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HTBX > SEC Filings for HTBX > Form 10-Q on 5-Sep-2013All Recent SEC Filings

Show all filings for HEAT BIOLOGICS, INC.

Form 10-Q for HEAT BIOLOGICS, INC.


5-Sep-2013

Quarterly Report


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 appearing elsewhere in this quarterly report. 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 condensed consolidated financial statements and the audited condensed consolidated financial statements and notes thereto included in our Prospectus filed with the SEC pursuant to Rule 424 (b) of the Securities Act of 1933 (the "Securities Act")on July 24, 2013 (the "Prospectus"). This discussion may contain forward-looking statements that involve risks and uncertainties. See "Forward-Looking Statements."

OVERVIEW

We are a development stage biopharmaceutical company engaged in the development of novel allogeneic, "off-the-shelf" cellular therapeutic vaccines to combat a wide range of cancers and infectious diseases. Our proprietary ImPACT™ Immune Pan Antigen Cytotoxic Therapy is being designed to deliver live, genetically-modified, irradiated human cells which are reprogrammed to "pump out" a broad spectrum of cancer-associated antigens together with a potent immune adjuvant called "gp96" to educate and activate a cancer patient's immune system to recognize and kill cancerous cells. We intend for our ImPACT cells to secrete an antigen-adjuvant complex that generates anti-cancer immune responses in patients by mobilizing and activating cytotoxic "killer" T cells that target multiple cancer antigens, thus harnessing a patient's own immune system to fight cancer.

Unlike autologous or "personalized" therapeutic vaccine approaches which require extraction and processing of cancer or blood from each individual patient, our ImPACT therapeutic vaccine uses a master cell line containing a host of known and unknown tumor associated antigens to mass-produce a single vaccine product applicable to all patients with a particular cancer type. We believe our off-the-shelf, allogeneic immunotherapy offers logistical, manufacturing and cost benefits compared to autologous patient-specific approaches.

We commenced active operations in the second half of 2008. Our operations to date have been limited to organizing and staffing our company, business planning, raising capital, acquiring and developing our technology, identifying potential product candidates and undertaking preclinical studies of our most advanced product candidates. To date, we have not generated any revenues and have financed our operations with net proceeds from the private placement of our preferred stock and our initial public offering in which to date we have received gross proceeds of $26 million. As of June 30, 2013, we had a deficit accumulated during the development stage of $8,319,912. We had net losses of $2,462,676 and $1,115,907 for the six months ended June 30, 2013 and 2012, respectively. We expect to incur significant expenses and increasing operating losses 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 initiate clinical trials of, and seek marketing approval for, our product candidates. 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. Furthermore, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. 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 expect our existing cash will enable us to fund our current operating plan and capital expenditure requirements for at least 18 months. This is based on our current estimates, and we could use our available capital resources sooner than we currently expect. We will need to generate significant revenues to achieve profitability, and we may never do so.


RECENT DEVELOPMENTS

On July 29, 2013, we sold 2,500,000 shares of common stock at a public offering price of $10.00 per share and completed our initial public offering ("IPO") with estimated net proceeds of $22.1 million (gross proceeds of $25,000,000). On August 15, 2013, we sold an additional 100,000 shares of common stock at a public offering price of $10.00 per share pursuant to the partial exercise of the over-allotment option granted to the underwriters resulting in additional gross proceeds to the Company of $1,000,000. The total gross proceeds raised from the offering and over-allotment option was $26,000,000, before underwriting discounts and commissions and other offering expenses payable by the Company with estimated net proceeds of $23 million. Upon the closing of the IPO, all shares of our then-outstanding preferred stock automatically converted into an aggregate of 1,696,683 shares of common stock. In addition, upon the closing of the IPO, we issued an additional 36,167 shares of our common stock to the Series B Preferred Stockholders and our obligation to issue, and the Series B Preferred Stockholders, obligation to purchase, Series B-2 Preferred Stock under the Stock Purchase Agreement terminated.

On August 27, 2013 we repaid the entire outstanding balance owed to Square 1 Bank in the amount of $725,000 and the loan agreement with Square 1 Bank was terminated.

On September 3, 2013, the Company received written notification from the underwriters of their partial exercise of the over-allotment option to purchase an additional 100,000 shares of the Company's common stock, at a price to the public of $10.00 per share. The closing is scheduled to occur on September 6, 2013.

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 condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of our condensed 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 audited condensed consolidated financial statements, which are included in our Prospectus, 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 recognition;

·

Stock-based compensation;

·

Preferred stock warrants liability; and

·

Beneficial Conversion Feature.

The Company has elected to follow the extended transition period guidance provided for in Securities Act Section 7(a)(2)(B) for complying with new or revised accounting standards. The Company will disclose the date on which adoption of such standards is required for non-emerging growth companies and the date on which the Company will adopt the recently issued accounting standards.

RESULTS OF OPERATIONS

Comparison of the Three Months ended June 30, 2013 and 2012

Research and development expense. Research and development expense for the three months ended June 30, 2013 (2013 Quarter) was $688,979 compared to $178,410 for the three months ended June 30, 2012 (2012 Quarter). The $510,569 increase from the 2012 Quarter to the 2013 Quarter is primarily related to an increase of $494,685 in manufacturing costs due to the outsourcing of the vaccine manufacturing from the University of Miami ("the University") to an outside vendor and increased consulting fees.


Clinical and regulatory expense. Clinical and regulatory for the 2013 Quarter was $454,934 compared to $100,312 for the 2012 Quarter. The $354,622 increase from the 2012 Quarter to the 2013 Quarter principally resulted from an increase in manufacturing costs of $184,887, consisting primarily of $113,186 and $56,549 of personnel and other costs related to the implementation of our clinical trials.

General and administrative expense. General and administrative expense for the 2013 Quarter was $438,180 compared to $360,394 for the 2012 Quarter. The $77,786 increase from the 2012 Quarter to the 2013 Quarter principally resulted from an increase of $59,926 for personnel costs attributable to the hiring of a Director of Finance and Chief Financial Officer, accrual of Chief Executive Officer's bonus of $18,750, accrued vacation and $52,799 in marketing fees primarily related to preparation for the IPO. Also attributable to the increase were general and administrative costs such as rent, office expenses, fees, insurance and other additional costs associated with growth of the Company of $27,219. These increases were offset by a reduction in professional fees of $41,714 principally attributable to the decrease in accounting fees resulting from the retention of the Director of Finance. There was also a reduction of travel expense of $13,667 and consulting fees of $25,527.

Interest expense. Interest expense increased to $31,799 for the 2013 Quarter from $13,856 for the 2012 Quarter due to increased borrowings.

Comparison of the Six Months ended June 30, 2013 and June 30, 2012

Research and development expense. Research and development expense for the six months ended June 30, 2013 (2013 Period) was $1,129,268 compared to $349,175 for the six months ended June 30, 2012 (2012 Period). The $780,093 increase from the 2012 Period to the 2013 Period is primarily related to an increase of $782,966 in manufacturing costs due to the outsourcing of the vaccine manufacturing from the University to an outside vendor as well as an increase in lab supplies of $44,617 for additional research projects. These increases were offset by a decrease in patent expenditures of $38,542 and $8,948 in other miscellaneous research expenses.

Clinical and regulatory expense. Clinical and regulatory expense for the 2013 Period was $516,991 compared to $147,119 for the 2012 Period. The $369,872 increase from the 2012 Period to the 2013 Period principally resulted from an increase of $191,012 in manufacturing costs for the vaccines, $138,977 in consulting fees and personnel costs and $39,883 in other costs related to implementation of clinical trials.

General and administrative expense. General and administrative expense for the 2013 Period was $706,316 compared to $586,451 for the 2012 Period. The $119,865 increase from the 2012 Period to the 2013 Period principally resulted from an increase of $37,189 for personnel costs, primarily attributable to the hiring of a Director of Finance and Chief Financial Officer, increase in the accrual for the Chief Executive Officer's bonus of $35,417, accrual of vacation pay, an increase of $8,200 in office expense, an increase of $9,444 in insurance costs and an increase in marketing costs of $55,399 primarily in preparation for the IPO offset by a $23,419 decrease in travel costs and $2,365 in other miscellaneous expenses.

Interest expense. Interest expense increased to $60,141 for the 2013 Period from $15,615 for the 2012 Period due to increased borrowings.

Balance Sheet at June 30, 2013 and December 31, 2012

Prepaid expenses. Prepaid expenses was $500,376 as of June 30, 2013 compared to $58,436 as of December 31, 2012. The increase of $441,940 was primarily due to $351,605 of outside services related to our Initial Public Offering. These costs are capitalized until the consummation of the offering at which time they will be reclassified to additional paid in capital. Additionally there was a deposit to a vendor of $90,335 for future services. These additional costs were offset by amortization of other prepaids such as insurance.

Accounts Payable. Accounts payable was $1,319,036 as of June 30, 2013 compared to $505,471 as of December 31, 2012. This increase of $813,565 was primarily related to the reclassification of the convertible note plus accrued interest totaling $497,380 to accounts payable upon agreement with the vendor. The residual increase of $316,185 was principally due to increased manufacturing costs for both clinical and regulatory and research and development.

Convertible note payable. Convertible note payable was $0 as of June 30, 2013 compared to $197,099 as of December 31, 2012. This decrease was due to the reclassification of the entire balance of $197,099 to accounts payable during the 2013 Period.


LIQUIDITY AND CAPITAL RESOURCES

Sources of liquidity

To date, we have not generated any revenues. Since our inception in June, 2008, we have financed our operations principally through private placements and through our initial public offering, which we closed in July, 2013 and the closing of the partial exercise of the underwriter's over-allotment option. The total gross proceeds raised from the offering and over-allotment option was $26,000,000, before underwriting discounts and commissions and other offering expenses payable by the Company for estimated net proceeds of $23 million. We believe that the proceeds we received from the sale of the shares in our initial public offering will provide us with sufficient working capital to fund our Phase 2 clinical trial for non-small cell lung cancer and our Phase 1/2 clinical trial for bladder cancer. Thereafter, we expect to require additional funds in the future to conduct additional clinical trials. As of June 30, 2013, we had $3,015,738 in cash. As of August 30, 2013, our cash balance was approximately $24.9 million.

Our cash is currently held in an interest bearing checking and money market account.

Cash flows

Operating activities. The use of cash in all periods resulted primarily from our net losses adjusted for non-cash charges and favorable changes in the components of working capital. The significant increase in cash used in operating activities for the 2013 Period compared to the 2012 Period is due to an increase in research and development expenses as we increased manufacturing costs for both research and development and clinical and regulatory as we approached the target date for the initiation of our clinical trials.

Financing activities. Cash provided by financing activities during the 2013 Period of approximately $4.9 million resulted primarily from the issuance of $5.1 million of Series B-1 preferred stock during the 2013 Period, less $145,510 of stock issuance costs.

Funding requirements

We expect our existing cash will enable us to fund our current operating plan and capital expenditure requirements for at least the next 18 months.

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.

SUBSEQUENT EVENTS

On September 4, 2013, we severed our relationship with Jennifer Harris, a part-time employee who served as our Vice President of Clinical and Regulatory Affairs. We have made an offer to an individual to serve as our full-time Vice President of Clinical and Regulatory Affairs and expect to finalize negotiations with such individual in the next few weeks.

ITEM 3.

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