CASI Pharmaceuticals, Inc (DE) - Quarter Report: 2018 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended September 30, 2018

For the transition period from ___________ to _____________.

Commission file number 0-20713

CASI PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

9620 Medical Center Drive, Suite 300

Rockville, Maryland

(Address of principal executive offices)

20850

(Zip code)

(240) 864-2600

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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 x             NO ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YES x             NO ¨

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

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. ¨

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES ¨             NO x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most recent practicable date.

CASI PHARMACEUTICALS, INC.

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements also may be included in other statements that we make. All statements that are not descriptions of historical facts are forward-looking statements. These statements can generally be identified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “may,” “will,” “should,” or “anticipates” or similar terminology. These forward-looking statements include, among others, statements regarding the timing of our clinical trials, our cash position and future expenses, and our future revenues.

Our forward-looking statements are based on information available to us today, and we will not update these statements. Actual results could differ materially from those currently anticipated due to a number of factors, including: risks relating to interests of our largest stockholders that differ from our other stockholders; the difficulty of executing our business strategy in China; the risk that we will not be able to effectively select, register and commercialize products from our recently acquired portfolio of abbreviated new drug applications (ANDAs); our lack of experience in manufacturing products and uncertainty about our resources and capabilities to do so on a clinical or commercial scale; risks relating to the commercialization, if any, of our products and proposed products (such as marketing, safety, regulatory, patent, product liability, supply, competition and other risks); our inability to predict when or if our product candidates will be approved for marketing by the China Food and Drug Administration authorities; our inability to enter into strategic partnerships for the development, commercialization, manufacturing and distribution of our proposed product candidates or future candidates; the volatility in the market price of our common stock; risks relating to the need for additional capital and the uncertainty of securing additional funding on favorable terms; risks associated with our product candidates; risks associated with any early-stage products under development; risk that results in preclinical and early clinical models are not necessarily indicative of later clinical results; uncertainties relating to preclinical and clinical trials, including delays to the commencement of such trials; the lack of success in the clinical development of any of our products; and our dependence on third parties. Such factors, among others, could have a material adverse effect upon our business, results of operations and financial condition. We caution readers not to place undue reliance on any forward-looking statements, which only speak as of the date made. Additional information about the factors and risks that could affect our business, financial condition and results of operations, are contained in our filings with the U.S. Securities and Exchange Commission (“SEC”), which are available at www.sec.gov.

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

CASI Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited) 

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying condensed notes.

CASI Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2018 (unaudited)

The accompanying condensed consolidated financial statements include the accounts of CASI Pharmaceuticals, Inc. and its subsidiaries (“CASI” or “the Company”), Miikana Therapeutics, Inc. (“Miikana”) and CASI Pharmaceuticals (Beijing) Co., Ltd. (“CASI China”). The Company previously operated under a different name prior to restructuring its business in 2012 in connection with an investment led by one of the Company’s largest stockholders. CASI China is a non-stock Chinese entity with 100% of its interest owned by CASI. CASI China received approval for a business license from the Beijing Industry and Commercial Administration in August 2012 and has operating facilities in Beijing. All inter-company balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, such condensed consolidated financial statements do not include all of the information and disclosures required by U.S. generally accepted accounting principles for complete consolidated financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The accompanying December 31, 2017 financial information was derived from the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Operating results for the three and nine month periods ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018 or any other future period. For further information, refer to the Company’s audited consolidated financial statements and footnotes thereto included in its Form 10-K for the year ended December 31, 2017.

Liquidity Risks and Management’s Plans

Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $469.7 million. The Company restructured its business in 2012 in connection with an investment led by one of the Company’s largest stockholders, followed by implementation of a name change to reflect its core mission and business strategy. The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing clinical and development activities. In September 2018, the Company entered into securities purchase agreements with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company agreed to sell 9,048,504 shares of its common stock with accompanying warrants to purchase 2,714,548 shares of its common stock in a $48.5 million private placement (the “September 2018 Financing”). The Company held its initial closing on September 24, 2018 (the “September 2018 Closing”) and second closing on October 10, 2018 (the “October 2018 Closing”). The Company has received gross proceeds of $37.5 million and expects to receive additional gross proceeds of $11 million.

Additionally, in March 2018, the Company entered into securities purchase agreements pursuant to which the Company issued 15,432,091 shares of its common stock with accompanying warrants to purchase 6,172,832 shares of its common stock and received $50 million in gross proceeds in a private placement (the “March 2018 Financing”). The March 2018 Financing closing included an investment from ETP Global Fund, L.P., a healthcare investment fund. The managing member of Emerging Technology Partners, LLC, which is the general partner of ETP Global Fund, L.P., is also the Executive Chairman of the Company. The March 2018 Financing also included an investment from IDG-Accel China Growth Fund III L.P. (“IDG-Accel Growth”) and IDG-Accel China III Investors L.P. (“IDG-Accel Investors”). A director and shareholder of IDG-Accel China Growth Fund GP III Associates Ltd., which is the ultimate general partner of IDG-Accel Growth and IDG-Accel Investors, is also a member of the Company’s Board of Directors. Net proceeds from the September 2018 Closing, the October 2018 Closing, and the March 2018 Financing are being used to prepare for the anticipated launch of the Company’s first commercial product in China, to support the Company’s business development activities, to advance the development of the Company’s pipeline, to support its marketing and commercial planning activities, and for other general corporate purposes.

As a result of the September 2018 Closing, October 2018 Closing, and the March 2018 Financing, the Company believes that it has sufficient resources to fund its operations at least through November 14, 2019. As of September 30, 2018, approximately $15.2 million of the Company’s cash balance was held by CASI China. The Company intends to continue to exercise tight controls over operating expenditures and will continue to pursue opportunities, as required, to raise additional capital and will also actively pursue non- or less-dilutive capital raising arrangements in China to support the Company’s dual-country approach to drug development.

On January 26, 2018, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Sandoz, Inc. (“Sandoz”). Pursuant to the Asset Purchase Agreement, the Company acquired a portfolio of 29 abbreviated new drug applications (“ANDAs”), including 25 ANDAs approved by the U.S. Food and Drug Administration (“FDA”) and four pipeline ANDAs that are pending FDA approval, limited quantities of certain active pharmaceutical ingredient (“API”), and certain manufacturing and other information related to the products (collectively, the ANDAs, API and other information are referred to as the “Acquired Assets”). To facilitate the sale and transition, the parties also entered into several limited term ancillary arrangements.

The Acquired Assets enhance the Company’s strategic focus to build a robust pipeline and commercialize quality drug candidates in China. The Company intends to select and commercialize certain products from the portfolio that have unique market and cost-effective manufacturing opportunities in China (and potentially in the U.S.).

The total purchase price for the Acquired Assets was $18.0 million in cash. The Company accounted for the purchase of the Acquired Assets as an asset acquisition (consisting of a concentrated group of similar identifiable assets, including ANDAs and API) following the guidance contained in Accounting Standards Update (“ASU”) 2017-01. The total purchase price, along with approximately $1.2 million of transaction expenses, was allocated to the Acquired Assets based on their relative fair values, as follows:

Of the total value allocated to the ANDAs, approximately $553,000 was immediately expensed as acquired in-process research and development since the underlying ANDAs have not been approved by the FDA, and of the total value allocated to the API, approximately $134,000 was immediately expensed as acquired in-process research and development since the Company does not intend to use all of the API. The allocated cost of the capitalized ANDAs will be amortized over their estimated useful lives of 13 years. The capitalized API will be expensed in the period it is used or if its value is otherwise impaired.

The fair values of certain acquired ANDAs were estimated using the discounted cash flow method (an income approach), which involves the use of Level 3 inputs such as estimates for projected sales, expenses, and cash flows, estimates of total addressable markets and market penetration rates, future sales growth and inflation rates, expected income and value-added tax rates, and a required rate of return adjusted for both industry and Company-specific risks, among other inputs. The fair values of the remaining ANDAs were estimated using a multiple of values method (an income approach), which involved using Level 3 inputs such as estimated addressable markets and market penetration rates. The fair value of the API was estimated using Level 2 inputs, such as quoted market prices for similar API from various suppliers or other sources. The ANDAs will be tested for impairment when events or circumstances indicate that the carrying value of the asset may not be recoverable; no such triggering events were identified during the period from the date of acquisition to September 30, 2018.

Intangible assets were acquired as part of the 2018 asset acquisition from Sandoz and include ANDAs for a total of 25 previously marketed generic products. These intangible assets were originally recorded at relative fair values based on the purchase price for the asset acquisition and are stated net of accumulated amortization.

The ANDAs are being amortized over their estimated useful lives of 13 years, using the straight-line method. Management reviews finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in a manner similar to that for property and equipment. No impairment losses related to intangible assets were recognized in the nine months ended September 30, 2018.

As discussed in Note 2, in January 2018, the Company purchased the Acquired Assets from Sandoz for a total purchase price of $18.0 million. The total purchase price, along with transaction expenses of approximately $1.2 million, was allocated to the ANDAs and API acquired based on their relative fair values. Net finite-lived intangible assets at September 30, 2018 consists of the following:

Expected future amortization expense is as follows for the years ending December 31:

The U.S. dollar is the reporting currency of the Company. Foreign currency denominated assets and liabilities of the Company and its foreign subsidiary are translated into U.S. dollars. Accordingly, assets and liabilities are translated using the exchange rates in effect at the consolidated balance sheet date and revenues and expenses at the rates of exchange prevailing when the transactions occurred, using an average periodic exchange rate. In 2017, remeasurement adjustments were included in income (loss). As discussed in Note 2, on January 26, 2018, the Company acquired a portfolio of ANDAs. Management believes that this transaction provides significant and permanent changes to its operations in China, and that it may allow its subsidiary in China to generate operating revenues from the China marketplace in the future and potentially sustain its own operations without the necessity of parent support. Accordingly, effective January 1, 2018, the functional currency of the Company’s subsidiary based in China has been changed to the local currency of the China Renminbi (“RMB”). The change in functional currency did not have a material impact on the consolidated financial statements.

Beginning January 1, 2018, translation gains and losses relating to the financial statements of the Company’s China subsidiary are included as accumulated other comprehensive loss in the accompanying Condensed Consolidated Balance Sheets.

The Company has an equity investment in the publicly traded common stock of a company. Beginning on January 1, 2018 with the adoption of ASU 2016-01, the Company’s investment in this equity security is considered a trading security and is carried at its estimated fair value, with changes in fair value reported in the statement of operations each reporting period.  The fair value of this security was measured using its quoted market price, a Level 1 input, and was approximately $1.2 million as of September 30, 2018.

In January 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-01, “Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” In February 2018, the FASB issued ASU 2018-03, “Technical Corrections and Improvements to Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.” The accounting standards primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. In addition, it includes a clarification related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting guidance is effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2017. The Company adopted ASU 2016-01 and ASU 2018-03 on January 1, 2018 and recorded a cumulative effect adjustment that decreased accumulated deficit by approximately $1.2 million. Effective January 1, 2018, the adoption date, changes in the fair value of the Company’s investments in equity securities are recognized in the statements of operations and comprehensive loss.

Inventories consist of raw materials and are stated at the lower of cost or net realizable value. Cost is determined using a first-in, first-out method. The carrying value of raw materials inventory was approximately $430,000 as of September 30, 2018 and is included in “prepaid expenses and other assets” in the accompanying condensed consolidated balance sheets.

Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with pre-clinical testing and clinical trials of the Company’s product candidates, including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, and facilities expenses, along with the amortization of acquired ANDAs. Research and development costs are expensed as incurred.

The Company has certain product rights and perpetual exclusive licenses from Spectrum Pharmaceuticals, Inc. and certain of its affiliates (together referred to as “Spectrum”) to develop and commercialize the following commercial oncology drugs and drug candidates in the greater China region (which includes China, Taiwan, Hong Kong and Macau) (the “Territories”):

EVOMELA^® (melphalan) for Injection (“EVOMELA”);

MARQIBO^® (vinCRIStine sulfate LIPOSOME injection) (“MARQIBO”); and

ZEVALIN^® (ibritumomab tiuxetan) (“ZEVALIN”).

CASI is responsible for developing and commercializing these three drugs in the Territories, including the submission of import drug registration applications and conducting confirmatory clinical trials as needed.

The Company is in various stages of the regulatory and development process to obtain marketing approval for EVOMELA^®, MARQIBO^®, and ZEVALIN^® in its territorial region, with ZEVALIN^® commercially available in Hong Kong. In January 2016, the China Food and Drug Administration (CFDA) accepted for review the Company’s import drug registration application for MARQIBO^® and has completed the quality testing phase of the regulatory process and is currently in technical review by Center for Drug Evaluation (CDE) of the CFDA as part of the regulatory process. On March 10, 2016, Spectrum received notification from the FDA of the grant of approval of its New Drug Application (NDA) for EVOMELA^® primarily for use as a high-dose conditioning treatment prior to hematopoietic progenitor (stem) cell transplantation in patients with multiple myeloma. In December 2016, the CFDA accepted for review the Company’s import drug registration application for EVOMELA^® and in 2017 has granted priority review of the import drug registration clinical trial application (CTA). EVOMELA^® has completed the quality testing phase of the regulatory process, as well as the technical review by CDE of the CFDA, and was evaluated under a CFDA CDE Advisory Committee meeting held in the second quarter of 2018 followed by a series of standard questions from the CFDA related to EVOMELA^® drug product production which usually reflects the final stage of CFDA assessment before approval based on the Import Drug Approval registration pathway. CASI is diligently working with Spectrum and their vendors to address the questions and submit the requested documents. In 2017, the CFDA accepted for review the Company’s import drug registration for ZEVALIN^® including both the antibody kit and the radioactive Yttrium-90 component. ZEVALIN^® is currently under the quality testing phase of the regulatory process by National Institute for Food and Drug Control (NIFDC) as well as the technical review by CDE of the CFDA.

As part of the license arrangements with Spectrum (see Note 8), the Company issued to Spectrum a $1.5 million 0.5% secured promissory note originally due March 17, 2016, which was subsequently amended and extended to September 17, 2019. All other terms remain the same. The promissory note was recorded initially at its fair value, giving rise to a discount of approximately $136,000; the promissory note is presented as note payable, net of discount in the accompanying condensed consolidated balance sheets. For the nine months ended September 30, 2018 and 2017, the Company recognized $531 and $5,607 of non-cash interest expense, respectively, related to the amortization of the debt discount, using the effective interest rate method.

Securities Purchase Agreements

As described in Note 1, in September 2018, the Company entered into securities purchase agreements the (“Securities Purchase Agreements”) with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company agreed to sell 9,048,504 shares of its common stock with accompanying warrants to purchase 2,714,548 shares of its common stock in a $48.5 million private placement. The purchase price for each share of common stock and warrant was $5.36. The warrants will become exercisable on March 23, 2019 at a $7.19 per share exercise price and will expire on September 24, 2021. On September 24, 2018, the Company completed its initial closing, the September 2018 Closing, and issued 6,809,699 shares of its common stock with accompanying warrants to purchase 2,042,907 shares of its common stock and received $36.5 million in gross proceeds. The fair value of the warrants issued is $6,087,863, or $2.98 per warrant, calculated using the Black-Scholes-Merton valuation model with a contractual life of 3 years, an assumed volatility of 88.39%, and a risk-free interest rate of 2.89%. On October 10, 2018, the Company completed its second closing, the October 2018 Closing, on an additional $1 million in gross proceeds, which was received in September 2018 and reflected as “common stock to be issued” on the accompanying condensed consolidated balance sheet as of September 30, 2018. The Company expects to close on the remaining $11 million. The Securities Purchase Agreements and warrants each include additional customary representations, warranties and covenants. The Company also agreed to file a resale registration within 120 days following the closing covering the shares of common stock issued and the shares of common stock underlying the warrants.

The Company’s Executive Chairman, and the Company’s Chief Executive Officer played a key role in identifying and securing potential investors for the September 2018 Financing. As a result, the Company did not have to pay a commission to, or incur additional expenses for, a placement agent. In exchange for their services, which were deemed to be outside the scope of their responsibilities as officers and directors of the Company, the Company’s Audit Committee approved payments of $1,460,000 and $480,000 to the Executive Chairman and the Chief Executive Officer, respectively. As of September 30, 2018, $1,380,000 and $120,000 of these payments, respectively, have been earned and are included as general and administrative expenses in the accompanying condensed consolidated statement of operations for the three and nine month periods ended September 30, 2018. The amount payable to the Executive Chairman totaling $1,380,000 is included in “payable to related parties” in the accompanying condensed consolidated balance sheet as of September 30, 2018 and was paid in October 2018.

As described in Note 1, in March 2018, the Company entered into securities purchase agreements with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company issued 15,432,091 shares of its common stock with accompanying warrants to purchase 6,172,832 shares of its common stock and received $50 million in gross proceeds in a private placement. The purchase price for each share of common stock and warrant was $3.24. The warrants became exercisable on September 17, 2018 at a $3.69 per share exercise price and will expire on March 21, 2023. The fair value of the warrants issued is $15,062,000, or $2.44 per warrant, calculated using the Black-Scholes-Merton valuation model with a contractual life of 5 years, an assumed volatility of 75.4%, and a risk-free interest rate of 2.69%. The securities purchase agreements and warrants each include additional customary representations, warranties and covenants. The Company filed a resale registration covering the shares of common stock issued and the shares of common stock underlying the warrants on Form S-3 (File No. 333-226206) which became effective on August 8, 2018.

Common Stock Sales Agreement

On February 23, 2018, the Company entered into a Common Stock Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”). Pursuant to the terms of the Sales Agreement, the Company may sell from time-to-time, at its option, shares of the Company’s common stock through HCW, as sales agent, with an aggregate sales price of up to $25 million (the “Shares”).

Any sales of Shares pursuant to the Sales Agreement will be made under the Company’s effective “shelf” registration statement (the “Registration Statement”) on Form S-3 (File No. 333-222046) which became effective on December 22, 2017 and the related prospectus supplement and the accompanying prospectus, as filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2018.

In March 2018, the Company issued 143,248 Shares under the Sales Agreement resulting in net proceeds to the Company of approximately $475,000. As of September 30, 2018, approximately $24.5 million remained available under the Sales Agreement.

Net loss per share (basic and diluted) was computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding. Outstanding stock options and warrants totaling 18,384,932 and 13,425,608 as of September 30, 2018, respectively, were anti-dilutive and, therefore, were not included in the computation of weighted average shares used in computing diluted loss per share.

The Company has adopted incentive and nonqualified stock option plans for executive, scientific and administrative personnel of the Company as well as outside directors and consultants. In June 2018, the Company’s stockholders approved an amendment to the 2011 Long-Term Incentive Plan, increasing the number of shares of common stock reserved for issuance from 14,230,000 to 20,230,000 to be available for grants and awards. As of September 30, 2018, there are 18,384,932 shares issuable under options previously granted and currently outstanding, with exercise prices ranging from $0.86 to $8.23. Options granted under the plans generally vest over periods varying from immediately to one to five years, are not transferable and generally expire ten years from the date of grant. As of September 30, 2018, 6,878,610 shares remained available for grant under the Company’s 2011 Long-Term Incentive Plan. On March 13, 2018, upon the recommendation of the Compensation Committee of the Board of Directors (the “Board”), the Board approved a grant of stock options to the Company’s Executive Chairman exercisable for 1 million shares of common stock that will vest and become exercisable on the first anniversary date of the grant. In addition, the Board approved the grant of a performance-based option covering 4 million shares of common stock that will vest if, within 18 months of the date of grant, specific operational and strategic milestones are achieved. Both grants were approved by the Company’s stockholders at the 2018 Annual Meeting of Stockholders.

The Company records compensation expense associated with stock options and other equity-based compensation in accordance with provisions of authoritative guidance. Compensation costs are recognized over the requisite service period, which is generally the option vesting term of up to five years. Awards with performance conditions are expensed when it is probable that the performance condition will be achieved. There was minimal expense recorded for share awards with performance conditions during the nine months ended September 30, 2018 and 2017.

The Company’s net loss for the nine months ended September 30, 2018 and 2017 includes $3,517,493 and $516,237, respectively, of non-cash compensation expense related to the Company’s share-based compensation awards. The compensation expense related to the Company’s share-based compensation arrangements is recorded as components of general and administrative expense and research and development expense, as follows:

The Company uses the Black-Scholes-Merton valuation model to estimate the fair value of service based and performance-based stock options granted to employees. Option valuation models, including Black-Scholes-Merton, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award. Following are the weighted-average assumptions used in valuing the stock options granted to employees during the nine-month periods ended September 30, 2018 and 2017:

The weighted average fair value of stock options granted during the nine-month periods ended September 30, 2018 and 2017 were $4.51 and $0.73, respectively.

A summary of the Company's stock option plans and of changes in options outstanding under the plans during the nine-month period ended September 30, 2018 is as follows:

Cash received from option exercises under all share-based payment arrangements for the nine months ended September 30, 2018 was $257,948. There were no option exercises during the nine months ended September 30, 2017.

Warrants

Warrants issued generally expire after 2-5 years from the date of issuance. Stock warrant activity is as follows:

Cash received from warrants exercised during the nine months ended September 30, 2018 was $2,088,035. There were no warrants exercised during the nine months ended September 30, 2017.

At December 31, 2017, the Company had a $3.2 million unrecognized tax benefit. The Company recorded a full valuation allowance on the net deferred tax asset recognized in the consolidated financial statements as of December 31, 2017.

During the nine months ended September 30, 2018, there were no material changes to the measurement of unrecognized tax benefits in various taxing jurisdictions. The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense.

The tax returns for all years in the Company’s major tax jurisdictions are not settled as of September 30, 2018. Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify these attributes.

The Company has supply agreements with Spectrum for the purchase of EVOMELA^®, MARQIBO^®, and ZEVALIN^® in China for quality testing purposes to support CASI’s application for import drug registration and for commercialization purposes. The former CEO of Spectrum is also a member of CASI’s Board and Spectrum is the Company’s largest shareholder. All amounts payable to Spectrum for material purchases have been paid as of September 30, 2018. There were no materials purchased from Spectrum for the nine months ended September 30, 2018. In April and June 2017, under supply agreements with Spectrum, the Company received shipments of EVOMELA^® and MARQIBO^®, respectively, in China for quality testing purposes to support CASI’s application for import drug registration. The total cost of the materials was approximately $477,000, which is included in research and development expense for the nine months ended September 30, 2017.

Emerging Technology Partners, LLC (“ETP”) incurred approximately $3 million of expenses for due diligence and related services (the “Services”) for certain business development activities. The Company benefited by having access to the results of those Services and did not have to incur such expense on its own. The Company’s Executive Chairman is the founder and managing member of ETP. The Company’s Audit Committee authorized and directed the Company to reimburse ETP $1.5 million for the expenses incurred in connection with the Services which is included as general and administrative expenses in the accompanying condensed consolidated statement of operations for the three and nine month periods ended September 30, 2018. The amount payable to ETP totaling $1.5 million is included in “payable to related parties” in the accompanying condensed consolidated balance sheet as of September 30, 2018 and was paid in October 2018.

The Company has implemented all new accounting pronouncements that are in effect and that may impact the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 supersedes existing lease guidance, including Accounting Standards Codification (ASC) 840 - Leases. Among other things, the new standard requires recognition of a right-of-use asset and liability for future lease payments for contracts that meet the definition of a lease. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The standard must be applied using a modified retrospective approach. The Company is completing its evaluation of the effect of the adoption of this ASU and tentatively expects that the adoption will result in an increase to both assets and liabilities on the consolidated balance sheet, with no significant effects on operating results.

In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842) Targeted Improvements, which offers a transition option to entities adopting the new lease standard. Under the transition option, entities can recognize a cumulative effect adjustment to the opening balance of retained earnings of the year in which the new lease standard is adopted, rather than in the earliest period presented in their financial statements. The Company is currently evaluating the effect the adoption of this ASU will have on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business (Topic 805). The amendments in the update provide a screen to determine when a set is not a business. If the screen is not met, the amendments in the update (1) require that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output and (2) remove the evaluation of whether a market participant could replace missing elements. The amendments provide a framework to assist entities in evaluating whether both an input and a substantive process are present. Lastly, the amendments in the update narrow the definition of the term output so that the term is consistent with how outputs are described in Topic 606. The ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017; earlier adoption is permitted under certain criteria. The Company adopted this ASU on January 1, 2018. While this ASU did not have a material effect on the Company’s financial statements on the date of adoption, the Company did follow the new guidance in determining that its acquisition of ANDAs from Sandoz, Inc. in January 2018 was an asset acquisition (see Note 2).

In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718) Scope of Modification Accounting. ASU 2017-09 provides clarification on when modification accounting should be used for changes to the terms or conditions of a share-based payment award. This ASU does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions, or award classification and would not be required if the changes are considered non-substantive. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted ASU 2017-09 in the first quarter of 2018 and the adoption of this ASU did not have a material effect on the consolidated financial statements.

In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting which includes updated guidance for share-based payment awards issued to non-employees. The updated standard aligns the accounting for share-based payment awards for non-employees with employees, except for guidance related to the attribution of compensation costs for non-employees. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those annual periods for public business entities, with early adoption permitted. The Company is considering early adopting this standard in the fourth quarter of 2018. The adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial statements.

There are no other recently issued accounting pronouncements that are expected to have a material effect on the Company's financial position, results of operations or cash flows.

In 2018, the Company entered into purchase obligation commitments for EVOMELA^® from Spectrum for approximately $9.2 million.

In April 2018, the Company entered into a lease agreement for office space in China that continues through April 2021. Future minimum lease payments are approximately $139,300 in 2018, $557,200 in 2019, $557,200 in 2020 and $139,300 in 2021.

In October 2018, the Company entered into a lease agreement for office space in China that continues through November 2021. Future minimum lease payments are approximately $90,600 in 2018, $418,000 in 2019, $418,000 in 2020 and $383,100 in 2021.

In October 2018, the Company amended the lease for its principal executive offices in Rockville, MD, effective November 1, 2018 to increase the total space covered under the lease to 6,068 square feet. The Company also extended the lease term from December 31, 2019 to July 31, 2022. Incremental future minimum lease payments associated with the amendment are approximately $8,400 in 2018, $50,500 in 2019, $138,600 in 2020, $142,700 in 2021 and $85,700 in 2022.

In October 2018, the Company entered into an agreement with Laurus Labs Limited (“Laurus”), a company organized under the Laws of India, pursuant to which the Company will acquire from Laurus one U.S. FDA-approved abbreviated new drug application for tenofovir disoproxil fumarate (TDF ANDA), which is indicated for the treatment of hepatitis B virus. The aggregate purchase price for the TDF ANDA was $3 million, with an upfront payment of $700,000, paid in October 2018, and $2.3 million to be paid upon completion of certain milestones.

OVERVIEW

We are a U.S. based biopharmaceutical company dedicated to the development and delivery of high quality, cost-effective pharmaceutical products and innovative therapeutics to patients in the U.S., China and throughout the world. We intend to execute our plan to become a leading pharmaceutical company with a substantial market share in China. We are headquartered in Rockville, Maryland and have a wholly owned subsidiary and R&D operations in Beijing, China.

Our product pipeline features the following: (1) EVOMELA^®, MARQIBO^®, and ZEVALIN^®, all U.S. FDA approved drugs in-licensed from Spectrum Pharmaceuticals, Inc. for China regional rights, and currently in various stages in the regulatory process for market approval in China, and (2) an acquired portfolio of 25 FDA-approved abbreviated new drug applications (“ANDAs”) and four pipeline ANDAs that are pending FDA approval, from which we will prioritize a select subset for product registration and commercialization in China. The Company also recently announced entering into an agreement with Laurus Labs Limited to purchase an ANDA for tenofovir disoproxil fumarate (TDF) indicated for hepatitis B virus. In addition to these advanced products, our pipeline includes a proprietary Phase 2 drug candidate, ENMD-2076, that the Company has determined not to pursue as a single agent and is exploring feasibility of combination as a clinical strategy, and also CASI-001 and CASI-002, proprietary early-stage candidates in immuno-oncology in preclinical development.

We believe our pipeline reflects a risk-balanced approach between products in various stages of development, and between products that we develop ourselves and those that we develop with our partners for the China regional market. We intend to continue building a significant product pipeline of high quality, cost-effective pharmaceuticals, as well as innovative drug candidates that we will commercialize alone in China and with partners for the rest of the world. For in-licensed products, the Company uses a market-oriented approach to identify pharmaceutical candidates that it believes have the potential for gaining widespread market acceptance, either globally or in China, and for which development can be accelerated under the Company’s drug development strategy. For our FDA-approved ANDAs, we intend to select and commercialize certain products from the portfolio that offer unique market and cost-effective manufacturing opportunities in China and/or in the U.S.

Our primary research and development focus is to acquire high quality, cost-effective medicines, as well as to in-license clinical-stage and late-stage drug candidates so that we can immediately employ our U.S. and China drug development model to accelerate commercialization, and clinical and regulatory progress. In addition to our high quality, cost-effective medicines, and our clinical-and late-stage approach for innovative products, we have other potential drug candidates in preclinical development which we will continue to evaluate through 2018 and 2019. The implementation of our plans will include leveraging our resources in both the United States and China. In order to capitalize on the drug development and capital resources available in China, we are doing business in China through our wholly-owned China-based subsidiary that will execute the China portion of our drug development strategy, including conducting clinical trials in China, pursuing local funding opportunities and strategic collaborations, and implementing our transition to a commercial enterprise.

Since inception, the Company has incurred significant losses from operations and has incurred an accumulated deficit of $469.7 million.  The Company restructured its business in 2012 in connection with an investment led by one of the Company’s largest stockholders, followed by implementation of a name change to reflect its core mission and business strategy.  The Company expects to continue to incur operating losses for the foreseeable future due to, among other factors, its continuing clinical and development activities. In September 2018, the Company entered into securities purchase agreements with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company agreed to sell 9,048,504 shares of its common stock with accompanying warrants to purchase 2,714,548 shares of its common stock in a $48.5 million private placement (the “September 2018 Financing”). The Company held its initial closing on September 24, 2018 (the “September 2018 Closing”) and second closing on October 10, 2018 (the “October 2018 Closing”). The Company has received gross proceeds of $37.5 million and expects to receive additional gross proceeds of $11 million. Additionally, in March 2018, the Company entered into securities purchase agreements pursuant to which the Company issued 15,432,091 shares of its common stock with accompanying warrants to purchase 6,172,832 shares of its common stock and received $50 million in gross proceeds in a private placement (the “March 2018 Financing”). The March 2018 Financing closing included an investment from ETP Global Fund, L.P., a healthcare investment fund. The managing member of Emerging Technology Partners, LLC, which is the general partner of ETP Global Fund, L.P., is also the Executive Chairman of the Company. The March 2018 Financing also included an investment from IDG-Accel China Growth Fund III L.P. (“IDG-Accel Growth”) and IDG-Accel China III Investors L.P. (“IDG-Accel Investors”). A director and shareholder of IDG-Accel China Growth Fund GP III Associates Ltd., which is the ultimate general partner of IDG-Accel Growth and IDG-Accel Investors, is also a member of the Company’s Board of Directors. Net proceeds from the September 2018 Closing, the October 2018 Closing, and the March 2018 Financing are being used to prepare for the anticipated launch of the Company’s first commercial product in China, to support the Company’s business development activities, to advance the development of the Company’s pipeline, to support its marketing and commercial planning activities, and for other general corporate purposes.

As a result of the September 2018 Closing, October 2018 Closing, and the March 2018 Financing, the Company believes that it has sufficient resources to fund its operations at least through November 14, 2019. As of September 30, 2018, approximately $15.2 million of the Company’s cash balance was held by CASI China. We intend to continue to exercise tight controls over operating expenditures. In developing drug candidates, we intend to use and leverage resources available to us in both the United States and China. We intend to pursue additional financing opportunities as well as opportunities to raise capital through forms of non- or less-dilutive arrangements, such as partnerships and collaborations with organizations that have capabilities and/or products that are complementary to our capabilities and products in order to continue the development of our product candidates that we intend to pursue to commercialization.

Additional funds raised by issuing equity securities may result in dilution to existing stockholders.

CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. Our critical accounting policies, including the items in our financial statements requiring significant estimates and judgments, are as follows:

The determination of fair value of stock-based payment awards on the date of grant using the Black-Scholes-Merton valuation model is affected by our stock price, as well as the input of other subjective assumptions. These assumptions include, but are not limited to, the expected term of stock options and our expected stock price volatility over the term of the awards. Changes in the assumptions can materially affect the fair value estimates.

Any future changes to our share-based compensation strategy or programs would likely affect the amount of compensation expense recognized.

RESULTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2018 and 2017.

Revenues and Cost of Product Sales. There were no revenues recorded for the three or nine months ended September 30, 2018 and 2017.

Research and Development Expenses. Our research and development expenses for the three and nine months ended September 30, 2018 totaled approximately $1,806,000 and $5,233,000, respectively. Research and development expenses for the corresponding 2017 periods were $971,000 and $3,748,000, respectively. Included in our research and development expenses for the three-month period ended September 30, 2018 are direct project costs of $398,000 related to our ANDAs acquired in January 2018, $90,000 for ENMD-2076, $242,000 for drugs in-licensed from Spectrum, and $433,000 for preclinical development activities primarily in China. The 2017 R&D expenses for the comparable period are direct project costs of $148,000 for ENMD-2076, $188,000 for drugs in-licensed from Spectrum, and $279,000 for preclinical development activities in China. Research and development expenses totaling $5,233,000 for the nine-month period ended September 30, 2018 included direct project costs of $1,227,000 related to our ANDAs acquired in January 2018, $324,000 related to ENMD-2076, $558,000 for drugs in-licensed from Spectrum, and $1,319,000 for preclinical development activities primarily in China. The 2017 research and development expenses for the comparable period included direct project costs of $697,000 related to ENMD-2076, $1,100,000 for drugs in-licensed from Spectrum, and $837,000 for preclinical development activities in China. The overall increase in research and development costs in the three and nine months ended September 30, 2018, as compared to same periods in 2017, primarily reflects higher costs associated with regulatory costs of the ANDAs in 2018.

At September 30, 2018, and, since acquired, accumulated direct project expenses for our ANDAs acquired in January 2018 totaled $1,227,000; $28,835,000 for ENMD-2076; $5,094,000 for drugs in-licensed from Spectrum; and for preclinical development activities primarily in China, accumulated project expenses totaled $4,675,000. Our research and development expenses also include non-cash stock-based compensation totaling $70,000 and $232,000 for the three and nine months ended September 30, 2018, respectively, and $54,000 and $225,000 for the corresponding 2017 periods, respectively. The balance of our research and development expenditures includes facility costs and other departmental overhead, expenditures related to the non-clinical support of our programs, and non-cash amortization expense of acquired ANDAs.

We expect the majority of our research and development expenses for the rest of 2018 and 2019 to be devoted to advancing our in-licensed products towards market approval in China, the technology transfer activities and regulatory support associated with our ANDA portfolio, and our early-stage candidates in preclinical development. We expect our expenses for the remainder of 2018 and 2019 to increase based on our commercial and clinical development plan. Completion of clinical development may take several years or more, but the length of time generally varies substantially according to the type, complexity, novelty and intended use of a product candidate.

We estimate that clinical trials of the type we generally conduct are typically completed over the following timelines:

Global FDA Trial:

Local CFDA Trial:

The duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

We test our potential product candidates in numerous preclinical studies to identify indications for which they may be product candidates. We may conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain indications in order to focus our resources on more promising indications.

Our proprietary product candidates have also not yet achieved regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, regulatory agencies must conclude that our clinical data establish safety and efficacy. Historically, the results from preclinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

Our business strategy includes being opportunistic with collaborative arrangements with third parties to complete the development and commercialization of our product candidates. In the event that third parties take over the clinical trial process for one of our product candidates, the estimated completion date would largely be under the control of that third party rather than us. We cannot forecast with any degree of certainty which proprietary products or indications, if any, will be subject to future collaborative arrangements, in whole or in part, and how such arrangements would affect our capital requirements.

As a result of the uncertainties discussed above, among others, we are unable to estimate the duration and completion costs of our research and development projects. Our inability to complete our research and development projects in a timely manner or our failure to enter into collaborative agreements, when appropriate, could significantly increase our capital requirements and could adversely impact our liquidity. These uncertainties could force us to seek additional, external sources of financing from time-to-time in order to continue with our business strategy. There can be no assurance that we will be able to successfully access external sources of financing in the future. Our inability to raise additional capital, or to do so on terms reasonably acceptable to us, would jeopardize the future success of our business.

Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, research collaborations, costs associated with internal and contract preclinical testing and clinical trials of our product candidates, including the costs of manufacturing drug substance and drug product, regulatory maintenance costs, facilities expenses, and amortization expense of acquired ANDAs. Overall research and development expenses increased to $1,806,000 during the three months ended September 30, 2018 from $971,000 for the corresponding period in 2017. Research and development expenses increased to $5,233,000 during the nine-months ended September 30, 2018 from $3,748,000 for the corresponding period in 2017. The fluctuations in research and development expenditures during the three and nine months ended September 30, 2018 were specifically impacted by the following:

General and Administrative Expenses. General and administrative expenses include compensation and other expenses related to finance, business development and administrative personnel, professional services, investor relations and facilities. General and administrative expenses increased to $6,905,000 in the three-month period ended September 30, 2018 from $626,000 in the corresponding 2017 period. This variance relates to an increase in non-cash stock-based compensation expense totaling $1,524,000, primarily associated with stock option awards issued to the Company’s Executive Chairman; an increase in salary, benefits and recruitment expense totaling approximately $475,000 in China, primarily related to sales and marketing efforts to prepare for the anticipated launch of the Company’s first commercial product in China, as well as other general and administrative functions; approximately $510,000 related to increased professional services fees and investor and public relations activities; and increased facility costs of $121,000 due to new leased office space in China. The increase in general and administrative costs also includes $1,380,000 associated with our Executive Chairman’s services in connection with the September 2018 Financing; and approximately $1,581,000 associated with business development and exploratory acquisition activities during the period, including $1.5 million related to due diligence and related services for certain business development activities incurred by ETP, in which we benefited by having access to the results of those services and did not have to incur such expense on our own. The Company’s Executive Chairman is the founder and managing member of ETP. The Company’s Audit Committee authorized and directed to the Company to reimburse ETP $1.5 million for the expenses incurred in connection with these services.

General and administrative expenses increased to $12,250,000 during the nine months ended September 30, 2018 from $1,961,000 for the corresponding period in 2017. The increase in expenses in the nine-month period in 2018, compared to the same period in 2017 reflects an increase in non-cash stock-based compensation expense totaling $2,994,000, primarily associated with stock option awards issued to the Company’s Executive Chairman; an increase in salary, benefits and recruitment expense totaling $979,000 in China primarily related to sales and marketing efforts to prepare for the anticipated launch of the Company’s first commercial product in China, as well as other general and administrative functions; approximately $901,000 associated with additional professional services fees and investor and public relations activities; and increased facility cost of $229,000 due to new leased office space in China. The increase in general and administrative expenses for the 2018 nine-month period also reflects $1,380,000 associated with our Executive Chairman’s services in connection with the September 2018 Financing and increased costs of approximately $2,546,000 associated with business development and exploratory acquisition activities, including the $1.5 million of expenses associated with ETP as described above.

Acquired In-process Research and Development. In January 2018, we acquired a portfolio of 29 ANDAs, including 25 FDA-approved ANDAs and four pipeline ANDAs that are pending FDA approval, limited quantities of API, and certain manufacturing and other information related to the products (collectively, the ANDAs, API and other information are referred to as the “Acquired Assets”). The total purchase price for the Acquired Assets was $18.0 million in cash. We accounted for the purchase of the Acquired Assets as an asset acquisition (consisting of a concentrated group of similar identifiable assets, including ANDAs and API). The total purchase price, along with approximately $1.2 million of transaction expenses, was allocated to the Acquired Assets based on their relative fair values. Of the total value allocated to the ANDAs, approximately $553,000 was immediately expensed as acquired in-process research and development since the underlying ANDAs have not been approved by the FDA, and of the total value allocated to the API, approximately $134,000 was immediately expensed as acquired in-process research and development since the Company does not intend to use all the API.

Interest (income) expense, net. Interest (income) expense, net for the three months ended September 30, 2018 and 2017 was $(10,652) and $546, respectively. This includes interest on our note payable of $1,875 for both periods; non-cash interest of $177 and $1,869, respectively, representing the amortization of the debt discount; offset by interest income of $12,704 and $3,198, respectively. Interest (income) expense, net for the nine months ended September 30, 2018 and 2017 was $(30,453) and $476, respectively. This includes interest on our note payable of $5,625 for both periods; non-cash interest of $531 and $5,607, respectively, representing the amortization of the debt discount; offset by interest income of $36,609 and $10,756, respectively.

Other expense. Other expense for the three and nine months ended September 30, 2018 was $55,941 and $67,266, respectively, representing unrealized losses on the Company’s equity investment securities.

Change in fair value of contingent rights. The Contingent Rights issued to Spectrum in connection with the license arrangements are considered derivative liabilities and were recorded initially at their estimated fair value and are marked to market each reporting period until settlement. The Contingent Rights were fully settled during 2017, so there was no change in the fair value of the Contingent Right for the three and nine months ended September 30, 2018. The change in fair value of the Contingent Rights for the three and nine months ended September 30, 2017 was $16,110 and $12,665, respectively.

LIQUIDITY AND CAPITAL RESOURCES

To date, we have been engaged primarily in research and development activities. As a result, we have incurred and expect to continue to incur operating losses in 2018 and the foreseeable future before we commercialize any products and penetrate significant markets such as China. Based on our current plans, we expect our current available cash and cash equivalents to meet our cash requirements for at least through November 14, 2019.

We will require significant additional funding to fund operations until such time, if ever, we become profitable. We intend to augment our cash balances by pursuing other forms of capital infusion, including strategic alliances or collaborative development opportunities with organizations that have capabilities and/or products that are complementary to our capabilities and products in order to continue the development of our potential product candidates that we intend to pursue to commercialization. If we seek strategic alliances, licenses, or other alternative arrangements, such as arrangements with collaborative partners or others, to raise further financing, we may need to relinquish rights to certain of our existing product candidates, or products we would otherwise seek to develop or commercialize on our own, or to license the rights to our product candidates on terms that are not favorable to us.

We will continue to seek to raise additional capital to fund our commercialization efforts, expansion of our operations, research and development, and for the acquisition of new product candidates, if any. We intend to explore one or more of the following alternatives to raise additional capital:

We also will continue to manage our cash resources prudently and cost-effectively.

There can be no assurance that adequate additional financing under such arrangements will be available to us on terms that we deem acceptable, if at all. If additional funds are raised by issuing equity securities, dilution to existing stockholders may result, or the equity securities may have rights, preferences, or privileges senior to those of the holders of our common stock. If we fail to obtain additional capital when needed, we may be required to delay or scale back our commercialization efforts, our advancement of the Spectrum products, and the ANDA products, or plans for other product candidates, if any.

At September 30, 2018, we had cash and cash equivalents of approximately $98.9 million, with working capital of approximately $94.5 million. As of September 30, 2018, approximately $15.2 million of the Company’s cash balance was held by the Company’s wholly-owned subsidiary in China.

As a result of the Company’s acquisition of a portfolio of ANDAs, we believe that this transaction provides significant and permanent changes to our operations in China, and that may allow our subsidiary in China to generate operating revenues from the China marketplace in the future and potentially to sustain its own operations without the necessity of parent support. Accordingly, effective January 1, 2018, the functional currency of the Company’s subsidiary based in China has been changed to the local currency of the China RMB. The change in functional currency did not have a material impact on the consolidated financial statements.

FINANCING ACTIVITIES

“Shelf” Registration Statement

On December 13, 2017, we filed a Form S-3 registration statement with the SEC utilizing a “shelf” registration process. On December 22, 2017, the Form S-3 registration statement was declared effective by the SEC. Pursuant to this shelf registration statement, we may sell debt or equity securities in one or more offerings up to a total public offering price of $100 million. We believe that this shelf registration statement currently provides us additional flexibility with regard to potential financings that we may undertake when market conditions permit or our financial condition may require.

Securities Purchase Agreements

As discussed above, in September 2018, the Company entered into securities purchase agreements the (“Securities Purchase Agreements”) with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company agreed to sell 9,048,504 shares of its common stock with accompanying warrants to purchase 2,714,548 shares of its common stock in a $48.5 million private placement. The purchase price for each share of common stock and warrant was $5.36. The warrants will become exercisable on March 23, 2019 at a $7.19 per share exercise price and will expire on September 24, 2021. On September 24, 2018, the Company completed its first closing and issued 6,809,699 shares of its common stock with accompanying warrants to purchase 2,042,907 shares of its common stock and received $36.5 million in gross proceeds. The fair value of the warrants issued is $6,087,863, or $2.98 per warrant, calculated using the Black-Scholes-Merton valuation model with a contractual life of 3 years, an assumed volatility of 88.39%, and a risk-free interest rate of 2.89%. On October 10, 2018, the Company completed its second closing for an additional $1 million in gross proceeds, which was received in September 2018. The Company expects to close on the remaining $11 million of the September 2018 Financing. The Securities Purchase Agreements and warrants each include additional customary representations, warranties and covenants. The Company also agreed to file a resale registration within 120 days following the closing covering the shares of common stock issued and the shares of common stock underlying the warrants.

Additionally, in March 2018, the Company entered into securities purchase agreements with certain institutional investors, accredited investors and current stockholders, pursuant to which the Company issued 15,432,091 shares of its common stock with accompanying warrants to purchase 6,172,832 shares of its common stock and received $50 million in gross proceeds in a private placement. The purchase price for each share of common stock and warrant was $3.24. The warrants became exercisable on September 17, 2018 at a $3.69 per share exercise price, and will expire on March 21, 2023. The fair value of the warrants issued is $15,062,000, or $2.44 per warrant, calculated using the Black-Scholes-Merton valuation model with a contractual life of 5 years, an assumed volatility of 75.4%, and a risk-free interest rate of 2.69%. The securities purchase agreements and warrants each include additional customary representations, warranties and covenants. The Company has filed a resale registration covering the shares of common stock issued and the shares of common stock underlying the warrants on Form S-3 (File No. 333-226206) which became effective on August 8, 2018.

Common Stock Sales Agreement

On February 23, 2018, the Company entered into a Common Stock Sales Agreement (the “Sales Agreement”) with H.C. Wainwright & Co., LLC (“HCW”). Pursuant to the terms of the Sales Agreement, the Company may sell from time-to-time, at its option, shares of the Company’s common stock through HCW, as sales agent, with an aggregate sales price of up to $25 million (the “Shares”).

Any sales of Shares pursuant to the Sales Agreement will be made under the Company’s effective “shelf” registration statement (the “Registration Statement”) on Form S-3 (File No. 333-222046) which became effective on December 22, 2017 and the related prospectus supplement and the accompanying prospectus, as filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2018.

In March 2018, the Company issued 143,248 Shares under the Sales Agreement resulting in net proceeds to the Company of approximately $475,000. As of September 30, 2018, approximately $24.5 million remained available under the Sales Agreement.

INFLATION AND INTEREST RATE CHANGES

Management does not believe that our working capital needs are sensitive to inflation and changes in interest rates.

The primary objective of our investment activities is to preserve our capital until it is required to fund operations while at the same time maximizing the income we receive from our investments without incurring investment market volatility risk. Our investment income is sensitive to the general level of U.S. interest rates. In this regard, changes in the U.S. interest rates affect the interest earned on our cash and cash equivalents. Due to the short-term nature of our cash and cash equivalent holdings, a 10% movement in market interest rates would not materially impact the total fair market value of our portfolio as of September 30, 2018.

Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were effective as of September 30, 2018 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We believe that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2018 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

We are subject in the normal course of business to various legal proceedings in which claims for monetary or other damages may be asserted. Management does not believe such legal proceedings, unless otherwise disclosed herein, are material.

For information regarding factors that could affect the Company’s results of operations, financial condition and liquidity, see the risk factors discussion set forth in Item 1A of CASI’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and the information under “Special Note Regarding Forward-Looking Statements” included in this report. There have been no material changes to our risk factors from those disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017.

None.

Not applicable.

Not applicable.

* Filed Herewith

EXHIBIT INDEX

* Filed Herewith

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.