Stockholders' Equity | 8. Stock-Based Compensation Restricted Stock During the three and nine month period ended September 30, 2015, the Company recognized $ 13,950 103,950 no 30, 2014. Common Stock Warrants On March 10, 2011, the Company issued warrants to purchase 32,610 0.48 10 years from the issuance date. In connection with our initial public offering, the Company issued warrants to the underwriters for 125,000 12.50 five As of September 30, 2015, the Company has warrants outstanding to purchase 17,392 0.48 125,000 12.50 Stock Options The following is a summary of the stock option activity for the nine months ended September 30, 2015: Shares Weighted Outstanding, December 31, 2014 1,018,590 $ 5.04 Granted 277,875 $ 6.09 Exercised (10,272 ) $ 1.97 Forfeited (179,298 ) $ 6.50 Outstanding, September 30, 2015 1,106,895 $ 5.10 The weighted average grant-date fair value of stock options granted during the nine months ended September 30, 2015 was $ 3.33 Dividend yield 0.0 % Expected volatility 83.62 % Risk-free interest rate 1.63 % Expected lives (years) 6.0 The risk-free interest 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. 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 weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. 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 $ 245,289 224,586 942,136 722,358 The following table summarizes information about stock options outstanding at September 30, 2015: Options Outstanding Options Vested and Exercisable Balance as of 9/30/2015 Weighted Contractual Weighted Balance Weighted Contractual Weighted 1,106,895 7.4 $ 5.10 649,421 6.2 $ 3.89 As of September 30, 2015, the unrecognized stock-based compensation expense related to unvested stock options was $ 3,114,452 15.8 | 11. Stockholders' Equity Authorized Capital Heat has authorized 10,000,000 0.0001 1,891,419 5.0 361,668 Heat had 50,000,000 0.0002 6,492,622 6,375,426 Preferred Stock Series A, Series B-1, and Series B-2 Automatic Conversion Each share of Preferred Stock automatically converts to common stock upon the earlier to occur of (i) on the date of consummation of a sale of common stock in a firm commitment underwritten public offering resulting in aggregate net cash proceeds to the Company (after deducting applicable underwriting discounts and commissions) of at least $ 15 Optional Conversion The preferred stock is convertible into common stock at the option of the holder at any time. The conversion ratio for each share of the Series A Preferred Stock was its Original Issue Price ($ 2.10 2.67 5.00 0.4348 In the event the Company at any time or from time to time after the Initial Series B Issuance Date shall issue additional shares of common stock without consideration or for consideration per share less than the Series A Conversion Price, Series B-1 Conversion Price, or Series B-2 Conversion Price, in effect on the date of and immediately prior to such issue, then the Series A Conversion Price, the Series B-1 Conversion Price, Series B-2 Conversion Price, shall be reduced, to a price determined by multiplying the Series A Conversion Price, the Series B-1 Conversion Price, or the Series B-2 Conversion Price in effect by a fraction, (A) the numerator of which shall be the number of shares of common stock outstanding immediately prior to such issuance, on a fully-diluted basis, plus the number of shares of common stock which the aggregate consideration received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at the Series A Conversion Price, the Series B-1 Conversion Price, or the Series B-2 Conversion Price, as in effect immediately prior to such issuance, and (B) the denominator of which shall be the number of shares of common stock outstanding immediately prior to such issuance, on a fully-diluted basis, plus the number of such Additional Shares of common stock so issued. As a result of the IPO, all outstanding shares of preferred stock were automatically converted to common stock. The preferred stock was determined to have characteristics more akin to equity than debt. Particularly, the preferred stock had no mandatory redemption provision nor was it redeemable at the option of the holder. As a result, the conversion option was determined to be clearly and closely related to the preferred stock and therefore did not need to be bifurcated and classified as a liability. Dividends The Series B Preferred Stock has a priority with respect to dividend distributions and distributions upon liquidation. The Series B Preferred Stock receive dividends when and as and if declared by the Board at a rate of 5 6.14 11.50 Liquidation In the event of a liquidation, the holders of the Series B-1 and B-2 Preferred Stock are entitled to receive before any payment to any other Preferred Stockholder or common stock holder an amount per share equal to the greater of $ 6.14 11.50 4.83 Voting Rights Each holder of Preferred Stock is entitled to vote on all matters stockholders are entitled to vote and to cast the number of votes as shall equal the whole number of shares of common stock into which their shares of Preferred Stock are convertible. Initial Public Offering On July 29, 2013, the Company sold 2,500,000 10.00 25 22.4 100,000 10.00 1,000,000 930,000 100,000 10.00 1,000,000 930,000 27,000,000 24.3 1,696,683 36,167 Restricted Stock As of December 31, 2014 and 2013, all restricted stock has vested and accordingly all stock-based compensation expense related to vested restricted stock has been recognized. Common Stock Warrants In December 2011 and August 2012, the Company issued 20,549 10 4.83 8,065 On March 10, 2011, the Company issued warrants to purchase 32,610 0.48 15,218 14,318 In connection with our initial public offering, the Company issued warrants to the underwriters for 125,000 shares of common stock issuable at $ 12.50 five In connection with the Loan, in August 2014, the Company issued Square 1 Bank a warrant, exercisable for 52,695 4.27 17,664 The following table summarizes the activity of the Company's common stock warrants, retroactively adjusted for the 1-for-2.3 reverse stock split. Common Stock Warrants Outstanding, December 31, 2012 53,159 Granted to underwriters 125,000 Exercised — Expired — Outstanding, December 31, 2013 178,159 Granted to lenders 52,695 Exercised (88,462 ) Expired — Outstanding, December 31, 2014 142,392 The weighted average exercise price of 142,392 outstanding warrants as of December 31, 2014 is $ 11.03 Equity Compensation Plan 2009 Stock Incentive Plan In 2009, the Company adopted the 2009 Stock Option Plan of Heat Biologics, Inc. (the “2009 Plan”), under which stock options to acquire 217,391 common shares could be granted to key employees, directors, and independent contractors. Under the 2009 Plan, both incentive and non-qualified stock options could be granted under terms and conditions established by the Board of Directors. The exercise price for incentive stock options was the fair market value of the related common stock on the date the stock option was granted. Stock options granted under the 2009 Plan generally have terms of 10 The Company amended the 2009 Stock Option Plan and all related addendum agreements in April 2011. This second amendment increased the number of shares available for issuance from 217,391 652,174 869,565 581,842 633,482 2014 Stock Incentive Plan In June 2014, the stockholders approved the 2014 Stock Option Plan of Heat Biologics, Inc. (the “2014 Plan”), under which the Company is authorized to grant 500,000 10 The 2014 Plan supplements the Company's 2009 Stock Incentive Plan (the “2009 Plan”) under which the Company is authorized to grant 500,000 436,748 As of December 31, 2014, awards for 1,416,091 115,398 1,018,590 68,872 For the years ended December 31, 2014 2013 Employee stock options $ 570,760 $ 131,178 Non-employee stock options 495,683 415,212 Restricted stock awards — 25,534 $ 1,066,443 $ 571,924 Stock Options The fair value of each stock option is estimated on the date of grant using the Black-Scholes-Merton option pricing model with the following assumptions for stock options granted during the years ended: December 31, 2014 2013 Dividend yield 0.0 % 0.0 % Expected volatility 107 110 % 90 112 % Risk-free interest rate 2.06 2.23 % 1.39 2.26 % Expected lives (years) 5.9 6.5 5.75 6.5 The risk-free interest 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. 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 any 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 weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. 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 insofar as the historical experience of the Company is very limited. As required by ASC 718, the Company will adjust the estimated forfeiture rate based upon actual experience. The Company recognized $ 1,066,443 571,924 The following tables summarize the stock option activity for the years ended December 31, 2013 and 2014: Shares Weighted Exercise Outstanding, December 31, 2012 590,047 $ 0.71 Granted 186,736 $ 10.07 Exercised (80,706 ) $ 0.67 Forfeited (62,595 ) $ 1.96 Outstanding, December 31, 2013 633,482 $ 3.36 Granted 507,879 $ 6.30 Exercised (78,664 ) $ 0.60 Forfeited (44,107 ) $ 3.19 Outstanding, December 31, 2014 1,018,590 $ 5.04 The weighted average grant-date fair value of stock options granted during the years ended December 31, 2014 and 2013 was $ 5.66 8.51 The total fair value of stock options that vested during the year ended December 31, 2014 was approximately $ 1,704,121 The following table summarizes information about stock options outstanding at December 31, 2014: Options Outstanding Options Exercisable Options Vested or Expected to Vest Balance as of 12/31/2014 Weighted Average Remaining Contractual Life (Years) Weighted Balance Weighted Weighted Balance Weighted Weighted 1,018,590 7.81 $ 5.04 473,696 5.99 $ 2.67 473,696 5.99 $ 2.67 As of December 31, 2014, the unrecognized stock-based compensation expense related to unvested stock options was approximately $ 3,872,221 14.9 |