2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SEGMENT INFORMATION

The Company currently operates in one business segment, which is the development of innovative therapeutics addressing cancer and other unmet medical needs for the global market. The Company is managed and operated as one business. CASI’s senior management team reports to the Board of Directors and is responsible for aligning the Company’s business strategy with its core scientific strengths, while maintaining prudent resource management, fiscal responsibility and accountability. The Company employs a drug development strategy in the United States and China to develop targeted therapeutics for the global market that are potential first-in-class or market-leading compounds for treatment of cancer.

The Company does not operate separate lines of business with respect to its product candidates. Accordingly, the Company does not have separately reportable segments as defined by authoritative guidance issued by the Financial Accounting Standards Board (FASB).

RESEARCH AND DEVELOPMENT

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

PROPERTY AND EQUIPMENT

Furniture and equipment and leasehold improvements are stated at cost and are depreciated or amortized over their estimated useful lives of 3 to 5 years. Depreciation and amortization is determined on a straight-line basis. Depreciation and amortization expense was $117,779 and $66,451 in 2017 and 2016, respectively.

Property and equipment consists of the following:

	DECEMBER 31,
	2017		2016
Furniture and equipment	$	1,150,052	$	480,172
Leasehold improvements		268,734		11,435
		1,418,786		491,607
Less: accumulated depreciation and amortization		(372,272)		(262,016)
	$	1,046,514	$	229,591

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with authoritative guidance issued by the FASB, the Company periodically evaluates the value reflected in its consolidated balance sheets of long-lived assets, such as equipment, when events and circumstances indicate that the carrying amount of an asset may not be recovered. Such events and circumstances include the use of the asset in current research and development projects, any potential alternative uses of the asset in other research and development projects in the short to medium term and restructuring plans entered into by the Company. No impairment charges were recorded in 2017 and 2016.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and highly liquid investments with original maturities of less than 90 days. Substantially all of the Company’s cash equivalents are held in short-term money market accounts.

FOREIGN CURRENCY TRANSLATION

The U.S. dollar is the functional and reporting currency of the Company. Foreign currency denominated assets and liabilities of the Company and all of its subsidiaries are translated into U.S. dollars. Accordingly, monetary 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. Remeasurement adjustments are included in income (loss). As discussed in Note 12, 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, allowing its subsidiary in China to generate operating revenues from the China marketplace in the future and potentially to sustain their 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”).

EXPENSES FOR CLINICAL TRIALS

Expenses for clinical trials are incurred from planning through patient enrollment to reporting of the data. The Company estimates expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management. Costs that are associated with patient enrollment are recognized as each patient in the clinical trial completes the enrollment process. Estimated clinical trial costs related to enrollment can vary based on numerous factors, including expected number of patients in trials, the number of patients that do not complete participation in a trial, and the length of participation for each patient. Costs that are based on clinical data collection and management are recognized in the reporting period in which services are provided. In the event of early termination of a clinical trial, the Company accrues an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial. As of December 31, 2017 and 2016, clinical trial accruals were $402,773 and $499,028, respectively, and are included in accounts payable in the accompanying consolidated balance sheets.

INCOME TAXES

Income tax expense is accounted for in accordance with authoritative guidance issued by the FASB. Income tax expense has been provided using the asset and liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. The Company provides a valuation allowance against net deferred tax assets if, based upon the available evidence, it is not more likely than not that the deferred tax assets will be realized.

The Company accounts for uncertain tax positions pursuant to the guidance of FASB Accounting Standards Codification Topic 740, Income Taxes. The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense. As of December 31, 2017 and 2016, the Company did not accrue any interest related to uncertain tax positions. To date, there have been no interest or penalties charged to the Company in relation to the underpayment of income taxes.

REVENUE RECOGNITION

Revenue for product sales is not recognized until it is realized or realizable and earned. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price to the buyer is fixed and determinable and collectibility is reasonably assured.

NET LOSS PER SHARE

Net loss per share (basic and diluted) was computed by dividing net loss attributable to common shareholders by the weighted average number of shares of common stock outstanding. Outstanding options and warrants totaling 17,849,331 and 15,923,807 as of December 31, 2017 and 2016, respectively, were anti-dilutive and, therefore, were not included in the computation of weighted average shares used in computing diluted loss per share.

SHARE-BASED COMPENSATION

The Company records compensation expense associated with service and performance based stock options and other equity-based compensation in accordance with provisions of authoritative guidance. The fair value of awards whose fair values are calculated using the Black-Scholes option pricing model is generally being amortized on a straight-line basis over the requisite service period and is recognized based on the proportionate amount of the requisite service period that has been rendered during each reporting period. Share-based awards granted to employees with a performance condition are measured based on the probable outcome of that performance condition during the requisite service period. Awards with performance conditions will be expensed if it is probable that the performance condition will be achieved. During the years ended December 31, 2017 and 2016, $30,500 and $10,100, respectively, of stock compensation expense was recorded for share awards with performance conditions.

NEW ACCOUNTING PRONOUNCEMENTS

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

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-01, Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The accounting standard primarily affects 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 intends to adopt ASU 2016-01 in the first quarter of 2018 and does not expect that the adoption of this ASU will have a material effect on the 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 currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.

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 intends to adopt ASU 2017-09 in the first quarter of 2018 and does not expect that the adoption of this ASU will have a material effect on the 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.

FAIR VALUE OF FINANCIAL INSTRUMENTS AND CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company maintains its cash in bank deposit accounts, which, at times, may exceed federally insured amounts. The Company believes it is not exposed to significant credit risk on cash and cash equivalents. The carrying amount of current assets and liabilities approximates their fair values due to their short-term maturities.

USE OF ESTIMATES

The preparation of consolidated 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 the financial statements and accompanying notes. The Company’s most critical accounting estimates relate to accounting policies for derivatives, notes payable valuation, clinical trial accruals and share-based arrangements. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results may differ from those estimates, and such differences may be material to the consolidated financial statements.

DERIVATIVES

The Company entered into investment agreements with Spectrum (see Note 4) resulting in a purchase price derivative. In accordance with GAAP, derivative instruments are recognized as either assets or liabilities on the consolidated balance sheets and are measured at fair value with gains or losses recognized in earnings or other comprehensive income depending on the nature of the derivative. The Company determines the fair value of derivative instruments based on available market data using appropriate valuation models, giving consideration to all of the rights and obligations of each instrument. The derivative liability is re-measured at fair value at the end of each reporting period as long as it is outstanding. As of December 31, 2017, the derivative liability has been settled and is no longer outstanding.