Quarterly report pursuant to Section 13 or 15(d)

Fair Value Disclosures

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Fair Value Disclosures
 6 Months Ended
Jun. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Disclosures Fair Value Disclosures
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value, and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2 - Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no market activity).

The following table summarizes the Company's financial instruments measured at fair value on a recurring basis as of June 30, 2024. There were no financial instruments measured at fair value as of December 31, 2023.

Fair Value Measurements at Reporting Date Using
Quoted Prices in Active Markets for Identical Assets Significant Other Observable Inputs Significant Unobservable Inputs
Total
 (Level 1) (Level 2) (Level 3)
As of June 30, 2024
Cash Equivalents:
Money Market Funds $ 3,131,374  $ 3,131,374  $ —  $ — 
US Treasury Securities 1,835,590  —  1,835,590  — 
Total Cash Equivalents Measured at Fair Value $ 4,966,964  $ 3,131,374  $ 1,835,590  $ — 
Short-term Investments:
US Treasuries $ 3,271,849  $ —  $ 3,271,849  $ — 
Government Agency Securities 13,356,808  —  13,356,808  — 
Corporate Debt Securities 4,180,151  —  4,180,151  — 
Asset Backed Securities 433,863  —  433,863  — 
Total Short-term Investments Measured at Fair Value $ 21,242,671  $ —  $ 21,242,671  $ — 
Total Assets Measured at Fair Value $ 26,209,635  $ 3,131,374  $ 23,078,261  $ — 

In connection with historical acquisitions, additional consideration may be paid related to the achievement of certain milestones and such contingent consideration is required by U.S. GAAP to be presented at fair value.
The following table provides information for liabilities measured at fair value on a recurring basis using Level 3 inputs:
June 30, 2024 December 31, 2023
Contingent Consideration:
Non-current $ 5,236,999  $ 5,128,959 
Total Contingent Consideration $ 5,236,999  $ 5,128,959 
The Company initially values contingent consideration related to business combinations using a probability-weighted calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows for certain milestones. Key assumptions used to estimate the fair value of contingent consideration include projected financial information, market data and the probability and timing of achieving the specific milestones. After the initial valuation, the Company generally uses its best estimate to measure contingent consideration at each subsequent reporting period using the following unobservable Level 3 inputs:
Valuation Technique Unobservable Inputs June 30, 2024 December 31, 2023
Discounted cash flow Payment discount rate 15.0  % 13.1  %
Bayon Payment period 2025 - 2027 2025 - 2027
Panoptes Payment period 2026 - 2028 2026 - 2028
Jade Payment period 2027 2027
Bayon Probability of success for payment
42% - 71%
42% - 71%
Panoptes Probability of success for payment
30% - 33%
30% - 33%
Jade Probability of success for payment 56% 56%
Significant changes in these assumptions could result in a significantly higher or lower fair value. The contingent consideration reported in the above table is adjusted quarterly based upon the passage of time or the anticipated success or failure of achieving certain milestones. The change in fair value of contingent consideration of $108.0 thousand for the six months ended June 30, 2024, was primarily driven by a decreased discount period. The change in fair value of contingent consideration of $0.4 million for the six months ended June 30, 2023 was primarily driven by a decreased discount rate. The change in fair value of contingent consideration is recorded within operating expenses on the accompanying condensed consolidated statements of operation and comprehensive income (loss).
The Company records in-process R&D projects acquired in asset acquisitions that have not reached technological feasibility and which have no alternative future use at estimated fair value. For in-process R&D projects acquired in business combinations, the Company capitalizes the in-process R&D project as an indefinite-lived intangible asset and evaluates this asset annually for impairment until the R&D process has been completed. Once the R&D process is complete, the Company amortizes the R&D asset over its remaining useful life.
ASC 350 allows an entity to first assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired. If it is more likely than not that the asset is impaired, the entity must calculate the fair value of the asset and record an impairment charge if the carrying amount exceeds fair value. If an entity concludes that there is a less than 50 percent likelihood that the asset is impaired, no further action is required. An indefinite-lived intangible asset should be tested for impairment if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. If such events or changes have occurred, a quantitative assessment is required.
If an entity bypasses the qualitative assessment or determines from its qualitative assessment that an indefinite-lived intangible asset is more likely than not impaired, a quantitative impairment test should be performed. The quantitative impairment test compares the fair value of an indefinite-lived intangible asset with the asset’s carrying amount. If the fair value of the indefinite-lived intangible asset is less than the carrying amount, an impairment loss should be recognized in an amount equal to the difference in accordance with ASC 350-30-35-19.
The Company values in-process R&D related to asset acquisitions using the Income Approach which measures the value of an asset by the present value of its future economic benefits. These benefits can include interest and principal payments, earnings, cost savings, tax deductions, or proceeds from its disposition. Value indications are developed by discounting expected cash flows at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation, and risks associated with the particular investment. The selected discount rate is generally based on rates of return available from alternative investments of similar type and quality.
The Company engaged a third-party valuation firm to complete a quantitative assessment of in-process R&D as of August 31, 2023, which includes the following unobservable Level 3 inputs:
Valuation Technique Unobservable Inputs Discount Rate
KIO-101 Relief from Royalty Method Probability of success for next development phase 17% 30  %
KIO-104 Multi-Period Excess Earnings Method Probability of success for next development phase
17% to 18%
 25  %
KIO-201 Relief from Royalty Method Probability of success for next development phase
17% to 47%
 30  %
KIO-301 Multi-Period Excess Earnings Method Probability of success for next development phase
17% to 67%
 25  %
As of June 30, 2024, the Company assessed qualitative factors to determine whether events and circumstances indicate impairment, and concluded that it is not more likely than not that any assets are impaired.