**EXHIBIT99.1**

**RISKFACTORS FROM REGISTRATION STATEMENT**

** DECLARED EFFECTIVE JUNE 8, 2007**

## ***RISKS RELATED TO THE SPLIT OFF***

### ****AFTER THE SEPARATION, WE WILL BE REQUIRED TORAISE CAPITAL ON A STAND-ALONE BASIS, AND WE WILL NOT HAVE THE BENEFIT OFACACIA’S CONSOLIDATED FINANCIAL STRENGTH OR SIZE TO SUPPORT OUR CAPITAL NEEDS.****

Beforethe separation, a substantial portion of our operations was financed by Acacia’ssales of AR-CombiMatrix stock. After the separation, we will be required toraise capital on a stand-alone basis. Although one of the purposes of theseparation is to permit us to achieve what our management believes is the mostappropriate capital structure for our businesses, there can be no assurancethat this will be achieved, and the risk therefore exists that we may not beable to secure adequate debt or equity financing on desirable terms. If futuredevelopments in the capital markets adversely affect the biotechnologyindustry, we will not have the benefit of Acacia’s consolidated financialstrength or size to support our capital needs.

****OURHISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF THE RESULTS OFCOMBIMATRIX CORPORATION AS AN INDEPENDENT ENTITY, AND, THEREFORE, MAY NOT BERELIABLE AS AN INDICATOR OF OUR HISTORICAL OR FUTURE RESULTS.****

Thehistorical financial information included in this document may not reflect whatour results of operations, financial position and cash flows would have beenhad we been an independent entity for the periods presented. Because thefinancial information included in this document reflects allocations forservices provided to the CombiMatrix group by Acacia, these allocations may notreflect the costs we would have incurred for similar or incremental services asan independent entity. In addition, the historical financial informationincluded in this document does not reflect transactions that have occurredsince December 31, 2006, or that are expected to occur in connection with theseparation. This historical financial information also may not be reliable as anindicator of future results.

### ****AFTER THE SEPARATION, OUR COMMON STOCK MAYFAIL TO MEET THE INVESTING GUIDELINES OF INSTITUTIONAL INVESTORS, WHICH MAYNEGATIVELY AFFECT THE PRICE OF OUR COMMON STOCK AND IMPAIR OUR ABILITY TO RAISECAPITAL THROUGH THE SALE OF COMMON STOCK.****

Some ofthe holders of AR-CombiMatrix stock are institutional investors bound byvarious investing guidelines. In some cases companies are selected byinstitutional investors based on factors such as market capitalization,industry, trading liquidity and financial condition. The separation will reduceAcacia’s market capitalization. As a result, our common stock that the holdersof AR-CombiMatrix stock will receive in the separation may not meet theinvesting guidelines of some institutional investors. Consequently, theseinstitutional investors may be required to sell the CombiMatrix Corporationcommon stock that they receive in the separation or the AR-CombiMatrix stockprior to the redemption date. A sufficient number of buyers may not beavailable in the market to absorb these potential sales. Consequently, thestock price of our common stock may fall. Any such decline could impair ourability to raise capital through future sales of common stock.

****AS A RESULT OF THE REDEMPTION OF AR-COMBIMATRIX STOCKFOR THE COMMON STOCK OF COMBIMATRIX CORPORATION, COMBIMATRIX CORPORATION MAY BESUBJECT TO CERTAIN TAX LIABILITY UNDER THE INTERNAL REVENUE CODE.  ****

Thedistribution of our common stock in the redemption will be tax-free to AcaciaResearch Corporation and our company if the distribution qualifies underSections 368 and 355 of the Internal Revenue Code. If the distribution fails toqualify for tax-free treatment under Sections 355 and 368 of the InternalRevenue Code, corporate tax would be payable by the consolidated group of whichwe are a part based upon the difference between the aggregate fair market valueof our common stock at the time of the distribution over Acacia’s tax basis forsuch stock. We estimate such amount of such tax would be zero if the redemptionwere to occur on May 14, 2007, because the tax basis in such stock held byAcacia exceeds the fair market value of our stock.  This could change if the marketcapitalization of AR-CombiMatrix stock increases above approximately $73 million.

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Thecorporate level tax would be payable by Acacia, but in certain circumstances,we may be required to indemnify Acacia for such taxes pursuant to the taxallocation agreement. In addition, under the Internal Revenue Code’sconsolidated return regulations, each member of the Acacia consolidated group,including CombiMatrix Corporation, will be severally liable for these taxliabilities following the redemption. If we are found liable to the IRS, theresulting obligation could materially and adversely affect our financialcondition. We have agreed to indemnify Acacia for this and other taxliabilities if they result from certain actions taken by our company or fromthe redemption (*see* “MaterialU.S. Federal Income Tax Consequences of the Split Off,” beginning on page 22).

Wereceived a private letter ruling from the IRS to the effect that, among otherthings, the redemption would be tax free to Acacia and the holders of AR-AcaciaTechnologies stock and AR-CombiMatrix stock under Sections 368 and 355 of theInternal Revenue Code. The private letter ruling, while binding upon the IRS,was based upon factual representations and assumptions made in the rulingrequest. The IRS could modify or revoke the private letter ruling retroactivelyif the factual representations and assumptions in the request were materiallyincomplete or untrue or the facts upon which the private letter ruling wasbased were materially different from the facts at the time of the redemption.

We havereceived an opinion of counsel to the effect that the distribution will qualifyunder those portions of Sections 355 of the Internal Revenue Code that the IRSdid not rule upon in the private letter ruling (*see* “Material U.S. Federal Income Tax Consequences of theSplit Off,” beginning on page 22). However, in rendering the opinion, counselrelied upon certain representations by us and Acacia.  We are not aware of any facts orcircumstances that would cause any of those representations to be untrue. Nonetheless,if the redemption is taxable to Acacia as a result of representations beinguntrue that relate to an action or omission by CombiMatrix Corporation thatoccurs after the redemption, we must indemnify Acacia for any resultingtax-related liabilities. Likewise, if the redemption is taxable to CombiMatrixCorporation as a result of representations being untrue that relate to anaction or omission by the Acacia that occurs after the redemption, then Acaciamust indemnify us for any resulting tax-related liabilities.

### ****WE MAY NOT BE ABLE TO ENGAGE IN DESIRABLESTRATEGIC TRANSACTIONS AND EQUITY ISSUANCES FOLLOWING THE SEPARATION.****

UnderSection 355(e) of the Internal Revenue Code, Acacia will recognize taxable gainon the separation if there are one or more acquisitions of our stockrepresenting 50% or more of CombiMatrix stock (including either AR-CombiMatrixstock prior to the redemption, or common stock of CombiMatrix Corporationfollowing the redemption) or AR-Acacia Technologies stock, measured by vote orvalue, and the stock acquisitions are found to be part of a plan or series ofrelated transactions that includes the split off from the redemption. Ourability to issue additional equity or engage in other strategic transactionsmay be constrained because the issuance or acquisition of additional capitalstock may cause the separation to be taxable to Acacia, and under the taxallocation agreement we would be required to indemnify Acacia against that tax.For a summary of Section 355(e) of the Internal Revenue Code, see “MaterialFederal Income Tax Consequences of the Split Off” beginning on page 22.

Basedupon the current number of issued and outstanding shares of AR-CombiMatrixstock (59,569,769 shares), if more than 29,784,885 shares of AR-CombiMatrixstock were found to have been transferred or sold as part of a plan thatincludes the split off, then the split off would result in corporate tax toAcacia, and we could be liable to indemnify Acacia for that tax liability.  Based upon the number of shares of AR-AcaciaTechnologies stock (28,712,620 shares) issued and outstanding on May 14, 2007,if more than 14,356,310 shares of AR-Acacia Technologies stock were found tohave been transferred or sold as part of a plan that includes the split off,then the split off would result in corporate tax to Acacia, and we could beliable to indemnify Acacia for that tax liability.  Generally, a transaction occurring more thantwo years before or more than two years after the redemption will not be deemedto be a part of a plan involving the split off. Any transactions occurring within that time period ****generally are presumedto be part of such a plan unless we can rebut that presumption.  We do not believe that any transactionfalling within the two-year period prior to the redemption has violated thisrule. ****

****Ifthe redemption were to have occurred on May 14, 2007, then there would be5,956,977 shares of our common stock issued and outstanding on May 14, 2007(assuming each ten (10) shares of AR-CombiMatrix stock are redeemed for one (1)share of CombiMatrix Stock).  We would berestricted in our ability to issue more than 2,978,489****shares(or 50%) of our common stock within the two years following the redemption, andAcacia would be restricted in its ability to issue more than 14,356,310 sharesof its stock.

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Many ofour competitors are not subject to similar restrictions and may issue theirstock to complete acquisitions, expand their product offerings and speed thedevelopment of new technology. Therefore, these competitors may have a competitive advantage overus.  In addition, substantial uncertaintyexists on the scope of Section 355(e), and we may undertake futuretransactions, which may cause Section 355(e) to apply to the redemption basedupon future IRS interpretations of the scope of Section 355(e) that we cannotanticipate at this time. Accordingly, we cannot be certain that we will not beliable for taxes as a result of the redemption. 

****FOLLOWING THE REDEMPTION OF AR-COMBIMATRIX STOCK FORTHE COMMON STOCK OF COMBIMATRIX CORPORATION, ACACIA RESEARCH CORPORATION ANDCOMBIMATRIX CORPORATION MAY BE SUBJECT TO CERTAIN TAX LIABILITY UNDER THEINTERNAL REVENUE CODE FOR ACTIONS TAKEN BY EITHER OF THEM FOLLOWING THE REDEMPTION.****

****Evenif the distribution qualifies under Section 368 and 355 of the Internal RevenueCode, it will be taxable to Acacia if Section 355(e) of the Internal RevenueCode applies to the distribution. Section 355(e) will apply if 50% or more ofthe AR-Acacia Technologies stock or CombiMatrix Corporation’s common stock, byvote or value, is acquired by one or more persons, other than the holders ofAR-CombiMatrix stock who receive the common stock of CombiMatrix Corporation inthe redemption, acting pursuant to a plan or a series of related transactionsthat includes the redemption (see the immediately preceding risk factor). Anyshares of the AR-Acacia Technologies stock, the AR-CombiMatrix stock or thecommon stock of CombiMatrix Corporation acquired directly or indirectly withintwo years before or after the redemption generally are presumed to be part ofsuch a plan unless we can rebut that presumption. To prevent applicability ofSection 355(e) or to otherwise prevent the distribution from failing to qualifyunder Section 355 of the Internal Revenue Code, CombiMatrix Corporation hasagreed that, until two years after the redemption, it will not take any of thefollowing actions unless prior to taking such action, it has obtained (andprovided to Acacia) a written opinion of tax counsel or a ruling from theInternal Revenue Service to the effect that such action will not cause theredemption to be taxable to Acacia:****

·                  mergeor consolidate with another corporation; 

·                  liquidateor partially liquidate; 

·                  sellor transfer all or substantially all of its assets; 

·                  redeemor repurchase its stock (except in certain limited circumstances); or 

****·********                 ****takeany other action, which could reasonably be expected to cause Section 355(e) toapply to the distribution. 

****ACACIA RESEARCH CORPORATION AND COMBIMATRIXCORPORATION MAY BE REQUIRED TO INDEMNIFY THE OTHER FOR TAX LIABILITY RESULTINGFROM THE REDEMPTION OF AR-COMBIMATRIX STOCK FOR THE COMMON STOCK OF COMBIMATRIXCORPORATION, WHICH MAY INTERFERE WITH BOTH COMPANIES’ ABILITY TO ENGAGE INDESIRABLE STRATEGIC TRANSACTIONS AND ISSUE THEIR EQUITY SECURITIES.****

****IfSection 355(e) applies to the distribution because of some action or omissionby Acacia or by CombiMatrix Corporation after the distribution, then it mustindemnify the other for any resulting tax-related liabilities.****TheCombiMatrix Corporation will have to indemnify Acacia if the redemption becomestaxable to Acacia by failing to qualify under Section 355 of the InternalRevenue Code or from the application of Section 355(e) of the Internal RevenueCode as a result of these or any other transactions that it undertakes afterthe redemption. In the event that CombiMatrix Corporation was liable for suchtaxes, the payment would have a substantial and material adverse effect on itsbusiness, financial position and results of operations. Further, if theredemption becomes taxable to Acacia by failing to qualify under Section 355 ofthe Internal Revenue Code or from the application of Section 355(e) of theInternal Revenue Code as a result of these or any other transactions thatAcacia undertakes before or after the redemption, then Acacia will be liablefor such taxes without recourse against CombiMatrix Corporation.  This obligation may discourage, delay orprevent a merger, change of control, or other strategic or capital raisingtransactions involving our AR-CombiMatrix common stock, our future outstandingequity or our issuance of other equity securities. If we cannot engage inequity financing transactions because of these constraints, we may not be ableto fund the working capital, capital expenditure and research and developmentrequirements, as well as to make other investments. As a result, our businessmay be harmed.

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****COMBIMATRIX AND YOU WOULDHAVE FEDERAL INCOME TAX LIABILITIES IF THE TAX RULING WERE REVOKED.****

Wereceived a private letter ruling from the Internal Revenue Service, or the IRS,addressed to our company and Acacia to the effect that, among other things, thesplit off will be tax free to Acacia and the Acacia stockholders under Section355 of the Internal Revenue Code of 1986. The private letter ruling, whilebinding upon the IRS, is based upon factual representations and assumptionsmade in the ruling request.  If those factualrepresentations and assumptions were incomplete or untrue in any materialrespect, or the facts upon which the private letter ruling is based arematerially different from the facts at the time of the split off, the IRS couldmodify or revoke the private letter ruling retroactively.  We are not aware of any facts orcircumstances that would cause any of those representations to be untrue, nordo we believe the facts upon which the Private Letter Ruling were based arematerially different from the facts we expect to exist at the time of theredemption.

If thesplit off failed to qualify under Section 355 of the Internal Revenue Code,corporate tax would be payable by the consolidated group of which Acacia is thecommon parent based upon the difference between the aggregate fair market valueof our stock and the adjusted tax basis of such stock to Acacia prior to thesplit off.  The corporate level tax wouldbe payable by Acacia.  We have agreed,however, to indemnify Acacia for this and other tax liabilities if they resultfrom certain actions taken by us.  Pleasesee “Relationship Between Acacia and Our Company After the Split Off” for amore detailed discussion of the tax allocation agreement between Acacia andus.  In addition, under the InternalRevenue Code’s consolidated return regulations, each member of the Acaciaconsolidated group, including our company, is severally liable for these taxliabilities. If we are required to indemnify Acacia for these liabilities or weare otherwise found liable to the IRS for these liabilities, the resultingobligation could materially and adversely affect our financial condition.

Additionally,if the split off were not to qualify under Section 355 of the Internal RevenueCode, then each owner of AR-CombiMatrix stock who receives shares of our commonstock in the split off would be treated as if such stockholder received ataxable payment in exchange for his or her AR-CombiMatrix stock.  The payment would be taxable as short-term orlong-term capital gain, provided that the AR-CombiMatrix stock were held by theholder as a capital asset on the date of the payment.  Capital gains are long term if theAR-CombiMatrix stock is held for more than twelve months at the time of thedistribution.  For individuals, themaximum federal income tax rate applicable to long-term capital gains isgenerally 15%.  The amount of capitalgain or loss would equal the difference between the stockholder’s adjusted taxbasis in his AR-CombiMatrix stock and the fair market value of the common stockof our company received by the stockholder on the redemption date.

### ****OUR COMMON STOCK WILL TRADE AS A NEW LISTINGON THE NASDAQ CAPITAL MARKET, AND IF THE PRICE OF OUR STOCK DOES NOT MEET THEMINIMUM REQUIREMENTS FOR STABILIZING ABOVE $4.00 PER SHARE, OUR STOCK MAY BEDELISTED FROM NASDAQ.****

AlthoughAR-CombiMatrix stock is currently traded on Nasdaq, our company will be subjectto the new listing requirements of Nasdaq or another national exchange. As aresult, we have submitted a new listing application for our stock to be tradedon the Nasdaq Capital Market and received notification on May 16, 2007 that ourlisting application had been approved. Our common stock will be subject to the new listing requirements ofNasdaq that include a requirement that the stock initially trade above $4.00 pershare. If the price of our common stock following the redemption does notstabilize at $4.00 or more per share, our stock may be delisted from Nasdaq. Ifwe are delisted from Nasdaq, our stock will likely be traded on theOver-the-Counter Bulletin Board until we are able to meet the listingrequirements of Nasdaq or another national exchange. Failure to maintain amarket for our stock on Nasdaq or another national exchange will likely have anegative impact upon the trading price of our stock.

OnApril 23, 2007, Acacia Research Corporation received a Nasdaq Staff DeficiencyLetter notifying us that their AR-CombiMatrix stock (trading symbol: CBMX) isnot in compliance with the minimum trading price of the Nasdaq Global Marketset forth in Marketplace Rule 4450(a)(5). To regain compliance, the closing trading price of AR-CombiMatrix stockmust be $1.00 or more for ten consecutive trading days.  Should the split off from Acacia not occur,the AR-CombiMatrix stock must regain compliance by October 22, 2007, in orderto maintain the listing of the AR-CombiMatrix common stock.  If the split off from Acacia occurs asplanned, all of the AR-CombiMatrix common stock will be redeemed for shares ofCombiMatrix Corporation common stock (at a redemption ratio of 10-to-1), whichwe intend to be listed separately on Nasdaq.

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### ****OUR SEPARATION AGREEMENTS WITH ACACIA REQUIREUS TO ASSUME THE PAST, PRESENT AND FUTURE LIABILITIES RELATED TO OUR BUSINESSAND MAY BE LESS FAVORABLE TO US THAN IF THEY HAD BEEN NEGOTIATED WITH UNAFFILIATEDTHIRD PARTIES.****

We havenegotiated and entered into our separation agreements with Acacia as a whollyowned subsidiary of Acacia.  Had theseagreements been negotiated with unaffiliated third parties, they might havebeen more favorable to us. Pursuant to these agreements, we have agreed toindemnify Acacia for, among other matters, all past, present and futureliabilities related to our business, and we have assumed these liabilitiesunder the separation agreements.  Thepast, present and future liabilities assumed by our company are the same asthose previously allocated to the CombiMatrix group prior to the split off andreflected in our financial statements included in this report and previouslydisclosed by Acacia Research Corporation in its financial statements for theCombiMatrix group.  Nonetheless, theallocation of assets and liabilities between Acacia and us may not reflect theallocation that would have been reached between two unaffiliated parties.  See Relationship of Acacia Research Corporationand our Company After the Split-off” beginning on page 42.

### **HOLDERS OFTERMINATED AR-COMBIMATRIX STOCK OPTIONS COULD CLAIM THAT THE REDEMPTION WAS NOTA CHANGE IN CONTROL AS DEFINED IN THE STOCK OPTION PLANS, AND AS A RESULT, WEMAY BE REQUIRED TO DEFEND AGAINST CLAIMS.**

TheAcacia board of directors, acting as administrator of the CombiMatrixCorporation 1998 Stock Option Plan, CombiMatrix 2000 Stock Award Plan, and the2002 CombiMatrix Stock Incentive Plan (the “plans”), determined that theredemption will be a “change in control” as defined under the plans and as aresult of the change in control, all the outstanding options under those planswill become fully vested and will terminate on the redemption date, though theoption holders will receive at least 35-days written notice prior to theredemption date and termination of their options. The Acacia board exercisedauthority to make such determination without consent of the optionholders.  If an option holder under aplan claims that the redemption does not constitute a change in control asdefined in the plans, including how that term was defined prior to theamendments described on page 72, then we may be required to defend against suchclaims.  Potential damages would be thedifference between the exercise price under such options and the fair marketvalue of our common stock subsequent to the redemption date, assuming that ourcommon stock will appreciate from current levels and exceed the exercise priceof the options, and also assuming the options would not have expired undertheir original terms.  As of March 31,2007, there were approximately 7.5 million outstanding AR-CombiMatrix stockoptions under the plans with a weighted average exercise price of $5.67, andnone of these options were in the money as of March 31, 2007 or as of the dateof this filing.  While we cannot guarantythat an option holder will not bring a claim, we do not believe that suchclaims are likely, and we do not believe that the potential damages from anysuch claims are significant.

## ***RISKS RELATED TO OUR BUSINESS***

### ****WE WILL NOT BE ABLE TO MEET OUR CASHREQUIREMENTS BEYOND MAY OF 2008 WITHOUT OBTAINING ADDITIONAL CAPITAL FROMEXTERNAL SOURCES, AND IF WE ARE UNABLE TO DO SO, WE MAY NOT BE ABLE TO CONTINUEAS A GOING CONCERN.****

As aresult of our financings in 2006 with Oppenheimer & Co. and CornellCapital, our cash and cash equivalent balances, anticipated cash flows fromoperations and other external sources of available credit would have beensufficient to meet our cash requirements through December 31, 2007. In orderfor us to continue as a going concern beyond this point, we were required toobtain capital from external sources. As a result, the audit opinion on ourconsolidated financial statements for the year ending December 31, 2006,includes a qualifying paragraph regarding our ability to continue as a goingconcern as described in Note 1 to the consolidated financial statementsincluded in this prospectus.  On May 4,2007, Acacia executed a registered direct offering of $5.0 million ofAR-CombiMatrix stock.  We expect that theproceeds from this offering will allow us to meet our cash requirements throughMay 2008.  We will continue to seek additionalcapital.  If external financing sourcesare not available or are inadequate to fund our operations, it could result inreduced revenues and cash flows from the sales of our CustomArray products andservices and/or could jeopardize our ability to launch, market and selladditional products and services necessary to grow and sustain our operationsin order to eventually achieve profitability. You should review the additionalinformation about our liquidity and capital resources in the Management’sDiscussion and Analysis of Financial Condition and Results of Operationssection of this registration statement.

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### ****WE HAVE A HISTORY OF LOSSES AND EXPECT TOINCUR ADDITIONAL LOSSES IN THE FUTURE.****

We havesustained substantial losses since our inception resulting in consolidatedaccumulated net losses of $144.6 million and $146.7 million as of December 31,2006 and March 31, 2007, respectively. We may never become profitable, or if wedo, we may never be able to sustain profitability. We expect to incursignificant research and development, marketing, general and administrativeexpenses. As a result, we expect to incur losses for the foreseeable future.Our consolidated cash and cash equivalents along with short-term investmentstotaled $14.3 million and $10.5 million at December 31, 2006 and March 31,2007, respectively.

Todate, we have relied primarily upon selling equity securities, as well aspayments from strategic partners, to generate the funds needed to finance theimplementation of our business strategies. We cannot assure you that we willnot encounter unforeseen difficulties, including the outside influencesidentified above that may deplete our capital resources more rapidly thananticipated. As a result, our subsidiary companies may be required to obtainadditional financing through bank borrowings, debt or equity financings or otherwise,which would require us to make additional investments or face a dilution of ourequity interests. Any efforts to seek additional funds could be made throughequity, debt or other external financings. Nevertheless, we cannot assure thatadditional funding will be available on favorable terms, if at all. If we failto obtain additional funding when needed for our subsidiary companies andourselves, we may not be able to execute our business plans and our businessmay suffer.

### ****THE CONTINUED DECLINE IN AR-COMBIMATRIX STOCKPRICE COULD RESULT IN A GOODWILL IMPAIRMENT.****

Due tothe recent decline in the AR-CombiMatrix stock, our market value as indicatedby the trading of AR-CombiMatrix stock has approximated our book value at timesduring the fourth quarter of 2006 and the first quarter of 2007.  During April 2007, our market value fellbelow our book value on several trading days, though our market value exceedsour book value by approximately $17.0 million as of May 14, 2007.  Should the AR-CombiMatrix stock continue todecline below its book value and if management concludes that the decline isother than temporary, our goodwill in the amount of $16.9 million as ofDecember 31, 2006 and March 31, 2007, respectively, could be impaired.

### ****BECAUSE OUR BUSINESS OPERATIONS ARE SUBJECTTO MANY UNCONTROLLABLE OUTSIDE INFLUENCES, WE MAY NOT SUCCEED.****

Ourbusiness operations are subject to numerous risks from outside influences,including the following:

·                  **Technological advances may make our semiconductor based array technologyobsolete or less competitive, and as a result, our revenue and the value of ourassets could become obsolete or less competitive.**

Our products and servicesare dependent upon our semiconductor based array technology. The semiconductorbased array technology is an advancement in conventional arrays that are usedfor the same purpose. Current array technologies have revolutionized drugdiscovery and development, and we believe that our array technology providescharacteristics, including flexibility, superior cost metrics, and performance,which address certain needs of the life sciences market which are not addressedby conventional arrays and offers the latest in technological advances in thisarea. Our products and services are substantially dependent upon our ability tooffer the latest in semiconductor based array technology in the SNP genotyping,gene expression profiling and proteomic markets. We believe technologicaladvances of conventional arrays and semiconductor based arrays are currentlybeing developed by our existing competition and potential new competitors inthe market, including Affymetrix, Inc., Agilent Technologies, Inc., AppleraCorporation, Becton, Dickinson and Company, Ciphergen Biosystems, Inc., GeneLogic Inc., Illumina, Inc., Johnson & Johnson, Nanogen, Inc., OrchidBiosciences, Inc., Roche Diagnostics GmbH and Sequenom, Inc. We also expect toface additional competition from new market entrants and consolidation of ourexisting competitors. Many of our competitors have existing strategicrelationships with major pharmaceutical and biotechnology companies, greatercommercial experience and substantially greater financial and personnelresources than we do. We expect new competitors to emerge and the intensity ofcompetition to increase in the future. If these companies are able to offertechnological advances to conventional arrays or semiconductor-based arrays,our products may become less valuable or even obsolete. While we continue toinvest resources in research and development to enhance the technology of ourproducts and services, we cannot provide any assurance that our competitors ornew competitors will not enter the market with the same or similartechnological advances before we are able to do so.

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·                  **New environmental regulation may materially increase the net losses ofour business.**

Our operations involvethe use, transportation, storage and disposal of hazardous substances, and as aresult it is subject to environmental and health and safety laws andregulations. Any changes in these laws and regulations could increase ourcompliance costs, and as a result, could materially increase our net losses.

·                  **Our technologies face uncertain market value.**

Our business includes thefollowing technologies and products, some of which were recently introducedinto the market: CustomArrayTM, DNA Microarray, 12K DNA expression array andrelated products, Design-on-DemandTM Arrays, NanoArrayTM technology and ourBench-Top DNA Microarray Synthesizer for CustomArrayTM. These technologies andproducts have not gained widespread market acceptance, and we cannot provideany assurance that the increase, if any, in market acceptance of thesetechnologies and products will meet or exceed our expectations.  Further, we are currently developing the followingtechnologies and products, some of which have not yet been introduced into themarket: (a) microarray technology for the detection of biological threatagents, (b) molecular diagnostics drug discovery and development using theCustomArray platform, and (c) additional products for the research anddevelopment and diagnostics markets including higher density arrays. The levelof market acceptance of these technologies and products will have a significantimpact upon our results of operations, and we cannot provide any assurance thatthe increase, if any, in market acceptance of these technologies and productswill meet or exceed our expectations.

**·****                 ****We obtain components and raw materials from a limited number ofsources, and the loss or interruption of our supply sources may adverselyimpact our ability to manufacture our products to meet our existing or futuresales targets.**

Substantiallyall of the components and raw materials used in the manufacture of ourproducts, including semiconductors and reagents, are currently provided from alimited number of sources or in some cases from a single source. Although webelieve that alternative sources for those components and raw materials areavailable, any supply interruption in a sole-sourced component or raw materialmight result in up to a several-month production delay and materially harm ourability to manufacture products until a new source of supply, if any, could belocated and qualified. In addition, an uncorrected impurity or supplier’svariation in a raw material, either unknown to us or incompatible with ourmanufacturing process, could have a material adverse effect on our ability tomanufacture products. We may be unable to find a sufficient alternative supplychannel in a reasonable time period, or on commercially reasonable terms, if atall.

·                  **The foregoing outside influences may affect other risk factorsdescribed in this prospectus.**

Any one of the foregoingoutside influences may cause our company to need additional financing to meetthe challenges presented or to compensate for a loss in revenue, and we may notbe able to obtain the needed financing. Further, any one of the foregoingoutside influences affecting our business could make it less likely that wewill be able to gain acceptance of our array technology by researchers in thepharmaceutical, biotechnology and academic communities. See the heading “If ournew and unproven technology is not used by researchers in the pharmaceutical,biotechnology and academic communities, our business will suffer” beginning onpage 16 of this prospectus.

### ****WE MAY HAVE TO ENTER INTO NEW STRATEGICPARTNERSHIPS TO GENERATE REVENUE CONSISTENT WITH OUR OPERATING HISTORY OFWORKING WITH STRATEGIC PARTNERS SUCH AS ROCHE DIAGNOSTICS GMBH.****

InMarch 2004, we completed all phases of our research and development agreementwith Roche Diagnostics GmbH (“****Roche****”).As a result of completing all of our obligations under this agreement and inaccordance with our revenue recognition policies for multiple-elementarrangements, we recognized all previously deferred Roche related contractrevenues totaling $17,302,000 during the first quarter of 2004. To date, wehave relied primarily upon selling equity securities, as well as payments fromstrategic partners, to generate the funds needed to finance the implementationof our business strategies. Prior to 2004, we had been dependent on ourarrangements with Roche and relied upon payments by Roche and other partnersfor a majority of our working capital needs. We intend to enter into additionalstrategic partnerships to develop and commercialize future products. We aredeploying unproven technologies and continue to develop our commercialproducts. There can be no assurance that we will be able to implement ourfuture plans. Our failure to achieve our plans would have a material adverseeffect on our ability to achieve our intended business objectives.

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****WE MAY FAIL TO MEET MARKET EXPECTATIONSBECAUSE OF FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS, WHICH COULD CAUSEOUR STOCK PRICE TO DECLINE.****

Ourrevenues and operating results have fluctuated in the past and may continue tofluctuate significantly from quarter to quarter in the future. It is possiblethat in future periods our revenues could fall below the expectations ofsecurities analysts or investors, which could cause the market price of ourstock to decline. The following are among the factors that could cause ouroperating results to fluctuate significantly from period to period:

**our unpredictable revenuesources, as described below;**

**·****                 ****the nature, pricing and timing of our and ourcompetitors’ products;**

**·****                 ****changes in our and our competitors’ research anddevelopment budgets;**

**·****                 ****expenses related to, and our ability to comply with,governmental regulations of our products and processes; and**

·                  **expenses related** to, and theresults of, patent filings and other proceedings relating to intellectualproperty rights.

We anticipate significantfixed expenses due in part to our need to continue to invest in productdevelopment. We may be unable to adjust our expenditures if revenues in aparticular period fail to meet our expectations, which would harm our operatingresults for that period. As a result of these fluctuations, we believe thatperiod-to-period comparisons of our financial results will not necessarily bemeaningful, and you should not rely on these comparisons as an indication ofour future performance.

### ****OUR REVENUES WILL BE UNPREDICTABLE, AND THISMAY HARM OUR FINANCIAL CONDITION.****

Theamount and timing of revenues that we may realize from our business will beunpredictable because:

**·****                 ****whether our products and services are commercializedand generate revenues depends, in part, on the efforts and timing of ourpotential customers; and**

·                  **our**sales cycles may belengthy*.*

As aresult, our revenues may vary significantly from quarter to quarter, whichcould make our business difficult to manage and cause our quarterly results tobe below market expectations. If this happens, the price of our common stockmay decline significantly.

### ****TECHNOLOGY COMPANY STOCK PRICES AREESPECIALLY VOLATILE, AND THIS VOLATILITY MAY DEPRESS THE PRICE OF OUR STOCK.****

Thestock market has experienced significant price and volume fluctuations, and themarket prices of technology companies, particularly biotechnology companies,has been highly volatile. In addition, our stock has historically experiencedgreater price fluctuations than the biotechnology index of other Nasdaq listedstock. We believe that various factors may cause the market price of our stockto fluctuate, perhaps substantially, including, among others, announcements of:

**·****                 ****our or our competitors’ technological innovations;**

**·****                 ****developments or disputes concerning patents orproprietary rights;**

**·****                 ****supply, manufacturing or distribution disruptions orother similar problems;**

**·****                 ****proposed laws regulating participants in thebiotechnology industry;**

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**·****                 ****developments in relationships with collaborativepartners or customers;**

**·****                 ****our failure to meet or exceed securities analysts’expectations of our financial results; or**

·                  **a change****in financial estimates or securitiesanalysts’ recommendations.

In the past, companiesthat have experienced volatility in the market price of their stock have beenthe objects of securities class action litigation. If our stock was the objectof securities class action litigation, it could result in substantial costs anda diversion of management’s attention and resources, which could materiallyharm the business and financial results of our business.

### ****WE ARE DEPLOYING NEW AND UNPROVENTECHNOLOGIES, WHICH MAKES EVALUATION OF OUR BUSINESS AND PROSPECTS DIFFICULT,AND WE MAY BE FORCED TO CEASE OPERATIONS IF WE DO NOT DEVELOP COMMERCIALLYSUCCESSFUL PRODUCTS.****

We havenot proven our ability to commercialize products on a large scale. In order tosuccessfully commercialize products on a large scale, we will have to makesignificant investments, including investments in research and development andtesting, to demonstrate their technical benefits and cost-effectiveness.Problems frequently encountered in connection with the commercialization ofproducts using new and unproven technologies might limit our ability to developand commercialize our products. For example, our products may be found to beineffective, unreliable or otherwise unsatisfactory to potential customers. Wemay experience unforeseen technical complications in the processes we use todevelop, manufacture, customize or receive orders for our products. Thesecomplications could materially delay or limit the use of products we attempt tocommercialize, substantially increase the anticipated cost of our products orprevent us from implementing our processes at appropriate quality and scalelevels, thereby causing our business to suffer.

### *****WE MAY NEED TO RAISE ADDITIONAL CAPITAL INTHE FUTURE, AND IF ADDITIONAL CAPITAL IS NOT AVAILABLE ON ACCEPTABLE TERMS, WEMAY HAVE TO CURTAIL OR CEASE OPERATIONS.*****

Ourfuture capital requirements will be substantial and will depend on many factorsincluding how quickly we commercialize our products, the progress and scope ofour collaborative and independent research and development projects, the filing,prosecution, enforcement and defense of patent claims and the need to obtainregulatory approval for certain products in the United States or elsewhere.Changes may occur that would cause our available capital resources to beconsumed significantly sooner than we expect.

We maybe unable to raise sufficient additional capital on favorable terms or at all.If we fail to do so, we may have to curtail or cease operations or enter intoagreements requiring us to relinquish rights to certain technologies, productsor markets because we will not have the capital necessary to exploit them.

### ****IF WE DO NOT ENTER INTO SUCCESSFULPARTNERSHIPS AND COLLABORATIONS WITH OTHER COMPANIES, WE MAY NOT BE ABLE TOFULLY DEVELOP OUR TECHNOLOGIES OR PRODUCTS, AND OUR BUSINESS WOULD BE HARMED.****

Sincewe do not possess all of the resources necessary to develop and commercializeproducts that may result from our technologies on a mass scale, we will needeither to grow our sales, marketing and support group or make appropriatearrangements with strategic partners to market, sell and support our products.We believe that we will have to enter into additional strategic partnerships todevelop and commercialize future products. If we do not enter into adequateagreements, or if our existing arrangements or future agreements are notsuccessful, our ability to develop and commercialize products will be impactednegatively, and our revenues will be adversely affected.

### ****WE HAVE LIMITED EXPERIENCE COMMERCIALLYMANUFACTURING, MARKETING OR SELLING ANY OF OUR POTENTIAL PRODUCTS, AND UNLESSWE DEVELOP THESE CAPABILITIES, WE MAY NOT BE SUCCESSFUL.****

Even ifwe are able to develop our products for commercial release on a large-scale, wehave limited experience in manufacturing our products in the volumes that willbe necessary for us to achieve commercial sales and in marketing or selling ourproducts to potential customers. We cannot assure you that we will be able tocommercially produce our products on a timely basis, in sufficient quantitiesor on commercially reasonable terms.

### ****WE FACE INTENSE COMPETITION, AND WE CANNOTASSURE YOU THAT WE WILL BE SUCCESSFUL COMPETING IN THE MARKET.****

Weexpect to compete with companies that design, manufacture and marketinstruments for analysis of genetic variation and function and otherapplications using established sequential and parallel testing technologies. Weare also aware of other biotechnology companies that have or are developingtesting technologies for the SNP genotyping, gene expression profiling and proteomicmarkets. We anticipate that we will face increased competition in the future asnew companies enter the market with new technologies and our competitorsimprove their current products.

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Themarkets for our products are characterized by rapidly changing technology,evolving industry standards, changes in customer needs, emerging competitionand new product introductions. One or more of our competitors may offertechnology superior to ours and render our technology obsolete or uneconomical.Many of our competitors have greater financial and personnel resources and moreexperience in marketing, sales and research and development than we have. Someof our competitors currently offer arrays with greater density than we do andhave rights to intellectual property, such as genomic information orproprietary technology, which provides them with a competitive advantage. If wewere not able to compete successfully, our business and financial conditionwould be materially harmed.

### ****IF OUR NEW AND UNPROVEN TECHNOLOGY IS NOTUSED BY RESEARCHERS IN THE PHARMACEUTICAL, BIOTECHNOLOGY AND ACADEMICCOMMUNITIES, OUR BUSINESS WILL SUFFER.****

Ourproducts may not gain market acceptance. In that event, it is unlikely that ourbusiness will succeed. Biotechnology and pharmaceutical companies and academicresearch centers have historically analyzed genetic variation and functionusing a variety of technologies, and many of them have made significant capitalinvestments in existing technologies. Compared to existing technologies, our technologiesare new and unproven. In order to be successful, our products must meet thecommercial requirements of the biotechnology, pharmaceutical and academiccommunities as tools for the large-scale analysis of genetic variation andfunction. Market acceptance will depend on many factors, including:

·                  thedevelopment of a market for our tools for the analysis of genetic variation andfunction, the study of proteins and other purposes;

·                  thebenefits and cost-effectiveness of our products relative to others available inthe market;

·                  ourability to manufacture products in sufficient quantities with acceptablequality and reliability and at an acceptable cost;

·                  ourability to develop and market additional products and enhancements to existingproducts that are responsive to the changing needs of our customers;

·                  thewillingness and ability of customers to adopt new technologies requiringcapital investments or the reluctance of customers to change technologies inwhich they have made a significant investment; and

·                  thewillingness of customers to transmit test data and permit the CombiMatrix groupto transmit test results over the Internet, which will be a necessary componentof our product and services packages unless customers purchase or license ourequipment for use in their own facilities.

### ****IF THE MARKET FOR ANALYSIS OF GENOMICINFORMATION DOES NOT DEVELOP OR IF GENOMIC INFORMATION IS NOT AVAILABLE TO OURPOTENTIAL CUSTOMERS, OUR BUSINESS WILL NOT SUCCEED.****

We aredesigning our technology primarily for applications in the moleculardiagnostics, biotechnology, pharmaceutical and academic communities. Theusefulness of our technology depends in part upon the availability of genomicdata. We are initially focusing on markets for analysis of genetic variation andfunction. These markets are new and emerging, and they may not develop as weanticipate, or at all. Also, researchers may not seek or be able to convert rawgenomic data into medically valuable information through the analysis ofgenetic variation and function. If genomic data is not available for use by ourcustomers or if our target markets do not emerge in a timely manner, or at all,demand for our products will not develop as we expect, and we may never becomeprofitable.

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### ****IF THIRD-PARTY PAYORS, SUCH AS INSURANCECOMPANIES, MANAGED CARE ORGANIZATIONS AND MEDICARE, DO NOT PROVIDEREIMBURSEMENT FOR OUR PRODUCTS, THEIR COMMERCIAL VIABILITY MAY BE LIMITED.****

Many ofour diagnostic services are new and payors may choose not to reimburse patientsfor such tests.   Each payor makes itsown decision as to whether to establish a policy to reimburse for tests.  If we are unable to garner broad paymentsupport for our tests, we may have to ask patients to pay for teststhemselves.  This may reduce the use andordering of our tests by physicians, and may limit our ability to fully realizethe commercial value of our tests.

### ****OUR PRODUCT DEVELOPMENT EFFORTS MAY BEHINDERED IF WE ARE UNABLE TO GAIN ACCESS TO PATIENTS’ TISSUE AND BLOOD SAMPLES.****

Thedevelopment of our diagnostic products requires access to tissue and bloodsamples from patients who have the diseases we are addressing.  Our clinical development relies on ourability to secure access to these samples, as well as information pertaining totheir associated clinical outcomes. Access to samples can be difficult since itmay involve multiple levels of approval, complex usage rights, privacy rights,among other issues.

### ****IF OUR CURRENT LABORATORY FACILITY BECOMESINOPERABLE OR LOSES CERTIFICATION, WE WILL BE UNABLE TO PERFORM OUR TESTS ANDOUR BUSINESS WILL BE HARMED.****

Ourdiagnostic tests are operated out of our CLIA certified laboratory in Irvine,California.  Currently, we do not have asecond certified laboratory.  Should ouronly laboratory be unable to perform tests, for any reason, our business willbe harmed.

### ****OUR FUTURE SUCCESS DEPENDS ON THE CONTINUEDSERVICE OF OUR ENGINEERING, TECHNICAL AND KEY MANAGEMENT PERSONNEL AND OURABILITY TO IDENTIFY, HIRE AND RETAIN ADDITIONAL ENGINEERING, TECHNICAL AND KEYMANAGEMENT PERSONNEL.****

Thereis intense competition for qualified personnel in our industry, particularlyfor engineers and senior level management. Loss of the services of, or failureto recruit, engineers or other technical and key management personnel could besignificantly detrimental to the group and could adversely affect our businessand operating results. We may not be able to continue to attract and retainengineers or other qualified personnel necessary for the development of ourproducts and business or to replace engineers or other qualified personnel whomay leave the group in the future. Our anticipated growth is expected to placeincreased demands on our resources and likely will require the addition of newmanagement personnel.

### ****THE EXPANSION OF OUR PRODUCT LINES MAYSUBJECT US TO REGULATION BY THE UNITED STATES FOOD AND DRUG ADMINISTRATION ANDFOREIGN REGULATORY AUTHORITIES, WHICH COULD PREVENT OR DELAY OUR INTRODUCTIONOF NEW PRODUCTS.****

If wemanufacture, market or sell any products for any regulated clinical ordiagnostic applications, those products will be subject to extensivegovernmental regulation as medical devices in the United States by the FDA andin other countries by corresponding foreign regulatory authorities. The processof obtaining and maintaining required regulatory clearances and approvals islengthy, expensive and uncertain. Products that we manufacture, market or sellfor research purposes only are not subject to governmental regulations asmedical devices or as analyte specific reagents to aid in disease diagnosis. Webelieve that our success will depend upon commercial sales of improved versionsof products, certain of which cannot be marketed in the United States and otherregulated markets unless and until we obtain clearance or approval from the FDAand our foreign counterparts, as the case may be. Delays or failures inreceiving these approvals may limit our ability to benefit from our newproducts.

### ****AS OUR OPERATIONS EXPAND, OUR COSTS TO COMPLYWITH ENVIRONMENTAL LAWS AND REGULATIONS WILL INCREASE, AND FAILURE TO COMPLYWITH THESE LAWS AND REGULATIONS COULD HARM OUR FINANCIAL RESULTS.****

Ouroperations involve the use, transportation, storage and disposal of hazardoussubstances, and as a result we are subject to environmental and health andsafety laws and regulations. As we expand our operations, our use of hazardoussubstances will increase and lead to additional and more stringentrequirements. 

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Thecost to comply with these and any future environmental and health and safetyregulations could be substantial. In addition, our failure to comply with lawsand regulations, and any releases of hazardous substances into the environmentor at our disposal sites, could expose our group to substantial liability in theform of fines, penalties, remediation costs and other damages, or could lead toa curtailment or shut down of our operations. These types of events, if theyoccur, would adversely impact our financial results.

### ****OUR BUSINESS DEPENDS ON ISSUED AND PENDING PATENTS,AND THE LOSS OF ANY PATENTS OR OUR FAILURE TO SECURE THE ISSUANCE OF PATENTSCOVERING ELEMENTS OF OUR BUSINESS PROCESSES WOULD MATERIALLY HARM OUR BUSINESSAND FINANCIAL CONDITION.****

Oursuccess depends on our ability to protect and exploit our intellectualproperty. We currently have five patents issued in the United States, threepatents issued in Europe, one patent issued in Australia, and 84 patentapplications pending in the United States, Europe and elsewhere. The patentscovering our core technology begin to expire January 5, 2018.

Thepatent application process before the United States Patent and Trademark Officeand other similar agencies in other countries is initially confidential innature. Patent Applications that are filed outside the United States, however,are published approximately eighteen months after filing. Similarly, patentapplications that are filed in the United States will be publishedapproximately eighteen months after filing unless the applicant has opted outof publication and will not file any foreign applications on the sameinvention. Due to the confidential nature of the patent application process, wecannot determine in a timely manner whether patent applications coveringtechnology that competes with our technology have been filed in the UnitedStates or other foreign countries or which, if any, will ultimately issue or begranted as enforceable patents. Considering our patent applications and thoseof others, some of our patent applications may claim compositions, methods oruses that may also be claimed in patent applications filed by others. In someor all of these applications, a determination of priority of inventorship mayneed to be decided in a proceeding before the United States Patent andTrademark Office or a court. In contrast, in foreign jurisdictions, the firstto file on the invention will generally prevail on a priority contest. If weare unsuccessful in these invention ownership proceedings, we could be blockedfrom further developing, commercializing or selling products that fall underthe scope of the claims of the patents that issue to others. Regardless of theultimate outcome, this ownership determination process can be time-consumingand expensive.

### ****ANY INABILITY TO ADEQUATELY PROTECT OURPROPRIETARY TECHNOLOGIES COULD MATERIALLY HARM OUR COMPETITIVE POSITION ANDFINANCIAL RESULTS.****

If wedo not protect our intellectual property adequately, competitors may be able touse our technologies and erode any competitive advantage that we may have. Thelaws of some foreign countries do not protect proprietary rights to the sameextent as the laws of the United States, and many companies have encounteredsignificant problems in protecting their proprietary rights abroad. Theseproblems can be caused by the absence of laws, rules and/or methods fordefending intellectual property rights.

Thepatent positions of companies developing tools for the biotechnology,pharmaceutical and academic communities, including our patent position,generally are uncertain and involve complex legal and factual questions. Wewill be able to protect our proprietary rights from unauthorized use by thirdparties only to the extent that our proprietary technologies are covered byvalid and enforceable patents or are effectively maintained as trade secrets.Our existing patents and any future issued or granted patents we obtain may notbe sufficiently broad in scope to prevent others from practicing ourtechnologies or from developing competing products. There also is a risk thatothers may independently develop similar or alternative technologies or designaround our patented technologies. In addition, others may cause reexaminationof our patents in the United States or may oppose our patents in Europe, eitherof which may result in narrower patent claims or cancellation of some or all ofthe patent claims, or invalidate our patents during enforcement proceedings, orour patents may fail to provide us with any competitive advantage. Enforcingour intellectual property rights may be difficult, costly and time-consumingand ultimately may not be successful.

We alsorely upon trade secret protection of our confidential and proprietaryinformation. While we have taken security measures to protect our proprietaryinformation, these measures may not provide adequate protection for our tradesecrets or other proprietary information. We seek to protect our proprietaryinformation by entering into confidentiality and invention disclosure andtransfer agreements with employees, collaborators and consultants.Nevertheless, employees, collaborators or consultants still may disclose ourproprietary information, and we may not be able to meaningfully protect ourtrade secrets. In addition, others may independently develop substantiallyequivalent proprietary information or techniques or otherwise gain access toour trade secrets.

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****ANY LITIGATION TO PROTECT OUR INTELLECTUALPROPERTY, OR ANY THIRD-PARTY CLAIMS OF INFRINGEMENT, COULD DIVERT SUBSTANTIALTIME AND MONEY FROM OUR BUSINESS AND COULD SHUT DOWN SOME OF OUR OPERATIONS.****

Ourcommercial success depends in part on our non-infringement of the patents orproprietary rights of third parties. Many companies developing technology forthe biotechnology and pharmaceutical industries use litigation aggressively asa strategy to protect and expand the scope of their intellectual propertyrights. Accordingly, third parties may assert that we are employing theirproprietary technology without authorization. In addition, third parties mayclaim that use of our technologies infringes their current or future patents. Wecould incur substantial costs and the attention of our management and technicalpersonnel could be diverted while defending ourselves against any of theseclaims. We may incur the same liabilities in enforcing our patents againstothers. We have not made any provision in our financial plans for potentialintellectual property related litigation, and we may not be able to pursuelitigation as aggressively as competitors with substantially greater financialresources.

Ifparties making infringement claims against us are successful, they may be ableto obtain injunctive or other equitable relief, which effectively could blockour ability to further develop, commercialize and sell products, and couldresult in the award of substantial damages against us. If we are unsuccessfulin protecting and expanding the scope of our intellectual property rights, ourcompetitors may be able to develop, commercialize and sell products thatcompete with us using similar technologies or obtain patents that couldeffectively block our ability to further develop, commercialize and sell ourproducts. In the event of a successful claim of infringement against us, we maybe required to pay substantial damages and either discontinue those aspects ofour business involving the technology upon which we infringed or obtain one ormore licenses from third parties. While we may license additional technology inthe future, we may not be able to obtain these licenses at a reasonable cost,or at all. In that event, we could encounter delays in product introductionswhile we attempt to develop alternative methods or products, and such attemptsmay not be successful. Defense of any lawsuit or failure to obtain any of theselicenses could prevent us from commercializing available products.

### ****WE COULD FACE SUBSTANTIAL LIABILITIES IF WEWERE SUED FOR PRODUCT LIABILITY.****

Productliability claims could be filed, if someone were to allege that our productfailed to perform as claimed. We may also be subject to liability for errors inthe performance of our tests.  Productliability claims could be substantial. Though we believe we carry sufficient liability insurance, defense ofsuch a claim could be time consuming and could result in damages that are notcovered by our insurance.

**A FORMER VICE PRESIDENT OF COMBIMATRIX CORPORATION HAS FILEDA COMPLAINT AGAINST THE COMPANY WITH THE U.S. DEPARTMENT OF LABOR ALLEGING THATHE WAS WRONGFULLY TERMINATED.**

Aformer Vice President of CombiMatrix Corporation, following his termination ofemployment, filed a complaint with the U.S. Department of Labor alleging thathis employment was terminated out of fear the former employee would report theCompany’s failure to disclose certain information to be disclosed to thepublic. See the section titled “Legal Proceedings” on page 42 of thisprospectus. This complaint was filed following a letter to the Board ofDirectors of Acacia Research Corporation containing the same allegations.Following an internal investigation in conjunction with Acacia’s outsidecounsel, Acacia’s Audit Committee was not able to verify any of the allegationsmade by the former employee. Nonetheless, in an abundance of caution, the AuditCommittee engaged an independent counsel to conduct an investigation of theallegations. The Audit Committee concluded that there was no merit to theallegations based upon the findings of independent counsel. Management does notbelieve the allegations have any merit, nor does management believe theresolution of this matter will have any material affect upon the financialstatements or other information included in this prospectus.

### ****BECAUSE WE HAVE A LIMITED OPERATING HISTORYSELLING PRODUCTS AND SERVICES, WE CANNOT ASSURE THAT OUR OPERATIONS WILL BEPROFITABLE.****

Wecommenced operations in 1996 and began commercialization of our CustomArrayplatform in 2004 and accordingly, have a limited operating history generatingrevenues from products and services. In addition, we are still developing ourproduct and service offerings and you should consider our prospects in light ofthe risks, expenses and difficulties frequently encountered by companies withsuch limited operating histories.

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Sincewe have a limited operating history, we cannot assure you that our operationswill be profitable or that we will generate sufficient revenues to meet ourexpenditures and support our activities.

We havesustained substantial losses since our inception. If we continue to incuroperating losses in future periods, we may not have enough money to expand ourbusiness and our subsidiary companies’ businesses in the future.

### ****FAILURE TO EFFECTIVELY MANAGE OUR GROWTHCOULD PLACE STRAINS ON OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES ANDCOULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS.****

Ourgrowth has placed, and is expected to continue to place, a strain on ourmanagerial, operational and financial resources. Further, as our subsidiarycompanies’ businesses grow, we will be required to manage multiplerelationships. Any further growth by us or our subsidiary companies or anincrease in the number of our strategic relationships will increase this strainon our managerial, operational and financial resources. This strain may inhibitour ability to achieve the rapid execution necessary to successfully implementour business plan.

### ****OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TOEXPAND OUR ORGANIZATION TO MATCH THE GROWTH OF OUR SUBSIDIARIES.****

As oursubsidiaries grow, the administrative demands upon our management will grow,and our success will depend upon our ability to meet those demands. Thesedemands include increased accounting, management, legal services, staff supportfor our board of directors, and general office services. We may need to hireadditional qualified personnel to meet these demands, the cost and quality ofwhich is dependent in part upon market factors outside of our control. Further,we will need to effectively manage the training and growth of our staff tomaintain an efficient and effective workforce, and our failure to do so couldadversely affect our business and operating results.

### ****THE AVAILABILITY OF SHARES FOR SALE IN THEFUTURE COULD REDUCE THE MARKET PRICE OF OUR COMMON STOCK.****

In thefuture, we may issue securities to raise cash for acquisitions. We may also payfor interests in additional subsidiary companies by using a combination of cashand our common stock or just our common stock. We may also issue securitiesconvertible into our common stock. Any of these events may dilute yourownership interest in our company and have an adverse impact on the price ofour common stock.

Inaddition, sales of a substantial amount of our common stock in the publicmarket, or the perception that these sales may occur, could reduce the marketprice of our common stock. This could also impair our ability to raiseadditional capital through the sale of our securities.

### ****DELAWARE LAW, OUR CHARTER DOCUMENTS AND THEINDEMNITY PROVISIONS UNDER THE TAX ALLOCATION AGREEMENT CONTAIN PROVISIONS THATCOULD DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER OF COMBIMATRIX CORPORATIONTHAT MIGHT OTHERWISE RESULT IN OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THEMARKET PRICE OF THEIR SHARES.****

Provisionsof Delaware law and our certificate of incorporation and bylaws could make moredifficult the acquisition of our company by means of a tender offer, proxycontest or otherwise, and the removal of incumbent officers and directors.These provisions are discussed fully in the section titled “DelawareAnti-takeover Law and Provisions of Our Restated Certificate of Incorporationand Amended and Restated Bylaws” beginning on page 26, incorporated herein byreference.

Pursuantto the indemnity provisions of the tax allocation agreement between Acacia andthe Company, an acquisition or further issuance of the Company’s equitysecurities that triggers the application of Section 355(e) of the Code mayrequire the Company to indemnify Acacia for the resulting tax.  If the Distribution does not constitute atax-free spin-off under Section 355 of the Code or a tax-free reorganizationunder Section 368 of the Code, either as a result of actions taken inconnection with the distribution or as a result of subsequent acquisitions ofshares of Acacia or Our common stock, then Acacia and/or Acacia shareholdersmay be responsible for payment of U.S. federal income taxes.”

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Theseprovisions could have the effect of delaying, deferring or preventing a changein control of the Company, adversely affect the ability of our stockholders toreceive a premium price for their stock, discourage others from making tenderoffers for the Company’s shares, lower the market price of the Company’s stockor impede the ability of the Company’s stockholders to change the Company’smanagement, even if such changes would be beneficial to these stockholders.

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