10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

or

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission File Number: 001-31822

ACCELERATE DIAGNOSTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware	84-1072256
(State or other jurisdiction	(I.R.S. Employer Identification No.)
of incorporation or organization)
3950 South Country Club, Suite 470
Tucson, Arizona	85714
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:

(520) 365-3100

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒ No  ☐

Indicate by check mark whether the registrant has submitted electronically 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 (§232.405 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  ☒ No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    ☐		Accelerated filer    ☒
Non-accelerated filer      ☐	(Do not check if a smaller reporting company)	Smaller reporting company   ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐ No  ☒

As of July 28, 2014, there were 44,583,092 shares of the registrant’s common stock outstanding.

1

INDEX

PART I - FINANCIAL INFORMATION			3
	Item 1	Financial Statements (unaudited)	3
	Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
	Item 3	Quantitative and Qualitative Disclosures about Market Risk	19
	Item 4	Controls and Procedures	20
PART II - OTHER INFORMATION			20
	Item 1	Legal Proceedings	20
	Item 1A	Risk Factors	20
	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	20
	Item 3	Defaults Upon Senior Securities	21
	Item 4	Mine Safety Disclosures	21
	Item 5	Other Information	21
	Item 6	Exhibits	21

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

ACCELERATE DIAGNOSTICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS Unaudited (in thousands, except share data)
	June 30, 2014			December 31, 2013
Current assets:
Cash and cash equivalents	$	65,212		$	30,029
Investments		13,800			11,960
Trade accounts receivable		40			24
Prepaid expenses and other		616			130
Total current assets	$	79,668		$	42,143
Property and equipment, net		1,933			1,047
Intellectual property, net		203			241
Total Assets	$	81,804		$	43,431
Current liabilities:
Accounts payable	$	1,302		$	540
Accrued compensation and other liabilities		727			515
Deferred revenue and income		76			82
Capital lease obligation		145			—
Total current liabilities	$	2,250		$	1,137
Long-term deferred income		763			777
Long-term capital lease obligation		87			—
Total liabilities	$	3,100		$	1,914
Stockholders' equity:
Common stock, $0.001 par value;
55,000,000 common shares authorized
44,583,092 (as of June 30, 2014) and 41,649,521 (as of December 31,
2013) shares issued and outstanding	$	45		$	42
5,000,000 preferred shares authorized and none outstanding as of
June 30, 2014 and December 31, 2013		—			—
Contributed capital		126,469			75,937
Accumulated deficit		(47,838	)		(34,484	)
Accumulated other comprehensive income		28			22
Total stockholders' equity	$	78,704		$	41,517
Total liabilities and stockholders' equity	$	81,804		$	43,431

See accompanying notes to consolidated financial statements.

3

ACCELERATE DIAGNOSTICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Unaudited (in thousands, except per share data)
	Three-month period ended						Six-month period ended
	June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Revenues:
Licensing and royalty revenues	$	13		$	7		$	27		$	23
Total revenues	$	13		$	7		$	27		$	23
Costs and expenses:
Research and development	$	4,562		$	2,461		$	8,125		$	4,343
Sales, general and administrative		3,447			1,234			5,491			1,864
Amortization		19			19			38			38
Depreciation		150			71			285			107
Total costs and expenses	$	8,178		$	3,785		$	13,939		$	6,352
Loss from operations	$	(8,165	)	$	(3,778	)	$	(13,912	)	$	(6,329	)
Other expense	$	(3	)	$	(1	)	$	(3	)	$	(1	)
Interest and dividend income		16			2			34			4
Total other income	$	13		$	1		$	31		$	3
Net loss before income taxes	$	(8,152	)	$	(3,777	)	$	(13,881	)	$	(6,326	)
Benefit from income taxes		—			—			527			—
Net Loss	$	(8,152	)	$	(3,777	)	$	(13,354	)	$	(6,326	)
Net loss per share:  Basic and diluted net loss per share	$	(0.19	)	$	(0.10	)	$	(0.31	)	$	(0.19	)
Weighted average shares outstanding		43,477			38,941			42,637			34,128
Other comprehensive loss:
Net loss	$	(8,152	)	$	(3,777	)	$	(13,354	)	$	(6,326	)
Net unrealized gain on available-for-sale investments		2			—			6			—
Comprehensive loss	$	(8,150	)	$	(3,777	)	$	(13,348	)	$	(6,326	)

See accompanying notes to consolidated financial statements.

4

ACCELERATE DIAGNOSTICS, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited (in thousands)
	Six-month period ended
	June 30, 2014			June 30, 2013
Cash flows from operating activities:
Net loss	$	(13,354	)	$	(6,326	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		285			107
Amortization of intangible assets		38			38
Amortization of investment discount		124			—
Stock-based compensation		4,931			1,605
Increase in assets:
Accounts receivable		(16	)		(54	)
Prepaid expense and other		(486	)		(105	)
Increase (decrease) in liabilities:
Accounts payable		496			22
Accrued liabilities		197			42
Deferred revenue and income		(20	)		495
Net cash used in operating activities	$	(7,805	)	$	(4,176	)
Cash flows from investing activities:
Purchases of equipment and capitalized patents	$	(729	)	$	(897	)
Purchase of available-for-sale securities		(4,079	)		—
Sales of available-for sale securities		121			—
Maturity of available-for-sale securities		2,000			—
Net cash used in investing activities	$	(2,687	)	$	(897	)
Cash flows from financing activities:
Issuance of common stock and warrants	$	44,980		$	—
Exercise of warrants and options		730			20,177
Payments on capital lease obligations		(35	)		—
Net cash provided by financing activities	$	45,675		$	20,177
Increase (decrease) in cash and cash equivalents	$	35,183		$	15,104
Cash and cash equivalents, beginning of period		30,029			12,069
Cash and cash equivalents, end of period	$	65,212		$	27,173

See accompanying notes to consolidated financial statements.

5

ACCELERATE DIAGNOSTICS, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1.   ORGANIZATION AND NATURE OF BUSINESS; BASIS OF PRESENTATION

Accelerate Diagnostics, Inc. (“Accelerate” or the “Company”) is a Delaware corporation focused on developing and commercializing innovative instrumentation for the rapid identification and antibiotic susceptibility testing of infectious pathogens. The Company’s ID/AST instrument utilizes a proprietary culture-free process with both genomic and phenotypic detection technologies that decrease time to result while maintaining high sensitivity and specificity.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, (“U.S. GAAP”), and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”), regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

The condensed consolidated balance sheet as of December 31, 2013 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP.

The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the result of operations to be anticipated for the entire year ending December 31, 2014 or any future period.

All amounts are rounded to the nearest thousand dollars unless otherwise indicated.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 2.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We are carefully evaluating our existing revenue recognition practices to determine whether any contracts in the scope of the guidance will be affected by the new requirements. The effects may include identifying performance obligations in existing arrangements, determining the transaction price and allocating the transaction price to each separate performance obligation. We will also establish practices to determine when a performance obligation has been satisfied, and recognize revenue in accordance with the new requirements. The new standard is effective for us on January 1, 2017. Early adoption is not permitted. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. We are currently evaluating the transition method that will be elected.

In July 2013, the FASB issued ASU 2013-11, which requires a reporting entity to present an unrecognized tax benefit as a liability in the financial statements separate from deferred tax assets if a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available as of the reporting date to settle taxes that would result from the disallowance of the tax position or if a reporting entity does not intend to use the deferred tax asset for such purpose. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2013. The adoption of ASU 2013-11 did not have a material impact on the Company’s consolidated financial statements.

6

In March 2013, the FASB issued ASU 2013-04, which provides guidance on the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The update requires an entity to measure obligations resulting from joint and several liability obligations for which the total amount of the obligation within the scope of the update is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangements among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in ASU 2013-04 are effective for fiscal years and interim periods within those years, beginning on or after December 15, 2013 and must be applied retrospectively. The adoption of ASU 2013-04 did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

NOTE 3.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments such as cash equivalents, restricted cash, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, and other current liabilities approximate the related fair values due to the short-term maturities of these instruments. The Company may invest its excess cash into financial instruments that are readily convertible into cash, such as marketable securities, money market funds and certificates of deposit with original maturities of three months or less at the date of purchase. The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. The Company has established guidelines to maintain safety and liquidity for our financial instruments, and the cost of securities sold is based on the specific identification method.

ASC Topic 820, Fair Value Measurements and Disclosures has redefined fair value and required the Company to establish a framework for measuring fair value and expand disclosures about fair value measurements. The framework requires the valuation of assets and liabilities subject to fair value measurements using a three tiered approach and fair value measurement be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The following tables represent the financial instruments measured at fair value on a recurring basis on the consolidated financial statements of the Company subject to ASC Topic 820, Fair Value Measurements and Disclosure, and the valuation approach applied to each class of financial instruments at June 30, 2014 and December 31, 2013 (in thousands):

	June 30, 2014 (in thousands)
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds (cash equivalents)	$	12,295	$	—	$	—	$	12,295
Corporate notes and bonds		—		13,421		—		13,421
Asset-backed securities		—		379		—		379
Total assets measured at fair value	$	12,295	$	13,800	$	—	$	26,095

7

	December 31, 2013 (in thousands)
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds (cash equivalents)	$	27,096	$	—	$	—	$	27,096
Corporate notes and bonds		—		11,460		—		11,460
Asset-backed securities		—		500		—		500
Total assets measured at fair value	$	27,096	$	11,960	$	—	$	39,056

Level 2 available-for-sale securities are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. There were no significant transfers between levels during the six-month period ended June 30, 2014.

NOTE 4.   INVESTMENTS

The following tables summarize the Company’s available-for-sale investments at June 30, 2014 (in thousands):

		Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Asset-backed securities	$	379	$	—	$	—		$	379
Corporate notes and bonds		13,393		29		(1	)		13,421
Total	$	13,772	$	29	$	(1	)	$	13,800

The following table summarizes the maturities of the Company’s available-for-sale securities at June 30, 2014 (in thousands):

		Amortized Cost		Fair Value
Due in less than 1 year	$	10,241	$	10,246
Due in 1-3 years		3,531		3,554
Total	$	13,772	$	13,800

NOTE 5.   PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and consisted of the following at June 30, 2014 and December 31, 2013 (in thousands):

Property and Equipment (in thousands)
	June 30, 2014			December 31, 2013
Computer equipment	$	574		$	567
Laboratory and scientific equipment		943			791
Furniture and fixtures		206			37
Manufacturing equipment		6			—
Leasehold improvements		302			279
Capital lease – leasehold improvements		266			—
Capital projects in progress		548			—
Total property and equipment	$	2,845		$	1,674
Accumulated amortization – capital lease		(67	)		—
Accumulated depreciation – other		(845	)		(627	)
Net property and equipment	$	1,933		$	1,047

8

Depreciation expense, which includes amortization of capital lease assets, for the three-month periods ended June 30, 2014 and 2013 was $150,000 and $71,000 respectively, and for the six-month periods ended June 30, 2014 and 2013, was $285,000 and $107,000, respectively.

NOTE 6.   INTELLECTUAL PROPERTY

Intellectual property consisted of the following at the dates indicated (in thousands):

Intellectual Property (in thousands)
	June 30, 2014			December 31, 2013
Technologies	$	193		$	193
Patents		210			210
Subtotal	$	403		$	403
Accumulated amortization		(200	)		(162	)
Net intellectual property	$	203		$	241

Future amortization expense for the intangible assets is estimated as follows (in thousands):

Intangible Assets Future Amortization Years Ending December 31 (in thousands)
	Remaining in 2014	$	25
	2015		8
	2016		8
	2017		8
	2018		8
	Thereafter		146
	Total future amortization	$	203

Intellectual properties are recorded at cost and are being amortized on a straight-line basis over their estimated useful lives of 20 years or the patent application life specific to each capitalized patent. Amortization expense for the three-month periods ended June 30, 2014 and 2013 was $19,000 and $19,000, respectively, and for the six-month periods ended June 30, 2014 and 2013 was $38,000 and $38,000, respectively. The Company routinely evaluates the recoverability of its long-lived assets based upon estimated future cash flows from and estimated fair value of such long-lived assets. If in management’s judgment, the anticipated undiscounted cash flows or estimated fair value are insufficient to recover the carrying amount of the long-lived asset, the Company will determine the amount of the impairment and the value of the asset will be written down. There were no amounts recognized as losses due to impairments of intangible assets for the three-month periods ending June 30, 2014 and 2013 for the for the six-month periods ending June 30, 2014 and 2013.

NOTE 7.   LICENSE AGREEMENTS AND GRANTS

In May 2012, the Company and Denver Health were notified that the Defense Medical Research and Development Program (“DMRDP”) recommended $2 million of funding for a proposed 35-month project of which the Company estimates it will receive direct monies for internal research and development of $650,000. The joint proposal became the sole recipient under the Military Infectious Diseases Applied Research Award program for rapid detection of serious antibiotic-resistant infections.  The project will apply the Company’s ID/AST instrument to wound infections and other serious infections secondary to trauma. The Company has invoiced a cumulative total of $258,000 under this grant which is recorded as an offset to research and development expenses. The amount invoiced for the three-month periods ended June 30, 2014 and 2013 was $60,000 and $43,000, respectively, and for the six-month periods ended June 30, 2014 and 2013 was $100,000 and $54,000, respectively.

9

On August 22, 2012, the Company entered into a Grant Agreement (the “Grant Agreement”) with the Arizona Commerce Authority, an agency of the State of Arizona (the “Authority”), pursuant to which the Authority will provide certain state and county sponsored incentives for the Company to relocate its corporate headquarters to, and expand its business within, the State of Arizona (the “Project”). Pursuant to the Grant Agreement, the Authority agreed to provide a total grant in the amount of $1,000,000 (the “Grant”) for the use by the Company in the advancement of the Project. The Grant is payable out of an escrow account in four installments, upon the achievement of the following milestones:

· Milestone 1 – Relocation of Company’s operations and corporate headquarters to Arizona and creation of 15 Qualified Jobs (as defined below).

· Milestone 2 – Creation of 30 Qualified Jobs (including Qualified Jobs under Milestone 1).

· Milestone 3 – Creation of 40 Qualified Jobs (including Qualified Jobs under Milestones 1 and 2).

· Milestone 4 – Creation of 65 Qualified Jobs (including Qualified Jobs under Milestones 1, 2 and 3) and capital investment of at least $4,520,000.

For purposes of the Grant Agreement, a “Qualified Job” is a job that is permanent, full-time, new to Arizona, and for which the Company pays average (across all Qualified Jobs identified by the Company in its discretion) annual wages of at least $63,000 and offers health insurance benefits and pays at least 65% of the premiums associated with such benefits. The amount of each installment payment will be determined in accordance with a formula specified in the Grant Agreement. The Grant Agreement also contains other customary provisions, including representations, warranties and covenants of both parties. As of June 30, 2014 the Company has collected $750,000 of the $1,000,000 in milestones. The full amount is recorded in long-term deferred income until the economic development provisions of the grant have been satisfied in full, as there are “claw-back” provisions which would require repayment of certain amounts received if employment levels are not sustained during the term of the arrangement. Once the “claw-back” provisions expire, we will recognize the grant as other non-operating income. Further details are included in Note 8, Deferred Revenue and Income.

NOTE 8.   DEFERRED REVENUE AND INCOME

Deferred revenue consists of amounts received for products or services not yet delivered or earned. Deferred income consists of amounts received for commitments not yet fulfilled. If we anticipate that the revenue or income will not be earned within the following twelve months, the amount is reported as long-term deferred income. A summary of the balances as of June 30, 2014 and December 31, 2013 follow (in thousands):

Deferred Revenue and Income (in thousands)
	June 30, 2014		December 31, 2013
Prepaid royalties	$	63	$	69
Fisher agreement		13		13
Total current deferred revenue and income	$	76	$	82
Arizona Commerce Authority Grant (see Note 7)	$	750	$	750
Fisher agreement		13		27
Total long-term deferred income	$	763	$	777

Deferred revenue includes prepaid royalty fees. In September 2011, $100,000 of prepaid royalty fees was received of which $2,000 and $5,000 were recognized during the three-month periods ended June 30, 2014 and 2013, respectively, and $6,000 and $12,000 were recognized during the six-month periods ended June 30, 2014 and 2013, respectively. Recognized amounts are reflected as licensing and royalty revenue.

Deferred income includes a $40,000 payment received from Fisher Scientific in July 2013, of which $13,000 and $0 has been recognized as an offset against research and development expenses in the three-month periods ended June 30, 2014 and 2013, respectively, and $13,000 and $0 has been recognized as an offset against research and development expenses in the six-month periods ended June 30, 2014 and 2013, respectively. We anticipate earning $13,000 of the remaining amount in the next twelve months and the final $13,000 in future years.

10

Through June 30, 2014, $750,000 in milestone payments from the Arizona Commerce Authority were received of which none has been recognized in income and we do not anticipate earning any of it in the next fiscal year. Further details regarding the Arizona Commerce Authority agreement are included in Note 7, License Agreements and Grants.

NOTE 9.   STOCK PURCHASE

On April 20, 2012, we entered into a Securities Purchase Agreement with Abeja Ventures, LLC (“Abeja”), pursuant to which the Company agreed to sell and issue to Abeja at a purchase price of $1.03 per share for an aggregate purchase price of $14,420,000; (i) 14,000,000 shares of the Company’s common stock (“Common Stock”); (ii) a warrant to purchase 7,000,000 shares of Common Stock at an exercise price of $1.03 per share (the “$1.03 Warrant”); and (iii) another warrant to purchase 7,000,000 shares of Common Stock at an exercise price of $2.00 per share (the “$2.00 Warrant”), with each warrant exercisable prior to the fifth anniversary of the closing of the transactions contemplated by the Securities Purchase Agreement (collectively, the “Investment”). The purchase of Common Stock and warrants pursuant to the Investment, which was consummated on June 26, 2012, qualified for equity treatment under U.S. GAAP. The respective values of the warrants and Common Stock were calculated using their relative fair values and both are classified under Contributed Capital. The value therefore recorded for the warrants was $5,896,000 and for the Common Stock was $8,524,000.

Both warrants were exercisable until June 26, 2017, which was the fifth anniversary of the date on which the warrants were issued. Other significant terms and conditions of the warrants are as follows:

· the warrants provide for partial exercises, but they do not provide for a “cashless” exercise feature (i.e., they may only be exercised for cash);

· the warrants do not contain anti-dilution provisions that would trigger exercise price or other adjustments as a result of subsequent issuances of the Company’s equity securities, but they do contain customary provisions for equitable adjustments in connection with stock dividends, stock splits or reclassifications of Common Stock;

· following certain types of fundamental transactions involving the Company (e.g., a transaction resulting in a change in control of the Company), the holder of the warrants would continue to be entitled to exercise the warrants in exchange for the equity securities or alternate consideration receivable by a holder of Common Stock as a result of the fundamental transaction; and

· the holder of the warrants is entitled to certain demand and piggy-back registration rights, including for shelf registrations, with respect to the shares of Common Stock issuable upon its exercise of the warrants.

On March 6, 2013, Abeja exercised in full its warrant to purchase 7,000,000 shares of Common Stock at an exercise price of $1.03 per share. On the same date, Abeja also exercised the 92% of its warrant to purchase an additional 7,000,000 shares of Common Stock at an exercise price of $2.00 per share (Abeja exercised such warrant for 6,428,840 shares, leaving 571,160 shares unexercised). The Company received aggregate funds of $20,068,000 in connection with such exercises. Shares issued by the Company in connection with the warrant exercises were issued directly to the members of Abeja on a pro rata basis in accordance with their membership interests and written exercise instructions provided to the Company by Abeja. Immediately after giving effect to the warrant exercises, Abeja also distributed in kind to its members (on a pro rata basis in accordance with their membership interests) the remaining shares of Common Stock held by that entity.

NOTE 10.   RIGHTS OFFERING

On April 7, 2014, the Company commenced a rights offering to raise $45 million to fund continued operations, clinical trials, and product commercialization efforts. Under the terms of the rights offering, the Company distributed, at no charge to the holders of its Common Stock as of 5:00 p.m., New York City time, on March 14, 2014, which was established as the record date for the rights offering, 0.063921 non-transferable subscription rights for each share of Common Stock owned on the record date. Each whole subscription right allowed the holder to subscribe to purchase one share of Common Stock at a subscription price of $16.80 per share. In the aggregate, the Company intended to issue 2,678,571 shares of Common Stock in connection with the rights offering. The purpose of the rights offering was to raise equity capital in a cost-effective manner that gives all of the Company’s existing stockholders the opportunity to participate on a pro rata basis.

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In connection with the rights offering, the Company received standby commitments from the Jack W. Schuler Living Trust and the Schuler Family Foundation. The standby purchasers agreed to purchase any and all shares of Common Stock that were not subscribed for by stockholders in connection with the rights offering. On May 1, 2014, the Company entered into an Assignment and Assumption Agreement with the standby purchasers, Oracle Institutional Partners, L.P. and Oracle Partners, L.P., pursuant to which each standby purchaser assigned and transferred its respective rights, responsibilities, liabilities and obligations under the Standby Purchase Agreement to purchase 297,619 shares of Common Stock not subscribed for by the Company’s stockholders in connection with the rights offering to (i) Oracle Institutional Partners, L.P., with respect to 119,047 shares of such Common Stock, and (ii) Oracle Partners, L.P., with respect to the remaining 178,572 shares of such Common Stock.

The rights offering period expired at 5:00 p.m., New York City time, on April 28, 2014, and the transactions contemplated by the rights offering and the Standby Purchase Agreement described above (including the Company’s issuance of an aggregate of 2,678,571 shares of its Common Stock to the rights offering participants and standby purchasers) were completed on May 19, 2014. The Company received gross proceeds of $45,000,000 before costs associated with the transactions which totaled $126,000, $106,000 of which hasn’t been paid as of June 30, 2014.

Because the exercise price of the rights offering of $16.80 was less than the fair value of the Company’s shares of Common Stock at the expiration of the offering, there is a bonus element that is treated akin to a stock dividend. The weighted average shares outstanding, as well as the basic and diluted loss per share for the three- and six-month periods ended June 30, 2013 have been revised for those effects.

NOTE 11.   EARNINGS PER SHARE

The Company follows ASC 260, Earnings Per Share, which requires companies to present basic earnings per share and diluted earnings per share. Basic earnings (loss) per share includes no dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.

The Company’s net loss for the periods presented caused the inclusion of certain outstanding warrants and options to purchase our Common Stock to be antidilutive. As of June 30, 2014 and December 31, 2013, there were Common Stock options and warrants exercisable for 6,109,600 (571,160 warrants and 5,538,440 options) and 5,731,246 (571,160 warrants and 5,160,086 options) shares of Common Stock, respectively, which were not included in diluted loss per share as the effect was antidilutive.

Weighted average shares outstanding for the three and six-month periods ended June 30, 2014 have been revised for the effects of the rights offering (See Note 10, Rights Offering).

NOTE 12.   EMPLOYEE STOCK-BASED COMPENSATION

At the Company’s 2014 Annual Meeting of Stockholders held on May 29, 2014, stockholders approved an amendment to the Company’s 2012 Omnibus Equity Incentive Plan increasing the number of shares of Common Stock reserved and available for grant thereunder by 4,000,000 to 9,500,000 shares.

The following table summarizes stock-based compensation expense in the condensed consolidated statements of operations for the periods indicated (in thousands):

	Stock-Based Compensation Expense (in thousands)
	Three-month period ended				Six-month period ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Research and development	$	1,288	$	417	$	2,112	$	677
Sales, general and administrative		1,883		751		2,819		928
Total stock-based compensation expense	$	3,171	$	1,168	$	4,931	$	1,605

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The following table summarizes option activity under all plans during the six-month period that ended on June 30, 2014:

Stock Option Activity
	Number of Shares			Weighted Average Exercise Price per Share
Options Outstanding December 31, 2013	5,160,086		$	3.45
Granted	644,325		$	15.58
Cancelled	(10,971	)	$	13.53
Exercised	(255,000	)	$	2.86
Expired	—			—
Options Outstanding June 30, 2014	5,538,440		$	4.87

The following table summarizes relevant information for options outstanding and options exercisable at June 30, 2014:

Stock Option Supplemental Information
		Options Outstanding		Options Exercisable
Number of options		5,538,440		1,575,651
Weighted average remaining contractual term (in years)		8.38		7.94
Weighted average exercise price	$	4.87	$	2.07
Weighted average fair value	$	3.74	$	1.36
Aggregate intrinsic value (in thousands)	$	117,038	$	37,711

The following table summarizes the weighted average assumptions used in determining the fair value of the Company’s stock options granted to employees during the three-month periods ending June 30, 2014 and 2013:

Fair Value Assumptions for Stocks Issued During the Quarter (weighted average)
	June 30, 2014			June 30, 2013
Expected term (in years)		5.72			5.92
Volatility		97	%		98	%
Expected dividends		—			—
Risk free interest rates		1.93	%		1.00	%
Estimated forfeitures		3	%		15	%
Fair value per share	$	15.40		$	5.23

As of June 30, 2014, unrecognized share-based compensation cost related to unvested stock options was $10,421,000.

NOTE 13.   INCOME TAXES

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets. The change in deferred tax assets and liabilities for the period represents the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws in deferred tax assets and liabilities are reflected as an adjustment to the tax provision or benefit in the period of enactment.

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The Company follows the provisions of ASC 740, Income Taxes, to account for any uncertainty in income taxes with respect to the accounting for all tax positions taken (or expected to be taken) on any income tax return. This guidance applies to all open tax periods in all tax jurisdictions in which the Company is required to file an income tax return. Under U.S. GAAP, in order to recognize an uncertain tax benefit the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit. The Company determined that no uncertain tax positions have been taken or are expected to be taken that could have a material effect on the Company’s income tax liabilities. Interest and penalties, if any, would be recorded to general and administrative expenses.

On January 8, 2014, we were notified by the Arizona Commerce Authority (“Authority”) that we meet the program requirements to receive a “Certificate of Qualification” and, therefore, are eligible for a partial refund of research and development investments. Our research and development tax credit for 2013 is $703,000 which made us eligible to claim a partial refund of 75% or $527,000. We claimed this partial refund and, by doing so, irrevocably forfeited the remaining 25% tax credit amount along with any additional tax credits that might become available if our qualifying expenses increase or income tax liability decreases. The “Certificate of Qualification” does not guarantee the receipt of tax incentives; nor does it obligate the Arizona Department of Revenue to issue the refund. Furthermore, if qualifying expenses decrease or income tax liability increases, the refund amount may be less than the $527,000. If the amount received for this tax credit is later determined to be incorrect or invalid, the excess may be treated as a tax deficiency. As of March 31, 2014 we recorded the $527,000 partial refund as a non-operating benefit from income taxes. Payment of this amount was received in April and deposited in May 2014.

NOTE 14.   COMMITMENTS

Operating & Capital Lease Obligations

On August 20, 2012, the Company entered into a Lease Agreement (“Lease”) with Pima County, a political subdivision of the State of Arizona (“Landlord”), pursuant to which the Company will lease approximately 15,096 square feet of office space located in Tucson, Arizona for a period of three years (the “Initial Term”), which may be extended by the Company for up to three additional one-year periods (each a “Renewal Term”). The Lease also provides that the Company has the option, with six months prior notice to Landlord, to lease either or both of two additional areas with an aggregate size of approximately 7,920 square feet.

Pursuant to the Lease, the Company agreed to: (i) pay rent equal to $9.25 per usable square foot per year (approximately $139,600 per year) during the Initial Term and $19.80 per usable square foot per year (approximately $298,900 per year) during any Renewal Term; (ii) relocate its corporate offices to the Tucson area and begin operations within 30 days of the date that the tenant improvements are substantially completed (the “Commencement Date”); and (iii) within 18 months of the Commencement Date, employ at least 30 individuals with a median salary of at least $70,000, which median salary must be maintained throughout the term of the Lease. If the Company fails to satisfy the condition described in clause (iii) of the preceding sentence, the rental rate under the Lease will be increased by a percentage that is twice the percentage by which the Company’s annual payroll has fallen short of the specified goal (subject to a cap equal to $19.80 per usable square foot per year). The Lease also provides that Landlord will pay for tenant improvements (up to a cap of $1,400,000) as well as certain repairs, utilities and insurance. As of February 1, 2013, we relocated our headquarters into the above described leased space in Tucson, Arizona.

On October 15, 2013, the Company executed the First Amendment to the Lease with Pima County to exercise its option and to expand its lease premises by 4,551 square feet whereby Pima County provided tenant improvements. After the completion of tenant improvements, the Company occupied this additional space in January, 2014. Pursuant to the First Amendment, the Company agreed to (i) pay rent equal to $9.25 per square foot per year (approximately $42,000 per year) and (ii) repay tenant improvements over the remaining lease term. These tenant improvements are treated as a capital lease whereby both an asset and a liability have been recorded and periodic interest and depreciation will be recorded to amortize the value of this asset and the liability over the remaining lease term. Further details regarding this capital lease are included in Note 5, Property and Equipment.

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The future minimum lease payments under the capital lease together with the present value of the net minimum lease payments as of June 30, 2014 are as follows:

Capital Lease Obligations (in thousands)
Year ending December 31:
Remaining in 2014	$	75
2015		151
2016		13
2017		—
2018		—
Total minimum lease payments	$	239
Less amount representing interest		(7	)
Present value minimum lease payments	$	232

In April 2014, the Company entered into a Second Amendment to the Lease with Pima County, pursuant to which the Company exercised its option to build-out and occupy 3,594 square feet and an additional 4,163 square feet not contemplated in the Lease for manufacturing and other operational requirements. Pursuant to the Second Amendment, the Company also agreed to: (i) pay rent equal to $9.25 per usable square foot per year for the 3,594 option space and $17.63 per usable square foot per year for the additional 4,163 square feet during the Initial Term; (ii) pay rent of $19.80 per usable square foot per year for the 3,594 option space and $17.63 per usable square foot per year for the additional 4,163 square feet during any Renewal Term; (ii) restore the 3,594 option space and the 4,163 additional space to a reasonable office typical tenant space at the end of the Lease; and (iii) adhere to all other terms of the Lease. The Company estimates that the costs for restoration at the end of the Lease as described in (ii) of the Second Amendment are immaterial and, therefore, no accrual has been recorded.

Total rent expense for the Tucson facility, including common area charges, for three-month periods ending June 30, 2014 and 2013 was approximately $64,000 and $93,000, respectively, and for the six-month periods ending June 30, 2014 and 2013 was approximately $113,000 and $93,000 respectively. Future minimum lease payments under this agreement are as follows (in thousands):

Operating Lease Obligations (in thousands)
	Year ending December 31:
	Remaining in 2014	$	145
	2015		289
	2016		24
	2017		—
	2018		—
	Thereafter		—
	Total operating lease obligations	$	458

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

Introductory Note

Except as otherwise indicated by the context, references in this Quarterly Report on Form 10-Q (this “Form 10-Q”) to the “Company,” “Accelerate,” “we,” “us” or “our” are references to the business of Accelerate Diagnostics, Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Company, intends that such forward-looking statements be subject to the safe harbors created thereby. These forward-looking statements, which can be identified by the use of words such as “may,” “will,” “expect,” “anticipate,” “estimate,” or “continue,” or variations thereon or comparable terminology, include the plans and objectives of management for future operations, including plans and objectives relating to the products and future economic performance of the Company. In addition, all statements other than statements of historical facts that address activities, events, or developments the Company expects, believes, or anticipates will or may occur in the future, and other such matters, are forward-looking statements.

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The forward-looking statements included herein are based on current expectations that involve a number of risks and uncertainties. These forward-looking statements are based on assumptions that the Company will retain key management personnel, the Company will be successful in the development of the ID/AST instrument, the Company will obtain sufficient capital to complete the development and required clinical trials of the ID/AST instrument, the Company will be able to protect its intellectual property, the Company’s ability to respond to technological change, that the Company will accurately anticipate market demand for the Company’s products and that there will be no material adverse change in the Company’s operations or business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of the Company. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) summarizes the significant factors affecting our results of operations, liquidity, capital resources and contractual obligations. The following discussion and analysis should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes included elsewhere herein. Certain information contained in the discussion and analysis set forth below and elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. The Company’s future operating results may be affected by various trends and factors which are beyond the Company’s control. These include, among other factors, general public perception of issues and solutions, and other uncertain business conditions that may affect the Company’s business. The Company cautions the reader that a number of important factors discussed herein, and in other reports, filed with the SEC including but not limited to the risks in the section entitled “Risk Factors” in its Annual Report on Form 10-K for the period ended December 31, 2013, as amended, could affect the Company’s actual results and cause actual results to differ materially from those discussed in forward-looking statements.

Our MD&A is composed of the following sections: Overview, Changes in Results of Operations, Capital Resources and Liquidity and Off-Balance Sheet Arrangements.

Overview

Accelerate Diagnostics, Inc. (“we” or “the Company”) is focused on developing and commercializing innovative instrumentation for the rapid identification and antibiotic susceptibility testing of infectious pathogens. The Company’s ID/AST instrument utilizes a proprietary culture-free process with both genomic and phenotypic detection technologies that decrease time to result while maintaining high sensitivity and specificity.

Every six minutes, another American dies from a hospital-acquired infection (HAI). The U.S. Centers for Disease Control and Prevention (“CDC”) estimates that almost 100,000 HAI fatalities occur annually that are attributable to bacterial infections acquired in a US healthcare facility. HAI occurs when a patient enters the hospital for some reason other than an infectious disease, then contracts infection more than two days after admission. Despite intensive efforts to improve prevention and care, mortality has remained the same for more than ten years.

Yet, in theory, none of these patients should die. An effective antibiotic exists for almost every HAI. Although bacterial strains exist that may resist any particular drug, strains that resist all antibiotics remain rare.

Lab delay is a major culprit leading to the high HAI mortality rate. Medical experts believe that inadequate initial therapy substantially elevates the risk of severe morbidity and mortality in critically ill patients. For critically ill patients, the physician must start adequate antibiotics within 2-4 hours of symptom onset. But lab cultures typically take 2-3 days to assess their antibiotic susceptibility. The physician has no choice but to start therapy without knowing the organism or its drug susceptibility. Most often, the physician must choose a combination of two or three broad-spectrum antibiotics, based on the patient’s history, clinical indicators, and the hospital’s recent history of antibiotic effectiveness in similar infections. Unfortunately, widespread and increasingly complex multiple antibiotic resistance typically causes such “empiric therapy” to prove inadequate in 20% to 40% of cases.

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Switching to adequate therapy as soon as the next day fails to improve outcomes. Once an infection passes a critical point, antibiotics have little to no impact on its condition.

Popular news media have reported widely about methicillin-resistant Staphylococcus aureus (“MRSA”) as a multi-resistant “superbug.” Organizations such as the CDC and the Infectious Diseases Society of America have also identified other multi-drug resistant organisms as presenting even greater threats. They include Pseudomonas, Acinetobacter, and Klebsiella. In the hospital intensive care unit (“ICU”), “Staph” infections (including MRSA) typically cause approximately 30% of fatal HAIs. This increase in multi-drug resistant organisms creates an opportunity for the Company by driving demand for rapid susceptibility.

We believe that the development of new classes of antibiotics has significantly declined. Improved prevention and infection control have limited potential. In the meantime, bacteria continue to evolve and develop additional drug resistance. Bacteria have become so well adapted to the hospital that even the best preventive efforts do not eradicate them. Hospitals that lead in best preventive practices still suffer from endemic hospital-adapted strains that continue to cause high rates of attributable morbidity and mortality. Such examples suggest that each passing year sees a reduction in the number of cases that can be treated successfully with any particular drug.

We believe that dramatically speeding up laboratory diagnostics will help to improve the success rate for initial therapy for HAIs.

Changes in Results of Operations: Three-month period ended June 30, 2014 compared to three-month period ended June 30, 2013

During the three-month period ended June 30, 2014, total revenues were $13,000, as compared to $7,000 during the three-month period ended June 30, 2013, an increase of $6,000 or 86%. The increase was due to fluctuations in partner sales volumes on which royalties were due the Company.

Research and development expenses for the three-month period ended June 30, 2014 were $4,562,000, as compared to $2,461,000 during the three-month period ended June 30, 2013, an increase of $2,101,000 or 85%. The increase was primarily the result of increasing employee headcount, increased non-cash stock based compensation expenses of $871,000, and increased purchases of laboratory and instrument engineering supplies to support research and development efforts.

During the three-month period ended June 30, 2014, sales, general and administrative expenses were $3,447,000, as compared to $1,234,000 during the three-month period ended June 30, 2013, an increase of $2,213,000 or 179%. The increase was primarily driven by salaries and related expenses as we ramp up our operations and includes an increase in non-cash stock based compensation expenses of $1,132,000.

During the three-month period ended June 30, 2014, amortization was $19,000, which was consistent with $19,000 in amortization during the three-month period ended June 30, 2013.

Depreciation for the three-month period ended June 30, 2014 was $150,000, as compared to $71,000 during the three-month period ended June 30, 2013, an increase of $79,000 or 111%. The increased depreciation was the result of purchases of equipment to up-fit the Company’s new Tucson facility laboratory and administrative space.

As a result of the above factors, loss from operations for the three-month period ended June 30, 2014 was $8,165,000, as compared to a loss of $3,778,000 for the three-month period ended June 30, 2013, an increase in loss from operations of $4,387,000 or 116%. This loss and further losses are anticipated and was the result of our continued investments in research and development, expanded laboratory and operational space, increased employee headcount and other factors as we develop and prepare to commercialize the Company’s products.

Other non-operating income during the three-month period ended June 30, 2014 was $13,000, as compared to $1,000 during the three-month period ended June 30, 2013, an increase of $12,000 or 1,200%. This change was due to increased interest and dividend income on our cash balances and investments, which increased year-over-year.

As a result of these factors, net loss for the three-month period ended June 30, 2014 was $8,152,000, as compared to a net loss of $3,777,000 during the three-month period ended June 30, 2013, an increase in net loss of $4,375,000 or 116%.

Unrealized gain on available-for-sale investments for the three-month period ended June 30, 2014 was $2,000, as compared to $0 during the three-month period ended June 30, 2013. The resulting comprehensive losses were $8,150,000 and $3,777,000 for the three-month periods ending June 30, 2014 and 2013, respectively.

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Changes in Results of Operations: Six-month period ended June 30, 2014 compared to six-month period ended June 30, 2013

During the six-month period ended June 30, 2014, total revenues were $27,000, as compared to $23,000 during the six-month period ended June 30, 2013, an increase of $4,000 or 17%. The increase was due to fluctuations in partner sales volumes on which royalties were due the Company.

Research and development expenses for the six-month period ended June 30, 2014 were $8,125,000, as compared to $4,343,000 during the six-month period ended June 30, 2013, an increase of $3,782,000 or 87%. The increase was primarily the result of increasing employee headcount, an increase in non-cash stock based compensation expense of $1,435,000 and increased purchases of laboratory and instrument engineering supplies to support research and development efforts.

During the six-month period ended June 30, 2014, sales, general and administrative expenses were $5,491,000, as compared to $1,864,000 during the six-month period ended June 30, 2013, an increase of $3,627,000 or 195%. The increase was primarily driven by salaries and related expenses as we ramp up our operations and includes an increase in non-cash stock based compensation expenses of $1,891,000.

During the six-month period ended June 30, 2014, amortization was $38,000, which was consistent with $38,000 in amortization during the six-month period ended June 30, 2013.

Depreciation for the six-month period ended June 30, 2014 was $285,000, as compared to $107,000 during the six-month period ended June 30, 2013, an increase of $178,000 or 166%. The increased depreciation was the result of purchases of equipment to up-fit the Company’s new Tucson facility laboratory and administrative space.

As a result of the above factors, loss from operations for the six-month period ended June 30, 2014 was $13,912,000, as compared to a loss of $6,329,000 for the six-month period ended June 30, 2013, an increase in loss from operations of $7,583,000 or 120%. This loss was anticipated and was the result of our continued investments in research and development, expanded laboratory and operational space, increased employee headcount and other factors as we develop and prepare to commercialize the Company’s products.

Other non-operating income during the six-month period ended June 30, 2014 was $31,000, as compared to $3,000 during the six-month period ended June 30, 2013, an increase of $28,000 or 933%. This change was due to increased interest and dividend income on our cash balances and investments, which increased year-over-year.

As a result of these factors, net loss before income taxes for the six-month period ended June 30, 2014 was $13,881,000, as compared to a net loss of $6,326,000 during the six-month period ended June 30, 2013, an increase in net loss of $7,555,000 or 119%.

Benefit from income taxes for the six-month period ended June 30, 2014 was $527,000, as compared to $0 during the six-month period ended June 30, 2013. This is due to becoming eligible for and electing a partial refund of research and development tax credits as described above in Item 1, Note 13 Income Taxes. The resulting net losses were $13,354,000 and $6,326,000 for the six-month periods ending June 30, 2014 and 2013, respectively.

Unrealized gain on available-for-sale investments for the six-month period ended June 30, 2014 was $6,000, as compared to $0 during the six-month period ended June 30, 2013. The resulting comprehensive losses were $13,348,000 and $6,326,000 for the six-month periods ending June 30, 2014 and 2013, respectively.

Capital Resources and Liquidity

During the six-month period ended June 30, 2014, we did not generate positive cash flows from operating activities.

Our primary sources of liquidity have been from sales of shares of common stock. As of June 30, 2014, the Company had $79,012,000 in cash and cash equivalents and available-for-sale securities, an increase of $37,023,000 from $41,989,000 at December 31, 2013. The primary reason for the change in these assets was the Company’s successful completion of the rights offering described in Item 1, Note 10, Rights Offering.

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As discussed in Item 1, Note 10 Rights Offering, on April 7, 2014, the Company commenced a rights offering to raise $45 million which resulted in gross proceeds of $45 million before expenses upon completion in May, 2014. The purpose of the rights offering was to raise equity capital in a cost-effective manner that gives all of the Company’s existing stockholders the opportunity to participate on a pro rata basis. The net proceeds of the offering will be used for working capital and specifically to fund continued operations, clinical trials, and product commercialization efforts.

The Company is subject to a Lease Agreement with Pima County of Arizona. The future minimum lease payments under the Lease Agreement are included in Item 1, Note 14 Commitments.

As of June 30, 2014, management believes that current cash balances will be more than sufficient to fund our capital and liquidity needs for the next twelve months.

The following summarizes the Company’s capital resources at June 30, 2014 and December 31, 2013, and for the six-month period and fiscal year, respectively, then ended (in thousands):

Capital Resource & Liquidity Summary (in thousands)
	June 30, 2014		December 31, 2013
Cash and cash equivalents	$	65,212	$	30,029
Investments		13,800		11,960
Trade accounts receivable		40		24
Current assets		79,668		42,143
Total assets		81,804		43,431
Current liabilities		2,250		1,137
Working Capital		77,418		41,006
Net cash used in operating activities		7,805		9,749
Net cash used in investing activities		2,687		13,171
Net cash provided by financing activities		45,675		40,880

Our primary use of capital has been for the continued development and commercialization of the ID/AST instrument. We believe our capital requirements will continue to be met with our existing cash balance and those provided under grants, exercises of warrants and stock options and/or, additional issuance of equity or debt securities. Further, if capital requirements vary materially from those currently planned, we may require additional capital sooner than expected. There can be no assurance that such capital will be available in sufficient amounts or on terms acceptable to us, if at all. Additional issuances of equity or convertible debt securities will result in dilution to our current common stockholders.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of June 30, 2014.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

The Company’s interest income is sensitive to fluctuations in the general level of U.S. interest rates. As such, changes in U.S. interest rates affect the interest earned on the Company’s cash and cash equivalents and investments.

Our exposure to market risk is limited to our cash and cash equivalents, all of which have original maturities of less than three months, short-term investments, which have an average maturity of less than one year and available for sale investments which have a maturity of more than one year. The goals of our investment policy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain a portfolio of cash equivalents and investments in a variety of securities that management believes to be of high credit quality. We currently do not hedge interest rate exposure. Further information regarding our investments is included in Item 1, Note 4, Investments, to the footnotes to the financial statements included in this Quarterly Report on Form 10-Q.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of June 30, 2014 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

During the third quarter of 2013, the Company began an implementation of a new enterprise resource planning (ERP) information technology system. This implementation is planned in phases to correspond with the needs of the Company. The first phase, which involved transitioning the purchasing, accounts payable and general ledger functions to the new ERP was completed in January, 2014. The second phase is planned to correspond with manufacturing and other business milestones. During each phase of the implementation, an appropriate level of training of employees, testing of the system and monitoring of the financial results recorded in the system is conducted.

Besides as noted above, there was no change in the Company’s internal control over financial reporting during the quarterly period ended June 30, 2014 that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to any material legal proceedings.

Item 1A. Risk Factors

There have been no material changes to the risk factors that were disclosed in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On March 10, 2014, Accelerate Diagnostics, Inc. (the “Company”) entered into a Standby Purchase Agreement with the Jack W. Schuler Living Trust (the “Schuler Trust”) and the Schuler Family Foundation (the “Schuler Foundation,” and together with the Schuler Trust, the “Standby Purchasers”), pursuant to which the Standby Purchasers have agreed to purchase, at the prevailing subscription price ($16.80 per share), any and all shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), not subscribed for by the Company’s stockholders pursuant to the exercise of their subscription privileges in connection with the rights offering described elsewhere in this Quarterly Report on Form 10-Q.

The trustee of the Schuler Trust and the President of the Schuler Foundation is Jack Schuler, who is a director of the Company. No fees or other consideration were paid by the Company to the Standby Purchasers in exchange for their commitment to purchase any and all unsubscribed shares of Common Stock following the rights offering.

On May 1, 2014, the Company entered into an Assignment and Assumption Agreement (the “Assignment Agreement”) with the Standby Purchasers, Oracle Institutional Partners, L.P. and Oracle Partners, L.P., pursuant to which (i) each Standby Purchaser assigned and transferred its respective rights, responsibilities, liabilities and obligations under the Standby Purchase Agreement to purchase 297,619 shares of Common Stock not subscribed for by the Company’s stockholders pursuant to the exercise of their subscription privileges in connection with the rights offering to (A) Oracle Institutional Partners, L.P., with respect to 119,047 shares of such Common Stock, and (B) Oracle Partners, L.P., with respect to the remaining 178,572 shares of such Common Stock, and (ii) Oracle Institutional Partners, L.P. and Oracle Partners, L.P. each accepted and assumed such rights, responsibilities, liabilities and obligations.

20

On May 19, 2014, in connection with the closing of the rights offering, the Company issued a total 1,160,691 shares of Common Stock to the Standby Purchasers, Oracle Institutional Partners, L.P. and Oracle Partners, L.P. under the agreements described above. Such entities paid the Company an aggregate cash purchase price of $19,499,609 for the shares of Common Stock acquired by them, which were issued in a private placement transaction separate from the rights offering pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated by the SEC thereunder. The Company intends to use the net proceeds from such transaction for general corporate purposes, including the funding of ongoing research and development and productive commercialization initiatives. 

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits 

Exhibit No.	Description	Filing Information
4.1	Form of Non-Transferable Subscription Rights Certificate	Incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3/A (Amendment No. 1) (File No. 333-194474) filed by the Registrant on April 7, 2014
10.1	Assignment and Assumption Agreement, dated as of May 1, 2014, by and among Schuler Family Foundation, Jack Schuler, Trustee of the Jack W. Schuler Living Trust, Oracle Institutional Partners, L.P., Oracle Partners, L.P. and the Registrant	Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by the Registrant on May 2, 2014
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certificate of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
101**	XBRL Instance Document
101**	XBRL Taxonomy Extension Schema Document
101**	XBRL Taxonomy Calculation Linkbase Document
101**	XBRL Taxonomy Extension Definition Linkbase Document
101**	XBRL Taxonomy Label Linkbase Document
101**	XBRL Taxonomy Presentation Linkbase Document

* Furnished

** Pursuant to applicable securities laws and regulations, we are deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and are not subject to liability under any anti-fraud provisions of the federal securities laws as long as we have made a good faith attempt to comply with the submission requirements and promptly amend the interactive data files after becoming aware that the interactive data files fail to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability.

21

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

ACCELERATE DIAGNOSTICS, INC.

August 1, 2014	/s/ Lawrence Mehren
	Lawrence Mehren President and Chief Executive Officer
	(Principal Executive Officer)
August 1, 2014	/s/ Steve Reichling
	Steve Reichling Chief Financial Officer
	(Principal Financial and Accounting Officer)

22

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lawrence Mehren, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Accelerate Diagnostics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchanged Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 1, 2014	/s/ Lawrence Mehren
	Lawrence Mehren Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steve Reichling, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Accelerate Diagnostics, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchanged Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

August 1, 2014	/s/ Steve Reichling
	Steve Reichling Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Each of the undersigned officers of Accelerate Diagnostics, Inc. (the “Company”) hereby certifies that, to his knowledge, the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2014 to which this certification is attached (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

August 1, 2014	/s/ Lawrence Mehren
	Lawrence Mehren President and Chief Executive Officer
	(Principal Executive Officer)
August 1, 2014	/s/ Steve Reichling
	Steve Reichling Chief Financial Officer
	(Principal Financial and Accounting Officer)

XML

Deferred Revenue and Income (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jul. 31, 2013	Sep. 30, 2011
Deferred Revenue And Income Details Narrative
Prepaid royalty fees	$ 2	$ 5	$ 6	$ 12
Deferred revenue recognization	$ 13	$ 0	$ 13	$ 0	$ 40	$ 100

XML

Income Taxes (Details Narrative) (USD $) In Thousands, unless otherwise specified	Jan. 08, 2014
Income Taxes Details Narrative
Research and development expense	$ 703,000
Eligible refund	$ 527,000

XML

Employee Stock-Based Compensation - Fair Value Assumptions (weighted average) (Details) (USD $)	3 Months Ended
	Jun. 30, 2014 Y	Jun. 30, 2013 Y
Employee Stock-Based Compensation - Fair Value Assumptions Weighted Average Details
Expected term (in year)	5.72	5.92
Volatility	97.00%	98.00%
Expected dividends
Risk-free interest rates	1.93%	1.00%
Estimated forfeitures	3.00%	15.00%
Fair value per share	$ 15.40	$ 5.23

XML

Intellectual Property - Finite-Lived Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Intellectual Property - Finite-Lived Intangible Assets Details
Technologies	$ 193	$ 193
Patents	210	210
Subtotal	403	403
Accumulated amortization	(200)	(162)
Net intellectual property	$ 203	$ 241

XML

Deferred Revenue and Income (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Deferred Revenue and Income Summary

Deferred Revenue and Income (in thousands)
	June 30, 2014		December 31, 2013
Prepaid royalties	$	63	$	69
Fisher agreement		13		13
Total current deferred revenue and income	$	76	$	82
Arizona Commerce Authority Grant (see Note 7)	$	750	$	750
Fisher agreement		13		27
Total long-term deferred income	$	763	$	777

XML

Commitments - Operating Lease Obligations (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Commitments - Operating Lease Obligations Details
Year Ending December 31, remaining in 2014	$ 145
Year Ending December 31, 2015	289
Year Ending December 31, 2016	24
Year Ending December 31, 2017
Year Ending December 31, 2018
Thereafter
Total operating lease obligations	$ 458

XML

Earnings Per Share (Details Narrative)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Earnings Per Share Details Narrative
Antidilutive common stock instruments outstanding	6,109,600	5,731,246

XML

License Agreements and Grants (Details Narrative 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Aug. 22, 2012
License Agreements And Grants Details Narrative 1
Grant agreement		$ 1,000
Capital investment		4,520
Qualified job wages		63
Qualified job benefits		65.00%
Deferred revenue from grant agreement	$ 750

XML

Employee Stock Based Compensation - (Details Narrative) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Employee Stock Based Compensation - Details Narrative
Unrecognized share-based compensation costs	$ 10,421

XML

Investments

6 Months Ended

Jun. 30, 2014

Investments, All Other Investments [Abstract]

Investments

NOTE 4.   INVESTMENTS

The following tables summarize the Company’s available-for-sale investments at June 30, 2014 (in thousands):

		Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Asset-backed securities	$	379	$	—	$	—		$	379
Corporate notes and bonds		13,393		29		(1	)		13,421
Total	$	13,772	$	29	$	(1	)	$	13,800

The following table summarizes the maturities of the Company’s available-for-sale securities at June 30, 2014 (in thousands):

		Amortized Cost		Fair Value
Due in less than 1 year	$	10,241	$	10,246
Due in 1-3 years		3,531		3,554
Total	$	13,772	$	13,800

XML

Employee Stock-Based Compensation - Stock-Based Compensation Expense (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Employee Stock-Based Compensation - Stock-Based Compensation Expense Details
Research and development	$ 1,288	$ 417	$ 2,112	$ 677
Sales, general and administrative	1,883	751	2,819	928
Total stock-based compensation expense	$ 3,171	$ 1,168	$ 4,931	$ 1,605

XML

Investments (Details Narrative) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Fair Value
Asset-backed securities	$ 379
Corporate notes and bonds	13,421
Total	13,800
Gross Unrealized Losses
Asset-backed securities
Corporate notes and bonds	(1)
Total	(1)
Gross Unrealized Gains
Asset-backed securities
Corporate notes and bonds	29
Total	29
Amortized Cost
Asset-backed securities	379
Corporate notes and bonds	13,393
Total	$ 13,772

XML

Fair Value of Financial Instruments (Details Narrative) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Total
Assets:
Money market funds (cash equivalents)	$ 12,295	$ 27,096
Corporate notes and bonds	13,421	11,460
Asset-backed securities	379	500
Total assets measured at fair value	26,095	39,056
Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalents)
Corporate notes and bonds
Asset-backed securities
Total assets measured at fair value
Significant Other Observable Inputs (Level 2)
Assets:
Money market funds (cash equivalents)
Corporate notes and bonds	13,421	11,460
Asset-backed securities	379	500
Total assets measured at fair value	13,800	11,960
Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets:
Money market funds (cash equivalents)	12,295	27,096
Corporate notes and bonds
Asset-backed securities
Total assets measured at fair value	$ 12,295	$ 27,096

XML

Employee Stock-Based Compensation - Stock Option Activity (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Number of Shares
Options Outstanding, beginning balance	5,160,086
Shares Granted	644,325
Shares Cancelled	(10,971)
Shares Exercised	(255,000)
Shares Expired
Options Outstanding, ending balance	5,538,440
Weighted Average Exercise Price Per Share
Options Outstanding, beginning balance	$ 3.45
Shares Granted	$ 15.58
Shares Cancelled	$ 13.53
Shares Exercised	$ 2.86
Shares Expired
Options Outstanding, ending balance	$ 4.87

XML

Investments (Details Narrative 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Fair Value
Due in less than 1 year	$ 10,246
Due in 1 to 3 years	3,554
Total	13,800
Amortized Cost
Due in less than 1 year	10,241
Due in 1 to 3 years	3,531
Total	$ 13,772

XML

Property and Equipment - Property and Equipment (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Property And Equipment - Property And Equipment Details
Computer equipment	$ 574	$ 567
Laboratory and scientific equipment	943	791
Furniture and fixtures	206	37
Manufacturing equipment	6
Leasehold improvements	302	279
Capital lease-leasehold improvements	266
Capital projects in progress	548
Total property and equipment	2,845	1,674
Accumulated amortization - capital lease	(67)
Accumulated depreciation - other	(845)	(627)
Net property and equipment	$ 1,933	$ 1,047

XML

Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Fair Value of Financial Instruments

NOTE 3.   FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments such as cash equivalents, restricted cash, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, and other current liabilities approximate the related fair values due to the short-term maturities of these instruments. The Company may invest its excess cash into financial instruments that are readily convertible into cash, such as marketable securities, money market funds and certificates of deposit with original maturities of three months or less at the date of purchase. The Company considers all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. The Company has established guidelines to maintain safety and liquidity for our financial instruments, and the cost of securities sold is based on the specific identification method.

ASC Topic 820, Fair Value Measurements and Disclosures has redefined fair value and required the Company to establish a framework for measuring fair value and expand disclosures about fair value measurements. The framework requires the valuation of assets and liabilities subject to fair value measurements using a three tiered approach and fair value measurement be classified and disclosed in one of the following three categories:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).

The following tables represent the financial instruments measured at fair value on a recurring basis on the consolidated financial statements of the Company subject to ASC Topic 820, Fair Value Measurements and Disclosure, and the valuation approach applied to each class of financial instruments at June 30, 2014 and December 31, 2013 (in thousands):

	June 30, 2014 (in thousands)
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds (cash equivalents)	$	12,295	$	—	$	—	$	12,295
Corporate notes and bonds		—		13,421		—		13,421
Asset-backed securities		—		379		—		379
Total assets measured at fair value	$	12,295	$	13,800	$	—	$	26,095

	December 31, 2013 (in thousands)
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds (cash equivalents)	$	27,096	$	—	$	—	$	27,096
Corporate notes and bonds		—		11,460		—		11,460
Asset-backed securities		—		500		—		500
Total assets measured at fair value	$	27,096	$	11,960	$	—	$	39,056

Level 2 available-for-sale securities are priced using quoted market prices for similar instruments or nonbinding market prices that are corroborated by observable market data. The Company uses inputs such as actual trade data, benchmark yields, broker/dealer quotes, and other similar data, which are obtained from quoted market prices, independent pricing vendors, or other sources, to determine the ultimate fair value of these assets and liabilities. The Company uses such pricing data as the primary input to make its assessments and determinations as to the ultimate valuation of its investment portfolio and has not made, during the periods presented, any material adjustments to such inputs. There were no significant transfers between levels during the six-month period ended June 30, 2014.

XML

Property and Equipment (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Property And Equipment Details Narrative
Depreciation expense	$ 150	$ 71	$ 285	$ 107

XML

Stock Purchase (Details Narrative) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 14, 2014	Mar. 06, 2013	Apr. 20, 2012
Securities Purchase Agreement Dated April 20, 2012
Shares of common stock			14,000,000
Price per share	$ 16.80		$ 1.03
Warrants to purchase common stock			7,000,000
Price per warrant			1.03
Exercised warrant per purchase agreement		7,000,000
Price per warrant		1.03
Additional warrant to purchase common stock			7,000,000
Price per warrant			2.00
Additional exercised warrant per purchase agreement		6,429,000
Price per warrant		2.00
Value of common stock			$ 8,524,000
Value of warrants			$ 5,896,000

XML

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 65,212	$ 30,029
Investments	13,800	11,960
Trade accounts receivable	40	24
Prepaid expenses and other	616	130
Total current assets	79,668	42,143
Property and equipment, net	1,933	1,047
Intellectual property, net	203	241
Total Assets	81,804	43,431
Current liabilities:
Accounts payable	1,302	540
Accrued compensation and other liabilities	727	515
Deferred revenue and income	76	82
Capital lease obligation	145
Total current liabilities	2,250	1,137
Long-term deferred income	763	777
Long-term capital lease obligation	87
Total liabilities	3,100	1,914
Stockholders' equity:
Common stock, $0.001 par value; 55,000,000 shares authorized 44,583,092 (as of June 30, 2014) and 41,649,521 (as of December 31, 2013) shares issued and outstanding	45	42
Preferred stock, $0.001 par value; 5,000,000 shares authorized and none outstanding as of June 30, 2014 and December 31, 2013
Contributed capital	126,469	75,937
Accumulated deficit	(47,838)	(34,484)
Accumulated other comprehensive income	28	22
Total stockholders' equity	78,704	41,517
Total liabilities and stockholders' equity	$ 81,804	$ 43,431

XML

Employee Stock-Based Compensation - Stock Option Supplemental Information (Details) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014 Y
Options Outstanding
Number of Options	5,538,440
Weighted Average Remaining Contractual Term (in years)	8.38
Weighted Average Exercise Price	$ 4.87
Weighted Average Fair Value	$ 3.74
Aggregate intrinsic value (in thousands)	$ 117,038
Options Exercisable
Number of Options	1,575,651
Weighted Average Remaining Contractual Term (in years)	7.94
Weighted Average Exercise Price	$ 2.07
Weighted Average Fair Value	$ 1.36
Aggregate intrinsic value (in thousands)	$ 37,711

XML

Organization and Nature of Business; Basis of Presentation

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Organization and Nature of Business; Basis of Presentation

NOTE 1.   ORGANIZATION AND NATURE OF BUSINESS; BASIS OF PRESENTATION

Accelerate Diagnostics, Inc. (“Accelerate” or the “Company”) is a Delaware corporation focused on developing and commercializing innovative instrumentation for the rapid identification and antibiotic susceptibility testing of infectious pathogens. The Company’s ID/AST instrument utilizes a proprietary culture-free process with both genomic and phenotypic detection technologies that decrease time to result while maintaining high sensitivity and specificity.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, (“U.S. GAAP”), and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”), regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

The condensed consolidated balance sheet as of December 31, 2013 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP.

The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the result of operations to be anticipated for the entire year ending December 31, 2014 or any future period.

All amounts are rounded to the nearest thousand dollars unless otherwise indicated.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

XML

Intellectual Property (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Intellectual Property Details Narrative
Amortization expense	$ 19	$ 19	$ 38	$ 38
Reduction of amortized book value	$ 0	$ 0	$ 0	$ 0

XML

Investments (Tables)

6 Months Ended

Jun. 30, 2014

Investments, All Other Investments [Abstract]

Available for Sale Investments

		Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Asset-backed securities	$	379	$	—	$	—		$	379
Corporate notes and bonds		13,393		29		(1	)		13,421
Total	$	13,772	$	29	$	(1	)	$	13,800

The following table summarizes the maturities of the Company’s available-for-sale securities at June 30, 2014 (in thousands):

		Amortized Cost		Fair Value
Due in less than 1 year	$	10,241	$	10,246
Due in 1-3 years		3,531		3,554
Total	$	13,772	$	13,800

XML

License Agreements and Grants (Details Narrative) (USD $) In Thousands, unless otherwise specified	1 Months Ended	3 Months Ended		6 Months Ended
	May 31, 2012	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
License Agreements And Grants Details Narrative
Research and development project	$ 650
Offset to research and development project		$ 60	$ 43	$ 100	$ 54

XML

Intellectual Property (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Finite-Lived Intangible Assets

Intellectual Property (in thousands)
	June 30, 2014			December 31, 2013
Technologies	$	193		$	193
Patents		210			210
Subtotal	$	403		$	403
Accumulated amortization		(200	)		(162	)
Net intellectual property	$	203		$	241

Future Amortization Expense

Intangible Assets Future Amortization Years Ending December 31 (in thousands)
	Remaining in 2014	$	25
	2015		8
	2016		8
	2017		8
	2018		8
	Thereafter		146
	Total future amortization	$	203

XML

Recently Issued Accounting Pronouncements

6 Months Ended

Jun. 30, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Recently Issued Accounting Pronouncements

NOTE 2.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers, which will supersede nearly all existing revenue recognition guidance under U.S. GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We are carefully evaluating our existing revenue recognition practices to determine whether any contracts in the scope of the guidance will be affected by the new requirements. The effects may include identifying performance obligations in existing arrangements, determining the transaction price and allocating the transaction price to each separate performance obligation. We will also establish practices to determine when a performance obligation has been satisfied, and recognize revenue in accordance with the new requirements. The new standard is effective for us on January 1, 2017. Early adoption is not permitted. The standard allows for either “full retrospective” adoption, meaning the standard is applied to all of the periods presented, or “modified retrospective” adoption, meaning the standard is applied only to the most current period presented in the financial statements. We are currently evaluating the transition method that will be elected.

In July 2013, the FASB issued ASU 2013-11, which requires a reporting entity to present an unrecognized tax benefit as a liability in the financial statements separate from deferred tax assets if a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available as of the reporting date to settle taxes that would result from the disallowance of the tax position or if a reporting entity does not intend to use the deferred tax asset for such purpose. The amendments in ASU 2013-11 are effective for fiscal years, and interim periods within those years, beginning on or after December 15, 2013. The adoption of ASU 2013-11 did not have a material impact on the Company’s consolidated financial statements.

In March 2013, the FASB issued ASU 2013-04, which provides guidance on the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date. The update requires an entity to measure obligations resulting from joint and several liability obligations for which the total amount of the obligation within the scope of the update is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangements among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in ASU 2013-04 are effective for fiscal years and interim periods within those years, beginning on or after December 15, 2013 and must be applied retrospectively. The adoption of ASU 2013-04 did not have a material impact on the Company’s consolidated financial position, results of operations, or cash flows.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Common Stock, par value	$ 0.001	$ 0.001
Common Stock, shares authorized	55,000,000	55,000,000
Common Stock, shares issued	44,583,092	41,469,521
Common Stock, shares outstanding	44,583,092	41,469,521
Preferred stock, par value	$ 0.001	$ 0.001
Preferred Stock, shares authorized	5,000,000	5,000,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0

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Employee Stock-Based Compensation

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Employee Stock-Based Compensation

NOTE 12.   EMPLOYEE STOCK-BASED COMPENSATION

At the Company’s 2014 Annual Meeting of Stockholders held on May 29, 2014, stockholders approved an amendment to the Company’s 2012 Omnibus Equity Incentive Plan increasing the number of shares of Common Stock reserved and available for grant thereunder by 4,000,000 to 9,500,000 shares.

The following table summarizes stock-based compensation expense in the condensed consolidated statements of operations for the periods indicated (in thousands):

	Stock-Based Compensation Expense (in thousands)
	Three-month period ended				Six-month period ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Research and development	$	1,288	$	417	$	2,112	$	677
Sales, general and administrative		1,883		751		2,819		928
Total stock-based compensation expense	$	3,171	$	1,168	$	4,931	$	1,605

The following table summarizes option activity under all plans during the six-month period that ended on June 30, 2014:

Stock Option Activity
	Number of Shares			Weighted Average Exercise Price per Share
Options Outstanding December 31, 2013	5,160,086		$	3.45
Granted	644,325		$	15.58
Cancelled	(10,971	)	$	13.53
Exercised	(255,000	)	$	2.86
Expired	—			—
Options Outstanding June 30, 2014	5,538,440		$	4.87

The following table summarizes relevant information for options outstanding and options exercisable at June 30, 2014:

Stock Option Supplemental Information
		Options Outstanding		Options Exercisable
Number of options		5,538,440		1,575,651
Weighted average remaining contractual term (in years)		8.38		7.94
Weighted average exercise price	$	4.87	$	2.07
Weighted average fair value	$	3.74	$	1.36
Aggregate intrinsic value (in thousands)	$	117,038	$	37,711

The following table summarizes the weighted average assumptions used in determining the fair value of the Company’s stock options granted to employees during the three-month periods ending June 30, 2014 and 2013:

Fair Value Assumptions for Stocks Issued During the Quarter (weighted average)
	June 30, 2014			June 30, 2013
Expected term (in years)		5.72			5.92
Volatility		97	%		98	%
Expected dividends		—			—
Risk free interest rates		1.93	%		1.00	%
Estimated forfeitures		3	%		15	%
Fair value per share	$	15.40		$	5.23

As of June 30, 2014, unrecognized share-based compensation cost related to unvested stock options was $10,421,000.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Jul. 28, 2014
Document And Entity Information
Entity Registrant Name	Accelerate Diagnostics, Inc.
Entity Central Index Key	0000727207
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		44,583,092
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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IncomeTaxes

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

IncomeTaxes

NOTE 13. INCOME TAXES

Deferred tax assets and liabilities are recorded for the estimated future tax effects of temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets. The change in deferred tax assets and liabilities for the period represents the deferred tax provision or benefit for the period. Effects of changes in enacted tax laws in deferred tax assets and liabilities are reflected as an adjustment to the tax provision or benefit in the period of enactment.

The Company follows the provisions of ASC 740, Income Taxes, to account for any uncertainty in income taxes with respect to the accounting for all tax positions taken (or expected to be taken) on any income tax return. This guidance applies to all open tax periods in all tax jurisdictions in which the Company is required to file an income tax return. Under U.S. GAAP, in order to recognize an uncertain tax benefit the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50% likely to be realized upon resolution of the benefit. The Company determined that no uncertain tax positions have been taken or are expected to be taken that could have a material effect on the Company’s income tax liabilities. Interest and penalties, if any, would be recorded to general and administrative expenses.

On January 8, 2014, we were notified by the Arizona Commerce Authority (“Authority”) that we meet the program requirements to receive a “Certificate of Qualification” and, therefore, are eligible for a partial refund of research and development investments. Our research and development tax credit for 2013 is $703,000 which made us eligible to claim a partial refund of 75% or $527,000. We claimed this partial refund and, by doing so, irrevocably forfeited the remaining 25% tax credit amount along with any additional tax credits that might become available if our qualifying expenses increase or income tax liability decreases. The “Certificate of Qualification” does not guarantee the receipt of tax incentives; nor does it obligate the Arizona Department of Revenue to issue the refund. Furthermore, if qualifying expenses decrease or income tax liability increases, the refund amount may be less than the $527,000. If the amount received for this tax credit is later determined to be incorrect or invalid, the excess may be treated as a tax deficiency. As of March 31, 2014 we recorded the $527,000 partial refund as a non-operating benefit from income taxes. Payment of this amount was received in April and deposited in May 2014.

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Condensed Consolidated Statements of Operations and Comprehensive Loss (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Revenues:
Licensing and royalty revenues	$ 13	$ 7	$ 27	$ 23
Total revenues	13	7	27	23
Costs and expenses:
Research and development	4,562	2,461	8,125	4,343
Sales, general and administrative	3,447	1,234	5,491	1,864
Amortization	19	19	38	38
Depreciation	150	71	285	107
Total costs and expenses	8,178	3,785	13,939	6,352
Loss from operations	(8,165)	(3,778)	(13,912)	(6,329)
Other expense	(3)	(1)	(3)	(1)
Interest and dividend income	16	2	34	4
Total other income	13	1	31	3
Net loss before income taxes	(8,152)	(3,777)	(13,881)	(6,326)
Benefit from income taxes			527
Net Loss	(8,152)	(3,777)	(13,354)	(6,326)
Net loss per share:
Basic and diluted net loss per share (not in thousands)	$ (0.19)	$ (0.10)	$ (0.31)	$ (0.19)
Weighted average shares outstanding (in thousands)	43,477	38,941	42,637	34,128
Other comprehensive loss:
Net loss	(8,152)	(3,777)	(13,354)	(6,326)
Net unrealized gain on available-for-sale investments	2		6
Comprehensive loss	$ (8,150)	$ (3,777)	$ (13,348)	$ (6,326)

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License Agreements and Grants

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

License Agreements and Grants

NOTE 7.   LICENSE AGREEMENTS AND GRANTS

In May 2012, the Company and Denver Health were notified that the Defense Medical Research and Development Program (“DMRDP”) recommended $2 million of funding for a proposed 35-month project of which the Company estimates it will receive direct monies for internal research and development of $650,000. The joint proposal became the sole recipient under the Military Infectious Diseases Applied Research Award program for rapid detection of serious antibiotic-resistant infections.  The project will apply the Company’s ID/AST instrument to wound infections and other serious infections secondary to trauma. The Company has invoiced a cumulative total of $258,000 under this grant which is recorded as an offset to research and development expenses. The amount invoiced for the three-month periods ended June 30, 2014 and 2013 was $60,000 and $43,000, respectively, and for the six-month periods ended June 30, 2014 and 2013 was $100,000 and $54,000, respectively.

On August 22, 2012, the Company entered into a Grant Agreement (the “Grant Agreement”) with the Arizona Commerce Authority, an agency of the State of Arizona (the “Authority”), pursuant to which the Authority will provide certain state and county sponsored incentives for the Company to relocate its corporate headquarters to, and expand its business within, the State of Arizona (the “Project”). Pursuant to the Grant Agreement, the Authority agreed to provide a total grant in the amount of $1,000,000 (the “Grant”) for the use by the Company in the advancement of the Project. The Grant is payable out of an escrow account in four installments, upon the achievement of the following milestones:

· Milestone 1 – Relocation of Company’s operations and corporate headquarters to Arizona and creation of 15 Qualified Jobs (as defined below).

· Milestone 2 – Creation of 30 Qualified Jobs (including Qualified Jobs under Milestone 1).

· Milestone 3 – Creation of 40 Qualified Jobs (including Qualified Jobs under Milestones 1 and 2).

· Milestone 4 – Creation of 65 Qualified Jobs (including Qualified Jobs under Milestones 1, 2 and 3) and capital investment of at least $4,520,000.

For purposes of the Grant Agreement, a “Qualified Job” is a job that is permanent, full-time, new to Arizona, and for which the Company pays average (across all Qualified Jobs identified by the Company in its discretion) annual wages of at least $63,000 and offers health insurance benefits and pays at least 65% of the premiums associated with such benefits. The amount of each installment payment will be determined in accordance with a formula specified in the Grant Agreement. The Grant Agreement also contains other customary provisions, including representations, warranties and covenants of both parties. As of June 30, 2014 the Company has collected $750,000 of the $1,000,000 in milestones. The full amount is recorded in long-term deferred income until the economic development provisions of the grant have been satisfied in full, as there are “claw-back” provisions which would require repayment of certain amounts received if employment levels are not sustained during the term of the arrangement. Once the “claw-back” provisions expire, we will recognize the grant as other non-operating income. Further details are included in Note 8, Deferred Revenue and Income.

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Intellectual Property

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Intellectual Property

NOTE 6.   INTELLECTUAL PROPERTY

Intellectual property consisted of the following at the dates indicated (in thousands):

Intellectual Property (in thousands)
	June 30, 2014			December 31, 2013
Technologies	$	193		$	193
Patents		210			210
Subtotal	$	403		$	403
Accumulated amortization		(200	)		(162	)
Net intellectual property	$	203		$	241

Future amortization expense for the intangible assets is estimated as follows (in thousands):

Intangible Assets Future Amortization Years Ending December 31 (in thousands)
	Remaining in 2014	$	25
	2015		8
	2016		8
	2017		8
	2018		8
	Thereafter		146
	Total future amortization	$	203

Intellectual properties are recorded at cost and are being amortized on a straight-line basis over their estimated useful lives of 20 years or the patent application life specific to each capitalized patent. Amortization expense for the three-month periods ended June 30, 2014 and 2013 was $19,000 and $19,000, respectively, and for the six-month periods ended June 30, 2014 and 2013 was $38,000 and $38,000, respectively. The Company routinely evaluates the recoverability of its long-lived assets based upon estimated future cash flows from and estimated fair value of such long-lived assets. If in management’s judgment, the anticipated undiscounted cash flows or estimated fair value are insufficient to recover the carrying amount of the long-lived asset, the Company will determine the amount of the impairment and the value of the asset will be written down. There were no amounts recognized as losses due to impairments of intangible assets for the three-month periods ending June 30, 2014 and 2013 for the for the six-month periods ending June 30, 2014 and 2013.

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Property and Equipment (Tables)

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment (in thousands)
	June 30, 2014			December 31, 2013
Computer equipment	$	574		$	567
Laboratory and scientific equipment		943			791
Furniture and fixtures		206			37
Manufacturing equipment		6			—
Leasehold improvements		302			279
Capital lease – leasehold improvements		266			—
Capital projects in progress		548			—
Total property and equipment	$	2,845		$	1,674
Accumulated amortization – capital lease		(67	)		—
Accumulated depreciation – other		(845	)		(627	)
Net property and equipment	$	1,933		$	1,047

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Commitments

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments

NOTE 14. COMMITMENTS

Operating & Capital Lease Obligations

On August 20, 2012, the Company entered into a Lease Agreement (“Lease”) with Pima County, a political subdivision of the State of Arizona (“Landlord”), pursuant to which the Company will lease approximately 15,096 square feet of office space located in Tucson, Arizona for a period of three years (the “Initial Term”), which may be extended by the Company for up to three additional one-year periods (each a “Renewal Term”). The Lease also provides that the Company has the option, with six months prior notice to Landlord, to lease either or both of two additional areas with an aggregate size of approximately 7,920 square feet.

Pursuant to the Lease, the Company agreed to: (i) pay rent equal to $9.25 per usable square foot per year (approximately $139,600 per year) during the Initial Term and $19.80 per usable square foot per year (approximately $298,900 per year) during any Renewal Term; (ii) relocate its corporate offices to the Tucson area and begin operations within 30 days of the date that the tenant improvements are substantially completed (the “Commencement Date”); and (iii) within 18 months of the Commencement Date, employ at least 30 individuals with a median salary of at least $70,000, which median salary must be maintained throughout the term of the Lease. If the Company fails to satisfy the condition described in clause (iii) of the preceding sentence, the rental rate under the Lease will be increased by a percentage that is twice the percentage by which the Company’s annual payroll has fallen short of the specified goal (subject to a cap equal to $19.80 per usable square foot per year). The Lease also provides that Landlord will pay for tenant improvements (up to a cap of $1,400,000) as well as certain repairs, utilities and insurance. As of February 1, 2013, we relocated our headquarters into the above described leased space in Tucson, Arizona.

On October 15, 2013, the Company executed the First Amendment to the Lease with Pima County to exercise its option and to expand its lease premises by 4,551 square feet whereby Pima County provided tenant improvements. After the completion of tenant improvements, the Company occupied this additional space in January, 2014. Pursuant to the First Amendment, the Company agreed to (i) pay rent equal to $9.25 per square foot per year (approximately $42,000 per year) and (ii) repay tenant improvements over the remaining lease term. These tenant improvements are treated as a capital lease whereby both an asset and a liability have been recorded and periodic interest and depreciation will be recorded to amortize the value of this asset and the liability over the remaining lease term. Further details regarding this capital lease are included in Note 5, Property and Equipment.

The future minimum lease payments under the capital lease together with the present value of the net minimum lease payments as of June 30, 2014 are as follows:

Capital Lease Obligations (in thousands)
Year ending December 31:
Remaining in 2014	$	75
2015		151
2016		13
2017		—
2018		—
Total minimum lease payments	$	239
Less amount representing interest		(7	)
Present value minimum lease payments	$	232

In April 2014, the Company entered into a Second Amendment to the Lease with Pima County, pursuant to which the Company exercised its option to build-out and occupy 3,594 square feet and an additional 4,163 square feet not contemplated in the Lease for manufacturing and other operational requirements. Pursuant to the Second Amendment, the Company also agreed to: (i) pay rent equal to $9.25 per usable square foot per year for the 3,594 option space and $17.63 per usable square foot per year for the additional 4,163 square feet during the Initial Term; (ii) pay rent of $19.80 per usable square foot per year for the 3,594 option space and $17.63 per usable square foot per year for the additional 4,163 square feet during any Renewal Term; (ii) restore the 3,594 option space and the 4,163 additional space to a reasonable office typical tenant space at the end of the Lease; and (iii) adhere to all other terms of the Lease. The Company estimates that the costs for restoration at the end of the Lease as described in (ii) of the Second Amendment are immaterial and, therefore, no accrual has been recorded.

Total rent expense for the Tucson facility, including common area charges, for three-month periods ending June 30, 2014 and 2013 was approximately $64,000 and $93,000, respectively, and for the six-month periods ending June 30, 2014 and 2013 was approximately $113,000 and $93,000 respectively. Future minimum lease payments under this agreement are as follows (in thousands):

Operating Lease Obligations (in thousands)
	Year ending December 31:
	Remaining in 2014	$	145
	2015		289
	2016		24
	2017		—
	2018		—
	Thereafter		—
	Total operating lease obligations	$	458

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Rights Offering

6 Months Ended

Jun. 30, 2014

Equity Method Investments and Joint Ventures [Abstract]

Rights Offering

NOTE 10.   RIGHTS OFFERING

On April 7, 2014, the Company commenced a rights offering to raise $45 million to fund continued operations, clinical trials, and product commercialization efforts. Under the terms of the rights offering, the Company distributed, at no charge to the holders of its Common Stock as of 5:00 p.m., New York City time, on March 14, 2014, which was established as the record date for the rights offering, 0.063921 non-transferable subscription rights for each share of Common Stock owned on the record date. Each whole subscription right allowed the holder to subscribe to purchase one share of Common Stock at a subscription price of $16.80 per share. In the aggregate, the Company intended to issue 2,678,571 shares of Common Stock in connection with the rights offering. The purpose of the rights offering was to raise equity capital in a cost-effective manner that gives all of the Company’s existing stockholders the opportunity to participate on a pro rata basis.

In connection with the rights offering, the Company received standby commitments from the Jack W. Schuler Living Trust and the Schuler Family Foundation. The standby purchasers agreed to purchase any and all shares of Common Stock that were not subscribed for by stockholders in connection with the rights offering. On May 1, 2014, the Company entered into an Assignment and Assumption Agreement with the standby purchasers, Oracle Institutional Partners, L.P. and Oracle Partners, L.P., pursuant to which each standby purchaser assigned and transferred its respective rights, responsibilities, liabilities and obligations under the Standby Purchase Agreement to purchase 297,619 shares of Common Stock not subscribed for by the Company’s stockholders in connection with the rights offering to (i) Oracle Institutional Partners, L.P., with respect to 119,047 shares of such Common Stock, and (ii) Oracle Partners, L.P., with respect to the remaining 178,572 shares of such Common Stock.

The rights offering period expired at 5:00 p.m., New York City time, on April 28, 2014, and the transactions contemplated by the rights offering and the Standby Purchase Agreement described above (including the Company’s issuance of an aggregate of 2,678,571 shares of its Common Stock to the rights offering participants and standby purchasers) were completed on May 19, 2014. The Company received gross proceeds of $45,000,000 before costs associated with the transactions which totaled $126,000, $106,000 of which hasn’t been paid as of June 30, 2014.

Because the exercise price of the rights offering of $16.80 was less than the fair value of the Company’s shares of Common Stock at the expiration of the offering, there is a bonus element that is treated akin to a stock dividend. The weighted average shares outstanding, as well as the basic and diluted loss per share for the three- and six-month periods ended June 30, 2013 have been revised for those effects.

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Deferred Revenue and Income

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Deferred Revenue and Income

NOTE 8.   DEFERRED REVENUE AND INCOME

Deferred revenue consists of amounts received for products or services not yet delivered or earned. Deferred income consists of amounts received for commitments not yet fulfilled. If we anticipate that the revenue or income will not be earned within the following twelve months, the amount is reported as long-term deferred income. A summary of the balances as of June 30, 2014 and December 31, 2013 follow (in thousands):

Deferred Revenue and Income (in thousands)
	June 30, 2014		December 31, 2013
Prepaid royalties	$	63	$	69
Fisher agreement		13		13
Total current deferred revenue and income	$	76	$	82
Arizona Commerce Authority Grant (see Note 7)	$	750	$	750
Fisher agreement		13		27
Total long-term deferred income	$	763	$	777

Deferred revenue includes prepaid royalty fees. In September 2011, $100,000 of prepaid royalty fees was received of which $2,000 and $5,000 were recognized during the three-month periods ended June 30, 2014 and 2013, respectively, and $6,000 and $12,000 were recognized during the six-month periods ended June 30, 2014 and 2013, respectively. Recognized amounts are reflected as licensing and royalty revenue.

Deferred income includes a $40,000 payment received from Fisher Scientific in July 2013, of which $13,000 and $0 has been recognized as an offset against research and development expenses in the three-month periods ended June 30, 2014 and 2013, respectively, and $13,000 and $0 has has been recognized as an offset against research and development expenses in the six-month periods ended June 30, 2014 and 2013, respectively. We anticipate earning $13,000 of the remaining amount in the next twelve months and the final $13,000 in future years.

Through June 30, 2014, $750,000 in milestone payments from the Arizona Commerce Authority were received of which none has been recognized in income and we do not anticipate earning any of it in the next fiscal year. Further details regarding the Arizona Commerce Authority agreement are included in Note 7, License Agreements and Grants.

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Stock Purchase

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Stock Purchase

NOTE 9.   STOCK PURCHASE

On April 20, 2012, we entered into a Securities Purchase Agreement with Abeja Ventures, LLC (“Abeja”), pursuant to which the Company agreed to sell and issue to Abeja at a purchase price of $1.03 per share for an aggregate purchase price of $14,420,000; (i) 14,000,000 shares of the Company’s common stock (“Common Stock”); (ii) a warrant to purchase 7,000,000 shares of Common Stock at an exercise price of $1.03 per share (the “$1.03 Warrant”); and (iii) another warrant to purchase 7,000,000 shares of Common Stock at an exercise price of $2.00 per share (the “$2.00 Warrant”), with each warrant exercisable prior to the fifth anniversary of the closing of the transactions contemplated by the Securities Purchase Agreement (collectively, the “Investment”). The purchase of Common Stock and warrants pursuant to the Investment, which was consummated on June 26, 2012, qualified for equity treatment under U.S. GAAP. The respective values of the warrants and Common Stock were calculated using their relative fair values and both are classified under Contributed Capital. The value therefore recorded for the warrants was $5,896,000 and for the Common Stock was $8,524,000.

Both warrants were exercisable until June 26, 2017, which was the fifth anniversary of the date on which the warrants were issued. Other significant terms and conditions of the warrants are as follows:

· the warrants provide for partial exercises, but they do not provide for a “cashless” exercise feature (i.e., they may only be exercised for cash);

· the warrants do not contain anti-dilution provisions that would trigger exercise price or other adjustments as a result of subsequent issuances of the Company’s equity securities, but they do contain customary provisions for equitable adjustments in connection with stock dividends, stock splits or reclassifications of Common Stock;

· following certain types of fundamental transactions involving the Company (e.g., a transaction resulting in a change in control of the Company), the holder of the warrants would continue to be entitled to exercise the warrants in exchange for the equity securities or alternate consideration receivable by a holder of Common Stock as a result of the fundamental transaction; and

· the holder of the warrants is entitled to certain demand and piggy-back registration rights, including for shelf registrations, with respect to the shares of Common Stock issuable upon its exercise of the warrants.

On March 6, 2013, Abeja exercised in full its warrant to purchase 7,000,000 shares of Common Stock at an exercise price of $1.03 per share. On the same date, Abeja also exercised the 92% of its warrant to purchase an additional 7,000,000 shares of Common Stock at an exercise price of $2.00 per share (Abeja exercised such warrant for 6,428,840 shares, leaving 571,160 shares unexercised). The Company received aggregate funds of $20,068,000 in connection with such exercises. Shares issued by the Company in connection with the warrant exercises were issued directly to the members of Abeja on a pro rata basis in accordance with their membership interests and written exercise instructions provided to the Company by Abeja. Immediately after giving effect to the warrant exercises, Abeja also distributed in kind to its members (on a pro rata basis in accordance with their membership interests) the remaining shares of Common Stock held by that entity.

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Earnings Per Share

6 Months Ended

Jun. 30, 2014

Net loss per share:

Earnings Per Share

NOTE 11.   EARNINGS PER SHARE

The Company follows ASC 260, Earnings Per Share, which requires companies to present basic earnings per share and diluted earnings per share. Basic earnings (loss) per share includes no dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period.

The Company’s net loss for the periods presented caused the inclusion of certain outstanding warrants and options to purchase our Common Stock to be antidilutive. As of June 30, 2014 and December 31, 2013, there were Common Stock options and warrants exercisable for 6,109,600 (571,160 warrants and 5,538,440 options) and 5,731,246 (571,160 warrants and 5,160,086 options) shares of Common Stock, respectively, which were not included in diluted loss per share as the effect was antidilutive.

Weighted average shares outstanding for the three and six-month periods ended June 30, 2014 have been revised for the effects of the rights offering (See Note 10, Rights Offering).

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Intellectual Property - Future Amortization Expense (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Intellectual Property - Future Amortization Expense Details
Year Ending December 31, 2014	$ 25
Year Ending December 31, 2015	8
Year Ending December 31, 2016	8
Year Ending December 31, 2017	8
Year Ending December 31, 2018	8
Thereafter	146
Total future amortization	$ 203

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Commitments - Operating & Capital Lease (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Apr. 30, 2014 Decimal	Oct. 15, 2013 Decimal	Aug. 20, 2012 Decimal
Commitments - Operating Capital Lease Details Narrative
Original Lease rent per year - initial term							$ 139,600
Original Lease rent per year - renewal term							298,900
Original Lease price per square foot - initial term							9.25
Original Lease price per square foot - renewal term							19.80
First Amendment rent per year - initial term						42,000
First Amendment rent per square foot - initial term						9.25
Second Amendment rent per square foot - Option Space - initial term					9.25
Second Amendment rent per square foot- Additional Space - initial term					17.63
Second Amendment rent per square foot- Option Space - renewal term					19.80
Second Amendment rent per square foot- Additional Space - renewal term					17.63
Total rent Tucson facility	$ 64,000	$ 93,000	$ 113,000	$ 93,000

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Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Fair Value Measurements

	June 30, 2014 (in thousands)
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds (cash equivalents)	$	12,295	$	—	$	—	$	12,295
Corporate notes and bonds		—		13,421		—		13,421
Asset-backed securities		—		379		—		379
Total assets measured at fair value	$	12,295	$	13,800	$	—	$	26,095

	December 31, 2013 (in thousands)
		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds (cash equivalents)	$	27,096	$	—	$	—	$	27,096
Corporate notes and bonds		—		11,460		—		11,460
Asset-backed securities		—		500		—		500
Total assets measured at fair value	$	27,096	$	11,960	$	—	$	39,056

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Employee Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation Expense

	Stock-Based Compensation Expense (in thousands)
	Three-month period ended				Six-month period ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Research and development	$	1,288	$	417	$	2,112	$	677
Sales, general and administrative		1,883		751		2,819		928
Total stock-based compensation expense	$	3,171	$	1,168	$	4,931	$	1,605

Stock Option Activity

Stock Option Activity
	Number of Shares			Weighted Average Exercise Price per Share
Options Outstanding December 31, 2013	5,160,086		$	3.45
Granted	644,325		$	15.58
Cancelled	(10,971	)	$	13.53
Exercised	(255,000	)	$	2.86
Expired	—			—
Options Outstanding June 30, 2014	5,538,440		$	4.87

Stock Option Supplemental Information

Stock Option Supplemental Information
		Options Outstanding		Options Exercisable
Number of options		5,538,440		1,575,651
Weighted average remaining contractual term (in years)		8.38		7.94
Weighted average exercise price	$	4.87	$	2.07
Weighted average fair value	$	3.74	$	1.36
Aggregate intrinsic value (in thousands)	$	117,038	$	37,711

Fair Value Assumptions

Fair Value Assumptions for Stocks Issued During the Quarter (weighted average)
	June 30, 2014			June 30, 2013
Expected term (in years)		5.72			5.92
Volatility		97	%		98	%
Expected dividends		—			—
Risk free interest rates		1.93	%		1.00	%
Estimated forfeitures		3	%		15	%
Fair value per share	$	15.40		$	5.23

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Commitments - Capital Lease Obligations (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Commitments - Capital Lease Obligations Details
Year Ending December 31, remaining in 2014	$ 75
Year Ending December 31, 2015	151
Year Ending December 31, 2016	13
Year Ending December 31, 2017
Year Ending December 31, 2018
Total minimum lease payments	239
Less amount representing interest	(7)
Present value minimum lease payments	$ 232

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Rights Offering (Details Narrative) (USD $) In Thousands, except Share data, unless otherwise specified	May 19, 2014	Mar. 14, 2014	Mar. 06, 2013	Apr. 20, 2012
Rights Offering Details Narrative
Non-transferable subscription rights for each share of common stock owned on the record date		0.063921
Subscription right to purchase common stock price per share		$ 16.80		$ 1.03
Standby purchase agreement issuance of unsubscribed shares to related party	2,678,571
Gross proceeds from standby purchase agreement	$ 45,000
Costs associated with rights offering	$ 126

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities:
Net loss	$ (13,354)	$ (6,326)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	285	107
Amortization of intangible assets	38	38
Amortization of investment discount	124
Stock-based compensation	4,931	1,605
Increase in assets:
Accounts receivable	(16)	(54)
Prepaid expense and other	(486)	(105)
Increase (decrease) in liabilities:
Accounts payable	496	22
Accrued liabilities	197	42
Deferred revenue and income	(20)	495
Net cash used in operating activities	(7,805)	(4,176)
Cash flows from investing activities:
Purchases of equipment and capitalized patents	(729)	(897)
Purchase of available-for-sale securities	(4,079)
Sales of available-for sale securities	121
Maturity of available-for-sale securities	2,000
Net cash used in investing activities	(2,687)	(897)
Cash flows from financing activities:
Issuance of common stock and warrants	44,980
Exercise of warrants and options	730	20,177
Payments on capital lease obligations	(35)
Net cash provided by financing activities	45,675	20,177
Increase (decrease) in cash and cash equivalents	35,183	15,104
Cash and cash equivalents, beginning of period	30,029	12,069
Cash and cash equivalents, end of period	$ 65,212	$ 27,173

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Property and Equipment

6 Months Ended

Jun. 30, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment

NOTE 5.   PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and consisted of the following at June 30, 2014 and December 31, 2013 (in thousands):

Property and Equipment (in thousands)
	June 30, 2014			December 31, 2013
Computer equipment	$	574		$	567
Laboratory and scientific equipment		943			791
Furniture and fixtures		206			37
Manufacturing equipment		6			—
Leasehold improvements		302			279
Capital lease – leasehold improvements		266			—
Capital projects in progress		548			—
Total property and equipment	$	2,845		$	1,674
Accumulated amortization – capital lease		(67	)		—
Accumulated depreciation – other		(845	)		(627	)
Net property and equipment	$	1,933		$	1,047

Depreciation expense, which includes amortization of capital lease assets, for the three-month periods ended June 30, 2014 and 2013 was $150,000 and $71,000 respectively, and for the six-month periods ended June 30, 2014 and 2013, was $285,000 and $107,000, respectively.

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Commitments (Tables)

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Capital Lease Obligations

Capital Lease Obligations (in thousands)
Year ending December 31:
Remaining in 2014	$	75
2015		151
2016		13
2017		—
2018		—
Total minimum lease payments	$	239
Less amount representing interest		(7	)
Present value minimum lease payments	$	232

Operating Lease Obligations

Operating Lease Obligations (in thousands)
	Year ending December 31:
	Remaining in 2014	$	145
	2015		289
	2016		24
	2017		—
	2018		—
	Thereafter		—
	Total operating lease obligations	$	458

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Deferred Revenue and Income (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Deferred Revenue And Income Details
Prepaid royalties	$ 63	$ 69
Fisher Agreement	13	13
Total current deferred revenue and income	76	82
Arizona Commerce Authority Grant	750	750
Fisher Agreement	13	27
Total Long-term deferred income	$ 763	$ 777

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Organization and Nature of Business; Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States, (“U.S. GAAP”), and applicable rules and regulations of the United States Securities and Exchange Commission (“SEC”), regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

The condensed consolidated balance sheet as of December 31, 2013 included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by U.S. GAAP.

The accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the result of operations to be anticipated for the entire year ending December 31, 2014 or any future period.

All amounts are rounded to the nearest thousand dollars unless otherwise indicated.

Use of Estimates

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.