Note 1 - Overview and Background

3 Months Ended

Mar. 31, 2013

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

1.    OVERVIEW AND BACKGROUND

CombiMatrix Corporation (the “Company,” “we,” “us” and “our”) was originally incorporated in October 1995 as a California corporation and later reincorporated as a Delaware corporation in September 2000.  In December 2002, we merged with and became a wholly owned subsidiary of Acacia Research Corporation (“Acacia”).  In December 2006, we filed a registration statement with the U.S. Securities and Exchange Commission (“SEC”) in order to register our common stock as part of a plan to split-off from Acacia (the “Split-Off”).  On August 15, 2007 (the “Split-Off Date”), the Split-Off was effected and our common stock became publicly traded on the Nasdaq Stock Market (symbol: “CBMX”).  As of the Split-Off Date, we ceased to be a subsidiary of, or affiliated with, Acacia.

Description of the Company

We are a molecular diagnostics company that operates primarily in the field of genetic analysis and molecular diagnostics through our wholly owned subsidiary, CombiMatrix Molecular Diagnostics, Inc. (“CMDX”), located in Irvine, California.  CMDX operates as a diagnostics reference laboratory providing DNA-based clinical diagnostic testing services to physicians, hospitals, clinics and other laboratories in two primary areas: (i) prenatal and postnatal developmental disorders; and (ii) hematology/oncology genomics.  CMDX provides its services primarily through the use of microarray genetic testing, which enables the analysis of genetic anomalies, as well as through other test offerings including fluorescent in-situ hybridization (“FISH”) and G-Band Chromosome analysis.  Our mission is to empower physicians to positively impact patient care through the delivery of innovative molecular diagnostics services.

Reverse Stock Split

On December 4, 2012, 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-ten (the “Reverse Stock Split”), which became effective at the close of business on that day.  As a result, each share of our common stock outstanding as of December 4, 2012 was automatically changed into one-tenth of a share of common stock and each of our Nasdaq-listed warrants outstanding as of December 4, 2012 to purchase a single share of our common stock was automatically changed into a Nasdaq-listed warrant to purchase one-tenth 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 all other outstanding options, warrants and convertible securities were also reduced by a factor of ten as of December 4, 2012.  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.

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, 2012, as reported by us in our Annual Report on Form 10-K filed with the SEC on March 25, 2013.  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, 2013, and results of operations and cash flows for the interim periods presented.  The results of operations for the three months ended March 31, 2013 are not necessarily indicative of the results to be expected for the entire year.

Liquidity and Risks

We have a history of incurring net losses and net operating cash flow deficits.  We are also deploying new technologies and continue to develop new and improve existing commercial diagnostic testing services and related products.  At March 31, 2013, we had cash and cash equivalents of $3.4 million and anticipate that our cash and cash equivalent balances, combined with: (i) the $1.2 million of gross proceeds received on May 6, 2013 and the $1.2 million of gross proceeds expected to be received from the second closing of the recent Series C convertible preferred stock financing consummated on May 6, 2013; and (ii) the $520,000 of proceeds received from exercise of certain common stock warrants subsequent to March 31, 2013, (see Notes 4 and 6) will be sufficient to meet our cash requirements into the second quarter of 2014, assuming stockholders approve the second tranche of the Series C financing at our upcoming annual stockholders’ meeting.  In the event the Series C financing is not approved by stockholders and the second tranche closing does not occur, we believe we can meet our cash requirements into the first quarter of 2014.  However, the uncertainty regarding our ability to execute our business plan beyond this point raises substantial doubt about our ability to continue as a going concern.

In order for us to continue as a going concern beyond the first and second quarters of 2014 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.

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

· market acceptance of our products and services;

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

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

· the availability and cost of capital;

· 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 products 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.