10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For The Quarterly Period Ended June 30, 2016

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 [  ]

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 [  ]

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 [  ]	Accelerated filer [  ]	Non-accelerated filer [  ]	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 [  ] No [X]

As of August 1, 2016, 2,377,629 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)	3
	Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	3
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015	4
	Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2016 and 2015	5
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	22
Part II. Other Information
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
Signatures		24
Exhibit Index		25

2

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

COMBIMATRIX CORPORATION

CONSOLIDATED BALANCE SHEETS

(In thousands)

	June 30, 2016			December 31, 2015
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,727		$	653
Short-term investments		500			3,248
Accounts receivable, net of allowance for doubtful accounts of $279 and $235		3,164			2,682
Supplies		484			418
Prepaid expenses and other assets		131			200
Total current assets		9,006			7,201
Property and equipment, net		717			691
Other assets		30			30
Total assets	$	9,753		$	7,922
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable, accrued expenses and other	$	1,772		$	1,591
Current portion, long-term debt		160			193
Total current liabilities		1,932			1,784
Capital lease obligations, net of current portion		49			71
Secured promissory note payable, net of current portion		-			34
Deferred rent		161			177
Total liabilities		2,142			2,066
Commitments and contingencies (Note 7)
Stockholders’ equity:
Convertible preferred stock; $0.001 par value; 5,000,000 shares authorized;
Series F - 8,000 shares authorized; 4,828 and none issued and outstanding		-			-
Series E - 2,202 shares authorized; none and 2,201.493 issued and outstanding		-			-
Common stock; $0.001 par value; 50,000,000 shares authorized; 1,676,582 and 845,374 shares issued and outstanding		14			13
Additional paid-in capital		108,772			102,651
Accumulated other comprehensive loss		-			(2	)
Accumulated deficit		(101,175	)		(96,806	)
Total stockholders’ equity		7,611			5,856
Total liabilities and stockholders’ equity	$	9,753		$	7,922

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,
	2016			2015			2016			2015
Revenues:
Diagnostic services	$	3,049		$	2,524		$	5,979		$	4,811
Royalties		58			25			100			67
Total revenues		3,107			2,549			6,079			4,878
Operating expenses:
Cost of services		1,432			1,398			2,851			2,628
Research and development		149			62			292			219
Sales and marketing		1,141			1,173			2,477			2,363
General and administrative		1,586			1,488			3,112			2,963
Patent amortization and royalties		25			25			50			50
Total operating expenses		4,333			4,146			8,782			8,223
Operating loss		(1,226	)		(1,597	)		(2,703	)		(3,345	)
Other income (expense):
Interest income		8			5			12			8
Interest expense		(17	)		(20	)		(35	)		(40	)
Total other income (expense)		(9	)		(15	)		(23	)		(32	)
Net loss	$	(1,235	)	$	(1,612	)	$	(2,726	)	$	(3,377	)
Deemed dividend paid for right to repurchase Series E convertible preferred stock	$	-		$	-		$	(656	)	$	-
Deemed dividend from issuing Series E convertible preferred stock and warrants		-			-			890			(890	)
Deemed dividend from issuing Series F convertible preferred stock and warrants		-			-			(1,877	)		-
Net loss attributable to common stockholders	$	(1,235	)	$	(1,612	)	$	(4,369	)	$	(4,267	)
Basic and diluted net loss per share	$	(0.89	)	$	(1.91	)	$	(2.43	)	$	(4.14	)
Deemed dividend paid for right to repurchase Series E convertible preferred stock		-			-			(0.58	)		-
Deemed dividend from issuing Series E convertible preferred stock		-			-			0.79			(1.09	)
Deemed dividend from issuing Series F convertible preferred stock		-			-			(1.67	)		-
Basic and diluted net loss per share attributable to common stockholders	$	(0.89	)	$	(1.91	)	$	(3.89	)	$	(5.23	)
Basic and diluted weighted average common shares outstanding		1,382,019			845,395			1,122,975			816,076

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,
	2016			2015			2016			2015
Net loss	$	(1,235	)	$	(1,612	)	$	(2,726	)	$	(3,377	)
Unrealized gain on available-for-sale investments		-			-			2			4
Total comprehensive loss	$	(1,235	)	$	(1,612	)	$	(2,724	)	$	(3,373	)

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,
	2016			2015
Operating activities:
Net loss	$	(2,726	)	$	(3,377	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		130			168
Non-cash stock compensation		405			346
Provision for bad debts		205			127
Changes in assets and liabilities:
Accounts receivable		(687	)		(303	)
Supplies, prepaid expenses and other assets		(22	)		(177	)
Accounts payable, accrued expenses and other		151			567
Net cash flows from operating activities		(2,544	)		(2,649	)
Investing activities:
Purchases of property and equipment		(147	)		(62	)
Purchase of available-for-sale investments		(4,998	)		(3,000	)
Sale of available-for-sale investments		7,748			3,230
Net cash flows from investing activities		2,603			168
Financing activities:
Proceeds from issuance of Series F convertible stock and common stock warrants		8,000			-
Costs from issuance of Series F convertible convertible stock and common stock warrants		(1,048	)		-
Repurchase of Series E convertible prefered stock and dividends		(2,842	)		-
Proceeds from issuance of Series E convertible stock, common stock and warrants		-			4,900
Costs from issuance of Series E convertible convertible stock, common stock and warrants		-			(217	)
Repayments of long-term debt		(95	)		(89	)
Net cash flows from financing activities		4,015			4,594
Change in cash and cash equivalents		4,074			2,113
Cash and cash equivalents, beginning		653			1,010
Cash and cash equivalents, ending	$	4,727		$	3,123
Non-cash financing activities:
Deemed dividends from issuing Series E convertible preferred stock .	$	(890	)	$	890
Deemed dividends from issuing Series F convertible preferred stock .	$	1,877		$	-
Accrued public offering costs	$	10		$	-
Accrued property, plant and equipment	$	20		$	-
Property and equipment purchased under capital lease	$	6		$	40
Warrant modifications recognized as non-cash Series E offering-related costs	$	-		$	336
Tenant improvements recognized as deferred rent	$	-		$	164

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 diagnostics and screening, miscarriage analysis, prenatal and pediatric diagnostics, 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 chromosomal microarray analysis, 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, 2015, as reported by us in our Annual Report on Form 10-K filed with the SEC on February 18, 2016. 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, 2016, 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, 2016 are not necessarily indicative of the results to be expected for the entire year.

Reverse Stock Split

On January 29, 2016, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse split of our common stock at a ratio of one-for-fifteen (the “Reverse Stock Split”), which became effective at the close of business on that day. As a result, each share of CombiMatrix common stock outstanding as of January 29, 2016 was automatically changed into one-fifteenth of a share of common stock. No fractional shares were issued in connection with the Reverse Stock Split, and cash paid to stockholders for potential fractional shares was insignificant. The number of shares of common stock subject to outstanding options, warrants and convertible securities were also reduced by a factor of fifteen as of January 29, 2016. All historical share and per share amounts reflected throughout this document have been adjusted to reflect the Reverse Stock Split. The authorized number of shares and the par value per share of our common stock were not affected by the Reverse Stock Split.

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, 2016, we had cash, cash equivalents and short-term investments of $5.2 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.

7

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

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;

● 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, 2016 and 2015, net positive revenue adjustments were $404,000, $804,000, $149,000 and $277,000, 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 three or six months ending June 30, 2016 nor for the three months ended June 30, 2015.

8

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

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.

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.

Impairment of Long-Lived Assets. Long-lived assets and intangible assets are reviewed for potential impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows.

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. As of June 30, 2016, accounts receivable from one commercial insurance carrier of $427,000 exceeded 10% of our total accounts receivable balance. As of December 31, 2015, accounts receivable from the same commercial insurance carrier of $316,000 also exceeded 10% of our total accounts receivable balance.

9

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

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.

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,
	2016		2015		2016		2015
Cost of services	$	4	$	5	$	20	$	10
Research and development		-		-		-		-
Sales and marketing		17		5		44		31
General and administrative		169		161		341		305
Total non-cash stock compensation	$	190	$	171	$	405	$	346

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:

10

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Common stock options		71,749		58,623		71,749		58,623
Restricted stock units		59,000		38,800		59,000		38,800
Common stock warrants		2,701,754		643,260		2,701,754		643,260
Series E preferred stock convertible into common stock		-		83,866		-		83,866
Series F preferred stock convertible into common stock		1,247,530		-		1,247,530		-
Excluded potentially dilutive securities .		4,080,033		824,549		4,080,033		824,549

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

Recent Accounting Pronouncements. In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding employee share-based payment accounting. The guidance is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The standard is effective for the Company on January 1, 2017. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In February 2016, the FASB issued guidance regarding leases, which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The guidance is effective for the Company beginning January 1, 2019, and we are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In January 2016, the FASB issued accounting guidance regarding recognition and measurement of financial assets and financial liabilities. This guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. We do not expect the adoption of this guidance to have any impact on our consolidated financial statements.

In July 2015, the FASB issued accounting guidance regarding simplifying the measurement of inventory. The new guidance applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory method, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard will be effective for us on January 1, 2017. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In April 2015, the 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 is effective for us beginning in the first quarter of 2016. Implementation of this guidance did not have a material impact on our consolidated financial statements.

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

11

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

3. CASH AND SHORT-TERM INVESTMENTS

As of June 30, 2016, we held $5.2 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, 2016 and December 31, 2015 (in thousands):

	As of June 30, 2016								As of December 31, 2015
			Unrealized				Fair				Unrealized					Fsair
	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
Cash and money market securities	$	3,228	$	-	$	-	$	3,228	$	653	$	-	$	-		$	653
Commercial paper		1,499		-		-		1,499		-		-		-			-
Certificates of deposit		500		-		-		500		3,250		-		(2	)		3,248
	$	5,227	$	-	$	-	$	5,227	$	3,903	$	-	$	(2	)	$	3,901

There were no realized gains or losses for the periods ended June 30, 2016 or 2015.

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, 2016 and December 31, 2015 and the classification by level of input within the fair value hierarchy defined above (in thousands):

			Fair Value Measurements
June 30, 2016	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	3,527	$	3,527	$	-	$	-
Short-term investments		500		-		500		-
Cash equivalents	$	4,027	$	3,527	$	500	$	-

			Fair Value Measurements
December 31, 2015	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	99	$	99	$	-	$	-
Short-term investments		3,248		-		3,248		-
Cash equivalents	$	3,347	$	99	$	3,248	$	-

The carrying amounts of accounts receivable, accounts payable, accrued expenses, capital leases and the secured promissory note approximate fair value due primarily to the short-term nature of these financial instruments.

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, 2016 and December 31, 2015, components of the Note were as follows (in thousands):

	June 30, 2016			December 31,  2015
Carrying value	$	108		$	168
Unamortized legal and closing costs		(6	)		(10	)
		102			158
Less- current portion		(102	)		(124	)
Long-term portion .	$	-		$	34

12

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

6. STOCKHOLDERS’ EQUITY

Series A through E Convertible Preferred Stock and Warrants Financings

Between 2012 and 2015, we executed several financing transactions whereby we issued convertible preferred stock and warrants to purchase common stock to investors. As of June 30, 2016, none of the Series A through E convertible preferred stock remained outstanding. For as long as the Series A warrants remain unexercised through their expiration date, except under certain permitted circumstances, we may not issue, or enter into any agreement to issue, common stock or common stock equivalents at a price per share below the $73.65 exercise price of the Series A warrants, unless waivers from the Series A investors are obtained. Until the time that less than 7.5% of the Series B, C and E warrants remain unexercised through their expiration date, except under certain permitted circumstances, we may not issue, or enter into any agreement to issue, common stock or common stock equivalents at prices per share below the $29.55, $29.55 and $32.51 exercise prices of the Series B, C and E warrants, respectively, unless waivers from the Series B, C and E investors are obtained. In addition, until there are no longer Series A, C and E warrants outstanding we may not sell any variable rate securities except for certain exempt issuances.

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 102,800 shares common stock at a price of $26.25 per share, 2,201.493 shares of Series E 6% Convertible Preferred Stock (the “Series E Preferred Stock”) and warrants to purchase 46,676 shares of common stock initially at an exercise price of $29.55 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 21.1977 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 was convertible into 83,871 shares of common stock at an initial conversion price of $26.25 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 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 subject to price based anti-dilution protection. See below for modifications made to the Series E Preferred Stock and the Series E Warrants.

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 102,678 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 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. As a result of the special stockholders meeting held on April 28 2015, we issued the Private Placement Warrants to the Private Placement Investors and the warrant subscription payable was reclassified to additional paid-in capital.

13

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Each Private Placement Warrant initially had an exercise price of $32.505 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 a beneficial ownership limitation. 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.

Modification of Certain Other 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, B and C financings described above, to (i) reduce the exercise prices thereunder to $29.55, 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 subsequent to the Warrant Price Modification to be $336,000, and such amount was recorded as a non-cash equity offering cost.

Series E Modifications

On October 12, 2015, we entered into an Amendment No. 1 to Common Stock Purchase Warrants (the “Warrants Amendment”) with each of the holders of the Series E Warrants and each of the holders of the Private Placement Warrants. Under the terms of the Warrants Amendment, all of the Series E Warrants and 100,847 of the Private Placement Warrants had their exercise prices reduced to $16.50 per share. Accordingly, with respect to the Private Placement Warrants, 100,847 of the Private Placement Warrants have an exercise price of $16.50 per share and 1,831 of the Private Placement Warrants retain their original exercise price of $32.505 per share. In consideration for entering into the Warrants Amendment, each Series E Investor agreed to irrevocably waive ab initio and for all time its right to receive cash dividends on its shares of our Series E Preferred Stock. We estimated the change in fair value of the Series E Warrants and the affected Private Placement Warrants prior to and immediately subsequent to the Warrants Amendment to be $168,000, which was recognized as a deemed dividend and as an increase to additional paid-in capital during the fourth quarter of 2015.

On February 4, 2016, we entered into a Series E 6% Convertible Preferred Stock Repurchase Agreement (the “Repurchase Agreement”) with the Series E Investors. Pursuant to the terms of the Repurchase Agreement, we agreed to pay each Series E Investor $300 per share of Series E Preferred Stock, or approximately $656,000, in consideration for the right to repurchase the Series E Investor’s Series E Preferred Stock at a price per share of $1,000 (the “Repurchase Price”), which was the original price per share paid by the Series E Investors for their Series E Preferred Stock in February 2015. We recognized the $656,000 payments as a deemed dividend paid to the Series E investors.

14

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

Immediately following the closing of our Series F public offering discussed below, we paid $2.2 million to the Series E Investors to repurchase all of the outstanding Series E Preferred Stock, in accordance with the terms of the Repurchase Agreement. Since none of the Series E Preferred Stock had converted by the time we repurchased the Series E Preferred Stock, the original $890,000 beneficial conversion feature that we recognized as a deemed dividend in 2015 was reversed as a return of capital from the Series E Preferred stockholders to the common stockholders.

Series F Convertible Preferred Stock and Warrants Financing

On March 24, 2016 (the “Series F Closing”), we closed an underwritten public offering (the “Series F Offering”) and issued 8,000 immediately separable units of securities to investors, with each unit consisting of: (i) one share of Series F convertible preferred stock (“Series F Preferred Stock”) convertible into shares of our common stock equal to 1,000 divided by the conversion price of $3.87, which was 75% of the consolidated closing bid price of our common stock on the NASDAQ Capital Market on March 18, 2016, the date we executed the underwriting agreement (“UA date”); and (ii) 258.397875 warrants, each to purchase one share of our common stock at an exercise price per share equal to $5.17 (“Series F Warrants”), which was 100% of the consolidated closing bid price of our common stock on the NASDAQ Capital Market on the UA date. The Series F Preferred Stock, the Series F Warrants, and the shares of common stock underlying the Series F Preferred Stock and Series F Warrants were registered on Form S-1, which was declared effective by the SEC on March 18, 2016. The Series F Preferred Stock was immediately convertible and the Series F Warrants were immediately exercisable for shares of common stock and have a term of five years. The Series F Warrants are exercisable for cash or, solely in the absence of an effective registration statement or prospectus, by cashless exercise. In total, there were 2,067,183 shares of common stock issuable upon conversion of the Series F Preferred Stock and up to 2,067,183 shares of common stock issuable upon exercise of the Series F Warrants. The units were sold for a purchase price equal to $1,000 per unit, resulting in gross proceeds received by us of $8 million. Total offering-related costs paid through June 30, 2016 were $1.1 million, resulting in net proceeds recognized of $6.9 million. Given that the effective conversion price of the Series F Preferred Stock was below the closing market price of our common stock at the time of the Series F Closing, we recognized a beneficial conversion feature in the amount of $1.9 million. Since the Series F Preferred Stock was immediately convertible into common stock, the beneficial conversion feature was treated as a deemed dividend charged to retained earnings at closing. Also, from the time of the Series F Closing through June 30, 2016 3,172 shares of the Series F Preferred Stock have converted into 819,653 shares of common stock. Subsequent to June 30, 2016 and through the date of this report, an additional 2,713 shares of Series F Preferred Stock have converted into 701,047 shares of common stock.

The Series F 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 distributions upon our dissolution, liquidation or winding-up. Until the volume weighted average price of our common stock on NASDAQ exceeds 200% of the conversion price of the Series F Preferred Stock for any 20 of 30 consecutive trading days, and the daily dollar trading volume during such period exceeds $200,000 per trading day, the Series F Preferred Stock is subject to full ratchet price based anti-dilution protection, subject to certain limitations. Also, the Company can force holders of Series F Preferred Stock to convert into our common stock if the volume-weighted average price of our common stock exceeds 200% of the Series F Preferred Stock conversion price for any 20 of 30 consecutive trading days, and the daily dollar trading volume during such period exceeds $200,000 per trading day, subject to certain other conditions. The Series F 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% of our outstanding common stock (which may be increased on 61 days’ notice, but not above 9.99%).

The Series F Warrants have a 5-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 F Warrants. The Series F Warrants are not subject to price based anti-dilution protection. The Series F Warrants are listed on the NASDAQ Capital Market under the trading symbol “CBMXW.”

15

COMBIMATRIX CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(Unaudited)

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
	2016		2015		Price		Expiration
Equity-classified warrants:
March 2016		2,067,183		-	$	5.17		March 2021
April 2015		100,847		100,847	$	16.50		August 2020
April 2015		1,831		1,831	$	32.51		August 2020
February 2015		46,676		46,676	$	16.50		August 2020
June 2014		1,690		1,690	$	30.90		April 2018
December 2013		388,365		388,365	$	46.80		December 2018
June 2013		32,788		32,788	$	29.55		June 2019
May 2013		32,788		32,788	$	29.55		May 2019
March 2013		18,334		18,334	$	29.55		March 2019
October 2012		11,252		11,252	$	29.55		September 2018
April 2011		-		8,746	$	321.00		April 2016
Total		2,701,754		643,317

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 (as amended, 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 (one times annual base salary for the CEO); (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. The Severance Plan automatically renews annually unless terminated upon 12 months prior written notice.

Also, our Board of Directors has adopted a Transaction Bonus Plan (the “Transaction Bonus Plan”), which provides for certain bonus payments to be made, upon the consummation of a qualifying change of control transaction, to certain employees of the Company as shall be determined by the Compensation Committee of our Board of Directors. The aggregate value of the bonuses payable under the Transaction Bonus Plan shall be the greater of (i) $1,000,000 or (ii) ten percent of the net proceeds received in connection with a qualifying change of control transaction, and the percentage of such bonus pool awarded to each eligible participant shall be determined by our Compensation Committee.

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 both of the three and six months ended June 30, 2016 and 2015, respectively, and are included in patent amortization and royalties in the accompanying consolidated statements of operations.

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.

8. SUBSEQUENT EVENTS

Common Stock Purchase Warrants Repurchase Agreement

On July 11, 2016, we entered into a Common Stock Purchase Warrants Repurchase Agreement (the “Repurchase Agreement”) with the holders (the “Holders”) of our outstanding common stock purchase warrants (the “Warrants”) issued in October 2012, March 2013, May 2013, June 2013, June 2014, February 2015 and April 2015 in connection with our Series A, Series B, Series C and Series E financings. Pursuant to the terms of the Repurchase Agreement, we have agreed to repurchase the Warrants from each Holder upon execution of a “Fundamental Transaction” (as defined in the Warrants) at various negotiated prices per Warrant share as set forth in the Repurchase Agreement. Under the terms of the Repurchase Agreement, we will repurchase half of the Warrants upon the announcement of a Fundamental Transaction and the remaining half of the Warrants upon the closing of a Fundamental Transaction. In addition, upon the closing of a Fundamental Transaction, all Securities Purchase Agreements and Registration Rights Agreements associated with the original issuances of the Warrants will be terminated and the various restrictions set forth therein will no longer be of any force or effect. In connection with entering into the Repurchase Agreement, we were granted certain consents and waivers relating to a Fundamental Transaction. In the event that a Fundamental Transaction is announced and consummated, we will be obligated to repurchase the Warrants for approximately $459,000 of cash consideration paid to the Holders. One half of this amount will be due within three business days of announcing the Fundamental Transaction, and the remaining half will be due within three business days of closing the Fundamental Transaction. In the event that we announce a Fundamental Transaction but never close, for whatever reason, then one-half of the Warrants will be repurchased and cancelled and one-half will remain issued and outstanding. In the event that a Fundamental Transaction is never announced nor consummated, we will not be obligated to repurchase the Warrants, and the underlying terms and conditions of the Warrants will remain in effect.

16

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, 2015, filed with the SEC on February 18, 2016.

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,” “more likely to,” “with a view to,” “our future success depends,” “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 size, 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; our ability to bill and obtain reimbursement for highly specialized tests; the rate of growth of the in vitro fertilization (“IVF”) diagnostic testing market; 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; our ability to obtain additional financing for working capital on acceptable terms and in a timely manner; 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, 2015 filed with the SEC on February 18, 2016. 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 diagnostics and screening, miscarriage analysis, prenatal and pediatric diagnostics, 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 CMA, standardized and customized fluorescent in-situ hybridization (or “FISH”) and high resolution karyotyping. We emphasize support of 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.

17

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.

Overview

For the three and six months ended June 30, 2016, our operating activities included the recognition of $3.1 million and $6.1 million of total revenues, respectively, which increased by $558,000 and $1.2 million, respectively, from the comparable periods in 2015 due primarily to increased volumes of molecular diagnostic tests performed, particularly in the reproductive health testing market. Our net losses for the three and six months ended June 30, 2016 decreased over the comparable periods in 2015 due primarily to increased sales, partially offset by increases in cost of services, research and development and general and administrative expenses for the comparable periods presented. Also for the six months ended June 30, 2016, our net loss attributable to common stockholders increased by $102,000 from the comparable period in 2015 due to deemed dividends recognized from a premium paid to Series E investors as well as from issuing Series F convertible preferred stock with a conversion price below the fair value of our common stock at closing, partially offset by the reversal of the deemed dividend from issuing Series E convertible preferred stock that was recognized during the first quarter of 2015.

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, 2015, filed with the SEC on February 18, 2016, 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, 2016 and 2015

Revenues and Cost of Services (dollars in thousands):

	Three Months Ended											Six Months Ended
	June 30,						Change					June 30,						Change
	2016			2015			$			%		2016			2015			$			%
Diagnostic services revenues	$	3,049		$	2,524		$	525			21%	$	5,979		$	4,811		$	1,168			24%
Royalty revenues		58			25			33			132%		100			67			33			49%
Cost of services		(1,432	)		(1,398	)		(34	)		(2)%		(2,851	)		(2,628	)		(223	)		(8)%

Diagnostic Services Revenues. Diagnostic services revenues are generated from providing DNA-based genomic testing services primarily in the areas of pre-implantation genetic screening (or “PGS”), pre-implantation genetic diagnostics (or “PGD”), miscarriage analysis, prenatal diagnostics (collectively referred to as “reproductive health” testing) and postnatal development disorders in children. The key drivers and metrics relating to the change in diagnostic services revenues were as follows:

18

	Three Months Ended								Six Months Ended
	June 30,				Change				June 30,				Change
	2016		2015		#		%		2016		2015		#		%
Total billable tests		2,780		2,599		181		7%		5,428		4,944		484		10%
Total microarray tests		1,900		1,867		33		2%		3,778		3,540		238		7%
Microarray percentage of total billable tests		68.3%		71.8%						69.6%		71.6%
Total reproductive health microarray tests(1)		1,403		1,286		117		9%		2,829		2,492		337		14%
Reproductive health percentage of total microarray tests		73.8%		68.9%						74.9%		70.4%
Revenue per test - total billable tests	$	1,097	$	971	$	126		13%	$	1,102	$	973	$	129		13%
Revenue per test - total all microarray tests	$	1,442	$	1,224	$	218		18%	$	1,430	$	1,225	$	205		17%
Revenue per test - total reproductive health microarray tests(1)	$	1,555	$	1,288	$	267		21%	$	1,536	$	1,288	$	248		19%

(1) includes PGS, prenatal and miscarriage analysis microarray tests 

For the three months ended June 30, 2016, total billable tests and total diagnostic services revenues increased by 7% and 21%, respectively, compared to the three months ended June 30, 2015. For the six months ended June 30, 2016, total billable tests and total diagnostic services revenues increased by 10% and 24%, respectively, compared to the six months ended June 30, 2015. Driving the increase in billable tests and revenues for all periods presented were the increases in reproductive health testing volumes, which increased by 9% and 14% for the three and six months ended June 30, 2016 compared to the 2015 periods, respectively. We believe this reflects the commercialization strategies and focus of our sales force, which have emphasized reproductive health microarray diagnostics testing over traditional genomics testing. In addition, improved reimbursement from third-party payors for our miscarriage analysis microarray test drove higher revenues per test in our reproductive health segment, thereby resulting in a higher 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, 2016 and 2015, net positive revenue adjustments were $404,000, $804,000, $149,000 and $277,000, respectively. Because approximately 71% 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 for all periods presented were due primarily to increased diagnostic testing volumes described above. For the three and six months ended June 30, 2016 and 2015, 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
	2016		2015		$			%		2016		2015		$		%
Research and development	$	149	$	62	$	87			140%	$	292	$	219	$	73		33%
Sales and marketing		1,141		1,173		(32	)		(3)%		2,477		2,363		114		5%
General and administrative		1,586		1,488		98			7%		3,112		2,963		149		5%

19

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, 2016, research and development expenses increased from the comparable 2015 periods due primarily to increased efforts in launching a next generation sequencing platform for our PGS testing services during the second quarter of 2016.

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 months ended June 30, 2016, sales and marketing expenses decreased from the comparable 2015 period due primarily to reduced headcount in sales representatives and reduced travel and entertainment costs from fewer sales headcount compared to the 2015 period. For the six months ended June 30, 2016, sales and marketing expenses increased from the comparable 2015 period due primarily to increased overall headcount in sales representatives as well as increased marketing and promotional related activities in 2016 compared to 2015. For the three and six months ended June 30, 2016 and 2015, non-cash stock compensation expenses were not significant.

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, 2016, general and administrative expenses increased from the comparable 2015 periods due primarily to increased salaries and bad debt expense, partially offset by decreased legal fees associated with litigation which concluded in 2015. Also included in general and administrative expenses are non-cash stock-based compensation expenses, which were $169,000, $341,000, $161,000 and $305,000 for the three and six months ended June 30, 2016 and 2015, 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.

Inflation

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

Liquidity and Capital Resources

At June 30, 2016, cash, cash equivalents and short-term investments totaled $5.2 million, compared to $3.9 million at December 31, 2015. 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 commercial paper issued by U.S. financial institutions. Working capital was $7.1 million and $5.4 million at June 30, 2016 and December 31, 2015, respectively. The primary reason for the increase in working capital was due to higher cash balances at June 30, 2016 compared to December 31, 2015, driven by operating, investing and financing activities described below.

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

	Six Months Ended
	June 30,
	2016			2015			Change
Net cash provided by (used in):
Operating activities	$	(2,544	)	$	(2,649	)	$	105
Investing activities		2,603			168			2,435
Financing activities		4,015			4,594			(579	)
Increase (decrease) in cash and cash equivalents	$	4,074		$	2,113		$	1,961

Operating Activities. Improved cash reimbursement, partially offset by higher salaries, wages and benefits from increased headcount during the six months ended June 30, 2016 resulted in lower overall cash used in operating activities compared to the six months ended June 30, 2015.

Investing Activities. Cash flows from investing activities relate primarily to the sales of short-term investments to fund operations, which increased in 2016 compared to 2015.

20

Financing Activities. The net decrease in net cash flows from financing activities was due primarily to the $6.9 million of net proceeds received in March 2016 from the Series F Financing, partially offset by the combined $2.8 million of payments made to the Series E investors, compared to $4.7 million in net proceeds from the Series E financing that closed in February of 2015.

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. However, we believe that our cash, cash equivalents and short-term investment balances at June 30, 2016 will be sufficient to meet our expected cash requirements for the next twelve months. In order for us to continue as a going concern beyond this point and ultimately to 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 2016 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.

Off-Balance Sheet Arrangements

As of June 30, 2016, 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 2016 or beyond. We currently have ten active capital leases totaling $299,000 for certain laboratory and IT-related equipment, with lease payments continuing through May of 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.

21

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, 2016, 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) unders the Exchange Act) that occurred during our last fiscal quarter (the quarter ended June 30, 2016) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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.

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, 2015, filed with the SEC on February 18, 2016.

We have a history of losses and expect to incur additional losses in the future.

We have sustained substantial losses since our inception. We may never become profitable, or if we do, we may not be able to sustain profitability. We expect to incur significant research and development, marketing, general and administrative expenses. As a result, we expect to incur losses for the foreseeable future.

To date, we have relied primarily upon selling equity and convertible debt and equity securities to generate the funds needed to finance the implementation of our business strategies. We cannot assure you that we will not encounter unforeseen difficulties, including the outside influences identified below that may deplete our capital resources more rapidly than anticipated. We may be required to obtain additional financing through bank borrowings, debt or equity financings or otherwise, which would require us to make additional investments or face a dilution of our equity interests. We cannot be sure that additional funding will be available on favorable terms, if at all. In order to issue securities at a price below the exercise prices of our outstanding warrants issued in connection with our past preferred stock private placement financings, we must obtain the affirmative consent of holders of at least 67% of each series of such outstanding warrants. If we are unable to obtain the consent of these holders in connection with future financings, we may be unable to raise additional capital on acceptable terms, or at all. If external financing sources are not available in a timely manner or at all, or are inadequate to fund our operations, it could result in reduced revenues and cash flows from the sales of our diagnostic services and/or could jeopardize our ability to launch, market and sell additional products and services necessary to grow and sustain our operations. If we fail to obtain additional funding when needed, we may not be able to execute our business plans or continue operations, and our business may be materially adversely affected.

We began commercialization of our molecular diagnostics services in 2006. Accordingly, we have a limited operating history of generating revenues from services. In addition, we are still developing our technologies and service offerings and are subject to the risks, expenses and difficulties frequently encountered by companies with such limited operating histories. Since we have a limited operating history, we cannot assure you that our operations will become profitable or that we will generate sufficient revenues to meet our expenditures and support our activities.

22

As a public company, we are subject to complex legal and accounting requirements that will require us to incur substantial expense and will expose us to risk of non-compliance.

As a public company, we are subject to numerous legal and accounting requirements that do not apply to private companies. The cost of compliance with many of these requirements is substantial, not only in absolute terms but, more importantly, in relation to the overall scope of the operations of a small company. Failure to comply with these requirements can have numerous material adverse consequences including, but not limited to, our inability to file required periodic reports on a timely basis, which would result in the loss of our eligibility to use Form S-3 for raising capital, loss of market confidence, delisting of our securities, governmental or private actions against us and/or liquidated damages payable to the holders of our Series A Warrants, Series C Warrants, our April 2015 private placement warrants, and our Series F Preferred Stock and Series F Warrants. We cannot assure you that we will be able to comply with all of these requirements or that the cost of such compliance will not prove to be a substantial competitive disadvantage compared to our privately held and larger public competitors.

Future sales or the potential for future sales of our securities in the public markets may cause the trading price of our common stock to decline and could impair our ability to raise capital through subsequent equity offerings.

Sales of a substantial number of shares of our common stock or other securities in the public markets, or the perception that these sales may occur, could cause the market price of our common stock or other securities to decline and could materially impair our ability to raise capital through the sale of additional securities. The shares of common stock issuable upon conversion of our Series F preferred stock and upon exercise of our outstanding warrants are freely tradable, without restriction, in the public market. We have obligations to the investors in our 2012 private placement offering of Series A convertible preferred stock and warrants to purchase common stock and in our 2013 private placement offering of Series C convertible preferred stock and warrants to maintain the public registration of common stock underlying their issued and outstanding warrants. We also have obligations to the investors in our April 2011 private placement that could require us to register shares of common stock held by them and shares issuable upon exercise of their warrants for resale on a registration statement. If we raise additional capital in the future through the use of our existing shelf registration statement or if we register existing, or agree to register future, privately placed shares for resale on a registration statement, such additional shares would be freely tradable, and, if significant in amount, such sales could further adversely affect the market price of our common stock. The sale of a large number of shares of our common stock also might make it more difficult for us to sell equity or equity-related securities in the future at a time and at the prices that we deem appropriate.

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

As of June 30, 2016, we had approximately 1.6 million shares of common stock issued and outstanding. Assuming exercise in full of all options, warrants and convertible securities outstanding as of June 30, 2016 (not taking into account any price-based or anti-dilution adjustments related to the Series F preferred stock), approximately 5.8 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 feature of our Series F preferred stock.

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

None.

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 26 of this report.

23

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 5, 2016

24

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	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 January 29, 2016.
3.11	Certificate of Designation of Preferences, Rights and Limitations of Series F 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 March 24, 2016.
3.12	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	2016 Executive Performance Bonus Plan. 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 27, 2016.
10.2	Form of Common Stock Purchase Warrants Repurchase Agreement. 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 July 11, 2016.
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, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015; (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015; (iii) Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2016 and 2015; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015; and (v) Notes to Consolidated Financial Statements.(*)

(*) Included herewith.

25

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 5, 2016	/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 5, 2016	/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, 2016, 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 5, 2016

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, 2016, 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 5, 2016

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

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 01, 2016
Document And Entity Information
Entity Registrant Name	CombiMatrix Corp
Entity Central Index Key	0001383183
Document Type	10-Q
Document Period End Date	Jun. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,377,629
Trading Symbol	CBMX
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2016

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 4,727	$ 653
Short-term investments	500	3,248
Accounts receivable, net of allowance for doubtful accounts of $279 and $235	3,164	2,682
Supplies	484	418
Prepaid expenses and other assets	131	200
Total current assets	9,006	7,201
Property and equipment, net	717	691
Other assets	30	30
Total assets	9,753	7,922
Current liabilities:
Accounts payable, accrued expenses and other	1,772	1,591
Current portion, long-term debt	160	193
Total current liabilities	1,932	1,784
Capital lease obligations, net of current portion	49	71
Secured promissory note payable, net of current portion		34
Deferred rent	161	177
Total liabilities	2,142	2,066
Commitments and contingencies (Note 7)
Stockholders' equity:
Common stock; $0.001 par value; 50,000,000 shares authorized; 1,676,582 and 845,374 shares issued and outstanding	14	13
Additional paid-in capital	108,772	102,651
Accumulated other comprehensive loss		(2)
Accumulated deficit	(101,175)	(96,806)
Total stockholders' equity	7,611	5,856
Total liabilities and stockholders' equity	9,753	7,922
Series F Preferred Stock [Member]
Stockholders' equity:
Convertible preferred stock; $0.001 par value; 5,000,000 shares authorized; Series F - 8,000 shares authorized; 4,828 and none issued and outstanding Series E - 2,202 shares authorized; none and 2,201.493 issued and outstanding
Series E Preferred Stock [Member]
Stockholders' equity:
Convertible preferred stock; $0.001 par value; 5,000,000 shares authorized; Series F - 8,000 shares authorized; 4,828 and none issued and outstanding Series E - 2,202 shares authorized; none and 2,201.493 issued and outstanding

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Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Allowance for doubtful accounts	$ 279	$ 235
Convertible preferred stock, par value	$ 0.001	$ 0.001
Convertible preferred stock; shares authorized	5,000,000	5,000,000
Common stock par value	$ 0.001	$ 0.001
Common stock authorized	50,000,000	50,000,000
Common stock ,shares issued	1,676,582	845,374
Common stock, shares outstanding	1,676,582	845,374
Series F Preferred Stock [Member]
Convertible preferred stock; shares authorized	8,000	8,000
Convertible preferred stock, shares issued	4,828
Convertible preferred stock, shares outstanding	4,828
Series E Preferred Stock [Member]
Convertible preferred stock; shares authorized	2,202	2,202
Convertible preferred stock, shares issued		2,201.493
Convertible preferred stock, shares outstanding		2,201.493

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Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Revenues:
Diagnostic services	$ 3,049	$ 2,524	$ 5,979	$ 4,811
Royalties	58	25	100	67
Total revenues	3,107	2,549	6,079	4,878
Operating expenses:
Cost of services	1,432	1,398	2,851	2,628
Research and development	149	62	292	219
Sales and marketing	1,141	1,173	2,477	2,363
General and administrative	1,586	1,488	3,112	2,963
Patent amortization and royalties	25	25	50	50
Total operating expenses	4,333	4,146	8,782	8,223
Operating loss	(1,226)	(1,597)	(2,703)	(3,345)
Other income (expense):
Interest income	8	5	12	8
Interest expense	(17)	(20)	(35)	(40)
Total other income (expense)	(9)	(15)	(23)	(32)
Net loss	(1,235)	(1,612)	(2,726)	(3,377)
Deemed dividend paid for right to repurchase Series E convertible preferred stock			(656)
Deemed dividend from issuing Series E convertible preferred stock and warrants			890	(890)
Deemed dividend from issuing Series F convertible preferred stock and warrants			(1,877)
Net loss attributable to common stockholders	$ (1,235)	$ (1,612)	$ (4,369)	$ (4,267)
Basic and diluted net loss per share	$ (0.89)	$ (1.91)	$ (2.43)	$ (4.14)
Deemed dividend paid for right to repurchase Series E convertible preferred stock			(0.58)
Deemed dividend from issuing Series E convertible preferred stock			0.79	(1.09)
Deemed dividend from issuing Series F convertible preferred stock			(1.67)
Basic and diluted net loss per share attributable to common stockholders	$ (0.89)	$ (1.91)	$ (3.89)	$ (5.23)
Basic and diluted weighted average common shares outstanding	1,382,019	845,395	1,122,975	816,076

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Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Statement of Comprehensive Income [Abstract]
Net loss	$ (1,235)	$ (1,612)	$ (2,726)	$ (3,377)
Unrealized gain on available-for-sale investments			2	4
Total comprehensive loss	$ (1,235)	$ (1,612)	$ (2,724)	$ (3,373)

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Operating activities:
Net loss	$ (2,726)	$ (3,377)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization	130	168
Non-cash stock compensation	405	346
Provision for bad debts	205	127
Changes in assets and liabilities:
Accounts receivable	(687)	(303)
Supplies, prepaid expenses and other assets	(22)	(177)
Accounts payable, accrued expenses and other	151	567
Net cash flows from operating activities	(2,544)	(2,649)
Investing activities:
Purchase of property and equipment	(147)	(62)
Purchase of available-for-sale investments	(4,998)	(3,000)
Sale of available-for-sale investments	7,748	3,230
Net cash flows from investing activities	2,603	168
Financing activities:
Proceeds from issuance of Series F convertible stock and common stock warrants	8,000
Costs from issuance of Series F convertible stock and common stock warrants	(1,048)
Repurchase of Series E convertible preferred stock and dividends	(2,842)
Proceeds from issuance of Series E convertible stock, common stock and warrants		4,900
Costs from issuance of Series E convertible stock, common stock and warrants		(217)
Repayments of long-term debt	(95)	(89)
Net cash flows from financing activities	4,015	4,594
Change in cash and cash equivalents	4,074	2,113
Cash and cash equivalents, beginning	653	1,010
Cash and cash equivalents, ending	4,727	3,123
Non-cash financing activities:
Deemed dividends from issuing Series E convertible preferred stock	(890)	890
Deemed dividends from issuing Series F convertible preferred stock	1,877
Accrued public offering costs	10
Accrued property, plant and equipment	20
Property and equipment purchased under capital lease	6	40
Warrant modifications recognized as non-cash Series E offering-related costs		336
Tenant improvements recognized as deferred rent		$ 164

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Overview and Background

6 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Overview and Background

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 diagnostics and screening, miscarriage analysis, prenatal and pediatric diagnostics, 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 chromosomal microarray analysis, 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 notes 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, 2015, as reported by us in our Annual Report on Form 10-K filed with the SEC on February 18, 2016. 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 March 31, 2016, and results of operations and cash flows for the interim periods presented. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the entire year.

Reverse Stock Split

On January 29, 2016, we filed a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware to effect a reverse split of our common stock at a ratio of one-for-fifteen (the “Reverse Stock Split”), which became effective at the close of business on that day. As a result, each share of CombiMatrix common stock outstanding as of January 29, 2016 was automatically changed into one-fifteenth of a share of common stock. No fractional shares were issued in connection with the Reverse Stock Split, and cash paid to stockholders for potential fractional shares was insignificant. The number of shares of common stock subject to outstanding options, warrants and convertible securities were also reduced by a factor of fifteen as of January 29, 2016. All historical share and per share amounts reflected throughout this document have been adjusted to reflect the Reverse Stock Split. The authorized number of shares and the par value per share of our common stock were not affected by the Reverse Stock Split.

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. On March 31, 2016, we had cash, cash equivalents and short-term investments of $6.6 million and anticipate that our cash and cash equivalent balances will be sufficient to meet our cash requirements for at least the next twelve months. In order for us to 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;

● 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 technologies or 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.

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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, 2016 and 2015, net positive revenue adjustments were $404,000, $804,000, $149,000 and $277,000, 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 three or six months ending June 30, 2016 nor for the three months ended June 30, 2015.

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.

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.

Impairment of Long-Lived Assets. Long-lived assets and intangible assets are reviewed for potential impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows.

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. As of June 30, 2016, accounts receivable from one commercial insurance carrier of $427,000 exceeded 10% of our total accounts receivable balance. As of December 31, 2015, accounts receivable from the same commercial insurance carrier of $316,000 also exceeded 10% of our total accounts receivable balance.

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.

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,
	2016		2015		2016		2015
Cost of services	$	4	$	5	$	20	$	10
Research and development		-		-		-		-
Sales and marketing		17		5		44		31
General and administrative		169		161		341		305
Total non-cash stock compensation	$	190	$	171	$	405	$	346

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,
	2016		2015		2016		2015
Common stock options		71,749		58,623		71,749		58,623
Restricted stock units		59,000		38,800		59,000		38,800
Common stock warrants		2,701,754		643,260		2,701,754		643,260
Series E preferred stock convertible into common stock		-		83,866		-		83,866
Series F preferred stock convertible into common stock		1,247,530		-		1,247,530		-
Excluded potentially dilutive securities .		4,080,033		824,549		4,080,033		824,549

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

Recent Accounting Pronouncements. In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding employee share-based payment accounting. The guidance is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The standard is effective for the Company on January 1, 2017. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In February 2016, the FASB issued guidance regarding leases, which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The guidance is effective for the Company beginning January 1, 2019, and we are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In January 2016, the FASB issued accounting guidance regarding recognition and measurement of financial assets and financial liabilities. This guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. We do not expect the adoption of this guidance to have any impact on our consolidated financial statements.

In July 2015, the FASB issued accounting guidance regarding simplifying the measurement of inventory. The new guidance applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory method, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard will be effective for us on January 1, 2017. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In April 2015, the 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 is effective for us beginning in the first quarter of 2016. Implementation of this guidance did not have a material impact on our consolidated financial statements.

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

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Cash and Short-term Investments

6 Months Ended

Jun. 30, 2016

Cash and Cash Equivalents [Abstract]

Cash and Short-term Investments

3. CASH AND SHORT-TERM INVESTMENTS

As of June 30, 2016, we held $5.2 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, 2016 and December 31, 2015 (in thousands):

	As of June 30, 2016								As of December 31, 2015
			Unrealized				Fair				Unrealized					Fsair
	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
Cash and money market securities	$	3,228	$	-	$	-	$	3,228	$	653	$	-	$	-		$	653
Commercial paper		1,499		-		-		1,499		-		-		-			-
Certificates of deposit		500		-		-		500		3,250		-		(2	)		3,248
	$	5,227	$	-	$	-	$	5,227	$	3,903	$	-	$	(2	)	$	3,901

There were no realized gains or losses for the periods ended June 30, 2016 or 2015.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

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, 2016 and December 31, 2015 and the classification by level of input within the fair value hierarchy defined above (in thousands):

			Fair Value Measurements
June 30, 2016	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	3,527	$	3,527	$	-	$	-
Short-term investments		500		-		500		-
Cash equivalents	$	4,027	$	3,527	$	500	$	-

			Fair Value Measurements
December 31, 2015	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	99	$	99	$	-	$	-
Short-term investments		3,248		-		3,248		-
Cash equivalents	$	3,347	$	99	$	3,248	$	-

The carrying amounts of accounts receivable, accounts payable, accrued expenses, capital leases and the secured promissory note approximate fair value due primarily to the short-term nature of these financial instruments.

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Secured Promissory Note

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Secured Promissory Note

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, 2016 and December 31, 2015, components of the Note were as follows (in thousands):

	June 30, 2016			December 31, 2015
Carrying value	$	108		$	168
Unamortized legal and closing costs		(6	)		(10	)
		102			158
Less- current portion		(102	)		(124	)
Long-term portion .	$	-		$	34

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Stockholders' Equity

6 Months Ended

Jun. 30, 2016

Equity [Abstract]

Stockholders' Equity

6. STOCKHOLDERS’ EQUITY

Series A through E Convertible Preferred Stock and Warrants Financings

Between 2012 and 2015, we executed several financing transactions whereby we issued convertible preferred stock and warrants to purchase common stock to investors. As of June 30, 2016, none of the Series A through E convertible preferred stock remained outstanding. For as long as the Series A warrants remain unexercised through their expiration date, except under certain permitted circumstances, we may not issue, or enter into any agreement to issue, common stock or common stock equivalents at a price per share below the $73.65 exercise price of the Series A warrants, unless waivers from the Series A investors are obtained. Until the time that less than 7.5% of the Series B, C and E warrants remain unexercised through their expiration date, except under certain permitted circumstances, we may not issue, or enter into any agreement to issue, common stock or common stock equivalents at prices per share below the $29.55, $29.55 and $32.51 exercise prices of the Series B, C and E warrants, respectively, unless waivers from the Series B, C and E investors are obtained. In addition, until there are no longer Series A, C and E warrants outstanding we may not sell any variable rate securities except for certain exempt issuances.

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 102,800 shares common stock at a price of $26.25 per share, 2,201.493 shares of Series E 6% Convertible Preferred Stock (the “Series E Preferred Stock”) and warrants to purchase 46,676 shares of common stock initially at an exercise price of $29.55 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 21.1977 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 was convertible into 83,871 shares of common stock at an initial conversion price of $26.25 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 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 subject to price based anti-dilution protection. See below for modifications made to the Series E Preferred Stock and the Series E Warrants.

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 102,678 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 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. As a result of the special stockholders meeting held on April 28 2015, we issued the Private Placement Warrants to the Private Placement Investors and the warrant subscription payable was reclassified to additional paid-in capital.

Each Private Placement Warrant initially had an exercise price of $32.505 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 a beneficial ownership limitation. 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.

Modification of Certain Other 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, B and C financings described above, to (i) reduce the exercise prices thereunder to $29.55, 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 subsequent to the Warrant Price Modification to be $336,000, and such amount was recorded as a non-cash equity offering cost.

Series E Modifications

On October 12, 2015, we entered into an Amendment No. 1 to Common Stock Purchase Warrants (the “Warrants Amendment”) with each of the holders of the Series E Warrants and each of the holders of the Private Placement Warrants. Under the terms of the Warrants Amendment, all of the Series E Warrants and 100,847 of the Private Placement Warrants had their exercise prices reduced to $16.50 per share. Accordingly, with respect to the Private Placement Warrants, 100,847 of the Private Placement Warrants have an exercise price of $16.50 per share and 1,831 of the Private Placement Warrants retain their original exercise price of $32.505 per share. In consideration for entering into the Warrants Amendment, each Series E Investor agreed to irrevocably waive ab initio and for all time its right to receive cash dividends on its shares of our Series E Preferred Stock. We estimated the change in fair value of the Series E Warrants and the affected Private Placement Warrants prior to and immediately subsequent to the Warrants Amendment to be $168,000, which was recognized as a deemed dividend and as an increase to additional paid-in capital during the fourth quarter of 2015.

On February 4, 2016, we entered into a Series E 6% Convertible Preferred Stock Repurchase Agreement (the “Repurchase Agreement”) with the Series E Investors. Pursuant to the terms of the Repurchase Agreement, we agreed to pay each Series E Investor $300 per share of Series E Preferred Stock, or approximately $656,000, in consideration for the right to repurchase the Series E Investor’s Series E Preferred Stock at a price per share of $1,000 (the “Repurchase Price”), which was the original price per share paid by the Series E Investors for their Series E Preferred Stock in February 2015. We recognized the $656,000 payments as a deemed dividend paid to the Series E investors.

Immediately following the closing of our Series F public offering discussed below, we paid $2.2 million to the Series E Investors to repurchase all of the outstanding Series E Preferred Stock, in accordance with the terms of the Repurchase Agreement. Since none of the Series E Preferred Stock had converted by the time we repurchased the Series E Preferred Stock, the original $890,000 beneficial conversion feature that we recognized as a deemed dividend in 2015 was reversed as a return of capital from the Series E Preferred stockholders to the common stockholders.

Series F Convertible Preferred Stock and Warrants Financing

On March 24, 2016 (the “Series F Closing”), we closed an underwritten public offering (the “Series F Offering”) and issued 8,000 immediately separable units of securities to investors, with each unit consisting of: (i) one share of Series F convertible preferred stock (“Series F Preferred Stock”) convertible into shares of our common stock equal to 1,000 divided by the conversion price of $3.87, which was 75% of the consolidated closing bid price of our common stock on the NASDAQ Capital Market on March 18, 2016, the date we executed the underwriting agreement (“UA date”); and (ii) 258.397875 warrants, each to purchase one share of our common stock at an exercise price per share equal to $5.17 (“Series F Warrants”), which was 100% of the consolidated closing bid price of our common stock on the NASDAQ Capital Market on the UA date. The Series F Preferred Stock, the Series F Warrants, and the shares of common stock underlying the Series F Preferred Stock and Series F Warrants were registered on Form S-1, which was declared effective by the SEC on March 18, 2016. The Series F Preferred Stock was immediately convertible and the Series F Warrants were immediately exercisable for shares of common stock and have a term of five years. The Series F Warrants are exercisable for cash or, solely in the absence of an effective registration statement or prospectus, by cashless exercise. In total, there were 2,067,183 shares of common stock issuable upon conversion of the Series F Preferred Stock and up to 2,067,183 shares of common stock issuable upon exercise of the Series F Warrants. The units were sold for a purchase price equal to $1,000 per unit, resulting in gross proceeds received by us of $8 million. Total offering-related costs paid through June 30, 2016 were $1.1 million, resulting in net proceeds recognized of $6.9 million. Given that the effective conversion price of the Series F Preferred Stock was below the closing market price of our common stock at the time of the Series F Closing, we recognized a beneficial conversion feature in the amount of $1.9 million. Since the Series F Preferred Stock was immediately convertible into common stock, the beneficial conversion feature was treated as a deemed dividend charged to retained earnings at closing. Also, from the time of the Series F Closing through June 30, 2016 3,172 shares of the Series F Preferred Stock have converted into 819,653 shares of common stock. Subsequent to June 30, 2016 and through the date of this report, an additional 2,713 shares of Series F Preferred Stock have converted into 701,047 shares of common stock.

The Series F 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 distributions upon our dissolution, liquidation or winding-up. Until the volume weighted average price of our common stock on NASDAQ exceeds 200% of the conversion price of the Series F Preferred Stock for any 20 of 30 consecutive trading days, and the daily dollar trading volume during such period exceeds $200,000 per trading day, the Series F Preferred Stock is subject to full ratchet price based anti-dilution protection, subject to certain limitations. Also, the Company can force holders of Series F Preferred Stock to convert into our common stock if the volume-weighted average price of our common stock exceeds 200% of the Series F Preferred Stock conversion price for any 20 of 30 consecutive trading days, and the daily dollar trading volume during such period exceeds $200,000 per trading day, subject to certain other conditions. The Series F 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% of our outstanding common stock (which may be increased on 61 days’ notice, but not above 9.99%).

The Series F Warrants have a 5-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 F Warrants. The Series F Warrants are not subject to price based anti-dilution protection. The Series F Warrants are listed on the NASDAQ Capital Market under the trading symbol “CBMXW.”

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
	2016		2015		Price		Expiration
Equity-classified warrants:
March 2016		2,067,183		-	$	5.17		March 2021
April 2015		100,847		100,847	$	16.50		August 2020
April 2015		1,831		1,831	$	32.51		August 2020
February 2015		46,676		46,676	$	16.50		August 2020
June 2014		1,690		1,690	$	30.90		April 2018
December 2013		388,365		388,365	$	46.80		December 2018
June 2013		32,788		32,788	$	29.55		June 2019
May 2013		32,788		32,788	$	29.55		May 2019
March 2013		18,334		18,334	$	29.55		March 2019
October 2012		11,252		11,252	$	29.55		September 2018
April 2011		-		8,746	$	321.00		April 2016
Total		2,701,754		643,317

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

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 (as amended, 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 (one times annual base salary for the CEO); (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. The Severance Plan automatically renews annually unless terminated upon 12 months prior written notice.

Also, our Board of Directors has adopted a Transaction Bonus Plan (the “Transaction Bonus Plan”), which provides for certain bonus payments to be made, upon the consummation of a qualifying change of control transaction, to certain employees of the Company as shall be determined by the Compensation Committee of our Board of Directors. The aggregate value of the bonuses payable under the Transaction Bonus Plan shall be the greater of (i) $1,000,000 or (ii) ten percent of the net proceeds received in connection with a qualifying change of control transaction, and the percentage of such bonus pool awarded to each eligible participant shall be determined by our Compensation Committee.

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 both of the three and six months ended June 30, 2016 and 2015, respectively, and are included in patent amortization and royalties in the accompanying consolidated statements of operations.

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.

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Subsequent Events

6 Months Ended

Jun. 30, 2016

Subsequent Events [Abstract]

Subsequent Events

8. SUBSEQUENT EVENTS

Common Stock Purchase Warrants Repurchase Agreement

On July 11, 2016, we entered into a Common Stock Purchase Warrants Repurchase Agreement (the “Repurchase Agreement”) with the holders (the “Holders”) of our outstanding common stock purchase warrants (the “Warrants”) issued in October 2012, March 2013, May 2013, June 2013, June 2014, February 2015 and April 2015 in connection with our Series A, Series B, Series C and Series E financings. Pursuant to the terms of the Repurchase Agreement, we have agreed to repurchase the Warrants from each Holder upon execution of a “Fundamental Transaction” (as defined in the Warrants) at various negotiated prices per Warrant share as set forth in the Repurchase Agreement. Under the terms of the Repurchase Agreement, we will repurchase half of the Warrants upon the announcement of a Fundamental Transaction and the remaining half of the Warrants upon the closing of a Fundamental Transaction. In addition, upon the closing of a Fundamental Transaction, all Securities Purchase Agreements and Registration Rights Agreements associated with the original issuances of the Warrants will be terminated and the various restrictions set forth therein will no longer be of any force or effect. In connection with entering into the Repurchase Agreement, we were granted certain consents and waivers relating to a Fundamental Transaction. In the event that a Fundamental Transaction is announced and consummated, we will be obligated to repurchase the Warrants for approximately $459,000 of cash consideration paid to the Holders. One half of this amount will be due within three business days of announcing the Fundamental Transaction, and the remaining half will be due within three business days of closing the Fundamental Transaction. In the event that we announce a Fundamental Transaction but never close, for whatever reason, then one-half of the Warrants will be repurchased and cancelled and one-half will remain issued and outstanding. In the event that a Fundamental Transaction is never announced nor consummated, we will not be obligated to repurchase the Warrants, and the underlying terms and conditions of the Warrants will remain in effect.

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Use of Estimates

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

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

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, 2016 and 2015, net positive revenue adjustments were $404,000, $804,000, $149,000 and $277,000, 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 three or six months ending June 30, 2016 nor for the three months ended June 30, 2015.

Cash Equivalents and Short Term Investments

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.

Fair Value Measurements

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.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets. Long-lived assets and intangible assets are reviewed for potential impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. In the event the sum of the expected undiscounted future cash flows resulting from the use of the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. If an asset is determined to be impaired, the loss is measured based on quoted market prices in active markets, if available. If quoted market prices are not available, the estimate of fair value is based on various valuation techniques, including a discounted value of estimated future cash flows.

Derivative Financial Instruments

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

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. As of June 30, 2016, accounts receivable from one commercial insurance carrier of $427,000 exceeded 10% of our total accounts receivable balance. As of December 31, 2015, accounts receivable from the same commercial insurance carrier of $316,000 also exceeded 10% of our total accounts receivable balance.

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

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.

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

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,
	2016		2015		2016		2015
Cost of services	$	4	$	5	$	20	$	10
Research and development		-		-		-		-
Sales and marketing		17		5		44		31
General and administrative		169		161		341		305
Total non-cash stock compensation	$	190	$	171	$	405	$	346

Net Loss Per Share

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,
	2016		2015		2016		2015
Common stock options		71,749		58,623		71,749		58,623
Restricted stock units		59,000		38,800		59,000		38,800
Common stock warrants		2,701,754		643,260		2,701,754		643,260
Series E preferred stock convertible into common stock		-		83,866		-		83,866
Series F preferred stock convertible into common stock		1,247,530		-		1,247,530		-
Excluded potentially dilutive securities .		4,080,033		824,549		4,080,033		824,549

Segments

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements. In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding employee share-based payment accounting. The guidance is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. The standard is effective for the Company on January 1, 2017. We are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In February 2016, the FASB issued guidance regarding leases, which requires lessees to recognize on the balance sheet a right-of-use asset, representing their right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising from leases. The guidance requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The guidance is effective for the Company beginning January 1, 2019, and we are currently evaluating the impact that this guidance will have on our consolidated financial statements.

In January 2016, the FASB issued accounting guidance regarding recognition and measurement of financial assets and financial liabilities. This guidance enhances the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The guidance is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those annual periods. We do not expect the adoption of this guidance to have any impact on our consolidated financial statements.

In July 2015, the FASB issued accounting guidance regarding simplifying the measurement of inventory. The new guidance applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory method, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard will be effective for us on January 1, 2017. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In April 2015, the 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 is effective for us beginning in the first quarter of 2016. Implementation of this guidance did not have a material impact on our consolidated financial statements.

Reclassifications

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

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Summary of Significant Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Schedule of Employee Service Share-based Compensation, Allocation

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,
	2016		2015		2016		2015
Cost of services	$	4	$	5	$	20	$	10
Research and development		-		-		-		-
Sales and marketing		17		5		44		31
General and administrative		169		161		341		305
Total non-cash stock compensation	$	190	$	171	$	405	$	346

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share

The following table reflects the excluded dilutive securities:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Common stock options		71,749		58,623		71,749		58,623
Restricted stock units		59,000		38,800		59,000		38,800
Common stock warrants		2,701,754		643,260		2,701,754		643,260
Series E preferred stock convertible into common stock		-		83,866		-		83,866
Series F preferred stock convertible into common stock		1,247,530		-		1,247,530		-
Excluded potentially dilutive securities .		4,080,033		824,549		4,080,033		824,549

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Cash and Short-term Investments (Tables)

6 Months Ended

Jun. 30, 2016

Cash and Cash Equivalents [Abstract]

Schedule of Cash, Cash Equivalents and Investments

Cash, cash equivalents and short-term investments consisted of the following as of June 30, 2016 and December 31, 2015 (in thousands):

	As of June 30, 2016								As of December 31, 2015
			Unrealized				Fair				Unrealized					Fsair
	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
Cash and money market securities	$	3,228	$	-	$	-	$	3,228	$	653	$	-	$	-		$	653
Commercial paper		1,499		-		-		1,499		-		-		-			-
Certificates of deposit		500		-		-		500		3,250		-		(2	)		3,248
	$	5,227	$	-	$	-	$	5,227	$	3,903	$	-	$	(2	)	$	3,901

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis

The following table summarizes, for each major category of financial assets measured on a recurring basis, the respective fair value at June 30, 2016 and December 31, 2015 and the classification by level of input within the fair value hierarchy defined above (in thousands):

			Fair Value Measurements
June 30, 2016	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	3,527	$	3,527	$	-	$	-
Short-term investments		500		-		500		-
Cash equivalents	$	4,027	$	3,527	$	500	$	-

			Fair Value Measurements
December 31, 2015	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	99	$	99	$	-	$	-
Short-term investments		3,248		-		3,248		-
Cash equivalents	$	3,347	$	99	$	3,248	$	-

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Secured Promissory Note (Tables)

6 Months Ended

Jun. 30, 2016

Debt Disclosure [Abstract]

Secured Promissory Note

As of June 30, 2016 and December 31, 2015, components of the Note were as follows (in thousands):

	June 30, 2016			December 31, 2015
Carrying value	$	108		$	168
Unamortized legal and closing costs		(6	)		(10	)
		102			158
Less- current portion		(102	)		(124	)
Long-term portion .	$	-		$	34

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Stockholders' Equity (Tables)

6 Months Ended

Jun. 30, 2016

Stockholders Equity Tables

Schedule of Stockholders' Equity Note, Warrants or Rights

Outstanding warrants to purchase common stock are as follows:

	Shares of Common Stock
	Issuable from Warrants
	Outstanding as of
	June 30,		December 31,		Exercise
	2016		2015		Price		Expiration
Equity-classified warrants:
March 2016		2,067,183		-	$	5.17		March 2021
April 2015		100,847		100,847	$	16.50		August 2020
April 2015		1,831		1,831	$	32.51		August 2020
February 2015		46,676		46,676	$	16.50		August 2020
June 2014		1,690		1,690	$	30.90		April 2018
December 2013		388,365		388,365	$	46.80		December 2018
June 2013		32,788		32,788	$	29.55		June 2019
May 2013		32,788		32,788	$	29.55		May 2019
March 2013		18,334		18,334	$	29.55		March 2019
October 2012		11,252		11,252	$	29.55		September 2018
April 2011		-		8,746	$	321.00		April 2016
Total		2,701,754		643,317

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Overview and Background (Details Narrative) $ in Thousands	Jun. 30, 2016 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash, cash equivalents and short term investments	$ 5,200

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Summary of Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Cost method, description			The cost method is used where we maintain ownership interests of less than 20% and do not exercise significant influence over the investee.
Net revenue adjustments	$ 404	$ 804	$ 149	$ 277
Revenue [Member] | One Customer [Member]
Concentration credit risk percentage			10.00%
Revenue [Member] | No Single Customer [Member]
Concentration credit risk percentage			10.00%
Accounts Receivable [Member] | One Commercial Insurance Carrier [Member]
Concentration credit risk percentage			10.00%		10.00%
Fair value, concentration of risk, accounts receivable	$ 427		$ 427		$ 316
Maximum [Member]
Equity method investment, ownership percentage	20.00%		20.00%
Minimum [Member]
Equity method investment, ownership percentage	50.00%		50.00%

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Summary of Significant Accounting Policies - Schedule of Employee Service Share-based Compensation Allocation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Allocated Share-based Compensation Expense	$ 190	$ 171	$ 405	$ 346
Cost of Service [Member]
Allocated Share-based Compensation Expense	4	5	20	10
Research and Development [Member]
Allocated Share-based Compensation Expense
Sales and Marketing [Member]
Allocated Share-based Compensation Expense	17	5	44	31
General and Administrative Expense [Member]
Allocated Share-based Compensation Expense	$ 169	$ 161	$ 341	$ 305

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Summary of Significant Accounting Policies - Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Anit-dilutive Securities	4,080,033	824,549	4,080,033	824,549
Common Stock Options [Member]
Anit-dilutive Securities	71,749	58,623	71,749	58,623
Restricted Stock [Member]
Anit-dilutive Securities	59,000	38,800	59,000	38,800
Common Stock Warrants [Member]
Anit-dilutive Securities	2,701,754	643,260	2,701,754	643,260
Series E Convertible Preferred Stock [Member]
Anit-dilutive Securities		83,866		83,866
Series F Convertible Preferred Stock [Member]
Anit-dilutive Securities	1,247,530		1,247,530

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Cash and Short-term Investments (Details Narrative) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash and Cash Equivalents [Abstract]
Cash, cash equivalents and short-term investments	$ 5,200
Realized investment gains losses	$ 0	$ 0

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Cash and Short-term Investments - Schedule of Cash, Cash Equivalents and Investments (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Cost	$ 5,227	$ 3,903
Unrealized Gain
Unrealized Loss		(2)
Fair Value	5,227	3,901
Commercial Paper [Member]
Cost	1,499
Unrealized Gain
Unrealized Loss
Fair Value	1,499
Certificates of Deposit [Member]
Cost	500	3,250
Unrealized Gain
Unrealized Loss		(2)
Fair Value	500	3,248
Cash and Money Market Securities [Member]
Cost	3,228	653
Unrealized Gain
Unrealized Loss
Fair Value	$ 3,228	$ 653

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Fair Value Measurements - Fair Value, Assets Measured on Recurring Basis (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Short-term Investments	$ 500	$ 3,248
Total	5,200
Fair Value, Measurements, Recurring [Member]
Cash equivalents	3,527	99
Short-term Investments	500	3,248
Total	4,027	3,347
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Cash equivalents	3,527	99
Short-term Investments
Total	3,527	99
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Cash equivalents
Short-term Investments	500	3,248
Total	500	3,248
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Cash equivalents
Short-term Investments
Total

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Secured Promissory Note (Details Narrative) - Secured Debt [Member] $ in Thousands	May 20, 2014 USD ($)
Debt Instrument, Face Amount	$ 350
Debt Instrument, Term	36 months
Debt Instrument, Interest Rate, Stated Percentage	10.00%
Debt Issuance Cost	$ 22

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Secured Promissory Note - Schedule of Debt (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Debt Disclosure [Abstract]
Carrying value	$ 108	$ 168
Unamortized legal and closing costs	(6)	(10)
Notes Payable	102	158
Less- current portion	(102)	(124)
Long-term portion		$ 34

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Stockholders' Equity (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands							6 Months Ended
	Mar. 24, 2016	Feb. 04, 2016	Oct. 12, 2015	Feb. 18, 2015	Feb. 13, 2015	Feb. 13, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Proceeds from issuance of convertible preferred stock							$ 8,000
Class of warrant or right, outstanding							2,701,754		643,317
Private Placement [Member]
Class of warrant or right, exercise price of warrants or rights			$ 32.505				$ 32.505
Percentage of closing bid price of common stock							110.00%
Class of warrant or right, outstanding			1,831
Series E Warrant [Member]
Warrant term				5 years 6 months
Series F Preferred Stock [Member]
Convertible preferred stock, shares issued upon conversion	2,067,183
Minimum percentage of weighted average price of common stock							200.00%
Warrant term							5 years
Sold for purchase price equal to per unit	$ 1,000
Gross proceeds received	$ 8,000
Trading volume during such period exceeds							$ 200
Preferred stock, description							The Series F 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% of our outstanding common stock (which may be increased on 61 days’ notice, but not above 9.99%).
Series E 6% Convertible Preferred Stock [Member]
Debt instrument, convertible, beneficial conversion feature				$ 890
Series C Convertible Preferred Stock [Member]
Preferred stock, dividend rate, percentage		6.00%
Stock repurchase program, authorized amount per share		$ 300
Stock repurchase program, authorized amount		$ 656
Stock repurchase program, original share price, per share		$ 1,000
Series E Investors [Member]
Debt instrument, convertible, beneficial conversion feature		$ 890
Payments as deemed dividend paid		656
Repurchase all outstanding stock		$ 2,200
Series F Offering [Member]
Stock issued during period, shares, new issues	8,000
Convertible preferred stock, shares issued upon conversion	1,000
Convertible preferred stock conversion price	$ 3.87
Debt instrument, convertible, beneficial conversion feature							$ 1,900
Percentage of conversion price of common stock	75.00%
Total offering related costs paid							1,100
Net proceeds from issuance of stock							$ 6,900
Series F Offering [Member] | Common Stock [Member]
Convertible preferred stock, shares issued upon conversion							819,653
Series F Offering [Member] | Common Stock [Member] | Subsequent Event [Member]
Convertible preferred stock, shares issued upon conversion							701,047
Series F Offering [Member] | Series F Preferred Stock [Member]
Convertible preferred stock, shares issued upon conversion							3,172
Series F Offering [Member] | Series F Preferred Stock [Member] | Subsequent Event [Member]
Convertible preferred stock, shares issued upon conversion							2,713
Series E Purchase Agreement [Member]
Share price					$ 26.25	$ 26.25
Stock issued during period, shares, new issues					102,800
Convertible preferred stock conversion price					$ 26.25	26.25
Series E Purchase Agreement [Member] | Fixed Combination [Member]
Share price					$ 1,000	$ 1,000
Series E Purchase Agreement [Member] | Series E 6% Convertible Preferred Stock [Member]
Stock issued during period, shares, new issues					2,201.493
Proceeds from issuance of convertible preferred stock				4,900
Proceeds from issuance of convertible preferred stock net				$ 4,700
Series E Purchase Agreement [Member] | Series E 6% Convertible Preferred Stock [Member] | Common Stock [Member]
Convertible preferred stock, shares issued upon conversion					83,871	83,871
Warrant Purchase Agreement [Member] | Private Placement [Member]
Class of warrant or right, exercise price of warrants or rights			$ 16.50
Warrants not settleable in cash, fair value disclosure					$ 1,820	$ 1,820
Expected term							5 years 6 months
Expected volatility rate							113.20%
Risk free interest rate							1.50%
Class of warrant or right, outstanding			100,847
Warrant Purchase Agreement [Member] | Modification of Certain Outstanding Warrants [Member] | Private Placement [Member]
Class of warrant or right, exercise price of warrants or rights					$ 29.55	$ 29.55
Warrant Purchase Agreement [Member] | Common Stock [Member] | Private Placement Investors [Member]
Warrants to purchase of common stock initially					102,678	102,678
Warrant Purchase Agreement [Member] | Private Placement Investors [Member]
Proceeds from issuance of warrants						$ 1
Modification Of Certain Other Outstanding Warrants [Member]
Class of warrant or right, exercise price of warrants or rights							$ 29.55
Fair value adjustment of warrants							$ 336
Series E Modifications [Member] | Private Placement [Member]
Class of warrant or right, exercise price of warrants or rights			$ 16.50
Class of warrant or right, outstanding			100,847
Warrants Amendment [Member]
Fair value adjustment of warrants			$ 168
Series F Convertible Preferred Stock And Warrants Financing [Member]
Class of warrant or right, exercise price of warrants or rights	$ 5.17
Warrants to purchase of common stock initially	258.397875
Percentage of closing bid price of common stock	100.00%
Maximum [Member] | Series F Preferred Stock [Member]
Convertible preferred stock, shares issued upon conversion	2,067,183
Series A Warrants [Member] | Maximum [Member]
Share price							$ 73.65
Percentage of warrant remain unexercised through expiration date							7.50%
Series B Warrants [Member]
Class of warrant or right, exercise price of warrants or rights							$ 29.55
Series C Warrants [Member]
Class of warrant or right, exercise price of warrants or rights							29.55
Series E Preferred Stock [Member]
Class of warrant or right, exercise price of warrants or rights							$ 32.51
Series E Warrant [Member] | Series E Purchase Agreement [Member] | Common Stock [Member]
Warrants to purchase of common stock initially					46,676	46,676
Class of warrant or right, number of securities called by each warrant or right					21.1977	21.1977

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Stockholders' Equity - Schedule of Stockholders' Equity Note, Warrants or Rights (Details) - $ / shares	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Shares of Common Stock Issuable from Warrants Outstanding	2,701,754	643,317
March, 2016 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	2,067,183
Exercise Price	$ 5.17	$ 5.17
Expiration term	Mar. 31, 2021
April 2015 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	100,847	100,847
Exercise Price	$ 16.50	$ 16.50
Expiration term	Aug. 31, 2020
April 2015 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	1,831	1,831
Exercise Price	$ 32.51	$ 32.51
Expiration term	Aug. 31, 2020
February 2015 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	46,676	46,676
Exercise Price	$ 16.50	$ 16.50
Expiration term	Aug. 31, 2020
June 2014 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	1,690	1,690
Exercise Price	$ 30.90	$ 30.90
Expiration term	Apr. 30, 2018
December 2013 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	388,365	388,365
Exercise Price	$ 46.80	$ 46.80
Expiration term	Dec. 31, 2018
June 2013 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	32,788	32,788
Exercise Price	$ 29.55	$ 29.55
Expiration term	Jun. 30, 2019
May 2013 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	32,788	32,788
Exercise Price	$ 29.55	$ 29.55
Expiration term	May 31, 2019
March 2013 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	18,334	18,334
Exercise Price	$ 29.55	$ 29.55
Expiration term	Mar. 31, 2019
October 2012 [Member]
Shares of Common Stock Issuable from Warrants Outstanding	11,252	11,252
Exercise Price	$ 29.55	$ 29.55
Expiration term	Sep. 30, 2018
April 2011 [Member]
Shares of Common Stock Issuable from Warrants Outstanding		8,746
Exercise Price	$ 321.00	$ 321.00
Expiration term	Apr. 30, 2016

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Commitments and Contingencies (Details Narrative) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2002
Transaction Bonus Plan [Member]
Maximum bonuses payable	$ 1,000		$ 1,000
Maximum bonuses payable, percent	10.00%		10.00%
Litigation [Member] | Settlement Agreement [Member]
Litigation settlement percentage					12.50%
Maximum annual litigation payment					$ 1,500
Minimum quarterly litigation payment					$ 25
Patent expire year					2018
Royalty expenses	$ 25	$ 50	$ 25	$ 50

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Subsequent Events (Details Narrative) - Subsequent Event [Member] - Warrant Repurchase Agreements [Member] $ in Thousands	Jul. 11, 2016 USD ($)
Common stock purchase warrants repurchase agreement, description	On July 11, 2016, we entered into a Common Stock Purchase Warrants Repurchase Agreement (the “Repurchase Agreement”) with the holders (the “Holders”) of our outstanding common stock purchase warrants (the “Warrants”) issued in October 2012, March 2013, May 2013, June 2013, June 2014, February 2015 and April 2015 in connection with our Series A, Series B, Series C and Series E financings.
Repurchase of warrant	$ 459