SEC Filing | Senti Biosciences, Inc.

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snti-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
			For the quarterly period ended September 30, 2022
☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period from _______ to _______

Commission File Number 001-40440

_________________________

Senti Biosciences, Inc.

(Exact name of registrant as specified in its charter)

_________________________


Delaware						86-2437900
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

2 Corporate Drive, First Floor

South San Francisco, CA 94080

(Address of principal executive offices and zip code)

(650) 239-2030

(Registrant’s telephone number, including area code)

Dynamics Special Purpose Corp.

2875 El Camino Real

Redwood City, CA 94061

(408) 212-0200

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

_________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange
on which registered

Common stock, par value $0.0001 per share

SNTI

Nasdaq Capital Market (NASDAQ)

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 ☒ 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 (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☒

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 7(a)(2)(B) of the Securities Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 3, 2022 there were 43,857,077 shares of the registrant’s common stock, par value $0.0001 per share, were issued and outstanding.

Table of Contents

SENTI BIOSCIENCES, INC.

TABLE OF CONTENTS


		Page

PART I - FINANCIAL STATEMENTS

Item 1.	FINANCIAL STATEMENTS (UNAUDITED)

	Condensed Consolidated Balance Sheets	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss	2

	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	3

	Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	38

Item 4.	CONTROLS AND PROCEDURES	38

PART II - OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	40

Item 1A.	RISK FACTORS	40

Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	113

Item 3.	DEFAULTS UPON SENIOR SECURITIES	114

Item 4.	MINE SAFETY DISCLOSURES	114

Item 5.	OTHER INFORMATION	114

Item 6.	EXHIBITS	114

SIGNATURES		116

PART 1 - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (UNAUDITED)

SENTI BIOSCIENCES, INC.

Condensed Consolidated Balance Sheets

(unaudited)
(in thousands, except share and per share data)


	September 30,		December 31,
	2022		2021
Assets

Cash and cash equivalents	$	114,940	$	56,034
Accounts receivable	846		483

Prepaid expenses and other current assets	3,975		3,676
Total current assets	119,761		60,193
Restricted cash	3,295		3,257
Property and equipment, net	47,259		12,368
Operating lease right-of-use assets	18,883		20,708
Other long-term assets	243		176
Total assets	$	189,441	$	96,702
Liabilities and Stockholders’ Equity (Deficit)

Accounts payable	$	1,768	$	5,187
Early exercise liability, current portion	135		626

Deferred revenue	99		1,656
Accrued expenses and other current liabilities	11,913		5,331
Operating lease liabilities	1,922		1,743
Total current liabilities	15,837		14,543
Operating lease liabilities, net of current portion	32,173		20,988
Contingent earnout liability	909		—
Early exercise liability, net of current portion	179		619
Deferred revenue, net of current portion	—		176
Total liabilities	49,098		36,326
Commitments and contingencies (Note 13)
Redeemable convertible preferred stock (A and B), $0.0001 par value; zero and 19,517,990 shares authorized at September 30, 2022 and December 31, 2021; zero and 19,517,988 shares issued and outstanding at September 30, 2022 and December 31, 2021; aggregate liquidation preference of zero and $163.8 million at September 30, 2022 and December 31, 2021, respectively	—		171,833
Stockholders’ equity (deficit):
Preferred stock, $0.0001 par value; 10,000,000 and zero shares authorized at September 30, 2022 and December 31, 2021; zero and zero shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	—		—
Common stock, $0.0001 par value; 500,000,000 and 27,006,600 shares authorized at September 30, 2022 and December 31, 2021; 43,638,917 and 2,972,409 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	4		—
Additional paid-in capital	295,415		3,619

Accumulated deficit	(155,076)		(115,076)
Total stockholders’ equity (deficit)	140,343		(111,457)
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)	$	189,441	$	96,702

The accompanying notes are an integral part of these condensed consolidated financial statements.

SENTI BIOSCIENCES, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)
(in thousands, except share and per share data)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue
Contract revenue	$	1,516	$	926	$	3,477	$	1,748
Grant income	250		177		750		220
Total revenue	1,766		1,103		4,227		1,968

Operating expenses
Research and development	8,056		5,410		24,904		15,548
General and administrative	10,795		7,116		29,936		15,981
Total operating expenses	18,851		12,526		54,840		31,529
Loss from operations	(17,085)		(11,423)		(50,613)		(29,561)

Other income (expense)
Interest income, net	542		5		573		7
Change in fair value of contingent earnout liability	(99)		—		8,779		—
Gain on extinguishment of convertible notes	—		—		1,289		—
Change in preferred stock tranche liability	—		—		—		(14,742)
Loss on impairment of fixed assets	—		(9)		—		(9)
Other income (expense)	2		21		(28)		(110)
Total other income (expense), net	445		17		10,613		(14,854)




Net loss and comprehensive loss	$	(16,640)	$	(11,406)	$	(40,000)	$	(44,415)
Net loss per share, basic and diluted	$	(0.38)	$	(3.90)	$	(1.99)	$	(15.33)
Weighted-average shares outstanding, basic and diluted	43,424,172		2,925,957		20,150,459		2,897,850

The accompanying notes are an integral part of these condensed consolidated financial statements.

SENTI BIOSCIENCES, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited)

(in thousands, except share data)


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of December 31, 2020	11,536,136	$	89,662	2,838,376	$	—	$	1,044	$	(59,757)	$	(58,713)
Issuance of Series B redeemable convertible preferred stock, net of preferred stock tranche liability of $33 thousand and issuance costs of $6 thousand	277,977	2,294		—	—		—		—		—
Exercise of options of common stock	—	—		563,460	—		1,432		—		1,432
Early exercise of common stock options	—	—		(512,670)	—		(1,329)		—		(1,329)

Stock-based compensation	—	—		—	—		372		—		372
Net loss	—	—		—	—		—		(21,002)		(21,002)
Balance as of March 31, 2021	11,814,113	91,956		2,889,166	—		1,519		(80,759)		(79,240)
Issuance of Series B redeemable convertible preferred stock, including extinguishment of preferred stock tranche liability of $15.2 million	7,703,875	79,877		—	—		—		—		—
Exercise of options of common stock	—	—		12,891	—		21		—		21

Vesting of early exercise of common stock options	—	—		13,099	—		28		—		28
Stock-based compensation	—	—		—	—		562		—		562
Net loss	—	—		—	—		—		(12,007)		(12,007)
Balance as of June 30, 2021	19,517,988	171,833		2,915,156	—		2,130		(92,766)		(90,636)

Exercise of options of common stock	—	—		7,572	—		19		—		19

Vesting of early exercise of common stock options	—	—		13,099	—		28		—		28
Stock-based compensation	—	—		—	—		626		—		626
Net loss	—	—		—	—		—		(11,406)		(11,406)
Balance as of September 30, 2021	19,517,988	$	171,833	2,935,827	$	—	$	2,803	$	(104,172)	$	(101,369)

The accompanying notes are an integral part of these condensed consolidated financial statements.

SENTI BIOSCIENCES, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(unaudited)

(in thousands, except share data)


	Redeemable Convertible Preferred Stock			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of December 31, 2021	19,517,988	$	171,833	2,972,409	$	—	$	3,619	$	(115,076)	$	(111,457)
Exercise of options of common stock	—	—		172,606	—		422		—		422

Vesting of early exercise of common stock options	—	—		143,524	—		375		—		375
Stock-based compensation	—	—		—	—		661		—		661
Net loss	—	—		—	—		—		(11,808)		(11,808)
Balance as of March 31, 2022	19,517,988	171,833		3,288,539	—		5,077		(126,884)		(121,807)
Conversion of redeemable convertible preferred stock into common stock in connection with the Reverse Recapitalization, net of transaction costs	(19,517,988)	(171,833)		19,517,988	2		171,833		—		171,835
Issuance of common stock upon Reverse Recapitalization, net of transaction costs	—	—		19,975,963	2		112,180		—		112,182
Contingent earnout liability recognized upon closing of the Reverse Recapitalization	—	—		—	—		(9,688)		—		(9,688)
Cancellation and exchange of convertible note in connection with Reverse Capitalization	—	—		517,500	—		5,184		—		5,184
Gain recognized on fair value of embedded derivative after cancellation and exchange of convertible note	—	—		—	—		(1,289)		—		(1,289)
Exercise of options of common stock	—	—		27,233	—		74		—		74
Vesting of early exercised common stock options	—	—		41,047	—		102		—		102
Stock-based compensation	—	—		—	—		9,225		—		9,225
Net loss	—	—		—	—		—		(11,552)		(11,552)
Balance as of June 30, 2022	—	—		43,368,270	4		292,698		(138,436)		154,266
Common Stock Purchase Agreement fee settled in common stock	—	—		100,000	—		196		—		196
Additional Reverse Recapitalization transaction costs	—	—		—	—		(223)		—		(223)
Vesting of early exercise of common stock options	—	—		170,647	—		454		—		454
Stock-based compensation	—	—		—	—		2,290		—		2,290
Net loss	—	—		—	—		—		(16,640)		(16,640)
Balance as of September 30, 2022	—	$	—	43,638,917	$	4	$	295,415	$	(155,076)	$	140,343

The accompanying notes are an integral part of these condensed consolidated financial statements.

SENTI BIOSCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities
Net loss	$	(40,000)	$	(44,415)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation	948		543
Amortization of operating lease right-of-use assets	2,028		1,433

Gain on extinguishment of convertible notes	(1,289)		—
Change in fair value of contingent earnout liability	(8,779)		—
Change in preferred stock tranche liability	—		14,742
Stock-based compensation expense	12,176		1,560
Loss on write-off of fixed assets	13		9
Issuance of common stock for Common Stock Purchase Agreement fee	196		—
Other non-cash charges	8		—
Changes in assets and liabilities:
Accounts receivable	(363)		(345)
Prepaid expenses and other assets	(1,837)		(1,581)
Accounts payable	93		1,716
Accrued expenses and other current liabilities	1,488		2,416
Deferred revenue	(1,733)		2,232
Operating lease liabilities	11,161		(974)
Net cash from operating activities	(25,890)		(22,664)
Cash flows from investing activities



Purchases of property and equipment	(32,841)		(1,558)

Net cash from investing activities	(32,841)		(1,558)
Cash flows from financing activities
Proceeds from Merger and related PIPE financing, net of transaction costs	111,979		—
Proceeds from issuance of common stock upon exercise of stock options	521		1,460
Proceeds from issuance of convertible notes	5,175		—
Proceeds from issuance of Series B redeemable convertible preferred stock, net of issuance costs	—		66,952



Net cash from financing activities	117,675		68,412
Net change in cash and cash equivalents	58,944		44,190
Cash, cash equivalents, and restricted cash, beginning of the year	59,291		31,034
Cash, cash equivalents, and restricted cash, end of the year	$	118,235	$	75,224

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	114,940	$	73,692
Restricted cash	3,295		1,532
Total cash, cash equivalents and restricted cash	$	118,235	$	75,224



Supplemental disclosures of noncash financing and investing items
Purchase of property and equipment in accounts payable and accrued expenses	$	7,360	$	1,092
Recognition of Series B preferred stock tranche liability	$	—	$	33


	Nine Months Ended September 30,
	2022		2021
Extinguishment of Series B preferred stock tranche liability	$	—	$	15,210

Deferred transaction costs related to pending business combination in accounts payable and accrued expenses	$	—	$	140
Receivables in transit from issuance of common stock upon exercise of stock options	$	—	$	12

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Description of Business

Senti Biosciences, Inc. and its subsidiaries, (the “Company” or “Senti”), is a biotechnology company that was founded to create a new generation of smarter medicines that outmaneuver complex diseases using novel and unprecedented approaches. Senti has built a synthetic biology platform that enables it to program next-generation cell and gene therapies with what the Company refers to as “gene circuits.” These gene circuits, which are created from novel and proprietary combinations of DNA sequences, reprogram cells with biological logic to sense inputs, compute decisions and respond to their cellular environments. The Company is headquartered in South San Francisco, California.

On June 8, 2022 (the “Closing Date”), Dynamics Special Purpose Acquisition Corp. (“Dynamics” or “DYNS”) consummated a merger pursuant to which Explore Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and wholly owned subsidiary of Dynamics, merged with and into Senti Sub I, Inc., formerly named Senti Biosciences, Inc. (“Legacy Senti”), with Legacy Senti surviving as a wholly-owned subsidiary of Dynamics (such transactions, the “Merger,” and, collectively with the other transactions described in the merger agreement (as defined below, the “Reverse Recapitalization”)). As a result of the Merger, Dynamics was renamed Senti Biosciences, Inc.

Refer to Note 3, Reverse Recapitalization, for further details of the Merger.

Liquidity and Going Concern

The Company has devoted substantially all of its efforts to organizing and staffing, business planning, raising capital, and conducting preclinical studies and has not realized substantial revenues from its planned principal operations. To date, the Company has financed its operations primarily through a Reverse Recapitalization, the sale of equity securities and convertible debt and, to a lesser extent, through collaboration agreements and governmental grants. At September 30, 2022 and December 31, 2021, the Company had an accumulated deficit of $155.1 million and $115.1 million, respectively. The Company’s net losses were $40.0 million and $44.4 million for the nine months ended September 30, 2022 and 2021, respectively. Substantially all of the Company’s net losses resulted from costs incurred in connection with the Company’s research and development programs and from general and administrative costs associated with the Company’s operations. The Company expects to incur substantial operating losses and negative cash flows from operations for the foreseeable future as the Company advances its preclinical activities and clinical trials for its product candidates in development.

As of September 30, 2022, the Company had cash, cash equivalents and restricted cash of $118.2 million. Based on the cash and cash equivalents on hand, the Company believes its combined cash and cash equivalents will be sufficient to fund operations, including clinical trial expenses and capital expenditure requirements, for at least 12 months from the issuance date of these interim financial statements.

The Company’s continued existence is dependent upon management’s ability to develop profitable operations. Management is devoting substantially all of its efforts to developing its business and raising capital and there can be no assurance that the Company’s efforts will be successful. No assurance can be given that management’s actions will result in profitable operations or the meeting of ongoing liquidity needs.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the accounts of Senti Biosciences, Inc., and its

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. We have one business activity and operate in one reportable segment.

Unless otherwise noted, the Company has retroactively adjusted all common and preferred share and related price information to give effect to the exchange ratio established in the Merger Agreement.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the valuation of stock-based awards, the accrual for research and development expenses, the valuation of contingent earnout, the valuation of convertible notes, the valuation of common and redeemable convertible preferred stock, the valuation of preferred stock tranche liability, standalone selling price (“SSP”) and the determination of the incremental borrowing rate. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

Unaudited Interim Condensed Consolidated Financial Statements

The accompanying interim condensed consolidated financial statements and the related footnote disclosures are unaudited. These unaudited interim financial statements have been prepared on the same basis as the audited financial statements, and in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2022 and its results of operations for the three and nine months ended September 30, 2022 and 2021, and cash flows for the nine months ended September 30, 2022 and 2021. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or any other period. The December 31, 2021 year-end condensed consolidated balance sheet was derived from audited annual financial statements but does not include all disclosures from the annual financial statements.

Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 and the related notes included in the Company’s Registration Statement on Form S-1, filed with the SEC on September 12, 2022, which provides a more complete discussion of the Company’s accounting policies and certain other information. There have been no material changes to the Company’s significant accounting policies as of and for the three and nine months ended September 30, 2022, as compared to the significant accounting policies described in the Company’s audited annual consolidated financial statements as of and for the year ended December 31, 2021, except as discussed below.

Contingent Earnout Equity

In connection with the Reverse Recapitalization and pursuant to the Merger dated as of June 8, 2022 by and among the Merger Sub and Legacy Senti, former holder of the Legacy Senti common stock and Legacy Senti preferred stock are entitled to receive as additional consideration of up to 2,000,000 shares of the Company’s Common Stock (the “Contingent Earnout Shares”), comprised of two separate tranches of 1,000,000 shares per tranche, for no consideration upon the achievement of certain share price milestones within a period of two and three years. The Contingent Earnout Shares are a form of dividend for holders of Legacy Senti common stock and Legacy Senti preferred stock. If there is a change of control within the three-year period following the closing of the Merger that results in a per share price equal to or in excess of certain share price milestones not previously met, then the Company shall issue the earnout shares to the holders of Legacy Senti common stock and preferred stock. In accordance with ASC 815-40, Derivatives and Hedging, as certain terms of the contingent earnout shares were not indexed to the common stock, equity treatment is precluded and liability classification is required at the Reverse Recapitalization date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations and

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

comprehensive loss. A portion of the earnout shares were granted to holders of Legacy Senti common stock that are subject to repurchase, and as of the date of the Merger were accounted for as stock-based compensation and expensed as there was no remaining service period.

The estimated fair value of the Contingent Earnout Shares was determined using a Monte Carlo simulation using a distribution of potential outcomes on a monthly basis over a three-year period prioritizing the most reliable information available. The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including the current Company common stock price, expected volatility, risk-free rate, expected term and expected dividend yield.

Recent Accounting Standards

The Company believes that the impact of recently issued accounting standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

3. Reverse Recapitalization

On June 8, 2022, Merger Sub, a wholly-owned subsidiary of Dynamics, merged with Legacy Senti, with Legacy Senti surviving as a wholly-owned subsidiary of Dynamics. At the effective time of the Merger:

•each outstanding share of Legacy Senti common stock was converted into approximately 0.1957 shares of the Company’s common stock;

•each outstanding share of preferred stock of Legacy Senti was cancelled and converted into the aggregate number of shares of the Company’s common stock that would be issued upon conversion of the shares of Legacy Senti preferred stock based on the applicable conversion ratio immediately prior to the effective time, multiplied by approximately 0.1957;

•each outstanding option to purchase Legacy Senti’s common stock was converted into an option to purchase a number of shares of the Company’s common stock equal to the number of shares of Legacy Senti common stock subject to such option multiplied by approximately 0.1957, rounded down to the nearest whole share, at an exercise price per share equal to the current exercise price per share for such option divided by approximately 0.1957, rounded up to the nearest whole cent; and

•all shares of Dynamics Class A common stock were redesignated as common stock, par value $0.0001 per share, of the Company.

Former holders of the Legacy Senti common stock and preferred stock are eligible to receive up to an aggregate of 2,000,000 additional shares of the Company’s common stock in the aggregate in two equal tranches of 1,000,000 shares if the volume-weighted average closing sale price of the common stock is greater than or equal to $15.00 and $20.00, respectively, for any 20 trading days within any 30 consecutive trading day period. The first and second tranche term is two and three years, respectively, from the closing of the Merger. If there is a change of control within the three-year period following the closing of the Merger that results in a per share price equal to or in excess of the $15.00 and $20.00 share price milestones not previously met, then the Company shall issue the earnout shares to the holders of Legacy Senti common stock and preferred stock. Refer to Note 8, Stockholders’ Equity (Deficit), for further details of the contingent earnout liability.

In association with the Merger, Dynamics entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “PIPE Investors”). Pursuant to the Subscription Agreements, the PIPE Investors purchased an aggregate of 5,060,000 shares of the Company’s common stock (the “PIPE Shares”) in a private placement at a price of $10.00 per share for an aggregate purchase price of $50.6 million (the “PIPE Financing”). The PIPE Financing was consummated in connection with the Merger.

Concurrently with the closing of the Merger, the unsecured convertible promissory note (the “May 2022 Note”) in the principal amount of $5.2 million that was previously issued by Legacy Senti to Bayer Healthcare LLC (“Bayer”) on May 19, 2022 was automatically cancelled and exchanged for 517,500 shares of Class A Common Stock (the “Note Exchange”) at a price of $10.00 per share. The shares of Class A Common Stock issued in the Note

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Exchange are entitled to the same registration rights granted to the PIPE Investors with respect to the PIPE Shares. Refer to Note 7, Convertible Note, for further details of the convertible note.

The number of shares of the Company’s common stock outstanding immediately following the consummation of the Merger was:


	Shares



Owned by Dynamics’ stockholders	14,915,963
Issued to PIPE Investors	5,060,000
Issued to Bayer in connection with convertible note cancellation and exchange	517,500
Issued to Legacy Senti stockholders	23,163,614	(1)
Early exercised shares subject to repurchase	(288,807)
Total shares of common stock immediately after Merger	43,368,270

________________

(1) Includes 19,517,988 shares of common stock issued upon conversion of Legacy Senti’s redeemable convertible preferred stock.

The Merger was accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Dynamics was treated as the acquired company for financial reporting purposes and Legacy Senti was treated as the acquiror. This determination was primarily based on the fact that subsequent to the Merger, the Legacy Senti stockholders hold a majority of the voting rights of the combined company, Legacy Senti comprises all of the ongoing operations of the combined company, Legacy Senti comprises a majority of the carryover governing body of the combined company, and Legacy Senti’s senior management comprises all of the senior management of the combined company. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Legacy Senti issuing shares for the net assets of Dynamics, accompanied by a recapitalization. The net assets of Dynamics were stated at historical costs. No goodwill or other intangible assets were recorded. Operations prior to the Merger are those of Legacy Senti.

In connection with the Merger, the Company raised $140.7 million in proceeds from the Merger and related PIPE Financing, including the Bayer convertible note cancellation and exchange. Transaction costs totaling $23.5 million consisting of banking, legal, and other professional fees were deducted from the funds raised, of which $4.8 million was incurred by the Company and the remainder by Dynamics. In addition, there were no unpaid transaction costs included in accounts payable and accrued expenses as of September 30, 2022.

4. Fair Value Measurements

The following tables summarize the estimated value of cash equivalents and restricted cash (in thousands):


	September 30, 2022
	Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value
Cash equivalents:
Money market fund	$	114,940	$	—	$	—	$	114,940
Restricted cash:
Money market fund	3,295		—		—		3,295
Total	$	118,235	$	—	$	—	$	118,235

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)


	December 31, 2021
	Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value
Cash equivalents:
Money market fund	$	56,034	$	—	$	—	$	56,034
Restricted cash:
Money market fund	3,257		—		—		3,257
Total	$	59,291	$	—	$	—	$	59,291

Financial assets and liabilities measured and recognized at fair value are as follows (in thousands):


	September 30, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market fund	$	114,940	$	—	$	—	$	114,940
Restricted cash:
Money market fund	3,295		—		—		3,295
Total Assets	$	118,235	$	—	$	—	$	118,235
Liabilities:
Contingent earnout liability	$	—	$	—	$	909	$	909
Total Liabilities	$	—	$	—	$	909	$	909


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents:
Money market fund	$	56,034	$	—	$	—	$	56,034
Restricted cash:
Money market fund	3,257		—		—		3,257
Total Assets	$	59,291	$	—	$	—	$	59,291

No securities have contractual maturities of longer than one year. There were no transfers between Levels 1, 2, or 3 for any of the periods presented.

The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial instruments (in thousands):


	Contingent Earnout Liability
Fair value as of December 31, 2021	$	—
Contingent earnout liability recognized upon the closing of the reverse recapitalization	(9,688)
Change in fair value included in other income (expense)	8,779
Fair value as of September 30, 2022	$	(909)

The fair value of the Contingent Earnout Liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

In determining the fair value of the Contingent Earnout Liability, the Company used a Monte Carlo simulation value model using a distribution of potential outcomes. The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including the current Company common stock price, expected volatility, risk-free rate, expected term and expected dividend yield. Refer to Note 8, Stockholders’ Equity (Deficit), for further details of the Contingent Earnout.

Preferred Stock Tranche Liability

The subsequent fair values of the preferred stock tranche liability recognized in connection with the issuance of Series B redeemable convertible preferred stock were determined with the assistance of a third-party valuation specialist using significant inputs not observable in the market which constitute Level 3 measurements within the fair value hierarchy.

The following reflects the significant quantitative inputs used in the valuation of the preferred stock tranche liability as of December 31, 2020 using a Monte Carlo valuation model and/or Black-Scholes option pricing model:


	December 31, 2020 Subsequent Measurement Dates
		Tranche Features 2 and 3 Call Option	Tranche 2 and 3 Forward Contracts
Estimated fair value of Series B redeemable convertible preferred stock(1)		$1.62	$1.62
Discount rate		0.11%	0.11%
Time to liquidity (years)		0.5	0.5
Expected volatility		73.8%	N/A
Probability of call option and forward contract		10%	90%
Strike Price		$1.6427	$1.6427
Value of each tranche feature		$0.326	$(0.023)

_______________

(1)Fair value of the Series B redeemable convertible preferred stock was estimated using the Backsolve method.

The weighted-average fair value of the tranche features on a per share basis was $0.012 as of December 31, 2020 for a preferred stock tranche liability of $0.4 million as of December 31, 2020.

In January 2021, the Company issued additional Series B redeemable convertible preferred stock and recorded an addition to the tranche liability of $33 thousand in recognition of the obligation to sell additional shares at a fixed price in the event that certain agreed-upon milestones are achieved or at the election of investors.

The following reflects the significant quantitative inputs used in the valuation of the preferred stock tranche liability as of March 31, 2021 using a Black-Scholes pricing model and a scenario analysis:


	March 31, 2021
	Tranche 2	Tranche 3 (Public)		Tranche 3 (Staying Private)
	Forward	Call	No Value	Call	Forward	No Value
Estimated fair value of Series B redeemable convertible preferred stock(1)	$2.0796	$2.3386	N/A	$1.3023	$1.3023	N/A
Discount rate	0.03%	0.05%	N/A	0.06%	0.06%	N/A
Time to liquidity (years)	0.08	0.5	N/A	0.75	0.75	N/A
Probability of call option and forward contract	100.0%	25.0%	75.0%	45.0%	5.0%	50.0%
Strike price	$1.6427	$1.6427	N/A	$1.6427	$1.6427	N/A
Expected volatility	N/A	80.00%	N/A	80.00%	N/A	N/A
Value of each tranche feature	$0.437	$0.873	$—	$0.251	$(0.340)	$—
Total value of tranche feature (in millions)	$8.6	$4.3		$1.9

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

_______________

(1)Fair value of the Series B redeemable convertible preferred stock for Tranche 3 was estimated using guideline IPO transactions for the public scenario and the Black-Scholes based option pricing model for the staying-private scenario, and for Tranche 2 was based on a weighting of the public and staying-private scenarios used for Tranche 3.

The total value of Tranche 2 was determined as a forward contract for a total of $8.6 million. The value of Tranche 3 was determined using public company and staying-private scenarios for a total value of $4.3 million and $1.9 million, respectively. The Company applied a 75% weighting to the public scenario and a 25% weighting to the staying-private scenario, resulting in a value of Tranche 3 rights of $3.7 million.

The weighted average fair value of the tranche feature on a per share basis was $0.312 as of March 31, 2021 for a total preferred stock tranche liability of $12.3 million resulting in a change in fair value of the preferred stock tranche liability of $11.8 million for the three months ended March 31, 2021.

In April 2021, the Company’s Board of Directors determined that certain technical milestones within the Series B agreements had been achieved and approved the notice to call tranches 2 and 3, subject to requisite stockholders’ written election and related waivers. The second and third closings occurred on May 14, 2021 and all shares of the Series B redeemable convertible preferred stock were acquired thereby extinguishing the preferred stock tranche liability.

The $15.2 million value of the tranche rights acquired on May 14, 2021 was determined using the current value method as both tranches were called by the Company on the valuation date. The following reflects the significant quantitative inputs used in the valuation of the preferred stock tranche liability as of May 14, 2021 using a weighted comparable guideline IPO (high and low) and special purpose acquisition company (“SPAC”) transactions for the public scenario and the Black-Scholes pricing model for the staying-private scenario:


	May 14, 2021
	Tranches 2 and 3
	Public Scenario	Staying-Private Scenario
	Call	Call
Estimated fair value of Series B redeemable convertible preferred stock	$2.18	$1.58
Scenario weighting	75.0%	25.0%
Value of each tranche feature	$1.637	$0.395
Weighted-average value of Series B redeemable convertible preferred stock	$2.032

The following table provides a roll-forward of the change in the preferred stock tranche liability (in thousands):


	Preferred Stock Tranche Liability




Balance as of December 31, 2020	$	435
Recognition of tranche rights from January 2021 issuance	33
Change in fair value	14,742
Tranche liability extinguishment	(15,210)
Balance as of December 31, 2021	$	—

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

5. Other Financial Statement information

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
Prepaid expenses (including prepaid rent)	$	2,277	$	798
Deposits	1,642		1,157
Reverse Recapitalization deferred offering costs	—		1,446
Other	56		275
Total prepaid expenses and other current assets	$	3,975	$	3,676

Property and Equipment, Net

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


	September 30,		December 31,
	2022		2021
Lab equipment	$	7,762	$	4,988
Leasehold improvements	1,876		431
Computer equipment and software	375		262
Furniture and fixtures	325		294
Construction in progress	39,473		8,048
Property and equipment at cost	49,811		14,023
Less: accumulated depreciation	(2,552)		(1,655)
Property and equipment, net	$	47,259	$	12,368

Depreciation totaled $0.9 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively and $0.4 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):


	September 30,		December 31,
	2022		2021
Accrued professional and service fees related to facility construction	$	6,828	$	605
Accrued professional and service fees other	2,465		1,950
Accrued employee-related expenses	2,566		2,665
Other accrued expenses	54		111
Total accrued expenses and other current liabilities	$	11,913	$	5,331