SEC Filing | Senti Biosciences, Inc.

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snti-20230930

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, 2023
☐			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)

(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

The Nasdaq Global Market

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 6, 2023 there were 44,545,186 shares of the registrant’s common stock, par value $0.0001 per share, 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	3

	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	4

	Condensed Consolidated Statements of Cash Flows	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	32

Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	47

Item 4.	CONTROLS AND PROCEDURES	47

PART II - OTHER INFORMATION

Item 1.	LEGAL PROCEEDINGS	49

Item 1A.	RISK FACTORS	49

Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	120

Item 3.	DEFAULTS UPON SENIOR SECURITIES	120

Item 4.	MINE SAFETY DISCLOSURES	120

Item 5.	OTHER INFORMATION	120

Item 6.	EXHIBITS	121

SIGNATURES		122

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,
	2023		2022
Assets

Cash and cash equivalents	$	39,430	$	57,621
Accounts receivable	138		626
GeneFab receivable - related party	18,482		—
Short-term investments	—		40,942
GeneFab prepaid expenses - related party	17,314		—
Prepaid expenses and other current assets	3,643		3,181
Current assets of discontinued operations	—		209
Total current assets	79,007		102,579
Restricted cash	6,398		3,366
GeneFab receivable - related party, net of current portion	1,056		—
Property and equipment, net	26,433		51,361
Operating lease right-of-use assets	17,018		18,418
GeneFab Economic Share - related party	1,677		—
Other long-term assets	177		283
Noncurrent assets of discontinued operations	—		4,785
Total assets	$	131,766	$	180,792
Liabilities and Stockholders’ Equity

Accounts payable	$	1,991	$	1,370
Finance lease liabilities - related party, current portion	96		—
Early exercise liability, current portion	135		135

Deferred revenue	—		799
GeneFab sublease deferred income - related party	1,047		—
Accrued expenses and other current liabilities	4,043		12,576
Operating lease liabilities	2,586		1,988
Current liabilities of discontinued operations	216		1,185
Total current liabilities	10,114		18,053
Finance lease liabilities - related party, net of current portion	25		—
Operating lease liabilities, net of current portion	34,606		35,103
Contingent earnout liability	20		227
GeneFab Option - related party	4,020		—
Early exercise liability, net of current portion	45		146

Total liabilities	48,830		53,529
Commitments and contingencies (Note 12)

Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized at September 30, 2023 and December 31, 2022; zero shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	—		—
Common stock, $0.0001 par value; 500,000,000 shares authorized at September 30, 2023 and December 31, 2022; 44,477,666 and 44,062,534 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	4		4
Additional paid-in capital	308,560		300,544
Accumulated other comprehensive income	—		1
Accumulated deficit	(225,628)		(173,286)
Total stockholders’ equity	82,936		127,263
Total liabilities and stockholders’ equity	$	131,766	$	180,792

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,
	2023		2022		2023		2022
Revenue
Contract revenue	$	255	$	1,516	$	1,978	$	3,477
Grant income	83		250		583		750
Total revenue	338		1,766		2,561		4,227

Operating expenses
Research and development (included related party cost of $1,186, $–, $1,186 and $–, respectively)	9,092		6,519		23,028		21,108
General and administrative	9,431		9,995		27,871		28,409
Impairment of property and equipment	25,691		—		25,691		—
Total operating expenses	44,214		16,514		76,590		49,517
Loss from operations	(43,876)		(14,748)		(74,029)		(45,290)

Other income (expense)
Interest income, net	583		542		2,438		573
Change in fair value of contingent earnout liability	—		(99)		207		8,779
Change in fair value of GeneFab Note Receivable - related party	287		—		287		—
Change in fair value of GeneFab Economic Share - related party	(123)		—		(123)		—
Change in fair value of GeneFab Option - related party	5,629		—		5,629		—
Gain on extinguishment of convertible notes	—		—		—		1,289
GeneFab sublease income - related party	899		—		899		—


Other income (expense)	(14)		2		(26)		(28)
Total other income (expense), net	7,261		445		9,311		10,613
Net loss from continuing operations	(36,615)		(14,303)		(64,718)		(34,677)

Net income (loss) from discontinued operations	21,692		(2,337)		12,376		(5,323)

Net loss	(14,923)		(16,640)		(52,342)		(40,000)

Other comprehensive loss
Unrealized loss on investments	—		—		(1)		—
Comprehensive loss	$	(14,923)	$	(16,640)	$	(52,343)	$	(40,000)

Net loss per share, basic and diluted
Net loss per share from continuing operations, basic and diluted	$	(0.83)	$	(0.33)	$	(1.46)	$	(1.73)
Net income (loss) per share from discontinued operations, basic and diluted	0.49		(0.05)		0.28		(0.26)
Net loss per share, basic and diluted	$	(0.34)	$	(0.38)	$	(1.18)	$	(1.99)
Weighted-average shares outstanding, basic and diluted	44,473,400		43,424,172		44,275,741		20,150,459

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 Other Comprehensive Income		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 common stock options	—	—		172,606	—		422		—		—		422
Vesting of early exercise of common stock options	—	—		143,524	—		375		—		—		375
Stock-based compensation expense	—	—		—	—		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 cost	(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 PIPE financing	—	—		517,500	—		5,184		—		—		5,184
Gain recognized on fair value of embedded derivative on SPAC merger date	—	—		—	—		(1,289)		—		—		(1,289)
Exercise of common stock options	—	—		27,233	—		74		—		—		74
Vesting of early exercise of common stock options	—	—		41,047	—		102		—		—		102
Stock-based compensation expense	—	—		—	—		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 expense	—	—		—	—		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 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 Other Comprehensive Income		Accumulated Deficit		Total Stockholders’ Equity (Deficit)
	Shares	Amount		Shares	Amount
Balance as of December 31, 2022	—	$	—	44,062,534	$	4	$	300,544	$	1	$	(173,286)	$	127,263

Vesting of early exercise of common stock options	—	—		12,660	—		34		—		—		34

Stock-based compensation expense	—	—			—		3,763		—		—		3,763
Unrealized gain (loss) on investments	—	—		—	—		—		2		—		2
Net loss	—	—		—	—		—		—		(18,722)		(18,722)
Balance as of March 31, 2023	—	—		44,075,194	4		304,341		3		(192,008)		112,340

Vesting of early exercise of common stock options	—	—		12,660	—		34		—		—		34
Issuance of common stock under Employee Stock Purchase Plan (ESPP)	—	—		377,152	—		308		—		—		308
Stock-based compensation expense	—	—		—	—		3,434		—		—		3,434
Unrealized gain (loss) on investments	—	—		—	—		—		(3)		—		(3)
Net loss	—	—		—	—		—		—		(18,697)		(18,697)
Balance as of June 30, 2023	—	—		44,465,006	4		308,117		—		(210,705)		97,416

Vesting of early exercise of common stock options	—	—		12,660	—		34		—		—		34

Stock-based compensation expense				—	—		409		—		—		409

Net loss	—	—		—	—		—		—		(14,923)		(14,923)
Balance as of September 30, 2023	—	$	—	44,477,666	$	4	$	308,560	$	—	$	(225,628)	$	82,936

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,
	2023		2022
Cash flows from operating activities
Net loss	$	(52,342)	$	(40,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	2,569		948
Amortization of operating lease right-of-use assets	1,386		2,028
Accretion of discount on short-term investments	(1,069)		—
Gain on disposal of business	(21,862)		—
Gain on extinguishment of convertible notes	—		(1,289)
Change in fair value of contingent earnout liability	(207)		(8,779)
Change in fair value of GeneFab Note Receivable - related party	(287)		—
Change in fair value of GeneFab Economic Share - related party	123		—
Change in fair value of GeneFab Option - related party	(5,629)		—

Impairment of property and equipment	25,691		—
Stock-based compensation expense	7,606		12,176

Interest income accrued and not received	(21)		—
Issuance of common stock for Common Stock Purchase Agreement fee	—		196
Other non-cash charges	—		21
Changes in assets and liabilities:
Accounts receivable	509		(363)
GeneFab receivable - related party	(2,602)		—
GeneFab prepaid expenses - related party	1,586		—
Prepaid expenses and other assets	(141)		(1,837)
Accounts payable	465		93
GeneFab sublease deferred income - related party	747		—
Accrued expenses and other current liabilities	(1,195)		1,488
Deferred revenue	(799)		(1,733)
Operating lease liabilities	114		11,161
Net cash from operating activities	(45,358)		(25,890)
Cash flows from investing activities
Purchases of short-term investments	(17,990)		—
Maturities of short-term investments	60,000		—

Purchases of property and equipment	(12,034)		(32,841)

Net cash from investing activities	29,976		(32,841)
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

Proceeds from issuance of common stock under Employee Stock Purchase Plan (ESPP)	308		—
Proceeds from issuance of convertible notes	—		5,175
Principal finance lease payments	(85)		—

Net cash from financing activities	223		117,675


	Nine Months Ended September 30,
	2023		2022
Net decrease in cash and cash equivalents	(15,159)		58,944
Cash, cash equivalents, and restricted cash, beginning of period	60,987		59,291
Cash, cash equivalents, and restricted cash, end of period	$	45,828	$	118,235

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	39,430	$	114,940
Restricted cash	6,398		3,295
Total cash, cash equivalents and restricted cash	$	45,828	$	118,235



Supplemental disclosures of noncash financing and investing items
Purchases of property and equipment in accounts payable and accrued expenses	$	3	$	7,360
Refer to Note 3, GeneFab Transaction for details of non-cash items

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

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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.

On August 7, 2023, the Company completed a transaction with GeneFab, LLC (“GeneFab”), a new independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies. As part of that transaction, the Company disposed of its non-oncology business and in-house manufacturing services and subleased its manufacturing facility to GeneFab.

Liquidity and Going Concern

These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a 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 raised aggregate gross proceeds of $299.5 million from the Merger and PIPE Financing, the issuance of shares of its common stock, the issuance of shares of our redeemable convertible preferred stock, the issuance of convertible notes and, to a lesser extent, through collaboration agreements and government grants.

At September 30, 2023 and December 31, 2022, the Company had an accumulated deficit of $225.6 million and $173.3 million, respectively. The Company’s net losses were $52.3 million and $40.0 million for the nine months ended September 30, 2023 and 2022, 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 including impairment of property and equipment. 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, 2023 and December 31, 2022, the Company had cash, cash equivalents and short-term investments of $39.4 million and $98.6 million, respectively. As of November 13, 2023, the issuance date of the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2023, there is uncertainty about whether the Company’s combined cash, cash equivalents, and short-term investments will be sufficient to fund operations, including clinical trial expenses and capital expenditure requirements, beyond twelve months from the issuance date of these financial statements and therefore the Company concluded that substantial doubt existed about the Company’s ability to continue as a going concern.

The transaction with GeneFab provided the Company with additional capital in the form of a note receivable

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

and rights to future manufacturing and research activities and reduced longer-term operating expenses. Refer to Note 3. GeneFab Transaction, for further details of the GeneFab transaction.

The Company’s continued existence is dependent upon management’s ability to raise capital and develop profitable operations. Management is devoting substantially all of its efforts to developing its business and raising capital, which included the framework agreement with GeneFab, 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.

NASDAQ Bid Price Compliance Notice

On August 7, 2023, the Company received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC notifying the Company that, for the last 30 consecutive trading days, the closing bid price of the Company’s common stock had closed below the minimum bid price requirement of $1.00 per share for continued listing on The Nasdaq Global Market. The Company has been provided an initial compliance period of 180 calendar days, or until February 5, 2024, to regain compliance with the minimum bid price requirement.

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 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.

The Company determined that the assets sold to GeneFab met the criteria for presentation as a discontinued operation. As a result, the Company has retrospectively restated its condensed consolidated balance sheet at December 31, 2022 and condensed consolidated statements of operations for the three and nine months ended September 30, 2022 to reflect the assets and liabilities and operating results, respectively, related to the disposed business in discontinued operations. The Company has chosen not to segregate the cash flows of the disposed business in the condensed consolidated statements of cash flows. Supplemental disclosures related to discontinued operations for the statements of cash flows have been provided in Note 3. GeneFab Transaction. Unless otherwise specified, the disclosures in these condensed consolidated financial statements refer to continuing operations only.

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 GeneFab Option, the valuation of GeneFab Economic Share, the valuation of the GeneFab Note Receivable, the valuation of convertible notes, the valuation of common and redeemable convertible preferred stock, standalone selling price (“SSP”), the discount rate used to discount future cash flows for the impairment of long-lived assets, 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

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

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, 2023 and its results of operations for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or any other period. The December 31, 2022 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, 2022 and the related notes included in the Company’s Form 10-K, filed with the SEC on March 22, 2023, which provides a more complete discussion of the Company’s accounting policies and certain other information. Other than the policies included below, 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, 2023, 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, 2022.

Fair Value Option

The Company elected to account for the deferred consideration (GeneFab Note Receivable) and contingent consideration receivable (GeneFab Economic Share) from the GeneFab transaction under the fair value option in ASC 825, Financial Instruments. Accordingly, these instruments were recognized at their fair value at the closing of the transaction and are subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss until settlement. The fair value of the GeneFab Note Receivable was determined by discounting future payments under multiple probability-weighted scenarios using the Company’s cost of borrowing. The fair value of the GeneFab Option was determined using an option pricing method. Refer to Note 3. GeneFab Transaction, for further details of the GeneFab transaction.

GeneFab Option

The option granted to GeneFab as part of the GeneFab transaction meets the definition of a derivative under ASC 815, Derivatives and Hedging, and does not meet the criteria for equity classification. The derivative liability is recorded at its fair value on issuance and subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss until settlement. The fair value of the derivative liability was determined using a Black-Scholes option pricing model.

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. GeneFab Transaction

On August 7, 2023, the Company entered into a framework agreement with GeneFab and Valere Bio, Inc., a Delaware corporation and the parent company of GeneFab, which is wholly owned by Celadon Partners, LLC, pursuant to which the Company, subject to the terms and conditions therein, sold, assigned and transferred its rights, title and interest in certain of the assets and contractual rights, including all of the Company’s equipment at the Company’s facilities in Alameda and certain of the Company’s non-oncology license, intellectual property related to the schematics for and design of the Alameda facility, and subleased to GeneFab its premises under the lease for the Alameda facility. The transaction will provide the Company with additional capital in the form of a note receivable and rights to future manufacturing and research activities and reduced longer term operating expenses.

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Concurrently with the transaction, the Company and GeneFab entered into a development and manufacturing services agreement (the “services agreement”), pursuant to which GeneFab will provide certain services to the Company using the subleased Alameda facility and acquired equipment. As part of this transaction, the Company entered into a transition services agreement with GeneFab whereby certain services are to be provided by each party to the other party during a transition period beginning on the closing of the transaction.

Under the terms of the transaction, the Company is entitled to receive total consideration of $37.8 million before the end of 2025, of which $18.9 million was payable at closing and was netted against prepayment due to GeneFab for future manufacturing and research activities. The remaining $18.9 million will be paid to the Company in installments in 2024 and 2025 (the “Note Receivable”), subject to satisfaction of certain conditions. The Company elected to account for the Note Receivable under the fair value option and recorded the Note Receivable at its fair value of $16.6 million at the closing date of the transaction. The Note Receivable will be remeasured each reporting period with changes from remeasurement included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. Refer to Note 4. Fair Value Measurement.

The Company is entitled to $18.9 million in future manufacturing and research activities to be rendered under the services agreement, which are recorded in GeneFab prepaid expenses on the condensed consolidated balance sheet. The Company determined that the $18.9 million for future manufacturing and research activities, inclusive of the volume discount provided, was executed at market terms and does not result in any impact to the total consideration received from GeneFab for the disposal of the business.

As part of the transaction, the Company subleased the facility in Alameda, California to GeneFab which will support the clinical manufacturing of the Company’s chimeric antigen receptor natural killer (CAR-NK) programs, including SENTI-202. Refer to Note 6. Operating Leases for additional information on the sublease.

The Company agreed to grant a license to GeneFab under certain of its intellectual property rights to conduct manufacturing services and to research, develop, manufacture and commercialize products outside of oncology, pursuant to a license agreement under negotiation (the “non-oncology license”).

In connection with the transaction, Philip Lee, Ph.D., former Co-Founder and Chief Technology Officer of the Company, assumed the role of Chief Executive Officer of GeneFab. Additionally, GeneFab extended offers of employment to 45 of the Company's employees formerly employed in its research and development and manufacturing functions. All 45 employees accepted the offers of employment and are actively engaged in providing manufacturing and research activities to the Company.

GeneFab was granted an option to purchase up to 19,633,444 shares (i.e. up to $20.0 million worth) of the Company’s common stock at a purchase price of $1.01867 (the “GeneFab Option”). The GeneFab Option is exercisable for a period of 36 months following the execution of the license agreement. The GeneFab Option may be exercised in installments of common stock equal to no more than 19.9% of the Company’s outstanding shares of common stock as of the closing date of the transaction. The purchase of the remaining shares under the GeneFab Option require stockholder approval. The Company determined that the GeneFab Option was a derivative as the terms of the instrument contain certain provisions that preclude equity classification in accordance with ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity. As such, the GeneFab Option was recorded as a liability at its fair value of $9.6 million at the closing date of the transaction and subsequently remeasured with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. Refer to Note 4. Fair Value Measurement.

As additional consideration for the transaction, the Company and GeneFab entered into a seller economic share agreement (the “GeneFab Economic Share”), pursuant to which the Company will be entitled to receive ten percent of the realized gains of GeneFab’s parent company arising and resulting from any cash or in-kind distributions from GeneFab in connection with a dividend or sale event, subject to the terms and conditions of the GeneFab Economic Share. The Company elected to account for the GeneFab Economic Share under the fair value option and recorded the GeneFab Economic Share at its fair value of $1.8 million at the date of the transaction. The GeneFab Economic Share will be remeasured each reporting period with changes from remeasurement included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. Refer to Note 4. Fair Value Measurement.

Gain on the Disposal of Business

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

As the assets and contractual rights transferred to GeneFab were determined to constitute a business as defined in ASC 805, Business Combinations, the Company accounted for the disposal by applying the derecognition guidance in ASC 810, Consolidation, which requires that a gain or loss be recognized for the difference between the carrying value of the assets sold and the fair value of the consideration received (or receivable).

The total fair value of the consideration was determined to be $37.3 million, including the GeneFab prepaid expenses of $18.9 million, the estimated fair value of the Note Receivable of $16.6 million and the estimated fair value of the GeneFab Economic Share of $1.8 million. Out of the total consideration, $9.6 million was allocated to the GeneFab Option, representing its estimated fair value as of the closing date.

In connection with the sale, the Company recognized a gain on disposal in the amount of $21.9 million in net income from discontinued operations during the three and nine months ended September 30, 2023, representing the excess of the fair value of the consideration (net of the portion allocated to the GeneFab Option) over the carrying value of the assets sold of $5.5 million. The gain on disposal was primarily related to the transfer of the non-oncology intellectual property to GeneFab which had no carrying value.

Discontinued Operations

In accordance with ASC 205, Presentation of Financial Statements (“ASC 205”), the Company determined that the sale of the non-oncology business, including the equipment and transfer of in-house manufacturing activities in the Alameda facility, to GeneFab represented a strategic shift that will have a major effect on the Company’s operations and financial results, thus meeting the criteria to be reported as discontinued operations. Discontinued operations include the cost and depreciation of equipment and related deposits or liabilities, manufacturing personnel-related costs including costs arising as a result of the disposal such as equity award modifications and severance, and the

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

gain from the disposal of the business. Refer to Note 9, Stock-Based Compensation, for further details of the award modifications.

The following table summarizes the major classes of assets and liabilities of the discontinued operations (in thousands):


	September 30,		December 31,
	2023		2022
Prepaid expenses and other current assets	$	—	$	209
Total current assets of discontinued operations	$	—	$	209

Property and equipment, net	$	—	$	4,775
Other long-term assets	—		10
Total non-current assets of discontinued operations	$	—	$	4,785
	—		—
Accounts payable	$	—	$	897
Accrued expenses and other current liabilities	216		288
Total current liabilities of discontinued operations	$	216	$	1,185

The following table summarizes the condensed operating results of the discontinued operations (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating expenses:
Research and development	$	1,641	$	1,537	$	9,975	$	3,796
General and administrative	(1,478)		800		(496)		1,527
Total operating expenses	163		2,337		9,479		5,323
Loss from discontinued operations	(163)		(2,337)		(9,479)		(5,323)
Other income (expense)	(6)		—		(6)		—
Gain on disposal of business	21,861		—		21,861		—
Net income (loss) from discontinued operations	$	21,692	$	(2,337)	$	12,376	$	(5,323)

General and administrative expenses were negative for the three and nine months ended September 30, 2023 due to the reversal of compensation expense for unvested awards that were cancelled due to the termination of employees subsequently hired by GeneFab. See Note 9. Stock-Based Compensation.

The following table summarizes the condensed cash flow information of the discontinued operations (in thousands):


	Nine Months Ended September 30,
	2023		2022
Operating activities (noncash adjustments to net income):
Depreciation	$	185	$	3
Stock-based compensation	(2,022)		586
Gain on disposal of business	(21,861)		—
Investing activities:
Purchases of property and equipment	(4,079)		(549)
Supplemental disclosures of noncash investing items:
Purchases of property and equipment in accounts payable and accrued expenses	—		308

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

4. Fair Value Measurements

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


	September 30, 2023
	Adjusted Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Cash and cash equivalents		Restricted cash		Short-term investments
Cash	$	5,230	$	—	$	—	$	5,230	$	5,230	$	—	$	—
Level 1:
Money market funds	40,598		—		—		40,598		34,200		6,398		—
Subtotal	40,598		—		—		40,598		34,200		6,398		—






Total	$	45,828	$	—	$	—	$	45,828	$	39,430	$	6,398	$	—


	December 31, 2022
	Adjusted Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Cash and cash equivalents		Restricted cash		Short-term investments

Level 1:
Money market funds	$	45,412	$	—	$	—	$	45,412	$	42,046	$	3,366	$	—
Subtotal	45,412		—		—		45,412		42,046		3,366		—
Level 2:
U.S. Treasury securities	14,866		4		(3)		14,867		—		—		14,867
U.S. agency securities	5,938		—		—		5,938		3,983		—		1,955
Commercial Paper	28,122		—		—		28,122		5,994		—		22,128
Corporate debt securities	7,590		1		(1)		7,590		5,598		—		1,992
Subtotal	56,516		5		(4)		56,517		15,575		—		40,942
Total	$	101,928	$	5	$	(4)	$	101,929	$	57,621	$	3,366	$	40,942

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.

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Contingent Earnout Liability

The following table presents a summary of the changes in the fair value of the Contingent Earnout Liability (in thousands):


	Contingent Earnout Liability
Fair value as of December 31, 2022	$	(227)

Change in fair value included in other income (expense)	207
Fair value as of September 30, 2023	$	(20)

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

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 7. Stockholders’ Equity (Deficit), for further details of the Contingent Earnout Liability.

GeneFab Note Receivable

The following table presents a summary of the changes in the fair value of the GeneFab Note Receivable (in thousands):


	Note Receivable
Initial recognition as of August 7, 2023	$	16,614

Change in fair value included in other income (expense)	287
Fair value as of September 30, 2023	$	16,901

The fair value of the GeneFab Note Receivable is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The GeneFab Note Receivable is presented within GeneFab receivable on the condensed consolidated balance sheet.

The Company has elected to account for the GeneFab Note Receivable under the fair value option in ASC 825, Financial Instruments with changes in fair value reported as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. The fair value of the GeneFab Note Receivable was determined by discounting future payments under multiple probability-weighted scenarios using the Company’s cost of borrowing, which was estimated at 13.72% as of the initial recognition date, to 13.97% as of September 30, 2023 based on published CCC-rated corporate bond yields.

GeneFab Option

The following table presents a summary of the changes in the fair value of the GeneFab Option (in thousands):


	GeneFab Option
Initial recognition as of August 7, 2023	$	(9,649)

Change in fair value included in other income (expense)	5,629
Fair value as of September 30, 2023	$	(4,020)

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

In determining the fair value of the GeneFab Option, the Company used a Black-Scholes option pricing model.

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The significant assumptions utilized in the valuation are described below:


	September 30,			August 7
	2023			2023
Current stock price	$	0.41		$	0.90
Expected volatility	105.7		%	86.0		%
Risk-free interest rate	4.80		%	4.44		%
Expected term (years)	3			3

GeneFab Economic Share

The following table presents a summary of the changes in the fair value of the GeneFab Economic Share (in thousands):


	GeneFab Economic Share
Initial recognition as of August 7, 2023	$	1,800

Change in fair value included in other income (expense)	(123)
Fair value as of September 30, 2023	$	1,677

The fair value of the GeneFab Economic Share is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.

The Company has elected to account for the GeneFab Economic Share under the fair value option in ASC 825, Financial Instruments with changes in fair value reported as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. In determining the fair value of the GeneFab Economic Share, the Company used the option pricing method, which allocates total estimated enterprise value to various classes of equity using the Backsolve method.

The significant assumptions utilized in the valuation are described below:


	September 30,			August 7
	2023			2023
GeneFab equity value	$	35,448		$	37,314
Volatility	54		%	54		%
Risk free rate	4.65		%	4.23		%
Expected term	4.5			4.5

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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,
	2023		2022

Prepaid expenses (including prepaid rent)	2,503		1,871
Deposits	652		1,209

Other	488		101
Total prepaid expenses and other current assets	$	3,643	$	3,181

Property and Equipment, Net

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


	September 30,		December 31,
	2023		2022
Leasehold improvements	$	22,648	$	1,869
Lab equipment	8,343		7,855
Furniture and fixtures	326		326
Computer equipment and software	362		374
Construction in progress	—		43,892
Property and equipment at cost	31,679		54,316
Less: accumulated depreciation	(5,246)		(2,955)
Property and equipment, net	$	26,433	$	51,361

Buildout of the current good manufacturing practice (cGMP) facility in Alameda was completed in June 2023 and the assets were placed in service.

As a result of the change in the manner in which the Company expects to recover the assets associated with the lease on the Alameda facility (refer to Note 3. GeneFab Transaction), the ROU asset and the related leasehold improvements became a separate asset group for the purposes of long-lived asset impairment assessment as of August 7, 2023. This asset group reassessment triggered a need to perform an impairment analysis. The Company concluded that the asset group was not recoverable, as the carrying value of the asset group was less than the sum of undiscounted net cash flows expected to be generated from the use of the asset group.

The Company tested the asset group for impairment and recognized an impairment loss in the amount of $25.7 million during the three and nine months ended September 30, 2023, representing the difference between the carrying value of the asset group of $54.6 million and its estimated fair value of $28.9 million, determined based on the discounted cash flows expected to be generated from the use of the asset group through the sublease. Further, the Company determined that the individual fair value of the ROU asset within the asset group exceeded its carrying value as of the impairment testing date. Accordingly, the Company allocated the entire impairment loss to the leasehold improvements associated with the Alameda lease. The adjusted carrying value of the leasehold improvements of $20.1 million will be amortized under the existing accounting policy under ASC 842, Leases on a straight-line basis over the remaining lease term.

Depreciation totaled $1.3 million and $0.4 million for the three months ended September 30, 2023 and 2022, respectively, and $2.4 million and $0.9 million for the nine months ended September 30, 2023 and 2022, respectively.

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Accrued Expenses and Other Liabilities

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


	September 30,		December 31,
	2023		2022
Accrued employee-related expenses	$	2,596	$	3,496
Accrued professional and service fees related to facility construction	—		7,342
Accrued professional and service fees other	1,425		1,709
Other accrued expenses	22		29
Total accrued expenses and other current liabilities	$	4,043	$	12,576

6. Operating Leases

Lessee Accounting

The Company’s operating leases are primarily for its corporate headquarters located in South San Francisco, California (“HQ lease”) and for additional office and laboratory space located in Alameda, California (“Alameda lease”). The corporate headquarters lease has an initial term of eight years expiring in 2027, with an option to renew for an additional eight years unless canceled by either party thereafter. The Alameda lease has an initial term of eleven years expiring in 2032, with an option to renew the lease for up to two additional terms of five years. The exercise of these renewal options is not recognized as part of the ROU assets and lease liabilities, as the Company did not conclude, at the commencement date of the leases, that the exercise of renewal options or termination options was reasonably certain. The Alameda lease provides for a tenant improvement allowance of up to $17.5 million for the costs relating to the design, permitting and construction of the improvements, to be disbursed by the landlord no later than December 31, 2023. The Company was deemed to be the accounting owner of the tenant improvements primarily because the Company is the principal in the construction and design of the assets, is responsible for costs overruns and retains substantially all economic benefits from the leasehold improvements over their economic lives. Accordingly, the tenant improvement allowance was considered an incentive and was deducted from the initial measurement of the ROU asset and lease liability. The Company estimated the timing of tenant improvement reimbursements at the lease commencement date and upon receipt of the cash incentives, the Company recognized the cash received as an increase in the lease liability.

A summary of total lease costs and other information for the period relating to the Company’s operating leases is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Operating lease cost	$	1,323	$	1,326	$	3,952	$	3,976
Short-term lease cost	8		20		64		50
Variable lease cost	272		184		894		537
Total lease cost	$	1,603	$	1,530	$	4,910	$	4,563

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)


	Nine Months Ended September 30,
	2023		2022
Other information:
Operating cash flows net inflows and (outflows) from operating lease	$	(2,449)	$	9,225
ROU assets obtained in exchange for operating lease obligations (including remeasurement of ROU and lease liabilities due to changes in the timing of receipt of lease incentives)	$	13	$	202
Weighted-average remaining lease term	7.6 years		8.2 years
Weighted-average discount rate	9.2%		9.1%

For the three months ended September 30, 2023 and 2022, the Company received no cash and $3.2 million, respectively, of $17.5 million tenant improvement allowance. For the nine months ended September 30, 2023 and 2022, the Company received $2.0 million and $11.3 million, respectively, of the $17.5 million tenant improvement allowance. Through September 30, 2023, the Company received $16.2 million of the tenant improvement allowance inception-to-date.

As of September 30, 2023 and 2022, amounts disclosed for ROU assets obtained in exchange for lease obligations include amounts added to the carrying amount of ROU assets resulting from lease modifications and reassessments.

Maturities of the Company’s lease liabilities as of September 30, 2023, were as follows (in thousands):


2023, for the remainder of the year	$	1,786
2024	7,254
2025	7,478
2026	7,712
2027	5,769
Thereafter	24,384
Total undiscounted lease payments	54,383
Less imputed interest	(15,880)
Tenant improvement allowance remaining	(1,311)
Total lease liabilities	$	37,192

Lessor Accounting

In connection with the GeneFab transaction, on August 7, 2023, the Company entered into a sublease with GeneFab to sublease the facility included in the Alameda lease, expiring in August 2032. Total sublease income to be earned from this operating lease, in aggregate, will be approximately $44.1 million over the remaining term of the sublease agreement. Sublease income was $0.8 million for the three and nine months ended September 30, 2023. Variable sublease income was $0.1 million for the three and nine months ended September 30, 2023. The Company records sublease income in other income (expense) in the condensed consolidated statement

Maturities of the Company’s sublease payments from GeneFab as of September 30, 2023, were as follows (in thousands):

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)


2023, for the remainder of the year	$	1,065
2024	4,345
2025	4,476
2026	4,610
2027	4,748
Thereafter	23,186
Total undiscounted sublease payments	$	42,430

7. Stockholders’ Equity

Common Stock

Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to the preferred stock with respect to dividend rights and rights upon liquidation, winding up, and dissolution of the Company; although, no preferred stock is outstanding as of September 30, 2023 and December 31, 2022. Through September 30, 2023, no cash dividends have been declared or paid.

At September 30, 2023 and December 31, 2022, the Company was authorized to issue 500,000,000 shares of common stock, all at a par value of $0.0001 per share, and had reserved the following shares for future issuance:


	September 30,	December 31,
	2023	2022

Common Stock Purchase Agreement	8,327,049	8,327,049
Common stock options issued and outstanding	11,916,927	9,875,675
Restricted Stock Units (RSUs) issued and outstanding	252,720	447,948
Common stock shares available for future issuance under equity plans	3,310,849	2,948,472
Common stock shares available for future issuance under the 2022 Employee Stock Purchase Plan (the "ESPP")	546,155	481,627
Contingent earnout common stock	2,000,000	2,000,000
GeneFab Option	19,633,444	—
Unvested early exercised common stock	67,520	105,500
Total	46,054,664	24,186,271

Preferred Stock

In connection with the close of the Merger, the Company’s Amended and Restated Certificate of Incorporation provides the Company’s board of directors with the authority to issue $0.0001 par value preferred stock in one or more series and to establish from time to time the number of shares to be included in each such series, by adopting a resolution and filing a certification of designations. Voting powers, designations, powers, preferences and relative, participating, optional, special and other rights shall be stated and expressed in such resolutions. There were 10,000,000 shares designated as preferred stock and none were outstanding as of September 30, 2023 and December 31, 2022.

Common Stock Purchase Agreement

On August 31, 2022, the Company entered into a Common Stock Purchase Agreement and a Registration Rights Agreement (collectively referred to as the “Purchase Agreement”) with Chardan Capital Markets LLC (“Chardan”). Pursuant to the Purchase Agreement, the Company has the right, in its sole discretion, to sell to Chardan up to the lesser of (i) $50.0 million of newly issued shares of the Company’s common stock, and (ii) the

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the 36-month term of the Purchase Agreement. Under the applicable NASDAQ rules, the Company may not issue to Chardan under the Purchase Agreement more than 8,727,049 shares of common stock, which number of shares is equal to 19.99% of the common shares outstanding immediately prior to the execution of the Purchase Agreement unless certain exceptions are met (the “Exchange Cap”). The purchase price of the shares of common stock will be determined by reference to the Volume Weighted Average Price (“VWAP”) of the common stock during the applicable purchase date, less a fixed 3% discount to such VWAP. However, the total shares to be purchased on any day may not exceed 20% of the trading volume, and the total purchase price on any day may not exceed $3.0 million. As consideration for Chardan’s commitment to purchase shares of common stock at the Company’s direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, the Company issued 100,000 shares of its common stock to Chardan and paid a $0.4 million document preparation fee. Upon execution of the Purchase Agreement, the Company recognized an expense of $0.7 million within general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss for the Chardan related costs and legal fees incurred in connection with the agreement.

Other than the issuance of the commitment shares of the Company’s common stock to Chardan, the Company issued 300,000 common stock shares up until December 31, 2022 aggregating to net proceeds of $0.7 million, under the Purchase Agreement. There were no shares issued within nine months ended September 30, 2023.

Contingent Earnout Equity

Following the closing of the Merger, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of the Company’s common stock in the aggregate, in two equal tranches of 1,000,000 shares of common stock per tranche. The first and second tranches are issuable if the closing volume weighted average price (“VWAP”) per share of common stock quoted on the Nasdaq (or the exchange on which the shares of common stock are then listed) is greater or equal to $15.00 and $20.00, respectively over any twenty trading days within any thirty-day trading 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 Company shall issue the earnout shares to the holders of Legacy Senti common stock and preferred stock.

The estimated fair value of the total Contingent Earnout Shares at the Closing on June 8, 2022, was $9.8 million based on a Monte Carlo simulation valuation model. Of this amount, $9.7 million was accounted for as a Contingent Earnout Liability because the triggering events that determine the number of Contingent Earnout Shares required to be issued include events that are not solely indexed to the common stock of the Company. The remaining balance of $0.1 million relates to holders of Legacy Senti common stock that are subject to repurchase were accounted for as stock-based compensation expense and recorded as an expense, as there was no remaining service period.

The Contingent Earnout Liability was remeasured to fair value as of September 30, 2023, resulting in no change for the three months ended September 30, 2023, and a non-cash gain of $0.2 million for the nine months ended September 30, 2023, classified within change in fair value of contingent earnout liability in the condensed consolidated statements of operations and comprehensive loss.

Assumptions used in the valuation are described below:


	September 30,		December 31,
	2023		2022
Current stock price	$	0.63	$	1.41
Expected share price volatility	83.0%		85.0%
Risk-free interest rate	3.5%		4.3%
Estimated dividend yield	0.0%		0.0%
Expected term (years)	5.9		2.4

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SENTI BIOSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

8. Revenue

The Company’s revenue consists of amounts received related to research services provided to customers.

Contract Revenue

In April 2021, the Company entered into a research collaboration and license agreement with Spark Therapeutics, Inc. (“Spark”). Under the agreement, the Company will be responsible for a research program, which includes designing, building and testing five cell type specific-synthetic promoters for use in developing certain gene therapies using the Company’s proprietary technology. The Company received an upfront payment from Spark of $3.0 million and Spark is obligated to reimburse the Company for costs and expenses incurred for the research program. The Company expected to complete the research program over a two-year period.

The Company assessed this agreement in accordance with ASC 606, Revenue Recognition (“ASC 606”) and concluded that the contract counterparty, Spark, is a customer. The Company identified only one combined performance obligation in the agreement, which is to perform research services, the related joint research plan and committees for the five specified promoters. The Company determined that the research activities for each of the five promoters are not distinct given there is one single research plan that is performed by the same research team and research results for one promoter may provide insights for other promoters.

Pursuant to the agreement, once the research program is completed and the Company delivers a data package to Spark, Spark has 24 months (the “Evaluation Period”) to determine whether Spark will exercise its options to obtain field-limited, royalty-bearing licenses to develop, manufacture and commercialize promoters corresponding to each of the five specified promoters being researched. For each licensed promoter option that is exercised, the Company is eligible to receive a license fee, potential research, development and commercial milestone payments and royalties on product sales. Spark may generally terminate the agreement upon 90 days prior written notice or 180 days prior written notice if the licensed promoter is in clinical trials or is being commercialized at the time of termination.

The Company evaluated Spark’s optional rights to license, develop, manufacture and commercialize each of the promoter profiles to determine whether they provide Spark with any material rights to purchase the promoter licenses at an incremental discount. The Company’s proprietary technology used to develop the promoters is in the early stages of development, so technological feasibility and probability of developing a product is highly uncertain. As a result, determining the SSP for the optional rights is subject to significant judgment. Given the subjectivity associated with determining the SSP for the right to a future license related to unproven technology at contract inception, the Company also evaluated whether the contract consideration associated with the research services represents the SSP for those services. The Company determined the transaction price, inclusive of the upfront payment and reimbursement of costs and expenses incurred for the research program, is commensurate with SSP for the research being conducted given the specialized nature and reliance on proprietary technology. Based on the Company’s assessment of the optional consideration and the qualitative factors of feasibility and probability of development combined with the quantitative assessment that research services are priced at their SSP, the Company concluded that the license option does not provide Spark with an incremental discount and therefore does not constitute a material right. The transaction price associated with the research services in this agreement consists of the fixed upfront amount of $3.0 million and variable consideration.

For Spark collaboration agreement, the Company will recognize the transaction price as research and development services are provided, using a cost-based input method to measure the progress toward completion of its performance obligation and to calculate the corresponding amount of revenue to recognize each period. The Company believes that the cost-based input method is the best measure of progress because other measurements would not reflect how the Company transfers the control related to the performance obligation to our customers.

In December 2022, the Company amended the research collaboration and license agreement with Spark to allow for an increase in budget and a two-month extension of the research program. As there were no changes to performance obligations and the services to be provided are not distinct from those already transferred, the transaction was accounted for as a contract modification and a cumulative catch-up of $(0.7) million was recognized in December 2022.

In May 2023, the Company amended the research collaboration and license agreement with Spark to allow for an increase in budget and additional two-month extension of the research program. As there were no changes to