UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)

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

For the quarterly period ended ~~September~~June 30, ~~2017~~2020

OR
o
◻	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
~~For the transition period from _______________ to _______________~~

For the transition period from _______________ to _______________

Commission file number: 001-35994

Heat Biologics, Inc.

(Exact ~~name~~Name of ~~registrant~~Registrant as ~~specified~~Specified in ~~its charter)~~Its Charter)


Delaware (State or Other Jurisdiction of Incorporation or Organization)	26-2844103 (I.R.S. Employer Identification No.)

~~801 Capitola~~627 Davis Drive, Suite 400 ~~Durham,~~Morrisville, NC (Address of Principal Executive Offices)	~~27713~~27560 (Zip Code)

(919) 240-7133

(Registrant’s Telephone Number, including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

HTBX

The Nasdaq Stock Market

(The Nasdaq Capital Market)

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 such filing requirements for the past 90 days. Yes þ No o◻

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes þ No o◻

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “~~large~~“large accelerated filer,” “~~accelerated filer” “smaller~~“accelerated filer” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	¨◻	Accelerated filer	¨◻
Non-accelerated filer	¨þ	Smaller reporting company	þ
~~(Do not check if smaller reporting company)~~		Emerging growth company	þ◻

If an emerging growth company indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. þ◻

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

As of ~~November 7, 2017,~~August 4, 2020, there were~~35,788,912~~ 148,560,562 shares of Common Stock, $0.0002 par value per share, outstanding.

Table of Contents

HEAT BIOLOGICS, INC.

TABLE OF CONTENTS


		Page No.

	PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements	12

	Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 (unaudited) and December 31, ~~2016~~2019	12

	Consolidated Statements of Operations and Comprehensive Loss (unaudited) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019	23

	Consolidated Statements of Stockholders’ Equity (unaudited) for the ~~nine~~three and six months ended ~~September~~June 30, ~~201~~2020 and June 30, 20197	34

	Consolidated Statements of Cash Flows (unaudited) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019	46

	Notes to the Consolidated Financial Statements (unaudited)	57

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1725

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2233

Item 4.	Controls and Procedures	2233

	PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	2434

Item 1A.	Risk Factors	2434

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2537

Item 3.	Defaults Upon Senior Securities	2537

Item 4.	Mine Safety Disclosures	2537

Item 5.	Other Information	2538

Item 6.	Exhibits	2539


SIGNATURES		2640

Table of Contents

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

Forward-looking statements are not guarantees of future performance and our actual results could differ materially from the results discussed in the forward-looking statements. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, our ability to raise additional capital to support our clinical development program and other operations, our ability to develop products of commercial value and to identify, discover and obtain rights to additional potential product candidates, our ability to protect and maintain our intellectual property and the ability of our licensors to obtain and maintain patent protection for the technology or products that we license from them, the outcome of research and development activities, our reliance on third-parties, competitive developments, the effect of current and future legislation and regulation and regulatory actions, as well as other risks described more fully in this Quarterly Report on Form 10-Q and our other filings with the Securities and Exchange Commission (the “SEC”). Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified below, under Part II, Item 1A. “Risk Factors” and elsewhere herein and those identified under Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the SEC on March ~~31, 2017.~~30, 2020. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

As a result of these and other factors, we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

NOTE REGARDING COMPANY REFERENCES

Throughout this Quarterly Report on Form 10-Q, “Heat Biologics,” “the Company,” ‘we” and “our” refer to Heat Biologics, Inc.

iTable of Contents

PART I—FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

HEAT BIOLOGICS, INC.

Consolidated Balance Sheets

September 30,
2017

December 31,
2016

(unaudited)

Current Assets





Cash and cash equivalents

$
4,288,627

$
7,842,667

Accounts receivable

1,427

82,305

Prepaid expenses and other current assets

1,935,558

338,049

Total Current Assets

6,225,612

8,263,021

Property and Equipment, net

320,015

359,592

Other Assets

Restricted cash

2,292

101,171

In-process R&D

5,866,000

—

Goodwill

2,189,338

—

Deposits

69,798

69,798

Deferred financing costs

46,340

—

Related party receivable

—

103,017

Total Other Assets

8,173,768

273,986

Total Assets

$
14,719,395

$
8,896,599

Liabilities and Stockholders’ Equity

Current Liabilities

Accounts payable

$
1,214,224

$
290,058

Deferred revenue

938,388

—

Accrued expenses and other liabilities

994,964

1,305,173

Total Current Liabilities

3,147,576

1,595,231

Long Term Liabilities

Other long term liabilities

449,970

461,434

Deferred tax liability

2,111,760

—

Contingent consideration

2,385,000

—

Total Liabilities

8,094,306

2,056,665

Commitments and Contingencies

Stockholders’ Equity

Common stock, $.0002 par value; 50,000,000 shares authorized, 35,788,912 and 26,204,390 shares issued and outstanding at September 30, 2017 (unaudited) and December 31, 2016, respectively

6,841

4,926

Additional paid-in capital

73,871,510

65,868,541

Accumulated deficit

(65,714,314
)

(57,004,655
)
Accumulated other comprehensive loss

(172,973
)

(72,231
)
Total Stockholders’ Equity– Heat Biologics, Inc.

7,991,064

8,796,581

Non-Controlling Interest

(1,365,975
)

(1,956,647
)
Total Stockholders’ Equity

6,625,089

6,839,934

Total Liabilities and Stockholders’ Equity

$
14,719,395

$
8,896,599


June 30,

December 31,

2020

2019

(unaudited)

Current Assets

Cash and cash equivalents

$
20,668,241

$
9,039,887
Short-term investments

26,312,039

5,713,922
Accounts receivable

26,967

34,986
Prepaid expenses and other current assets

593,924

420,328
Total Current Assets

47,601,171

15,209,123

Property and Equipment, net

669,401

559,410

Other Assets




In-process R&D

5,866,000

5,866,000
Goodwill

1,452,338

1,452,338
Operating lease right-of-use asset

2,134,573

2,287,500
Finance lease right-of-use asset

306,643

187,573
Deposits

122,905

394,637
Total Other Assets

9,882,459

10,188,048

Total Assets

$
58,153,031

$
25,956,581

Liabilities and Stockholders' Equity





Current Liabilities




Accounts payable

$
779,642

$
1,503,342
Deferred revenue, current portion

1,915,924

3,410,319
Contingent consideration, current portion

1,531,636

1,124,970
Contingent consideration, related party - current portion

454,364

454,364
Operating lease liability, current portion

228,776

216,832
Finance lease liability, current portion

104,828

49,104
Accrued expenses and other liabilities

1,202,705

1,676,467
Total Current Liabilities

6,217,875

8,435,398

Long Term Liabilities




Other long-term liabilities

22,847

—
Derivative warrant liability

47,939

—
Deferred tax liability

361,911

361,911
Deferred revenue, net of current portion

200,000

200,000
Operating lease liability, net of current portion

1,402,962

1,519,574
Financing lease liability, net of current portion

215,112

142,667
Contingent consideration, net of current portion

1,969,538

1,653,197
Contingent consideration, related party - net of current portion

578,977

485,984
Total Liabilities

11,017,161

12,798,731

Commitments and Contingencies (Note 9 and 13)





Stockholders' Equity




Common stock, $.0002 par value; 250,000,000 shares authorized, 110,023,783 and 33,785,999 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively

22,006

6,757
Additional paid-in capital

163,007,558

118,173,843
Accumulated deficit

(115,344,284)

(104,597,748)
Accumulated other comprehensive income (loss)

28,044

(11,250)
Total Stockholders' Equity - Heat Biologics, Inc.

47,713,324

13,571,602
Non-Controlling Interest

(577,454)

(413,752)
Total Stockholders' Equity

47,135,870

13,157,850

Total Liabilities and Stockholders' Equity

$
58,153,031

$
25,956,581
See Notes to Consolidated Financial Statements

Table of Contents

HEAT BIOLOGICS, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

Three Months Ended,
September 30,

Nine Months Ended,
September 30,

2017

2016

2017

2016

Revenue:

Grant and licensing revenue

$
470,823

$
220,233

$
906,313

$
220,233

Operating expenses:

Research and development

1,823,922

1,693,133

5,788,755

7,127,466

General and administrative

1,188,476

820,574

4,298,072

2,935,030

Total operating expenses

3,012,398

2,513,707

10,086,827

10,062,496

Loss from operations

(2,541,575
)

(2,293,474
)

(9,180,514
)

(9,842,263
)

Interest income

5,629

5,445

17,316

24,400

Other income, net

31,768

734,509

109,211

757,044

Interest expense

—

(110,468
)

—

(370,422
)
Total non-operating income, net

37,397

629,486

126,527

411,022

Net loss

(2,504,178
)

(1,663,988
)

(9,053,987
)

(9,431,241
)
Net loss – non-controlling interest

(203,371
)

(47,042
)

(344,328
)

(329,471
)
Net loss attributable to Heat Biologics, Inc.

$
(2,300,807
)
$
(1,616,946
)

$
(8,709,659
)
$
(9,101,770
)

Net loss per share attributable to Heat Biologics, Inc.—basic and diluted

$
(0.06
)
$
(0.08
)

$
(0.27
)
$
(0.59
)

Weighted-average number of common shares used in net loss per share attributable to common stockholders—basic and diluted

35,786,606

19,420,026

32,695,360

15,371,267

Other comprehensive loss:

Net loss

(2,504,178
)

(1,663,988
)

(9,053,987
)

(9,431,241
)
Unrealized loss on foreign currency translation

(24,707
)

(36,387
)

(100,742
)

(62,961
)
Total other comprehensive loss

(2,528,885
)

(1,700,375
)

(9,154,729
)

(9,494,202
)
Comprehensive loss attributable to non-controlling interest

(203,371
)

(47,042
)

(344,328
)

(329,471
)
Comprehensive loss

$
(2,325,514
)
$
(1,653,333
)

$
(8,810,401
)
$
(9,164,731
)

Three Months Ended

Six Months Ended

June 30,

June 30,


2020

2019

2020

2019
Revenue:

Grant and licensing revenue

$
593,165

$
342,487

$
1,495,045

$
1,043,549

Operating expenses:








Research and development

2,790,797

3,424,141

5,573,303

6,596,388
General and administrative

1,801,674

1,860,459

5,072,222

5,208,060
Change in fair value of contingent consideration

843,000

112,000

816,000

226,290
Total operating expenses

5,435,471

5,396,600

11,461,525

12,030,738

Loss from operations

(4,842,306)

(5,054,113)

(9,966,480)

(10,987,189)

Change in fair value of warrant liability

(24,363)

—

(1,002,073)

—
Investor relations expense

—

—

(66,767)

—
Interest income

56,080

124,793

108,790

275,645
Other income (expense), net

273,771

(15,585)

16,292

(7,264)
Total non-operating income (loss)

305,488

109,208

(943,758)

268,381

Net loss before income taxes

(4,536,818)

(4,944,905)

(10,910,238)

(10,718,808)
Income tax expense

—

—

—

(45,178)
Net loss

(4,536,818)

(4,944,905)

(10,910,238)

(10,763,986)
Net loss - non-controlling interest

(82,388)

(174,035)

(163,702)

(277,640)
Net loss attributable to Heat Biologics, Inc.

$
(4,454,430)

$
(4,770,870)

$
(10,746,536)

$
(10,486,346)

Net loss per share attributable to Heat Biologics, Inc.-








Net loss per share attributable to Heat Biologics, Inc.-basic and diluted

$
(0.05)

$
(0.14)

$
(0.15)

$
(0.32)

Weighted-average number of common shares used in net loss per share attributable to common stockholders-








Weighted-average number of common shares used in net loss per share attributable to Heat Biologics, Inc.—basic and diluted

87,930,846

33,255,724

72,606,461

33,240,529

Comprehensive loss:








Net loss

$
(4,536,818)

$
(4,944,905)

$
(10,910,238)

$
(10,763,986)
Unrealized (loss) gain on foreign currency translation

(179,510)

16,612

39,294

8,423
Total comprehensive loss

(4,716,328)

(4,928,293)

(10,870,944)

(10,755,563)
Comprehensive loss attributable to non-controlling interest

(82,388)

(174,035)

(163,702)

(277,640)
Comprehensive loss - Heat Biologics, Inc.

$
(4,633,940)

$
(4,754,258)

$
(10,707,242)

$
(10,477,923)

See Notes to Consolidated Financial Statements

Table of Contents

HEAT BIOLOGICS INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Accumulated

Other

Total

Common

Accumulated

Comprehensive

Non-Controlling

Stockholders

Stock

APIC

Deficit

Loss

Interest

Equity

Balance at December 31, 2016

$
4,926

$
65,868,541

$
(57,004,655
)
$
(72,231
)
$
(1,956,647
)

$
6,839,934

Public offering, 5,750,000 shares, net of underwriters discounts

1,150

4,181,850

—

—

—

4,183,000

Issuance of common stock, 2,348,580 shares

470

2,462,710

—

—

—

2,463,180

Issuance of common stock for acquisition of Pelican, 1,331,056 shares

266

1,051,734

—

—

—

1,052,000

Acquisition of non-controlling interest of Pelican

—

—

—

—

935,000

935,000

Stock issuance costs

—

(239,617
)

—

—

—

(239,617
)
Stock-based compensation

29

546,292

—

—

—

546,321

Other comprehensive loss

—

—

—

(100,742
)

—

(100,742
)
Net loss

—

—

(8,709,659
)

—

(344,328
)

(9,053,987
)
Balance at September 30, 2017

$
6,841

$
73,871,510

$
(65,714,314
)
$
(172,973
)
$
(1,365,975
)

$
6,625,089

Three Months Ended June 30, 2020

Accumulated

Other

Total

Common

Accumulated

Comprehensive

Non-Controlling

Stockholders'


Stock

APIC

Deficit

Income

Interest

Equity
Balance at March 31, 2020

$
15,627

$
137,692,553

$
(110,889,854)

$
207,554

$
(495,066)

$
26,530,814
ATM raise

6,375

25,564,043

—

—

—

25,570,418
Stock issuance costs

—

(639,826)

—

—

—

(639,826)
Stock-based compensation

—

373,008

—

—

—

373,008
Exercise of warrants

4

17,780

—

—

—

17,784
Other comprehensive loss

—

—

—

(179,510)

—

(179,510)
Net loss

—

—

(4,454,430)

—

(82,388)

(4,536,818)
Balance at June 30, 2020

$
22,006

$
163,007,558

$
(115,344,284)

$
28,044

$
(577,454)

$
47,135,870

Six Months Ended June 30, 2020


Accumulated

Other

Total

Common

Accumulated

Comprehensive

Non-Controlling

Stockholders'


Stock

APIC

Deficit

(Loss) Income

Interest

Equity
Balance at December 31, 2019

$
6,757

$
118,173,843

$
(104,597,748)

$
(11,250)

$
(413,752)

$
13,157,850
January 2020 investment offering, net of underwriters discounts

4,000

4,102,148

—

—

—

4,106,148
ATM raise

8,973

36,989,680

—

—

—

36,998,653
Issuance of common stock from vesting of restricted stock awards

328

(328)

—

—

—

—
Stock Issuance costs

—

(1,092,760)

—

—

—

(1,092,760)
Stock-based compensation

—

1,321,200

—

—

—

1,321,200
Exercise of warrants

1,501

2,740,892

—

—

—

2,742,393
Exchange of warrants

447

772,883

—

—

—

773,330
Other comprehensive income

—

—

—

39,294

—

39,294
Net loss

—

—

(10,746,536)

—

(163,702)

(10,910,238)
Balance at June 30, 2020

$
22,006

$
163,007,558

$
(115,344,284)

$
28,044

$
(577,454)

$
47,135,870

See Notes to Consolidated Financial Statements

Table of Contents

HEAT BIOLOGICS INC.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Three Months Ended June 30, 2019


Accumulated

Other

Total

Common

Accumulated

Comprehensive

Non-Controlling

Stockholders'


Stock

APIC

Deficit

Loss

Interest

Equity
Balance at March 31, 2019

$
6,819

$
116,943,119

$
(90,295,656)

$
(28,093)

$
(150,209)

$
26,475,980
Issuance of common stock

3

18,894

—

—

—

18,897
Exercise of stock options

—

2,122

—

—

—

2,122
Stock-based compensation

—

386,787

—

—

—

386,787
Other comprehensive loss

—

—

—

16,612

—

16,612
Net loss

—

—

(4,770,870)

—

(174,035)

(4,944,905)
Balance at June 30, 2019

$
6,822

$
117,350,922

$
(95,066,526)

$
(11,481)

$
(324,244)

$
21,955,493

Six Months Ended June 30, 2019


Accumulated

Other

Total

Common

Accumulated

Comprehensive

Non-Controlling

Stockholders'


Stock

APIC

Deficit

Loss

Interest

Equity
Balance at December 31, 2018

$
6,499

$
114,883,135

$
(84,580,180)

$
(19,904)

$
(46,604)

$
30,242,946
Issuance of common stock

3

18,894

—

—

—

18,897
Exercise of stock options

—

2,122

—

—

—

2,122
Stock-based compensation

320

2,446,771

—

—

—

2,447,091
Other comprehensive loss

—

—

—

8,423

—

8,423
Net loss

—

—

(10,486,346)

—

(277,640)

(10,763,986)
Balance at June 30, 2019

$
6,822

$
117,350,922

$
(95,066,526)

$
(11,481)

$
(324,244)

$
21,955,493

See Notes to Consolidated Financial Statements

Table of Contents

HEAT BIOLOGICS, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended
	September 30
	2017			2016


							For the Six Months Ended
							June 30,
							2020			2019
Cash Flows from Operating Activities
Net loss	$	(9,053,987	)	$	(9,431,241	)		$	(10,910,238)		$	(10,763,986)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		100,958			98,774
Amortization of deferred financing costs and debt issuance costs		—			77,231
Amortization of held to maturity investment premium		—			32,733
Depreciation and amortization								153,994			122,012
Noncash lease expense								48,259			—
Noncash interest expense								9,316			—
Noncash investor relations expense								66,767			—
Stock-based compensation		546,321			460,505				1,321,200			2,447,091
Change in fair value of common stock warrants								1,002,073			—
Change in fair value of contingent consideration								816,000			226,290
Unrealized gain on investments								(61,013)			(5,588)
Increase (decrease) in cash arising from changes in assets and liabilities:
Accounts receivable		81,185			—				7,903			(49,186)
Prepaid expenses and other current assets		(1,592,084	)		261,700				(174,274)			276,994
Related party receivable		—			(45,000	)
Restricted cash		98,879			—
Deferred financing costs		(46,340	)		—
Accounts payable		4,179			(1,485,735	)			(719,787)			1,004,864
Deferred revenue		938,388			—				(1,494,395)			(1,032,539)
Deferred tax liability								—			45,178
Accrued expenses and other liabilities		(475,350	)		(1,030,413	)			(435,338)			(503,417)
Other long term liabilities		(11,464	)		289,500
Other long-term liabilities								22,847			79,858
Deposits								271,732			(85,065)
Net Cash Used in Operating Activities		(9,409,315	)		(10,771,946	)			(10,074,954)			(8,237,494)


Cash Flows from Investing Activities
Proceeds from maturities of short-term investments		—			6,656,910
Purchase of Pelican, net of cash acquired		(468,801	)		—
Purchase of short-term investments								(24,337,099)			(72,993)
Sale of short-term investments								3,799,995			—
Purchase of property and equipment		(61,382	)		(45,936	)			(211,401)			(45,459)
Net Cash (Used in) Provided by Investing Activities		(530,183	)		6,610,974

Proceeds from disposal of property and equipment								2,168			—
Net Cash Used in Investing Activities								(20,746,337)			(118,452)

Cash Flows from Financing Activities
Proceeds from public offering, net of underwriting discounts		4,183,000			6,287,250
Proceeds from the issuance of common stock, net of commissions		2,463,180			3,027,677
Proceeds from public offering of common stock and warrants, net of issuance costs								6,600,970			—
Proceeds from the issuance of common stock, net of underwriting discounts and commissions								36,998,653			18,897
Proceeds from exercise of stock options								—			2,122
Stock issuance costs		(239,617	)		(387,210	)			(1,092,760)			—
Payments on long term debt		—			(3,919,686	)
Proceeds from exercise of warrants		—			2,773,982
Proceeds from PPP loan								702,000			—
Repayment of PPP loan								(702,000)			—
Repayments on principal of finance lease								(54,969)			—
Net Cash Provided by Financing Activities		6,406,563			7,782,013				42,451,894			21,019


Effect of exchange rate changes on cash and cash equivalents		(21,105	)		(96,361	)			(2,249)			8,882

Net (Decrease) Increase in Cash and Cash Equivalents		(3,554,040	)		3,524,680


Net Change in Cash and Cash Equivalents								11,628,354			(8,326,045)

Cash and Cash Equivalents – Beginning of Period		7,842,667			4,939,955				9,039,887			22,154,251


Cash and Cash Equivalents – End of Period	$	4,288,627		$	8,464,635			$	20,668,241		$	13,828,206

Supplemental Disclosure for Cash Flow Information
Contingent consideration	$	2,385,000		$	—
Issuance of common stock for purchase of Pelican	$	1,052,000		$	—
Interest paid	$	—		$	293,189

Supplemental Disclosure for Cash Flow Information:
Operating lease right-of-use assets obtained with lease liabilities							$	—		$	520,399
Finance lease right-of-use assets obtained with lease liabilities							$	173,822		$	—
Supplemental disclosure of non-cash investing and financing activities:
Allocation of proceeds from public offering to warrant liabilities							$	2,494,823		$	—
Cashless exercise of warrants classified as liabilities							$	2,742,393		$	—
Cashless exchange of warrants classified as liabilities							$	773,330		$	—

See Notes to Consolidated Financial Statements

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HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying ~~unaudited~~ consolidated financial statements ~~included in this Quarterly Report on Form 10-Q~~ have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. ~~However, certain~~Certain information or footnote disclosures normally included in ~~complete~~the annual financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company’s management, ~~the unaudited consolidated~~these financial statements ~~in this Quarterly Report on Form 10-Q~~ include all normal and recurring adjustments necessary for the fair statement of the results for the interim periods presented. The results for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2020 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, ~~2017.~~

2020.

The consolidated financial statements as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016 included in this Quarterly Report on Form 10-Q~~2019 are unaudited. The balance sheet as of December 31, ~~2016~~2019 is derived from the audited consolidated financial statements as of that date. ~~The accompanying unaudited consolidated~~These financial statements should be read in conjunction with the audited consolidated financial statements and related notes, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the SEC on March ~~31, 2017~~30, 2020 (the ~~“2016~~“2019 Annual Report”).

On April 28, 2017, the Company completed the acquisition of an 80% controlling interest in Pelican Therapeutics, Inc. (“Pelican”), a related party prior to acquisition. Operations of Pelican are included in the consolidated statement of operations and comprehensive loss from the acquisition date. In October 2016, the Company formed a wholly-owned subsidiary, Zolovax, Inc. to focus on the development of gp96-based vaccines initially targeting Zika with the ability to target HIV, West Nile dengue and yellow fever, among others.

The accompanying unaudited consolidated financial statements as of and for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019 include the accounts of Heat Biologics, Inc. (“the Company”), and its subsidiaries, Pelican Therapeutics, Inc. (“Pelican”), Heat Biologics I, Inc. (“Heat I”), Heat Biologics III, Inc. (“Heat III”), Heat Biologics IV, Inc. (“Heat IV”), Heat Biologics GmbH, ~~and~~ Heat Biologics Australia Pty Ltd. ~~Additionally,~~, Zolovax, Inc., Skunkworx Bio, Inc. (formerly known as ~~of the three~~Delphi Therapeutics, Inc.) and ~~nine months ended September 30, 2017 the accompanying consolidated financials include Zolovax and Pelican.~~Scorpion Biosciences, Inc. The functional currency of the entities located outside the United States of America (the foreign entities) is the applicable local currency ~~(the~~of the foreign ~~entities).~~entities. Assets and liabilities of the foreign entities are translated at period-end exchange rates. Statement of operations accounts are translated at the average exchange rate during the period. The effects of foreign currency translation adjustments are included in other comprehensive loss, which is a component of accumulated other comprehensive loss in stockholders’ equity. All significant intercompany accounts and transactions have been eliminated in consolidation. At June 30, 2020 and December 31, ~~2016 and September 30, 2017, the Company~~2019, Heat held ~~a 92.5% controlling interest in Heat I and at September 30, 2017, the Company held an 80%~~85% controlling interest in Pelican. ~~All other subsidiaries are wholly owned. For the three and nine months ended September 30, 2017 the Company recognized $38,569 and $165,075 in non-controlling interest for~~ Heat ~~I, respectively and $164,802 and $179,253, respectively in non-controlling interest for Pelican for the same period. The Company~~ accounts for its less than 100% interest ~~in these subsidiaries in the consolidated financial statements~~ in accordance with U.S. GAAP. Accordingly, the Company presents non-controlling ~~interests~~interest as a component of stockholders’ equity on its consolidated balance sheets and reports non-controlling interest net loss under the heading “net loss – non-controlling interest” ~~in the~~on its consolidated statements of operations and comprehensive loss.

Liquidity and Capital Resources

The Company has an accumulated deficit of approximately $115.3 million as of June 30, 2020 and a net loss of approximately $4.5 million for the three months ended June 30, 2020 and has not generated significant operating revenue or positive cash flows from operations. The Company expects to incur significant expenses and continued losses from operations for the foreseeable future. The Company expects its expenses to increase in connection with its ongoing activities, particularly as the Company continues its research and development and advances its clinical trials of, and seeks marketing approval for, its product candidates. In addition, if the Company obtains marketing approval for any of its product candidates, the Company expects to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, the Company will need to obtain substantial additional funding in connection with its continuing operations. Adequate additional financing may not be available to the Company on acceptable terms, or at all. If the Company is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce or eliminate its research and development programs or any future commercialization efforts. To meet its capital needs, the Company intends to continue to consider multiple alternatives, including, but not limited to, additional equity financings such as sales of its common stock under at-the-market offerings, if available, debt financings,

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HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The accompanying consolidated financial statements have been prepared on a going concern basis. The Company has an accumulated deficit of approximately $65.7 million as of September 30, 2017 and a net loss of approximately $9.1 million for the nine months ended September 30, 2017, and has not generated significant revenue or positive cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the financial statements are issued. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty.To meet its capital needs, the Company is considering multiple alternatives, including, but not limited to, additional equity financings, debt financings, partnerships, collaborations and other funding transactions. ~~There can be no assurance that~~This is based on the Company’s current estimates, and the Company could use its available capital resources sooner than it currently expects. The Company is continually evaluating various cost-saving measures considering its cash requirements in order to focus resources on its product candidates. The Company will need to generate significant revenues to achieve profitability, and it may never do so. On April 23, 2020, the Company filed a shelf registration statement on Form S-3 (the "Registration Statement"). Pursuant to the Registration Statement, the Company may offer and sell securities having an aggregate public offering price of up to $150 million. In connection with the filing of the Registration Statement, the Company also entered into an amendment to its sales agreement (“Common Stock Sales Agreement”) with B. Riley FBR, as sales agent, pursuant to which the Company may issue and sell shares of its common stock under an at-the-market (the “ATM”) offering program. Pursuant to the ATM, the Company will ~~be able~~pay B. Riley FBR a commission rate of up to ~~complete~~3.0% of the gross proceeds from the sale of any ~~such transactions on acceptable terms. On April 28, 2017,~~shares of common stock. As of June 30, 2020, the ~~acquisition of an 80% controlling interest~~Company had approximately $47.0 million in ~~Pelican, a related party prior to acquisition, was completed. Pelican has been awarded a $15.2 million grant~~cash, cash equivalents and short-term investments, which it believes is sufficient to fund ~~preclinical~~its operations for at least one year from date of this filing.

With the global spread of the ongoing novel coronavirus (“COVID-19”) pandemic, the Company has implemented business continuity plans designed to address and ~~some clinical activities from~~mitigate the ~~Cancer Prevention~~impact of the COVID-19 pandemic on its employees and Research Institute of Texas (“CPRIT”). The CPRIT grant is subject to customary CPRIT funding conditions. The Company believes the acquisition aligns its strategic focus and strengthens its position in the T-cell activation arena. Ifbusiness. While the Company is ~~unable~~experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, the Company’s business, financial condition, results of operations and growth prospects could be materially adversely affected. In addition, to ~~obtain~~ the ~~necessary capital required to maintain~~extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it ~~will need to pursue a plan to license or sell its assets, seek to be acquired by another entity and/or cease operations.~~may also have the effect of heightening many of the other risks and uncertainties which the Company faces.

~~Revenue Recognition~~

Risk and Uncertainties

The Company’s ~~main source~~future results of ~~revenue is grant revenue related~~operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to ~~a $15.2 million research grant received~~vary materially from ~~CPRIT, covering a three-year period from June 1, 2016 through May 31, 2019. Grant revenue is recognized when qualifying costs~~expectations include, but are ~~incurred~~not limited to, uncertainty of results of clinical trials and ~~there is reasonable assurance that the conditions~~reaching milestones, uncertainty of regulatory approval of the ~~award~~Company’s potential drug candidates, uncertainty of market acceptance of the Company’s products, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers.

In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses. With the global spread of the ongoing COVID-19 pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business. The extent to which the COVID-19 pandemic impacts the Company’s business, the clinical development of the Company’s products, the business of the Company’s suppliers and other commercial partners, the Company’s corporate development objectives and the value of and market for the Company’s common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. The Company’s in human phase 1 trial of HS-130 was subject to an approximate 8 week enrollment pause in April and May 2020 due to lack of personal protection equipment (“PPE”) at a clinical site. The site ceased all non-critical/non-essential patient procedures until PPE supplies were available. Enrollment resumed and no delays in overall development milestones are expected for HS-130.

The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s

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HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties which the Company faces.

Cash and Cash Equivalents

The Company considers all cash and other highly liquid investments with initial maturities from the date of purchase of three months or less to be cash and cash equivalents.

Derivative Financial Instruments

The Company has issued common stock warrants in connection with the execution of certain equity financings. The fair value of the warrants, which were deemed to be derivative instruments, was recorded as a derivative liability under the provisions of ASC Topic 815 Derivatives and Hedging (“ASC 815”) because they are not considered indexed to the Company’s own stock. Subsequently, the liability is adjusted to fair value as of the end of each reporting period and the changes in fair value of derivative liabilities are recorded in the consolidated statements of operations and comprehensive loss under the caption “Change in fair value of warrant liability” See Note 3 for additional information.

The fair value of the warrants, including the warrants issued in connection with the January 2020 common stock offering and recorded as liability, was determined using the Monte Carlo simulation model, deemed to be an appropriate model due to the terms of the warrants issued.

The fair value of warrants was affected by changes in inputs to the Monte Carlo simulation model including the Company’s stock price, expected stock price volatility, the remaining term, and the risk-free interest rate. This model uses Level 3 inputs, including stock price volatility, in the fair value hierarchy established by ASC 820 Fair Value Measurement. At June 30, 2020, the fair value of such warrants was approximately $47.9 thousand, which is classified as a long-term derivative warrant liability on the Company’s consolidated balance sheets.

Short-term Investments

The Company’s short-term investments are equity securities and are carried at their fair value based on quoted market prices. Realized and unrealized gains and losses on equity securities are included in net earnings in the period earned or incurred.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for, but not limited to, useful lives of fixed assets, contingent consideration, valuing warrants, income taxes and stock-based compensation. Actual results may differ from those estimates.

Reclassifications

Certain prior year amounts have been ~~met~~reclassified to conform with current year presentation.

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for ~~collection. Proceeds received prior to~~evaluation by the ~~costs being incurred or~~chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, the ~~conditions~~Company has viewed the operations and managed the business as one segment.

Table of ~~the award being met are recognized as deferred revenue until the services are performed and the conditions of the award are met (see Note 9).~~Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Business Combinations

~~We account~~The Company accounts for acquisitions using the acquisition method of accounting, which requires that all identifiable assets acquired, and liabilities assumed be recorded at their estimated fair values. The excess of the fair value of purchase consideration over the fair values of identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assets acquired and liabilities assumed, management makes significant estimates and assumptions.

Critical estimates in valuing certain intangible assets include but are not limited to future expected cash flows from acquired patented technology. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. ~~Other estimates associated with the accounting for acquisitions may change as additional information becomes available regarding the assets acquired and liabilities assumed (see Note 2).~~

Goodwill and In-Process Research and Development

~~We classify~~The Company classifies intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. ~~We determine~~The Company determines the useful lives of definite-lived intangible assets after considering specific facts and circumstances related to each intangible asset. Factors ~~we consider~~the Company considers when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, and other economic facts; including competition and specific market conditions. Intangible assets that are deemed to have definite lives are amortized, primarily on a straight-line basis, over their estimated useful lives.

Intangible assets that are deemed to have indefinite lives, including goodwill, are reviewed for impairment annually, ~~on the anniversary of the acquisition which will occur April 2018,~~ or more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test for indefinite-lived intangibles, other than goodwill, consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount exceeds the fair value, an impairment charge is recognized in an amount equal to that excess.

Indefinite-lived intangible assets, such as goodwill, are not amortized. The Company ~~will qualitatively test~~tests the carrying amounts of goodwill for recoverability on an annual basis or when events or changes in circumstances indicate evidence a potential impairment exists, using a fair value-based test. Pursuant to ASU 2017-04, the Company must record a goodwill impairment charge if a reporting unit’s carrying value ~~based test.~~exceeds its fair value. No impairment existed at ~~September~~June 30, ~~2017.~~

~~HEAT BIOLOGICS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

2020.

In-process research and development, or IPR&D, assets are considered to be indefinite-lived until the completion or abandonment of the associated research and development projects. IPR&D assets represent the fair value assigned to technologies that ~~we acquire,~~the Company acquires, which at the time of acquisition have not reached technological feasibility and have no alternative future use. During the period that the assets are considered indefinite-lived, they are tested for impairment on an annual basis, or more frequently if ~~we become~~the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the IPR&D assets are less than their carrying amounts. If and when development is complete, which generally occurs upon regulatory approval and the ability to commercialize products associated with the IPR&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives at that point in time. If development is terminated or abandoned, wethe Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair ~~value (see Note 5).~~value.

Contingent Consideration

Consideration paid in a business combination may include potential future payments that are contingent upon the acquired business achieving certain milestones in the future (“contingent consideration”). Contingent consideration liabilities are measured at their estimated fair value as of the date of acquisition, with subsequent changes in fair value recorded in the consolidated statements of operations. The Company estimates the fair value of the contingent consideration as of the acquisition date using the estimated future cash outflows based on ~~theprobability~~the probability of meeting future milestones. The milestone payments will be made upon the achievement of clinical and commercialization milestones as well as single low digit royalty payments and payments upon receipt of sublicensing income. Subsequent to the date of acquisition, ~~we reassess~~the Company reassesses the actual consideration earned and the probability-weighted future earn-out payments at each balance

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HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

sheet date. Any adjustment to the contingent consideration liability will be recorded in the consolidated statements of operations. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in ~~long-term~~current liabilities, with the non-current portion recorded under long term liabilities in the consolidated balance ~~sheets (see Note 2).~~sheets.

Research and Development

Research and development includes costs associated with developmental products not yet approved by the FDA as well as costs associated with bringing developmental products into advanced phase clinical trials as incurred. These costs consist primarily of pre-manufacturing and manufacturing drug costs, clinical trial execution, investigator payments, license fees, salaries, stock-based compensation and related personnel costs. Other costs include fees paid to consultants and outside service providers related to the development of the Company’s product candidates and other expenses relating to the design, development, and testing and enhancement of its product candidates.

Revenue Recognition

The Company earns substantially all its revenue from a research grant from the Cancer Prevention and Research Institute of Texas (CPRIT). The Company’s contract with CPRIT relates to developing a human TNFRSF25 agonist antibody for use in cancer patients through research and development efforts and a noncommercial license from CPRIT-funded research to CPRIT and other government agencies and institutions of higher education in Texas.

CPRIT advances grant funds upon request by the Company consistent with the agreed upon amounts and schedules as provided in the contract. Funds received are reflected in deferred revenue as a liability until revenue is earned. Grant revenue is earned and recognized when qualifying costs are incurred.

Prepaid Expenses and Other Current Assets

The Company’s prepaid expenses and other current assets ~~consists~~consist primarily of the amount paid in advance for ~~cGMP production of our PTX-35 antibody and PTX-15 fusion protein for Pelican, as well as Chemistry Manufacturing and Control (“CMC”) material for our~~manufacturing activities, clinical trial ~~studies for HS-110.~~support, and insurance.

Income Taxes

~~We account~~Income taxes are accounted for ~~income taxes~~ using the asset and liability ~~method,~~method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which ~~requires recognition of~~those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities ~~for the expected future~~of a change in tax ~~consequences of events that have been included~~rates is recognized in income in the ~~financial statements. Under this method, deferred tax assets and liabilities are determined based on~~period that includes the ~~difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates in effect for the year in which the differences are expected to reverse.~~enactment date. Deferred tax assets are reduced by a valuation allowance to the extent that utilization is not presently more likely than not.

Significant Accounting Policies

The significant accounting policies used in preparation of these interim financial statements are disclosed in the ~~Company's Form 10-K,~~2019 Annual Report and have not changed significantly since such filing.

Recently Issued Accounting Pronouncements

In ~~May 2017,~~January 2020, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ~~Accounting Standards Update (“ASU”) 2017-09,~~~~Compensation-Stock Compensation~~ (ASU 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)-Clarifying the Interactions between Topic ~~718~~):~~Scope~~321, Topic 323, and Topic 815 (a consensus of ~~Modification Accounting (ASU 2017-09).~~ ~~This ASU provides that an entity should account~~the Emerging Issues Task Force), which addresses the accounting for the ~~effects~~

Table of a modification unless the fair value, the vesting conditions of the modified award and the classification of the modified award (equity or liability instrument) are the same as the original award immediately before the modification. The provisions of this ASU are effective for years beginning after December 15, 2017, with early adoption permitted. The Company’s early adoption of this standard in the third quarter of 2017 did not have a significant impact to the Company’s consolidated financial statements.Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~In January 2017, the FASB issued ASU No. 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment (Topic 350)~~. This standard eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. This guidance is effective for interimtransition into and annual goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted. This guidance must be applied on a prospective basis. The Company chose to adopt this standard beginning in the third quarter of 2017 and the early adoption of this standard did not have a significant impact to the Company’s consolidated financial statements.

~~In January 2017, the FASB issued ASU No. 2017-01,~~ ~~Business Combinations (Topic 805)~~ to clarify the definition of a business, which is fundamental in the determination of whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses combinations. The updated guidance requires that in order to be considered a business the integrated set of assets and activities acquired must include, at a minimum, an input and process that contribute to the ability to create output. If substantially allout of the ~~fair value of the assets acquired is concentrated in a single identifiable asset or group of similar assets, it is not considered a business,~~equity method and ~~therefore would not be considered a business combination. The update~~measuring certain purchased options and forward contracts to acquire investments. ASU 2020-01 is effective for fiscal years beginning after December 15, ~~2018, and interim periods with fiscal years beginning after December 15, 2019,~~2020, with early adoption permitted.The Company ~~has not determined~~is currently evaluating the expected impact of this standard ~~and~~but does not ~~plan early adoption of this standard.~~expect it to have a material impact on its consolidated financial statements upon adoption.

In ~~March 2016,~~December 2019, the FASB issued ASU ~~No. 2016-09,~~~~Compensation-Stock Compensation~~ (~~Topic 718~~):~~Improvements to Employee Share-Based Payment~~2019-12, Simplifying the Accounting for Income Taxes (ASU ~~2016-09).~~ ~~Under ASU 2016-09,~~2019-12), which simplifies the ~~tax effects of stock compensation will be recognized as~~accounting for income ~~tax expense or benefit~~taxes by removing certain exceptions to the ~~Company’s income statement~~general principles of Topic 740, Income Taxes, and ~~the tax effects~~also improves consistency of exercised or vested awards will be treated as discrete items in the reporting period in which they occur. Along with other income tax cash flows, excess tax benefits will be classified as operating activities,application by clarifying and cash paid by the Company when directly withholding shares for tax withholding purposes will be classified as financing activities. The Company has elected to continue to account for forfeitures when they occur. The adoption ofamending existing guidance. ASU ~~2016-09 did not have a material impact to the Company’s consolidated financial statements.~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~, requiring lessees to recognize for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis, and (2) a right-of-use (“ROU”) asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. The update2019-12 is effective for fiscal years beginning after December 15, ~~2019, and interim periods within fiscal years beginning after December 15, 2020.~~2020, with early adoption permitted. The Company is currently ~~anticipates that~~evaluating the expected impact of this standard but does not expect it to have a material impact on its consolidated financial statements upon ~~adoption of the new standard, ROU assets and lease liabilities will be recognized in amounts that will be immaterial to the consolidated balance sheets.~~adoption.

In ~~May 2014,~~November 2019, the FASB issued ASU No. ~~2014-09,~~ 2019-08, Compensation - Stock Compensation (Topic 718) and Revenue from Contracts with Customers ~~(ASU 2014-09),~~(Topic 606). The guidance identifies, evaluates, and improves areas of GAAP for which ~~requires an entity to recognize~~cost and complexity can be reduced while maintaining or improving the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. In July 2015, the FASB voted to defer the effective dateusefulness of the ~~new standard until fiscal years~~information provided. The amendments in that ASU expanded the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. For entities that have adopted the amendments in Update 2018-07, the updated guidance is effective for annual periods beginning after December 15, ~~2017~~2019. The Company adopted this ASU in the first quarter of 2020 and there was no material effect on the recognition or measurement of revenue in the Company’s financial statements.

In November 2018, the FASB issued ASU 2018-18: Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This ASU, in part, requires that certain transactions with ~~early application permitted~~collaboration partners be excluded from revenue recognized under Topic 606. ASU 2018-18 is effective for fiscal years beginning after December 15, ~~2016.~~2019. The Company ~~will complete its review of the CPRIT contract, the related documentation and the new disclosure requirements~~adopted this ASU in the ~~fourth~~first quarter of ~~2017. The Company anticipates using the modified retrospective method of adoption~~2020 and ~~does not anticipate a~~there was no material effect on the ~~timing and~~recognition or measurement of revenue ~~recognition.~~in the Company’s financial statements.

~~HEAT BIOLOGICS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

2. Acquisition of Pelican Therapeutics

~~On April 28,~~In 2017, the Company consummated the acquisition of 80% of the outstanding equity of Pelican, a related party, and Pelican became a majority owned subsidiary of the Company. ~~Operations~~During the quarter ended March 31, 2018, cash consideration of approximately $300,000 was distributed to the participating Pelican ~~are included~~stockholders and the remainder of approximately $200,000 for certain Pelican liabilities not satisfied was recognized as other income in the ~~consolidated~~ statements of operations and comprehensive loss ~~from~~for the acquisition date. Pelican is a biotechnology company focused on the development and commercialization of monoclonal antibody and fusion protein-based therapies that are designed to activate the immune system.period. In ~~exchange for 80% of the outstanding capital stock of Pelican on a fully diluted basis,~~October 2018, the Company ~~paid~~entered into an agreement with the University of Miami (“UM”) whereby UM exchanged its shares of stock in the Company’s subsidiaries, Heat I, Inc. and Pelican. The stock exchange resulted in the Company increasing its controlling ownership in Pelican from 80% to 85%.

Under the Pelican Stockholders that executed the Stock Purchase Agreement (the “Participating Pelican Stockholders”) an aggregate of $0.5 million (the “Cash Consideration”), and issued to the Participating Pelican Stockholders 1,331,056 shares of the Company’s restricted common stock representing 4.99% of the outstanding shares of our common stock on the date of the initial execution of the Purchase Agreement (the “Stock Consideration”). The Cash Consideration will be reduced by the amount by which certain of Pelican’s accrued liabilities are not satisfied for less than $0.25 million. The Cash Consideration and Stock Consideration are being held in escrow for a period of up to six months to secure certain indemnification and other obligations of Pelican and the Participating Pelican Stockholders in connection with the acquisition.

~~Under the~~acquisition agreement, the Company is also obligated to make future payments based on the achievement of certain clinical and commercialization milestones, as well as low single digit royalty payments and payments upon receipt of sublicensing ~~income:~~

~~(1)~~

~~$2,000,000 upon Pelican’s dosing of the first patient in its first Phase 1 trial for an oncology indication;~~

~~(2)~~

~~$1,500,000 upon Pelican’s dosing of the first patient in its first Phase 2 trial for an oncology indication;~~

~~(3)~~

~~$3,000,000 upon successful outcome of the first Phase 2 trial for an oncology indication;~~

~~(4)~~

~~$6,000,000 upon Pelican’s dosing of the first patient in its first Phase 3 trial for an oncology indication;~~

~~(5)~~

~~$3,000,000 upon Pelican’s dosing of the first patient in its first Phase 3 trial for a non- oncology indication;~~

~~(6)~~

~~$7,500,000 upon successful outcome of the first Phase 3 trial for an oncology indication;~~

~~(7)~~

~~$3,000,000 upon successful outcome of the first Phase 3 trial for a non-oncology indication;~~

~~(8)~~

~~$7,500,000 upon acceptance of a Biologics License Application (BLA) submission for an oncology indication;~~

~~(9)~~

~~$3,000,000 upon acceptance of a BLA submission for a non-oncology indication;~~

~~(10)~~

~~$7,500,000 upon first product indication approval in the United States or Europe for an oncology indication;~~

~~(11)~~

~~$3,000,000 upon first product indication approval in the United States or Europe for a non-oncology indication.~~

income. The fair value of these future milestone payments ~~are~~is reflected in the contingent consideration account under current liabilities with the non-current portion under long term liabilities on the balance sheet. The estimated fair value of the contingent consideration was determined using a probability-weighted income approach, at a discount of ~~7.68%~~8.87% based on the median yield of publicly traded non-investment grade debt of companies in the pharmaceutical industry.The Company ~~performs an analysis on a quarterly basis and as of September 30, 2017,~~estimates the ~~Company determined the change in the estimated~~ fair value of the contingent consideration ~~during~~on a quarterly basis. At the ~~quarter was nominal.~~

~~We have recorded the assets purchased and liabilities assumed at their estimated fair value in accordance with FASB ASC Topic 805:~~ ~~Business Combinations~~~~. The purchase price exceeded the fair value~~time of the ~~net assets acquired resulting in goodwill of approximately $2.2 million. The identifiable indefinite-lived intangible asset consists of in-process R&D of approximately $5.9 million.The estimated fair value~~Pelican acquisition, the Company’s CEO and certain affiliated entities as well as two of the ~~IPR&D was determined using~~Company’s directors and certain affiliated entities directly or indirectly owned shares of Pelican common stock purchased by the Company. As a ~~probability-weighted income approach, which discounts expected future cash flows~~result, approximately 20.4% of any such milestone payments will be paid to ~~present value. The projected cash flows were based on certain key assumptions, including estimates of future revenue~~the Company’s CEO, 2.0% to Edward B. Smith, and ~~expenses, taking into account~~0.3% to John Monahan. On June 22, 2020, we achieved the ~~stage of development of~~first milestone when we dosed the ~~technology at the acquisition date and the time and resources needed to complete development. The Company utilized corporate bond yield data observed~~first patient in the ~~bond market to develop the discount rate utilized in the cash flows that have been probability adjusted to reflect the risks~~first Phase 1 clinical trial of ~~product commercialization, which the Company believes are appropriate and representative~~PTX-35.

Table of ~~market participant assumptions.~~Operations of the acquired entity are included in the consolidated statements of operations from the acquisition date. Fees and expenses associated with the acquisition were approximately $0.6 million for the nine months ended September 30, 2017 and are reported in our general and administrative expense.Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~The purchase price has been allocated to the assets and liabilities as follows:~~

Aggregate consideration:

Cash consideration

$
500,000

Stock consideration

$
1,052,000

Contingent consideration

$
2,385,000

Total Consideration

$
3,937,000

Purchase price allocation:

Cash acquired

$
31,199

In-process R&D

$
5,866,000

Goodwill

$
2,189,338

Deferred tax liability

$
(2,111,760
)
Net liabilities assumed

$
(1,102,777
)
Fair value of non-controlling interest

$
(935,000
)
Total purchase price

$
3,937,000

The purchase price allocation presented herein is preliminary. The final purchase price allocation will be determined after completion of an analysis to determine the fair value of all assets acquired and liabilities assumed, but in no event later than one year following completion of the Pelican acquisition. Accordingly, the deferred tax liability is an estimate and final deferred tax liability adjustments could differ materially from the preliminary amounts presented herein. Any increase or decrease in the in-process R&D asset, as compared to the information shown herein, could also change the portion of purchase price allocated to goodwill, and could impact the operating results of the Company following the acquisition due to differences in purchase price allocation and amortization related to some of these assets and liabilities.

Goodwill iswas calculated as the difference between the acquisition-date fair value of the consideration transferred and the fair values of the assets acquired and liabilities assumed. The goodwill resulting from this acquisition ~~arises~~related largely ~~from~~to synergies expected from combining the operations. The goodwill is not deductible for income tax purposes.

In-process R&D assets are treated as indefinite-lived until the completion or abandonment of the associated R&D program, at which time the appropriate useful lives will be determined.

The Company calculated the fair value of the non-controlling interest acquired in the acquisition as 20% of the equity interest of Pelican, adjusted for a minority interest discount.

As discussed in Note 10, in May 2016, Pelican ~~has contributed net revenue and net loss~~was awarded a $15.2 million CPRIT Grant from CPRIT for development of $0.9 million and $0.1 million, respectively, which are included in the Company’s consolidated statement of operations for the nine months ended September 30, 2017, and exclude acquisition and integration related expenses which are included in non-recurring and acquisition-related costs.

~~HEAT BIOLOGICS, INC.~~

~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Pelican’s lead product candidate, PTX-35. The following unaudited pro forma information presents the combined results of operations for the nine months ended September 30, 2017 and 2016, as if we had completed the Pelican acquisition at the beginning of fiscal 2016. The pro forma financial informationCPRIT Grant is provided for comparative purposes only and is not necessarily indicative of what actual results would have been had the acquisition occurred on the date indicated, nor does it give effect to synergies, cost savings, fair market value adjustments, immaterial amortization expense and other changes expected to ~~result from the acquisition. Accordingly, the pro forma financial results do not purport~~support Pelican in developing PTX-35 through a Phase 1 clinical trial designed to ~~be indicative of consolidated results of operations as of the date hereof, for any period ended on the date hereof, or for any~~evaluate PTX-35 in combination with other ~~future date or period.~~immunotherapies.

~~In thousands:~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Revenue

$
471

$
220

$
906

$
220

Net loss

(2,504
)

(2,111
)

(9,445
)

(10,162
)
Net loss: Non-controlling interest

(203
)

(136
)

(423
)

(476
)
Net loss attributable to Heat Biologics, Inc.

$
(2,301
)
$
(1,975
)

$
(9,022
)

$
(9,686
)

Net loss per share attributable to Heat Biologics, Inc.—basic and diluted

$
(0.06
)
$
(0.10
)

$
(0.29
)

$
(0.61
)

3. Fair Value of Financial Instruments

The carrying amount of certain of the Company’s financial instruments, including cash and cash equivalents, ~~restricted cash, related party~~accounts receivable, accounts payable and accrued expenses and other payables approximate fair value due to their short maturities.

As a basis for determining the fair value of certain of the Company’s financial instruments, the Company utilizes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level I – Observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level II – Observable inputs, other than Level I prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level III – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The ~~Company's~~Company’s assessment of the significance of a particular input to the entire fair value measurement requires management to make judgments and consider factors specific to the asset or liability. The ~~Company's~~changes in the fair value of liability classified warrants are included in net loss for the respective periods. Because some of the inputs to our valuation model are either not observable or are not derived principally from or corroborated by observable market data by correlation or other means, the warrant liability is classified as Level 3 in the fair value hierarchy. The Company’s cash equivalents are classified within Level I of the fair value hierarchy.

~~The following table provides a rollforward~~As June 30, 2020 and December 31, 2019, the fair values of cash, accounts payable, and accrued expenses approximated their carrying values because of the short-term nature of these assets or liabilities. The Company’s short-term investments consist of Level 3I securities which are comprised of highly liquid money market funds. The estimated fair value ~~measurements:~~of the short-term investments was based on quoted market prices. There were no transfers between fair value hierarchy levels during the quarters ended June 30, 2020 or 2019.

In January 2020, the Company issued warrants in connection with the public offering of common stock (the “January 2020 Warrants”). Pursuant to the terms of the warrants, the warrants are not considered indexed to the Company’s own stock and therefore are required to be measured at fair value and reported as a liability in the consolidated balance sheets. Additionally, upon the closing of the January 2020 offering, 3,357,166 warrants were required to be classified as a liability. The fair value of the warrant liability is based on the Monte Carlo methodology. The Company is required to revalue the warrants at each reporting date with any changes in fair value recorded on our consolidated statement of operations and

Contingent Consideration

Balance at December 31, 2016

$
—

Acquisition of Pelican

2,385,000

Change in fair value

—

Balance at September 30, 2017

$
2,385,000

Table of Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

comprehensive loss. The valuation of the warrants is classified under Level 3 of the fair value hierarchy due to the need to use assumptions in the valuation that are both significant to the fair value measurement and unobservable. In order to calculate the fair value of the warrants, certain assumptions were made, including the selling price or fair market value of the underlying common stock, risk-free interest rate, volatility, and remaining life. Changes to the assumptions could cause significant adjustments to valuation. The Company estimated a volatility factor utilizing a weighted average of comparable published betas of peer companies. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for treasury securities of similar maturity.

The Black Scholes model was used to value these warrants before the reclassification and the Monte Carlo simulation was used to value the warrants after reclassification. The following weighted average assumptions were used:

January 21, 2020
Current stock price

$
0.33

Estimated volatility of future stock price

124
%
Risk free interest rate

1.53
%
Expected term

3.7
years

During the six months ended June 30, 2020, 3,291,666 warrants were exchanged for 2,238,332 shares of common stock. As of June 30, 2020, there were a total of 73,000 warrants outstanding that were reported as a liability in the consolidated balance sheet.

The fair value of financial instruments measured on a recurring basis is as follows:

As of June 30, 2020
Description

Total

Level 1

Level 2

Level 3
Assets:

Short-term investments

$
26,312,039

$
26,312,039

—

—
Liabilities:








Contingent consideration

$
4,534,515

—

—

$
4,534,515
Warrant liability

$
47,939

—

—

$
47,939

As of December 31, 2019
Description

Total


Level 1

Level 2

Level 3
Assets:

Short-term investments

$
5,713,922

$
5,713,922

—

—
Liabilities:








Contingent consideration

$
3,718,515

—

—

$
3,718,515

Table of Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the change in fair value, as determined by Level 3 inputs, for all assets and liabilities using unobservable Level 3 inputs for the six months ended June 30, 2020:

Contingent

Warrant

Consideration

Liability
Balance at December 31, 2019

$
3,718,515

$
—
Fair value at issuance

—

2,494,823
Reclassification of warrants from equity to liability due to modification

—

869,078
Reclassification of warrant liability to equity upon exercise of warrants

—

(2,742,393)
Reclassification of warrant liability to equity upon exchange of warrants

—

(1,575,642)
Change in fair value

816,000

1,002,073
Balance at June 30, 2020

$
4,534,515

$
47,939

The change in the fair value of the contingent consideration for the six months ended June 30, 2020 was primarily due to the increase in the estimated probability of achieving the initial milestone, a change in discount rate and the passage of time on the fair value measurement. The change in fair value of the warrant liability for the six months ended June 30, 2020 was primarily due to increases in the fair value of the underlying stock. Adjustments associated with the change in fair value of contingent consideration and warrant liability are included in the Company’s consolidated statement of operations and comprehensive loss.

The following table presents quantitative information about the inputs and valuation methodologies used for the Company’s fair value measurements of contingent consideration classified as Level 3 as of June 30, 2020:


	As of June 30, 2020
	Valuation	Significant	Weighted Average
	Methodology	Unobservable Input	(range, if applicable)

Contingent Consideration	Probability weighted income approach	Milestone dates	2020-2031
		Discount rate	8.87%
		Probability of occurrence	2.6% to 100%

The following table presents quantitative information about the inputs used in the Monte Carlo simulation for the Company’s fair value measurement of the warrant liability classified as Level 3 as of June 30, 2020:

June 30, 2020
Current stock price

$
0.84

Estimated volatility of future stock price

223.90
%
Risk free interest rate

0.18
%
Contractual term

0.73
years

The Company measures certain non-financial assets on a non-recurring basis, including goodwill and in-process R&D. As a result of those measurements, during the year ended December 31, 2019, goodwill with a total carrying value of $2.2 million was written down to its estimated fair value of $1.5 million and an impairment charge of $0.7 million was recorded. The Company uses a present value technique to estimate the fair value of these assets. This analysis requires significant judgments, including primarily the estimation of future development costs, the probability of success in various phases of its development programs, potential post-launch cash flows and a risk-adjusted weighted average cost of capital.

Table of Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Short-Term Investments

Short-term investments consist of equity securities with a maturity of greater than three months when acquired. The Company holds its securities at fair value as of June 30, 2020 and December 31, 2019. Unrealized gains and losses on securities are reported in the statement of operations and comprehensive loss. Short-term investments at June 30, 2020 and December 31, 2019 consisted of mutual funds with fair values of $26.3 million and $5.7 million, respectively.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following at:

June 30,

December 31,

2020

2019
Prepaid manufacturing expense

$
367,262

$
148,156
Prepaid insurance

11,905

120,851
Other prepaid expenses and current assets

214,757

132,162
Other current assets

—

19,159

$
593,924

$
420,328

6. Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives, ranging generally from five to seven years. Expenditures for maintenance and repairs are charged to expense as incurred.

Property and equipment ~~consisted~~consist of the ~~following:~~following at:


	September 30 2017			December 31, 2016


							June 30,			December 31,
							2020			2019
Lab equipment							$	1,496,969		$	1,311,853
Computers								62,380			53,065
Furniture and fixtures	$	55,883		$	55,883				62,747			50,453
Computers		41,333			38,903
Lab equipment		645,431			587,366

Leasehold improvements								17,403			14,259

Total		742,647			682,152				1,639,499			1,429,630
Accumulated depreciation		(422,632	)		(322,560	)			(970,098)			(870,220)


Property and equipment, net	$	320,015		$	359,592			$	669,401		$	559,410

Depreciation expense was ~~$100,958~~$56,670 and ~~$98,774~~$99,242 for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2020, respectively, and ~~2016,~~$54,826 and $122,012 for the three and six months ended June 30, 2019, respectively.

5.7. Goodwill and ~~In-process~~In-Process R&D

AsGoodwill of ~~September 30, 2017, and December 31, 2016, the Company had goodwill of approximately~~ $2.2 million and ~~$0, respectively. Based upon~~in-process R&D of $5.9 million were recorded in connection with the ~~results~~acquisition of ~~qualitative testing,~~Pelican, as described in Note 2. The Company performs an annual impairment test at the reporting unit level as of April 1^st of each fiscal year. As of April 1, 2020, the Company ~~will conclude~~qualitatively assessed whether it is more likely than not that the respective fair value of the ~~Company’s goodwill are in excess of~~reporting unit is less than its carrying ~~value or if an impairment has occurred.~~amount, including goodwill. Based on that assessment, the Company

AsTable of September 30, 2017, and December 31, 2016, the Company had in-process R&D of approximately $5.9 million and $0, respectively. Acquired in-process R&D is stated at cost and may be immediately expensed if there is no alternative future use. Otherwise, the acquired in-process R&D is reviewed annually for impairment or more frequently as changes in circumstances or the occurrence of events suggest that the remaining value may not be recoverable.Contents

~~6. Accrued Expenses and other payables~~

~~Accrued expenses and other payables consist of the following:~~

September 30,
2017

December 31,
2016

Accrued clinical trial and other expenses

$
811,728

$
580,218

Compensation and related benefits

34,160

642,532

Deferred rent

31,775

42,423

Patent fees

35,000

40,000

Other expenses related to Pelican acquisition

82,301

—

$
994,964

$
1,305,173

The decrease of compensation and related benefits was related to 2016 employee bonuses which were accrued at December 31, 2016 but subsequently paid in January 2017. The increase of clinical trial and other expenses is due to the continued patient enrollment as the Company advances into Phase 2 of our HS-110 multi-arm trial.

12

HEAT BIOLOGICS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

determined that this condition does not exist. As such, performing the first step of the two-step test impairment test was unnecessary. No impairment was recorded during the quarter ended June 30, 2020.

~~7. Stock-Based Compensation~~However, during the year ended December 31, 2019, the Company experienced a sustained decline in the quoted market price of the Company’s common stock and as a result the Company determined that as of December 31, 2019 it was more likely than not that the carrying value of these acquired intangibles exceeded their estimated fair value. Accordingly, the Company performed an interim impairment analysis as of that date using the income approach. This analysis required significant judgments, including primarily the estimation of future development costs, the probability of success in various phases of its development programs, potential post-launch cash flows and a risk-adjusted weighted average cost of capital. Pursuant to ASU 2017-04, the Company recorded a goodwill impairment charge for the excess of the reporting unit’s carrying value over its fair value. During the year ended December 31, 2019, goodwill with a total carrying value of $2.2 million was written down to its estimated fair value of $1.5 million and an impairment charge of $0.7 million was recorded.

~~Common Stock Warrants~~8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following:

~~In connection with~~

June 30,

December 31,

2020

2019
Accrued clinical trial expenses

$
447,674

$
1,156,618
Compensation and related benefits

183,498

303,870
Other expenses

571,533

215,979

$
1,202,705

$
1,676,467

9. Stockholders’ Equity

Underwritten Registered Offering

On January 21, 2020, the ~~March 23, 2016~~Company closed on a public offering ~~the Company issued warrants to purchase 6,825,000~~consisting of 20,000,000 shares of common stock together with ~~an exercise price~~Warrants to purchase 10,000,000 shares of ~~$1.00 per share and expire five years from the issuance date. In connection with the Company’s July 23, 2013 initial public offering,~~common stock. The gross proceeds to the Company ~~issued~~from this offering were approximately $7,000,000, before deducting underwriting discounts, commissions, and other offering expenses.

The Company has accounted for the warrants as liabilities and recorded them at fair value in our consolidated balance sheets (see Note 3).

At-The-Market-Offering

From January 1, 2020 to June 30, 2020 the ~~underwriters for 125,000~~Company sold approximately 44,864,076 shares of common stock ~~issuable~~under the Common Stock Sales Agreement, as applicable, at ~~$12.50~~an average price of approximately $0.82 per share, ~~upon exercise and expire five years from~~raising aggregate net proceeds of approximately $36,072,869 after deducting an aggregate commission of approximately 3%.

Common Stock Warrants

During the ~~issuance date. On March 10, 2011, the Company issued~~six months ended June 30, 2020, 9,992,500 January 2020 warrants ~~to purchase~~were exercised for 7,494,375 shares of common stock, ~~to third parties in consideration for a private equity placement transaction of which 17,392 warrants remain outstanding. The warrants have an exercise price of $0.48 per share~~ and ~~expire ten years from the issuance date. During the nine months ended September 30, 2017 and 2016 no~~3,291,666 previously outstanding warrants were ~~exercised.~~exchanged for 2,238,332 shares of common stock. As of ~~September~~June 30, ~~2017,~~2020, the Company has outstanding warrants to purchase ~~2,961,571~~5,746,564 shares of common stock issuable at ~~$1.00~~a weighted-average exercise price of $2.04 per ~~share; warrants~~share.

Table of Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes the warrant activity of the Company’s common stock warrants.


		Common Stock
		Warrants
Outstanding, December 31, 2019		9,030,730
Issued		10,000,000
Exercised		(9,992,500)
Exchanged		(3,291,666)
Outstanding, June 30, 2020		5,746,564

Equity Compensation Plans

The Company maintains various equity compensation plans with substantially similar provisions under which it may award employees, directors and consultants incentive and non-qualified stock options, restricted stock, stock appreciation rights and other stock based awards with terms established by the Compensation Committee of the Board of Directors which has been appointed by the Board of Directors to administer the plans. In July 2019, the Company’s shareholders approved an increase of 4,000,000 shares in the number of shares available for grant. At the 2020 Special Meeting of Stockholders, the stockholders approved an amendment to the Plan to increase the number of shares by 4,000,000. As of June 30, 2020, there were 2,310,884 shares remaining available for grant under these plans.

Accounting for Stock-Based Compensation:

Stock Compensation Expense - For the three and six months ended June 30, 2020, the Company recorded $0.4 million, and $1.3 million of stock-based compensation expense, respectively. For the three and six months ended June 30, 2019, the Company recorded $0.4 million, and $2.4 million of stock-based compensation expense respectively. No compensation expense of employees with stock awards was capitalized during the three and six months ended June 30, 2020 and 2019.

Stock Options - Under the Plan, the Company has issued stock options. A stock option granted gives the holder the right, but not the obligation to purchase ~~125,000~~a certain number of shares at a predetermined price for a specific period of ~~common stock issuable at $12.50 per share;~~time. The Company typically issues options that vest over four years in equal installments beginning on the first anniversary of the date of grant. Under the terms of the Plan, the contractual life of the option grants may not exceed ten years. During the six months ended June 30, 2020 and ~~warrants to purchase 17,392 shares~~2019, the Company issued options that expire ten years from the date of ~~common stock issuable at $0.48 per share. These warrants do not meet the criteria required to be classified as liability awards and therefore are treated as equity awards.~~

grant.

Fair Value Determination – The Company has used the Black-Scholes-Merton option pricing model to determine fair value of our stock option awards on the date of grant. The Company will reconsider the use of the Black-Scholes-Merton model if additional information becomes available in the future that indicates another model would be more appropriate or if grants issued in future periods have characteristics that cannot be reasonably estimated under this model.

The following weighted-average assumptions were used for option grants during the three and six months ended June 30, 2020 and 2019:

●

Volatility – The Company used an average historical stock price volatility based on an analysis of reported data for a peer group of comparable companies that have issued stock options with substantially similar terms, as the Company had a limited to no trading history for its common stock.

●

Expected life of options – The expected term represents the period that the Company’s stock option grants are expected to be outstanding. The Company elected to utilize the “simplified” method to estimate the expected

Table of Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

term. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option.

●

Risk-free interest rate – The rate is based on U.S. Treasury interest rates at the time of the grant whose term is consistent with the expected life of the stock options.

●

Dividend yield – The expected dividend yield was considered to be 0% in the option pricing formula since the Company had not paid any dividends and had no plan to do so in the future.

●

Forfeitures – As required by ASC 718, the Company reviews recent forfeitures and stock compensation expense. Forfeitures are estimated at the time of the grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Additionally, the Company conducts a sensitivity analysis of the forfeiture rate. Based on these evaluations the Company currently does not apply a forfeiture rate.

The following table summarizes weighted-average assumptions used in our calculations of fair value for the six months ended June 30, 2020 and 2019:

2020

2019

Dividend yield

—
%

—
%
Expected volatility

89.61
%

131.10
%
Risk-free interest rate

0.86
%

2.50
%
Expected lives (years)

5.9
years

5.5
years

Stock ~~Options~~Option Activity - The weighted-average fair value of options granted during the six months ended June 30, 2020 and 2019, as determined under the Black-Scholes valuation model, was $0.42 and $0.80, respectively.

The following is a summary of the stock option activity for the ~~nine~~six months ended ~~September~~June 30, ~~2017:~~2020:

Shares

Weighted
Average
Exercise
Price

Outstanding, December 31, 2016

1,136,753

$
3.93

Granted

1,731,500

$
0.80

Forfeited

(194,704
)

$
2.12

Outstanding, September 30, 2017

2,673,549

$
2.04

Weighted

Weighted

Average

Average

Exercise

Remaining

Shares

Price

Contractual Life
Stock options outstanding at December 31, 2019

3,063,636

$
2.56

Granted

2,567,000

0.58

Forfeited/Expired

(38,200)

2.20

Stock options outstanding at June 30, 2020

5,592,436

$
1.65

8.9
Years
Stock options exercisable at June 30, 2020

2,357,128

$
2.83

8.2
Years

~~The weighted average grant-date fair value of~~Unrecognized compensation expense related to unvested stock options ~~granted during the nine months ended September~~was $2.1 million as of June 30, 2017 was $0.54. The fair value of each stock option was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for stock options granted during the nine months ended September 30, 2017:

~~Dividend yield~~
~~0.0~~
%
~~Expected volatility~~
~~76.96~~
%
~~Risk-free interest rate~~
~~2.16~~
%
~~Expected lives (years)~~
~~6.25~~

~~The risk-free interest rate~~2020, which is based on U.S. Treasury interest rates at the time of the grant whose term is consistent with the expected life of the stock options. The Company used an average historical stock price volatility based on an analysis of reported data for a peer group of comparable companies that have issued stock options with substantially similar terms, as the Company did not have sufficient trading history for its common stock. Expected term represents the period that the Company’s stock option grants are expected to be ~~outstanding. The Company elected to utilize the “simplified” method to estimate the expected term. Under this approach, the~~recognized over a weighted-average ~~expected life is presumed to~~period of 1.7 years and will be ~~the average~~adjusted for forfeitures as they occur.

Table of ~~the vesting term and the contractual term of the option.~~Contents

Expected dividend yield was considered to be 0% in the option pricing formula since the Company had not paid any dividends and had no plans to do so in the future. The forfeiture rate was considered to be none as the options vest on a monthly basis.

The Company recognized $122,657 and $96,020 in stock-based compensation expense for the three months ended September 30, 2017 and 2016, respectively and $367,800 and $434,859 in share-based option compensation expense for the nine months ended September 30, 2017 and 2016, respectively for the Company’s stock option awards. In addition to share-based option compensation, the Company also recognized $8,150 in common stock compensation expense for one of its employees for the three and nine months ended September 30, 2016.

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Restricted Stock - Under the Plan, the Company has issued restricted stock. A restricted stock award is an issuance of shares that cannot be sold or transferred by the recipient until the vesting period lapses. Restricted stock issued to members of our Board of Directors and Executives vest 50% on grant date, 30% on the first anniversary and 10% each anniversary thereafter. The grant date fair value of the restricted stock is equal to the closing market price of our common stock on the date of grant.

The following ~~table summarizes information about stock options outstanding at September 30, 2017:~~

Options Outstanding

Options Vested and Exercisable

Balance
as of
9/30/2017

Weighted
Average
Remaining
Contractual
Life
(Years)

Weighted
Average
Exercise
Price

Balance
as of
9/30/2017

Weighted
Average
Remaining
Contractual
Life
(Years)

Weighted
Average
Exercise
Price

2,673,549

8.5

$2.04

953,120

7.0

$3.87

Asis a summary of September 30, 2017, the unrecognized stock-based compensation expense related to unvested stock options was $1,761,037, which is expected to be recognized over a weighted average period of approximately 16.7 months.

~~Restricted Stock~~
~~The Company recognized $16,314 and $0 in stock-based compensation expense for employees related to~~ restricted stock ~~awards during~~award activity for the three months ended ~~September~~June 30, ~~2017~~2020:

Weighted

Average

Shares

Fair Value
Restricted stock at December 31, 2019

1,254,653

$
0.86
Granted

2,380,000

0.46
Vested

(1,622,720)

0.62
Restricted stock at June 30, 2020

2,011,933

$
0.58

Restricted Stock Units - Under the Plan, the Company issued time-based RSUs. RSUs are not actual shares, but rather a right to receive shares in the future. The shares are not issued and ~~2016, respectively~~the employee cannot sell or transfer shares prior to vesting and ~~$152,521~~has no voting rights until the RSUs vest. The employees' time-based RSUs vest 25% on the award date and ~~$0 in stock-based~~25% each anniversary thereafter. The grant date fair value of the RSUs is equal to the closing market price of our common stock on the grant date. The Company recognizes the grant date fair value of RSUs of shares the Company expects to issue as compensation expense ~~for employees related to restricted~~ratably over the requisite service period.

The following is a summary of stock awards during the nine months ended September 30, 2017 and 2016, respectively.The Company recognized $5,000 and $14,579in share-based compensation expense related to issuance of shares of restricted stock to non-employees (i.e., consultants) in exchangeunit activity for ~~services during~~ the three months ended ~~September~~June 30, 2017 and 2016, respectively and $26,000 and$17,496 during the nine months ended September 30, 2017 and 2016, respectively. As of September 30, 2017, there were 291,375 restricted stock awards granted to employees, all of which were unvested.2020:

Weighted

Average

Shares

Fair Value
RSUs at December 31, 2019

30,026

$
4.33
Vested

(16,406)

4.73
Cancelled

(338)

5.20
RSUs at June 30, 2020

13,282

$
3.80

~~Total stock-based compensation expense, including restricted stock and stock options was $546,321 and $460,505 for the nine months ended September 30, 2017 and 2016, respectively.~~

~~8. Financing~~

~~Rights Offering~~

On September 15, 2017 the Company filed a registration statement on Form S-1 with the SEC for a proposed rights offering to holders of its common stock and holders of its warrants pursuant to which each such holder was issued non-transferrable subscription rights to purchase one share of our common stock for each share of common stock owned at, and each share of common stock into which the warrants held by them were exercisable, on October 13, 2017, subject to a pro rata reduction if the basic subscription rights are exercised for an amount in excess of 12,000,000 shares of common stock. Each subscription right entitled the holder to purchase one share of our common stock at a subscription price equal to $0.62 per share of our common stock. The prospectus was declared effective by the SEC on October 19, 2017 (File No. 333-220470). We terminated the rights offering on November 8, 2017 and all subscription payments received by the subscription agent for the rights offering will be promptly returned.

~~At the Market Offering~~

The Company had entered into an at-the-market Issuance Sales Agreement with FBR Capital Markets Co. pursuant to which it has sold shares of its common stock through FBR by any method permitted that is deemed an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on or through the NASDAQ Capital Market, the existing trading market for the Company’s common stock, sales made to or through a market maker other than on an exchange or otherwise, in negotiated transactions at market prices, and/or any other method permitted by law. Sales of shares of common stock have been made pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-199274) filed with the U.S. Securities and Exchange Commission (“SEC”), the base prospectus, dated October 23, 2014, filed as part of such registration statement and the prospectus supplement, dated August 15, 2016. FBR was entitled to compensation at a fixed commission rate up to 3.0% of the gross proceeds per share sold through it as sales agent under the sales agreement. Beginning in August 2016 and through December 31, 2016, the Company sold 4,791,377 shares of common stock under the FBR Sales Agreement resulting in net proceeds of approximately $6.8 million. For the nine months ended September 30, 2017, the Company has sold an additional 2,348,580 shares of common stock under the Sales Agreement resulting in net proceeds of approximately $2.3 million after FBR’s commission and other expenses. On November 3, 2017 the Company terminated its At Market Issuance Sales Agreement with FBR.

14

~~HEAT BIOLOGICS, INC.~~
~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

~~Public Offering~~

On March 28, 2017, the Company sold pursuant to the terms of an Underwriting Agreement (the “Underwriting Agreement”) that it entered into on March 23, 2017 with Aegis Capital Corp. (“Aegis”), as representative of the several underwriters named therein (the “Underwriters”), 5,000,000 shares of the Company’s common stock, and 750,000 additional shares of the common stock to cover over-allotments at an offering price of $0.80 per share (the “Offering”). The net proceeds to the Company from the Offering were approximately $4.1 million, after deducting underwriting discounts, commissions, and other third party offering expenses. The Underwriting Agreement contains customary representations, warranties, and agreements by the Company, customary conditions to closing, indemnification obligations of the Company and the Underwriters, including for liabilities under the Securities Act of 1933, as amended (the “Securities Act”), other obligations of the parties and termination provisions.

9.10. Grant ~~and Licensing Revenues~~

Revenue
In June 2016, Pelican entered into a ~~Cancer Research~~cancer research grant contract or Grant Contract ~~(“Grant Contract”)~~ with CPRIT,under which CPRIT awarded a grant not to exceed $15.2 million for use in developing cancer treatments by targeting a novel T-cell costimulatory receptor (namely, TNFRSF25). The Grant Contract covers a ~~three-year~~ period from June 1, 2016 through November 30, 2020, as amended. The first tranche of funding of $1.8 million was received in May ~~31,~~2017, and a second tranche of funding of $6.5 million was received in October 2017 and a third tranche of funding of $5.4 million was received in December 2019. The remaining $1.5 million will be awarded after the Company has fulfilled every requirement of the grant and the grant has been approved to be closed.

The grant is subject to customary CPRIT funding conditions including a matching funds requirement where Pelican will match $0.50 for every $1.00 from CPRIT. Consequently, Pelican is required to provide $7.6 million in matching funds over the life of the project. Upon commercialization of the product, the terms of the ~~Grant Contract~~grant require Pelican to pay ~~tieredroyalties~~tiered royalties in the low to mid-single digit percentages. Such royalties reduce to less than one percent after a mid-single-digit multiple of the grant funds have been paid to CPRIT in royalties.

~~The Company recognized grant revenue of approximately $0.5 million and $0.9 million in the three and nine months ended September~~Through June 30, ~~2017 for qualified expenditures under the grant. The Company had no grant revenue related to CPRIT during the respective periods in 2016. The Company recognized $0.2~~2020, $11.8 million of ~~research~~grant funding ~~revenue for research and development services, which included labor and supplies, provided~~received to ~~Shattuck Labs, Inc. (“Shattuck”) in the three and nine months ended September 30, 2016. As~~date has been recognized as revenue.

Table of ~~September 30, 2017, the Company had deferred revenue of $0.9 million for proceeds received but for which the costs had not been incurred or the conditions of the award had not been met.~~Contents

HEAT BIOLOGICS, INC.

~~10.~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

11. Net Loss Per Share

Basic ~~and diluted~~ net loss per common share is ~~calculated~~computed by dividing net loss ~~applicable~~attributable to ~~Heat Biologics, Inc.~~common stockholders by the weighted-average number of common shares outstanding during the ~~period, without consideration for~~periods. Fully diluted net loss per common ~~stock equivalents. The Company’s potentially~~share is computed using the weighted average number of common and dilutive common equivalent shares ~~which include~~ outstanding during the periods. Common equivalent shares consist of stock options and warrants that are ~~considered to be~~computed using the treasury stock method.

For the quarters ended June 30, 2020 and 2019, all of the Company’s common stock ~~equivalents~~options, unvested restricted stock units and warrants are ~~only included in~~anti-dilutive and therefore have been excluded from the ~~calculation~~diluted calculation.

Table of ~~diluted net loss per share when their effect is dilutive.~~ Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table reconciles net loss to net loss attributable to Heat Biologics, Inc.:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Net loss

$
(2,504,178
)
$
(1,663,988
)

$
(9,053,987
)

$
(9,431,241
)
Net loss: Non-controlling interest

(203,371
)

(47,042
)

(344,328
)

(329,471
)
Net loss attributable to Heat Biologics, Inc.

$
(2,300,807
)
$
(1,616,946
)

$
(8,709,659
)

$
(9,101,770
)




Weighted-average number of common shares used in net loss per share attributable to Heat Biologics, Inc.—basic and diluted

35,786,606

19,420,026

32,695,360

15,371,267

Net loss per share attributable to Heat Biologics, Inc.—basic and diluted

$
(0.06
)
$
(0.08
)

$
(0.27
)

$
(0.59
)

For the Three Months Ended

For the Six Months Ended

June 30,

June 30,


2020

2019

2020

2019
Net loss

$
(4,536,818)

$
(4,944,905)

$
(10,910,238)

$
(10,763,986)
Net loss - Non-controlling interest

(82,388)

(174,035)

(163,702)

(277,640)
Net loss attributable to Heat Biologics, Inc.

$
(4,454,430)

$
(4,770,870)

$
(10,746,536)

$
(10,486,346)

Weighted-average number of common shares used in net loss per share attributable to common stockholders —basic and diluted

87,930,846

33,255,724

72,606,461

33,240,529
Net loss per share attributable to Heat Biologics, Inc —basic and diluted

$
(0.05)

$
(0.14)

$
(0.15)

$
(0.32)

15

~~HEAT BIOLOGICS, INC.~~
~~NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~

The following potentially dilutive securities were excluded from the calculation of diluted net loss per share in the three and six months ended June 30, 2020 and 2019 due to their anti-dilutive effect:

For the Nine Months Ended
September 30,

2017

2016


2020

2019
Outstanding stock options

2,673,549

1,219,847

5,592,436

3,008,754
Outstanding restricted stock units

291,375

—

Restricted stock subject to forfeiture and restricted stock units

2,025,215

838,679
Outstanding common stock warrants

3,103,963

4,193,410

5,746,564

9,030,730

~~11.~~
12. Income Tax
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. As of ~~September~~June 30, ~~2017, a full valuation allowance~~2020, $0.9 million of the deferred tax asset arising from the generation of 2018 net operating losses has been ~~provided against certain~~utilized to offset a portion of the previously recorded deferred tax ~~assets as it is currently deemed more likely than not that~~liability associated with indefinite lived R&D in process costs. Specifically, the ~~benefit of such~~prior & current year net ~~tax assets will not be utilized. The effect on~~operating losses gave rise to an indefinite-lived deferred tax ~~assets and liabilities~~asset which provided sufficient support to offset a portion of ~~a change in~~the Company’s indefinite-lived deferred tax ~~rates is recognized in income in the period that includes the enactment date.~~

liability.
In accordance with FASB ASC 740, Accounting for Income Taxes, the Company reflects in the accompanying unaudited condensed consolidated financial statements the benefit of positions taken in a previously filed tax return or expected to be taken in a future tax return only when it is considered ‘more-likely-than-not’ that the position taken will be sustained by a taxing authority. As of ~~September~~June 30, ~~2017,~~2020, and December 31, ~~2016,~~2019, the Company had no unrecognized income tax benefits and correspondingly there is no impact on the Company’s effective income tax rate associated with these items. The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying statements of operations and comprehensive loss. As of ~~September~~June 30, ~~2017,~~2020, and December 31, ~~2016,~~2019, the Company had no such accruals.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act includes numerous provisions such as permitting NOL carryovers to offset 100% of taxable income for taxable years beginning before 2021 and a technical correction to the Tax Cuts and Jobs Act allowing immediate expensing for Qualified Improvement Property through bonus depreciation. At this time management does not expect a substantial impact to deferred taxes.
~~12. Subsequent Event~~

Table of Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The Company has determined, based on its preliminary analysis, that the provisions of CARES Act are not expected to impact our 2020 financials. The Company will monitor the updates, both to our business as well as guidance issued with respect to CARES Act that could impact the current interpretation of the issued provisions.

13. Leases

Effective January 1, 2019, the Company adopted ASC 842 using the optional transition method, applying no practical expedients. In accordance with the optional transition method, the Company did not recast the prior period consolidated financial statements. The lease term is the noncancelable period of the lease. There are no termination provisions or renewal periods reasonably certain of exercise or options controlled by the lessor.

The Company ~~terminated~~conducts its operations from leased facilities in Morrisville, North Carolina, and San Antonio, Texas, the ~~rights~~leases for which will expire in 2027 and 2023. The leases are for general office space and require the Company to pay property taxes, insurance, common area expenses and maintenance costs.

On October 1, 2019, the commencement date of our Morrisville, North Carolina lease, a right-of-use asset of $2.0 million and a liability of $1.4 million were recorded on our balance sheet. Total cash paid for operating leases during the three and six months ended June 30, 2020 was $0.08 million and $0.2 million and is included within cash flows from operating activities within the consolidated statement of cash flows.

The Company leases furniture and specialized lab equipment under finance leases. The related right-of-use assets are amortized on a straight-line basis over the lesser of the lease term or the estimated useful life of the asset. The effective interest rate is 6.17%.

The Company’s lease cost is reflected in the accompanying statements of operations and comprehensive loss as follows:

For the Three Months Ended June 30, 2020

For the Six
Months Ended
June 30, 2020
Operating lease cost

$
103,956

$
207,912
Finance lease cost

Amortization of lease assets

29,725

54,752
Interest on lease liabilities

4,903

9,315
Total finance lease cost

$
34,628

$
64,067

The weighted average remaining lease term and incremental borrowing rate as of June 30, 2020 were as follows:


Weighted average remaining lease term
Operating leases	6.5	years
Finance leases	2.5	years
Weighted average discount rate
Operating leases	6.55	%
Finance leases	6.17	%

Table of Contents

HEAT BIOLOGICS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Maturities of operating and finance lease liabilities as of June 30, 2020 were as follows:

Operating Leases

Finance Leases

Total
2020 (excluding the six months ended June 30, 2020)

$
161,619

$
60,342

$
221,961
2021

330,032

120,684

450,716
2022

338,960

155,694

494,654
2023

244,973

10,284

255,257
2024

231,503

-

231,503
2025

238,452

-

238,452
Thereafter

454,821

-

454,821
Total minimum lease payments

2,000,360

347,004

2,347,364
Less: imputed interest

(368,622)

(27,064)

(395,686)
Present value of lease liabilities

$
1,631,738

$
319,940

$
1,951,678

Maturities of operating lease liabilities as of June 30, 2019 were as follows:

2019 (excluding the six months ended June 30, 2020)

$
97,496
2020

115,580
2021

118,158
2022

120,737
2023

20,195
Total lease payments

472,166
Less: imputed interest

(60,608)
Present value of operating lease liabilities

$
411,558

14. Subsequent Events

Subsequent to the quarter ended June 30, 2020, the Company has issued an additional 36,111,471 shares of common stock in at-the-market offerings and received $58.5 million of net proceeds from such sales.

In July 2020, we paid the stockholders of Pelican aggregate milestone payments of $2.0 million, which included a payment to Jeffrey Wolf, John Monahan and Edward Smith of $408,318, $5,948 and $40,098, respectively.

On July 27, 2020, the Company filed a new ATM prospectus supplement that is part of the Registration Statement for the offer and sale of shares of Common Stock having an aggregate offering ~~described in footnote 8 above on November 8, 2017.~~price of up to $100,000,000 from time to time through or to B. Riley FBR acting as sales agent or principal.

On July 28, 2020, the Company granted, as partial fulfillment of a contractual obligation with respect to a milestone which has been met, options to purchase an aggregate of 2,000,000 shares of common stock at an exercise price of $2.07 per share to the Chief Executive Officer. Under the grant agreement, all of the options were vested and exercisable upon grant, and these options have a 10-year term. The estimated grant date fair value of these options was $1.46 per share.

Table of Contents

ITEM 2.

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

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included in this Quarterly Report on Form 10-Q. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those discussed below and elsewhere in this Quarterly Report. This discussion should be read in conjunction with the accompanying unaudited consolidated financial statements and the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the Securities and Exchange Commission on March ~~31, 2017~~30, 2020 (the ~~“2016~~“2019 Annual Report”). This discussion may contain forward-looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”You should review the disclosure under the heading “Risk Factors” in this Quarterly Report on Form 10-Q for a discussion of important factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements.

OVERVIEW

We are ~~an immuno-oncology~~a biopharmaceutical company ~~developing novel~~primarily engaged in the development of immune therapies and vaccines. Our gp96 platform is designed to activate the immune system. This platform has broad applications in cancer and infectious disease. Our platform leverages gp96’s role as a natural molecular warning system that presents antigens to the immune system. HS-110 (viagenpumatucel-L) is our first allogeneic (“off-the-shelf”) cell line biologic product candidate in a series of proprietary immunotherapies designed to stimulate a patient’s ~~immune system against cancer utilizing~~T-cells to destroy cancer. HS-130 is an allogeneic cell line engineered ~~form~~to express the extracellular domain of OX40 ligand fusion protein (OX40L-Fc), a key costimulator of T-cells, with the ~~protein,~~potential to augment antigen-specific CD4+ T-cell and CD8+ T-cell responses. We have initiated development of a new COVID-19 vaccine program under our Zolovax, Inc. subsidiary that utilizes our gp96 ~~a potent immune response stimulator and the basis of our core technology.~~platform to secrete SARS-CoV-2 antigens. Our platform technologies are designed to turn “cold” tumors “hot” by increasing the ability of tumor infiltrating lymphocytes (TILs) to attack the tumor. We do this by addressing two distinct, but synergistic mechanisms-of-action: robust activation and proliferation of CD8+ T-cells, or “killer” T-cells, and T-cell co-stimulation. Our highly specific T-cell-stimulating therapeutic platform technologies,~~ImPACT~~^® ~~(Immune Pan-Antigen Cytotoxic Therapy) and~~~~ComPACT~~^™ ~~(Combination Pan-Antigen Cytotoxic Therapy), are intended to activate and, in the case of~~~~ComPACT~~^™~~, also co-stimulate “killer” T-cells. Most recently, we acquired two additional T-cell co-stimulators through the acquisition of~~subsidiary Pelican Therapeutics, Inc. (“Pelican”), ~~broadening our pipeline and strengthening our portfolio in the emerging~~is developing PTX-35, a novel T-cell ~~activation space.~~co-stimulator agonist antibody targeting TNFRSF25 for systemic administration.

~~Through our~~~~ImPACT~~^® ~~platform technology, we have developed product candidates that consist of live, allogeneic “~~~~off-the-shelf~~~~” genetically-modified, irradiated human cancer cells.~~ These ~~cells are intended to secrete a broad spectrum of Cancer Testis Antigens (CTA) together with the gp96 protein. The secreted antigen gp96-Ig-CTA complexes~~programs are designed to harness the body's natural antigen specific immune activation and tolerance mechanisms to reprogram immunity and provide a long-term, durable clinical effect. We have completed recruiting patients in our Phase 2 HS-110 non-small cell lung cancer (NSCLC) trial, are currently enrolling our Phase 1 clinical trial of HS-130 and dosed our second patient in our Phase 1 clinical trial of PTX-35. We are also providing pre-clinical, CMC development, and administrative support for these operations; while constantly focusing on protecting and expanding our intellectual property in areas of strategic interest. As we advance our clinical programs, we are in close contact with our CROs and clinical sites and are assessing the impact of COVID-19 on our studies and current timelines and costs.

Our Clinical Programs

In July 2019, we completed patient enrollment in our Phase 2 clinical trial for HS-110 in advanced NSCLC, that administered HS-110 in combination with either Bristol-Myers Squibb’s anti-PD1 checkpoint inhibitor nivolumab (Opdivo®) or more recently, Merck & Co., Inc.’s (Merck’s) anti-PD1 checkpoint inhibitor, pembrolizumab (KEYTRUDA®). We also announced interim results of this study in November 2019. Promising clinical activity was observed in our Phase 2 trial in NSCLC patients whose disease has progressed after prior treatment with a checkpoint inhibitor.

We continue to follow up on patients who have enrolled in our HS 110 Phase 2 trial and advance development of the Pelican assets. As a result of COVID-19, we temporarily paused enrollment in our Phase 1 clinical trial of HS- 130 as we were unable to obtain the proper testing necessary for our protocol without the risk of unnecessary exposure of patients to

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COVID-19. We have since resumed enrollment and do not expect that this will significantly impact the overall timelines for the Phase 1 clinical trial of HS-130.

We currently do not have any products approved for sale and we have not generated any significant revenue since our inception and no revenue from product sales. We expect to continue to incur significant expenses and to incur increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we:

●

initiate clinical trials and complete the ongoing clinical trials of our product candidates;

●

maintain, expand and protect our intellectual property portfolio;

●

seek to obtain regulatory approvals for our product candidates;

●

continue our research and development efforts; and

●

add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts; and operate as a public company.

About our gp96 Platform

Our gp96 platform is designed to activate and expand tumor antigen specific “killer” T-cells to destroy a patient’s ~~adaptive,~~cancer. By turning immunologically “COLD tumors HOT,” we believe our platform will become an essential component of the immuno-oncology regimen to enhance the effectiveness and durability of checkpoint inhibitors and other cancer therapies, thereby improving outcomes for those patients less likely to benefit from checkpoint inhibitors alone.

We believe this is a highly differentiated approach as our platform delivers a broad range of tumor antigens that are previously unrecognized by the patient’s immune system. Our platform combines these tumor antigens with a powerful, naturally occurring immune adjuvant, gp96, to actively chaperone these antigens. Our gp96 product candidates are non-replicating, “off-the-shelf”, allogenic cell-based therapies that are locally administered into the skin. The treatment primes local natural immune recognition to activate T-cells to seek and destroy the cancer cells throughout the body. These agents can be administered with a variety of immuno-modulators to enhance a patient’s immune response through T-cell ~~mediated~~activation.

Unlike many other “patient specific” or autologous immunotherapy approaches, our drugs are fully allogenic, “off-the-shelf” products which means that we can administer drug immediately without the extraction of blood or tumor tissue from each patient or the creation of an individualized treatment based on patient materials. Our gp96 product candidates are produced from allogeneic cell lines expressing tumor-specific proteins common among cancers. Because each patient receives the same treatment, we believe that our immunotherapy approach offers superior speed to initiation, logistical, manufacturing and importantly, cost benefits, compared to “personalized” precision medicine approaches.

An Allogenic Cell-Based Approach to Activating the Immune System

Our gp96 platform is an allogenic cell-based, T-cell-stimulating platform that functions as an immune ~~system to recognize and kill cancer cells. Gp96 has been shown to assist in tumor rejection by delivering multiple, mutated tumor proteins to immune cells~~activator to stimulate and expand T-cells. The key component of this innovative immunotherapy platform is the dual functionality of the heat shock protein, gp96.

As a ~~CD-8+~~molecular chaperone, gp96 is typically found within the cell’s endoplasmic reticulum and facilitates the folding of newly synthesized proteins for functionalized tasks. When a cell abnormally dies through necrosis or infection, gp96 is naturally released into the surrounding microenvironment. At this moment, gp96 becomes a Danger Associated Molecular Protein, or “DAMP”, a molecular warning signal for localized innate activation of the immune system. In this context, gp96 serves as a potent adjuvant, or immune stimulator, via Toll-Like Receptor 4/2 (TLR4 and TLR2) signaling which serves to activate professional antigen presenting cells (APCs), such as dendritic cells that upregulate T-cell costimulatory ligands, major histocompatibility (MHC) molecules and immune activating cytokines. It is among the most powerful adjuvants found in the body and uniquely shows exclusive specificity to CD8+ “killer” T-cells through cross-presentation of the gp96-chaperoned tumor associated peptide antigens directly to MHC class I molecules for direct activation and expansion of CD8+ T-cells. Thus, gp96 plays a critical role in the mechanism of action for our T-cell activating platform immuno-therapies; mimicking necrotic cell death and activating a powerful, tumor antigen-specific T-cell immune response ~~against a~~to attack the patient’s cancer cells. ~~Our~~~~ImPACT~~

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About ComPACT^® ~~technology achieves this by reprogramming live tumor cells~~

We have recently modified our gp96 platform to ~~secrete gp96, along with their chaperoned tumor antigens; thereby, transforming the allogeneic cells into machines that activate a robust “killer” CD8+~~deliver antigen-driven T-cell ~~immune attack against a patient’s cancer.~~

~~Our~~~~ComPACT~~~~™ platform technology, currently in preclinical development, is a dual-acting immunotherapy, combining a pan-antigen T-cell activator~~activation and ~~a T-cell co-stimulator~~specific co-stimulation in a single product ~~offering~~by providing specific co-stimulation to enhance T-cell activation and expansion. This approach has the potential ~~benefits of~~to simplify combination immunotherapy development for oncology patients, as it is designed to deliver the gp96 heat shock protein and a T-cell co-stimulatory fusion protein (OX40L) as a single therapeutic, without the need for multiple, independent biologic products. ~~The~~This dual approach has several potential advantages including: (a) enhanced activation of antigen-specific CD8+ T-cells; (b) boosting the number of antigen-specific CD8+ and CD4+ T-cells compared to OX40L alone; (c) stimulation of T-cell memory function to remain effective after treatment, even if the cancer comes back; (d) demonstration of less toxicity, as the source of cancer associated antigens and co-stimulator are supplied at the same time locally in the draining lymph nodes, which drives targeted, cancer specific immunity towards the tumor rather than throughout the body; and (e) simplification of combination cancer immunotherapy versus systemic co-stimulation with conventional monoclonal antibodies (mAbs).

About COVID-19 Program

Besides its utility in oncology, our gp96 platform has been engineered to incorporate various fusion proteins targeting co-stimulatory receptors (OX40, ICOS, GITR, etc.) into the gp96-Ig expression vector, enabling the combination of two immunotherapy pathways into a single therapy.

~~Using our~~~~ImPACT~~^® platform technology, we developed the product candidate, HS-110 (viagenpumatucel-L), as a potential treatment for patients with non-small cell lung cancer (“NSCLC”). We are conducting a Phase 2 clinical trial evaluating HS-110 in combination with multiple treatment regimens including nivolumab (Opdivo^®), a Bristol-Myers Squibb anti-PD-1 checkpoint inhibitor, to treat patients with NSCLC whose cancers have progressed after first-line therapy. Primary and secondary trial endpoints include safety and tolerability, immune response, and tumor response. Trial enrollment is currently ongoing.

In the first quarter of 2017, a study steering committee reviewed data on 15 patients enrolled in the HS-110/nivolumab treatment arm, and approved the advancement from phase 1b to phase 2. At that time, 15 patients had been treated with the HS-110/nivolumab combination, and 12 of these 15 patients were evaluable for ELISPOT analysis. ELISPOT results suggest that HS-110 plays an integral role in tumor reduction and may enhance efficacy of checkpoint inhibitors in lung cancer patients. Immune responses to HS-110 were observed in all five patients that exhibited tumor reductions. No tumor reductions were observed in patients that did not mount an immune response to HS-110. The timing of immune response to HS-110 corresponded to the timing of observed clinical responses, and those responses appear to be sustained.

On April 28, 2017, we completed the acquisition of 80% of Pelican’s common stock. Pelican is a biotechnology company focused on the development and commercialization of monoclonal antibody and fusion protein-based therapies that are designedshown to activate the ~~immune system. PTX-25/35, Pelican’s lead product candidate targeting the T-cell co-stimulator, TNFRSF25, combined with immunotherapies, including~~~~ImPACT~~^®~~and~~~~ComPACT™~~~~, may have the ability to activate memory CD8+ cytotoxic T-cells and eliminate tumor cells in patients. PTX-25/35 is designed to harness natural immune mechanisms to reprogram the~~human immune system to combat infectious diseases. Our collaborators have laid a solid foundation by engineering different pathogenic antigens into our platform. Previous preclinical studies using gp96 platform includes SIV/HIV, malaria and ~~provide~~Zika. We initiated a ~~long-term, durable effect after a short course of therapy. PTX-15, Pelican’s second product candidate, is a human TL1A-lg fusion protein designed to expand the Treg population~~~~in vivo~~ to provide control of the regulatory arm of our immune system, and can be used in immuno-oncology and other immune disorders. We believe this is important because many leading global pharmaceutical companies are focused on T-cell co-stimulators to enhance the effectiveness of their existing immuno-oncology therapies.

On June 1, 2016, Pelican was awarded a $15.2 million Cancer Prevention Institute of Texas (CPRIT) grant to support further development of PTX-25 and fund a large Phase 1 clinical trial to examine the benefits it may provide to patients with several types of cancers, such as lung, lymphoma, prostate, pancreatic and ovarian. The CPRIT grant is subject to customary CPRIT funding conditions.

~~Our wholly-owned subsidiary, Zolovax, Inc. (“Zolovax”), is in pre-clinical studies to develop therapeutic and preventative vaccines to treat infectious diseases based on our gp96~~COVID-19 vaccine ~~technology, with a current focus on the development of a Zika vaccine~~program in collaboration with the University of ~~Miami. Other infectious diseases~~Miami in March 2020.

During the third quarter of ~~interest include HIV, West Nile~~2020 we commenced preclinical testing of the vaccine and anticipate continued development of a cell-based vaccine expressing gp96-Ig, OX40L-Ig and SARS-CoV-2 protein S during the third quarter of 2020. In July 2020, we announced generation of proof of concept data demonstrating vaccine immunogenicity in relevant preclinical models, including expansion of human-HLA-restricted T-cells against immunodominant epitopes of SARS-CoV-2 Spike protein. The strategy for this program includes a focus on providing prophylactic protection to elderly patients and those with underlying health conditions and driving a cellular immune response via CD8+ T cells, in addition to a humoral immune response We have submitted grant applications to fund and accelerate COVID-19 vaccine development; however, there can be no assurance that our grant application will be approved and even if approved, the amount of grant funding that we will receive.

About PTX-35
Pelican is focused on developing an agonist mAb, PTX-35, against a T-cell costimulatory receptor, TNFRSF25. PTX-35 has completed IND-enabling activities in preparation for a first-in-human (FIH) trial for oncology. PTX-35 is designed to harness the body's natural antigen specific immune activation and tolerance mechanisms to reprogram immunity and provide a long-term, durable clinical effect. TNFRSF25 agonism has been shown to provide highly selective and potent stimulation of antigen experienced ‘memory’ CD8+ cytotoxic T-cells, which are the class of long-lived T-cells capable of eliminating tumor cells in patients. Due to the preferential specificity of PTX-35 to antigen experienced CD8+ T-cells, this agent represents a promising candidate as a T-cell co-stimulator in cancer patients.

When combined in preclinical studies with Heat’s gp96 platform immunotherapies and an inti-PD-1 checkpoint inhibitor, PTX-35 has been shown to enhance antigen specific T-cell activation to eliminate tumor cells. Pelican is also developing other biologics that target TNFRSF25 for various immunotherapy approaches, including PTX-45, an agonist of TNFRSF25 designed as a human TL1A-lg like fusion protein.

COVID-19 Impact on our Business
The COVID-19 global pandemic may pose significant risks to our business. It is too early to quantify the impact this situation will have on our operations for the remainder of our fiscal year ended December 31, 2020 or beyond, but the public health actions being undertaken to reduce spread of the virus are and ~~Dengue~~may continue to create significant disruptions with respect to patient enrollment in trials, hospital operating procedures including testing and ~~yellow fever.~~data collection, the ability of suppliers to continue to manufacture products and the reliability of our supply chain and our ability to continue our laboratory operations. While we are experiencing limited financial impacts at this time, given the global economic

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slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. Accordingly, management is evaluating our liquidity position, communicating with and monitoring the actions of our customers and suppliers, and reviewing our near-term financial performance as we manage through the uncertainty related to the coronavirus. If the COVID-19 pandemic continues and persists for an extended period of time, we could experience significant disruptions to our clinical development timeline, which would adversely affect our business, financial condition, results of operations and growth prospects.

We ~~continue~~have implemented business continuity plans designed to ~~evaluate other potential indications for~~address and mitigate the impact of the COVID-19 pandemic on our~~ImPACT~~^® employees and~~ComPACT™ platform technologies. Specifically, with~~~~ComPACT~~™, our business. As of the date of this report:

●

Our employees are restricted from traveling, both in the interests of their health as well as at the request of our vendors as they seek to increase critical care capacity;

●

our non-essential office-based employees have been instructed to work remotely, and

●

our lab is operating under our business continuity plan with precautions including, increasing distancing and regularly monitoring temperatures.

As discussed in more detail below, we ~~have developed cell lines for several other cancers, with~~will closely monitor our liquidity and capital resources through the first product candidate being a second-generation therapy for NSCLC (HS-120). Our decision to further pursue these or any additional product candidates, other than our lead product candidate, will be based in part upon available funding and partnering opportunities. Although we are no longer pursuing our HS-410 bladder cancer program, pursuant to regulatory requirements, we continue to monitor the patients from the bladder cancer Phase 2 clinical trial.

~~Recent Developments~~

On September 15, 2017 the Company filed a registration statement on Form S-1 with the SEC for a proposed rights offering pursuant to which holders of our common stock and holders of our warrants were issued non-transferrable subscription rights to purchase one share of our common stock for each share of common stock owned at, and each share of common stock into which the warrants held by them were exercisable on October 13, 2017, subject to a pro rata reduction if the basic subscription rights are exercised for an amount in excess of 12,000,000 shares of common stock. Each subscription right entitled the holder to purchase one share of our common stock at a subscription price equal to $0.62 per share of our common stock. The prospectus went into effect October 19, 2017 (File No. 333-220470). We terminated the rights offering on November 8, 2017 and all subscription payments receiveddisruption caused by the ~~subscription agent for the rights offering will be promptly returned.~~COVID-19 pandemic.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

We believe that several accounting policies are important to understanding our historical and future performance. We refer to these policies as “critical” because these specific areas generally require us to make judgments and estimates about matters that are uncertain at the time we make the estimate, and different estimates—which also would have been reasonable—could have been used, which would have resulted in different financial results.

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and make various assumptions, which management believes to be reasonable under the circumstances, which form the basis for judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The notes to our consolidated financial statements contained herein and to our audited consolidated financial statements contained in our 2019 Annual Report contain a summary of our significant accounting policies. We consider the following accounting policies critical to the understanding of the results of our operations:

●

Revenue;

●

In-process R&D;

●

Goodwill impairment;

●

Income tax;

●

Contingent consideration;

●

Stock-based compensation;

●

Research and development costs, including clinical and regulatory cost; and

●

Recent accounting pronouncements.

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~~Revenue;~~

~~Deferred revenue;~~

~~In-process R&D;~~

~~Contingent consideration;~~

~~Stock-based compensation; and~~

~~Research and development costs, including clinical and regulatory cost.~~

RESULTS OF OPERATIONS

Comparison of the Three Months ~~ended September~~Ended June 30, ~~2017~~2020 and ~~2016~~

2019

~~Revenues~~Revenues.

For the ~~quarter~~three months ended ~~September~~June 30, ~~2017,~~2020, and June 30, 2019 we recognized ~~$0.5~~$0.6 million and $0.3 million of grant revenue for qualified expenditures under the CPRIT grant. The increase in grant revenue in the current-year period primarily reflects the expected timing of completion of deliveries under the current phase of the contract. As of ~~September~~June 30, ~~2017 the Company~~2020, we had deferred revenue of ~~$7.4~~$1.9 million for CPRIT proceeds received but for which the costs had not been incurred or the conditions of the award had not been met. For the quarter ended September 30, 2016, we recognized $0.2 million of research funding revenue for research and development services, which included labor and supplies, provided to Shattuck which research funding agreement terminated January 31, 2017. We continue our efforts to secure future non-dilutive grant funding to subsidize ongoing research and development costs.

Research and development expense.

Research and development expenses ~~increased 8%~~decreased approximately 17.6% to ~~approximately $1.8~~$2.8 million for the three months ended June 30, 2020 compared to $3.4 million for the quarter ended ~~September~~June 30, ~~2017 compared to $1.7 million for the quarter ended September 30, 2016.~~2019. The components of R&D expense are as ~~follows:~~follows, in millions:


	Three Months Ended,
	September 30,
	2017		2016

					For the Three Months Ended
					June 30,
					2020			2019
Programs
HS-110	$	0.6	$	0.2		$	0.4		$	1.0
HS-410		0.1		0.5
HS-120		0.0		0.0
HS-130						0.2			0.1
PTX-35						0.3			1.1
COVID-19						0.1			—
Other programs		0.2		0.2			0.1			0.1
Unallocated research and development expenses		0.9		0.8			1.7			1.1
	$	1.8	$	1.7
					$	2.8		$	3.4

●

HS-110 expense decreased $0.6 million, reflecting the current-period mix of development activities, primarily due to decreased costs associated with the transition of patients from active treatment into long-term follow-up.

●

HS-130 expense increased $0.1 million due to regulatory consulting and investigator site payments for the ongoing Phase 1 clinical trial.

●

PTX-35 expense decreased $0.8 million primarily due to decreased manufacturing costs.

●

COVID-19 program was initiated in Q1 2020 and primarily represents sponsored research agreement costs.

●

Other programs include preclinical costs associated with our Zika program, T-cell costimulatory programs, and laboratory supplies.

●

Unallocated research expenses primarily reflects personnel costs, including stock-based compensation from stock awards.

HS-110 expense increased $0.4 million, primarily attributable to CMC activities, as well as continued patient enrollment as we advance into Phase 2 of our multi-arm trial. HS-410 expense decreased $0.4 million due to the current phase of the trial where in patients are in long-term follow-up for recurrence-free survival. Other programs include preclinical costs associated with our Zika program, T-cell costimulatory programs, and laboratory supplies.

Unallocated expenses include personnel-related expenses, professional and consulting fees, and travel and other costs. These costs increased approximately $0.1 million primarily related to the increase in consultant fees and travel and other costs offset by a decrease in personnel costs.

General and administrative expense. General and administrative expense ~~increased 45% to $1.2~~was $1.8 million and $1.9 million for the ~~quarter ended September~~three months ending June 30, ~~2017 compared~~2020 and 2019. General and administrative expenses primarily consist of personnel costs, including stock-based compensation expense, and consulting expenses to manage the business.

Change in fair value of contingent consideration. The change in fair value of contingent consideration was $0.8 million for the ~~quarter~~three months ended ~~September~~June 30, ~~2016. The $0.4 million increase is primarily attributable to the increase in personnel costs as we establish our Texas operations associated with our Pelican subsidiary.~~

~~Other income, net.~~Other income decreased to $31,768 for the quarter ended September 30, 2017 compared to $734,509 for the quarter ended September 30, 2016. Other income is primarily related to the reimbursement of taxes expensed during the previous quarter associated with clinical trial execution in Australia and foreign exchange gains related to the Australian dollar. The decrease is primarily related to the annual 2015 R&D Australian tax credit received during the quarter ended September 30, 2016.

~~Interest expense.~~ ~~Interest expense was $0 for the quarter ended September 30, 2017~~2020, compared to $0.1 million in the three months ended June 30, 2019. The change in the 2020 period primarily reflects the re-calculation of discounted cash flows for the ~~quarter~~passage of time and milestone achievement.

Total non-operating income (loss). Other income was $0.3 million for the three months ended ~~September~~June 30, ~~2016. Interest expense during~~2020, compared to income of $0.1 million for the ~~quarter~~three months ended ~~September~~June 30, ~~2016 was attributable to the bank loan we held at that time. In December 2016, we repaid the loan~~2019. The change of $0.2 million primarily consists of changes foreign currency adjustments of $0.3 million and a decrease in ~~total.~~interest income on cash and short-term investment balances of $0.1 million.

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Net loss attributable to Heat Biologics, Inc.We had a net loss attributable to Heat Biologics, Inc. of ~~$2.3~~$4.5 million, or ($~~0.06)~~0.05) per basic and diluted share for the quarter ended ~~September~~June 30, ~~2017~~2020 compared to a net loss of ~~$1.6~~$4.8 million, or ($~~0.08)~~0.14) per basic and diluted share for the quarter ended ~~September~~June 30, ~~2016.~~2019.

Comparison of the ~~Nine~~Six Months ~~ended September~~Ended June 30, ~~2017~~2020 and ~~2016~~

2019

~~Revenues~~Revenues.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, we recognized ~~$0.9~~$1.5 million of ~~revenue primarily for~~ grant revenue offor qualified expenditures under the CPRIT grant. We ~~also~~ recognized ~~research funding~~$1.0 million of grant revenue for research and development services, which included labor and supplies, provided to Shattuck which research funding agreement ended January 31, 2017. We recognized $0.2 million research funding revenue for research and development services, provided to Shattuck forqualified expenditures under the ~~nine~~CPRIT grant during the six months ended ~~September~~June 30, ~~2016. We continue our efforts to secure future non-dilutive~~2019. The increase in grant ~~funding to subsidize ongoing research and development costs.~~revenue in the current-year period primarily reflects the expected timing of completion of deliveries under the current phase of the contract.

Research and development expense.

Research and development expenses decreased ~~by 19%~~approximately 15.2% to ~~approximately $5.8~~$5.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 compared to ~~$7.1~~$6.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016 as we focused on the checkpoint and HS-110 combination NSCLC programs.~~2019. The components of R&D expense are as ~~follows:~~

Nine Months Ended,

September 30,

2017

2016

Programs

HS-110

$
2.0

$
1.1

HS-410

0.6

2.5

HS-120

0.1

0.3

Other programs

0.4

0.7

Unallocated research and development expenses

2.7

2.5

$
5.8

$
7.1

·
HS-110 expense increased $0.9 million, primarily attributable to CMC activities, as well as continued patient enrollment as we advance into Phase 2 of our multi-arm trial. HS-410 expense decreased $1.9 million due to the current phase of the trialfollows, in ~~which patients are in long-term follow-up for recurrence-free survival. HS-120,~~~~ComPACT~~~~™ decreased $0.2 million due to reductions in CMC activities. Other programs include preclinical costs associated with our Zika program, T-cell costimulatory programs, and laboratory supplies.~~ millions:

For the Six Months Ended

June 30,

2020

2019
Programs




HS-110

$
0.4

$
1.8
HS-130

0.4

0.1
PTX-35

1.1

2.0
COVID-19

0.1

—
Other programs

0.1

0.2
Unallocated research and development expenses

3.5

2.5

$
5.6

$
6.6

● HS-110 expense decreased $1.4 million, reflecting the current-period mix of development activities, primarily due to decreased costs associated with the transition of patients from active treatment into long-term follow-up.
● HS-130 expense increased $0.3 million due to dosing of patients, third-party regulatory consulting and investigator site payments for the ongoing Phase 1 clinical trial.
● PTX-35 expense decreased $0.9 million primarily due to the transition from pre-clinical development to manufacturing development and patient dosing.
● COVID-19 program was initiated in Q1 2020 and primarily represents sponsored research agreement costs.
● Other programs include preclinical costs associated with our Zika program, T-cell costimulatory programs, and laboratory supplies.
● Unallocated research expenses primarily reflects personnel costs, including stock-based compensation from stock awards.
·
Unallocated expenses include personnel-related expenses, professional and consulting fees, and travel and other costs. These costs increased approximately $0.2 million primarily related to the increase in consultant fees and travel and other costs offset by a decrease in personnel costs.

General and administrative expense. General and administrative expense ~~increased 46% to $4.3~~was $5.1 million and $5.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared~~2020 and 2019. General and administrative expenses primarily consist of personnel costs, including stock-based compensation expense, and consulting expenses to ~~$2.9~~manage the business.
Change in fair value of contingent consideration. The change in fair value of contingent consideration was $0.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. The $1.4~~2020, compared to $0.2 million ~~increase is primarily attributable to the $0.8 million increase in professional services, consultants and other third party expenses, as well as $0.6 million related to the acquisition of Pelican.~~

~~Balance Sheet at September 30, 2017 and December 31, 2016~~

~~Prepaid Expenses and Other Current Assets.~~Prepaid expenses and other current assets was approximately $1.9 million as of September 30, 2017 and $0.3 million as of December 31, 2016. The $1.6 million increase was attributable to the amount paid in advance for cGMP production of our PTX-35 antibody and PTX-15 fusion protein, as well as an increase in in the ~~amount paid in advance for CMC material as we progress our clinical trial studies for HS-110.~~

~~In-Process R&D and Goodwill.~~ ~~As of September~~six months ended June 30, ~~2017, the Company recorded in-process R&D of $5.9 million and goodwill of $2.2 million from its acquisition of Pelican Therapeutics, Inc.~~2019. The ~~Company had no in-process R&D nor goodwill as of December 31, 2016.~~
~~Accounts Payable.~~ Accounts payable was approximately $1.2 million as of September 30, 2017 compared to approximately $0.3 million as of December 31, 2016. The increase of approximately $0.9 million was related to payables for CMC and clinical trial activities and for our R&D programs, as well as increase in payables associated with our Pelican subsidiary.

~~Deferred Revenue.~~ As of September 30, 2017, we had deferred revenue of $0.9 million for proceeds received for the CPRIT grant but for which the costs had not been incurred or the conditions of the award had not been met. We had no deferred revenue as of December 31, 2016.

~~Accrued Expenses and Other Liabilities.~~ Accrued expenses were approximately $1.0 million as of September 30, 2017 compared to approximately $1.3 million as of December 31, 2016. The decrease of approximately $0.3 million was related to 2016 employee bonuses which were accrued at December 31, 2016 but subsequently paid in January 2017 as well as expenses related to our acquisition.

~~Other Long-Term Liabilities.~~ Long term liabilities were $0.4 million as of September 30, 2017 and $0.5 million as of December 31, 2016. The minimal decrease was attributable to the percent of investigator site fees that are held back until the clinical study is complete reclassed to current liabilities.

~~Contingent Consideration.~~As of September 30, 2017 the Company had contingent consideration of $2.4 million related to its acquisition and is recorded on our consolidated balance sheets. This amount represents the fair value of future milestone payments to Pelican shareholders which were discounted in accordance with ASC 805. The Company performs an analysis on a quarterly basis and as of September 30, 2017, the Company determined the change in the ~~estimated~~2020 period primarily reflects the re-calculation of discounted cash flows for the passage of time and milestone achievement.
Total non-operating income (loss). Other loss was ($0.9) million for the six months ended June 30, 2020, compared to income of $0.3 million for the six months ended June 30, 2019. The change of ($1.2) million primarily consists of extinguishment expense and changes in fair value related to warrants of ($1.1) million, and a decrease in interest income on cash and short-term investment balances of ($0.1) million.

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Net loss attributable to Heat Biologics, Inc. We had a net loss attributable to Heat Biologics, Inc. of $10.7 million, or ($0.15) per basic and diluted share for the ~~contingent consideration during~~six months ended June 30, 2020 compared to a net loss of $10.5 million, or ($0.32) per basic and diluted share for the ~~quarter was nominal. The Company had no contingent consideration as of December 31, 2016.~~six months ended June 30, 2019.

LIQUIDITY AND CAPITAL RESOURCES

Sources of Liquidity

~~We commenced active operations~~Since our inception in June ~~2008. To date,~~2008, we have ~~not generated any~~incurred significant ~~revenues~~losses and we have ~~primarily~~ financed our operations with net proceeds from the private placement of our preferred stock, common stock and debt. Since our ~~July 2013~~ initial public offering, we have primarily financed our operations with net proceeds from the public offering of our securities and to a lesser extent, the proceeds from the exercise of warrants. During May 2018, we closed a public offering of shares of our common stock and warrants to purchase shares of our common stock in which we received net proceeds of ~~$24.3~~approximately $18.8 million ~~our March 2015~~and after the closing of the offering, an additional $4.8 million from the exercise of 3,054,667 warrants issued in this offering. During November 2018, we closed a public offering of shares of our common stock and warrants to purchase shares of our common stock in which we received net proceeds of ~~$11.1~~approximately $12.7 million. For the year ended December 31, 2018, we received net proceeds of approximately $3.8 million from sales of our ~~March 2016~~common stock in at-the-market offerings. On January 21, 2020, we closed an underwritten public offering inof shares of our common stock and warrants to purchase shares of our common stock pursuant to which we received net proceeds of ~~$6.1 million and an additional $3.9 million as of September~~approximately $6.4 million. For the six months ended June 30, ~~2017 from the exercise of 3,863,429 warrants, and our March 2017 Public Offering in which~~2020, we received net proceeds of ~~$4.1 million. In addition, we have received $9.3~~$36 million from the sale of ~~net proceeds from sales through the At Market Issuance Sales Agreement (the “FBR Sales Agreement”) with FBR Capital Markets & Co. through September 30, 2017.~~44,864,076 shares of our common stock in at-the-market offerings. As of ~~September~~June 30, ~~2017,~~2020, we had an accumulated deficit of ~~$65.7~~$115.3 million. We had net losses of ~~$9.1~~$20.4 million and ~~$9.4~~$16.6 million for the ~~nine~~years ended December 31, 2019 and 2018, respectively. We had net losses of $10.9 million and $10.8 million for the six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Subsequent to the quarter ended June 30, 2020, we have issued an additional 36,111,471 shares of common stock in “at-the-market” offerings and received $58.5 million of net proceeds.

We expect to incur significant expenses and continued losses from operations for the foreseeable future. We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development and advance our clinical trials of, and seek marketing approval for, our product candidates. We are currently devoting much of our resources to developing HS-110 and other combination therapies, including conducting clinical trials as well as providing additional matching funds necessary for Pelican to access its grant funding from CPRIT. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing, and distribution. ~~Accordingly,~~Although we currently have sufficient funds to complete our Phase 2 clinical trials, as currently planned, and expect that we will have sufficient funds to fund our operations into the third quarter 2021, we will need to obtain substantial additional future funding in connection with our ~~continuing operations.~~future planned clinical trials. While we are currently funding vaccine development and preclinical studies, we do not expect to use significant corporate resources to advance our COVID-19 program. We are applying for several large grants to support clinical development of this program and are engaged in collaboration discussions, which we believe may provide attractive and non-dilutive pathways to help accelerate development of our COVID-19 program; however, there can be no assurance that we will receive such grant funding or if received, the amount of such grant funding. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on attractive terms, we would be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.~~We will need to obtain additional financing to pursue our business strategy, to respond to new competitive pressures or to take advantage of opportunities that may arise.~~ ~~Accordingly, there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital.~~ To meet our capital needs, we are considering multiple alternatives, including, but not limited to, additional equity financings, which include sales of our common stock under at-the-market offerings, if available, debt financings, partnerships, collaborations and other funding ~~transactions in order to focus our resources on our product candidates.~~transactions. This is based on our current estimates, and we could use our available capital resources sooner than we currently expect. We ~~are continually evaluating various cost-saving measures in light of our cash requirements in order to focus our resources on our product candidates. We~~ may take additional action to reduce our immediate cash expenditures, including ~~re-visiting~~revisiting our headcount, offering vendors equity in lieu of the cash due to them and otherwise limiting our other research expenses, in order to focus our resources on our product candidates. We will need to generate significant revenues to achieve profitability, and we may never do so. As of ~~September~~June 30, ~~2017,~~2020, we had ~~$4.3~~approximately $47.0 million in cash and cash ~~equivalents. This amount does not include the $6.5 million CPRIT funds received October 3, 2017.~~equivalents and short-term investments.

~~Our cash and cash equivalents are currently held in an interest-bearing checking and money market accounts.~~

Cash Flows

Operating activities. ~~The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and changes in the components of working capital. The decrease in~~Net cash used in operating activities ~~for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 was $10.1 million compared to $8.2 million during the ~~nine months ended September 30, 2016 is due to a decrease~~same period in ~~clinical~~2019. Net cash used in operating activities primarily reflects the net

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loss and ~~regulatory expenses as we focus our attention on Phase 2 of our HS-110 multi-arm clinical trial.~~changes in operating assets and liabilities for those periods, partially offset by non-cash stock-based compensation expense.

Investing activities. ~~Cash~~Net cash used in investing activities ~~were primarily for our acquisition of Pelican for~~was $20.7 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017. Cash provided by investing activities for~~2020 compared to $0.1 million during the ~~nine months ended September 30, 2016 was primarily~~same period in 2019. The increase is from ~~proceeds from maturities~~the net purchase of ~~various~~ short-term investments ~~offset by the purchase of property~~ and lab equipment. ~~After the quarter ended March 31, 2016, we no longer hold short-term investments.~~

Financing activities. ~~Cash~~Net cash provided by financing activities was $42.5 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017 was from the March 2017~~2020 due to a public offering ~~which generated~~of common stock and warrants and sale of our common stock through an at-the-market Common Stock Sales Agreement with B. Riley FBR, Inc., net ~~proceeds~~ of ~~approximately $4.1 million, as well as $2.3 million net proceeds~~related stock issuance costs. There were no significant cash inflows from ~~the FBR sales agreement. Cash provided by~~ financing activities during the ~~nine~~six months ended ~~September~~June 30, ~~2016 was~~2019.

On April 23, 2020, Heat and Pelican received loan proceeds of $0.7 million from Regions Bank, N.A, pursuant to the Paycheck Protection Program, or the PPP Loan, under the CARES Act, administered by the U.S. Small Business Administration. On April 28, 2020, we returned all $0.7 million in proceeds from the ~~March 2016 public offering which generated net~~PPP Loan. Heat and Pelican returned the loan proceeds ~~of approximately $6.1 million, an additional $2.8 million from the exercise of 2,773,982 warrants,~~in order to make those funds available to other borrowers that may be in greater need.

Current and ~~net proceeds of approximately $2.8 million from the FBR sales agreement.~~

~~Funding Requirements~~

Future Financing Needs

We ~~believe that~~have incurred an accumulated deficit of $115.3 million through June 30, 2020. We have incurred negative cash flows from operations since we started our ~~existing cash~~business. We have spent, and ~~cash equivalents will not be sufficient~~expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, and our research and discovery efforts.

We intend to meet our ~~anticipated cash~~financing needs ~~for the next twelve months. To meet our financing needs,we are considering~~through multiple alternatives, including, but not limited to, additional equity financings, debt financings partnerships, collaborations and other funding transactions. We are continually evaluating various cost-saving measures in light of our cash requirements. We may take additional action to reduce our immediate cash expenditures, including re-visiting our headcount, offering vendors equity in lieu of the cash due to them and otherwise limiting our other research expenses, in order to focus our resources on our product candidates. Thereafter, we intend to meet our financing needs through the issuance of equity or debt and/or funding from partnerships or collaborations.

However, the actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:

●

the progress of our research activities;

●

the number and scope of our research programs;

●

the progress of our preclinical and clinical development activities;

●

the progress of the development efforts of parties with whom we have entered into research and development agreements;

●

our ability to maintain current research and development licensing arrangements and to establish new research and development and licensing arrangements;

●

our ability to achieve our milestones under licensing arrangements;

●

the costs involved in prosecuting and enforcing patent claims and other intellectual property rights;

●

the costs and timing of regulatory approvals;

●

the receipt of grant funding if any; and

●

clinical laboratory development and testing

We have based our estimate on assumptions that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential sources of financing include strategic relationships, public or private sales of our equity or debt and other sources. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock, such as through the at-the-market Common Stock Sales Agreement with B. Riley FBR, Inc., or other securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations and our business, financial condition and results of operations would be materially harmed. While we are experiencing limited financial impacts at this time,

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given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected.

OFF-BALANCE SHEET ARRANGEMENTS

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under Securities and Exchange Commission rules.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

~~Not applicable to~~We are a smaller reporting ~~companies.~~company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

ITEM 4.

CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Vice President of Finance, evaluated the effectiveness of our disclosure controls and procedures as of ~~September~~June 30, ~~2017.~~2020. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the ~~Company’s~~company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. We have adopted and maintain disclosure controls and procedures (as defined Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. ~~The Company’s~~Our disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. ~~During the course of the quarter, we identified a material weakness in our controls relating to accounting for significant transactions, as described below.~~ Based on the evaluation of our disclosure controls and procedures as of ~~the end of the period covered by this report and upon that discovery,~~June 30, 2020 our Chief Executive Officer and Vice President of Finance concluded that, as of such a date, our disclosure controls and procedures were ~~not~~ effective at ~~a level that provides~~the reasonable assurance ~~as of the last day of the period covered by this report.~~

level.

Changes in Internal Control over Financial Reporting

During the second quarter of 2017, we identified a material weakness in our controls over financial reporting related to the purchase price accounting for the acquisition that occurred during the quarter. Specifically, we did not design and maintain effective controls related to the acquisition for the purchase price of the acquired assets and liabilities of Pelican. We believe the financial statements included herein properly reflect the correct amount and proper classification of the acquired net assets of Pelican.

~~In order to remediate this material weakness, we have implemented the following steps to improve the overall processes of identifying and reviewing purchase accounting~~ ~~considerations beyond the recording of the initial purchase price:~~

·
Add additional considerations to our processes to address the accounting for and financial statement presentation of activities that occur beyond the initial purchase accounting and subsequent adjustments to ~~purchase accounting; and~~
·
~~Perform additional internal review processes to ensure the appropriate accounting and disclosure of significant transactions.~~

~~Based on these measures and the progress made during the quarter~~three months ended ~~September~~June 30, 2017, management believes that the material weakness will be remediated by the end of the fiscal year. Should additional changes to the remediation plan be warranted, management will modify the planned measures accordingly.
~~Other than the identification of the material weakness related to the acquisition of Pelican,~~2020, there were no changes in ~~the Company’s~~our internal ~~controls~~control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal ~~controls~~control over financial ~~reporting during the period ended September 30, 2017.~~reporting.

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PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

ITEM 1A.

RISK FACTORS.

Investing in our securities involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and notes thereto. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. The following information ~~and~~ updates should be read in conjunction with the information disclosed in Part 1, Item 1A, “Risk Factors,” contained in our ~~2016~~2019 Annual Report. Except as disclosed below, there have been no material changes from the risk factors and uncertainties disclosed in our ~~2016~~2019 Annual Report.

We have incurred net losses every year since our inception and expect to continue to generate operating losses and experience negative cash flows and it is uncertain whether we will achieve profitability.

~~For~~We have incurred net losses in each year since our inception, including net losses of $10.9 million and $10.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016, we incurred a net loss of $9.1 million and $9.4 million,~~2019, respectively. We ~~have~~had an accumulated deficit of ~~$65.7~~$115.3 million ~~through September~~as of June 30, ~~2017.~~2020. We expect to continue to incur operating losses until such time, if ever, as we ~~are able to~~can achieve sufficient levels of revenue from operations. Our ability to achieve profitability will depend on us obtaining regulatory approval for our product candidates and market acceptance of our product offerings and our capacity to develop, introduce and sell our products to our targeted markets. There can be no assurance that any of our product candidates will be approved for commercial sale, or even if our product candidates are approved for commercial sale that we will ever generate significant sales or achieve profitability. Accordingly, the extent of future losses and the time required to achieve profitability, if ever, cannot be predicted at this point.

Even if we succeed in developing and commercializing one or more product candidates, we expect to incur substantial losses for the foreseeable future and may never become profitable. We also expect to continue to incur significant operating expenses and anticipate that our expenses will increase substantially in the foreseeable future as we:

~~continue to undertake preclinical development and conduct clinical trials for product candidates;~~

~~seek regulatory approvals for product candidates;~~

~~implement additional internal systems and infrastructure; and~~

~~hire additional personnel.~~

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continue to undertake preclinical development and conduct clinical trials for product candidates;

●

seek regulatory approvals for product candidates;

●

implement additional internal systems and infrastructure; and

●

hire additional personnel.

We also expect to experience negative cash flows for the foreseeable future as we fund our operating losses. As a result, we will need to generate significant revenues or raise additional financing in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability would likely negatively impact the value of our securities and financing activities.

We will need to raise additional capital to operate our business and our failure to obtain funding when needed may force us to delay, reduce or eliminate our development programs or commercialization efforts.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, our operating activities used net cash of approximately ~~$9.4~~$10.1 million and as of ~~September~~June 30, ~~2017~~2020, our cash and cash equivalents and short-term investments were approximately ~~$4.3~~$47.0 million. During the ~~year~~years ended December 31, ~~2016,~~2019 and 2018, our operating activities used net cash of approximately ~~$13.5~~$12.8 and $21.7 million, and as of December 31, 2016 our cash and cash equivalents were approximately $7.8 million. We have experienced significant losses since inception and have a significant accumulated deficit. As of September 30, 2017, our accumulated deficit totaled approximately $65.7 million and as of December 31, 2016, our accumulated deficit totaled approximately $57.0 million on a consolidated basis.respectively. We expect to incur additional operating losses in the future and therefore expect our cumulative

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losses to increase. We do not expect to derive revenue from any significant source in the near future until we or our potential partners successfully commercialize our products. ~~Despite cost-saving measures that we implemented, we~~We expect our expenses to increase if and when we initiate and conduct Phase 3 and other clinical trials and seek marketing approval for our product candidates. Until such time as we receive approval from the FDA and other regulatory authorities for our product candidates, we will not be permitted to sell our products and therefore will not have product revenues from the sale of products. For the foreseeable future, we will have to fund all of our operations and capital expenditures from equity and debt offerings, cash on hand, licensing fees and grants.

We expect that our current cash and cash equivalents and short-term investments will allow us to complete ~~the enrollment~~patient monitoring, post-enrollment of ~~additional patients in~~our the Phase 2 clinical trial for ~~HS-110; however, if~~HS-110, and Phase 1 clinical trials for both PTX-35 and HS-130. We also expect to experience negative cash flows for the ~~trial design or size were to change,~~foreseeable future as we ~~may~~fund our operating losses. As a result, we will need to generate significant revenues or raise ~~money earlier than anticipated.~~

additional financing in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability in the future. Our failure to achieve or maintain profitability would likely negatively impact the value of our securities and financing activities. We will need to raise additional capital to fund our future operations and milestone payments and we cannot be certain that funding will be available to us on acceptable terms on a timely basis, or at all.To meet our financing needs, we are considering multiple alternatives, including, but not limited to, current and additional equity financings, which we expect will include sales of common stock through ~~at-market-issuances,~~the public offering of securities, at the market issuances, debt financingsand/or funding from partnerships or ~~collaborations. There can~~collaborations. Our ability to raise capital through the sale of securities may be ~~no assurance~~limited by our number of authorized shares of common stock and various rules of the SEC and The Nasdaq Capital Market that place limits on the number and dollar amount of securities that we ~~will be able tomeet the requirements for use of at-market-issuance agreements, especially in light of the fact that we are subject to the smaller reporting company requirements, or tocomplete any such transactions on acceptable terms or otherwise~~.may sell. Any additional sources of financing will likely involve the issuance of our equity or debt securities, which will have a dilutive effect on our ~~stockholders.~~stockholders, assuming we are able to sufficiently increase our authorized number of shares of common stock. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that may impact our ability to conduct our business. If we ~~do not succeed in raising~~fail to raise additional funds on acceptable terms, we may be unable to complete planned preclinical and clinical trials or obtain approval of our product candidates from the FDA and other regulatory ~~authorities.~~authorities or continue to maintain our listing on the Nasdaq Capital Market. In addition, we could be forced to delay, discontinue or curtail product development, forego sales and marketing efforts, and forego licensing in attractive business opportunities. Any additional sources of financing will likely involve the issuance of our equity or debt securities, which will have a dilutive effect on our stockholders.

We have identified a material weakness our internal controls, and we cannot provide assurances that this weakness will be effectively remediated or that additional material weaknesses will not occur inOur failure to meet the future. If our internal control over financial reporting or our disclosure controls and procedures are not effective, we may not be able to accurately report our financial results, prevent fraud, or file our periodic reportscontinued listing requirements of the Nasdaq Capital Market could result in a ~~timely manner, which may cause investors to lose confidence in~~de-listing of our ~~reported financial information and may lead to a decline in our stock price.~~

common stock.

Our ~~management is responsible~~shares of common stock are currently listed on The Nasdaq Capital Market. If we fail to satisfy the continued listing requirements of The Nasdaq Capital Market, such as the corporate governance requirements, minimum bid price requirement or the minimum stockholder’s equity requirement, The Nasdaq Capital Market may take steps to de-list our common stock. Any de-listing would likely have a negative effect on the price of our common stock and would impair stockholders’ ability to sell or purchase their common stock when they wish to do so. In the past we have received notices from the Listing Qualifications Department of Nasdaq Stock Market LLC (“Nasdaq”) that we failed to comply with the stockholder’s equity requirements and the minimum closing bid requirements. On June 21, 2019, we received written notice from the Listing Qualifications Department of the Nasdaq Stock Market LLC notifying us that for ~~establishing and maintaining adequate internal control over~~the preceding 30 consecutive business days (May 9, 2019 through June 20, 2019), our ~~financial reporting,~~common stock did not maintain a minimum closing bid price of $1.00 per share (“Minimum Bid Price Requirement”) as ~~defined in~~required by Nasdaq Listing Rule ~~13a- 15(f)~~5550(a)(2). The notice has no immediate effect on the listing or trading of our common stock which will continue to trade on The Nasdaq Capital Market under the ~~Exchange Act. During~~symbol “HTBX”. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we initially had a compliance period of 180 calendar days, or until December 18, 2019, to regain compliance with Nasdaq Listing Rule 5550(a)(2), which compliance period had been extended to June 15, 2020. On April 16, 2020 Nasdaq extended the ~~second quarter~~bid price compliance requirement to August 31, 2020 due to extraordinary market conditions.

At the 2020 Special Meeting of ~~2017,~~Stockholders, the stockholders approved an amendment to effect a reverse stock split of our common stock within a range of 1-for-2 and 1-for-50, at the sole discretion of the Board of Directors. On July 24, 2020, we ~~identified a material weakness in our controls over financial reporting related to~~received written notice from The Nasdaq Capital Market that from July 10, 2020 through July 23, 2020, the ~~accounting for significant transactions that occurred during the quarter. Specifically, we did not design and maintain effective controls related to the acquisition for the purchase~~closing bid price of our common stock has been at $1.00 per share or greater and accordingly we had regained compliance

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with Nasdaq Listing Rule 5550(a)(2) and the ~~acquired assets and liabilities of Pelican. Although management believes that the control deficiencies will be remediated by the end of the fiscal year there~~matter was now closed. There can be no assurance given that ~~the deficiency~~we will be ~~remediated at~~able to satisfy our continued listing requirements and maintain the listing of our common stock on The Nasdaq Capital Market going forward.

Global health crises may adversely affect our planned operations.

Our business and the business of the supplier of our clinical product candidate and the suppliers of the standard of are drugs that are administered in combination with our clinical product candidate could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis, such as the recent outbreak of novel coronavirus (COVID-19). A significant outbreak of contagious diseases in the human population could result in a widespread health crisis that could adversely affect our planned operations. Such events could result in the complete or partial closure of one or more manufacturing facilities which could impact our supply of our clinical product candidate or the standard of care drugs that are administered in combination with our clinical product candidate. In addition, an outbreak near our clinical trial sites are located is impacting our ability to recruit patients, delay our clinical trials, and affecting our ability to complete our clinical trials within the planned time periods. In addition, it could impact economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital or slow down potential partnering relationships.

Coronavirus pandemic could adversely impact our business, including our clinical trials.

Since December 2019, a novel strain of coronavirus, COVID-19, has spread to multiple countries, including the United States where we have planned or active clinical trial sites. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic. In response to the COVID-19 pandemic, many state, local, and foreign governments have put in place, and others in the future may put in place, quarantines, executive orders, shelter-in-place orders, and similar government orders and restrictions in order to control the spread of the disease. Such orders or restrictions, or the perception that such orders or restrictions could occur, have resulted in business closures, work stoppages, slowdowns and delays, work-from-home policies, travel restrictions, and cancellation or postponement of events, among other effects that could negatively impact productivity and disrupt our operations.

As the COVID-19 pandemic continues to spread around the globe, we are experiencing disruptions that could severely impact our business and clinical trials, including:

●

delays in initiation of or difficulties in enrolling patients in our clinical trials due to a lack of personal protection equipment supply for patients and subsequent temporary cessation of non-essential patient procedures;

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delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;

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diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials;

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interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others;

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limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people;

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delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;

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delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;

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interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials;

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●

changes in local regulations as part of a response to the COVID-19 outbreak which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;

●

delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;

●

delay in the timing of interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19; and

●

refusal of the FDA to accept data from clinical trials in affected geographies outside the United States.

In addition, the COVID-19 outbreak could disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines. COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.

The global outbreak of COVID-19 continues to rapidly evolve. The extent to which the COVID-19 outbreak may impact our business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. We do not yet know the full extent of potential delays or impacts on our business, operations, or the global economy as a whole. While the spread of COVID-19 may eventually be contained or mitigated, there is no guarantee that a future outbreak of this or any other widespread epidemics will not occur, or that the ~~internal control over financial reporting, as modified,~~global economy will ~~enable us~~recover, either of which could seriously harm our business.

Future sales of our common stock by our existing stockholders could cause our stock price to ~~identify or avoid material weaknesses~~decline.

On August 4, 2020, we had 148,560,562 shares of our common stock outstanding, all of which are currently eligible for sale in the ~~future. In addition,~~public market, subject, in certain circumstances to the ~~material weakness will~~volume, manner of sale and other limitations under Rule 144 promulgated under the Securities Act. It is conceivable that stockholders may wish to sell some or all of their shares. If our stockholders sell substantial amounts of our common stock in the public market at the same time, the market price of our common stock could decrease significantly due to an imbalance in the supply and demand of our common stock. Even if they do not ~~be considered remediated until~~actually sell the ~~applicable controls operate for a sufficient period~~stock, the perception in the public market that our stockholders might sell significant shares of ~~time~~our common stock could also depress the market price of our common stock.

A decline in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock or other equity securities, and ~~management has concluded, through testing, that these controls are designed and operating effectively.~~may cause stockholders to lose part or all of their investment in our shares of common stock.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None that were not previously disclosed in our Current Reports on Form ~~8-k.~~8-K.

ITEM 3.
DEFAULTS UPON SENIOR SECURITIES.

Not Applicable.

ITEM 4.
MINE SAFETY DISCLOSURES.

Not Applicable.

Table of Contents

ITEM 5.

OTHER INFORMATION.

None.

Table of Contents

ITEM 6.

EXHIBITS.

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit ~~Index, which~~Index. The Exhibit Index is incorporated herein by reference.

EXHIBIT INDEX

Exhibit No.
Description
10.1

Amendment No. 1 dated April 23, 2020 to the At Market Issuance Sales Agreement (incorporated by reference to Current Report on Form 8-K filed with the SEC on April 23, 2020 (File No. 001-35994).
31.1*

Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*

Certification of Vice President of Finance pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*

Certification of Vice President of Finance pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*

XBRL Instance Document
101.SCH*

XBRL Taxonomy Extension Schema Document
101.CAL*

XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*

XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*

XBRL Taxonomy Extension Label Linkbase Document
101.PRE*

XBRL Taxonomy Extension Presentation Linkbase Document

*	Filed herewith.

Table of Contents

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.


			HEAT BIOLOGICS, INC.


Date: ~~November 13, 2017~~	August 7, 2020	By:	/s/ Jeffrey A. Wolf
			Jeffrey A. Wolf
			Chairman and Chief Executive Officer
			(Principal ~~executive officer)~~Executive Officer)

Date: ~~November 13, 2017~~	August 7, 2020	By:	/s/ ~~Ann A. Rosar~~William Ostrander
			~~Ann A. Rosar~~William Ostrander
			Vice President of Finance
			(Principal ~~financial~~Financial and ~~accounting officer)~~Accounting Officer)

~~EXHIBIT INDEX~~40


~~Exhibit No.~~		~~Description~~
~~3.1~~		Certificate of Amendment to the Certificate of Incorporation of Heat Biologics, Inc., dated July 13, 2017 (incorporated by reference to the Registrant’s Form 8-K (File No. 001-35994) filed with the Securities and Exchange Commission on July 17, 2017).
~~31.1~~*		~~Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~31.2~~*		~~Certification of Vice President of Finance pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~
~~32.1~~*		~~Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~32.2~~*		~~Certification of Vice President of Finance pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
101.INS*		~~XBRL Instance Document~~
101.SCH*		~~XBRL Taxonomy Extension Schema Document~~
101.CAL*		~~XBRL Taxonomy Extension Calculation Linkbase Document~~
101.DEF*		~~XBRL Taxonomy Extension Definition Linkbase Document~~
101.LAB*		~~XBRL Taxonomy Extension Label Linkbase Document~~
101.PRE*		~~XBRL Taxonomy Extension Presentation Linkbase Document~~

~~———————~~

~~Filed herewith.~~


	September 30, 2017			December 31, 2016
	(unaudited)
Current Assets
Cash and cash equivalents	$	4,288,627		$	7,842,667
Accounts receivable		1,427			82,305
Prepaid expenses and other current assets		1,935,558			338,049
Total Current Assets		6,225,612			8,263,021

Property and Equipment, net		320,015			359,592

Other Assets
Restricted cash		2,292			101,171
In-process R&D		5,866,000			—
Goodwill		2,189,338			—
Deposits		69,798			69,798
Deferred financing costs		46,340			—
Related party receivable		—			103,017
Total Other Assets		8,173,768			273,986

Total Assets	$	14,719,395		$	8,896,599

Liabilities and Stockholders’ Equity

Current Liabilities
Accounts payable	$	1,214,224		$	290,058
Deferred revenue		938,388			—
Accrued expenses and other liabilities		994,964			1,305,173
Total Current Liabilities		3,147,576			1,595,231

Long Term Liabilities
Other long term liabilities		449,970			461,434
Deferred tax liability		2,111,760			—
Contingent consideration		2,385,000			—
Total Liabilities		8,094,306			2,056,665

Commitments and Contingencies

Stockholders’ Equity
Common stock, $.0002 par value; 50,000,000 shares authorized, 35,788,912 and 26,204,390 shares issued and outstanding at September 30, 2017 (unaudited) and December 31, 2016, respectively		6,841			4,926
Additional paid-in capital		73,871,510			65,868,541
Accumulated deficit		(65,714,314	)		(57,004,655	)
Accumulated other comprehensive loss		(172,973	)		(72,231	)
Total Stockholders’ Equity– Heat Biologics, Inc.		7,991,064			8,796,581
Non-Controlling Interest		(1,365,975	)		(1,956,647	)
Total Stockholders’ Equity		6,625,089			6,839,934

Total Liabilities and Stockholders’ Equity	$	14,719,395		$	8,896,599


	Three Months Ended, September 30,						Nine Months Ended, September 30,
	2017			2016			2017			2016
Revenue:
Grant and licensing revenue	$	470,823		$	220,233		$	906,313		$	220,233
Operating expenses:
Research and development		1,823,922			1,693,133			5,788,755			7,127,466
General and administrative		1,188,476			820,574			4,298,072			2,935,030
Total operating expenses		3,012,398			2,513,707			10,086,827			10,062,496

Loss from operations		(2,541,575	)		(2,293,474	)		(9,180,514	)		(9,842,263	)

Interest income		5,629			5,445			17,316			24,400
Other income, net		31,768			734,509			109,211			757,044
Interest expense		—			(110,468	)		—			(370,422	)
Total non-operating income, net		37,397			629,486			126,527			411,022

Net loss		(2,504,178	)		(1,663,988	)		(9,053,987	)		(9,431,241	)
Net loss – non-controlling interest		(203,371	)		(47,042	)		(344,328	)		(329,471	)
Net loss attributable to Heat Biologics, Inc.	$	(2,300,807	)	$	(1,616,946	)	$	(8,709,659	)	$	(9,101,770	)

Net loss per share attributable to Heat Biologics, Inc.—basic and diluted	$	(0.06	)	$	(0.08	)	$	(0.27	)	$	(0.59	)

Weighted-average number of common shares used in net loss per share attributable to common stockholders—basic and diluted		35,786,606			19,420,026			32,695,360			15,371,267

Other comprehensive loss:
Net loss		(2,504,178	)		(1,663,988	)		(9,053,987	)		(9,431,241	)
Unrealized loss on foreign currency translation		(24,707	)		(36,387	)		(100,742	)		(62,961	)
Total other comprehensive loss		(2,528,885	)		(1,700,375	)		(9,154,729	)		(9,494,202	)
Comprehensive loss attributable to non-controlling interest		(203,371	)		(47,042	)		(344,328	)		(329,471	)
Comprehensive loss	$	(2,325,514	)	$	(1,653,333	)	$	(8,810,401	)	$	(9,164,731	)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenue:
Grant and licensing revenue	$	593,165	$	342,487	$	1,495,045	$	1,043,549

Operating expenses:
Research and development		2,790,797		3,424,141		5,573,303		6,596,388
General and administrative		1,801,674		1,860,459		5,072,222		5,208,060
Change in fair value of contingent consideration		843,000		112,000		816,000		226,290
Total operating expenses		5,435,471		5,396,600		11,461,525		12,030,738

Loss from operations		(4,842,306)		(5,054,113)		(9,966,480)		(10,987,189)

Change in fair value of warrant liability		(24,363)		—		(1,002,073)		—
Investor relations expense		—		—		(66,767)		—
Interest income		56,080		124,793		108,790		275,645
Other income (expense), net		273,771		(15,585)		16,292		(7,264)
Total non-operating income (loss)		305,488		109,208		(943,758)		268,381

Net loss before income taxes		(4,536,818)		(4,944,905)		(10,910,238)		(10,718,808)
Income tax expense		—		—		—		(45,178)
Net loss		(4,536,818)		(4,944,905)		(10,910,238)		(10,763,986)
Net loss - non-controlling interest		(82,388)		(174,035)		(163,702)		(277,640)
Net loss attributable to Heat Biologics, Inc.	$	(4,454,430)	$	(4,770,870)	$	(10,746,536)	$	(10,486,346)

Net loss per share attributable to Heat Biologics, Inc.-
Net loss per share attributable to Heat Biologics, Inc.-basic and diluted	$	(0.05)	$	(0.14)	$	(0.15)	$	(0.32)

Weighted-average number of common shares used in net loss per share attributable to common stockholders-
Weighted-average number of common shares used in net loss per share attributable to Heat Biologics, Inc.—basic and diluted		87,930,846		33,255,724		72,606,461		33,240,529

Comprehensive loss:
Net loss	$	(4,536,818)	$	(4,944,905)	$	(10,910,238)	$	(10,763,986)
Unrealized (loss) gain on foreign currency translation		(179,510)		16,612		39,294		8,423
Total comprehensive loss		(4,716,328)		(4,928,293)		(10,870,944)		(10,755,563)
Comprehensive loss attributable to non-controlling interest		(82,388)		(174,035)		(163,702)		(277,640)
Comprehensive loss - Heat Biologics, Inc.	$	(4,633,940)	$	(4,754,258)	$	(10,707,242)	$	(10,477,923)


									Accumulated
									Other						Total
	Common					Accumulated			Comprehensive			Non-Controlling			Stockholders
	Stock		APIC			Deficit			Loss			Interest			Equity
Balance at December 31, 2016	$	4,926	$	65,868,541		$	(57,004,655	)	$	(72,231	)	$	(1,956,647	)	$	6,839,934
Public offering, 5,750,000 shares, net of underwriters discounts		1,150		4,181,850			—			—			—			4,183,000
Issuance of common stock, 2,348,580 shares		470		2,462,710			—			—			—			2,463,180
Issuance of common stock for acquisition of Pelican, 1,331,056 shares		266		1,051,734			—			—			—			1,052,000
Acquisition of non-controlling interest of Pelican		—		—			—			—			935,000			935,000
Stock issuance costs		—		(239,617	)		—			—			—			(239,617	)
Stock-based compensation		29		546,292			—			—			—			546,321
Other comprehensive loss		—		—			—			(100,742	)		—			(100,742	)
Net loss		—		—			(8,709,659	)		—			(344,328	)		(9,053,987	)
Balance at September 30, 2017	$	6,841	$	73,871,510		$	(65,714,314	)	$	(172,973	)	$	(1,365,975	)	$	6,625,089


	Three Months Ended June 30, 2020
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		Income		Interest		Equity
Balance at March 31, 2020	$	15,627	$	137,692,553	$	(110,889,854)	$	207,554	$	(495,066)	$	26,530,814
ATM raise		6,375		25,564,043		—		—		—		25,570,418
Stock issuance costs		—		(639,826)		—		—		—		(639,826)
Stock-based compensation		—		373,008		—		—		—		373,008
Exercise of warrants		4		17,780		—		—		—		17,784
Other comprehensive loss		—		—		—		(179,510)		—		(179,510)
Net loss		—		—		(4,454,430)		—		(82,388)		(4,536,818)
Balance at June 30, 2020	$	22,006	$	163,007,558	$	(115,344,284)	$	28,044	$	(577,454)	$	47,135,870

	Six Months Ended June 30, 2020
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		(Loss) Income		Interest		Equity
Balance at December 31, 2019	$	6,757	$	118,173,843	$	(104,597,748)	$	(11,250)	$	(413,752)	$	13,157,850
January 2020 investment offering, net of underwriters discounts		4,000		4,102,148		—		—		—		4,106,148
ATM raise		8,973		36,989,680		—		—		—		36,998,653
Issuance of common stock from vesting of restricted stock awards		328		(328)		—		—		—		—
Stock Issuance costs		—		(1,092,760)		—		—		—		(1,092,760)
Stock-based compensation		—		1,321,200		—		—		—		1,321,200
Exercise of warrants		1,501		2,740,892		—		—		—		2,742,393
Exchange of warrants		447		772,883		—		—		—		773,330
Other comprehensive income		—		—		—		39,294		—		39,294
Net loss		—		—		(10,746,536)		—		(163,702)		(10,910,238)
Balance at June 30, 2020	$	22,006	$	163,007,558	$	(115,344,284)	$	28,044	$	(577,454)	$	47,135,870


	Three Months Ended June 30, 2019
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		Loss		Interest		Equity
Balance at March 31, 2019	$	6,819	$	116,943,119	$	(90,295,656)	$	(28,093)	$	(150,209)	$	26,475,980
Issuance of common stock		3		18,894		—		—		—		18,897
Exercise of stock options		—		2,122		—		—		—		2,122
Stock-based compensation		—		386,787		—		—		—		386,787
Other comprehensive loss		—		—		—		16,612		—		16,612
Net loss		—		—		(4,770,870)		—		(174,035)		(4,944,905)
Balance at June 30, 2019	$	6,822	$	117,350,922	$	(95,066,526)	$	(11,481)	$	(324,244)	$	21,955,493

	Six Months Ended June 30, 2019
							Accumulated
							Other				Total
	Common				Accumulated		Comprehensive		Non-Controlling		Stockholders'
	Stock		APIC		Deficit		Loss		Interest		Equity
Balance at December 31, 2018	$	6,499	$	114,883,135	$	(84,580,180)	$	(19,904)	$	(46,604)	$	30,242,946
Issuance of common stock		3		18,894		—		—		—		18,897
Exercise of stock options		—		2,122		—		—		—		2,122
Stock-based compensation		320		2,446,771		—		—		—		2,447,091
Other comprehensive loss		—		—		—		8,423		—		8,423
Net loss		—		—		(10,486,346)		—		(277,640)		(10,763,986)
Balance at June 30, 2019	$	6,822	$	117,350,922	$	(95,066,526)	$	(11,481)	$	(324,244)	$	21,955,493


Aggregate consideration:
Cash consideration	$	500,000
Stock consideration	$	1,052,000
Contingent consideration	$	2,385,000
Total Consideration	$	3,937,000


Purchase price allocation:
Cash acquired	$	31,199
In-process R&D	$	5,866,000
Goodwill	$	2,189,338
Deferred tax liability	$	(2,111,760	)
Net liabilities assumed	$	(1,102,777	)
Fair value of non-controlling interest	$	(935,000	)
Total purchase price	$	3,937,000


	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	471		$	220		$	906		$	220
Net loss		(2,504	)		(2,111	)		(9,445	)		(10,162	)
Net loss: Non-controlling interest		(203	)		(136	)		(423	)		(476	)
Net loss attributable to Heat Biologics, Inc.	$	(2,301	)	$	(1,975	)	$	(9,022	)	$	(9,686	)

Net loss per share attributable to Heat Biologics, Inc.—basic and diluted	$	(0.06	)	$	(0.10	)	$	(0.29	)	$	(0.61	)


	Contingent Consideration
Balance at December 31, 2016	$	—
Acquisition of Pelican		2,385,000
Change in fair value		—
Balance at September 30, 2017	$	2,385,000


	January 21, 2020
Current stock price	$	0.33
Estimated volatility of future stock price		124	%
Risk free interest rate		1.53	%
Expected term		3.7	years


	As of June 30, 2020
Description	Total		Level 1		Level 2	Level 3
Assets:
Short-term investments	$	26,312,039	$	26,312,039	—		—
Liabilities:
Contingent consideration	$	4,534,515		—	—	$	4,534,515
Warrant liability	$	47,939		—	—	$	47,939


	As of December 31, 2019
Description	Total			Level 1	Level 2	Level 3
Assets:
Short-term investments	$	5,713,922	$	5,713,922	—		—
Liabilities:
Contingent consideration	$	3,718,515		—	—	$	3,718,515


	Contingent		Warrant
	Consideration		Liability
Balance at December 31, 2019	$	3,718,515	$	—
Fair value at issuance		—		2,494,823
Reclassification of warrants from equity to liability due to modification		—		869,078
Reclassification of warrant liability to equity upon exercise of warrants		—		(2,742,393)
Reclassification of warrant liability to equity upon exchange of warrants		—		(1,575,642)
Change in fair value		816,000		1,002,073
Balance at June 30, 2020	$	4,534,515	$	47,939


	June 30, 2020
Current stock price	$	0.84
Estimated volatility of future stock price		223.90	%
Risk free interest rate		0.18	%
Contractual term		0.73	years


	September 30, 2017		December 31, 2016

Accrued clinical trial and other expenses	$	811,728	$	580,218
Compensation and related benefits		34,160		642,532
Deferred rent		31,775		42,423
Patent fees		35,000		40,000
Other expenses related to Pelican acquisition		82,301		—
	$	994,964	$	1,305,173


	2020		2019
Dividend yield	—	%	—	%
Expected volatility	89.61	%	131.10	%
Risk-free interest rate	0.86	%	2.50	%
Expected lives (years)	5.9	years	5.5	years


	Shares			Weighted Average Exercise Price
Outstanding, December 31, 2016		1,136,753		$	3.93
Granted		1,731,500		$	0.80
Forfeited		(194,704	)	$	2.12
Outstanding, September 30, 2017		2,673,549		$	2.04


		Weighted		Weighted
		Average		Average
		Exercise		Remaining
	Shares	Price		Contractual Life
Stock options outstanding at December 31, 2019	3,063,636	$	2.56
Granted	2,567,000		0.58
Forfeited/Expired	(38,200)		2.20
Stock options outstanding at June 30, 2020	5,592,436	$	1.65	8.9	Years
Stock options exercisable at June 30, 2020	2,357,128	$	2.83	8.2	Years


~~Dividend yield~~	~~0.0~~	%
~~Expected volatility~~	~~76.96~~	%
~~Risk-free interest rate~~	~~2.16~~	%
~~Expected lives (years)~~	~~6.25~~


Options Outstanding			Options Vested and Exercisable
Balance as of 9/30/2017	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price	Balance as of 9/30/2017	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price
2,673,549	8.5	$2.04	953,120	7.0	$3.87


	For the Nine Months Ended September 30,
	2017		2016

					2020		2019
Outstanding stock options		2,673,549		1,219,847		5,592,436		3,008,754
Outstanding restricted stock units		291,375		—
Restricted stock subject to forfeiture and restricted stock units					2,025,215		838,679
Outstanding common stock warrants		3,103,963		4,193,410		5,746,564		9,030,730


	For the Three Months Ended June 30, 2020		For the Six Months Ended June 30, 2020
Operating lease cost	$	103,956	$	207,912
Finance lease cost
Amortization of lease assets		29,725		54,752
Interest on lease liabilities		4,903		9,315
Total finance lease cost	$	34,628	$	64,067


	Operating Leases		Finance Leases		Total
2020 (excluding the six months ended June 30, 2020)	$	161,619	$	60,342	$	221,961
2021		330,032		120,684		450,716
2022		338,960		155,694		494,654
2023		244,973		10,284		255,257
2024		231,503		-		231,503
2025		238,452		-		238,452
Thereafter		454,821		-		454,821
Total minimum lease payments		2,000,360		347,004		2,347,364
Less: imputed interest		(368,622)		(27,064)		(395,686)
Present value of lease liabilities	$	1,631,738	$	319,940	$	1,951,678


2019 (excluding the six months ended June 30, 2020)	$	97,496
2020		115,580
2021		118,158
2022		120,737
2023		20,195
Total lease payments		472,166
Less: imputed interest		(60,608)
Present value of operating lease liabilities	$	411,558


	Nine Months Ended,
	September 30,
	2017		2016
Programs
HS-110	$	2.0	$	1.1
HS-410		0.6		2.5
HS-120		0.1		0.3
Other programs		0.4		0.7
Unallocated research and development expenses		2.7		2.5
	$	5.8	$	7.1


Exhibit No.		Description
10.1		Amendment No. 1 dated April 23, 2020 to the At Market Issuance Sales Agreement (incorporated by reference to Current Report on Form 8-K filed with the SEC on April 23, 2020 (File No. 001-35994).
31.1*		Certification of Chief Executive Officer pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Vice President of Finance pursuant to Rules 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Vice President of Finance pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*		XBRL Instance Document
101.SCH*		XBRL Taxonomy Extension Schema Document
101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document