ~~2017.~~2018.

As reflected in the condensed consolidated financial statements, we had an accumulated deficit of approximately ~~$302.0~~$368.4 million at ~~July~~March 31, ~~2018, a net loss of approximately $43.0 million~~2019, and approximately ~~$17.0~~$16.6 million net cash used in ~~continuing~~ operating activities for the ~~nine months~~three-month period then ended. At December 31, 2018, we had an accumulated deficit of approximately $342.9 million and approximately $3.9 million net cash used in operating activities for the three-months ended ~~July~~March 31, 2018.

On April 12, 2018, we completed a public offering ~~providing for the issuance and sale~~ of 2,335,937 shares of our common stock ~~par value $0.001 per shares~~ at an offering price of $16.00 per share, ~~for~~resulting in net proceeds of $34.6 million, after deducting offering ~~expenses payable by us.~~

expenses. On June 7, 2018, we completed an underwritten offering of 2,455,882 shares of our common stock at an offering price of $23.65 per share, resulting in net proceeds of approximately $58.0 million, after deducting offering expenses. On April 10, 2019, the Company completed an underwritten offering with Cantor Fitzgerald & Co., as underwriter, providing for the issuance and sale of ~~2,455,882~~3,418,918 shares of ~~our~~the Company’s common stock, par value $0.001 per share, at an offering price of ~~$23.65~~$8.51 per share, for net proceeds of approximately ~~$58.0~~$28.7 million, after deducting offering expenses payable by ~~us.~~the Company.

Based upon the current status of our product development and commercialization plans, we believe that our existing cash, ~~and~~ cash equivalents and short-term investments will be adequate to satisfy our capital needs for at least the next 12 months from the date of filing. ~~We anticipate needing substantial~~Nevertheless, it is likely in the future we may need additional financing to continue clinical deployment and commercialization of our ~~lead product SkinTE,~~TE products, development of our other product candidates, and scaling the manufacturing capacity for our products and product ~~candidates, and prepare for commercial readiness. We~~candidates. Accordingly, we will continue to pursue fundraising opportunities when available, however, such financing may not be available on terms favorable to us, if at all. If adequate funds are not available in the future, we may be required to delay, reduce the scope of, or eliminate one or more of our ~~product~~operational or development programs. We plan to meet our future capital requirements primarily through issuances of equity securities, debt financing, revenue from product sales and future collaborations. Failure to generate revenue or raise additional capital as needed in the future would adversely affect our ability to achieve our ~~intended~~ business objectives.

Our actual capital requirements will depend on many factors, including among other things: our ability to scale the manufacturing for and to commercialize successfully our lead product, SkinTE; the progress and success of clinical evaluation and acceptance of SkinTE; our ability to develop our other product candidates; and the costs and timing of obtaining any required regulatory registrations or approvals. Our ~~forecast of~~statements regarding the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. The foregoing factors, along with the other factors described in ~~the section,~~Part I, Item ~~1A, “Risk Factors” in Part II~~1A. Risk Factors of ~~this Report on Form 10-Q as well as~~ our ~~risk factors set forth in our Annual~~Transition Report on Form 10-K ~~for~~filed with the ~~year ended October 31, 2017,~~SEC on March 18, 2019 will impact our future capital requirements and the adequacy of our available funds. If we are required to raise additional funds, any additional equity financing may be highly dilutive, or otherwise disadvantageous, to existing stockholders, and debt financing, if available, may involve restrictive covenants. ~~Collaborative~~If we elect to pursue collaborative arrangements, ~~if necessary to raise additional funds,~~the terms of such arrangements may require us to relinquish rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed, and on acceptable terms, would require us to reduce our operating expenses and would limit our ability to respond to competitive pressures or unanticipated requirements to develop our product candidates and to continue operations, any of which would have a material adverse effect on our business, financial condition and results of operation.

As previously reported, we identified a material weakness in the effectiveness of our internal controls over financial reporting, a factor that could affect our liquidity and capital resources. At present, management believes that the recent improvement of the processes for granting equity awards to certain employees and service providers will ultimately correct the material weakness.

During the nine months ended July 31, 2018, certain employees exercised their options at a weighted-average exercise price of $3.87 in exchange for the Company’s common stock for an aggregated amount of 30,417 shares.

As of ~~July~~March 31, ~~2018,~~2019, we had no off-balance sheet arrangements.

Our management currently believes that inflation has not had, and does not currently have, a material impact on continuing operations.

Cash, ~~and~~ cash equivalents and ~~working capital~~short-term investments were approximately ~~$84.8~~$44.7 million ~~and $81.5 million, respectively,~~ as of ~~July~~March 31, ~~2018~~2019, compared to cash and cash equivalents and short term investments of approximately $61.8 million as of December 31, 2018. Working capital was approximately $39.1 million as of March 31, 2019, compared to working capital of approximately ~~$17.7~~$56.8 million ~~and $2.5 million at October~~as of December 31, ~~2017, respectively.~~2018.

Cash used in ~~continuing~~ operating activities ~~in the nine months ended July 31, 2018 amounted to approximately $17.0 million compared to approximately $4.7 million~~ for the ~~2017 period.~~three-month period ended March 31, 2019, was approximately $16.6 million. Approximately $3.9 million of cash was used in operating activities for the three-month period ended March 31, 2018. The increase in net cash used in ~~continuing~~ operating activities mostly relates to the ~~increases in both research~~expansion of infrastructure and ~~development~~sales and ~~general and administrative expenses.~~marketing expenses related to the commercial launch of SkinTE.

Cash used in ~~discontinued operating~~investing activities ~~in the nine months ended July 31, 2018 amounted to $0 compared to approximately $33,000~~ for the ~~same~~three-month period ~~in 2017.~~

~~Investing Cash Flows.~~ended March 31, 2019, was approximately $5.1 million. Cash used in ~~continuing~~ investing activities infor the ~~nine months~~three-month period ended ~~July~~March 31, 2018 amounted to approximately ~~$8.7 million compared to $2.3 million for the 2017 period.~~$3.0 million. For the ~~nine months~~three-month period ended ~~July~~March 31, ~~2018,~~2019, the activity relates to the ~~acquisition~~net purchase of ~~IBEX~~available-for-sale securities and the purchase of property and equipment. For the ~~nine months~~three-month period ended ~~July~~March 31, ~~2017,~~2018, the activity ~~only~~ relates to the purchase of property and equipment.

Net cash provided by financing activities for the ~~nine months~~three-month period ended ~~July~~March 31, ~~2018 amounted to~~2019, was approximately ~~$92.8 million compared to approximately $3.4 million~~$0.9 million. There was no cash provided by or used in financing activities for the ~~2017 period. The $92.7 million in net~~three-month period ended March 31, 2018. For the three-month period ended March 31, 2019, the activity relates to proceeds from ~~the sale of common~~ stock ~~in the nine months ended July 31, 2018, accounts for the majority of that period’s financing activity~~options exercised offset by principal payments on finance leases and ~~accounts for the majority of the increase in net cash proved by financing activities as compared to the comparable prior year period.~~contingent consideration liability payments.

Refer to our discussion of recent accounting pronouncements in Note 2 - Summary of Significant Accounting Policies to the accompanying condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, ~~has~~ evaluated the effectiveness of our disclosure controls and procedures ~~as defined in the Securities Exchange Act of 1934 Rule 13a-15(e) and 15d-15(e),~~ as of the end of the period covered by this report. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

A material weakness is a deficiency, or a combination of deficiencies, within the meaning of Public Company Accounting Oversight Board (“PCOAB”) Audit Standard No. 5, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.

Under the caption “Item 4. Controls and Procedures” of our report on Form 10-Q for the quarter ended January 31, 2018, filed with the Securities and Exchange Commission on March 19, 2018, we reported a material weakness in our internal control over financial reporting. Specifically, due to a lack of processes in place to address personnel changes, controls over the Company’s process of accounting for stock-based compensation failed to ensure the completeness of stock options and restricted stock grants in the Company’s calculation of stock-based compensation expense. In addition, due to a lack of adequate review and reconciliation control procedures, the Company’s internal control over financial reporting failed to prevent adjustments to the Company’s financial statements in the quarter ended January 31, 2018, with respect to certain costs not material in amount that we expensed, which should have been capitalized and classified as fixed assets.

During the quarter ended January 31, 2018, we started the process to mitigate the material weakness in our process of accounting for stock-based compensation, and we expect it to be remediated during fiscal year 2018. At the end of April 2018, we engaged the services of a third party accounting advisory firm to provide assistance in developing more effective processes and controls in recording and classifying expenditures, and reviewing and making appropriate period-end adjustments.

Based on the evaluation of the effectiveness of our disclosure controls and procedures ~~and the material weaknesses identified above that have not yet been remediated,~~as of March 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, were not effective due to the material weaknesses in our internal control over financial reporting identified below. To address the material weaknesses, management performed additional analyses and other procedures to determine whether the financial statements included herein fairly present our financial results. Subject to the limitations above, management believes that the consolidated financial statements and other financial information contained in this report, fairly present in all material respects our financial condition, results of operations, and cash flows for the periods presented.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed 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 in the United States of America, or GAAP. Our management does not expect that our disclosure controls and procedures ~~(as defined~~or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in ~~Exchange Act Rules 13a-15(e)~~all control systems, no evaluation of controls can provide absolute assurance that all control issues and ~~15d-15(e)) were not effective at~~instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a ~~reasonable assurance level at July~~simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

On January 1, 2019, the Company adopted Accounting Standards Codification Topic 842, Leases, and implemented appropriate changes to its internal controls to support the changes in required reporting, including updated procedures related to lease accounting and contract review controls and added documentation processes related to accounting for the new standard.

There have been no other changes in the Company’s internal control over financial reporting during the quarter ended March 31, ~~2018.~~2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Two material weaknesses previously identified as of December 31, 2018, continued to exist as of March 31, 2019, which include (1) insufficient internal controls related to information technology general controls in the areas of user access and user provisioning, over certain systems that support the financial reporting process; and (2) ineffective controls related to the documentation and completeness of the Company’s stock-based compensation expense.

AtWe have taken several steps to remediate the ~~end of April 2018,~~material weaknesses identified above. These steps include the following:

As we ~~obtained from a third-party accounting advisory firm assistance in developing more effective processes~~continue to evaluate and controls in recording and classifying expenditures, and reviewing and making appropriate period-end adjustments. In addition, we implemented a phased approach of a company-wide enterprise resource planning system during the quarter ended July 31, 2018,work to ~~further enhance~~improve our internal control ~~environment. To effectuate these systems we added three~~over financial reporting, management may determine to take additional ~~people~~measures to ~~our accounting staff beginning in April 2018.We~~address the material weaknesses or determine to modify the remediation plan described above. Until the remediation steps set forth above are fully implemented and operating for a sufficient period of time, the material weakness described above will continue to ~~monitor the impact of this implementation on our processes as well as the impact to the internal controls over financial reporting.~~exist.

There have been no material changes to legal proceedings for the period ended March 31, 2019 except as noted below.

On June 26, 2018, a class action complaint alleging violations of the Federal securities laws was filed in the United States District Court, District of Utah, by Jose Moreno against the Company and two directors of the Company, Case No. 2:18-cv-00510-JNP (the “Moreno Complaint”). On July 6, 2018, a similar complaint was filed in the same court against the same defendants by Yedid Lawi, Case No. 2:18-cv-00541-PMW (the “Lawi Complaint”). Both the Moreno Complaint and Lawi Complaint allege that the defendants made or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 10 and 20(a) of the ~~Securities~~ Exchange Act ~~of 1934~~ and Rule 10b-5 adopted thereunder. Specifically, both complaints allege that the defendants misrepresented the status of one of the Company’s patent applications while touting the unique nature of the Company’s technology and its effectiveness. Plaintiffs are seeking damages suffered by them and the class consisting of the persons who acquired the publicly-traded securities of the Company between March 31, 2017, and June 22, 2018. Plaintiffs have filed motions to consolidate and for appointment as lead plaintiff. On November 28, 2018, the Court consolidated theMoreno andLawi cases under the captionIn re PolarityTE, Inc. Securities Litigation(the “Consolidated Securities Litigation”), and requested the appointment of the plaintiff ~~which are pending, so~~inLawi as the lead plaintiff. On January 16, 2019, the Court granted the motion of Yedid Lawi for appointment as lead plaintiff, and on February 1, 2019, the Court granted the lead plaintiff’s motion for approval of lead counsel and liaison counsel. The Court ordered that the lead plaintiff file and serve a consolidated complaint no later than 60 days after February 1, 2019, the defendants shall have ~~not~~60 days after filing and service of the consolidated complaint to answer or otherwise respond, and the lead plaintiff must file a motion for class certification within 90 days of service of the consolidated complaint. The Lead Plaintiff filed ~~any responsive pleadings to~~a consolidated complaint on Aril 2, 2019, and asserted essentially the same violations of Federal securities laws recited in the original complaints. The Company believes the allegations in the ~~Moreno Complaint and Lawi Complaint~~consolidated complaint are without merit, and intends to defend the litigation, vigorously. The Company expects its first response will be to file a motion to dismiss the consolidated complaint. At this early stage of the proceedings the Company is unable to make any prediction regarding the outcome of the litigation.

The Company at times may be a party to claims and suits in the ordinary course of business. We record a liability when it is both probable that a liability has been incurred and the amount of the loss or range of loss can be reasonably estimated. The Company has not recorded a liability with respect to the matters above. Given the uncertainty surrounding litigation and our inability to assess the likelihood of a favorable or unfavorable outcome, it is possible that the resolution of either or both matters could have a material adverse effect on our consolidated financial position, cash flows or results of operations.

The following updates certain risk factors set forth in our Annual Report on Form 10-K, for the year ended October 31, 2017, as amended and restated in our Quarterly Reports on Form 10-Q for the period ended January 31, 2018, filed with the Securities and Exchange Commission (SEC) on March 19, 2018, and for the period ended April 30, 2018, filed with the SEC on June 14, 2018, and should be read in conjunction with the risk factors presented in those reports under the caption “Risk Factors.”

~~We have a history of operating losses and may never achieve or sustain profitability.~~

We have to date incurred, and may continue to incur, significant operating losses over the next several years. We have incurred significant net losses in each year since our inceptions, and have a net loss of $130.8 million for the year ended October 31, 2017, and $43.0 million for the nine months ended July 31, 2018. Our ability to achieve profitable operations in the future will depend in large part upon the successful development and commercialization of our product candidates and technologies. Factors impacting our ability to successfully develop and commercialize our product candidates include:

The likelihood of the long-term success of our company must be considered in light of the expenses, difficulties and delays frequently encountered in the development and commercialization of new and innovative medical techniques and technologies, unknown and uncertain regulatory hurdles for a new and novel technology or technique, competitive factors and competition, as well as the uncertain nature of new business development and ongoing capital requirements.

~~If we are not able to integrate acquisitions successfully, our operating results and prospects could be harmed.~~

In May 2018, we acquired from the Ibex Group, L.L.C., and Ibex Preclinical Research, Inc., certain assets and rights to their preclinical research and veterinary sciences business and related real estate. We will continue to look for opportunities to acquire technologies or operations that we believe will contribute to our growth and development. The success of our present and future acquisitions will depend on our ability to identify, negotiate, complete and integrate acquisitions. Acquisitions are inherently risky, and any acquisitions we complete may not be successful. Any acquisitions we pursue would involve numerous risks, including the following:

Unanticipated events and circumstances may occur in future periods which may affect the realizability of our intangibles assets recognized through acquisitions. The events and circumstances that we consider include significant under-performance relative to projected future operating results and significant changes in our overall business and/or product strategies. These events and circumstances may cause us to revise our estimates and assumptions used in analyzing the value of our other intangible assets with indefinite lives, the revision could result in a non-cash impairment charge that could have a material impact on our financial results.

If we fail to maintain proper and effective internal control over financial reporting in the future, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results.

We identified certain material weaknesses in our internal control over financial reporting that were reported in our quarterly report on Form 10-Q for the quarter ended January 31, 2018. Specifically, due to a lack of processes in place to address personnel changes, controls over our process of accounting for stock-based compensation failed to ensure the completeness of stock options and restricted stock grants in our calculation of stock-based compensation expense. In addition, due to a lack of adequate review and reconciliation control procedures, our internal control over financial reporting failed to prevent adjustments to our financial statements in the quarter ended January 31, 2018, with respect to certain costs not material in amount that we expensed, which should have been capitalized and classified as fixed assets. We have taken steps to remediate these material weaknesses and we expect them to be remediated during fiscal year 2018. At the end of April 2018, we obtained from a third-party accounting advisory firm assistance in developing more effective processes and controls in recording and classifying expenditures, and reviewing and making appropriate period-end adjustments. In addition, we implemented a phased approach of a company-wide enterprise resource planning system during the quarter ended July 31, 2018, and added three additional people to our accounting staff to further enhance our internal control environment. Nevertheless, by the end of the current fiscal year these changes may not be in operation long enough for us to adequately test and evaluate whether the processes and controls we have added are effective period over period. If our remedial measures prove to be insufficient to address the material weakness, or if we otherwise fail to establish and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results, timely file our periodic reports, maintain our reporting status or prevent fraud, any of which could adversely affect our business and operating results, investor confidence in our reported financial information, and the trading price of our common stock.

~~As of October 31, 2018, we will be an “accelerated filer” and are therefore subject to the auditor attestation requirement in the assessment of our internal control over financial reporting.~~

Because the worldwide market value of our common stock held by non-affiliates exceeded $75 million (but was less than $700 million), as of the last business day of our fiscal quarter ended April 30, 2018, we are an “accelerated filer” as defined by SEC rule as of October 31, 2018. Therefore, we are now subject to the requirement that we include in our annual report on Form 10-K for the fiscal year ending October 31, 2018, the auditor’s attestation report on its assessment of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We identified certain material weaknesses in our internal control over financial reporting that were reported in our quarterly report on Form 10-Q for the quarter ended January 31, 2018, and are described in the preceding risk factor. If we do not have a sufficient history for us and our independent registered public accounting firm to test and evaluate our new processes and controls, we may be unable to obtain an unqualified attestation report from our independent registered public accounting firm required under Section 404 of the Sarbanes-Oxley Act. If our independent registered public accounting firm is not able to render an unqualified attestation, it could result in lost investor confidence in the accuracy, reliability, and completeness of our financial reports. We expect that our status as an accelerated filer and compliance with these increased requirements will require management to expend additional time while also condensing the time frame available to comply with certain requirements, which may further increase our legal and financial compliance costs.

~~Our October 31, 2017 financial statements were prepared on a going concern basis.~~

In its report dated January 29, 2018, related to our October 31, 2017 consolidated financial statements, EisnerAmper LLP, our independent registered public accounting firm, expressed substantial doubt about our ability to continue as a going concern as we had suffered recurring losses from operations and had insufficient liquidity to fund our future operations.

On June 7, 2018, the Company completed an underwritten offering with Cantor Fitzgerald & Co., as underwriter, providing for the issuance and sale of 2,455,882 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $23.65 per share, for net proceeds of approximately $58.0 million, after deducting offering expenses payable by the Company. As a result, as of July 31, 2018, we had $84.8 million in cash. We anticipate that our principal sources of liquidity will be sufficient to fund our activities through for at least the next 12 months from the date of filing.

Nevertheless, we anticipate we will need additional cash in order to have sufficient cash to fund our operations in future periods, and we will need to continue to raise additional equity or debt capital and we cannot provide any assurance that we will be successful in doing so.

~~We may not be able to raise the required capital to conduct our operations and develop and commercialize our product candidates.~~

We incurred net losses of $130.8 million in fiscal 2017, and additional net losses of $43.0 for the nine months ended July 31, 2018. We will require substantial additional capital resources in order to complete our product development programs, complete clinical trials, and market and commercialize our product candidates. In order to grow and expand our business, and to introduce our new product candidates into the marketplace, we will need to raise a significant amount of additional funds. We will also need significant additional funds or a collaborative partner, or both, to finance the research and development activities. Accordingly, we are continuing to pursue additional sources of financing.

~~Our future capital requirements will depend on numerous factors, including:~~

We expect to devote substantial capital resources to, among other things, fund operations, continue development programs, and to build out and increase our portfolio of product candidates. If we are unable to secure such additional financing, it will have a material adverse effect on our business and we may have to limit operations in a manner inconsistent with our development and commercialization plans. If additional funds are raised through the issuance of equity securities or convertible debt securities, it will be dilutive to our stockholders and could result in a decrease in our stock price.

We have funded our operations primarily with proceeds from public and private offerings of our common stock. Our history of operating losses and cash uses, our projections of the level of cash that will be required for our operations to reach profitability, and the restricted availability of credit for emerging industries, may impair our ability to raise capital on terms that we consider reasonable and at the levels that we will require over the coming months. We cannot provide any assurances that we will be able to secure additional funding from public or private offerings on terms acceptable to us, if at all. If we are unable to obtain the requisite amount of financing needed to fund our planned operations, it would have a material adverse effect on our business and ability to continue as a going concern.

If adequate funds are not available in the future, we may not be able to develop or enhance our product candidates, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements and we may be required to delay or terminate research and development programs, curtail capital expenditures, and reduce business development and other operating activities. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could have a material adverse effect on our business, operating results, financial condition and prospects.

During the fiscal quarter ended July 31, 2018, we issued to eight employees options to purchase 125,500 shares of common stock at a weighted-average exercise price of $20.60 per share. We also issued to one of those employees a restricted share award for 10,000 shares of common stock with a fair market value on the date of grant equal to $22.53. The options and restricted share award were issued in reliance on the exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended.

~~Our trading symbol on the Nasdaq Stock Market is scheduled to change from “COOL” to “PTE” on September 17, 2018.~~

Except as otherwise noted, the following exhibits are included in this filing:

~~(1) These documents were filed as exhibits to the current report on Form 8-K filed by the Company with the SEC on May 8, 2018, and are incorporated herein by this reference.~~

Pursuant to the requirements 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.

DELAWARE		06-1529524
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

Large accelerated filer	[ ]	Accelerated filer	[ ]X]
Non-accelerated filer	[ ]	Smaller reporting company	[X]
Emerging growth company	[ ]

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, Par Value $0.001		PTE		Nasdaq Capital Market

		Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of ~~July~~March 31, ~~2018~~2019 (unaudited) and ~~October~~December 31, ~~2017~~2018		34
Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~July~~March 31, ~~2018~~2019 and ~~2017~~2018 (unaudited)		45
Condensed Consolidated ~~Statement~~Statements of ~~Changes in~~Comprehensive Lossfor the three months ended March 31, 2019 and 2018 (unaudited)	6
Condensed Consolidated Statements of Stockholders’ Equity for the ~~nine~~three months ended ~~July~~March 31, 2019 and 2018 (unaudited)		57
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~July~~March 31, ~~2018~~2019 and ~~2017~~2018 (unaudited)		68
Notes to Condensed Consolidated Financial Statements (unaudited)		79
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2329
Item 3. Quantitative and Qualitative Disclosures about Market Risk		2634
Item 4. Controls and Procedures		2634

PART II - OTHER INFORMATION

Item 1. Legal Proceedings		27
~~Item 1A. Risk Factors~~		28
~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~		30
~~Item 3. Defaults Upon Senior Securities~~		30
~~Item 4. Mine Safety Disclosures~~		30
~~Item 5. Other Information~~		3035
Item 6. Exhibits		3135
SIGNATURES		3236

	●	the initiation, timing, progress, and results of our research and development programs;

	●	the timing or success of commercialization of our products;

	●	the pricing and reimbursement of our products;

	●	the initiation, timing, progress, and results of our preclinical and clinical studies;

	●	the scope of protection we can establish and maintain for intellectual property rights covering our product candidates and technology;

	●	estimates of our expenses, future revenues, and capital requirements;

	●	our need for, and ability to obtain, additional financing in the future;

	●	our ability to comply with regulations applicable to the manufacture, marketing, sale and distribution of our products;

	●	the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

	●	our views about our prospects in ongoing litigation and SEC investigation;
	●	developments relating to our competitors and industry; and

	●	other risks and uncertainties, including those listed under Part I, Item 1A. Risk Factors of our Transition Report on Form 10-K filed with the Securities and Exchange Commission on March 18, 2019.

	For the three months ended						For the nine months ended
	July 31,						July 31,
	2018			2017			2018			2017
Net revenues	$	416		$	-		$	432		$	-
Cost of sales		229			-			231			-
Gross profit		187			-			201			-
Operating costs and expenses
Product research and development		2,339			1,641			14,563			3,424
Research and development - intellectual property acquired		-			-			-			104,693
General and administrative		15,239			3,629			32,074			12,757
		17,578			5,270			46,637			120,874
Operating loss		(17,391	)		(5,270	)		(46,436	)		(120,874	)

Other (expenses) income
Interest income		146			3			189			10
Change in fair value of derivatives		-			-			3,814			(8	)
Loss on extinguishment of warrant liability		-			-			(520	)		-
Net loss from continuing operations		(17,245	)		(5,267	)		(42,953	)		(120,872	)
Gain (loss) from discontinued operations		-			(33	)		-			(449	)
Gain on sale of discontinued operations		-			100			-			100
Gain (loss) from discontinued operations, net		-			67			-			(349	)
Net loss		(17,245	)		(5,200	)		(42,953	)		(121,221	)
Deemed dividend - accretion of discount on Series F preferred stock		-			-			(1,290	)		-
Deemed dividend - exchange of Series F preferred stock		-			-			(7,057	)		-
Cumulative dividends on Series F preferred stock		-			-			(373	)		-
Net loss attributable to common stockholders	$	(17,245	)	$	(5,200	)	$	(51,673	)	$	(121,221	)

Net loss per share, basic and diluted:
Loss from continuing operations	$	(0.86	)	$	(0.94	)	$	(3.24	)	$	(26.65	)
Gain (loss) from discontinued operations		-			0.01			-			(0.08	)
Deemed dividend - accretion of discount on preferred stock		-			-			(0.10	)		-
Deemed dividend - exchange of Series F preferred stock		-			-			(0.53	)		-
Cumulative dividends on Series F preferred stock		-			-			(0.03	)		-
Net loss attributable to common stockholders	$	(0.86	)	$	(0.93	)	$	(3.90	)	$	(26.73	)
Weighted average shares outstanding, basic and diluted:		20,092,848			5,568,072			13,256,693			4,534,967

	Preferred Stock						Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Number			Amount			Number		Amount		Capital			Deficit			Equity
Balance as of October 31, 2017		3,230,655		$	109,995			6,515,524	$	7	$	149,173		$	(259,005	)	$	170
Issuance of common stock in connection with:
Conversion of Series A preferred stock to common stock		(3,146,671	)		(769	)		713,036		1		768			-			-
Conversion of Series B preferred stock to common stock		(47,689	)		(4,020	)		794,820		1		4,019			-			-
Conversion of Series C preferred stock to common stock		(2,578	)		(201	)		59,950		-		201			-			-
Conversion of Series D preferred stock to common stock		(26,667	)		(312	)		44,445		-		312			-			-
Conversion of Series E preferred stock to common stock		(7,050	)		(104,693	)		7,050,000		7		104,686			-			-
Exchange of Series F preferred stock and dividends to common stock		-			-			1,003,391		1		13,060			-			13,061
Extinguishment of warrant liability		-			-			151,871		-		3,045			-			3,045
Option exercises		-			-			30,417		-		109			-			109
Proceeds received from issuance of common stock, net of issuance costs of $556		-			-			4,791,819		4		92,672			-			92,676
Stock-based compensation expense		-			-			308,387		-		27,674			-			27,674
Deemed dividend - accretion of discount on Series F preferred stock		-			-			-		-		(1,290	)		-			(1,290	)
Cumulative dividends on Series F preferred stock		-			-			-		-		(373	)		-			(373	)
Series F preferred stock dividends paid in common stock		-			-			11,710		-		306			-			306
Net loss		-			-			-		-		-			(42,953	)		(42,953	)
Balance as of July 31, 2018		-		$	-			21,475,370	$	21	$	394,362		$	(301,958	)	$	92,425

	For the Three Months Ended March 31, 2019
	Common Stock				Additional Paid-in			Accumulated Other Comprehensive		Accumulated			Total Stockholders’
	Number		Amount		Capital			Income		Deficit			Equity
December 31, 2018		21,447,088	$	21	$	414,840		$	36	$	(342,864	)	$	72,033
Stock-based compensation expense		–		–		10,327			–		–			10,327
Stock option exercises, net		228,937		1		1,126			–		–			1,127
Vesting of restricted stock units, net		73,214		–		–			–		–			–
Shares withheld for tax withholding on vesting of restricted stock		–		–		(1,338	)		–		–			(1,338	)
Other comprehensive income		–		–		–			17		–			17
Net loss		–		–		–			–		(25,573	)		(25,573	)
March 31, 2019		21,749,239	$	22	$	424,955		$	53	$	(368,437	)	$	56,593

	December 31, 2018		Adjustments Due to the Adoption of ASC 842			January 1, 2019
Operating lease right-of-use assets	$	–	$	5,305		$	5,305
Liabilities:
Operating lease liabilities	$	–	$	3,948		$	3,948
Other current liabilities		316		1,432			1,748
Accounts payable and accrued expenses		6,508		(75	)		6,433

	●	Level 1: Observable inputs such as quoted prices in active markets for identical instruments. This methodology applies to our Level 1 investments, which are composed of money market funds.

	●	Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the market. This methodology applies to our Level 2 investments, which are composed of corporate debt securities, commercial paper, and U.S. government debt securities.

	●	Level 3: Significant unobservable inputs supported by little or no market activity. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, for which determination of fair value requires significant judgment or estimation. This methodology applies to our Level 3 financial instruments, which are composed of contingent consideration.

	Series F Conversion Feature
	March 5, 2018
Stock price	$	20.05
Exercise price	$	27.50
Risk-free rate		2.2	%
Volatility		88.2	%
Term		1.5

	Warrant Liability
	March 5, 2018
Stock price	$	20.05
Exercise price	$	30.00
Risk-free rate		2.2	%
Volatility		88.2	%
Term		1.5

	2017 Series F Preferred Stock – Warrant Liability			2017 Series F Preferred Stock – Embedded Derivative			Total Warrant and Derivative Liability
Fair value – December 31, 2017	$	3,388		$	8,150		$	11,538
Change in fair value		(863	)		(987	)		(1,850	)
Exchange / conversion to common shares	$	(2,525	)	$	(7,163	)	$	(9,688	)
Fair value – March 31, 2018		–			–			–

	Fair Value Measurement as of March 31, 2019
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	5	$	–	$	–	$	5
Commercial paper		–		17,332		–		17,332
Corporate debt securities		–		7,992		–		7,992
U.S. government debt securities		–		4,932		–		4,932
Total	$	5	$	30,256	$	–	$	30,261
Liabilities:
Contingent consideration	$	–	$	–	$	203	$	203
Total	$	–	$	–	$	203	$	203

	Fair Value Measurement as of December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets:
Money market funds	$	7	$	–	$	–	$	7
Commercial paper		–		21,392		–		21,392
Corporate debt securities		–		5,448		–		5,448
U.S. government debt securities		–		3,226		–		3,226
Total	$	7	$	30,066	$	–	$	30,073
Liabilities:
Contingent consideration	$	–	$	–	$	261	$	261
Total	$	–	$	–	$	261	$	261

Equipment	$	430
Land and buildings		2,000
Intangible assets		1,057
Goodwill		278
Accrued property taxes		(9	)
Aggregate purchase price	$	3,756
Less: Promissory note to seller		1,220
Contingent consideration		278
Cash paid at closing	$	2,258

	Contingent Consideration
Fair value – December 31, 2018	$	261
Change in fair value		20
Earned and paid		(78	)
Fair value – March 31, 2019	$	203

	Approximate Fair Value		Remaining Useful Life (in years)
Non-compete agreement	$	410	4
Customer contracts / relationships		534	7 to 8
Trade names / trademarks		101	10 to 11
Backlog		12	Less than 1
Total intangible assets	$	1,057

	March 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Market Value
Cash equivalents:
Money market funds	$	5	$	–	$	–	$	5
Commercial paper		15,599		19		–		15,618
U.S. government debt securities		4,926		6		–		4,932
Total cash equivalents (1)		20,530		25		–		20,555
Short-term investments:
Commercial paper		1,708		6		–		1,714
Corporate debt securities		7,970		22		–		7,992
Total short-term investments		9,678		28		–		9,706
Total	$	30,208	$	53	$	–	$	30,261

	July 31, 2018		October 31, 2017
Legal retainer	$	45	$	15
Prepaid insurance		84		69
Other prepaids		586		126
Other assets		-		27
Total prepaid expenses and other current assets	$	715	$	237

	March 31, 2019			December 31, 2018
Machinery and equipment	$	11,529		$	8,276
Land and buildings		2,000			2,000
Computers and software		1,591			1,372
Leasehold improvements		2,174			1,230
Construction in progress		1,604			2,402
Furniture and equipment		470			614
Total property and equipment, gross		19,368			15,894
Accumulated depreciation		(2,840	)		(2,158	)
Total property and equipment, net	$	16,528		$	13,736

Fiscal year 2018 (three months remaining)	$	50
Fiscal year 2019		195
Fiscal year 2020		189
Fiscal year 2021		189
Fiscal year 2022		138
Thereafter		246
	$	1,007

	Operating leases			Finance leases
2019 (excluding the three months ended March 31, 2019)	$	1,419		$	459
2020		1,815			605
2021		1,458			602
2022		1,216			327
2023		–			255
2024		–			42
Total lease payments		5,908			2,290
Less:
Imputed interest		(860	)		(399	)
Total	$	5,048		$	1,891

Finance leases
	As of March 31, 2019
Finance lease right-of-use assets included within property and equipment, net	$	2,472

Current finance lease liabilities included within other current liabilities	$	445
Non-current finance lease liabilities included within other long-term liabilities		1,446
Total	$	1,891

Operating leases
	As of March 31, 2019
Current operating lease liabilities included within other current liabilities	$	1,482
Operating lease liabilities – non current		3,566
Total	$	5,048

	Three Months Ended March 31, 2019
Operating lease costs included within operating costs and expenses	$	482
Finance lease costs:
Amortization of right of use assets	$	138
Interest on lease liabilities		23
Total	$	161

	Three Months Ended March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	470
Operating cash flows from finance leases		23
Financing cash flows from finance leases		118
Lease liabilities arising from obtaining right-of-use assets:
Finance leases	$	1,824
Lease payments made in prior period reclassified to property and equipment		535
Operating leases		9

	Shares Outstanding - October 31, 2017		First Quarter 2018 -Preferred Stock Conversions			First Quarter 2018 - Common Stock Shares Issued		Second Quarter 2018 -Preferred Stock Conversions and Series F Exchange				Second Quarter 2018 - Common Stock Shares Issued		Year to Date 2018 -Preferred Stock Conversions and Series F Exchange			Year to Date 2018 - Common Stock Shares Issued
Series A		3,146,671		(1,544,572	)		350,000		(1,602,099	)			363,036		(3,146,671	)		713,036
Series B		47,689		-			-		(47,689	)			794,820		(47,689	)		794,820
Series C		2,578		(2,578	)		59,950		-				-		(2,578	)		59,950
Series D		26,667		(26,667	)		44,445		-						(26,667	)		44,445
Series E		7,050		-			-		(7,050	)			7,050,000		(7,050	)		7,050,000
Series F		6,455		-			-		(6,455	)			972,070		(6,455	)		972,070
Total		3,237,110		(1,573,817	)		454,395		(1,663,293	)	��		9,179,926		(3,237,110	)		9,634,321

●	~~Level 1: Observable inputs such as quoted prices in active markets for identical instruments~~

●	~~Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the market~~

●	Level 3: Significant unobservable inputs supported by little or no market activity. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, for which determination of fair value requires significant judgment or estimation.

	Series F Conversion Feature
		March 5, 2018			October 31, 2017
Stock price	$	20.05		$	25.87
Exercise price	$	27.50		$	27.50
Risk-free rate		2.158	%		1.581	%
Volatility		88.2	%		96.0	%
Term		1.54			1.89

	Fair Value Measurement as of July 31, 2018
	Level 1		Level 2		Level 3		Total
Liabilities
Contingent consideration	$	-	$	-	$	268	$	268
Total	$	-	$	-	$	268	$	268

	Fair Value Measurement as of October 31, 2017
	Level 1		Level 2		Level 3		Total
Liabilities
Warrant liability	$	-	$	-	$	4,256	$	4,256
Derivative liability		-		-		9,246		9,246
Total	$	-	$	-	$	13,502	$	13,502

	Contingent Consideration
Fair value – October 31, 2017	$	-
IBEX acquisition – May 3, 2018	$	278
Change in fair value		20
Earned and moved to accounts payable		(30	)
Fair value - July 31, 2018	$	268

	2017 Series F Preferred Stock - Warrant Liability			2017 Series F Preferred Stock - Embedded Derivative			Total Warrant and Derivative Liability
Fair value - October 31, 2017	$	4,256		$	9,246		$	13,502
Change in fair value		(1,731	)		(2,083	)		(3,814	)
Exchange / conversion to common shares		(2,525	)		(7,163	)		(9,688	)
Fair value - July 31, 2018	$	-		$	-		$	-

	For the Three Months Ended July 31,
	2018		2017
General and administrative expense:
Continuing operations	$	8,718	$	2,464
Discontinued operations		-		274
		8,718		2,738
Research and development expense:
Continuing operations		1,204		452
Total stock-based compensation expense	$	9,922	$	3,190