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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

As of November 1, 2017August 3, 2018 there were 55,397,56354,127,990 shares of the registrant’s common stock outstanding.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“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, 2016,2017, as filed with the SEC on February 28, 2017.March 1, 2018.

The condensed consolidated balance sheet as of December 31, 20162017 included herein was derived from the audited financial statements as of that date, but does not include all disclosures such as 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 presented, but are not necessarily indicative of the results of operations to be anticipated for the entire year ending December 31, 2017,2018, or any future period.

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

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries after elimination of intercompany transactions and balances.

All highly liquid investments with an original maturity of three months or less at time of purchase are considered to be cash equivalents. Cash and cash equivalents include overnight repurchase agreement accounts and other investments. As part of our cash management process, excess operating cash is invested in overnight repurchase agreements with our bank. Repurchase agreements and other investments classified as cash and cash equivalents are not deposits and are not insured by the U.S. Government, the FDIC or any other government agency and involve investment risk including possible loss of principal. We believe however, that the market risk arising from holding these financial instruments is minimal.

The Company invests excess funds in various investments which are primarily held in the custody of major financial institutions. Investments consist of certificate of deposits, debt securities in U.S. government and agency securities, corporate debtcommercial paper, asset-backed securities and certificates of deposit.corporate notes and bonds. Management classifies its investments as available-for-sale investments and

Inventory is stated atThe Company writes down its inventory for estimated obsolescence or in an amount equal to the lesserdifference between the cost of cost orinventory and the estimated net realizable value with cost determined on the first-in-first-out method. The allocation of production overhead to inventory costs is based on normal production capacity. Abnormal amounts of idle facility expense and spoilage are expensed as incurred and not included in overhead subject to capitalization. The Company maintains provisions for excess and obsolete inventory based on management’s estimates of forecastedupon assumptions about future demand, market conditions and, where applicable, product expiration.

Accounts receivable consist of amounts due to the Company for sales to customers and are recorded net of an allowance for doubtful accounts. Allowances on accounts receivable are recorded when circumstances indicate collection is doubtful for a particular accounts receivable. Receivables are written off if reasonable collection efforts prove unsuccessful. The Company adopted Accounting Standards Update (“ASU”) 2015-11, Simplifying the Measurementprovides for allowances on a specific account basis.

The Company has not included an allowance for doubtful accounts as of Inventory (Topic 310) Inventory on January 1, 2017. This ASU simplifies the subsequent measurementJune 30, 2018 and December 31, 2017, due to no circumstances arising that would indicate collection of inventory by using only the lowerany particular or grouping of cost or net realizable value. The adoption did not have an effect on the Company’s consolidated financial statements.customer accounts receivable is doubtful.

Property and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred and expenditures for major improvements are capitalized. Gains and losses from retirement or replacement are included in costs and expenses. Depreciation of property and equipment is computed using the straight-line method over the estimated useful life of the assets, ranging from greater than one year to seven years. Leasehold improvements are depreciated over the remaining life of the lease or the life of the asset, whichever is less.

Instruments are typically sold with a one year limited warranty, while kits and accessories are typically sold with a sixty60 days limited warranty. Accordingly, a provision for the estimated cost of the limited warranty repair is recorded at the time revenue is recognized. Our estimated warranty provision is based on our estimate of future repair events and the related estimated cost of repairs. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary. The expense incurred for these provisions is included in cost of sales on the condensed consolidated statements of operations and comprehensive loss.

Shipping and handling costs billed to customers are included as a component of revenue. The corresponding expense incurred with third party carriers is included as a component of sales, general and administrative costs on the condensed consolidated statements of operations and comprehensive loss.

The Company has assets and liabilities, primarilyincluding receivables and payables, which are denominated in currencies other than their functional currency. These balance sheet items are subject to re-measurement, the impact of which is recorded in foreign currency exchange gain orand loss, within the condensed consolidated statementsstatement of operations and comprehensive loss.

In March 2017, the FASB issued ASU 2017-08, Receivable-Nonrefundable Fees and Other Costs (Topic 310-20) Premium Amortization on Purchased Callable Debt Securities. This amendment shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendment requires premiums to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The guidanceThis ASU is effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments should be applied on a modified retrospective basis, with a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. We are currently assessing the impact this will have on our condensed consolidated financial statements and the timing of adoption.statements.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740) Intra-Entity Transfers of Assets Other Than Inventory. The update amends accounting guidance for intra-entity transfers of assets other than inventory to require the recognition of income tax consequences when the transfer occurs. The updateThis ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017 with early adoption permitted. A modified retrospective approach should be applied. We are currently assessingand eliminates the impactrequirement that the Company recognize the income tax consequences of an intra-entity transfer of an asset upon transfer other than inventory, eliminating the current recognition requirement. This ASU is effective for the 2018 annual reporting period including the interim periods ended March 31, 2018 and June 30, 2018. In adopting this will have on our consolidated financial statementsASU, the Company recorded no cumulative-effect adjustment to retained earnings at January 1, 2018. As the U.S. and the timing of adoption.consolidated group are in a net operating loss position, no prepaid tax has been recorded.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) Measurement of Credit Losses on Financial Instruments, which amends the guidance on measuring credit losses on financial assets (including trade accounts receivable and available for sale debt securities) held at amortized cost. Currently, an “incurred loss” methodology is used for recognizing credit losses which delays recognition until it is probable a loss has been incurred. The amendment requires assets valued at amortized cost to be presented at the net amount expected to be collected using an allowance for credit losses. Reversal of credit losses on available-for-saleavailable for sale debt securities will be recorded in the current period net income. The amendment will beThis ASU is effective for us on January 1, 2020, with early adoption permitted. We do not anticipate this guidance will have a significant impact on our condensed consolidated financial statements and plan to adopt on the effective date.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This replaces the existing standards relating to leases for both lessees and lessors. For lessees, the new standard requires most leases to be recorded on the condensed consolidated balance sheet with expenses recognized much like the existing standard. For lessors, the new standard modifies the classification criteria and accounting for sales-type and direct financing leases and eliminates leveraged leases. For both lessees and lessors, the standard eliminates real estate-specific provisions, changes some of the presentation and disclosure requirements, and changes sale and leaseback criteria. TheThis ASU is requiredeffective for us on January 1, 2019, withfiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. We are currently assessing the impact this will have on our condensed consolidated financial statements.

In May 2014,January, 2016, the FASB issued ASU 2014-09, Revenue from Contracts2016-01, Financial Instruments - Overall (Topic 825). This standard requires equity investments, with Customers (Topic 606), 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 servicessome exceptions, be measured at fair value with valuation changes recognized in net income, simplifies the impairment assessment of some equity investments, eliminates the requirement to customers in an amount that reflectsdisclose the considerationmethods and significant assumptions used to whichestimate the company expects to be entitled in exchangefair value for those goods or services. In August 2015,financial instruments measured at amortized cost, requires the FASB issued ASU 2015-14, Revenue from Contracts with Customers Deferraluse of the Effective Date, whichexit price notion when measuring the fair value of financial instruments, requires separate presentation of some changes in other comprehensive income, requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets, and clarifies the need for a valuation allowance on some deferred the effective date resulting in a new effective date for us of January 1, 2018. Early adoption is permitted. FASB has issued several other ASU’s which provide further guidance on Topic 606 and have the same effective date.tax assets. 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

On February 23, 2017, the U.S. Food and Drug Administration (“FDA”) granted Accelerate’s de novo request to market the Accelerate Pheno™ system and Accelerate PhenoTest™ BC kit for identification and antibiotic susceptibility testing of pathogens directly from positive blood culture samples.

Due to various factors, the Company manufactured inventory in advance of regulatory approval (pre-launch inventory)(“pre-launch inventory”).

The following tables represent the financial instruments measured at fair value on a recurring basis on the financial statements of the Company and the valuation approach applied to each class of financial instruments at SeptemberJune 30, 2017,2018 and December 31, 2016.2017 (in thousands):

Money market fundsHighly liquid investments with an original maturity of three months or less at time of purchase are are included in cash and cash equivalents on the condensed consolidated balance sheet.

Level 1 assets are priced using quoted prices in active markets for identical assets which include money market funds and U.S. Treasury securities as these specific assets are liquid.

Level 2 available-for-sale securities are priced using quoted market prices for similar instruments or nonbinding

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term investments and accounts receivable, including receivables from major customers.

The Company’s mainCompany has financial institutioninstitutions for banking operations that hold 10% or more of the of the Company’s cash and cash equivalents. As of June 30, 2018, two of the Company's financial institutions held 76%58% and 57%28% of the Company’s cash and cash equivalents, respectively. As of December 31, 2017, two of the Company's financial institutions held 82% and 12% of the Company’s cash and cash equivalents, respectively.

The Company grants credit to domestic and international clients in various industries. Exposure to losses on accounts receivable is principally dependent on each client's financial position. The Company has customers who represented 10% or more of the Company’s net accounts receivable balance as of SeptemberJune 30, 2017,2018 and December 31, 2016, respectively.2017. The Company had two customers that accounted for 11% and 10% of the Company’s net accounts receivable balance as of June 30, 2018, and one Customer that accounted for 24% of the Company's net accounts receivable balance as of December 31, 2017.

The following tables summarize the Company’s available-for-sale investments at SeptemberJune 30, 2017,2018 and December 31, 2016:2017 (in thousands):

The following table summarizes the maturities of the Company’s available-for-sale securities at SeptemberJune 30, 2017,2018 and December 31, 2016:

No other-than-temporary impairments are recorded as no material investmentinvestments had a fair value that remained less than its cost for more than twelve months as of September 30, 2017, and there have been no other indicators of impairment.those dates. The Company does not intend to sell investments and it is more likely than not that we will not be required to sell investments before recovering the amortized cost.

Inventory is statedInventories consisted of the following at the lesser of cost or net realizable value, with cost determined on the first-in-first-out method. The allocation of production overhead to inventory costs is based on normal production capacity. Abnormal amounts of idle facility expenseJune 30, 2018 and spoilage are expensed as incurred, and not included in overhead subject to capitalization. The Company maintains provisions for excess and obsolete inventory based on management’s estimates of forecasted demand and, where applicable, product expiration. The components of inventories were as followsDecember 31, 2017 (in thousands):

In February 2015, the National Institute of Health awarded Denver Health and the Company a five-year, $5.0 million grant to develop a fast and reliable identification and categorical susceptibility test for carbepenem-resistant Enterobacteriaceae directly from whole blood. The cumulative sub-award amount awarded to date under these subawards is $885,000, under which the Company has invoiced a total of $740,000, which is recorded as an offset to research and development expenses.$1.1 million. The amounts invoiced for the three months ended SeptemberJune 30, 2018 and 2017 were $38,000 and 2016 were $180,000 and $8,000,$0, respectively, and for the ninesix months ended SeptemberJune 30, 2018 and 2017 were $98,000 and 2016 were $183,000 and $67,000,$3,000, respectively.

In August 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 provided certain state and county sponsored incentives for the Company to relocaterelocating its corporate headquarters to, and expandexpanding its business within, the State of Arizona (the “Project”). Pursuant to the Grant Agreement, the Authority agreed to provideprovided a total grant in the amount of $1.0 million (the “Grant”) for the use by the Company in the advancement of the Project.. The Grant is payable out of an escrow accountwas paid in four installments, upon the achievement of the following milestones:

For purposes of the Grant Agreement, a “Qualified Job” iswas a job that iswhich was permanent, full-time, new to Arizona and for which the Company payspaid an average (across all Qualified Jobs identified by the Company in its discretion) annual wageswage of at least $63,000 and offersincluded health insurance benefits, and paysfor which the Company paid at least 65% of the premiums associated with

In January 2018, the full amount was recognized due to the economic development provisions of the grant have beenbeing 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. Onceand the “claw-back” provisions expire in January 2018, we will recognize the grantexpiring. The $1.0 million was recognized as an offset to expense. Further details are included in Note 10, Deferred Revenue, Income 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 SeptemberJune 30, 2017,2018 and December 31, 2016, follows:2017 follows (in thousands):

In April 2012, we entered into a Securities Purchase Agreement with Abeja Ventures, LLC pursuant to whichOn March 27, 2018, the Company agreed, among other things,issued $150.0 million aggregate principal amount of 2.50% Convertible Notes due 2023. The arrangement provided for a 15% $22.5 million overallotment option to issue a warrant to purchase additional Notes 13 days following the execution of the purchase agreement. On April 6, 2018 the option was partially exercised, which resulted in $21.5 million of additional proceeds, for total proceeds of $171.5 million. The Notes are the Company's senior unsecured obligations and mature on March 15, 2023 (the “Maturity Date”), unless earlier repurchased or converted into shares of common stock under certain circumstances described below. The Notes are convertible into shares of the Company’s common stock. Further details of this agreement are included in our Annual Report on Form 10-Kstock, can be repurchased for cash, or a combination thereof, at the fiscal year ended December 31, 2016, as filed with the SEC on February 28, 2017. As of December 31, 2016, there were warrants to purchase 415,871 shares unexercised. During the nine months ended September 30, 2017, warrants to purchase 370,307 shares were exercisedCompany’s election, at an exerciseinitial conversion rate of 32.343 shares of common stock per $1,000 principal amount of the Notes, which is equivalent to an initial conversion price of $2.00approximately $30.92 per share. Proceedsshare of common stock, subject to adjustment. The Company will pay interest on the Notes semi-annually in arrears on March 15 and September 15 of each year.

The $171.5 million of proceeds received from the exerciseissuance of such warrants totaling $741,000 are recorded as common stockthe Notes were allocated between long-term debt (the “liability component”) of $116.6 million and contributed capital (the “equity component”) of $54.9 million. The fair value of the liability component was measured using rates determined for similar debt instruments without a conversion feature. The carrying amount of the equity component, representing the conversion option, was determined by deducting the fair value of the liability component from the aggregate face value of the Notes. The liability component will be accreted up to the face value of the Notes of $171.5 million, which will result in additional non-cash interest expense being recognized through the Maturity Date. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

In connection with the debt issuance, the Company entered into a prepaid forward stock repurchase transaction (“Prepaid Forward”) with a financial institution (“Forward Counterparty”). Pursuant to the Prepaid Forward, the Company used approximately $45.1 million of the net proceeds from its issuance of the Notes to fund the Prepaid Forward. The aggregate number of shares expired unexercised on June 26, 2017.of the Company’s common stock underlying the Prepaid Forward was approximately 1,858,500. The expiration date for the Prepaid Forward is March 15, 2023, although it may be settled earlier in whole or in part. Upon settlement of the Prepaid Forward, at expiration or upon any early settlement, the Forward Counterparty will deliver to the Company the number of shares of common stock underlying the Prepaid Forward or the portion thereof being settled early. The shares purchased under the Prepaid Forward are treated as treasury stock and not outstanding for purposes of the calculation of basic and diluted earnings per share, but will remain outstanding for corporate law purposes, including for purposes of any future stockholders’ votes, until the Forward Counterparty delivers the shares underlying the Prepaid Forward to the Company. The Company’s Prepaid Forward hedge transaction exposes the Company to credit risk to the extent that its counterparty may be unable to meet the terms of the transaction. The Company mitigates this risk by limiting its counterparty to a major financial institution.

The Company’s net loss for the periods presented caused the inclusion of all outstanding warrants, restricted stock and options to purchase ourfollowing potentially issuable common stock to be antidilutive. As of September 30, 2017, and December 31, 2016, there were common stock options, restricted stock units and warrants exercisable for 7,472,734 and 7,313,245 shares of common stock, respectively, which were not included in the computation of diluted net loss per share as thebecause they would have an anti-dilutive effect was antidilutive.due to net losses at June 30, 2018 and December 31, 2017 (in thousands):

The following table summarizes option activity under all plans during the nine-monthsix-month period ending Septemberended June 30, 2017:2018:

The table below summarizes the resulting weighted average inputs used to calculate the estimated fair value of options awarded during the periods shown below:

The following table shows summary information for outstanding options and options that are exercisable (vested) as of SeptemberJune 30, 2017:2018:

The following table summarizes restricted stock unit and restricted stock award activity during the nine-monthsix-month period ending SeptemberJune 30, 2017:2018:

The expense recognized on the Company’s condensed consolidated statements of operations and comprehensive loss related to optionsEquity-based compensation is summarized below:below (in thousands):

As of SeptemberJune 30, 2017, $262,000 and $33,000 of2018, unrecognized equity-based compensation expense was a component of capitalized inventory and property and equipment respectively.

For the ninethree and six months ended SeptemberJune 30, 2017,2018, the Company recorded a provision for income taxes of $220,000,approximately $101,000 and $285,000, respectively, which primarily relatedrelates to a profitable foreign jurisdictionjurisdictions without any net operating loss carryforwards. The Company’s tax expense for the ninethree and six months ended SeptemberJune 30, 20172018 differs from the tax expense computed by applying the U.S. statutory tax rate to its year-to-date pre-tax loss of $47.5$23.1 million and $43.8 million, respectively, as no tax benefits were recorded for tax losses generated in the U.S. and other foreign jurisdictions. At SeptemberJune 30, 2017,2018, the Company had deferred tax assets primarily related to U.S. federal and state tax loss carryforwards. The Company provided a full valuation allowance against its deferred tax assets as future realization of such assets is not more likely than not to occur.

The Company has entered into lease agreements, lease amendments, and lease extensions (“Lease Agreements”) for office, laboratory and manufacturing space located in Tucson, Arizona and Europe, the last of which expires in 2022. Total rent expense, including common area charges was $308,000$346,000 and $286,000$309,000 for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and for the ninesix months ended SeptemberJune 30, 2018 and 2017 was $688,000 and 2016 was $933,000 and $826,000,$625,000, respectively. Future minimum lease payments under operating leasethese agreements are as follows:follows (in thousands):

The Company has entered into master agreements with clinical trial sites in which we typically pay a set amount for start-up costs and then pay for work performed. These agreements typically indemnify the clinical trial sites from any and all losses arising from third party claims as a result of the Company’sCompany's negligence, willful misconduct or misrepresentation. The Company incurred clinical trial expense of $0 and $354,000 for the three months ended September 30, 2017 and 2016, respectively, and $27,000 and $1.8 million for the nine months ended September 30, 2017 and 2016, respectively. The expense incurred as part of the clinical trial is included in research and development on the Company's condensed consolidated statements of operations and comprehensive loss.

On March 19, 2015,The Company has entered into marketing study agreements and contracted research agreements with research institutions and hospitals in which we typically pay a putative securities class action lawsuit was filed against Accelerate Diagnostics, Inc., Lawrence Mehren,set amount for start-up costs and Steve Reichling, Rapp v. Accelerate Diagnostics, Inc., et al., U.S. District Court, District of Arizona, 2:2015-cv-00504. The complaint alleges that we violated Sections 10(b)then pay for work performed. These agreements typically indemnify the sites from any and 20(a)all losses arising from third party claims as a result of the Securities Exchange Act of 1934 and SEC Rule 10b-5, by making falseCompany's negligence, willful misconduct or misleading statements about our Accelerate Pheno™ system, formerly called the BACcel System. Plaintiff purports to bring the action on behalf of a class of persons who purchased or otherwise acquired our stock between March 7, 2014, and February 17, 2015. On June 9, 2015, Julia Chang was appointed Lead Plaintiff of the purported class. On June 23, 2015, Plaintiff filed an amended complaint alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5, by making false or misleading statements or omissions about our ID/AST System and by allegedly employing schemes to defraud. Plaintiff sought certification of the action as a class action, compensatory damages for the class in an unspecified amount, legal fees and costs, and such other relief as the court may order. Defendants moved to dismiss the amended complaint on July 21, 2015. The Court granted the motion and dismissed the case with prejudice on January 28, 2016. On February 26, 2016, Plaintiff filed a notice of appeal with the United States Court of Appeals for the Ninth Circuit, which challenges the dismissal of the amended complaint. Chang v. Accelerate Diagnostics, Inc., et al., No. 2:15-CV-00504-SPL (9th Cir. filed Feb. 26, 2016). On September 13, 2017, Plaintiff voluntarily dismissed the appeal and the case has been dismissed with prejudice.

As of an enterpriseJune 30, 2018 and December 31, 2017, balances due from foreign customers, in U.S. dollars, were $864,000 and $1.0 million, respectively.

The following presents long-lived assets (excluding intangible assets) by the chief operating decision maker, who is the chief executive officer, in deciding how to allocate resources and assessing performance. The Company’s business operates in one operating segment because the Company’s chief operating decision maker evaluates the Company’s financial information and resources and assesses the performance of these resources on a consolidated basis. Since the Company operates in one operating segment, all required financial segment information can be found in the consolidated financial statements.geographic territory (in thousands):

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 combined business of Accelerate Diagnostics, Inc.

This Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities

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 commercialization of the Accelerate Pheno™ system, the Company will obtain sufficient capital to commercialize the Accelerate Pheno™ system and continue development of complementary products, 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

Our MD&A is composed of the following sections: Overview, Changes in Results of Operations, Capital Resources and Liquidity and Off-Balance Sheet Arrangements. All amounts have been rounded to the nearest thousand unless otherwise indicated.

Since 2004, we have focused our efforts on the research, intodevelopment, and the developmentcommercialization of an innovative rapid diagnostic platform, the Accelerate Pheno™ system, intended for the rapid diagnosis of infectious pathogens. Our goal is to reduce the failure rate of initial antibiotic drug therapy by shortening lab turnaround time to hours rather than the two to three days now required to deliver identification and susceptibility results.

In 2017, we began selling the Accelerate Pheno™ system in hospitals in the United States. The Accelerate PhenoTest™ BC kit includes 140 assays for both identificationStates, Europe, and susceptibility testing, of which 116the Middle East. Consistent with the Company's business model revenues were cleared bygenerated from the FDA and 24 assays are available in a Research Use Only modesale of the software.instrument and the sale of single use consumable test kits.

For the three and ninesix months ended SeptemberJune 30, 2017,2018, total revenues increased due to sales of Accelerate Pheno™ systems and Accelerate PhenoTest™ BC kits.

For the three and ninesix months ended SeptemberJune 30, 2017,2018, cost of sales and gross profit increased as a result of of higher sales for the Company capitalizing inventory in connection with the FDA granting Accelerate’s de novo request to market the Accelerate Pheno™ systemthree and Accelerate PhenoTest™ BC kit.

Cost of sales associated with this inventory duringincluded non-cash equity-based compensation of $58,000 and $22,000 for the three and nine months ended SeptemberJune 30, 2018 and 2017, would have been an additional $244,000respectively, and $611,000,$104,000 and $22,000 for the six months ended June 30, 2018 and 2017, respectively.

Research and development expenses for the three and nine months ended SeptemberJune 30, 2017, decreased2018 increased as compared to the same periods inthree months ended ended June 30, 2017. The increase was primarily the prior year as a result of increasing employee salaries, in preparation of upcoming clinical trialtrials and studies, as well as, an increase in purchases of engineering supplies to

Pre-launch inventory not capitalized in accordance with U.S. GAAP, which included instruments and consumables charged to research and development, were $225,000$0 and $795,000$76,000 for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and $376,000$25,000 and $3.9 million$151,000 for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively.

Research and development expenses includeincluded non-cash equity-based compensation of $1.0$838,000 and $1.2 million and $504,000 for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and $2.9$2.5 million and $1.2$1.9 million for the ninesix months ended SeptemberJune 30, 2018 and 2017, and 2016, respectively. The increaseIn March of 2018, the Company granted immediately vested stock options as a part of its annual bonus program, which increased expenses relative to the same periods in non-cash equity-based compensation was primarily driven by an increase in the number of employees and stock option grants.2017.

Sales, general and administrative expenses for the three and nine months ended SeptemberJune 30, 2017,2018 increased dueas compared to the three months ended ended June 30, 2017. The increase was primarily the result of an increase in salaries and related expenses as we continued to ramp up our sales and marketing operations globally. Sales, general and administrative expenses for the six months ended June 30, 2018 increased as compared to the six months ended ended June 30, 2017. The increase was primarily the result of an increase an increase in salaries, non-cash equity-based compensation and related expenses as we continued to ramp up our sales and marketing operations globally.

Pre-launch inventory not capitalized in accordance with U.S. GAAP, which included instruments and consumables charged to sales, general and administrative expenses, were $11,000$0 and $1.2 million$12,000 for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and $40,000$0 and $2.5 million$29,000 for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively.

Sales, general and administrative expenses includeincluded non-cash equity-based compensation of $2.5 million and $2.2$3.0 million for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and $8.0$6.5 million and $5.4$5.5 million for the ninesix months ended SeptemberJune 30, 2018 and 2017, and 2016, respectively. The increaseIn March of 2018, the Company granted immediately vested stock options as a part of its annual bonus program, which increased expenses relative to the same periods in non-cash equity-based compensation was primarily driven by an increase in the number of employees and stock option grants.2017.

For the three and ninesix months end Septemberended June 30, 2017,2018, our loss from operations decreased as aincreased. The increase was the result of the Company capitalizing inventoryour continued investments in connectionresearch and development, sales and marketing, and increased employee headcount, along with the FDA granting Accelerate’s de novo request to market the Accelerate Pheno™ system and Accelerate PhenoTest™ BC kit.other factors.

Loss from operations includeincluded non-cash equity-based compensation of $3.5$3.4 million and $2.7$4.2 million for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively, and $11.0$9.0 million and $6.6$7.5 million for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively. This loss and further losses are anticipated and was the result of our continued investments in sales and marketing, key research and development expanded laboratorypersonnel, related costs associated with product development, and operational space, increased employee headcount and other factors as we develop and commercializecommercialization of the Company’s products.