Annual report pursuant to Section 13 and 15(d)

Stockholders' Equity

v3.19.1
Stockholders' Equity
12 Months Ended
Dec. 31, 2018
Stockholders' Equity  
Stockholders' Equity

10.

Stockholders’ Equity


Authorized Capital


Heat has authorized 10,000,000 shares of Preferred Stock (par value $0.0001) as of December 31, 2018 and 2017. As of December 31, 2018 and 2017, there were no outstanding shares of Preferred Stock.


Heat had 100,000,000 shares of common stock (par value $0.0002) authorized as of December 31, 2018 and 2017. On January 19, 2018, Heat announced a reverse stock split of its shares of common stock at a ratio of 1-for-10. The reverse stock split took effect as of 11 p.m. ET on January 19, 2018, to trade on a post-split basis at the market open on January 22, 2018. During the Company’s annual shareholder meeting held June 29, 2017, shareholders approved the Company’s reverse stock split, and granted the board of directors the authority to implement and determine the exact split ratio. When the reverse stock split became effective, every 10 shares of the Company’s issued and outstanding common stock were combined into one share of common stock. Effecting the reverse stock split reduced the number of issued and outstanding common stock from approximately 42 million shares to approximately 4.2 million. Therefore, of the 100,000,000 common stock shares authorized, 32,492,144 and 4,200,310 common stock shares were issued and outstanding as of December 31, 2018 and 2017, respectively.


Financings


On January 18, 2018, the Company entered into a Common Stock Sales Agreement (the “Underwriting Agreement”) with H.C. Wainwright & Co., LLC, (“HCW”) as sales agent, pursuant to which the Company may sell from time to time, at its option, shares of its common stock, for the sale of up to $3.7 million of shares of the Company’s common stock and on March 15, 2018 filed with the SEC  a prospectus supplement for an additional aggregate offering of up to $1.3 million shares of Common Stock. Sales of shares of Common Stock have been made pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-221201) filed with the U.S. Securities and Exchange Commission (“SEC”), dated November 13, 2017. As of December 31, 2018, the Company sold an aggregate of 1,566,997 shares of common stock under the HCW Sales Agreement resulting in net proceeds of approximately $3.8 million.


On May 7, 2018, the Company closed an underwritten public offering (the “Offering”) in which it issued and sold (i) 4,875,000 shares of common stock together with a number of common warrants to purchase 2,437,500 shares of its common stock, and (ii) 9,500,000 pre-funded warrants, with each pre-funded warrant exercisable for one share of common stock, together with a number of common warrants to purchase 4,750,000 shares of its common stock. The public offering price was $1.44 per share of common stock, $1.43 per pre-funded warrant and $0.01 per common warrant. The net proceeds to the Company were approximately $18.8 million, net of underwriting discounts and commissions and other estimated offering expenses. The common stock warrants expire five years after date of issuance and have an exercise price of $1.584 per share. As of December 31, 2018, 3,054,667 common stock warrants have been exercised for an additional $4.8 million of proceeds to the Company and all pre-funded warrants have been exercised. In connection with the offering the Company entered into an underwriting agreement, dated May 2, 2018 with A.G.P./Alliance Global Partners (A.G.P.), as representative of the underwriters. The Underwriting Agreement contained 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.


On November 26, 2018, the Company closed an underwritten public offering in which it issued and sold 8,000,000 shares of the Company’s common stock together with warrants to purchase 4,000,000 shares of the Company’s common stock at a combined price to the public of $1.50. The warrants have an exercise price of $1.65, are exercisable upon issuance and expire five years from the date of issuance. In addition, the underwriter exercised the over-allotment option to purchase an additional 1,200,000 shares of common stock and warrants to purchase 600,000 shares of common stock. Net proceeds to Heat from this offering are approximately $12.7 million after deducting underwriting discounts and commissions and other estimated offering expenses payable by Heat. A.G.P./Alliance Global Partners acted as the sole book-running manager for the offering.


During 2016 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 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. For the year ended December 31, 2017, the Company sold 234,858 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.


On March 28, 2017, the Company sold pursuant to the terms of an Underwriting Agreement (the “Underwriting Agreement”) the Company sold pursuant to the terms of an Underwriting Agreement (the “Underwriting Agreement (“Aegis”), as representative of the several underwriters named therein (the “Underwriters”), 500,000 shares of the Company’s common stock and 75,000 additional shares of the common stock to cover over-allotments at an offering price of $8.00 per share, (the “March Offering”). The net proceeds to the Company from the March 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.


In November 2017, the Company sold pursuant to the terms of an Underwriting Agreement (the “Underwriting Agreement”) the Company sold pursuant to the terms of an Underwriting Agreement (the “Underwriting Agreement (“Aegis”), as representative of the several underwriters named therein (the “Underwriters”), 581,395 shares of the Company’s common stock, and 39,255 additional shares of the common stock to cover over-allotments at an offering price of $4.30 per share, (the “Offering”). The net proceeds to the Company from the Offering were approximately $2.4 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.


Restricted Stock


In January 2018, the Company granted 60,375 restricted stock units to the employees of the Company in which 25%, (15,092 restricted stock units) vested immediately and the remainder will vest on each anniversary of the grant date over a three-year period contingent on continued employment with the Company. Additionally, the Company issued 35,989 restricted stock units to certain employees who chose to use a portion of their 2017 monetary bonus in lieu of restricted stock units that vested immediately, but are subject to a one year restriction on transferability.  In January 2017, the Company granted 42,850 restricted stock units to the employees of the Company in which 25%, (10,713 restricted stock units) vested immediately and the remainder will vest on each anniversary of the grant date over a three-year period contingent on continued employment with the Company. The Company recognized $318,186 and $169,517 in stock-based compensation expense for employees related to restricted stock awards during the years ended December 31, 2018 and 2017.


In January 2018, the Company granted 3,250 restricted stock units to nonemployees in exchange for services in which 25%, (812 restricted stock units) vested immediately and the remainder will vest on each anniversary of the grant date over a three-year period contingent on continued association with the Company. The Company recognized stock-based compensation related to the grant of restricted stock units to nonemployees totaling $6,369. There were no restricted stock units granted to nonemployees during 2017.


The Company recognized stock-based compensation related to issuance of restricted stock to nonemployees in exchange for services totaling $0 and $31,000 for the years ended December 31, 2018 and 2017, respectively.


Common Stock Warrants


In connection with the November 26, 2018 public offering, the Company issued 4,600,000 common stock warrants of which are exercisable for one share of common stock. The common stock warrants have an exercise price of $1.65 per share and expire five years from the issuance date. The warrants have been accounted for as equity instruments. The fair value of the common stock warrants of approximately $5.6 million at the date of issuance was estimated using the Black-Scholes Merton model which used the following inputs: term of 5 years, risk free rate of 2.89%, 0% dividend yield, volatility of 133.26%, and share price of $1.42 per share based on the trading price of the Company’s common stock.


In connection with the May 7, 2018 public offering, the Company issued 9,500,000 pre-funded warrants and 7,187,500 common stock warrants each of which are exercisable for one share of common stock. The pre-funded warrants had an exercise price of $0.01 per share and as of December 31, 2018 all pre-funded warrants have been exercised. The common stock warrants have an exercise price of $1.584 per share and expire five years from the issuance date. As of December 31, 2018, 3,054,667 common stock warrants have been exercised. The warrants have been accounted for as equity instruments. The fair value of the common stock warrants of approximately $7.8 million at the date of issuance was estimated using the Black-Scholes Merton model which used the following inputs: term of 5 years, risk free rate of 2.78%, 0% dividend yield, volatility of 124.14%, and share price of $1.30 per share based on the trading price of the Company’s common stock.


In connection with the March 23, 2016 public offering, the Company issued warrants to purchase 682,500 shares of common stock with an exercise price of $10.00 per share that expire five years from the issuance date. In connection with the Company’s July 23, 2013 initial public offering, the Company issued warrants to the underwriters for 12,500 shares of common stock issuable at $125.00 per share which expired July 22, 2018. On March 10, 2011, the Company issued warrants to purchase shares of common stock to third parties in consideration for a private equity placement transaction of which 1,738 warrants remain outstanding. The warrants have an exercise price of $4.80 per share and expire ten years from the issuance date.


During the year ended December 31, 2018, 3,054,667 common stock warrants have been exercised and 12,500 common stock warrants have expired. No warrants were issued or exercised during the same period in 2017. As of December 31, 2018 the Company has outstanding warrants to purchase 4,600,000 shares of common stock issuable at $1.65 per share, 4,132,833 shares of common stock issuable at $1.584 per share, 296,159 shares of common stock issuable at $10.00 per share; and warrants to purchase 1,738 shares of common stock issuable at $4.80 per share. These warrants do not meet the criteria required to be classified as liability awards and therefore are treated as equity awards.


The Company has a total of 9,030,730 warrants outstanding at a weighted average exercise price of $1.89 to purchase its common stock as of December 31, 2018. These warrants are summarized as follows:


Issuance Date

 

Number of Shares

 

Exercise Price

 

Expiration Date

3/10/2011

 

       1,738

 

$    4.80

 

3/10/2021

3/23/2016

 

   296,159

 

$  10.00

 

3/23/2021

5/7/2018

 

4,132,833

 

$    1.58

 

5/8/2023

11/26/2018

 

4,600,000

 

$    1.65

 

11/26/2023


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


 

 

Common Stock

Warrants

 

Outstanding, December 31, 2016

 

 

310,397

 

Exercised

 

 

—

 

Expired

 

 

—

 

Outstanding, December 31, 2017

 

 

310,397

 

Issued

 

 

11,787,500

 

Exercised

 

 

3,054,667

 

Expired

 

 

(12,500

)

Outstanding, December 31, 2018

 

 

9,030,730

 


Equity Compensation Plans


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 21,739 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 years and have various vesting schedules.  


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 21,739 to 65,217. The Company amended the 2009 Plan to increase the number of shares available for issuance to 86,957. As of December 31, 2018 and 2017, there were 23,799 and 24,042 stock options outstanding under the 2009 Plan, respectively.


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 50,000 awards in the form of both 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 2014 Plan. In 2015, the stockholders approved an amendment to the Plan to increase the number of shares by 60,000 and in 2016, the stockholders approved an amendment that allowed the Company to grant up to 300,000 awards in total.  As of December 31, 2018 and 2017, there were 263,484 and 232,768 stock options outstanding under the 2014 Plan, respectively.


2017 Stock Incentive Plan


In June 2017, the stockholders approved the 2017 Stock Incentive Plan of Heat Biologics, Inc. (the “2017 Plan”), under which the Company is authorized to grant 500,000 awards in the form of both 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 2017 Plan. As of December 31, 2018 and 2017 there were 234,540 and 10,000 stock options outstanding under the 2017 Plan, respectively.


2018 Stock Incentive Plan


In October 2018, the stockholders approved the 2018 Stock Incentive Plan of Heat Biologics, Inc. (the “2018 Plan”), under which the Company is authorized to grant 4,000,000 awards in the form of both 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 2018 Plan. As of December 31, 2018 there were no stock options outstanding under the 2018 Plan.


There are 4,260,215 stock options remaining available for grant under the Plans. The following table summarizes the components of the Company’s stock-based compensation included in net loss:


 

 

For the years ended

December 31,

 

 

 

2018

 

 

2017

 

Employee stock options

 

$

443,684

 

 

$

474,251

 

Non-employee stock options

 

 

20,420

 

 

 

14,362

 

Employee stock awards

 

 

318,186

 

 

 

169,517

 

Non-employee stock awards

 

 

6,369

 

 

 

31,000

 

 

 

$

788,659

 

 

$

689,130

 


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,

 

 

 

2018

 

 

2017

 

Dividend yield

 

 

0.0

%

 

 

0.0

%

Expected volatility

 

 

83.63-121.81

%

 

 

76.35-79.08

%

Risk-free interest rate

 

 

2.32-2.98

%

 

 

1.86-2.26

%

Expected term (years)

 

 

5.1-6.3

 

 

 

5.8-7.8

 


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 had limited to no 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. As required by ASC 718, the Company reviews recent forfeitures and stock compensation expense. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Additionally, the Company conducts a sensitivity analysis. Based on these evaluations the Company currently does not apply a forfeiture rate.


The Company recognized $464,104 and $488,613 in stock-based compensation expense for the years ended December 31, 2018 and 2017, respectively, for the Company’s stock option awards.


The following tables summarize the stock option activity for the year ended December 31, 2018:


 

 

Shares

 

 

Weighted

Average

Exercise

Price

 

Outstanding, December 31, 2017

 

 

266,810

 

 

$

19.57

 

Granted

 

 

221,410

 

 

$

3.57

 

Exercised

 

 

—

 

 

$

—

 

Forfeited/Expired

 

 

(22,917

)

 

$

26.97

 

Outstanding, December 31, 2018

 

 

465,303

 

 

$

11.60

 


The weighted average grant-date fair value of stock options granted during the years ended December 31, 2018 and 2017 was $2.65 and $5.33, respectively.


The following table summarizes information about stock options outstanding at December 31, 2018:


Options Outstanding

 

 

 

 

Options Vested and Exercisable

Balance

as of

12/31/2018

 

 

Weighted

Average

Remaining

Contractual

Life

(Years)

 

 

Weighted

Average

Exercise

Price

 

 

 

 

Balance

as of

12/31/2018

 

 

Weighted

Average

Remaining

Contractual

Life

(Years)

 

 

Weighted

Average

Exercise

Price

465,303

 

 

8.17

 

 

$11.60

 

 

 

 

198,957

 

 

7.21

 

 

$20.48


As of December 31, 2018, the unrecognized stock-based compensation expense related to unvested stock options was approximately $2.3 million that is expected to be recognized over a weighted average period of approximately 11.0 months.


Total stock-based compensation expense including restricted stock, stock options, and common stock was $788,659 and $689,130 for the years ended December 31, 2018 and 2017, respectively.