10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2015

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 001-33523

COMBIMATRIX CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

Delaware	47-0899439
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

310 Goddard, Suite 150,
Irvine, CA	92618
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code:  (949) 753-0624

N/A

(Former name, former address and former fiscal year, if changed since last report.)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to filing requirements for the past 90 days.      Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes x No o

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. (Check one):

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   Yes o No x

As of August 3, 2015, 12,680,927 shares of CombiMatrix Corporation common stock, $0.001 par value were issued and outstanding.

COMBIMATRIX CORPORATION

Table of Contents

Part I. Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014	4
	Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2015 and 2014	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	24
Part II. Other Information
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosures	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
Signatures		27
Exhibit Index		28

2

PART I—FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

COMBIMATRIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

	June 30,			December 31,
	2015			2014
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,123		$	1,010
Short-term investments	4,002			4,230
Accounts receivable, net of allowance for doubtful accounts of $245 and $241	2,312			2,133
Supplies	508			367
Prepaid expenses and other assets	217			181
Total current assets	10,162			7,921
Property and equipment, net	774			584
Investments in unconsolidated subsidiaries and other	127			127
Total assets	$	11,063		$	8,632
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, accrued expenses and other	$	1,739		$	1,107
Current portion, long-term debt	187			172
Total current liabilities	1,926			1,279
Capital lease obligations, net of current portion	77			82
Secured promissory note payable, net of current portion	94			151
Deferred rent	190			—
Total liabilities	2,287			1,512
Stockholders’ equity:
Convertible preferred stock; $0.001 par value; 5 million shares authorized; Series E - 2,202 shares authorized; 2,201.493 and none issued and outstanding	—			—
Common stock; $0.001 par value; 50 million shares authorized and 12,680,927 shares issued and outstanding at June 30, 2015; 25 million shares authorized and 11,063,246 shares issued and outstanding at December 31, 2014	13			11
Additional paid-in capital	102,176			96,259
Accumulated other comprehensive income (loss)	1			(3		)
Accumulated net losses	(93,414		)	(89,147		)
Total stockholders’ equity	8,776			7,120
Total liabilities and stockholders’ equity	$	11,063		$	8,632

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

3

COMBIMATRIX CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share information)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Revenues:
Diagnostic services	$	2,524		$	1,906		$	4,811		$	3,696
Royalties	25			35			67			67
Total revenues	2,549			1,941			4,878			3,763
Operating expenses:
Cost of services	1,398			1,053			2,628			2,051
Research and development	62			224			219			358
Sales and marketing	1,173			1,109			2,363			1,995
General and administrative	1,488			2,216			2,963			3,973
Patent amortization and royalties	25			28			50			60
Total operating expenses	4,146			4,630			8,223			8,437
Operating loss	(1,597		)	(2,689		)	(3,345		)	(4,674		)
Other income (expense):
Interest income	5			24			8			29
Interest expense	(20		)	(22		)	(40		)	(38		)
Warrant derivative gains	—			152			—			152
Warrant modification charge	—			(44		)	—			(44		)
Total other income (expense)	(15		)	110			(32		)	99
Net loss	$	(1,612	)	$	(2,579	)	$	(3,377	)	$	(4,575	)
Deemed dividends from issuing Series E convertible preferred stock	$	—		$	—		$	(890	)	$	—
Net loss attributable to common stockholders	$	(1,612	)	$	(2,579	)	$	(4,267	)	$	(4,575	)
Basic and diluted net loss per share	$	(0.13	)	$	(0.23	)	$	(0.28	)	$	(0.42	)
Deemed dividends from issuing Series E convertible preferred stock	—			—			(0.07		)	—
Basic and diluted net loss per share attributable to common stockholders	$	(0.13	)	$	(0.23	)	$	(0.35	)	$	(0.42	)
Basic and diluted weighted average common shares outstanding	12,680,927			11,063,246			12,241,145			10,995,351

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

4

COMBIMATRIX CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except share and per share information)

(Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2015			2014			2015			2014
Net loss	$	(1,612	)	$	(2,579	)	$	(3,377	)	$	(4,575	)
Unrealized gain on available-for-sale investments	—			5			4			—
Total comprehensive loss	$	(1,612	)	$	(2,574	)	$	(3,373	)	$	(4,575	)

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

5

COMBIMATRIX CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Six Months Ended
	June 30,
	2015			2014
Operating activities:
Net loss	$	(3,377	)	$	(4,575	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization	168			149
Non-cash stock compensation	346			266
Provision for bad debts	127			214
Warrant derivative gains	—			(152		)
Warrant modification charge	—			44
Changes in assets and liabilities:
Accounts receivable	(303		)	(426		)
Supplies, prepaid expenses and other assets	(177		)	(174		)
Accounts payable, accrued expenses and other	567			608
Net cash flows from operating activities	(2,649		)	(4,046		)
Investing activities:
Purchases of property and equipment, net of cash received from disposals	(62		)	(134		)
Purchase of available-for-sale investments	(3,000		)	(5,811		)
Sale of available-for-sale investments	3,230			750
Net cash flows from investing activities	168			(5,195		)
Financing activities:
Proceeds from issuance of Series E convertible stock and common stock	4,900			—
Offering-related costs from issuance of convertible stock and common stock	(217		)	(196		)
Repayments of long-term debt	(89		)	(103		)
Proceeds from secured promissory note payable, net of issuance costs	—			328
Net proceeds from exercise of Series A common stock warrants	—			256
Net cash flows from financing activities	4,594			285
Change in cash and cash equivalents	2,113			(8,956		)
Cash and cash equivalents, beginning	1,010			12,289
Cash and cash equivalents, ending	$	3,123		$	3,333
Non-cash financing activities:
Property and equipment purchased under capital lease	$	40		$	88
Deemed dividends from issuing Series E convertible preferred stock	$	890		$	—
Warrant modifications recognized as non-cash Series E offering-related costs	$	336		$	—
Tenant improvements recognized as deferred rent	$	164		$	—
Reclassification of derivative liability to equity from warrant exercises and modifications	$	—		$	416

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

6

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.OVERVIEW AND BACKGROUND

CombiMatrix Corporation (the “Company,” “we,” “us” and “our”) was originally incorporated in October 1995 as a California corporation and later reincorporated as a Delaware corporation in September 2000. In December 2002, we merged with, and became a wholly owned subsidiary of Acacia Research Corporation (“Acacia”). In August 2007, we split-off from Acacia and became publicly traded on The Nasdaq Stock Market.  As a result of the split-off, we ceased to be a subsidiary of, or affiliated with, Acacia.

Description of the Company

We provide valuable molecular diagnostic solutions and comprehensive clinical support for the highest quality of care. We specialize in pre-implantation genetic screening, recurrent pregnancy loss for miscarriage analysis, prenatal and pediatric healthcare, offering DNA based testing for the detection of genetic abnormalities beyond what can be identified through traditional methodologies. We perform genetic testing utilizing a variety of advanced cytogenomic techniques, including microarray, standardized and customized fluorescent in-situ hybridization (“FISH”) and high resolution karyotyping. We emphasize support for healthcare professionals, to ensure data understanding and communication of results to patients. We deliver high technology driven answers, with a high degree of assistance for the ordering physician and staff.  Our laboratory facilities and corporate headquarters are located in Irvine, California.

We also own a one-third minority interest in Leuchemix, Inc. (“Leuchemix”), a private drug development company focused on developing a series of compounds to address a number of oncology-related diseases.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, certain information and footnotes required by generally accepted accounting principles in annual financial statements have been omitted or condensed.  These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2014, as reported by us in our Annual Report on Form 10-K filed with the SEC on March 17, 2015.  The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.  The consolidated financial statements include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair statement of our financial position as of June 30, 2015, and results of operations and cash flows for the interim periods presented.  The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the entire year.

Liquidity and Risks

We have a history of incurring net losses and net operating cash flow deficits. We are also deploying new technologies and continue to develop new and improve existing commercial diagnostic testing services and related technologies. As of June 30, 2015, we had cash, cash equivalents and short-term investments of $7.1 million and anticipate that our cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months.  In order for us to ultimately achieve profitability, we may be required to obtain capital from external sources, increase revenues and reduce operating costs. However, there can be no assurance that our operations will become profitable or that external sources of financing, including the issuance of debt and/or equity securities, will be available at times and at terms acceptable to us, or at all. The issuance of additional equity or convertible debt securities will also cause dilution to our stockholders. If external financing sources are not available or are inadequate to fund our operations, we will be required to reduce operating costs, including research projects and personnel, which could jeopardize our future strategic initiatives and business plans.

Our business operations are also subject to certain risks and uncertainties, including:

·market acceptance of our technologies and services;

·technological advances that may make our technologies and services obsolete or less competitive;

·increases in operating costs, including costs for supplies, personnel and equipment;

7

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

·variability in third-party reimbursement of our tests;

·the availability and cost of capital; and

·governmental regulation that may restrict our business.

Our services are concentrated in a highly competitive market that is characterized by rapid technological advances, frequent changes in customer requirements and evolving regulatory requirements and industry standards.  Failure to anticipate or respond adequately to technological advances, changes in customer requirements, changes in regulatory requirements or industry standards, or any significant delays in the development or introduction of planned services, could have a material adverse effect on our business and operating results.  The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates.  The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Principles of Consolidation.  The accompanying consolidated financial statements include the accounts of the Company and our wholly owned and majority-owned subsidiaries.  Investments for which we possess the power to direct or cause the direction of the management and policies, either through majority ownership or other means, are accounted for under the consolidation method.  Material intercompany transactions and balances have been eliminated in consolidation.  Investments in companies in which we maintain an ownership interest of 20% to 50% or exercise significant influence over operating and financial policies are accounted for under the equity method.  The cost method is used where we maintain ownership interests of less than 20% and do not exercise significant influence over the investee.

Revenue Recognition. We recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been performed, (iii) amounts are fixed or determinable and (iv) collectability of amounts is reasonably assured.

Service revenues from providing diagnostic tests are recognized when the testing process is complete and test results are reported to the ordering physician or clinic. These diagnostic services are billed to various payors, including commercial insurance companies, healthcare institutions, government payors including various state Medicaid programs, and individuals. We report revenues from contracted payors based on a contractual rate, or in the case of state Medicaid contracts, published fee schedules for our tests. We report revenues from non-contracted payors based on the amounts expected to be collected. The differences between the amounts billed and the amounts expected to be collected from non-contracted payors are recorded as contractual allowances to arrive at net recognized revenues. The expected revenues from non-contracted payors are based on the historical collection experience of each payor or payor group, as appropriate, and also take into account recent collection trends. In each reporting period, we review our historical collection experience for non-contracted payors and adjust our expected revenues for current and subsequent periods accordingly. We also recognize additional revenue from actual cash payments that exceed amounts initially recognized, in the period the payments are received.  For the three and six months ended June 30, 2015 and 2014, net positive revenue adjustments were $149,000, $277,000, $121,000 and $265,000, respectively.  Because a substantial portion of our revenues is from non-contracted third-party payors, it is likely that we will be required to make adjustments to accounting estimates with respect to contractual allowances in the future, which may positively or adversely affect our results of operations.  In all cases described above, we report revenues net of any applicable statutory taxes collected from customers, as applicable.  For the six months ended June 30, 2015, 10% of our revenues were from one customer.  No single customer exceeded 10% of revenues for the second quarter of 2015, or for any comparable period in 2014.

Cash Equivalents and Short-Term Investments.  We consider all highly liquid investments purchased with original maturities of three months or less when purchased to be cash equivalents. Short-term investments consist of fixed income investments with maturities between three and 12 months and other highly liquid investments that can be readily purchased or sold using established markets. These investments are classified as available-for-sale and are reported at fair value on the Company’s consolidated balance sheet. Unrealized holding gains and losses are reported within comprehensive loss in the consolidated statements of comprehensive loss. Fair value is based on available market information including quoted market prices, broker or dealer quotations or other observable inputs. If a decline in the fair value of a short-term investment below our cost basis is determined to be other than temporary, such investment is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. To-date, no permanent impairment charges have been realized or recorded.

8

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Fair Value Measurements.  We measure fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.  As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability.  We utilize a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

·	Level 1:	Observable market inputs such as quoted prices in active markets;
·	Level 2:	Observable market inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
·	Level 3:	Unobservable inputs where there is little or no market data, which require the reporting entity to develop its own assumptions.

We classify our cash equivalents within the fair value hierarchy as Level 1 as these assets are valued using quoted prices in active markets for identical assets at the measurement date. We classify short-term investments within the fair value hierarchy as Level 2, primarily utilizing broker quotes in a non-active market for valuation of these investments.  Financial instruments that contain valuation inputs that are not readily determinable from active markets or from similar securities trading in active markets, such as derivative financial instruments, are classified within the fair value hierarchy as Level 3.

Derivative Financial Instruments.  We evaluate financial instruments for freestanding or embedded derivatives.  Derivative instruments that do not qualify for permanent equity classification are recorded as liabilities at fair value, with changes in value recognized as other income (expense) in the consolidated statements of operations in the period of change.  Derivative liabilities are categorized as either short-term or long-term based upon management’s estimates as to when the derivative instrument may be realized or based upon the holder’s ability to realize the instrument.

Concentration of Credit Risks.  Cash and cash equivalents are invested in deposits with certain financial institutions and may, at times, exceed federally insured limits.  We have not experienced any significant losses on our deposits of cash and cash equivalents.  We do not believe that we are exposed to significant credit risk on cash and cash equivalents or on our short-term investments.  Accounts receivable from one commercial insurance carrier of $318,000 exceeded 10% of our total accounts receivable balance as of December 31, 2014.  There were no commercial carrier or customer accounts receivable balances that exceeded 10% of our total accounts receivable balance as of June 30, 2015.

Substantially all of the components and raw materials used in providing our testing services, including array slides and reagents, are currently provided to us from a limited number of sources or in some cases from a single source.  Although we believe that alternative sources for those components and raw materials are available, any supply interruption in a sole-sourced component or raw material might result in up to a several-month production delay and materially harm our ability to provide testing services until a new source of supply, if any, could be located and qualified.

Accounts Receivable and Allowance for Doubtful Accounts.  For our contracted third-party payors, governmental payors or direct-bill customers, accounts receivable are stated at principal amounts and are primarily comprised of amounts contractually due from customers for services performed.  For our non-contracted customers, accounts receivable are stated at amounts expected to be collected based on historical collection experience with the third-party payor. The payment realization cycle for certain governmental and commercial insurance payors can be lengthy, involving denial, appeal and adjudication processes, and is subject to periodic adjustments that may be significant.  Accounts receivable are periodically written off when identified as uncollectible after appropriate collection efforts have been exhausted. Such write-offs increase the contractual allowances (which reduce revenues) for those accounts in the period of adjustment.  Collection of governmental, private health insurer, and client receivables are generally a function of providing complete and correct billing information to the insurers and clients within the filing deadlines required by each payor.

9

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Collection of receivables due from patients and private-pay clients is generally subject to increased credit risk due to credit-worthiness or inability to pay.  For these customers, an allowance for doubtful accounts is recorded for estimated uncollectible amounts, and involves significant assumptions and judgments.  Specifically, the allowance for doubtful accounts is adjusted periodically and is principally based upon specific identification of past due or disputed accounts.  We also review the age of receivables to assess our allowance at each period end.  Additions to the allowance for doubtful accounts are charged to bad debt expense as a component of general and administrative expenses in the consolidated statements of operations.

Stock-Based Compensation.  The compensation cost for all employee stock-based awards is measured at the grant date, based on the fair value of the award, and is recognized as an expense, on a straight-line basis, over the employee’s requisite service period (generally the vesting period of the equity award) which is generally four years.  The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option valuation model.  The fair value of each restricted stock unit (“RSU”) award is based on the number of shares granted and the closing price of our common stock as reported on Nasdaq on the date of grant.  Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate.  We estimate pre-vesting option forfeitures at the time of grant and reflect the impact of estimated pre-vesting option forfeitures in compensation expense recognized.  Stock-based compensation expense for all periods presented attributable to our functional expense categories from stock option and RSU awards vesting during the periods presented were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Cost of services	$	5	$	5	$	10	$	9
Research and development	—		—		—		—
Sales and marketing	5		19		31		30
General and administrative	161		165		305		227
Total non-cash stock compensation	$	171	$	189	$	346	$	266

Net Loss Per Share.  Basic and diluted net loss per share has been computed by dividing the net loss by the weighted average number of common shares issued and outstanding during the periods presented.  Options and warrants to purchase common stock as well as preferred stock convertible into shares of common stock are anti-dilutive and therefore are not included in the determination of the diluted net loss per share.  The following table reflects the excluded dilutive securities:

	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2015	2014	2015	2014
Common stock options	879,359	695,989	879,359	695,989
Restricted stock units	582,003	380,220	582,003	380,220
Common stock warrants	9,648,905	7,412,372	9,648,905	7,412,372
Series E preferred stock convertible into common stock	1,257,996	—	1,257,996	—
Excluded potentially dilutive securities	12,368,263	8,488,581	12,368,263	8,488,581

Segments.  We have determined that we operate in one segment for financial reporting purposes.

Recent Accounting Pronouncements.  In April 2015, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset.  Debt disclosures will include the face amount of the debt liability and the effective interest rate.  The guidance requires retrospective application and represents a change in accounting principle.   This guidance will be effective for us in the first quarter of 2016, and early adoption is permitted for financial statements that have not been previously issued.  We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

10

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

In November 2014, the FASB issued new guidance on determining whether a host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity.  This guidance does not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required, but instead clarifies how current GAAP should be interpreted in the evaluation of the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share, thereby reducing existing diversity in practice.  The guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods within that fiscal year.  We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2014, the FASB issued new guidance requiring management of all entities to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable).  The guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods within that fiscal year.  We do not expect the adoption of this guidance to have a material effect on our consolidated financial statements.

In May 2014, the FASB issued new accounting guidance regarding revenue recognition from contracts with customers, which when effective will supersede existing revenue recognition requirements and will eliminate most industry-specific guidance from generally accepted accounting principles.  The core principle of the new guidance is to require an entity to recognize as revenue the amount that reflects the consideration to which it expects to be entitled in exchange for goods or services as it transfers control to its customers. The new guidance requires additional qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.  An entity can apply the new guidance retrospectively to each prior reporting period presented (i.e., the full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings.  As originally issued, the new revenue recognition standard would be effective for us beginning January 1, 2017.  However, in 2015, the FASB voted to defer the effective date of the new guidance for one year. We are currently evaluating the appropriate transition method and any further impact of this guidance on our consolidated financial statements and related disclosures.

In April 2014, FASB amended guidance to clarify the accounting for disposals of groups of assets and business units. The amendments alter the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major effect on an entity’s operations and finances. The changes should be applied in fiscal years that start on December 15, 2014, or later, but the changes can be applied ahead of the effective date for asset disposals that have not been reported in a set of financial statements.  We do not believe adoption of this guidance will have a material impact on our consolidated financial statements.

Reclassifications.  Certain prior period amounts have been reclassified to conform to the current period presentation.

3.CASH AND SHORT-TERM INVESTMENTS

As of June 30, 2015, we held $7.1 million in cash, cash equivalents and short-term investments, which are reported at fair value.  Cash, cash equivalents and short-term investments consisted of the following as of June 30, 2015 and December 31, 2014 (in thousands):

	As of June 30, 2015								As of December 31, 2014
			Unrealized				Fair				Unrealized					Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
Cash and money market securities	$	3,123	$	—	$	—	$	3,123	$	1,010	$	—	$	—		$	1,010
Corporate bonds	—		—		—		—		1,003		—		—			1,003
Certificates of deposit	4,001		1				4,002		3,230		—		(3		)	3,227
	$	7,124	$	1	$	—	$	7,125	$	5,243	$	—	$	(3	)	$	5,240

There were no realized gains or losses for the periods ending June 30, 2015 or 2014.

11

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

4.FAIR VALUE MEASUREMENTS

The following table summarizes, for each major category of financial assets measured on a recurring basis, the respective fair value at June 30, 2015 and December 31, 2014 and the classification by level of input within the fair value hierarchy defined above (in thousands):

			Fair Value Measurements
	Total		Level 1		Level 2		Level 3
June 30, 2015
Assets:
Cash equivalents	$	2,037	$	2,037	$	—	$	—
Short-term investments	4,002		—		4,002		—
Cash equivalents	$	6,039	$	2,037	$	4,002	$	—

			Fair Value Measurements
	Total		Level 1		Level 2		Level 3
December 31, 2014
Assets:
Cash equivalents	$	676	$	676	$	—	$	—
Short-term investments	4,230		—		4,230		—
Cash equivalents	$	4,906	$	676	$	4,230	$	—

5.SECURED PROMISSORY NOTE

On May 20, 2014 (“Execution Date”), we executed a secured promissory note (the “Note”) with ACC Investment Ltd. in the amount of $350,000, payable in equal amortized payments over a thirty-six month period (the “Term”) from the Execution Date.  The note bears an annual interest rate of 10% and is secured by certain laboratory equipment used in our microarray services business.  Legal and other closing costs totaling $22,000 were capitalized with the Note and are being amortized over the Term as interest expense.  As of June 30, 2015 and December 31, 2014, the fair value of the Note approximated its carrying value.  As of June 30, 2015 and December 31, 2014, components of the Note were as follows (in thousands):

	June 30,			December 31,
	2015			2014
Carrying value	$	226		$	281
Unamortized legal and closing costs	(14		)	(18		)
	212			263
Less- current portion	(118		)	(112		)
Long-term portion	$	94		$	151

6.STOCKHOLDERS’ EQUITY

On April 28, 2015, our stockholders approved all ballot measures of a special proxy, which included the approval and ratification of the Series E Preferred Stock financing described below as well as the approval to increase our authorized capital stock from 25 million shares to 50 million shares.

On June 17, 2015, our stockholders approved all ballot measures of our annual proxy, which included an increase to the share reserves under our 2006 Stock Incentive plan from 2 million shares to 3 million shares.

12

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Series A Convertible Preferred Stock and Warrants Financing

During the fourth quarter of 2012, we issued Series A convertible preferred stock (the “Series A Stock”) and warrants to purchase common stock (the “Series A Warrants”) to certain accredited investors (the “Series A Investors”) for gross proceeds of $2.5 million.  During the fourth quarter of 2012 and the first quarter of 2013, all of the Series A Stock converted into 1.25 million shares of common stock, and during 2013, 1.2 million shares of common stock were issued from the exercise of the Series A Warrants, leaving Series A Warrants to purchase 292,817 shares of common stock unexercised as of December 31, 2013.   During the six months ended June 30, 2014, Series A Investors exercised Series A Warrants to purchase 124,111 shares of our common stock, resulting in proceeds of $256,000 to us.  The Series A Warrants originally had a 5½ year term, price anti-dilution protection and exercise prices of $9.50 (from the first closing) and $2.36 (from the second closing).  See below for further discussion of modifications made to the Series A Warrants as a result of the Series D and Series E convertible preferred stock financings executed in December 2013 and February 2015, respectively.

For as long as the Series A Warrants remain unexercised through their expiration date, we may not sell securities at an effective price per share of less than $4.91 except for certain exempt issuances, unless waivers from the Series A Investors are obtained.  Also, prior to a modification we made to the Series A Warrants in June 2014 (the “Modification”) the exercise price of the Series A Warrants and the number of shares of common stock underlying the Series A Warrants were subject to full-ratchet anti-dilution adjustments in the event we issued securities, other than certain exempted issuances, at a price below the then current exercise price of the Series A Warrants.

We account for stock purchase warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreements.  Under applicable accounting guidance, stock warrants must be accounted for as derivative financial instruments if the warrants contain full-ratchet anti-dilution provisions, which preclude the warrants from being considered indexed to our own stock.  Prior to the Modification, the Series A Warrants issued to Series A Investors contained such provisions, thus requiring us to treat them as derivative financial instruments, to be recorded at fair value at issuance and subsequently adjusted to fair value at each reporting date, with the corresponding adjustment reflected as a non-operating credit or charge in the consolidated statement of operations.  We valued the Series A Warrants using the Monte-Carlo simulation method using the following assumptions immediately prior to the Modification:  (i) closing stock price and Series A Warrant contractual exercise price; (ii) term to expiration commensurate with the individual Series A Warrant terms of 3.8 years; (iii) historical volatilities commensurate with the term of the Series A Warrants of 129.6%; (iv) risk-free interest rates commensurate with the term of the Series A Warrants of 1.2%; and (v) simulated anti-dilution impact assuming various probabilities that we will raise additional capital by issuing equity securities at prices above or below the current contractual Series A Warrant exercise prices during the Series A Warrant terms.  The result of this valuation simulation was to value the remaining Series A Warrants held by Series A Investors at $281,000 as of the Modification date.  As a result, warrant derivative gains of $152,000 were recognized, and the remaining $281,000 was reclassified to additional paid-in capital.  As a result of a similar valuation analysis performed during the first quarter ended March 31, 2014, the combined warrant derivative gains recognized in our consolidated statements of operations and the amount of warrant derivative liabilities reclassified to stockholders’ equity resulting from Series A Warrant exercises for the six months ended June 30, 2014 was $152,000 and $416,000, respectively.  The additional Series A Warrants to purchase 25,303 shares of common stock issued to Series A Investors as consideration for agreeing to the Modification were valued using the Black-Scholes valuation model, using the following assumptions as of the Modification:  (i) closing stock price and Series A Warrant contractual exercise price; (ii) term to expiration commensurate with the individual Series A Warrant terms of 3.8 years; (iii) historical volatility commensurate with the term of the Series A Warrants of 129.6%; and (iv) risk-free interest rates commensurate with the term of the Series A Warrants of 1.2%.  The resulting valuation of $44,000 was recognized as a non-operating charge in our consolidated statements of operations for the three and six months ended June 30, 2014.

Series B Convertible Preferred Stock Financing

On March 19, 2013, we entered into a securities purchase agreement with an existing institutional investor (the “Series B Investor”) to purchase 130,000 shares of common stock at a price of $3.05 per share and approximately 1,610.4 units consisting of, in the aggregate, Series B 6% convertible preferred stock (the “Series B Stock”) and warrants to purchase up to 275,000 shares of common stock at an original exercise price of $3.49 per share (the “Series B Warrants”) in a registered direct offering (the “Series B Financing”) of securities sold off of our existing shelf registration statement on Form S-3 (File No. 333-176372).  The Series B Financing closed on March 20, 2013, netting approximately $1.8 million of proceeds to us.  The Series B Stock was initially convertible into an aggregate of 528,000 shares of common stock at an initial conversion price of $3.05 per share.  During 2013, the Series B Investor converted all of the Series B Stock into common stock.

13

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

The Series B Warrants originally had a 5½ year term as well as a cashless exercise provision in the event there is no effective registration statement covering the common stock issuable upon exercise of the Series B Warrants.  The Series B Warrants are not subject to price anti-dilution protection.  We also agreed with the Series B Investor pursuant to the Series B Purchase Agreement that, except under certain permitted circumstances, until the time that less than 7.5% of the Series B Warrants remain outstanding, neither we nor our subsidiaries shall issue, or enter into any agreement to issue, common stock or equivalents thereof at a price below the exercise price of the Series B Warrants. See below for further discussion of modifications made to the Series B Warrants as a result of the Series E convertible preferred stock financing executed in February 2015.

Series C Convertible Preferred Stock Financing

On May 3, 2013, we entered into a securities purchase agreement with two accredited investors (the “Series C Investors”), pursuant to which we sold and issued 1,200 shares of Series C 6% convertible preferred stock (the “Series C Stock”) to the Series C Investors at a purchase price of $1,000 per share in an initial closing that occurred on May 6, 2013 (the “Series C First Closing”) and sold and issued 1,200 additional shares of Series C Stock to the Series C Investors on June 28, 2013 at a purchase price of $1,000 per share after stockholder approval was obtained on June 27, 2013 (the “Series C Second Closing”) (combined, the “Series C Financing”). After certain offering-related costs paid, the net proceeds from the Series C Financing were approximately $2.14 million.  During 2013, the Series C Investors converted all 2,400 shares of Series C Stock into 839,864 shares of common stock.

In addition to the issuance of the Series C Stock, we issued warrants at the Series C First Closing to purchase 491,803 shares of our common stock with an original exercise price of $3.77 per share and at the Series C Second Closing, we issued additional warrants to purchase 491,803 shares of our common stock with an original exercise price of $3.55 per share (collectively, the “Series C Warrants”).  The Series C Warrants originally had a 5½ year term, were not exercisable for the first six months following issuance and included a cashless exercise provision, which is only applicable if the common stock underlying the Series C Warrants is not subject to an effective registration statement or otherwise cannot be sold without restriction pursuant to Rule 144.  Until all Series C Investors no longer hold Series C Warrants:  (i) we may not sell any variable rate securities except for certain exempt issuances; and (ii) if we enter into a subsequent financing on more favorable terms than the Series C Financing, then the agreements between us and the Series C Investors will be amended to include such more favorable terms.  In addition, until 7.5% or less of the Series C Warrants remain unexercised, we may not sell any dilutive securities, except for certain exempt issuances.  See below for further discussion of modifications made to the Series C Warrants as a result of the Series E convertible preferred stock financing executed in February 2015.

Series D Convertible Preferred Stock Financing

On December 20, 2013 (the “Series D Closing”), we closed an underwritten public offering (the “Series D Offering”) and issued 12,000 units of securities to investors, with each unit consisting of: (i) one share of Series D preferred stock (“Series D Stock”) convertible into shares of our common stock equal to 1,000 divided by the conversion price of $2.06, which was 72.5% of the consolidated closing bid price of our common stock on the Nasdaq Capital Market on December 16, 2013, the date we executed the underwriting agreement (“UA date”); and (ii) one warrant exercisable for 485.4369 shares of our common stock, at an exercise price per share equal to $3.12 (“Series D Warrants”), which was 110% of the consolidated closing bid price of our common stock on the Nasdaq Capital Market on the UA date. The shares of common stock underlying the Series D Stock and Series D Warrants were registered on Form S-1 (File No. 333 191221), which was declared effective by the SEC on December 16, 2013. The Series D Stock was immediately convertible and the Series D Warrants were immediately exercisable for shares of common stock and have a term of five years. The Series D Warrants are exercisable for cash or, solely in the absence of an effective registration statement or prospectus, by cashless exercise. In total, there were 5,825,243 shares of common stock issuable upon conversion of the Series D Stock and up to 5,825,243 shares of common stock issuable upon exercise of the Series D Warrants. The units were sold for a purchase price equal to $1,000 per unit, resulting in net proceeds received by of $10.7 million.  From the time of the Series D Closing through the first quarter of 2014, all of the Series D Stock had converted into 5,825,243 shares of common stock. Also as a result of the Series D Offering, the exercise price of the then outstanding Series A Warrants automatically ratcheted down by their terms from their then exercise price of $2.86 per share to an adjusted exercise price of $2.06 per share, and the underlying shares exercisable was automatically increased by 81,910 shares.  A registration statement on Form S-3 was filed in order to register these shares for resale as per the terms of our original Series A offering documents. The Series E convertible preferred stock financing described below did not impact any of the terms of the Series D Warrants currently outstanding.

14

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Series E Convertible Preferred Stock Financing

On February 13, 2015, we and certain accredited institutional pre-existing investors (the “Series E Investors”) entered into a securities purchase agreement (the “Series E Purchase Agreement”), pursuant to which we sold 1,541,998 shares common stock at a price of $1.75 per share, 2,201.493 shares of Series E 6% Convertible Preferred Stock (the “Series E Preferred Stock”) and warrants to purchase 700,000 shares of common stock at an exercise price of $1.97 per share, which was the consolidated closing bid price of our common stock on Nasdaq immediately prior to entering into the Series E Purchase Agreement (the “Series E Warrants”, and the transactions contemplated by the Series E Purchase Agreement, the “Series E Financing”).  The Series E Preferred Stock and Series E Warrants were sold in a fixed combination consisting of one share of Series E Preferred Stock and a Series E Warrant to purchase approximately 317.965 shares of Common Stock.  Each fixed combination of Series E Preferred Stock and Series E Warrants were sold at a price of $1,000.  The Series E Preferred Stock sold is convertible into 1,257,996 shares of common stock at an initial conversion price of $1.75 per share.  The closing under the Series E Purchase Agreement occurred on February 18, 2015 (the “Series E Closing Date”), where we received gross proceeds of $4.9 million from the Series E Investors.  After closing-related costs and expenses, net proceeds from the Series E Financing were approximately $4.7 million.  Given that the effective conversion price of the Series E Preferred Stock, inclusive of amounts allocated to common stock and Series E Warrants, was below the closing market price of our common stock at the time of the Series E Closing Date, we recognized a beneficial conversion feature in the amount of $890,000.  Since the Series E Preferred Stock was immediately convertible into common stock, the beneficial conversion feature was treated as a deemed dividend charged to retained earnings.

The Series E Preferred Stock is non-voting (except to the extent required by law and except for certain consent rights relating to amending the certificate of incorporation or bylaws, and the like), but ranks senior to our common stock with respect to dividends and with respect to distributions upon our deemed dissolution, liquidation or winding-up.  Each share of Series E Preferred Stock carries a 6% per annum dividend that will begin accruing six months after the Series E Closing Date and will be payable only in cash.  Until the volume weighted average price of our common stock on Nasdaq exceeds 200% of the conversion price of the Series E Preferred Stock for ten consecutive trading days, the Series E Preferred Stock is subject to full ratchet price based anti-dilution protection, subject to certain limitations.

The Series E Warrants issued have a 5 ½ year term and have a cashless exercise provision in the event there is no effective registration statement covering the common stock issuable upon exercise of the Series E Warrants. The Series E Warrants are not exercisable for the first six months following issuance.  The Series E Warrants are not subject to price based anti-dilution protection.  Subject to the beneficial ownership limitation described below, if, after the one year anniversary of the Series E Closing Date, the volume weighted average price of our common stock on Nasdaq exceeds 200% of the exercise price for ten consecutive trading days, then we have the right to, within one trading day thereafter, call for cancellation of up to 50% of the Series E Warrants for consideration equal to $0.001 per share of common stock underlying the Series E Warrants.  We may not exercise our call rights if, among other things, there is no effective registration statement registering the shares of common stock issuable upon exercise of the Series E Warrants or the prospectus contained in the registration statement is not available for the issuance of the shares of common stock issuable upon exercise of the Series E Warrants.

Pursuant to the terms of the Series E Purchase Agreement, while such Series E Investor holds Series E Preferred Stock and Series E Warrants, we may not enter into an agreement to effect a “Variable Rate Transaction,” which means a transaction in which we: (i) issue or sell any convertible securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of the common stock at any time after the initial issuance of such convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such convertible securities or upon the occurrence of specified or contingent events directly or indirectly related to our business; or (ii) enter into any agreement (including, without limitation, an equity line of credit) whereby we may sell securities at a future determined price.  Also, except under certain permitted circumstances: (i) until the later of the date that is six months from the closing or 30 days following the date on which less than 7.5% of the Series E Preferred Stock remains outstanding, we will not issue, or enter into any agreement to issue, any shares of common stock or equivalents thereof; (ii) until the time that less than 7.5% of the Series E Warrants remain outstanding, we may not issue, nor enter into any agreement to issue, common stock or equivalents thereof at a price below the exercise price of the Series E Warrants; (iii) until the time that less than 7.5% of the Series E Preferred Stock remains outstanding, we may not issue, nor enter into any agreement to issue, common stock or equivalents thereof at a price below the conversion price of the Series E Preferred Stock unless all shares of common stock underlying the Series E Preferred Stock (taking into consideration the effect of the full adjustment of the anti-dilution provisions from such dilutive issuance) are permitted by certain SEC rules to be issued under the registration statement; (iv) if we issue securities within the six months following the Series E Closing Date under the Series E Purchase Agreement, and subject to the preexisting rights of other security holders, the Series E Investors shall have the right of first refusal to purchase all of the securities on the same terms, conditions and price provided for in the proposed issuance of securities; and (v) we will indemnify the Series E Investors against certain losses resulting from our breach of any of our representations, warranties, or covenants under agreements with the Series E Investors, as well as under certain other circumstances described in the Series E Purchase Agreement.

15

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

The Series E Investors have agreed to be subject to a blocker that would prevent each of their respective common stock ownership at any given time from exceeding 4.99% (which may be increased, but not above 9.99%) of our outstanding common stock.  We agreed to seek stockholder approval at a special stockholders’ meeting to be held on April 28, 2015 for the terms of the Series E Preferred Stock and the issuance and delivery in the aggregate of that number of shares of common stock exceeding 19.99% of the outstanding shares of common stock upon conversion of the Series E Preferred Stock.  See further discussion below regarding the results of the special stockholders’ meeting.

The Series E Financing was effected as a takedown off our shelf registration statement on Form S-3 (File No. 333-198848), which became effective on September 19, 2014, pursuant to a prospectus supplement filed with the Securities and Exchange Commission on February 13, 2015.

Private Placement Warrant Financing

Substantially concurrently with the closing of the Series E Financing, on February 13, 2015, we entered into a separate securities purchase agreement (the “Warrant Purchase Agreement”) with selected accredited institutional pre-existing investors (the “Private Placement Investors”), pursuant to which we agreed to sell to the Private Placement Investors warrants to purchase 1,540,000 shares of Common Stock (the “Private Placement Warrants”, and the transactions contemplated by the Warrant Purchase Agreement, the “Warrant Financing”).  In consideration of an aggregate of $1,000, we had agreed to sell the Private Placement Warrants, which would not be issued unless and until our stockholders approved amending our Certificate of Incorporation to increase our authorized common stock to permit the issuance of the common stock issuable upon exercise of the Private Placement Warrants (the “Charter Amendment”).  We estimated the fair value of the Private Placement Warrants using the Black-Scholes valuation model to be $1.82 million, which was classified as a warrant subscription payable within additional paid-in capital in our consolidated balance sheet as of March 31, 2015, using the following assumptions:  (i) closing stock price and Private Placement Warrants contractual exercise price; (ii) 5.5 year term; (iii) historical volatilities commensurate with the term of the Private Placement Warrants of 113.2%; and (iv) risk-free interest rates commensurate with the term of the Private Placement Warrants of 1.5%.  We allocated the proceeds received from the Series E Financing to the Private Placement Warrants based on the relative fair value of the instruments issued to the Series E Investors.

The special stockholders’ meeting was held on April 28, 2015, in which our stockholders approved the terms of the Series E Preferred Stock financing and the Charter Amendment.  As a result, on April 28, 2015, we issued the Private Placement Warrants to the Private Placement Investors.

Each Private Placement Warrant has an exercise price of $2.167 per share of common stock (subject to adjustment for stock splits and the like), which was 110% of the consolidated closing bid price of our common stock on Nasdaq immediately prior to entering into the Warrant Purchase Agreement, and is exercisable at any time after the six month anniversary of entering into the Warrant Purchase Agreement and on or prior to the close of business on the five year anniversary of the initial exercise date, subject to the beneficial ownership limitation described below.  The Private Placement Warrants are not subject to price based anti-dilution protection.  If, at the time of exercise of a Private Placement Warrant, there is no effective registration statement registering for resale the shares of common stock issuable upon exercise of the Private Placement Warrant, the holder may exercise the Private Placement Warrant on a cashless basis.  When exercised on a cashless basis, a portion of the Private Placement Warrant is cancelled in payment of the purchase price payable in respect of the number of shares of common stock purchasable upon such exercise.  Subject to the beneficial ownership limitation described below, if, after the one year anniversary of the date of entering into the Warrant Purchase Agreement, the volume weighted average price of our common stock on Nasdaq exceeds 200% of the Private Placement Warrant exercise price for ten consecutive trading days, then we may, within one trading day thereafter, call for cancellation of up to 50% of the Private Placement Warrants for consideration equal to $0.001 per share of common stock underlying the Private Placement Warrants.  We may not exercise our call rights if, among other things, there is no effective registration statement registering for resale the shares of common stock issuable upon exercise of the Private Placement Warrants.  Subject to limited exceptions, a holder of Private Placement Warrants will not have the right to exercise any portion of its Private Placement Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (which may be increased, but not above 9.99%) of the number of shares of our common stock outstanding immediately after giving effect to such exercise.

For as long as the Private Placement Investors hold any Private Placement Warrants, we will not enter into an agreement to affect a “Variable Rate Transaction,” with similar terms and prohibitions described above.  We also agreed that, except under certain permitted circumstances until the time that less than 7.5% of the Private Placement Warrants remain outstanding, we will not issue, nor enter into any agreement to issue, common stock or equivalents thereof at a price below the exercise price of the Private Placement Warrants.

16

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Modification of Certain Outstanding Warrants

In connection with the purchase of the Private Placement Warrants, we modified previously issued and outstanding warrants held by the Private Placement Investors that were issued in connection with the Series A, Series B and Series C financings described above, to (i) reduce the exercise prices thereunder to $1.97, which represents the consolidated closing bid price of our common stock on Nasdaq immediately prior to the date we entered into the Warrant Purchase Agreement; (ii) prohibit the exercise of such modified warrants for a period of six months after the date of the modification; and (iii) extend the exercise period of such modified warrants for an additional six months (such modifications, collectively, the “Warrant Price Modifications”).  Separately, we also agreed to a Warrant Price Modification with a holder of Series C Warrants solely in consideration for such holder’s waiver of certain preemptive rights.  We estimated the change in fair value of these warrants immediately prior to and immediately subsequently to the Warrant Price Modification to be $336,000, and such amount has been recorded as a non-cash equity offering cost.

Warrants

Outstanding warrants to purchase common stock are as follows:

	Shares of Common Stock
	Issuable from Warrants
	Outstanding as of
	June 30,	December 31,	Exercise
	2015	2014	Price	Expiration
Equity-classified warrants:
April 2015	1,540,000	—	$  2.17	August 2020
February 2015	700,000	—	$  1.97	August 2020
June 2014	25,303	25,303	$  2.06	April 2018
December 2013	5,825,243	5,825,243	$  3.12	December 2018
June 2013	491,803	491,803	$  1.97	June 2019
May 2013	491,803	491,803	$  1.97	May 2019
March 2013	275,000	275,000	$  1.97	March 2019
October 2012	168,706	168,706	$  1.97	September 2018
April 2011	131,047	131,047	$ 21.40	April 2016
Total - all warrants	9,648,905	7,408,905

7.     COMMITMENTS AND CONTINGENCIES

Executive Severance

We provide certain severance benefits such that if an executive officer of CombiMatrix Corporation is terminated for other than cause, death or disability, the executive will receive payments equal to three months’ base salary plus medical and dental benefits.  In addition, we have implemented a Restated Executive Change of Control Severance Plan (the “Severance Plan”) that affects certain of our senior management-level employees who are classified as “Section 16 Officers” of the Company.  Pursuant to the Severance Plan, if a participating employee is involuntarily terminated (other than for death, disability or for cause) or resigns for “good reason” (as defined in the Severance Plan) during the two-year period following a “change of control” (as defined in the Severance Plan) of the Company, then, subject to execution of a release of claims against the Company, the employee will be entitled to receive: (i) one-half times annual base salary; (ii) immediate vesting of outstanding compensatory equity awards; and (iii) payment of COBRA premiums for the participating employee and eligible dependents for a pre-determined period of time.  Payment of benefits under the Severance Plan will be limited by provisions contained in Section 409A of the U.S. Internal Revenue Code.  The Severance Plan is administered by a plan administrator, which initially is the Compensation Committee of the Board of Directors.  In order to participate in the Severance Plan, an eligible employee must waive any prior retention or severance agreements.

17

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Litigation

In 2002, we entered into a settlement agreement with Nanogen, Inc. (“Nanogen”) to settle all pending litigation between the parties.  Pursuant to the terms of the settlement agreement, we agreed to make quarterly payments to Nanogen equal to 12.5% of total sales of products developed by us and our affiliates based on the patents that had been in dispute in the litigation, up to an annual maximum amount of $  1.5 million.  The minimum quarterly payments under the settlement agreement are $  25,000 per quarter until the patents expire in 2018.  Royalty expenses recognized under the agreement were $  25,000 and $  50,000 for the three and six months ended June 30, 2015 and 2014, respectively, and are included in patent amortization and royalties in the accompanying consolidated statements of operations.

On February 14, 2011, Relator Michael Strathmann (“Strathmann”) served us with a complaint (“the Complaint”) filed in the Superior Court of the State of California, County of Orange (the “Superior Court”).  The Complaint alleged we and our former parent Acacia Research Corporation submitted a false and fraudulent insurance claim to National Union Fire Insurance Company under a Directors and Officers Policy issued to Acacia, in connection with a prior lawsuit that was settled with Nanogen, Inc.  The Complaint further alleged that we violated the California Insurance Fraud Prevention Act, and sought penalties and unspecified damages.  On May 4, 2011, the Superior Court dismissed the Complaint by ordering that it be stricken for violation of the California Anti-SLAPP statute, which prevents plaintiffs from filing abusive lawsuits against public policy.  On June 15, 2011, Strathmann filed a Notice of Appeal with the California Court of Appeal, appealing the granting of our Anti-SLAPP Motion.  On October 24, 2012, the California Court of Appeal reversed the Superior Court’s dismissal, finding that the Anti-SLAPP statute was not applicable as a matter of public policy and remanded the case back to the Superior Court.  Strathmann filed an Amended Complaint, and we and Acacia filed our Answer to that pleading.  A trial was held between June and August of 2014, followed by closing briefs and arguments filed in September and October of 2014.  On January 2, 2015, the Superior Court issued a tentative ruling and proposed statement of decision in favor of us, Acacia and Amit Kumar and against all claims of Strathmann.  Specifically, the Superior Court determined that it could not find we had any fraudulent intent when we pursued insurance benefits under the National Union Directors and Officers Policy over a decade ago.  On March 6, 2015, the Superior Court issued its final Statement of Decision, confirming its tentative ruling that Strathmann failed to prove that we (or any other defendant) had a fraudulent intent when we pursued insurance benefits from National Union.  Also on March 6, 2015, the Superior Court entered a Judgment in favor of all defendants and against Strathmann, and ordered that Strathmann’s Complaint be dismissed with prejudice.  A Notice of Entry of Judgment was filed with the Superior Court on March 11, 2015.

On April 23, 2015, we entered into a settlement agreement with Strathmann whereby Strathmann relinquished his rights to further litigate the Complaint or appeal the Judgment.  In return, we relinquished our rights to recover certain court costs and to pursue reimbursement of court and legal fees from Strathmann, effectively ending this litigation.

From time to time, we are subject to other claims and legal actions that arise in the ordinary course of business.  We believe that the ultimate liability with respect to these claims and legal actions, if any, will not have a material effect on our financial position, results of operations or cash flows.  Any legal costs resulting from claims or legal actions are expensed as incurred.

18

Item 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statement

You should read the following discussion and analysis in conjunction with the consolidated financial statements and related notes thereto contained in Part I, Item 1 of this report.  The information contained in this Quarterly Report on Form 10-Q is not a complete description of our businesses or the risks associated with an investment in our common stock.  We urge you to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the U.S. Securities and Exchange Commission, or “SEC,” including our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 17, 2015.

This report contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact included in this report, are forward-looking statements. Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report. Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “would,” “could,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “plan,” “predict,” “seek,” “potential,” “continue,” “focus,” “ongoing,” or similar terms, variations of such terms or the negative of such terms, and include, but are not limited to, statements regarding projected results of operations, capital expenditures, earnings, management’s future strategic plans, development of new technologies and services, litigation, regulatory matters, market acceptance and performance of our services, the success and effectiveness of our technologies and services, our ability to retain and hire key personnel, the competitive nature of and anticipated growth in our markets, market position of our services, marketing efforts and partnerships, liquidity and capital resources, our accounting estimates, and our assumptions and judgments.  Such statements are based on management’s current expectations, estimates and projections about our industry, management’s beliefs, and certain assumptions made by us, all of which are subject to change. These forward looking statements are not guarantees of future results and are subject to a number of risks, uncertainties and assumptions that are difficult to predict and that could cause actual results to differ materially and adversely from those described in the forward-looking statements.  The risks and uncertainties referred to above include, but are not limited to, our ability to successfully increase the volume of our existing tests, expand the number of tests offered by our laboratory, increase the number of customers and partners and improve reimbursement for our testing; market acceptance of chromosomal microarray analysis (“CMA”) as a preferred method over karyotyping; the rate of transition to CMA from karyotyping; changes in consumer demand; our ability to attract and retain a qualified sales force and key technical personnel; our ability to successfully develop and introduce new technologies and services; rapid technological change in our markets; supply availability; the outcome of existing litigation; our ability to bill and obtain reimbursement for highly specialized tests; our ability to comply with regulations to which our business is subject, including changes in coding and reimbursement methods; legislative, regulatory and competitive developments in markets in which we and our subsidiaries operate; our limited market capitalization; future economic conditions; other circumstances affecting anticipated revenues and costs; and other factors as more fully disclosed in our discussion of risk factors in Item 1A of Part II of this report and in the “Risk Factors” described in our Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on March 17, 2015.  Additional factors that could cause such results to differ materially from those described in the forward-looking statements are set forth in connection with the forward-looking statements.  These forward-looking statements speak only as of the date of this report and we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

General

We provide valuable molecular diagnostic solutions and comprehensive clinical support for the highest quality of care.  We specialize in pre-implantation genetic screening, recurrent pregnancy loss, prenatal and pediatric healthcare, offering DNA-based testing for the detection of genetic abnormalities beyond what can be identified through traditional methodologies.  We perform genetic testing utilizing a variety of advanced cytogenomic techniques, including microarray, standardized and customized fluorescent in-situ hybridization (or “FISH”) and high resolution karyotyping.  We emphasize support for healthcare professionals, to ensure data understanding and communication of results to patients.  We deliver high-technology driven answers, with a high degree of assistance for the ordering physician and staff.  Our clinical lab and corporate offices are located in Irvine, California.

We also own a one-third minority interest in Leuchemix, Inc. (“Leuchemix”), a private drug development company focused on developing a series of compounds to address a number of oncology-related diseases.

19

Overview

For the three and six months ended June 30, 2015, our operating activities included the recognition of $2.5 million and $4.9 million of total revenues, respectively, which increased by $608,000 and $1.1 million, respectively, from the comparable periods in 2014 due primarily to increased volumes of molecular diagnostic tests performed, particularly in the prenatal testing market.  Our net losses for the three and six months ended June 30, 2015 decreased over the comparable periods in 2014 due primarily to decreased operating expenses as a result of reduced litigation expenses, partially offset by increased cost of services from higher testing volumes.   Also for the six months ended June 30, 2015, the decrease in our net loss attributable to common stockholders was partially offset by an $890,000 increase from the comparable period in 2014 due to a deemed dividend from issuing Series E convertible preferred stock discussed below.

In February 2015, we executed a registered direct offering with certain accredited institutional pre-existing investors for the issuance of Series E convertible preferred stock, common stock and warrants to purchase common stock (the “Series E Financing”), resulting in net proceeds to us of approximately $4.7 million.  Substantially concurrently with the closing of the Series E Financing, we entered into a separate securities purchase agreement with selected accredited institutional pre-existing investors to sell warrants to purchase our common stock, pending stockholders’ approval that was obtained on April 28, 2015 to increase our authorized common stock from 25 million shares to 50 million shares.

Critical Accounting Estimates

Our unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.  Preparation of these statements requires management to make judgments and estimates.  Some accounting policies have a significant impact on amounts reported in these financial statements.  A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on March 17, 2015, in the Notes to the Consolidated Financial Statements and the Critical Accounting Estimates sections.  In addition, refer to Note 2 to the consolidated interim financial statements included in Part I, Item 1 of this report.

Comparison of the Results of Operations for the Three and Six Months Ended June 30, 2015 and 2014

Revenues and Cost of Services (dollars in thousands):

	Three Months Ended										Six Months Ended
	June 30,						Change				June 30,						Change
	2015			2014			$			%	2015			2014			$			%
Diagnostic services	$	2,524		$	1,906		$	618		32%	$	4,811		$	3,696		$	1,115		30%
Royalties	25			35			(10		)	(29%)	67			67			—			0%
Cost of services	(1,398		)	(1,053		)	(345		)	(33%)	(2,628		)	(2,051		)	(577		)	(28%)

Diagnostic Services Revenues.  Diagnostic services revenues are generated from providing DNA-based genomic testing services primarily in the areas of recurrent pregnancy loss, prenatal and postnatal development disorders in children.  The key drivers and metrics relating to the change in diagnostic services revenues were as follows:

	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
	2015		2014		#			%	2015		2014		#			%
Total billable tests	2,599		1,840		759			41%	4,944		3,513		1,431			41%
Microarray tests	1,867		1,431		436			30%	3,540		2,800		740			26%
Microarray percentage of total tests	71.8%		77.8%						71.6%		79.7%
Total prenatal(1) microarray tests	1,256		872		384			44%	2,462		1,609		853			53%
Prenatal percentage of total microarray tests	67.3%		60.9%						69.5%		57.5%
Revenue per test - total	$	971	$	1,036	$	(65	)	(6%)	$	973	$	1,052	$	(79	)	(8%)
Revenue per test - microarrays	$	1,224	$	1,251	$	(27	)	(2%)	$	1,225	$	1,251	$	(26	)	(2%)
Revenue per test - prenatal microarrays	$	1,285	$	1,400	$	(115	)	(8%)	$	1,287	$	1,456	$	(169	)	(12%)

(1) includes both miscarriage analysis and prenatal microarray tests

20

For the three months ended June 30, 2015, total billable tests and total diagnostic services revenues increased by 41% and 32%, respectively, compared to the three months ended June 30, 2014.  For the six months ended June 30, 2015, total billable tests and total diagnostic services revenues increased by 41% and 30%, respectively, compared to the six months ended June 30, 2014.  Driving the increase in billable tests and revenues for all periods presented was the increase in prenatal microarray test volumes, which increased by 44% and 53% for the three and six months ended June 30, 2015 compared to the 2014 periods, respectively.  We believe this reflects the commercialization strategies and focus of our sales force, which have emphasized prenatal microarray diagnostics testing over traditional genomics testing.  While this has led to a higher concentration of prenatal microarray tests as a percentage of total tests performed in 2015 compared to 2014, changes in payor mix coupled with non-coverage determinations by certain payors regarding our recurrent pregnancy loss microarray test resulted in lower average net revenue per test performed, thereby resulting in a lower percentage increase in total diagnostic services revenues compared to the increase in diagnostic testing volumes.

Diagnostic services revenues also include adjustments relating to our revenue recognition policy of periodically adjusting our estimate for contractual allowances for revenues from non-contracted payors as well as from receiving cash payments in excess of amounts previously recognized for services revenues. For the three and six months ended June 30, 2015 and 2014, net positive revenue adjustments were $149,000, $277,000, $121,000 and $265,000, respectively.   Because approximately 69% of our diagnostic revenues are billed to third-party payors, most of which are non-contracted, it is likely that we will be required to make adjustments to accounting estimates with respect to contractual allowances in the future, which may positively or adversely affect our revenues and results of operations.

Royalties.  In 2010, we entered into an exclusive licensing agreement with CustomArray, Inc. (“CA”), a private company located in Washington State, to license certain patents and intellectual property developed as part of our prior microarray manufacturing business.  This agreement requires CA to pay us royalties as a percentage of their gross revenues, not less than $25,000 per quarter.  The changes in royalty revenues reported reflect changes in CA’s revenues.  It is uncertain whether in future periods, CA’s revenues will increase or continue at the minimum contractual amounts.

Cost of Services.  Cost of services relating to our diagnostic tests performed include direct materials such as microarray slides, reagents and related laboratory materials, direct laboratory labor (wages and benefits), allocation of administrative overhead and stock-compensation expenses.   Increases in cost of services were due primarily to increased diagnostic testing volumes described above.  For the three and six months ended June 30, 2015 and 2014, non-cash stock compensation expenses were not significant.

Operating Expenses (dollars in thousands):

	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
	2015		2014		$			%	2015		2014		$			%
Research and development	$	62	$	224	$	(162	)	(72%)	$	219	$	358	$	(139	)	(39%)
Sales and marketing	1,173		1,109		64			6%	2,363		1,995		368			18%
General and administrative	1,488		2,216		(728		)	(33%)	2,963		3,973		(1,010		)	(25%)

Research and Development.  These expenses include labor (wages and benefits), non-cash stock compensation expenses and laboratory supply costs associated with investigating and validating new tests and technology platforms, costs to maintain and improve our existing suite of diagnostic tests offered and process improvement projects.  Prior to launching a new test or technology, or modifying an existing test, appropriate clinical trials and extensive laboratory validations, consistent with the various regulations that govern our industry, must be performed.  These costs are classified as research and development for all periods presented.  For the three and six months ended June 30, 2015, research and development expenses decreased from the comparable 2014 periods due primarily to increased focus on commercial operations and reduced new test development compared with prior periods.

Sales and Marketing.  These expenses include salaries and wages associated with our sales force and marketing resources, sales commissions and other expenses associated with promotional and advertising efforts as well as non-cash stock compensation expenses.  For the three and six months ended June 30, 2015, sales and marketing expenses increased from the comparable 2014 periods due primarily to increased headcount in sales representatives as well as increased marketing and promotional related activities.  For the three and six months ended June 30, 2015 and 2014, non-cash stock compensation expenses were not significant.

21

General and Administrative.  These expenses include compensation and benefit costs of our administrative staff, client billing and collections, information technology, executive management, human resources and accounting personnel, as well as facilities-related costs, insurance, legal, audit and other professional services.    For the three and six months ended June 30, 2015, general and administrative expenses decreased from the comparable 2014 periods due primarily to reduced legal expenses from the Strathmann litigation, which was concluded early in the first quarter of 2015.  For the three and six months ended June 30, 2015, litigation expenses were $19,000 and $114,000, respectively, compared to $860,000 and $1.3 million, respectively, in the comparable 2014 periods.  Also included in general and administrative expenses are non-cash stock-based compensation expenses, which were $161,000, $305,000, $165,000 and $227,000 for the three and six months ended June 30, 2015 and 2014, respectively.  Changes to stock-based compensation expenses are driven by timing of when option awards are granted compared to when older awards become fully vested or expire due to forfeitures, as well as by the valuations attributed to individual awards at the time they are granted.  See Note 2 to our consolidated interim financial statements included elsewhere in this report for a detailed description of the amounts of non-cash stock compensation expense recognized for the periods presented.

Other Non-Operating Items (dollars in thousands):

	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
	2015		2014		$			%	2015		2014		$			%
Warrant derivative gains	$	—	$	152	$	(152	)	100%	$	—	$	152	$	(152	)	100%

Warrant Derivative Gains.  We account for stock purchase warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreements.  Under applicable accounting guidance, stock warrants must be accounted for as derivative financial instruments if the warrants contain full-ratchet anti-dilution provisions, which preclude the warrants from being considered indexed to our own stock.  Prior to June 2014, the Series A Warrants issued to Series A Investors contained such provisions, thus requiring us to treat them as derivative financial instruments, to be recorded at fair value at issuance and subsequently adjusted to fair value at each reporting date, with the corresponding adjustment reflected as a non-operating gain or charge in the consolidated statements of operations.  We valued the Series A Warrants using the Monte-Carlo simulation method using the following assumptions immediately prior to the Modification:  (i) closing stock price and Series A Warrant contractual exercise price; (ii) term to expiration commensurate with the individual Series A Warrant terms of 3.8 years; (iii) historical volatilities commensurate with the term of the Series A Warrants of 129.6%; (iv) risk-free interest rates commensurate with the term of the Series A Warrants of 1.2%; and (v) simulated anti-dilution impact assuming various probabilities that we will raise additional capital by issuing equity securities at prices above or below the current contractual Series A Warrant exercise prices during the Series A Warrant terms.  The result of this valuation simulation was to value the remaining Series A Warrants held by Series A Investors at $281,000 as of the Modification date.  As a result, warrant derivative gains of $152,000 were recognized, and the remaining $281,000 was reclassified to additional paid-in capital.  As a result of a similar valuation analysis performed during the first quarter ended March 31, 2014, the combined warrant derivative gains recognized in our consolidated statements of operations and the amount of warrant derivative liabilities reclassified to stockholders’ equity resulting from Series A Warrant exercises for the six months ended June 30, 2014 was $152,000 and $416,000, respectively.  The additional Series A Warrants to purchase 25,303 shares of common stock issued to the Series A Investors as consideration for agreeing to the Modification were valued using the Black-Scholes valuation model, using the following assumptions as of the Modification:  (i) closing stock price and Series A Warrant contractual exercise price; (ii) term to expiration commensurate with the individual Series A Warrant terms of 3.8 years; (iii) historical volatility commensurate with the term of the Series A Warrants of 129.6%; and (iv) risk-free interest rates commensurate with the term of the Series A Warrants of 1.2%.  The resulting valuation of $44,000 was recognized as a non-operating charge in our consolidated statements of operations for the three and six months ended June 30, 2014.

Inflation

Inflation has not had a significant impact on our business, results of operations or financial condition.

Liquidity and Capital Resources

At June 30, 2015, cash, cash equivalents and short-term investments totaled $7.1 million, compared to $5.2 million at December 31, 2014.  Cash is held primarily in general checking accounts as well as in money market mutual funds backed by U.S. government securities.  Short-term investments are comprised primarily of certificates of deposits issued by U.S. financial institutions.  Working capital was $8.2 million and $6.6 million at June 30, 2015 and December 31, 2014, respectively.  The primary reason for the increase in working capital was due to higher cash balances at June 30, 2015 compared to December 31, 2014, driven by operating, investing and financing activities described below.

22

The net change in cash and cash equivalents for the periods presented was comprised of the following (in thousands):

	Six Months Ended
	June 30,
	2015			2014			Change
Net cash provided by (used in):
Operating activities	$	(2,649	)	$	(4,046	)	$	1,397
Investing activities	168			(5,195		)	5,363
Financing activities	4,594			285			4,309
Increase (decrease) in cash and cash equivalents	$	2,113		$	(8,956	)	$	11,069

Operating Activities.  Higher cash inflows from improved cash collections coupled with lower litigation costs during the six months ended June 30, 2015 resulted in lower cash used in operating activities compared to the six months ended June 30, 2014.

Investing Activities.  The increase in net cash flows used in investing activities was due to significant purchases of available-for-sale short-term investments made during 2014 that were not repeated in 2015, coupled with sales of certain available-for-sale short-term investments in 2015 that did not occur in 2014.

Financing Activities.  The increase in net cash flows from financing activities was due primarily to the $4.7 million of net proceeds received in February 2015 from the Series E Financing, compared to proceeds from Series A Warrant exercises during the six months ended June 30, 2014 that were nearly offset by Series D offering related costs that were paid during the same period.

Future Liquidity.  We have a history of incurring net losses and net operating cash flow deficits.  We are also deploying new technologies and continue to develop commercial technologies and services.  We believe that our cash, cash equivalents and short-term investments as of June 30, 2015 will be sufficient to meet our expected cash requirements for current operations for at least the next twelve months.  In order for us to ultimately achieve profitability, we may be required to obtain capital from external sources, increase revenues and reduce operating costs.  However, there can be no assurance that our operations will become profitable or that external sources of financing, including the issuance of debt and/or equity securities, will be available at times and at terms acceptable to us, or at all.  The issuance of additional equity or convertible debt securities will also cause dilution to our stockholders.  If external financing sources are not available or are inadequate to fund our operations, we will be required to reduce operating costs, including research projects and personnel, which could jeopardize our future strategic initiatives and business plans.  See Note 1 to the consolidated financial statements included elsewhere in this report for additional discussion of these matters.

Capital Requirements.  We may also encounter unforeseen difficulties that may deplete our capital resources more rapidly than anticipated.  As a result, we may be required to seek additional funding through equity, debt or other external financing, and there can be no assurance that additional funding will be available on favorable terms, in a timely fashion or at all.  At this time, we have no significant commitments for capital expenditures in 2015 or beyond.  However, our long-term capital requirements could be substantial and the adequacy of available funds will depend upon many factors, including:

·the costs of commercialization activities, including sales and marketing costs and capital equipment;

·competing technological developments;

·the creation and formation of strategic partnerships;

·variability in third-party reimbursement for our diagnostic tests;

·the costs associated with leasing and improving our Irvine, California facility; and

·other factors that may not be within our control.

23

Off-Balance Sheet Arrangements

As of June 30, 2015, we did not have any significant off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.  We have entered into an operating lease for our laboratory space and corporate offices, totaling approximately 12,200 square feet, expiring in early 2020.  We have no significant commitments for capital expenditures for the remainder of 2015 or beyond.  We have executed eleven capital leases totaling $278,000 for certain laboratory and IT-related equipment, with lease payments continuing through May 2019.

Recent Accounting Pronouncements

See Note 2 to the consolidated interim financial statements located elsewhere in this report for a discussion on recent accounting pronouncements.

Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

Item 4.       CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Based on this evaluation, our principal executive officer and our principal financial officer concluded that as of June 30, 2015, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods prescribed by the SEC and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our last fiscal quarter (the quarter ended June 30, 2015) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

24

PART II—OTHER INFORMATION

Item 1.  LEGAL PROCEEDINGS

From time to time, we are involved in other litigation arising in the normal course of business.  Management believes that resolution of these other matters will not result in any payment that, in the aggregate, would be material to our financial position or results of operations.

On February 14, 2011, Relator Michael Strathmann (“Strathmann”) served us with a complaint (“the Complaint”) filed in the Superior Court of the State of California, County of Orange (the “Superior Court”).  The Complaint alleged we and our former parent Acacia Research Corporation submitted a false and fraudulent insurance claim to National Union Fire Insurance Company under a Directors and Officers Policy issued to Acacia, in connection with a prior lawsuit that was settled with Nanogen, Inc.  The Complaint further alleged that we violated the California Insurance Fraud Prevention Act, and sought penalties and unspecified damages.  On May 4, 2011, the Superior Court dismissed the Complaint by ordering that it be stricken for violation of the California Anti-SLAPP statute, which prevents plaintiffs from filing abusive lawsuits against public policy.  On June 15, 2011, Strathmann filed a Notice of Appeal with the California Court of Appeal, appealing the granting of our Anti-SLAPP Motion.  On October 24, 2012, the California Court of Appeal reversed the Superior Court’s dismissal, finding that the Anti-SLAPP statute was not applicable as a matter of public policy and remanded the case back to the Superior Court.  Strathmann filed an Amended Complaint, and we and Acacia filed our Answer to that pleading.  A trial was held between June and August of 2014, followed by closing briefs and arguments filed in September and October of 2014.  On January 2, 2015, the Superior Court issued a tentative ruling and proposed statement of decision in favor of us, Acacia and Amit Kumar and against all claims of Strathmann.  Specifically, the Superior Court determined that it could not find we had any fraudulent intent when we pursued insurance benefits under the National Union Directors and Officers Policy over a decade ago.  On March 6, 2015, the Superior Court issued its final Statement of Decision, confirming its tentative ruling that Strathmann failed to prove that we (or any other defendant) had a fraudulent intent when we pursued insurance benefits from National Union.  Also on March 6, 2015, the Superior Court entered a Judgment in favor of all defendants and against Strathmann, and ordered that Strathmann’s Complaint be dismissed with prejudice.  A Notice of Entry of Judgment was filed with the Superior Court on March 11, 2015.

On April 23, 2015, we entered into a settlement agreement with Strathmann whereby Strathmann relinquished his rights to further litigate the Complaint or appeal the Judgment.  In return, we relinquished our rights to recover certain court costs and to pursue reimbursement of court and legal fees from Strathmann, effectively ending this litigation.

Item 1A.  RISK FACTORS

The following risk factors include any and all material changes to, and should be read in conjunction with, the risk factors contained in Part 1, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 17, 2015.

Our stock price could decline because of the potentially dilutive effect of future financings, preferred stock anti-dilution provisions or exercises of warrants and common stock options.

As of June 30, 2015, we had approximately 12.7 million shares of common stock issued and outstanding.  Assuming exercise in full of all options and warrants outstanding as of June 30, 2015, plus the additional shares of common stock sold in our February 2015 registered direct offering plus conversions of the Series E Stock (not taking into account any price-based or anti-dilution adjustments related to the Series E Stock) and exercises of the warrants issued in our February 2015 registered direct offering plus exercises of the warrants issued pursuant to our February 2015 private placement, approximately 24 million shares of our common stock would be outstanding.  Any additional equity or convertible debt financings in the future could result in further dilution to our stockholders. Existing stockholders also will suffer significant dilution in ownership interests and voting rights and our stock price could decline as a result of potential future application of anti-dilution features of our Series E Stock.

Item 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

25

Item 3.  DEFAULTS UPON SENIOR SECURITIES

None.

Item 4.  MINE SAFETY DISCLOSURES

Not applicable.

Item 5.  OTHER INFORMATION

None.

Item 6.  EXHIBITS

An index of exhibits is found on page 28 of this report.

26

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

COMBIMATRIX CORPORATION
By:	/s/ MARK MCDONOUGH
	Mark McDonough
	Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ SCOTT R. BURELL
	Scott R. Burell
	Chief Financial Officer
	(Principal Financial and Accounting Officer)

Date:   August 7, 2015

27

EXHIBIT INDEX

Exhibit Number		Description
3.	1	Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (SEC File No. 333-139679) filed with the SEC on December 26, 2006.
3.	2	Certificate of Amendment to Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1A to the Company’s Quarterly Report on Form 10-Q (File No. 001-33523) filed with the SEC on August 14, 2008.
3.	3	Certificate of Amendment to Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-33523) filed with the SEC on December 4, 2012.
3.	4	Certificate of Designation of Preferences, Rights and Limitations of Series A 6% Convertible Preferred Stock. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-33523) filed with the SEC on October 1, 2012.
3.	5	Certificate of Designation of Preferences, Rights and Limitations of Series B 6% Convertible Preferred Stock. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-33523) filed with the SEC on March 20, 2013.
3.	6	Certificate of Designation of Preferences, Rights and Limitations of Series C 6% Convertible Preferred Stock. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-33523) filed with the SEC on May 6, 2013.
3.	7	Certificate of Designation of Preferences, Rights and Limitations of Series D Convertible Preferred Stock. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-33523) filed with the SEC on December 23, 2013.
3.	8	Certificate of Designation of Preferences, Rights and Limitations of Series E 6% Convertible Preferred Stock. Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No. 001-33523) filed with the SEC on February 13, 2015.
3.	9	Certificate of Amendment to Amended and Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K (File No. 001-33523) filed with the SEC on April 29, 2015.
3.	10	Second Amended and Restated Bylaws. Incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K (File No. 001-33523) filed with the SEC on March 18, 2010.
10.	1	Form of Private Placement Warrant to Purchase Common Stock (Private Placement Warrant Financing). Incorporated by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K (File No. 001-33523) filed with the SEC on February 13, 2015.
10.	2	Agreement of Settlement and Release, dated April 23, 2015. Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-33523) filed with the SEC on April 28, 2015.
10.	3	CombiMatrix Corporation 2006 Stock Incentive Plan (as amended and restated June 17, 2015). Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 001-33523) filed with the Commission on June 19, 2015.
31.	1	Certification of Chief Executive Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (*)
31.	2	Certification of Chief Financial Officer pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (*)
32.	1	Certification of Chief Executive Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
32.	2	Certification of Chief Financial Officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
101.	0	The following materials from CombiMatrix Corporation’s Quarterly Report on Form 10-Q for the quarter and six month periods ended June 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2015 and December 31, 2014; (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014; (iii) Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2015 and 2014; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014; and (v) Notes to Consolidated Financial Statements.(*)

(*)       Included herewith.

28

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark McDonough, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of CombiMatrix Corporation;

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 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 controls over financial reporting (as defined in the Exchange 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, or 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 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.

Date:  August 7, 2015	/s/ MARK MCDONOUGH
	Mark McDonough
	Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott R. Burell, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of CombiMatrix Corporation;

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 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 controls over financial reporting (as defined in the Exchange 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, or 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 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.

Date: August 7, 2015	/s/ SCOTT R. BURELL
	Scott R. Burell
	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

In connection with the Quarterly Report of CombiMatrix Corporation (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2015, as filed with the Securities and Exchange Commission (the “Report”), I, Mark McDonough, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:

/s/ MARK MCDONOUGH

Mark McDonough

Chief Executive Officer

(Principal Executive Officer)

August 7, 2015

This certification accompanies this report and is being furnished pursuant to Item 601(b)(32) of Regulation S-K promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed “filed” by the Registrant for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, or incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference into such a filing.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of CombiMatrix Corporation (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2015, as filed with the Securities and Exchange Commission (the “Report”), I, Scott R. Burell, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, based on my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:

/s/ SCOTT R. BURELL

Scott R. Burell

Chief Financial Officer

(Principal Financial and Accounting Officer)

August 7, 2015

This certification accompanies this report and is being furnished pursuant to Item 601(b)(32) of Regulation S-K promulgated under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This certification shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed “filed” by the Registrant for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, or incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference into such a filing.

XML

Note 3 - Cash and Short-term Investments Table (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Cash and Money Market Securities [Member]
Cost	$ 3,123	$ 1,010
Fair Value	$ 3,123	1,010
Corporate Bond Securities [Member]
Cost		$ 1,003
Unrealized Gain
Unrealized Loss
Fair Value		$ 1,003
Certificates of Deposit [Member]
Cost	$ 4,001	$ 3,230
Unrealized Gain	$ 1
Unrealized Loss		$ (3)
Fair Value	$ 4,002	3,227
Cost	3,123	1,010
Fair Value	3,123	$ 1,010
Unrealized Gain	$ 1
Unrealized Loss		$ (3)
Cost	$ 7,124	5,243
Cash, Cash Equivalents, and Short-term Investments	$ 7,125	$ 5,240

XML

Note 3 - Cash and Short-term Investments

6 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Cash and Cash Equivalents Disclosure [Text Block]

3. CASH AND SHORT-TERM INVESTMENTS

As of June 30, 2015, we held $7.1 million in cash, cash equivalents and short-term investments, which are reported at fair value. Cash, cash equivalents and short-term investments consisted of the following as of June 30, 2015 and December 31, 2014 (in thousands):

	As of June 30, 2015								As of December 31, 2014
			Unrealized				Fair				Unrealized					Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
Cash and money market securities	$	3,123	$	-	$	-	$	3,123	$	1,010	$	-	$	-		$	1,010
Corporate bonds		-		-		-		-		1,003		-		-			1,003
Certificates of deposit		4,001		1				4,002		3,230		-		(3	)		3,227
	$	7,124	$	1	$	-	$	7,125	$	5,243	$	-	$	(3	)	$	5,240

There were no realized gains or losses for the periods ending June 30, 2015 or 2014.

XML

Note 6 - Stockholders' Equity (Details Textual) - USD ($)			1 Months Ended					3 Months Ended					6 Months Ended				12 Months Ended
	May. 03, 2013	Mar. 19, 2013	Feb. 18, 2015	Feb. 13, 2015	Dec. 31, 2013	Jun. 28, 2013	Mar. 19, 2013	Jun. 30, 2015	Mar. 31, 2015	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2012	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2013	Mar. 31, 2013	Dec. 31, 2013	Dec. 20, 2013	Jun. 17, 2015	Jun. 16, 2015	Apr. 28, 2015	Apr. 27, 2015	Dec. 31, 2014
Series A Warrants [Member] | Series A Convertible Preferred Stock [Member]
Proceeds from Issuance of Preferred Stock, Preference Stock, and Warrants												$ 2,500,000
Series A Warrants [Member] | First Closing [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights										$ 9.50				$ 9.50
Series A Warrants [Member] | Second Closing [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights										$ 2.36				$ 2.36
Series A Warrants [Member] | Before Adjustment [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights											$ 2.86
Series A Warrants [Member] | Minimum [Member]
Share Price								$ 4.91					$ 4.91
Series A Warrants [Member]
Fair Value Adjustment of Warrants										$ 44,000				$ 44,000
Warrants Term														5 years 182 days
Stock Issued During Period Shares Warrant Exercised														124,111			1,200,000
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					292,817					25,303	81,910			25,303	292,817		292,817
Proceeds from Warrant Exercises														$ 256,000
Class of Warrant or Right, Exercise Price of Warrants or Rights											$ 2.06
Fair Value Assumptions, Expected Term													3 years 292 days	3 years 292 days
Fair Value Assumptions, Expected Volatility Rate													129.60%	129.60%
Fair Value Assumptions, Risk Free Interest Rate													1.20%	1.20%
Warrants and Rights Outstanding										$ 281,000				$ 281,000
Derivative, Gain on Derivative										152,000				152,000
Warrant Liability Reclassified to Stockholders Equity										281,000				416,000
Series C Warrant [Member]
Warrants Term						5 years 182 days
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	491,803					491,803
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 3.77					$ 3.55
Warrant Agreement Percentage of Warrants Outstanding Threshold						7.50%
Series D Warrant [Member]
Percentage of Closing Bid Price of Common Stock																		110.00%
Convertible Preferred Stock, Shares Issued upon Conversion					5,825,243										5,825,243		5,825,243
Series E Warrant [Member] | Series E Purchase Agreement [Member] | Common Stock [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights				700,000
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right				317.965
Series E Warrant [Member] | Series E Purchase Agreement [Member]
Percentage of Volume Weighted Average Price of Common Stock				200.00%
Conversion Price Consecutive Trading Days				10 days
Percentage of Warrants Cancelled Threshold				50.00%
Price Per Share of Common Stock				$ 0.001
Series E Warrant [Member]
Warrants Term				5 years 182 days
Series B Warrants [Member] | Maximum [Member]
Warrant Agreement Percentage of Warrants Outstanding Threshold		7.50%					7.50%
Series B Warrants [Member]
Warrants Term		5 years 182 days
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		275,000					275,000
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 3.49					$ 3.49
Series D Convertible Preferred Stock [Member]
Debt Instrument, Convertible, Conversion Price																		$ 2.06
Series C Convertible Preferred Stock [Member]
Preferred Stock, Dividend Rate, Percentage						6.00%
Conversion of Stock, Shares Converted															2,400
Share Price	$ 1,000					$ 1,000
Stock Issued During Period, Shares, New Issues	1,200					1,200
Proceeds from Issuance of Convertible Preferred Stock						$ 2,140,000
Conversion of Stock, Shares Issued															839,864
Series E Convertible Preferred Stock [Member] | Series E Purchase Agreement [Member]
Maximum Percentage Of Convertible Stock Into Outstanding Common Stock				19.99%
Series A Convertible Preferred Stock [Member]
Conversion of Stock, Shares Converted																1,250,000
Series B Purchase Agreement [Member]
Stock Issued During Period, Shares, New Issues							130,000
Sale of Stock, Price Per Share		$ 3.05					$ 3.05
Series B Convertible Preferred Stock [Member]
Stock Issued During Period, Shares, New Issues							1,610.4
Proceeds from Issuance of Convertible Preferred Stock							$ 1,800,000
Convertible Preferred Stock, Shares Issued upon Conversion		528,000					528,000
Convertible Preferred Stock Conversion Price		$ 3.05					$ 3.05
Series D Convertible Preferred Stock [Member]
Warrants Term																	5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights																		485.4369
Class of Warrant or Right, Exercise Price of Warrants or Rights																		$ 3.12
Stock Issued During Period, Shares, New Issues																		12,000
Sale of Stock, Price Per Share					$ 1,000										$ 1,000		$ 1,000
Convertible Preferred Stock, Shares Issued upon Conversion					5,825,243										5,825,243		5,825,243
Conversion of Stock, Shares Issued											5,825,243
Series E Six Percent Convertible Preferred Stock [Member] | Series E Purchase Agreement [Member] | Common Stock [Member]
Convertible Preferred Stock, Shares Issued upon Conversion				1,257,996
Series E Six Percent Convertible Preferred Stock [Member] | Series E Purchase Agreement [Member]
Preferred Stock, Dividend Rate, Percentage				6.00%
Class of Warrant or Right, Number of Securities Called by Warrants or Rights				1
Class of Warrant or Right, Exercise Price of Warrants or Rights				$ 1.97
Stock Issued During Period, Shares, New Issues				2,201.493
Proceeds from Issuance of Convertible Preferred Stock			$ 4,900,000
Proceeds from Issuance of Convertible Preferred Stock Net			4,700,000
Percentage of Volume Weighted Average Price of Common Stock				200.00%
Conversion Price Consecutive Trading Days				10 days
Percentage of Preferred Stock Outstanding Threshold				7.50%
Series E Six Percent Convertible Preferred Stock [Member]
Debt Instrument, Convertible, Beneficial Conversion Feature			$ 890,000
Private Placement Investors [Member] | Warrant Purchase Agreement [Member]
Proceeds from Issuance of Warrants				$ 1,000
Series E Purchase Agreement [Member] | Fixed Combination [Member]
Share Price				$ 1,000
Series E Purchase Agreement [Member]
Share Price				$ 1.75
Stock Issued During Period, Shares, New Issues				1,541,998
Convertible Preferred Stock Conversion Price				$ 1.75
Maximum Common Stock Ownership By Investor				4.99%
Potential Maximum Common Stock Ownership By Investor				9.99%
Combi Matrix Corporation2006 Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized																			3,000,000	2,000,000
Warrant Purchase Agreement [Member] | Modification of Certain Outstanding Warrants [Member] | Private Placement [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights				$ 1.97
Warrant Purchase Agreement [Member] | Private Placement [Member]
Fair Value Adjustment of Warrants				$ 336,000
Percentage of Closing Bid Price of Common Stock				110.00%
Class of Warrant or Right, Exercise Price of Warrants or Rights				$ 2.167
Fair Value Assumptions, Expected Term									5 years 182 days
Fair Value Assumptions, Expected Volatility Rate									113.20%
Fair Value Assumptions, Risk Free Interest Rate									1.50%
Warrant Agreement Percentage of Warrants Outstanding Threshold				7.50%
Percentage of Volume Weighted Average Price of Common Stock				200.00%
Conversion Price Consecutive Trading Days				10 days
Percentage of Warrants Cancelled Threshold				50.00%
Price Per Share of Common Stock				$ 0.001
Maximum Common Stock Ownership By Investor				4.99%
Potential Maximum Common Stock Ownership By Investor				9.99%
Warrants Not Settleable in Cash, Fair Value Disclosure									$ 1,820,000
Warrant Purchase Agreement [Member] | Common Stock [Member] | Private Placement Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights				1,540,000
Series D Convertible Preferred Stock [Member]
Proceeds from Issuance of Preferred Stock, Preference Stock, and Warrants					$ 10,700,000
Common Stock, Shares Authorized								50,000,000					50,000,000								50,000,000	25,000,000	25,000,000
Proceeds from Warrant Exercises														256,000
Class of Warrant or Right, Exercise Price of Warrants or Rights
Derivative, Gain on Derivative										$ 152,000				152,000
Warrant Liability Reclassified to Stockholders Equity														$ 416,000
Percentage Of Closing Bid Price																		72.50%

XML

Note 5 - Components of Secured Promissory Note (Details) - Secured Debt [Member] - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Carrying value	$ 226	$ 281
Unamortized legal and closing costs	(14)	(18)
	212	263
Less- current portion	(118)	(112)
Long-term portion	$ 94	$ 151

XML

Note 6 - Outstanding Warrants (Details) - Scenario, Unspecified [Domain] - $ / shares	Jun. 30, 2015	Dec. 31, 2014
April 2015 [Member] | Minimum [Member]
Exercise Price (in Dollars per share) (in dollars per share)	$ 2.17
April 2015 [Member]
Issuable from Warrants outstanding (in shares)	1,540,000
February 2015 [Member] | Minimum [Member]
Exercise Price (in Dollars per share) (in dollars per share)	$ 1.97
February 2015 [Member]
Issuable from Warrants outstanding (in shares)	700,000
June 2014 [Member] | Minimum [Member]
Exercise Price (in Dollars per share) (in dollars per share)	$ 2.06
June 2014 [Member]
Issuable from Warrants outstanding (in shares)	25,303	25,303
December 2013 [Member] | Minimum [Member]
Exercise Price (in Dollars per share) (in dollars per share)	$ 3.12
December 2013 [Member]
Issuable from Warrants outstanding (in shares)	5,825,243	5,825,243
June 2013 [Member] | Minimum [Member]
Exercise Price (in Dollars per share) (in dollars per share)	$ 1.97
June 2013 [Member]
Issuable from Warrants outstanding (in shares)	491,803	491,803
May 2013 [Member] | Minimum [Member]
Exercise Price (in Dollars per share) (in dollars per share)	$ 1.97
May 2013 [Member]
Issuable from Warrants outstanding (in shares)	491,803	491,803
March 2013 [Member]
Issuable from Warrants outstanding (in shares)	275,000	275,000
October 2012 [Member] | Minimum [Member]
Exercise Price (in Dollars per share) (in dollars per share)	$ 1.97
October 2012 [Member]
Issuable from Warrants outstanding (in shares)	168,706	168,706
April 2011 [Member] | Minimum [Member]
Exercise Price (in Dollars per share) (in dollars per share)	$ 21.40
April 2011 [Member]
Issuable from Warrants outstanding (in shares)	131,047	131,047
Issuable from Warrants outstanding (in shares)	9,648,905	7,408,905
Exercise Price (in Dollars per share) (in dollars per share)

XML

Note 7 - Commitments and Contingencies (Details Textual) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Royalty Expense	$ 25,000	$ 25,000	$ 50,000	$ 50,000
Litigation Settlement Percentage	12.50%		12.50%
Maximum Annual Litigation Payment	$ 1,500,000		$ 1,500,000
Minimum Quarterly Litigation Payment	$ 25,000		$ 25,000

XML

Note 2 - Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Significant Accounting Policies [Text Block]

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates.

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Principles of Consolidation

. The accompanying consolidated financial statements include the accounts of the Company and our wholly owned and majority-owned subsidiaries. Investments for which we possess the power to direct or cause the direction of the management and policies, either through majority ownership or other means, are accounted for under the consolidation method. Material intercompany transactions and balances have been eliminated in consolidation. Investments in companies in which we maintain an ownership interest of 20% to 50% or exercise significant influence over operating and financial policies are accounted for under the equity method. The cost method is used where we maintain ownership interests of less than 20% and do not exercise significant influence over the investee.

Revenue Recognition

. We recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been performed, (iii) amounts are fixed or determinable and (iv) collectability of amounts is reasonably assured.

Service revenues from providing diagnostic tests are recognized when the testing process is complete and test results are reported to the ordering physician or clinic. These diagnostic services are billed to various payors, including commercial insurance companies, healthcare institutions, government payors including various state Medicaid programs, and individuals. We report revenues from contracted payors based on a contractual rate, or in the case of state Medicaid contracts, published fee schedules for our tests. We report revenues from non-contracted payors based on the amounts expected to be collected. The differences between the amounts billed and the amounts expected to be collected from non-contracted payors are recorded as contractual allowances to arrive at net recognized revenues. The expected revenues from non-contracted payors are based on the historical collection experience of each payor or payor group, as appropriate, and also take into account recent collection trends. In each reporting period, we review our historical collection experience for non-contracted payors and adjust our expected revenues for current and subsequent periods accordingly. We also recognize additional revenue from actual cash payments that exceed amounts initially recognized, in the period the payments are received. For the three and six months ended June 30, 2015 and 2014, net positive revenue adjustments were $149,000, $277,000, $121,000 and $265,000, respectively. Because a substantial portion of our revenues is from non-contracted third-party payors, it is likely that we will be required to make adjustments to accounting estimates with respect to contractual allowances in the future, which may positively or adversely affect our results of operations. In all cases described above, we report revenues net of any applicable statutory taxes collected from customers, as applicable. For the six months ended June 30, 2015, 10% of our revenues were from one customer. No single customer exceeded 10% of revenues for the second quarter of 2015, or for any comparable period in 2014.

Cash Equivalents and Short-Term Investments.

We consider all highly liquid investments purchased with original maturities of three months or less when purchased to be cash equivalents. Short-term investments consist of fixed income investments with maturities between three and 12 months and other highly liquid investments that can be readily purchased or sold using established markets. These investments are classified as available-for-sale and are reported at fair value on the Company’s consolidated balance sheet. Unrealized holding gains and losses are reported within comprehensive loss in the consolidated statement of comprehensive loss. Fair value is based on available market information including quoted market prices, broker or dealer quotations or other observable inputs. If a decline in the fair value of a short-term investment below our cost basis is determined to be other than temporary, such investment is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. To-date, no permanent impairment charges have been realized or recorded.

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Fair Value Measurements.

We measure fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. We utilize a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

●	Level 1:	Observable market inputs such as quoted prices in active markets;
●	Level 2:	Observable market inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
●	Level 3:	Unobservable inputs where there is little or no market data, which require the reporting entity to develop its own assumptions.

We classify our cash equivalents within the fair value hierarchy as Level 1 as these assets are valued using quoted prices in active markets for identical assets at the measurement date. We classify short-term investments within the fair value hierarchy as Level 2, primarily utilizing broker quotes in a non-active market for valuation of these investments. Financial instruments that contain valuation inputs that are not readily determinable from active markets or from similar securities trading in active markets, such as derivative financial instruments, are classified within the fair value hierarchy as Level 3.

Derivative Financial Instruments.

We evaluate financial instruments for freestanding or embedded derivatives. Derivative instruments that do not qualify for permanent equity classification are recorded as liabilities at fair value, with changes in value recognized as other income (expense) in the consolidated statements of operations in the period of change. Derivative liabilities are categorized as either short-term or long-term based upon management’s estimates as to when the derivative instrument may be realized or based upon the holder’s ability to realize the instrument.

Concentration of Credit Risks

. Cash and cash equivalents are invested in deposits with certain financial institutions and may, at times, exceed federally insured limits. We have not experienced any significant losses on our deposits of cash and cash equivalents. We do not believe that we are exposed to significant credit risk on cash and cash equivalents or on our short-term investments. Accounts receivable from one commercial insurance carrier of $318,000 exceeded 10% of our total accounts receivable balance as of December 31, 2014. There were no commercial carrier or customer accounts receivable balances that exceeded 10% of our total accounts receivable balance as of June 30, 2015.

Substantially all of the components and raw materials used in providing our testing services, including array slides and reagents, are currently provided to us from a limited number of sources or in some cases from a single source. Although we believe that alternative sources for those components and raw materials are available, any supply interruption in a sole-sourced component or raw material might result in up to a several-month production delay and materially harm our ability to provide testing services until a new source of supply, if any, could be located and qualified.

Ac

counts Receivable and Allowance

for Doubtful Accounts.

For our contracted third-party payors, governmental payors or direct-bill customers, accounts receivable are stated at principal amounts and are primarily comprised of amounts contractually due from customers for services performed. For our non-contracted customers, accounts receivable are stated at amounts expected to be collected based on historical collection experience with the third-party payor. The payment realization cycle for certain governmental and commercial insurance payors can be lengthy, involving denial, appeal and adjudication processes, and is subject to periodic adjustments that may be significant. Accounts receivable are periodically written off when identified as uncollectible after appropriate collection efforts have been exhausted. Such write-offs increase the contractual allowances (which reduce revenues) for those accounts in the period of adjustment. Collection of governmental, private health insurer, and client receivables are generally a function of providing complete and correct billing information to the insurers and clients within the filing deadlines required by each payor.

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Collection of receivables due from patients and private-pay clients is generally subject to increased credit risk due to credit-worthiness or inability to pay. For these customers, an allowance for doubtful accounts is recorded for estimated uncollectible amounts, and involves significant assumptions and judgments. Specifically, the allowance for doubtful accounts is adjusted periodically and is principally based upon specific identification of past due or disputed accounts. We also review the age of receivables to assess our allowance at each period end. Additions to the allowance for doubtful accounts are charged to bad debt expense as a component of general and administrative expenses in the consolidated statements of operations.

Stock-Based Compensation

. The compensation cost for all employee stock-based awards is measured at the grant date, based on the fair value of the award, and is recognized as an expense, on a straight-line basis, over the employee’s requisite service period (generally the vesting period of the equity award) which is generally four years. The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option valuation model. The fair value of each restricted stock unit (“RSU”) award is based on the number of shares granted and the closing price of our common stock as reported on Nasdaq on the date of grant. Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate. We estimate pre-vesting option forfeitures at the time of grant and reflect the impact of estimated pre-vesting option forfeitures in compensation expense recognized. Stock-based compensation expense for all periods presented attributable to our functional expense categories from stock option and RSU awards vesting during the periods presented were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Cost of services	$	5	$	5	$	10	$	9
Research and development		-		-		-		-
Sales and marketing		5		19		31		30
General and administrative		161		165		305		227
Total non-cash stock compensation	$	171	$	189	$	346	$	266

Net Loss Per Share

. Basic and diluted net loss per share has been computed by dividing the net loss by the weighted average number of common shares issued and outstanding during the periods presented. Options and warrants to purchase common stock as well as preferred stock convertible into shares of common stock are anti-dilutive and therefore are not included in the determination of the diluted net loss per share. The following table reflects the excluded dilutive securities:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Common stock options		879,359		695,989		879,359		695,989
Restricted stock units		582,003		380,220		582,003		380,220
Common stock warrants		9,648,905		7,412,372		9,648,905		7,412,372
Series E preferred stock convertible into common stock		1,257,996		-		1,257,996		-
Excluded potentially dilutive securities		12,368,263		8,488,581		12,368,263		8,488,581

Segments.

We have determined that we operate in one segment for financial reporting purposes.

Recent Accounting Pronouncements.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The guidance requires retrospective application and represents a change in accounting principle. This guidance will be effective for us in the first quarter of 2016, and early adoption is permitted for financial statements that have not been previously issued. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In November 2014, the FASB issued new guidance on determining whether a host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity. This guidance does not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required, but instead clarifies how current GAAP should be interpreted in the evaluation of the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share, thereby reducing existing diversity in practice. The guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods within that fiscal year. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2014, the FASB issued new guidance requiring management of all entities to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable). The guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods within that fiscal year. We do not expect the adoption of this guidance to have a material effect on our consolidated financial statements.

In May 2014, the FASB issued new accounting guidance regarding revenue recognition from contracts with customers, which when effective will supersede existing revenue recognition requirements and will eliminate most industry-specific guidance from generally accepted accounting principles. The core principle of the new guidance is to require an entity to recognize as revenue the amount that reflects the consideration to which it expects to be entitled in exchange for goods or services as it transfers control to its customers. The new guidance requires additional qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. An entity can apply the new guidance retrospectively to each prior reporting period presented (i.e., the full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings. As originally issued, the new revenue recognition standard would be effective for us beginning January 1, 2017. However, in 2015, the FASB voted to defer the effective date of the new guidance for one year. We are currently evaluating the appropriate transition method and any further impact of this guidance on our consolidated financial statements and related disclosures.

In April 2014,

FASB amended guidance to clarify the accounting for disposals of groups of assets and business units. The amendments alter the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major effect on an entity's operations and finances. The changes should be applied in fiscal years that start on December 15, 2014, or later, but the changes can be applied ahead of the effective date for asset disposals that have not been reported in a set of financial statements. We do not believe adoption of this guidance will have a material impact on our consolidated financial statements

.

Reclassifications

. Certain prior period amounts have been reclassified to conform to the current period presentation.

XML

Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 3,123	$ 1,010
Short-term investments	4,002	4,230
Accounts receivable, net of allowance for doubtful accounts of $245 and $241	2,312	2,133
Supplies	508	367
Prepaid expenses and other assets	217	181
Total current assets	10,162	7,921
Property and equipment, net	774	584
Investments in unconsolidated subsidiaries and other	127	127
Total assets	11,063	8,632
Current liabilities:
Accounts payable, accrued expenses and other	1,739	1,107
Current portion, long-term debt	187	172
Total current liabilities	1,926	1,279
Capital lease obligations, net of current portion	77	82
Secured promissory note payable, net of current portion	94	$ 151
Deferred rent	190
Total liabilities	$ 2,287	$ 1,512
Stockholders' equity:
Convertible preferred stock; $0.001 par value; 5 million shares authorized; Series E - 2,202 shares authorized; 2,201.493 and none issued and outstanding
Common stock; $0.001 par value; 50 million shares authorized and 12,680,927 shares issued and outstanding at June 30, 2015; 25 million shares authorized and 11,063,246 shares issued and outstanding at December 31, 2014	$ 13	$ 11
Additional paid-in capital	102,176	96,259
Accumulated other comprehensive income (loss)	1	(3)
Accumulated net losses	(93,414)	(89,147)
Total stockholders' equity	8,776	7,120
Total liabilities and stockholders' equity	$ 11,063	$ 8,632

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Series E Convertible Stock and Common Stock [Member]
Financing activities:
Proceeds from issuance of Series E convertible stock and common stock	$ 4,900
Offering-related costs from issuance of convertible stock and common stock	(217)	$ (196)
Net loss	(3,377)	(4,575)
Depreciation and amortization	168	149
Non-cash stock compensation	346	266
Provision for bad debts	$ 127	214
Warrant derivative gains		(152)
Warrant modification charge		44
Accounts receivable	$ (303)	(426)
Supplies, prepaid expenses and other assets	(177)	(174)
Accounts payable, accrued expenses and other	567	608
Net cash flows from operating activities	(2,649)	(4,046)
Purchases of property and equipment, net of cash received from disposals	(62)	(134)
Purchase of available-for-sale investments	(3,000)	(5,811)
Sale of available-for-sale investments	3,230	750
Net cash flows from investing activities	168	(5,195)
Repayments of long-term debt	$ (89)	(103)
Proceeds from secured promissory note payable, net of issuance costs		328
Net proceeds from exercise of Series A common stock warrants		256
Net cash flows from financing activities	$ 4,594	285
Change in cash and cash equivalents	2,113	(8,956)
Cash and cash equivalents, beginning	1,010	12,289
Cash and cash equivalents, ending	3,123	3,333
Non-cash financing activities:
Property and equipment purchased under capital lease	40	$ 88
Deemed dividends from issuing Series E convertible preferred stock	890
Warrant modifications recognized as non-cash Series E offering-related costs	336
Tenant improvements recognized as deferred rent	$ 164
Reclassification of derivative liability to equity from warrant exercises and modifications		$ 416

XML

Note 2 - Stock-Based Compensation by Functional Expense Categories (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Cost of Sales [Member]
Cost of services	$ 5	$ 5	$ 10	$ 9
Selling and Marketing Expense [Member]
Cost of services	5	19	31	30
General and Administrative Expense [Member]
Cost of services	161	165	305	227
Cost of services	$ 171	$ 189	$ 346	$ 266

XML

Note 3 - Cash and Short-term Investments (Details Textual) - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Short-term Investments [Member]
Gain (Loss) on Sale of Investments	$ 0	$ 0
Cash, Cash Equivalents, and Short-term Investments	$ 7,125,000		$ 5,240,000

XML

Note 1 - Overview and Background

6 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1. OVERVIEW AND BACKGROUND

CombiMatrix Corporation (the “Company,” “we,” “us” and “our”) was originally incorporated in October 1995 as a California corporation and later reincorporated as a Delaware corporation in September 2000. In December 2002, we merged with, and became a wholly owned subsidiary of Acacia Research Corporation (“Acacia”). In August 2007, we split-off from Acacia and became publicly traded on The Nasdaq Stock Market. As a result of the split-off, we ceased to be a subsidiary of, or affiliated with, Acacia.

Description of the Company

We provide valuable molecular diagnostic solutions and comprehensive clinical support for the highest quality of care. We specialize in pre-implantation genetic screening, recurrent pregnancy loss for miscarriage analysis, prenatal and pediatric healthcare, offering DNA based testing for the detection of genetic abnormalities beyond what can be identified through traditional methodologies. We perform genetic testing utilizing a variety of advanced cytogenomic techniques, including microarray, standardized and customized fluorescent in-situ hybridization (“FISH”) and high resolution karyotyping. We emphasize support for healthcare professionals, to ensure data understanding and communication of results to patients. We deliver high technology driven answers, with a high degree of assistance for the ordering physician and staff. Our laboratory facilities and corporate headquarters are located in Irvine, California.

We also own a one-third minority interest in Leuchemix, Inc. (“Leuchemix”), a private drug development company focused on developing a series of compounds to address a number of oncology-related diseases.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, certain information and footnotes required by generally accepted accounting principles in annual financial statements have been omitted or condensed. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2014, as reported by us in our Annual Report on Form 10-K filed with the SEC on March 17, 2015. The year-end consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The consolidated financial statements include all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair statement of our financial position as of June 30, 2015, and results of operations and cash flows for the interim periods presented. The results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the entire year.

Liquidity and Risks

We have a history of incurring net losses and net operating cash flow deficits. We are also deploying new technologies and continue to develop new and improve existing commercial diagnostic testing services and related technologies. As of June 30, 2015, we had cash, cash equivalents and short-term investments of $7.1 million and anticipate that our cash, cash equivalents and short-term investments will be sufficient to meet our cash requirements for at least the next twelve months. In order for us to ultimately achieve profitability, we may be required to obtain capital from external sources, increase revenues and reduce operating costs. However, there can be no assurance that our operations will become profitable or that external sources of financing, including the issuance of debt and/or equity securities, will be available at times and at terms acceptable to us, or at all. The issuance of additional equity or convertible debt securities will also cause dilution to our stockholders. If external financing sources are not available or are inadequate to fund our operations, we will be required to reduce operating costs, including research projects and personnel, which could jeopardize our future strategic initiatives and business plans.

Our business operations are also subject to certain risks and uncertainties, including:

• market acceptance of our technologies and services;

• technological advances that may make our technologies and services obsolete or less competitive;

• increases in operating costs, including costs for supplies, personnel and equipment;

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

• variability in third-party reimbursement of our tests;

• the availability and cost of capital; and

• governmental regulation that may restrict our business.

Our services are concentrated in a highly competitive market that is characterized by rapid technological advances, frequent changes in customer requirements and evolving regulatory requirements and industry standards. Failure to anticipate or respond adequately to technological advances, changes in customer requirements, changes in regulatory requirements or industry standards, or any significant delays in the development or introduction of planned services, could have a material adverse effect on our business and operating results. The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the matters discussed herein.

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Series E Convertible Preferred Stock [Member]
Preferred stock; shares authorized (in shares)	2,202,000	2,202,000
Convertible preferred stock, shares issued (in shares)	2,201,493	0
Convertible preferred stock, shares outstanding (in shares)	2,201,493	0
Allowance for doubtful accounts	$ 245	$ 241
Convertible preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock; shares authorized (in shares)	5,000,000	5,000,000
Common Stock, Par Value (in dollars per share)	$ 0.001	$ 0.001
Common Stock, Shares Authorized (in shares)	50,000,000	25,000,000
Common Stock, Shares Issued (in shares)	12,680,927	11,063,246
Common Stock Shares Outstanding (in shares)	12,680,927	11,063,246

XML

Note 4 - Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2015

Notes Tables

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

			Fair Value Measurements
June 30, 2015	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	2,037	$	2,037	$	-	$	-
Short-term investments		4,002		-		4,002		-
Cash equivalents	$	6,039	$	2,037	$	4,002	$	-

			Fair Value Measurements
December 31, 2014	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	676	$	676	$	-	$	-
Short-term investments		4,230		-		4,230		-
Cash equivalents	$	4,906	$	676	$	4,230	$	-

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Aug. 03, 2015
Entity Registrant Name	CombiMatrix Corp
Entity Central Index Key	0001383183
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		12,680,927
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Note 5 - Secured Promissory Note (Tables)

6 Months Ended

Jun. 30, 2015

Notes Tables

Schedule of Debt [Table Text Block]

	June 30,			December 31,
	2015			2014
Carrying value	$	226		$	281
Unamortized legal and closing costs		(14	)		(18	)
		212			263
Less- current portion		(118	)		(112	)
Long-term portion	$	94		$	151

XML

Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Diagnostics Services [Member]
Revenues:
Diagnostic services	$ 2,524	$ 1,906	$ 4,811	$ 3,696
Deemed Dividend From Issuing Stock [Member] | Series E Convertible Preferred Stock [Member]
Other income (expense):
Deemed dividends from issuing Series E convertible preferred stock			$ (890)
Deemed dividends from issuing Series E convertible preferred stock (in dollars per share)			$ (0.07)
Royalties	$ 25	$ 35	$ 67	$ 67
Total revenues	2,549	1,941	4,878	3,763
Cost of services	1,398	1,053	2,628	2,051
Research and development	62	224	219	358
Sales and marketing	1,173	1,109	2,363	1,995
General and administrative	1,488	2,216	2,963	3,973
Patent amortization and royalties	25	28	50	60
Total operating expenses	4,146	4,630	8,223	8,437
Operating loss	(1,597)	(2,689)	(3,345)	(4,674)
Interest income	5	24	8	29
Interest expense	$ (20)	(22)	$ (40)	(38)
Warrant derivative gains		152		152
Warrant modification charge		(44)		(44)
Total other income (expense)	$ (15)	110	$ (32)	99
Net loss	(1,612)	(2,579)	(3,377)	(4,575)
Net loss attributable to common stockholders	$ (1,612)	$ (2,579)	$ (4,267)	$ (4,575)
Basic and diluted net loss per share (in dollars per share)	$ (0.13)	$ (0.23)	$ (0.28)	$ (0.42)
Basic and diluted net loss per share attributable to common stockholders (in dollars per share)	$ (0.13)	$ (0.23)	$ (0.35)	$ (0.42)
Basic and diluted weighted average common shares outstanding (in shares)	12,680,927	11,063,246	12,241,145	10,995,351

XML

Note 6 - Stockholders' Equity

6 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

6. STOCKHOLDERS’ EQUITY

On April 28, 2015, our stockholders approved all ballot measures of a special proxy, which included the approval and ratification of the Series E Preferred Stock financing described below as well as the approval to increase our authorized capital stock from 25 million shares to 50 million shares.

On June 17, 2015, our stockholders approved all ballot measures of our annual proxy, which included an increase to the share reserves under our 2006 Stock Incentive plan from 2 million shares to 3 million shares.

Series A Convertible Preferred Stock and Warrants Financing

During the fourth quarter of 2012, we issued Series A convertible preferred stock (the “Series A Stock”) and warrants to purchase common stock (the “Series A Warrants”) to certain accredited investors (the “Series A Investors”) for gross proceeds of $2.5 million. During the fourth quarter of 2012 and the first quarter of 2013, all of the Series A Stock converted into 1.25 million shares of common stock, and during 2013, 1.2 million shares of common stock were issued from the exercise of the Series A Warrants, leaving Series A Warrants to purchase 292,817 shares of common stock unexercised as of December 31, 2013. During the six months ended June 30, 2014, Series A Investors exercised Series A Warrants to purchase 124,111 shares of our common stock, resulting in proceeds of $256,000 to us. The Series A Warrants originally had a 5½ year term, price anti-dilution protection and exercise prices of $9.50 (from the first closing) and $2.36 (from the second closing). See below for further discussion of modifications made to the Series A Warrants as a result of the Series D and Series E convertible preferred stock financings executed in December 2013 and February 2015, respectively.

For as long as the Series A Warrants remain unexercised through their expiration date, we may not sell securities at an effective price per share of less than $4.91 except for certain exempt issuances, unless waivers from the Series A Investors are obtained. Also, prior to a modification we made to the Series A Warrants in June 2014 (the “Modification”) the exercise price of the Series A Warrants and the number of shares of common stock underlying the Series A Warrants were subject to full-ratchet anti-dilution adjustments in the event we issued securities, other than certain exempted issuances, at a price below the then current exercise price of the Series A Warrants.

We account for stock purchase warrants as either equity instruments or derivative liabilities depending on the specific terms of the warrant agreements. Under applicable accounting guidance, stock warrants must be accounted for as derivative financial instruments if the warrants contain full-ratchet anti-dilution provisions, which preclude the warrants from being considered indexed to our own stock. Prior to the Modification, the Series A Warrants issued to Series A Investors contained such provisions, thus requiring us to treat them as derivative financial instruments, to be recorded at fair value at issuance and subsequently adjusted to fair value at each reporting date, with the corresponding adjustment reflected as a non-operating credit or charge in the consolidated statement of operations. We valued the Series A Warrants using the Monte-Carlo simulation method using the following assumptions immediately prior to the Modification: (i) closing stock price and Series A Warrant contractual exercise price; (ii) term to expiration commensurate with the individual Series A Warrant terms of 3.8 years; (iii) historical volatilities commensurate with the term of the Series A Warrants of 129.6%; (iv) risk-free interest rates commensurate with the term of the Series A Warrants of 1.2%; and (v) simulated anti-dilution impact assuming various probabilities that we will raise additional capital by issuing equity securities at prices above or below the current contractual Series A Warrant exercise prices during the Series A Warrant terms. The result of this valuation simulation was to value the remaining Series A Warrants held by Series A Investors at $281,000 as of the Modification date. As a result, warrant derivative gains of $152,000 were recognized, and the remaining $281,000 was reclassified to additional paid-in capital. As a result of a similar valuation analysis performed during the first quarter ended March 31, 2014, the combined warrant derivative gains recognized in our consolidated statements of operations and the amount of warrant derivative liabilities reclassified to stockholders’ equity resulting from Series A Warrant exercises for the six months ended June 30, 2014 was $152,000 and $416,000, respectively. The additional Series A Warrants to purchase 25,303 shares of common stock issued to Series A Investors as consideration for agreeing to the Modification were valued using the Black-Scholes valuation model, using the following assumptions as of the Modification: (i) closing stock price and Series A Warrant contractual exercise price; (ii) term to expiration commensurate with the individual Series A Warrant terms of 3.8 years; (iii) historical volatility commensurate with the term of the Series A Warrants of 129.6%; and (iv) risk-free interest rates commensurate with the term of the Series A Warrants of 1.2%. The resulting valuation of $44,000 was recognized as a non-operating charge in our consolidated statements of operations for the three and six months ended June 30, 2014.

Series B Convertible Preferred Stock Financing

On March 19, 2013, we entered into a securities purchase agreement with an existing institutional investor (the “Series B Investor”) to purchase 130,000 shares of common stock at a price of $3.05 per share and approximately 1,610.4 units consisting of, in the aggregate, Series B 6% convertible preferred stock (the “Series B Stock”) and warrants to purchase up to 275,000 shares of common stock at an original exercise price of $3.49 per share (the “Series B Warrants”) in a registered direct offering (the “Series B Financing”) of securities sold off of our existing shelf registration statement on Form S-3 (File No. 333-176372). The Series B Financing closed on March 20, 2013, netting approximately $1.8 million of proceeds to us. The Series B Stock was initially convertible into an aggregate of 528,000 shares of common stock at an initial conversion price of $3.05 per share. During 2013, the Series B Investor converted all of the Series B Stock into common stock.

The Series B Warrants originally had a 5½ year term as well as a cashless exercise provision in the event there is no effective registration statement covering the common stock issuable upon exercise of the Series B Warrants. The Series B Warrants are not subject to price anti-dilution protection. We also agreed with the Series B Investor pursuant to the Series B Purchase Agreement that, except under certain permitted circumstances, until the time that less than 7.5% of the Series B Warrants remain outstanding, neither we nor our subsidiaries shall issue, or enter into any agreement to issue, common stock or equivalents thereof at a price below the exercise price of the Series B Warrants. See below for further discussion of modifications made to the Series B Warrants as a result of the Series E convertible preferred stock financing executed in February 2015.

Series C Convertible Preferred Stock Financing

On May 3, 2013, we entered into a securities purchase agreement with two accredited investors (the “Series C Investors”), pursuant to which we sold and issued 1,200 shares of Series C 6% convertible preferred stock (the “Series C Stock”) to the Series C Investors at a purchase price of $1,000 per share in an initial closing that occurred on May 6, 2013 (the “Series C First Closing”) and sold and issued 1,200 additional shares of Series C Stock to the Series C Investors on June 28, 2013 at a purchase price of $1,000 per share after stockholder approval was obtained on June 27, 2013 (the “Series C Second Closing”) (combined, the “Series C Financing”). After certain offering-related costs paid, the net proceeds from the Series C Financing were approximately $2.14 million. During 2013, the Series C Investors converted all 2,400 shares of Series C Stock into 839,864 shares of common stock.

In addition to the issuance of the Series C Stock, we issued warrants at the Series C First Closing to purchase 491,803 shares of our common stock with an original exercise price of $3.77 per share and at the Series C Second Closing, we issued additional warrants to purchase 491,803 shares of our common stock with an original exercise price of $3.55 per share (collectively, the “Series C Warrants”). The Series C Warrants originally had a 5½ year term, were not exercisable for the first six months following issuance and included a cashless exercise provision, which is only applicable if the common stock underlying the Series C Warrants is not subject to an effective registration statement or otherwise cannot be sold without restriction pursuant to Rule 144. Until all Series C Investors no longer hold Series C Warrants: (i) we may not sell any variable rate securities except for certain exempt issuances; and (ii) if we enter into a subsequent financing on more favorable terms than the Series C Financing, then the agreements between us and the Series C Investors will be amended to include such more favorable terms. In addition, until 7.5% or less of the Series C Warrants remain unexercised, we may not sell any dilutive securities, except for certain exempt issuances. See below for further discussion of modifications made to the Series C Warrants as a result of the Series E convertible preferred stock financing executed in February 2015.

Series D Convertible Preferred Stock Financing

On December 20, 2013 (the “Series D Closing”), we closed an underwritten public offering (the “Series D Offering”) and issued 12,000 units of securities to investors, with each unit consisting of: (i) one share of Series D preferred stock (“Series D Stock”) convertible into shares of our common stock equal to 1,000 divided by the conversion price of $2.06, which was 72.5% of the consolidated closing bid price of our common stock on the Nasdaq Capital Market on December 16, 2013, the date we executed the underwriting agreement (“UA date”); and (ii) one warrant exercisable for 485.4369 shares of our common stock, at an exercise price per share equal to $3.12 (“Series D Warrants”), which was 110% of the consolidated closing bid price of our common stock on the Nasdaq Capital Market on the UA date. The shares of common stock underlying the Series D Stock and Series D Warrants were registered on Form S-1 (File No. 333 191221), which was declared effective by the SEC on December 16, 2013. The Series D Stock was immediately convertible and the Series D Warrants were immediately exercisable for shares of common stock and have a term of five years. The Series D Warrants are exercisable for cash or, solely in the absence of an effective registration statement or prospectus, by cashless exercise. In total, there were 5,825,243 shares of common stock issuable upon conversion of the Series D Stock and up to 5,825,243 shares of common stock issuable upon exercise of the Series D Warrants. The units were sold for a purchase price equal to $1,000 per unit, resulting in net proceeds received by of $10.7 million. From the time of the Series D Closing through the first quarter of 2014, all of the Series D Stock had converted into 5,825,243 shares of common stock. Also as a result of the Series D Offering, the exercise price of the then outstanding Series A Warrants automatically ratcheted down by their terms from their then exercise price of $2.86 per share to an adjusted exercise price of $2.06 per share, and the underlying shares exercisable was automatically increased by 81,910 shares. A registration statement on Form S-3 was filed in order to register these shares for resale as per the terms of our original Series A offering documents. The Series E convertible preferred stock financing described below did not impact any of the terms of the Series D Warrants currently outstanding.

Series E Convertible Preferred Stock Financing

On February 13, 2015, we and certain accredited institutional pre-existing investors (the “Series E Investors”) entered into a securities purchase agreement (the “Series E Purchase Agreement”), pursuant to which we sold 1,541,998 shares common stock at a price of $1.75 per share, 2,201.493 shares of Series E 6% Convertible Preferred Stock (the “Series E Preferred Stock”) and warrants to purchase 700,000 shares of common stock at an exercise price of $1.97 per share, which was the consolidated closing bid price of our common stock on Nasdaq immediately prior to entering into the Series E Purchase Agreement (the “Series E Warrants”, and the transactions contemplated by the Series E Purchase Agreement, the “Series E Financing”). The Series E Preferred Stock and Series E Warrants were sold in a fixed combination consisting of one share of Series E Preferred Stock and a Series E Warrant to purchase approximately 317.965 shares of Common Stock. Each fixed combination of Series E Preferred Stock and Series E Warrants were sold at a price of $1,000. The Series E Preferred Stock sold is convertible into 1,257,996 shares of common stock at an initial conversion price of $1.75 per share. The closing under the Series E Purchase Agreement occurred on February 18, 2015 (the “Series E Closing Date”), where we received gross proceeds of $4.9 million from the Series E Investors. After closing-related costs and expenses, net proceeds from the Series E Financing were approximately $4.7 million. Given that the effective conversion price of the Series E Preferred Stock, inclusive of amounts allocated to common stock and Series E Warrants, was below the closing market price of our common stock at the time of the Series E Closing Date, we recognized a beneficial conversion feature in the amount of $890,000. Since the Series E Preferred Stock was immediately convertible into common stock, the beneficial conversion feature was treated as a deemed dividend charged to retained earnings.

The Series E Preferred Stock is non-voting (except to the extent required by law and except for certain consent rights relating to amending the certificate of incorporation or bylaws, and the like), but ranks senior to our common stock with respect to dividends and with respect to distributions upon our deemed dissolution, liquidation or winding-up. Each share of Series E Preferred Stock carries a 6% per annum dividend that will begin accruing six months after the Series E Closing Date and will be payable only in cash. Until the volume weighted average price of our common stock on Nasdaq exceeds 200% of the conversion price of the Series E Preferred Stock for ten consecutive trading days, the Series E Preferred Stock is subject to full ratchet price based anti-dilution protection, subject to certain limitations.

The Series E Warrants issued have a 5 ½ year term and have a cashless exercise provision in the event there is no effective registration statement covering the common stock issuable upon exercise of the Series E Warrants. The Series E Warrants are not exercisable for the first six months following issuance. The Series E Warrants are not subject to price based anti-dilution protection. Subject to the beneficial ownership limitation described below, if, after the one year anniversary of the Series E Closing Date, the volume weighted average price of our common stock on Nasdaq exceeds 200% of the exercise price for ten consecutive trading days, then we have the right to, within one trading day thereafter, call for cancellation of up to 50% of the Series E Warrants for consideration equal to $0.001 per share of common stock underlying the Series E Warrants. We may not exercise our call rights if, among other things, there is no effective registration statement registering the shares of common stock issuable upon exercise of the Series E Warrants or the prospectus contained in the registration statement is not available for the issuance of the shares of common stock issuable upon exercise of the Series E Warrants.

Pursuant to the terms of the Series E Purchase Agreement, while such Series E Investor holds Series E Preferred Stock and Series E Warrants, we may not enter into an agreement to effect a “Variable Rate Transaction,” which means a transaction in which we: (i) issue or sell any convertible securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of, or quotations for, the shares of the common stock at any time after the initial issuance of such convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such convertible securities or upon the occurrence of specified or contingent events directly or indirectly related to our business; or (ii) enter into any agreement (including, without limitation, an equity line of credit) whereby we may sell securities at a future determined price. Also, except under certain permitted circumstances: (i) until the later of the date that is six months from the closing or 30 days following the date on which less than 7.5% of the Series E Preferred Stock remains outstanding, we will not issue, or enter into any agreement to issue, any shares of common stock or equivalents thereof; (ii) until the time that less than 7.5% of the Series E Warrants remain outstanding, we may not issue, nor enter into any agreement to issue, common stock or equivalents thereof at a price below the exercise price of the Series E Warrants; (iii) until the time that less than 7.5% of the Series E Preferred Stock remains outstanding, we may not issue, nor enter into any agreement to issue, common stock or equivalents thereof at a price below the conversion price of the Series E Preferred Stock unless all shares of common stock underlying the Series E Preferred Stock (taking into consideration the effect of the full adjustment of the anti-dilution provisions from such dilutive issuance) are permitted by certain SEC rules to be issued under the registration statement; (iv) if we issue securities within the six months following the Series E Closing Date under the Series E Purchase Agreement, and subject to the preexisting rights of other security holders, the Series E Investors shall have the right of first refusal to purchase all of the securities on the same terms, conditions and price provided for in the proposed issuance of securities; and (v) we will indemnify the Series E Investors against certain losses resulting from our breach of any of our representations, warranties, or covenants under agreements with the Series E Investors, as well as under certain other circumstances described in the Series E Purchase Agreement.

The Series E Investors have agreed to be subject to a blocker that would prevent each of their respective common stock ownership at any given time from exceeding 4.99% (which may be increased, but not above 9.99%) of our outstanding common stock. We agreed to seek stockholder approval at a special stockholders’ meeting to be held on April 28, 2015 for the terms of the Series E Preferred Stock and the issuance and delivery in the aggregate of that number of shares of common stock exceeding 19.99% of the outstanding shares of common stock upon conversion of the Series E Preferred Stock. See further discussion below regarding the results of the special stockholders’ meeting.

The Series E Financing was effected as a takedown off our shelf registration statement on Form S-3 (File No. 333-198848), which became effective on September 19, 2014, pursuant to a prospectus supplement filed with the Securities and Exchange Commission on February 13, 2015.

Private Placement Warrant Financing

Substantially concurrently with the closing of the Series E Financing, on February 13, 2015, we entered into a separate securities purchase agreement (the “Warrant Purchase Agreement”) with selected accredited institutional pre-existing investors (the “Private Placement Investors”), pursuant to which we agreed to sell to the Private Placement Investors warrants to purchase 1,540,000 shares of Common Stock (the “Private Placement Warrants”, and the transactions contemplated by the Warrant Purchase Agreement, the “Warrant Financing”). In consideration of an aggregate of $1,000, we had agreed to sell the Private Placement Warrants, which would not be issued unless and until our stockholders approved amending our Certificate of Incorporation to increase our authorized common stock to permit the issuance of the common stock issuable upon exercise of the Private Placement Warrants (the “Charter Amendment”). We estimated the fair value of the Private Placement Warrants using the Black-Scholes valuation model to be $1.82 million, which was classified as a warrant subscription payable within additional paid-in capital in our consolidated balance sheet as of March 31, 2015, using the following assumptions: (i) closing stock price and Private Placement Warrants contractual exercise price; (ii) 5.5 year term; (iii) historical volatilities commensurate with the term of the Private Placement Warrants of 113.2%; and (iv) risk-free interest rates commensurate with the term of the Private Placement Warrants of 1.5%. We allocated the proceeds received from the Series E Financing to the Private Placement Warrants based on the relative fair value of the instruments issued to the Series E Investors.

The special stockholders’ meeting was held on April 28, 2015, in which our stockholders approved the terms of the Series E Preferred Stock financing and the Charter Amendment. As a result, on April 28, 2015, we issued the Private Placement Warrants to the Private Placement Investors.

Each Private Placement Warrant has an exercise price of $2.167 per share of common stock (subject to adjustment for stock splits and the like), which was 110% of the consolidated closing bid price of our common stock on Nasdaq immediately prior to entering into the Warrant Purchase Agreement, and is exercisable at any time after the six month anniversary of entering into the Warrant Purchase Agreement and on or prior to the close of business on the five year anniversary of the initial exercise date, subject to the beneficial ownership limitation described below. The Private Placement Warrants are not subject to price based anti-dilution protection. If, at the time of exercise of a Private Placement Warrant, there is no effective registration statement registering for resale the shares of common stock issuable upon exercise of the Private Placement Warrant, the holder may exercise the Private Placement Warrant on a cashless basis. When exercised on a cashless basis, a portion of the Private Placement Warrant is cancelled in payment of the purchase price payable in respect of the number of shares of common stock purchasable upon such exercise. Subject to the beneficial ownership limitation described below, if, after the one year anniversary of the date of entering into the Warrant Purchase Agreement, the volume weighted average price of our common stock on Nasdaq exceeds 200% of the Private Placement Warrant exercise price for ten consecutive trading days, then we may, within one trading day thereafter, call for cancellation of up to 50% of the Private Placement Warrants for consideration equal to $0.001 per share of common stock underlying the Private Placement Warrants. We may not exercise our call rights if, among other things, there is no effective registration statement registering for resale the shares of common stock issuable upon exercise of the Private Placement Warrants. Subject to limited exceptions, a holder of Private Placement Warrants will not have the right to exercise any portion of its Private Placement Warrants if the holder, together with its affiliates, would beneficially own in excess of 4.99% (which may be increased, but not above 9.99%) of the number of shares of our common stock outstanding immediately after giving effect to such exercise.

For as long as the Private Placement Investors hold any Private Placement Warrants, we will not enter into an agreement to affect a “Variable Rate Transaction,” with similar terms and prohibitions described above. We also agreed that, except under certain permitted circumstances until the time that less than 7.5% of the Private Placement Warrants remain outstanding, we will not issue, nor enter into any agreement to issue, common stock or equivalents thereof at a price below the exercise price of the Private Placement Warrants.  

Modification of Certain Outstanding Warrants

In connection with the purchase of the Private Placement Warrants, we modified previously issued and outstanding warrants held by the Private Placement Investors that were issued in connection with the Series A, Series B and Series C financings described above, to (i) reduce the exercise prices thereunder to $1.97, which represents the consolidated closing bid price of our common stock on Nasdaq immediately prior to the date we entered into the Warrant Purchase Agreement; (ii) prohibit the exercise of such modified warrants for a period of six months after the date of the modification; and (iii) extend the exercise period of such modified warrants for an additional six months (such modifications, collectively, the “Warrant Price Modifications”). Separately, we also agreed to a Warrant Price Modification with a holder of Series C Warrants solely in consideration for such holder’s waiver of certain preemptive rights. We estimated the change in fair value of these warrants immediately prior to and immediately subsequently to the Warrant Price Modification to be $336,000, and such amount has been recorded as a non-cash equity offering cost.

Warrants

Outstanding warrants to purchase common stock are as follows:

	Shares of Common Stock
	Issuable from Warrants
	Outstanding as of
	June 30,		December 31,		Exercise
	2015		2014		Price		Expiration
Equity-classified warrants:
April 2015		1,540,000		-		$2.17	August 2020
February 2015		700,000		-		$1.97	August 2020
June 2014		25,303		25,303		$2.06	April 2018
December 2013		5,825,243		5,825,243		$3.12	December 2018
June 2013		491,803		491,803		$1.97	June 2019
May 2013		491,803		491,803		$1.97	May 2019
March 2013		275,000		275,000		$1.97	March 2019
October 2012		168,706		168,706		$1.97	September 2018
April 2011		131,047		131,047		$21.40	April 2016
Total - all warrants		9,648,905		7,408,905

XML

Note 5 - Secured Promissory Note

6 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Debt Disclosure [Text Block]

5 . SECURED PROMISSORY NOTE

On May 20, 2014 (“Execution Date”), we executed a secured promissory note (the “Note”) with ACC Investment Ltd. in the amount of $350,000, payable in equal amortized payments over a thirty-six month period (the “Term”) from the Execution Date. The note bears an annual interest rate of 10% and is secured by certain laboratory equipment used in our microarray services business. Legal and other closing costs totaling $22,000 were capitalized with the Note and are being amortized over the Term as interest expense. As of June 30, 2015 and December 31, 2014, the fair value of the Note approximated its carrying value. As of June 30, 2015 and December 31, 2014, components of the Note were as follows (in thousands):

	June 30,			December 31,
	2015			2014
Carrying value	$	226		$	281
Unamortized legal and closing costs		(14	)		(18	)
		212			263
Less- current portion		(118	)		(112	)
Long-term portion	$	94		$	151

XML

Note 2 - Anti-Dilutive Securities (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Employee Stock Option [Member]
Anit-dilutive Securities (in shares)	879,359	695,989	879,359	695,989
Restricted Stock [Member]
Anit-dilutive Securities (in shares)	582,003	380,220	582,003	380,220
Warrant [Member]
Anit-dilutive Securities (in shares)	9,648,905	7,412,372	9,648,905	7,412,372
Series E Convertible Preferred Stock [Member]
Anit-dilutive Securities (in shares)	1,257,996		1,257,996
Anit-dilutive Securities (in shares)	12,368,263	8,488,581	12,368,263	8,488,581

XML

Note 6 - Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2015

Notes Tables

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

	Shares of Common Stock
	Issuable from Warrants
	Outstanding as of
	June 30,		December 31,		Exercise
	2015		2014		Price		Expiration
Equity-classified warrants:
April 2015		1,540,000		-		$2.17	August 2020
February 2015		700,000		-		$1.97	August 2020
June 2014		25,303		25,303		$2.06	April 2018
December 2013		5,825,243		5,825,243		$3.12	December 2018
June 2013		491,803		491,803		$1.97	June 2019
May 2013		491,803		491,803		$1.97	May 2019
March 2013		275,000		275,000		$1.97	March 2019
October 2012		168,706		168,706		$1.97	September 2018
April 2011		131,047		131,047		$21.40	April 2016
Total - all warrants		9,648,905		7,408,905

XML

Note 2 - Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2015

Notes Tables

Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Cost of services	$	5	$	5	$	10	$	9
Research and development		-		-		-		-
Sales and marketing		5		19		31		30
General and administrative		161		165		305		227
Total non-cash stock compensation	$	171	$	189	$	346	$	266

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Common stock options		879,359		695,989		879,359		695,989
Restricted stock units		582,003		380,220		582,003		380,220
Common stock warrants		9,648,905		7,412,372		9,648,905		7,412,372
Series E preferred stock convertible into common stock		1,257,996		-		1,257,996		-
Excluded potentially dilutive securities		12,368,263		8,488,581		12,368,263		8,488,581

XML

Note 7 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

7. COMMITMENTS AND CONTINGENCIES

Executive Severance

We provide certain severance benefits such that if an executive officer of CombiMatrix Corporation is terminated for other than cause, death or disability, the executive will receive payments equal to three months’ base salary plus medical and dental benefits. In addition, we have implemented a Restated Executive Change of Control Severance Plan (the “Severance Plan”) that affects certain of our senior management-level employees who are classified as “Section 16 Officers” of the Company.  Pursuant to the Severance Plan, if a participating employee is involuntarily terminated (other than for death, disability or for cause) or resigns for “good reason” (as defined in the Severance Plan) during the two-year period following a “change of control” (as defined in the Severance Plan) of the Company, then, subject to execution of a release of claims against the Company, the employee will be entitled to receive: (i) one-half times annual base salary; (ii) immediate vesting of outstanding compensatory equity awards; and (iii) payment of COBRA premiums for the participating employee and eligible dependents for a pre-determined period of time.  Payment of benefits under the Severance Plan will be limited by provisions contained in Section 409A of the U.S. Internal Revenue Code.  The Severance Plan is administered by a plan administrator, which initially is the Compensation Committee of the Board of Directors.  In order to participate in the Severance Plan, an eligible employee must waive any prior retention or severance agreements.

Litigation

In 2002, we entered into a settlement agreement with Nanogen, Inc. (“Nanogen”) to settle all pending litigation between the parties. Pursuant to the terms of the settlement agreement, we agreed to make quarterly payments to Nanogen equal to 12.5% of total sales of products developed by us and our affiliates based on the patents that had been in dispute in the litigation, up to an annual maximum amount of $1.5 million. The minimum quarterly payments under the settlement agreement are $25,000 per quarter until the patents expire in 2018. Royalty expenses recognized under the agreement were $25,000 and $50,000 for the three and six months ended June 30, 2015 and 2014, respectively, and are included in patent amortization and royalties in the accompanying consolidated statements of operations.

On February 14, 2011, Relator Michael Strathmann (“Strathmann”) served us with a complaint (“the Complaint”) filed in the Superior Court of the State of California, County of Orange (the “Superior Court”). The Complaint alleged we and our former parent Acacia Research Corporation submitted a false and fraudulent insurance claim to National Union Fire Insurance Company under a Directors and Officers Policy issued to Acacia, in connection with a prior lawsuit that was settled with Nanogen, Inc. The Complaint further alleged that we violated the California Insurance Fraud Prevention Act, and sought penalties and unspecified damages. On May 4, 2011, the Superior Court dismissed the Complaint by ordering that it be stricken for violation of the California Anti-SLAPP statute, which prevents plaintiffs from filing abusive lawsuits against public policy. On June 15, 2011, Strathmann filed a Notice of Appeal with the California Court of Appeal, appealing the granting of our Anti-SLAPP Motion. On October 24, 2012, the California Court of Appeal reversed the Superior Court’s dismissal, finding that the Anti-SLAPP statute was not applicable as a matter of public policy and remanded the case back to the Superior Court. Strathmann filed an Amended Complaint, and we and Acacia filed our Answer to that pleading. A trial was held between June and August of 2014, followed by closing briefs and arguments filed in September and October of 2014. On January 2, 2015, the Superior Court issued a tentative ruling and proposed statement of decision in favor of us, Acacia and Amit Kumar and against all claims of Strathmann. Specifically, the Superior Court determined that it could not find we had any fraudulent intent when we pursued insurance benefits under the National Union Directors and Officers Policy over a decade ago. On March 6, 2015, the Superior Court issued its final Statement of Decision, confirming its tentative ruling that Strathmann failed to prove that we (or any other defendant) had a fraudulent intent when we pursued insurance benefits from National Union. Also on March 6, 2015, the Superior Court entered a Judgment in favor of all defendants and against Strathmann, and ordered that Strathmann’s Complaint be dismissed with prejudice. A Notice of Entry of Judgment was filed with the Superior Court on March 11, 2015.

On April 23, 2015, we entered into a settlement agreement with Strathmann whereby Strathmann relinquished his rights to further litigate the Complaint or appeal the Judgment. In return, we relinquished our rights to recover certain court costs and to pursue reimbursement of court and legal fees from Strathmann, effectively ending this litigation.

From time to time, we are subject to other claims and legal actions that arise in the ordinary course of business. We believe that the ultimate liability with respect to these claims and legal actions, if any, will not have a material effect on our financial position, results of operations or cash flows. Any legal costs resulting from claims or legal actions are expensed as incurred.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2015

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

Use of Estimates.

The preparation of financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

. The accompanying consolidated financial statements include the accounts of the Company and our wholly owned and majority-owned subsidiaries. Investments for which we possess the power to direct or cause the direction of the management and policies, either through majority ownership or other means, are accounted for under the consolidation method. Material intercompany transactions and balances have been eliminated in consolidation. Investments in companies in which we maintain an ownership interest of 20% to 50% or exercise significant influence over operating and financial policies are accounted for under the equity method. The cost method is used where we maintain ownership interests of less than 20% and do not exercise significant influence over the investee.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

. We recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been performed, (iii) amounts are fixed or determinable and (iv) collectability of amounts is reasonably assured.

Service revenues from providing diagnostic tests are recognized when the testing process is complete and test results are reported to the ordering physician or clinic. These diagnostic services are billed to various payors, including commercial insurance companies, healthcare institutions, government payors including various state Medicaid programs, and individuals. We report revenues from contracted payors based on a contractual rate, or in the case of state Medicaid contracts, published fee schedules for our tests. We report revenues from non-contracted payors based on the amounts expected to be collected. The differences between the amounts billed and the amounts expected to be collected from non-contracted payors are recorded as contractual allowances to arrive at net recognized revenues. The expected revenues from non-contracted payors are based on the historical collection experience of each payor or payor group, as appropriate, and also take into account recent collection trends. In each reporting period, we review our historical collection experience for non-contracted payors and adjust our expected revenues for current and subsequent periods accordingly. We also recognize additional revenue from actual cash payments that exceed amounts initially recognized, in the period the payments are received. For the three and six months ended June 30, 2015 and 2014, net positive revenue adjustments were $149,000, $277,000, $121,000 and $265,000, respectively. Because a substantial portion of our revenues is from non-contracted third-party payors, it is likely that we will be required to make adjustments to accounting estimates with respect to contractual allowances in the future, which may positively or adversely affect our results of operations. In all cases described above, we report revenues net of any applicable statutory taxes collected from customers, as applicable. For the six months ended June 30, 2015, 10% of our revenues were from one customer. No single customer exceeded 10% of revenues for the second quarter of 2015, or for any comparable period in 2014.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash Equivalents and Short-Term Investments.

We consider all highly liquid investments purchased with original maturities of three months or less when purchased to be cash equivalents. Short-term investments consist of fixed income investments with maturities between three and 12 months and other highly liquid investments that can be readily purchased or sold using established markets. These investments are classified as available-for-sale and are reported at fair value on the Company’s consolidated balance sheet. Unrealized holding gains and losses are reported within comprehensive loss in the consolidated statement of comprehensive loss. Fair value is based on available market information including quoted market prices, broker or dealer quotations or other observable inputs. If a decline in the fair value of a short-term investment below our cost basis is determined to be other than temporary, such investment is written down to its estimated fair value as a new cost basis and the amount of the write-down is included in earnings as an impairment charge. To-date, no permanent impairment charges have been realized or recorded.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value Measurements.

We measure fair value as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. We utilize a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

?	Level 1:	Observable market inputs such as quoted prices in active markets;
?	Level 2:	Observable market inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
?	Level 3:	Unobservable inputs where there is little or no market data, which require the reporting entity to develop its own assumptions.

We classify our cash equivalents within the fair value hierarchy as Level 1 as these assets are valued using quoted prices in active markets for identical assets at the measurement date. We classify short-term investments within the fair value hierarchy as Level 2, primarily utilizing broker quotes in a non-active market for valuation of these investments. Financial instruments that contain valuation inputs that are not readily determinable from active markets or from similar securities trading in active markets, such as derivative financial instruments, are classified within the fair value hierarchy as Level 3.

Derivatives, Policy [Policy Text Block]

Derivative Financial Instruments.

We evaluate financial instruments for freestanding or embedded derivatives. Derivative instruments that do not qualify for permanent equity classification are recorded as liabilities at fair value, with changes in value recognized as other income (expense) in the consolidated statements of operations in the period of change. Derivative liabilities are categorized as either short-term or long-term based upon management’s estimates as to when the derivative instrument may be realized or based upon the holder’s ability to realize the instrument.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risks

. Cash and cash equivalents are invested in deposits with certain financial institutions and may, at times, exceed federally insured limits. We have not experienced any significant losses on our deposits of cash and cash equivalents. We do not believe that we are exposed to significant credit risk on cash and cash equivalents or on our short-term investments. Accounts receivable from one commercial insurance carrier of $318,000 exceeded 10% of our total accounts receivable balance as of December 31, 2014. There were no commercial carrier or customer accounts receivable balances that exceeded 10% of our total accounts receivable balance as of June 30, 2015.

Substantially all of the components and raw materials used in providing our testing services, including array slides and reagents, are currently provided to us from a limited number of sources or in some cases from a single source. Although we believe that alternative sources for those components and raw materials are available, any supply interruption in a sole-sourced component or raw material might result in up to a several-month production delay and materially harm our ability to provide testing services until a new source of supply, if any, could be located and qualified.

Receivables, Policy [Policy Text Block]

Ac

counts Receivable and Allowance

for Doubtful Accounts.

For our contracted third-party payors, governmental payors or direct-bill customers, accounts receivable are stated at principal amounts and are primarily comprised of amounts contractually due from customers for services performed. For our non-contracted customers, accounts receivable are stated at amounts expected to be collected based on historical collection experience with the third-party payor. The payment realization cycle for certain governmental and commercial insurance payors can be lengthy, involving denial, appeal and adjudication processes, and is subject to periodic adjustments that may be significant. Accounts receivable are periodically written off when identified as uncollectible after appropriate collection efforts have been exhausted. Such write-offs increase the contractual allowances (which reduce revenues) for those accounts in the period of adjustment. Collection of governmental, private health insurer, and client receivables are generally a function of providing complete and correct billing information to the insurers and clients within the filing deadlines required by each payor.

Collection of receivables due from patients and private-pay clients is generally subject to increased credit risk due to credit-worthiness or inability to pay. For these customers, an allowance for doubtful accounts is recorded for estimated uncollectible amounts, and involves significant assumptions and judgments. Specifically, the allowance for doubtful accounts is adjusted periodically and is principally based upon specific identification of past due or disputed accounts. We also review the age of receivables to assess our allowance at each period end. Additions to the allowance for doubtful accounts are charged to bad debt expense as a component of general and administrative expenses in the consolidated statements of operations.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

. The compensation cost for all employee stock-based awards is measured at the grant date, based on the fair value of the award, and is recognized as an expense, on a straight-line basis, over the employee’s requisite service period (generally the vesting period of the equity award) which is generally four years. The fair value of each stock option award is estimated on the date of grant using a Black-Scholes option valuation model. The fair value of each restricted stock unit (“RSU”) award is based on the number of shares granted and the closing price of our common stock as reported on Nasdaq on the date of grant. Stock-based compensation expense is recognized only for those awards that are expected to vest using an estimated forfeiture rate. We estimate pre-vesting option forfeitures at the time of grant and reflect the impact of estimated pre-vesting option forfeitures in compensation expense recognized. Stock-based compensation expense for all periods presented attributable to our functional expense categories from stock option and RSU awards vesting during the periods presented were as follows (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Cost of services	$	5	$	5	$	10	$	9
Research and development		-		-		-		-
Sales and marketing		5		19		31		30
General and administrative		161		165		305		227
Total non-cash stock compensation	$	171	$	189	$	346	$	266

Earnings Per Share, Policy [Policy Text Block]

Net Loss Per Share

. Basic and diluted net loss per share has been computed by dividing the net loss by the weighted average number of common shares issued and outstanding during the periods presented. Options and warrants to purchase common stock as well as preferred stock convertible into shares of common stock are anti-dilutive and therefore are not included in the determination of the diluted net loss per share. The following table reflects the excluded dilutive securities:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2015		2014		2015		2014
Common stock options		879,359		695,989		879,359		695,989
Restricted stock units		582,003		380,220		582,003		380,220
Common stock warrants		9,648,905		7,412,372		9,648,905		7,412,372
Series E preferred stock convertible into common stock		1,257,996		-		1,257,996		-
Excluded potentially dilutive securities		12,368,263		8,488,581		12,368,263		8,488,581

Segment Reporting, Policy [Policy Text Block]

Segments.

We have determined that we operate in one segment for financial reporting purposes.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements.

In April 2015, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance that requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Debt disclosures will include the face amount of the debt liability and the effective interest rate. The guidance requires retrospective application and represents a change in accounting principle. This guidance will be effective for us in the first quarter of 2016, and early adoption is permitted for financial statements that have not been previously issued. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In November 2014, the FASB issued new guidance on determining whether a host contract in a hybrid financial instrument issued in the form of a share is more akin to debt or to equity. This guidance does not change the current criteria in GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required, but instead clarifies how current GAAP should be interpreted in the evaluation of the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share, thereby reducing existing diversity in practice. The guidance is effective for fiscal years beginning after December 15, 2015 and for interim periods within that fiscal year. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In August 2014, the FASB issued new guidance requiring management of all entities to evaluate whether there are conditions and events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable). The guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods within that fiscal year. We do not expect the adoption of this guidance to have a material effect on our consolidated financial statements.

In May 2014, the FASB issued new accounting guidance regarding revenue recognition from contracts with customers, which when effective will supersede existing revenue recognition requirements and will eliminate most industry-specific guidance from generally accepted accounting principles. The core principle of the new guidance is to require an entity to recognize as revenue the amount that reflects the consideration to which it expects to be entitled in exchange for goods or services as it transfers control to its customers. The new guidance requires additional qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. An entity can apply the new guidance retrospectively to each prior reporting period presented (i.e., the full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized at the date of initial application in retained earnings. As originally issued, the new revenue recognition standard would be effective for us beginning January 1, 2017. However, in 2015, the FASB voted to defer the effective date of the new guidance for one year. We are currently evaluating the appropriate transition method and any further impact of this guidance on our consolidated financial statements and related disclosures.

In April 2014,

FASB amended guidance to clarify the accounting for disposals of groups of assets and business units. The amendments alter the definition of a discontinued operation to cover only asset disposals that are a strategic shift with a major effect on an entity's operations and finances. The changes should be applied in fiscal years that start on December 15, 2014, or later, but the changes can be applied ahead of the effective date for asset disposals that have not been reported in a set of financial statements. We do not believe adoption of this guidance will have a material impact on our consolidated financial statements

.

Reclassification, Policy [Policy Text Block]

Reclassifications

. Certain prior period amounts have been reclassified to conform to the current period presentation.

XML

Note 3 - Cash and Short-term Investments (Tables)

6 Months Ended

Jun. 30, 2015

Notes Tables

Cash, Cash Equivalents and Investments [Table Text Block]

	As of June 30, 2015								As of December 31, 2014
			Unrealized				Fair				Unrealized					Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
Cash and money market securities	$	3,123	$	-	$	-	$	3,123	$	1,010	$	-	$	-		$	1,010
Corporate bonds		-		-		-		-		1,003		-		-			1,003
Certificates of deposit		4,001		1				4,002		3,230		-		(3	)		3,227
	$	7,124	$	1	$	-	$	7,125	$	5,243	$	-	$	(3	)	$	5,240

XML

Note 2 - Summary of Significant Accounting Policies (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2014 USD ($)	Dec. 31, 2014 USD ($)
Short-term Investments [Member]
Asset Impairment Charges			$ 0
Minimum [Member]
Equity Method Investment, Ownership Percentage	20.00%		20.00%
Maximum [Member]
Equity Method Investment, Ownership Percentage	50.00%		50.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member]
Number of Major Customers	0	0	1
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Number of Major Customers			0
Customer Concentration Risk [Member] | Commercial Insurance Carrier 1 [Member]
Fair Value, Concentration of Risk, Accounts Receivable					$ 318,000
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	20.00%		20.00%
Net Revenue Adjustments	$ 149,000	$ 121,000	$ 277,000	$ 265,000

XML

Note 4 - Financial Assets Measured on Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Cash equivalents	$ 2,037	$ 676
Short-term investments
Cash equivalents and Short Term Investments	$ 2,037	$ 676
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Cash equivalents
Short-term investments	$ 4,002	$ 4,230
Cash equivalents and Short Term Investments	$ 4,002	$ 4,230
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Cash equivalents
Short-term investments
Cash equivalents and Short Term Investments
Fair Value, Measurements, Recurring [Member]
Cash equivalents	$ 2,037	$ 676
Short-term investments	4,002	4,230
Cash equivalents and Short Term Investments	6,039	4,906
Short-term investments	$ 4,002	$ 4,230

XML

Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Net loss	$ (1,612)	$ (2,579)	$ (3,377)	$ (4,575)
Unrealized gain on available-for-sale investments		5	4
Total comprehensive loss	$ (1,612)	$ (2,574)	$ (3,373)	$ (4,575)

XML

Note 4 - Fair Value Measurements

6 Months Ended

Jun. 30, 2015

Notes to Financial Statements

Fair Value Disclosures [Text Block]

4 . FAIR VALUE MEASUREMENTS

The following table summarizes, for each major category of financial assets measured on a recurring basis, the respective fair value at June 30, 2015 and December 31, 2014 and the classification by level of input within the fair value hierarchy defined above (in thousands):

			Fair Value Measurements
June 30, 2015	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	2,037	$	2,037	$	-	$	-
Short-term investments		4,002		-		4,002		-
Cash equivalents	$	6,039	$	2,037	$	4,002	$	-

			Fair Value Measurements
December 31, 2014	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	676	$	676	$	-	$	-
Short-term investments		4,230		-		4,230		-
Cash equivalents	$	4,906	$	676	$	4,230	$	-

XML

Note 5 - Secured Promissory Note (Details Textual) - May. 20, 2014 - Secured Debt [Member] - USD ($)	Total
Debt Instrument, Face Amount	$ 350,000
Debt Instrument, Term	3 years
Debt Instrument, Interest Rate, Stated Percentage	10.00%
Debt Issuance Cost	$ 22,000

XML

Note 1 - Overview and Background (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2015	Dec. 31, 2014
Cash, Cash Equivalents, and Short-term Investments	$ 7,125	$ 5,240