Nkarta, Inc. Fair Value Disclosure

4. Fair Value of Financial Instruments

Cash Equivalents and Investments

Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and investments. Cash equivalents consisted of money market funds, commercial paper, and Government securities and investments consisted of commercial paper, corporate debt securities and Government securities. The Company obtains pricing information from its investment manager and determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers.

Investments are classified as Level 1 within the fair value hierarchy if their quoted prices are available in active markets for identical securities. Investments in money market funds of $25.6 million and $30.8 million included in cash equivalents as of December 31, 2024 and 2023, respectively, were classified as Level 1 instruments.

Investments in corporate debt securities, commercial paper and Government securities included in short-term and long-term investments are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported upon utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations.

The Company considers whether unrealized losses have resulted from a credit loss or other factors. The unrealized losses on the Company’s available-for-sale securities as of December 31, 2024 and 2023 were caused by fluctuations in market value and interest rates as a result of the economic environment and not credit risk. The Company concluded that an allowance for credit losses was unnecessary as of December 31, 2024 and 2023. It is neither management’s intention to sell nor is it more likely than not that the Company will be required to sell these investments prior to recovery of their cost basis or recovery of fair value, except for investments totaling $67.6 million that were sold with a realized loss of $0.3 million in January 2023. No investments were sold prior to their maturity date during 2024. Unrealized gains and losses are included in accumulated other comprehensive income (loss).

The Company excludes accrued interest from both the fair value and the amortized cost basis of the available-for-sale debt securities for the purposes of identifying and measuring an impairment and to not measure an allowance for expected credit losses for accrued interest receivables. Accrued interest receivable is written off through net realized investment gains (losses) at the time the issuer of the bond defaults or is expected to default on payment. It is the Company's policy to present the accrued interest receivable balance as part of prepaid expenses and other current assets in the balance sheets. Accrued interest receivable related to investments was $2.5 million and $1.2 million as of December 31, 2024 and 2023, respectively.