Summary of Significant Accounting Policies

Basis of Accounting

The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Activities during the development stage include developing the business plan, raising capital, and developing the Company's platform technology.

Principles of Consolidation

The consolidated financial statements include the accounts of Heat Biologics, Inc. and its subsidiaries, Heat Biologics I, Inc. ("Heat I") and Heat Biologics II, Inc. ("Heat II"), Heat Biologics III, Inc. ("Heat III"), Heat Biologics IV, Inc. ("Heat IV") and Heat Biologics GmbH. All significant intercompany accounts and transactions have been eliminated in consolidation. At December 31, 2013 and 2012, Heat held a 92.5% controlling interest in Heat I and accounts for its less than 100% interest in the consolidated financial statements in accordance with U.S. GAAP. Accordingly, the Company presents non-controlling interests as a component of stockholders' equity (deficit) on its consolidated balance sheets and reports non-controlling interest net loss under the heading "net loss - non-controlling interest" in the consolidated statements of operations. In June 2012, the Company sold its entire 92.5% interest in Heat II. The operations of Heat II through June 25, 2012, and inception to date, are presented in the accompanying consolidated statements of operations as a loss from discontinued operations.

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, income taxes and stock-based compensation. Actual results may differ from those estimates.

Cash and Cash Equivalents and Restricted Cash

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. The Company had a restricted cash balance of $1,252 and $26,214 at December 31, 2013 and 2012, respectively. The United States Patent and Trade Office ("USPTO") requires the Company to maintain an account with a minimum of $1,000 to be used to pay fees associated with new trademarks of the Company and one of the Company's lenders required a minimum $25,000 cash balance to be maintained with the lending bank during 2012.

Concentration of Credit Risk

At times, cash balances may exceed the Federal Deposit Insurance Corporation ("FDIC") insurable limits. The Company has never experienced any losses related to these balances. All of the Company's cash balances were fully insured at December 31, 2012. As of December 31, 2013, cash amounts in excess of $250,000 were not fully insured. The uninsured cash balance as of December 31, 2013 was $4,046,451. The Company does not believe it is exposed to significant credit risk on cash and cash equivalents.

Debt Issuance Costs, net

Debt issuance costs include the costs incurred to obtain financing, including the fair value of preferred stock warrants at the date of their issuance, and are amortized using the straight-line method, which approximates the effective interest method, over the life of the related debt. Debt issuance costs are included in the accompanying consolidated balance sheets net of amortization.

Property and Equipment

Property and equipment are stated at cost and are capitalized if the cost exceeds $500. Depreciation is calculated using the straight-line method and is based on estimated useful lives of 3 years for computer equipment and seven years for furniture and fixtures.

Stock Warrants Liability

In December 2011 and August 2012, the Company entered into a promissory note with each of two lenders and issued preferred stock warrants to each lender as consideration. The Company has accounted for these freestanding warrants as liabilities at their fair value on the accompanying consolidated balance sheets. The warrants are subject to re-measurement at each balance sheet date, and the change in fair value, if any, is recognized as other income (expense). The warrants converted from preferred stock warrants into warrants to purchase common stock upon the completion of the initial public offering in July 2013 and the number of shares were adjusted for the 1-for-2.3 reverse stock split. However, since the warrants still have an anti-dilution provision, they remain liabilities and are subject to re-measurement at each balance sheet date. The warrants are valued using a Monte Carlo simulation which is a generally accepted statistical method used to generate a defined number of stock price paths in order to develop a reasonable estimate of the range of the Company's future expected stock prices and minimizes standard error.

Significant assumptions used in the valuation of the stock warrants liability were as follows:


	December 31,
	2013			2012

Exercise price	$	4.83		$	4.83
Risk-free interest rate		2.75	%		1.78	%
Expected volatility		71.6-71.9	%		75.6-76.3	%
Expected life (years)		7.96-8.6			10
Expected dividend yield		0	%		0	%

Beneficial Conversion Feature

When the Company issues an equity security that is convertible into common stock at a discount from the fair value of the common stock at the date the equity security counterparty is legally committed to purchase such a security (Commitment Date), a beneficial conversion charge is measured and recorded on the Commitment Date for the difference between the fair value of the Company's common stock and the effective conversion price of the equity security. If the intrinsic value of the beneficial conversion feature is greater than the proceeds allocated to the equity security, the amount of the discount assigned to the beneficial conversion feature is limited to the amount of the proceeds allocated to the equity.

The amount allocated to the beneficial conversion feature is presented as an immediate charge to earnings available to common shareholders for convertible preferred stock instruments that are convertible by the shareholders at any time. In connection with the Company's issuance of Series B-1 Preferred Stock during fiscal year 2013, the Company recorded a beneficial conversion charge of $2.3 million representing the difference between the effective conversion price of $6.14 and the fair value of the Company's common stock as of the Commitment Date of $8.81.

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during each year. Fully diluted net loss per share is computed using the weighted average number of common shares and dilutive securities outstanding during each year. Dilutive securities having an anti-dilutive effect on diluted loss per share are excluded from the calculation.

Fair Value of Financial Instruments

The carrying amount of certain of the Company's financial instruments, including cash and cash equivalents, prepaid expenses and other current assets, deposits, accounts payable and accrued expenses and other payables approximate fair value due to their short maturities. The carrying value of the Company's notes payable and convertible notes payable at December 31, 2012 approximated fair value because the interest rates under those obligations approximated market rates of interest available to the Company for similar instruments.

As a basis for determining the fair value of certain of the Company's financial instruments, the Company utilizes a three-tier 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. The Company's financial instruments that are measured at fair value on a recurring basis consist only of the stock warrants liability. The Company's stock warrants liability was classified within Level III of the fair value hierarchy and as of December 31, 2013 and 2012.

The change in the fair value of the Level III warrants liability is summarized below:


Fair value at December 31, 2012	$	92,150
Issuances		-
Change in fair value during the period		30,440

Fair value at December 31, 2013	$	122,590

The change in the fair value of the Level III stock warrants liability is summarized below:


	December 31, 2013
	Identical Assets		Observable Inputs		Unobservable Inputs			Total December 31,
Description	(Level 1)		(Level 2)		(Level 3)			2013
Liabilities measured at fair value
Stock Warrant Liability	$	-	$	-	$	(122,590	)	$	(122,590	)

Total Liabilities measured at fair value	$	-	$	-	$	(122,590	)	$	(122,590	)


	December 31, 2012
	Identical Assets		Observable Inputs		Unobservable Inputs			Total December 31,
Description	(Level 1)		(Level 2)		(Level 3)			2012
Liabilities measured at fair value
Stock Warrant Liability	$	-	$	-	$	(92,150	)	$	(92,150	)

Total Liabilities measured at fair value	$	-	$	-	$	(92,150	)	$	(92,150	)

Marketing

Marketing costs are expensed as incurred. Marketing expense totaled $135,366 and $5,921 for the years ended December 31, 2013 and 2012, respectively. Marketing expenses from inception through December 31, 2013 totaled $183,274.

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 statements 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In accordance with FASB ASC 740, Accounting for Income Taxes, the Company reflects in the 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 December 31, 2013 and 2012, 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 consolidated statements of operations, As of December 31, 2013 and 2012, the Company had no such accruals.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees and non-employee directors using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments, including stock options. The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model.

Stock-based compensation costs are based on the fair value of the underlying option calculated using the Black-Scholes-Merton option pricing model on the date of grant for stock options and recognized as expense on a straight-line basis over the requisite service period, which is the vesting period. Determining the appropriate fair value model and related assumptions requires judgment, including estimating stock price volatility, forfeiture rates and expected term. The expected volatility rates are estimated based on the actual volatility of comparable public companies over the expected term. The expected term for the years ended December 31, 2013 and 2012 represents the average time that options are expected to be outstanding based on the mid-point between the vesting date and the end of the contractual term of the award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company has not paid dividends and does not anticipate paying a cash dividend in the foreseeable future and, accordingly, uses an expected dividend yield of zero. The risk-free interest rate is based on the rate of U.S. Treasury securities with maturities consistent with the estimated expected term of the awards. The measurement of nonemployee share-based compensation is subject to periodic adjustments as the underlying equity instruments vest and is recognized as an expense over the period over which services are received.

Net loss attributable to non-controlling interests

Net loss attributable to non-controlling interests is the result of the Company's consolidation of subsidiaries of which it does not own 100%. The Company's net loss attributable to non-controlling interests relates to the University's ownership in Heat I, and its ownership interest in Heat II before the divestiture of Heat II on June 25, 2012.

Revenue Recognition

The Company recognizes government grants when there is reasonable assurance that they will comply with the conditions attached to the grants and the grants will be received. The grants are recognized using an income approach and grant revenue is recognized as the related expenses are incurred.

Research and Development

Research and development costs are expensed as incurred. The Company has acquired exclusive licensing rights to intellectual property to further its research and development. These costs are expensed as incurred. The Company also incurs legal costs relating to the filing and application fees for patents which are owned by the universities with which the Company has license agreements. These costs are also expensed as research and development expense as incurred.