Nkarta Inc

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Description of Business

Description of the Business

Nkarta, Inc. ("Nkarta" or the "Company") was incorporated in the State of Delaware in July 2015. The Company is a biopharmaceutical company developing engineered natural killer ("NK") cell therapies to treat autoimmune diseases. The Company is focused on leveraging the natural potent power of NK cells to identify and kill abnormal cells and recruit adaptive immune effectors to generate responses that are specific and durable. Nkarta is combining its NK-cell expansion platform technology with proprietary cell engineering technologies to generate an abundant supply of NK cells, engineer enhanced NK-cell recognition of therapeutic targets, and improve persistence for sustained activity in the body. Nkarta’s goal is to develop off-the-shelf NK-cell therapy product candidates to improve outcomes for patients. The Company’s operations are based in South San Francisco, California, and it operates inone segment.

Liquidity and Management Plans

The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern. Since inception, the Company has devoted substantially all of its efforts to organizing and staffing, business planning, raising capital, conducting preclinical studies and initiating clinical studies, and has not realized revenues from its planned principal operations. In addition, the Company has incurred operating losses since inception and expects that it will continue to incur net losses into the foreseeable future as it continues its research and development activities. As of March 31, 2025, the Company had an accumulated deficit of $576.2 million and cash, cash equivalents, restricted cash and investments of $351.9 million.

Management plans to continue to incur substantial costs in order to conduct research and development activities for which additional capital will be needed. The Company intends to raise such capital through debt or equity financings or other arrangements, as it has primarily done to date to fund its operations. Management believes that the Company’s current cash, cash equivalents, restricted cash and investments will provide sufficient funds to enable the Company to meet its obligations for at least twelve months from the filing date of this report.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed financial statements as of March 31, 2025 and for the three months ended March 31, 2025 and 2024 have been prepared in accordance with U.S. generally accepted accounting principle ("U.S. GAAP") for interim financial information and pursuant to Article 10 of Regulation S-X of the Securities Act of 1933, as amended. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows for the periods presented.

The results for the three months ended March 31, 2025 are not necessarily indicative of the results expected for the full year or any subsequent interim period. The condensed balance sheet as of December 31, 2024 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2024 and the notes accompanying them, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed by the Company with the SEC on March 26, 2025.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the Company’s financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including, but not limited to, those related to clinical trial accruals, fair value of assets and liabilities, impairment of assets, leases, share-based compensation and income taxes. Management bases its estimates on historical experience, knowledge of current events and actions it may undertake in the future that management believes to be reasonable under the circumstances. Actual results may differ from these estimates and assumptions.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted average number of common shares and pre-funded warrants outstanding for the period, without consideration of potential dilutive securities. Pre-funded warrants are considered outstanding for the purposes of computing basic and diluted net loss per share because shares may be issued for little or no additional consideration and are fully vested and exercisable after the original issuance date of the pre-funded warrants. Diluted net loss per share is computed by dividing the net loss by the sum of the weighted average number of common shares and pre-funded warrants plus the potential dilutive effects of potential dilutive securities outstanding during the period. Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is antidilutive. The Company’s potentially dilutive securities, which include unvested common stock, outstanding stock options and restricted stock units under the Company’s equity incentive plans, have been excluded from the computation of diluted net loss per share as they would be antidilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Long-Lived Asset Impairment

The Company assesses the impairment of long-lived assets whenever events or changes in business circumstances indicate that the carrying amounts of the asset or group of assets may not be fully recoverable. In the case of property and equipment and right-of-use assets for the Company's leases, the Company determines whether there has been an impairment by comparing the carrying value of the group of assets to the anticipated undiscounted net future cash flows associated with the group of assets. If such cash flows are less than the carrying value, the Company writes down the group of assets to its fair value, which may be measured as anticipated net cash flows associated with the group of assets, discounted at a rate that the Company believes a market participant would utilize to reflect the risks associated with the cash flows, such as credit risk.

Restructuring

Employee severance costs are recorded based on whether the termination benefits are provided under an on-going benefit arrangement or under a one-time benefit arrangement. The Company accounts for on-going termination benefit arrangements, such as those arising from employment agreements, applicable regulations or past practices, in accordance with Accounting Standards Codification (“ASC”) Topic 712, Compensation-Nonretirement Postemployment Benefits (“ASC 712”). Under ASC 712, liabilities for post-employment benefits related to past services and that vest or are accumulated over time are recorded at the time the obligations are probable of being incurred and can be reasonably estimated. The Company accounts for one-time employment benefit arrangements in accordance with ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”). One-time termination benefits are expensed at the date the entity notifies the employee, unless the employee must provide future service over a period extending past the minimum notification period, in which case the benefits are expensed ratably over the future service period. Other associated costs are recognized in the period in which the liability is incurred. See Note 12 for additional information on the severance expense that the Company recognized for employees terminated in connection with the reduction in force.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update (“ASU”) No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 will be effective for us in the annual period beginning January 1, 2025, though early adoption is permitted. The Company is currently evaluating the presentational effect that ASU 2023-09 will have on its financial statements and related disclosures.

In November 2024, the FASB issued ASU No. 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses(“ASU 2024-03"). ASU 2024-03 requires public entities to disclose specified information about certain costs and expenses on an interim and annual basis and is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted. The new standard is expected to be applied prospectively, but retrospective application is permitted. The Company is currently evaluating the impact of ASU 2024-03 on the financial statements and related disclosures.

There were no other significant updates to the recently issued accounting standards other than as disclosed herewith. Although there are several other new accounting pronouncements issued or proposed by the FASB, the Company does not believe any of those accounting pronouncements have had or will have a material impact on its financial position or operating results.

3. Net Loss Per Share

The following tables summarize the computation of the basic and diluted net loss per share (in thousands except share and per share data):

The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be antidilutive:

4. Fair Value of Financial Instruments

The following tables summarize the Company's financial instruments measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

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 $30.7 million and $25.6 million as of March 31, 2025 and December 31, 2024, respectively, were classified as Level 1 instruments and were included in cash equivalents.

Investmentsin corporate debt securities, commercial paper and government securities 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.

Accrued interest receivable related to investments was$2.4 million and $2.5 million as of March 31, 2025 and December 31, 2024, respectively, and included as part of prepaid expenses and other current assets in the condensed balance sheets.

The Company has classified its investment securities as current and non-current assets on the condensed balance sheets based on each security's contractual maturity date, and all investment securities are accounted for as available-for-sale because these investment securities are considered available for use in 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 March 31, 2025 and December 31, 2024 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 March 31, 2025 and December 31, 2024. 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. Unrealized gains and losses are included in accumulated other comprehensive income/(loss).

There wasno realized gain or loss on available-for-sale securities in the periods presented. The Company uses the specific identification method to determine the cost basis of investments sold.

5. Balance Sheet Components

Property and Equipment, Net

Property and equipment, net is comprised of the following (in thousands):

Depreciation and amortization expense was $2.3 million for each of the three months ended March 31, 2025 and 2024.

Accrued and Other Current Liabilities

Accrued and other current liabilities are comprised of the following (in thousands):

6. Leases

The Company has operating leases for its current corporate offices, laboratory space, manufacturing facility, and dedicated space in a vivarium in South San Fran cisco, California. Rent expense was $2.4 million and $2.7 million for the three months ended March 31, 2025 and 2024, respectively. The total cash paid for operating leases included in the operating cash flows was $3.3 million for each of the three months ended March 31, 2025 and 2024. The weighted average remaining lease term was 8.8 years for the corporate office, laboratory space leases, and additional facility as of March 31, 2025. The weighted average discount rate was 9.7% as of March 31, 2025.

Initial Lease Agreement

In May 2018, the Company entered into a lease agreement for corporate office and laboratory space located in South San Francisco, California with an expiration date in May 2025 (the "Initial Lease Agreement"). In April 2019, the Company executed the first amendment to the Initial Lease Agreement for additional corporate space, laboratory space and manufacturing capabilities. In May 2020, the Company executed the second amendment to the Initial Lease Agreement for additional corporate space and laboratory space in the same building. The lease for this additional space commenced in January 2021. In January 2021, the Company signed a third amendment to the Initial Lease Agreement for additional space in the same building. The lease amendment for this additional space commenced in April 2021 and expired in March 2024. In October 2021, the Company signed a fourth amendment to the Initial Lease Agreement for additional space in the same building, that commenced in April 2022. All space leased under the Initial Lease Agreement, together with the first amendment, second amendment, and fourth amendment to the Initial Lease Agreement, has a lease term through July 31, 2030, with anoption to extend the lease for an additional seven-year term. This lease extension option was not considered in the right-of-use assets or the lease liability as the Company did not consider it reasonably certain the option would be exercised. In December 2024, the Company executed a sixth amendment to the Initial Lease Agreement, which updated the lease termination date for one of the spaces in the same building to July 31, 2025.

Additional Lease Agreement

In July 2021, the Company entered into an additional lease agreement for corporate office, manufacturing and laboratory space located in South San Francisco, California with an expiration date approximately twelve years after the lease commencement date (as amended from time to time, the "Additional Lease Agreement"). The lease for this additional space and the Company's obligation to pay rent commenced in January 2022. In addition to base rent, the Company is responsible for payment of direct expenses, which include operating, insurance and tax expenses. The Additional Lease Agreement provided for certain tenant improvement allowances that were fully utilized and reimbursed to the Company, and an additional tenant improvement allowance to be utilized at the option of the Company. In June 2023, the Company entered into an amendment to utilize the additional tenant improvement allowance of $4.4 million and under this amendment the Company is required to repay the tenant improvement costs in equal monthly payments at an annual rate of 8.5% over the remainder of the lease term starting in July 2023.

Maturities of operating lease liabilities under existing operating leases as of March 31, 2025 were as follows (in thousands):

Sublease Agreements

In September 2024 and November 2024, the Company entered into agreements to sublease a portion of the Company's leased office space through November 2027 and July 2030, respectively. The sublease agreements both commenced during the fourth quarter of 2024 and rent payments will commence in the second quarter of 2025. The Company accounts for the sublease agreements in accordance with ASC 842, Leases. Sublease income during the three months ended March 31, 2025, wasnot material.

7. Commitments and Contingencies

Guarantee Agreement

The Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company’s request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts under certain circumstances and subject to deductibles and exclusions. The Company hadno liabilities recorded for these agreements as of March 31, 2025, and December 31, 2024.

Letters of Credit

The Company has $2.7 million in letter of credit agreements with a financial institution that are used as collateral for the Company’s corporate headquarters’ operating leases. The letters of credit automatically renew annually without amendment unless cancelled by the financial institutions within 30 to 60 days of the annual expiration date. The letters of credit are presented as restricted cash in the condensed balance sheets.

Contingencies

The Company, from time to time, may be involved in litigation arising in the ordinary course of business. The Company assesses its potential liability in such situations by analyzing potential outcomes, assuming various litigation, regulatory and settlement strategies. If the Company determines a loss is probable and its amount can be reasonably estimated, the Company accrues an amount equal to the estimated loss. No losses andno provision for a loss contingency have been recorded to date.

Purchase Commitments

The Company enters into contracts in the normal course of business for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore the Company believes that non-cancelable obligations under these agreements are not material.

8. CRISPR Collaboration Agreement

On May 5, 2021, the Company entered into a research collaboration agreement (as amended, the "CRISPR Agreement") with CRISPR Therapeutics AG ("CRISPR") to co-develop and co-commercialize an allogeneic, off-the-shelf CAR NK product candidate targeting the CD70 tumor antigen ("NKX070") and an allogeneic, off-the-shelf product candidate that comprises both engineered NK cells and engineered T cells ("NK+T"). The Company and CRISPR have entered into a number of amendments to the CRISPR Agreement to, among other things, revise the transfer of materials, nomination provisions, permit Nkarta's advancement of CRISPR-licensed product candidates targeting a specified tumor antigen (the "Specified TA"), and incorporate associated development and regulatory approval milestones and sales based royalties. In addition, the Company has received licenses from CRISPR forfive CRISPR-Cas9 gene editing targets that can be engineered into an unlimited number of its own NK cell products. CRISPR also has an option to co-develop and co-commercialize a future CAR NK program.

Under the terms of the CRISPR Agreement, the Company and CRISPR share equally in all research and development costs and potential profits worldwide related to the NKX070 product candidate, NK+T product candidate, and the potential future CAR NK program. The related impact of the cost sharing activities are included in research and development expense on the condensed statements of operations and comprehensive loss. Expenses related to services performed by the Company are classified as research and development expenses. Payments received from CRISPR for partial reimbursement of expenses are recorded as a reduction of research and development expenses. Reduction of research and development expense resulting from partial reimbursement from CRISPR was immaterial for the three months ended March 31, 2025 and 2024. The Company has deprioritized further development of NKX070 and NK+T.

For each non-collaboration product candidate incorporating a genome editing target licensed from CRISPR (a "CRISPR-Licensed Product Candidate"), other than those targeting the Specified TA, the Company would retain worldwide rights and may be required to make potential future payments based on the achievement of development and regulatory approval milestones totaling less than mid-twenty million dollars, as well as tiered royalties up to the mid-single digits on net product sales of such product candidate. For each CRISPR-Licensed Product Candidate targeting the Specified TA, the Company would retain worldwide rights and may be required to make potential future payments based on the achievement of development and regulatory approval milestones totaling less than high-forty million dollars, as well as tiered royalties up to the mid-single digits on net product sales of such product candidate. As of March 31, 2025, the Company hasnot paid any amountsnor are any amounts owed by the Company under the CRISPR Agreement, and no milestones have been achieved or are probable.

9. Stockholders' Equity

Equity Incentive Plan

The Company’s 2020 Performance Incentive Plan (the "2020 Plan"), which was adopted by the Company’s board of directors in June 2020 and approved by the Company’s stockholders in July 2020, became effective upon the consummation of the Company’s initial public offering in July 2020 ("IPO"). Upon the effectiveness of the 2020 Plan, no further grants may be made under the Company’s 2015 Equity Incentive Plan (the "2015 Plan"). The 2020 Plan allows for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, stock bonuses, restricted stock, stock units and other forms of awards including cash awards to its officers, directors, employees, consultants and advisors.

As of March 31, 2025, a total of 14,380,237 shares of the Company’s common stock were authorized for issuance with respect to awards granted under the 2020 Plan (this number of shares gives effect to the annual increases in the 2020 Plan share limit, as described in the next sentence, through that date). The share limit will automatically increase on the first trading day in January of each year by an amount equal to the lesser of (1)5% of the total number of outstanding shares of the Company’s common stock on the last trading day in December in the prior year, or (2) such lesser number as determined by the Company’s board of directors. Any shares subject to awards granted under the 2020 Plan or the 2015 Plan that are not paid, delivered or exercised before they expire or are canceled or terminated, or otherwise fail to vest, as well as shares used to pay the purchase or exercise price of such awards or related tax withholding obligations, will become available for new award grants under the 2020 Plan. A total of 4,292,076 shares were available for issuance under the 2020 Plan as of March 31, 2025.

The following table summarizes the option activity under the 2020 Plan and 2015 Plan during the three months ended March 31, 2025:

The weighted average grant date fair value of stock option grants was $2.00 and$4.98 per share for the three months ended March 31, 2025 and 2024, respectively.

The following table summarizes the restricted stock unit activity under the 2020 Plan during the three months ended March 31, 2025:

The weighted average grant date fair value of restricted stock units was $2.50 and $6.01 per share for the three months ended March 31, 2025 and 2024, respectively.

Employee Stock Purchase Plan

The Company’s 2020 Employee Stock Purchase Plan (the "ESPP"), which was adopted by the Company’s board of directors in June 2020 and approved by the Company’s stockholders in July 2020, became effective upon the consummation of the IPO. The ESPP allows eligible employees to purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible compensation, subject to any plan limitations. The ESPP provides forsix-month offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period. The six-month offering periods extend from June to November and December to May. As of March 31, 2025,2,269,200 shares of the Company’s common stock remained available for issuance under the ESPP (after giving effect to share purchases under the ESPP, and annual increases in the ESPP share limit as described in the next sentence through that date). The number of shares of the Company’s common stock available for issuance under the ESPP automatically increases on the first trading day in January of each year by an amount equal to the lesser of (i)1% of the total number of outstanding shares of the Company’s common stock issued and outstanding on December 31 of the immediately preceding calendar year, (ii)1,000,000 shares, or (iii) such lesser number as determined by the Company’s board of directors. As of March 31, 2025, employee contributions to the ESPP were$0.2 million and included as part of accrued and other current liabilities in the condensed balance sheets.

Share-Based Compensation Expense

Share-based compensation expense for the three months ended March 31, 2025 and 2024 was as follows (in thousands):

The total unrecognized compensation cost related to unvested stock options was $16.6 million, which is expected to be recognized over a weighted average remaining service period of 2.9 years as of March 31, 2025.

The total unrecognized compensation cost related to unvested restricted stock units was $3.5 million, which is expected to be recognized over a weighted average remaining service period of 3.1 years as of March 31, 2025.

Sale of Common Stock and Pre-funded Warrants

In March 2024, the Company completed an underwritten public offering utilizing the Shelf Registration Statement, pursuant to which it sold an aggregate of (i)21,010,000 shares of its common stock at a price of $10.00 per share, and (ii) pre-funded warrants to purchase 3,000,031 shares of its common stock at a price of $9.9999 per pre-funded warrant. The pre-funded warrants can be exercised at any time after issuance for an exercise price of $0.0001 per share, subject to certain ownership limitations. As of March 31, 2025, none of the pre-funded warrants have been exercised. The Company raised $240.1 million in gross proceeds before underwriting discounts and commissions of $14.4 million and other offering expenses of $0.6 million.

In accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, the Company determined that the pre-funded warrants should be equity classified because they are freestanding financial instruments, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, permit the holders to receive a fixed number of shares of common stock upon exercise, are indexed to the Company’s common stock and meet the equity classification criteria.

10. Income Taxes

There wasno provision for income taxes recorded during the three months ended March 31, 2025, and 2024. The Company’s deferred tax assets continue to be fully offset by a valuation allowance.

11. Segment Reporting

The Company operates as asingle reporting segment, focused on the research and development of cell therapies for patients with autoimmune diseases. The Company's measure of segment profit or loss is net loss. The Chief Executive Officer, as the CODM, manages and allocates resources to the operations of the Company on a total company basis. The Company monitors its cash, cash equivalents, and investments as reported on the Company's Balance Sheets to determine funding for its research and development. The measure of segment assets is reported on the balance sheets as total assets.

As the Company is not yet generating revenue, the CODM evaluates its performance based on progress in pre-clinical and clinical research objectives. Along with the Company’s Statement of Operations and Comprehensive Loss, the CODM regularly reviews budgeted and forecasted expenses to assess liquidity requirements and allocate cash accordingly.

The following table is representative of the significant expense categories regularly provided to the CODM when managing the Company's single reporting segment.

A reconciliation to the net loss for the three months ended March 31, 2025 and 2024 is included at the bottom of the table below.

(1)Personnel related expenses include $5.1 million of severance and other benefits expense.

(2)Other segment items include consultants and contractor, lab supplies, and general business expenses.

12. Reduction in Force

On March 26, 2025, the Company announced a reduction in force (the "Reduction") that resulted in a reduction of 53 positions, representing approximately 34% of the Company’s workforce. The Company undertook the Reduction to decrease its costs and create a more streamlined organization to focus on upcoming clinical data updates.

Employees affected by the Reduction were entitled to receive severance payments and certain Company funded benefits totaling approximately $5.4 million in costs. The Company recognized severance and benefit expense in full for employees who were notified of their termination in March 2025 and had no requirements for future service. The Company is recognizing expense for employees who are required to render services to receive their severance and benefits ratably over the service period from April 2025 to October 31, 2025. These charges were recorded pursuant to ASC 712 or ASC 420, depending on the agreements with the impacted employees. The expense was recognized in general and administrative operating expenses in the condensed statement of operations.

The following table provides details of the severance and other termination benefit expense with the remaining balance of the liability recorded in accrued and other current liabilities on the condensed balance sheets as of March 31, 2025 (in thousands):