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Item 2. Management’s Discussion and Analysis

2022-08-15 compared with 2022-05-16 · 327 added, 105 removed, 11 unchanged (98% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Dynamics Special Purpose Corp.

References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Dynamics Sponsor LLC.

The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report.

Senti Biosciences, Inc.

(“Senti”) entered into a business combination agreement (the “Agreement”) with Dynamics Special Purpose Corp.

(“DYNS”) on December 19, 2021.

The transactions contemplated by the terms of the Agreement were completed on June 8, 2022 (the “Closing”), in conjunction with which DYNS changed its name to Senti Biosciences, Inc.

(hereafter referred to, collectively with its subsidiaries, as “Senti”, the “Company”, “we”, “us” or “our”, unless the context otherwise requires).

The transactions contemplated in the Agreement are collectively referred to as the “Business Combination”.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q (this “Quarterly Report”) as well as Senti’s audited consolidated financial statements and notes thereto included in the final prospectus and definitive proxy statement, dated May 13, 2022 (the “Proxy Statement/Prospectus”) and filed with the SEC.

In addition, you should refer to our audited consolidated financial statements and the related notes for the year ended December 31, 2021 and the section entitled “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in the Company’s Registration Statement on Form S-1, filed with the SEC on June 28, 2022 and amended on July 29, 2022.

Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected.

All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements.

Cautionary Statement Regarding Forward-Looking Statements

In This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected.

All statements, other than statements of historical fact included in this Form 10‑Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements.

Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements.

1 unchanged sentence

A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements.

For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the “Risk Factors” section of the Company’s most recent Annual Report on 10-K,

filed with the U.S.

Securities and Exchange Commission (the “SEC”) on March 7, 2022.

For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Proxy Statement/Prospectus and Part II, Item 1A of this Quarterly Report on Form 10-Q filed with the U.S.

Securities and Exchange Commission (the “SEC”).

The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov.

Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

We are a blank check company incorporated on March 1, 2021 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.

We expect to continue to incur significant costs in the pursuit of our initial business combination, including our proposed initial business combination with Senti.

We cannot assure you that our plans to complete our initial business combination, including our proposed initial business combination with Senti, will be successful.

Senti is a preclinical biotechnology company developing next-generation cell and gene therapies engineered with its gene circuit platform technologies to fight challenging diseases.

Senti’s mission is to create a new generation of smarter therapies that can outmaneuver complex diseases in ways previously not implemented by conventional medicines.

To accomplish this mission, Senti has built a synthetic biology platform that it believes may enable it to program next-generation cell and gene therapies with what it refers to as “gene circuits.” These gene circuits, which Senti created from novel and proprietary combinations of genetic parts, are designed to reprogram cells with biological logic to sense inputs, compute decisions and respond to their respective cellular environments.

Senti aims to design and optimize gene circuits through its Design-Build-Test-Learn Engine or DBTL Engine, to improve the “intelligence” of cell and gene therapies in order to enhance their therapeutic effectiveness against a broad range of diseases that conventional medicines are unable to address.

Senti’s gene circuit platform technologies can be applied in a modality-agnostic manner, with applicability to natural killer (NK) cells, T cells, tumor-infiltrating lymphocytes

(“TILs”), stem cells including Hematopoietic Stem Cells (“HSCs”), in vivo gene therapy and messenger ribonucleic acid (mRNA).

All of Senti’s current product candidates are in preclinical development.

Senti’s lead product candidates utilize allogeneic chimeric antigen receptor (“CAR”) NK cells outfitted with its gene circuit technologies in several oncology indications with currently high unmet needs.

Senti expects to file investigational new drug applications (“INDs”) for multiple product candidates starting in 2023.

We have incurred net losses of $11.6 million and $12.0 million for the three months ended June 30, 2022 and 2021, respectively, and $23.4 million and $33.0 million for the six months ended June 30, 2022 and 2021, respectively.

We expect to continue to incur significant losses for the foreseeable future.

As of June 30, 2022, we had cash and cash equivalents of $139.8 million, and an accumulated deficit of $138.4 million.

We anticipate that our expenses and operating losses will increase substantially over the foreseeable future.

The expected increase in expenses will be driven in large part by our ongoing activities, if and as we:

• continue to advance our gene circuit platform technologies;

• continue preclinical development of our current and future product candidates and initiate additional preclinical studies;

• commence clinical studies of our current and future product candidates;

• establish our manufacturing capability, including developing our contract development and manufacturing relationships, and building our internal manufacturing facilities;

• acquire and license technologies aligned with our gene circuit platform technologies;

• seek regulatory approval of our current and future product candidates;

• expand our operational, financial, and management systems and increase personnel, including personnel to support our preclinical and clinical development, manufacturing and commercialization efforts;

• continue to develop, grow, perfect, and defend our intellectual property portfolio;

• incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company.

In addition, in 2021, we began construction on a dedicated in-house, state-of-the-art current good manufacturing practices “cGMP” facility to support clinical and commercial-scale production of multiple allogeneic NK cell product candidates.

We anticipate that this facility will become operational in time to support initial clinical trials for our lead product candidates.

Our manufacturing facility is designed to leverage the latest cell therapy process technologies as we strive to maximize scalability and minimize cost of goods.

We believe our 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 date of this Quarterly Report.

During 2021, widespread availability of COVID-19 vaccines in the United States and elsewhere in the world, combined with government assistance programs, fiscal policies and other factors, led to a rebound in the global economy as several states and countries began to re-open and loosen many COVID-19 related restrictions.

Nonetheless, the COVID-19 pandemic remains a global health crisis and continues to evolve.

As of June 30, 2022, we were operating at pre-pandemic levels, although we cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic will have on our business, financial condition and operations, including planned preclinical studies, clinical trials and clinical development timelines.

The impact of the COVID-19 pandemic on our financial performance will depend on future developments, including the duration and spread of the pandemic, its impact on our IND-enabling studies, clinical trial enrollment, trial sites and other third parties with whom we do business, its impact on regulatory authorities and our key scientific and management personnel, and related governmental advisories and restrictions.

These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain and cannot be predicted.

If the financial markets or the overall economy are impacted for an extended period, our business may be materially adversely affected.

Recent Developments

On December 19, 2021, we entered into the Business Combination Agreement with Merger Sub and Senti.

The Business Combination Agreement provides, among other things, that on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Senti, with Senti surviving as a wholly-owned subsidiary of the Company.

Upon the Closing, the Company will change its name to “Senti Biosciences, Inc.” and its ticker symbol on the Nasdaq Global Market, where it expects to be listed, is expected to change to “SNTI.”

The Business Combination Agreement and the transactions contemplated thereby were approved by the boards of directors of each of the Company and Senti.

We intend to effectuate our proposed initial business combination with Senti using a combination of cash from the proceeds of our Initial Public Offering (and the concurrent private placement of shares to our Sponsor), the proceeds of the sale of our shares to private investors in connection with our initial business combination (the Subscriptions) and shares issued to the current owners of Senti.

For further information regarding the Business Combination Agreement and our proposed initial business combination with Senti, please refer to “ Part I, Item 1.

” of our Annual Report on Form 10-K,

which was filed with the SEC on March 7, 2022, and the Current Report on Form 8-K

announcing the proposed business combination, which was filed with the SEC on December 20, 2021.

Merger with Dynamics Special Purpose Corp.

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.

Pursuant to the terms of the merger agreement, at the effective time of the Merger (the “Effective Time”), (1) each outstanding share of common stock of Legacy Senti was cancelled and converted into the right to receive approximately 0.1957 shares of the Company’s common stock, par value $0.0001 per share (“Common Stock”), and (2) each outstanding share of preferred stock of Legacy Senti was cancelled and converted into the aggregate number of shares of 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, resulting in the issuance of a total of 23,163,614 shares of Common Stock.

Prior holders of shares of Legacy Senti common stock and Legacy Senti preferred stock also received the contingent right to receive certain Earnout Shares (as defined below), for each share owned by each such Legacy Senti stockholder that was outstanding immediately prior to the closing of the Merger (the “Closing”).

In addition, certain investors purchased an aggregate of 5,060,000 shares of Common Stock (such investors, the “PIPE Investors”) in a private placement that closed concurrently with the Closing for an aggregate purchase price of $50.6 million (the “PIPE Financing”).

Additionally, at the Closing, 14,915,963 shares of Common Stock were issued to Dynamics stockholders (reflecting actual redemptions by Dynamics public stockholders).

Additionally, an unsecured convertible promissory note in the aggregate principal amount of $5,175,000 that was previously issued by Senti to Bayer Healthcare LLC for a purchase price of $5,175,000 on May 19, 2022 was automatically cancelled and exchanged for 517,500 shares of Common Stock.

Pursuant to the terms of the merger agreement, at the Effective Time of the Merger, options to purchase shares of Legacy Senti common stock were converted into options to purchase an aggregate of 1,667,546 shares of Common Stock.

Following the Closing Date, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of Common Stock (“Earnout Shares”) in the aggregate in two equal tranches if the volume-weighted average closing sale price of our 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 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.

Components of Results of Operations

Total Revenue

We currently have no therapeutic products approved for sale, and we have never generated any revenue from the sale of any therapeutic products.

Total revenue consists of contract revenue related to research services provided to customers and grant income which is research funding received from grants.

Our ability to generate product revenues will depend on our partners’ ability to replicate our results and the successful development and eventual commercialization of our product candidates, which we do not expect for the foreseeable future, if ever.

We may also look to generate revenue from collaboration and license agreements in the future.

Operating Expenses

Our operating expenses consist of research and development expense and general and administrative expenses.

Research and Development Expenses

Research and development costs consist primarily of costs incurred for the discovery and preclinical development of our product candidates, which include:

• employee-related expenses, including salaries, related benefits, and stock-based compensation expenses for employees engaged in research and development functions;

• expenses incurred in connection with research, laboratory consumables and preclinical studies;

• the cost of consultants engaged in research and development related services and the cost to manufacture drug products for use in our preclinical studies and trials;

• facilities, depreciation and other expenses, which include allocated expenses for rent and maintenance of facilities, insurance and supplies;

• costs related to regulatory compliance;

• the cost of annual license fees.

We have not historically tracked research and development expenses by program, with the exception of third-party research projects.

We have various ongoing early-stage research and product candidate discovery projects and going forward, we expect to have various products undergoing clinical trials.

Our internal resources, employees and infrastructure are not directly tied to any one research or product candidate discovery project and are typically deployed across multiple projects.

As such, we do not maintain information regarding these costs incurred for these early-stage research and product candidate discovery programs on a project-specific basis.

Our direct external development program expenses reflect external costs attributable to our preclinical development candidates selected for further development as well as investigational new drug applications (“INDs”) and clinical development.

Such expenses include third-party contract costs relating to manufacturing, clinical trial activities, translational medicine and toxicology activities.

We do not allocate internal research and development costs which include personnel, facility costs, laboratory consumables and discovery and research related activities associated with our pipeline because these costs are deployed across multiple programs and our platform, and, as such, are not separately classified.

Research and development expenses consisted of the following (in thousands):

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(unaudited) (unaudited) (unaudited) (unaudited)

Personnel-related expenses, including share-based compensation $ 3,866 $ 1,845 $ 6,664 $ 3,582

External services and supplies 3,424 2,385 6,332 4,530

Office and facilities 1,782 906 3,528 1,837

Other 175 99 325 189

Total $ 9,247 $ 5,235 $ 16,849 $ 10,138

Research and development activities are central to our business model.

There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.

In addition, future regulatory factors beyond our control may impact our preclinical development programs.

Product candidates in clinical development generally have higher development costs than those in preclinical stages of development, primarily due to the increased size and duration of clinical trials.

At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the

preclinical development of any of our product candidates.

However, we expect that our research and development expenses and manufacturing costs will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future.

The successful development of our current and future product candidates is highly uncertain.

This is due to numerous risks and uncertainties, including the following:

• negative or inconclusive results from our preclinical or clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical studies or clinical trials or abandon any or all of our programs;

• product-related side effects experienced by participants in our clinical trials or by individuals using therapeutics similar to our product candidates;

• delays in submitting IND applications or comparable foreign applications, or delays or failures to obtain the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;

• conditions imposed by the U.S.

Food and Drug Administration (“FDA”) or other regulatory authorities regarding the scope or design of our clinical trials;

• delays in enrolling research subjects in clinical trials;

• high drop-out rates of research subjects;

• inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials;

• Chemistry, manufacturing and control (“CMC”) challenges associated with manufacturing and scaling up biologic product candidates to ensure consistent quality, stability, purity and potency among different batches used in clinical trials;

• greater-than-anticipated clinical trial costs;

• poor potency or effectiveness of our product candidates during clinical trials;

• unfavorable FDA or other regulatory authority inspection and review of a clinical trial or manufacturing site;

• delays as a result of the COVID-19 pandemic or events associated with the pandemic;

• failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;

• delays and changes in regulatory requirements, policies and guidelines;

• the FDA or other regulatory authorities interpret our data differently than we do.

A change in the outcome of any of these variables may significantly impact the costs and timing associated with the development of our product candidates.

We may never succeed in obtaining regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions.

Other significant costs include legal fees relating to corporate matters, professional fees for accounting and consulting services and an allocation of facility-related costs.

General and administrative expenses consisted of the following (in thousands):

Three Months Ended

June 30, Six Months Ended

2022 2021 2022 2021

(unaudited) (unaudited) (unaudited) (unaudited)

Personnel-related expenses, including share-based compensation $ 11,533 $ 2,572 $ 15,374 $ 4,620

External services and supplies 1,505 1,482 2,446 3,289

Office and facilities 359 360 643 706

Other 485 140 678 250

Total $ 13,882 $ 4,554 $ 19,141 $ 8,865

We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development, manufacturing activities, and preclinical and clinical activities and to reflect increased costs associated with operating as a public company.

These increased costs will likely include increased expenses for audit, legal, regulatory, tax and related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs.

Other Income (Expense)

Interest Income, net

Interest income, net consists of interest earned on our cash and cash equivalents, and short-term investments, if any, held during the year, net of interest expense.

Change in Fair Value of Contingent Earnout Liability

The change in fair value of the contingent earnout liability that was accounted for as a liability as of the date of the Merger, and is remeasured to fair value at each reporting period, resulting in a non-cash gain or loss.

Gain on Extinguishment of Convertible Notes

Our convertible note was extinguished as part of the Merger and the change in fair value was recorded in earnings.

Change in Preferred Stock Tranche Liability

Our preferred stock tranche liability had been accounted for at fair value with changes in the fair value recorded in earnings at each reporting period through settlement on May 14, 2021.

Results of Operations

We have neither engaged in any operations nor generated any operating revenues to date.

Our only activities to date were organizational activities, those necessary to prepare for our Initial Public Offering, and, after our Initial Public Offering, identifying target companies for a business combination, conducting due diligence on such target companies and negotiating the Business Combination Agreement with Senti, which we anticipate will give effect to our initial business combination.

We do not expect to generate any operating revenues (if any) until after the completion of our initial business combination.

We generate non-operating

income in the form of interest income on cash and cash equivalents held following our Initial Public Offering.

We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance) and we incurred expenses for due diligence in connection with identifying Senti as the target company for our initial business combination.

For the three months ended March 31, 2022, we had a net loss of $1,309,849, which resulted from professional fees and other expenses of $1,282,742 and franchise tax expense of $50,269, partially offset by interest and dividend income on investments in the Trust Account of $23,162.

For the period from March 1, 2021 (inception) through March 31, 2021, we had a net loss of $1,178, which resulted from operating and formation costs of $1,178.

Comparison of the Three Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021 (in thousands):

Three Months Ended

2022 2021 Change

Contract revenue $ 1,108 $ 778 $ 330

Grant income 250 15 235

Total revenue 1,358 793 565

Operating expenses:

Research and development 9,247 5,235 4,012

General and administrative 13,882 4,554 9,328

Total operating expenses 23,129 9,789 13,340

Loss from operations (21,771) (8,996) (12,775)

Other income (expense):

Interest income, net 27 2 25

Change in fair value of contingent earnout liability 8,878 — 8,878

Gain on extinguishment of convertible notes 1,289 — 1,289

Change in preferred stock tranche liability — (2,918) 2,918

Other expense 25 (95) 120

Total other income (expense), net 10,219 (3,011) 13,230

Net loss $ (11,552) $ (12,007) $ 455

Contract revenue .

For the three months ended June 30, 2022 and 2021, we generated revenue from contracts and license agreements of $1.1 million and $0.8 million, respectively.

The increase of $0.3 million was due primarily to a new collaboration agreement entered into in May 2021.

Grant income .

For the three months ended June 30, 2022 and 2021, we generated revenue from grants of $0.3 million and less than $0.1 million, respectively.

The increase of $0.2 million was primarily due to the recognition of revenue related to the Small Business Innovation Research (“SBIR”) SENTI-202 grant funding.

Research and development expenses .

Research and development expenses were $9.2 million and $5.2 million for the three months ended June 30, 2022 and 2021, respectively.

The increase of $4.0 million was primarily due to an increase of $2.0 million in personnel-related expenses, which includes $1.3 million rise of stock-based compensation expense, $1.0 million in professional services costs and $0.9 million in facility costs.

General and administrative expenses .

General and administrative expenses were $13.9 million and $4.6 million for the three months ended June 30, 2022 and 2021, respectively.

The increase of $9.3 million was primarily due to an increase of $9.0 million in personnel-related expenses, which includes $7.4 million rise of stock-based compensation expense.

Change in fair value of contingent earnout liability .

For the three months ended June 30, 2022, the increase of $8.9 million resulted from a non-cash gain related to the remeasurement of the contingent earnout liability.

Gain on extinguishment of convertible notes.

For the three months ended June 30, 2022, we recognized a gain of $1.3 million upon extinguishment of convertible notes.

Change in preferred stock tranche liability .

For the three months ended June 30, 2021, we recognized a loss of $2.9 million as an adjustment to the preferred stock tranche liability.

The adjustment stems primarily from the increase, since the December 31, 2020 measurement date, in management’s estimate of the fair value of our Series B redeemable convertible preferred stock resulting from a decrease in time to liquidity as we drew nearer to completing an exit strategy.

There was no equivalent activity for the three months ended June 30, 2022, as the preferred stock tranches were issued on May 14, 2021.

Comparison of the Six Months Ended June 30, 2022 and 2021

The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):

Six Months Ended

2022 2021 Change

Contract revenue $ 1,962 $ 822 $ 1,140

Grant income 500 43 457

Total revenue 2,462 865 1,597

Operating expenses:

Research and development 16,849 10,138 6,711

General and administrative 19,141 8,865 10,276

Total operating expenses 35,990 19,003 16,987

Loss from operations (33,528) (18,138) (15,390)

Other income (expense):

Interest income, net 31 2 29

Change in fair value of contingent earnout liability 8,878 — 8,878

Gain on extinguishment of convertible notes 1,289 — 1,289

Change in preferred stock tranche liability — (14,742) 14,742

Other expense (30) (131) 101

Total other income (expense), net 10,168 (14,871) 25,039

Net loss $ (23,360) $ (33,009) $ 9,649

Contract revenue .

For the six months ended June 30, 2022 and 2021, we generated revenue from contracts and license agreements of $2.0 million and $0.8 million, respectively.

The increase of $1.1 million was due primarily to a new collaboration agreement entered into in May 2021.

Grant income .

For the six months ended June 30, 2022 and 2021, we generated revenue from grants of $0.5 million and less than $0.1 million, respectively.

The increase of $0.5 million was primarily due to the recognition of revenue related to the SBIR SENTI-202 grant funding.

Research and development expenses .

Research and development expenses were $16.8 million and $10.1 million for the six months ended June 30, 2022 and 2021, respectively.

The increase of $6.7 million was primarily due to an increase of $3.1 million in personnel-related expenses, which includes $1.4 million rise of stock-based compensation expense, $1.8 million in professional services costs and $1.7 million in facility costs.

General and administrative expenses .

General and administrative expenses were $19.1 million and $8.9 million for the six months ended June 30, 2022 and 2021, respectively.

The increase of $10.3 million was primarily due to increases of $10.8 million in personnel-related expenses, which includes $7.5 million rise of stock-based compensation expense, partially offset by a decrease of $0.8 million related to professional, legal and accounting services expenses.

Change in fair value of contingent earnout liability .

For the six months ended June 30, 2022, the increase of $8.9 million resulted from a non-cash gain related to the remeasurement of the contingent earnout liability.

Gain on extinguishment of convertible notes.

For the six months ended June 30, 2022, we recognized a gain of $1.3 million upon extinguishment of convertible notes.

Change in preferred stock tranche liability.

For the six months ended June 30, 2021, we recognized a loss of $14.7 million as an adjustment to the preferred stock tranche liability.

There was no equivalent activity for the six months ended June 30, 2022, as the preferred stock tranches were issued on May 14, 2021.

Liquidity and Capital Resources

On May 28, 2021, we consummated our Initial Public Offering of 23,000,000 shares of Class A Common Stock, including 3,000,000 public shares that were issued pursuant to the underwriter’s exercise, in full, of its over-allotment option, at $10.00 per share, generating gross proceeds of $230,000,000.

Simultaneously with the closing of our Initial Public Offering, our Sponsor purchased an aggregate of 715,500 shares of Class A Common Stock at a price of $10.00 per share (i.e.

the Private Placement Shares), generating gross proceeds of $7,155,000.

A portion of the proceeds from the sale of the Private Placement Shares was added to the net proceeds from our Initial Public Offering held in the Trust Account.

If we do not complete our initial business combination within 24 months of the closing of our Initial Public Offering, the proceeds from the sale of the Private Placement Shares held in the Trust Account will be used to fund the redemption of our Public Shares (subject to the requirements of applicable law).

For the three months ended March 31, 2022, net cash used in operating activities was $492,630, which was primarily due to our net loss of $1,309,849, and non-cash

interest and dividend income on investments held in the trust account of $23,162 offset in part by a changes in working capital accounts of $840,381.

For the period from March 1, 2021 (inception) through March 31, 2021, net cash used in operating activities was $0, which was due to our net loss of $1,178, offset in part by the payment of operating and formation costs by an affiliate of our Sponsor of $150 and changes in working capital of $1,028.

As of March 31, 2022, we had cash of $396,693 held outside the Trust Account.

We intend to use the funds held outside the Trust Account primarily to complete our proposed initial business combination with Senti.

We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less taxes payable and deferred underwriting fees), to complete our initial business combination with Senti.

We may withdraw interest income (if any) to pay franchise and income taxes, if any.

Our annual income tax obligations will depend on the amount of interest and other income earned on the amount held in the Trust Account.

We expect the interest income earned on the amount in the Trust Account (if any) will be sufficient to pay our income taxes.

To the extent that our equity or debt is used, in whole or in part, as consideration to complete our proposed initial business combination with Senti, the remaining amount held in the Trust Account will be used as working capital to finance the operations of Senti, to make other acquisitions and to pursue our growth strategies.

We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business while our initial business combination with Senti is completed.

However, if our estimates of the costs of operating our business during this period are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial business combination.

In order to fund working capital deficiencies or finance transaction costs in connection with our proposed initial business combination with Senti, our sponsor, or an affiliate of our sponsor, or certain of our officers or directors may, but are not obligated to, loan us funds as may be required.

If we complete our initial business combination, we would repay such loaned amounts.

In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment.

Up to $2,000,000 of such loans, if made, may be convertible into shares of the post-business combination entity at a price of $10.00 per share at the option of the lender.

The shares would be identical to the Private Placement Shares.

The terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans.

We do not expect to seek loans from parties other than our Sponsor, affiliates of our Sponsor or our officers or directors as we do not believe third parties would be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.

Sheet Arrangements

We did not have any off-balance

sheet arrangements as of March 31, 2022 and December 31, 2021.

Contractual Obligations

Underwriters Agreement

In connection with our Initial Public Offering, the Company granted the underwriter a 45-day

option to purchase up to 3,000,000 additional shares of Class A Common Stock to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and fees.

The underwriter exercised its over-allotment option in full on May 28, 2021.

The underwriter was paid a cash underwriting fee of $0.20 per share, or $4,600,000 in the aggregate, upon the closing of our Initial Public Offering.

In addition, approximately $0.306 per share, or $7,050,000 in the aggregate, may be payable to the underwriter for deferred underwriting fees (this amount having being reduced from $8,050,000 by $1,000,000 by agreement with the underwriter on December 17, 2021).

The deferred underwriting fee will become payable to the underwriter from the amount held in the Trust Account solely in the event that the Company completes its initial business combination, subject to the terms of the underwriting agreement.

Financial Advisor Agreement

On December 16, 2021, the Company entered into an agreement (the “Financial Advisor Agreement”) with Morgan Stanley & Co.

LLC (“Morgan Stanley”) for financial advisory services in connection with our potential initial business combination with Senti, which services Morgan Stanley had been engaged to provide, and which services Morgan Stanley had provided, since August 4, 2021.

The Financial Advisor Agreement shall terminate automatically on December 16, 2022 unless terminated earlier, with or without cause, by either the Company or Morgan Stanley.

The Company will pay Morgan Stanley a fee of $1,000,000 upon the consummation of our proposed initial business combination with Senti.

Placement Agent Agreement

On September 21, 2021, the Company entered into an agreement (the “Placement Agent Agreement”) with Morgan Stanley, J.P.

Morgan Securities LLC and BofA Securities, Inc.

(together, the “Placement Agents”) for services in connection with the placement of shares of our Class A Common Stock to certain private investors which is anticipated to occur concurrently with the completion our potential initial business combination with Senti.

The Placement Agent Agreement shall terminate automatically on August 28, 2022 unless terminated earlier, with or without cause, by either the Company or any Placement Agent (as to itself only).

The Company will pay to the Placement Agents a total fee equal to 4.0% of the aggregate price at which the shares of our Class A Common Stock are sold to the private investors, which fee shall be payable upon the consummation of the placement of the shares.

Each of the Placement Agents will receive 33.3% of the fee.

Registration Rights

The holders of the Founder Shares, Private Placement Shares and any Class A Common Stock issuable upon conversion of any working capital loans from our Sponsor, officers or directors have registration rights pursuant to a registration and stockholder rights agreement signed in connection with our Initial Public Offering.

The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities.

In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of our initial business combination.

The Company will bear the expenses incurred in connection with the filing of any such registration statements.

In addition, it is anticipated that each signatory to the Investor Rights Agreement, other than the Company, will be granted certain registration rights with respect to their respective shares of Class A Common Stock.

Further, shares of Class A Common Stock issued to the private investors making Subscriptions will have registration rights pursuant to the Subscription Agreements following the consummation of the proposed business combination with Senti.

Business Combination Agreement

As set forth in Note 1 of the accompanying financial statements, we have entered into the Business Combination Agreement with Merger Sub and Senti pursuant to which, among other things, Merger Sub will merge with and into Senti, with Senti surviving as a wholly-owned subsidiary of the Company.

We have also entered into various ancillary transaction documents to give effect to the Merger, which are described throughout this Quarterly Report.

Critical Accounting Policies

The preparation of unaudited condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and income and expenses during the periods reported.

Actual results could materially differ from those estimates.

We have identified the following critical accounting policies:

Net Loss Per Common Share

Net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period.

Class A Common Stock Subject to Possible Redemption

We account for our Class A Common Stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity

Shares of Class A Common Stock subject to mandatory redemption are classified as a liability instrument and measured at fair value.

Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity.

At all other times, common stock is classified as stockholders’ equity.

Our Class A Common Stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events.

Accordingly, Class A Common Stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our unaudited condensed consolidated balance sheet.

Immediately upon the closing of the Initial Public Offering, the Company recognized the remeasurement from initial book value to redemption amount value.

The change in the carrying value of the redeemable Class A Common Stock subject to possible redemption resulted in charges against additional paid-in

capital and accumulated deficit.

Recent Accounting Standards

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed consolidated financial statements.

Sources of Liquidity

From inception to June 30, 2022, we raised aggregate gross proceeds of $158.1 million from the issuance of shares of our redeemable convertible preferred stock and the issuance of convertible notes.

In connection with the Merger, the Company received $140.7 million in proceeds from the Merger and related PIPE Financing, including the Bayer convertible note cancellation and exchange.

We do not have any products approved for sale and have not generated any revenue from product sales or otherwise.

We have incurred net losses and negative cash flows from operations since our inception and anticipate we will continue to incur net losses for the foreseeable future.

As of June 30, 2022, we had $139.8 million in cash and cash equivalents, and an accumulated deficit of $138.4 million, respectively.

We will need substantial additional funding to support our continuing operations and pursue our development strategy.

Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions.

Adequate funding may not be available to us on acceptable terms, if at all.

Should we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our product candidates or delay our efforts to expand our product pipeline.

We may also be required to sell or license to other parties’ rights to develop or commercialize our product candidates that we would prefer to retain.

The following table sets forth a summary of our cash flows for each of the periods indicated (in thousands):

Six Months Ended

Net cash from operating activities $ (15,754) $ (13,859)

Net cash from investing activities (18,640) (626)

Net cash from financing activities 118,160 67,925

Net change in cash and cash equivalents $ 83,766 $ 53,440

Operating Activities

For the six months ended June 30, 2022, net cash used in operating activities of $15.8 million was primarily due to our loss of $23.4 million with non-cash adjustments of $9.9 million for stock-based compensation expense, $8.9 million for the change in fair value of the contingent earnout liability, $1.9 million for depreciation and amortization of operating lease right-of-use-assets and $1.3 million for gain on extinguishment of convertible notes.

Other material changes comprised of $7.9 million increase in operating lease liabilities, offset by $1.4 million decrease in accounts payable and accrued and other current liabilities and as well as a $1.0 million decrease in deferred revenue.

For the six months ended June 30, 2021, net cash used in operating activities of $13.9 million was primarily due to our net loss of $33.0 million with non-cash adjustments of $14.7 million for an increase in our preferred stock tranche liability, $2.7 million increase in deferred revenue and $1.6 million for an increase in accounts payable and accrued expenses.

Investing Activities

For the six months ended June 30, 2022 and 2021, net cash used in investing activities of $18.6 million and $0.6 million respectively, was entirely due to purchases of property and equipment.

Financing Activities

For the six months ended June 30, 2022, net cash provided by financing activities of $118.2 million was primarily due to $112.5 million proceeds received from Merger and related PIPE financing activities, net of transaction cost, $5.2 million from issuance of convertible notes and $0.5 million from the issuance of common stock upon exercise of stock options.

For the six months ended June 30, 2021, net cash provided by financing activities of $67.9 million was primarily due to proceeds received of $67.0 million from the issuance of our Series B redeemable convertible preferred stock, $1.5 million from the issuance of common stock upon exercise of stock options and $0.5 million from the payment of deferred offering costs.

Funding Requirements

Based upon our current operating plans, we believe that our existing cash and cash equivalents will be sufficient to fund our operations for the next twelve months from the date of this Quarterly Report.

We anticipate that we will continue to seek additional funding, though the precise timing of such may prove uncertain.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

Our assumptions may prove to be inaccurate, and we could deplete our capital resources sooner than we expect.

Additionally, the process of testing and manufacturing product candidates in preclinical studies and clinical trials is costly and the timing and expenses in these trials are uncertain.

Our future capital requirements will depend on many factors, including:

• the scope, rate of progress, results and costs of drug discovery, preclinical development, laboratory testing and clinical trials for our product candidates;

• the number and development requirements of product candidates that we may pursue, and other indications for our current product candidates that we may pursue;

• the costs, timing and outcome of regulatory review of our product candidates;

• the scope and costs of constructing and operating our planned cGMP facility and any commercial manufacturing activities;

• the cost associated with commercializing any approved product candidates;

• the cost and timing of developing our ability to establish sales and marketing capabilities, if any;

• the costs of preparing, filing and prosecuting patent applications, maintaining, enforcing and protecting our intellectual property rights, defending intellectual property-related claims and obtaining licenses to third-party intellectual property;

• the timing and amount of any milestone and royalty payments we are required to make under our present or future license agreements;

• our ability to establish and maintain collaborations on favorable terms, if at all;

• the extent to which we acquire or in-license other product candidates and technologies and associated intellectual property.

In order to improve our liquidity, management is actively pursuing additional financing.

We expect our expenses to increase substantially in connection with ongoing activities, particularly as we advance our preclinical activities and clinical trials for our product candidates in development.

Accordingly, we will need to obtain substantial additional funding for continuing operations.

If we are unable to raise capital when needed, or on attractive terms, we could be forced to delay, reduce or eliminate our research or drug development programs or any future commercialization efforts.

Although management continues to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all.

Contractual Obligations and Commitments

On June 3, 2021, we entered into a lease agreement for a new cGMP facility in Alameda, California to support planned initial clinical trials for our product candidates.

The lease will expire in 2032 with future undiscounted operating lease payments of $46.0 million over an initial lease period of eleven years.

See Note 6 - Operating Leases for details on our lease obligations.

In 2021, we began construction of the cGMP facility.

As of June 30, 2022, we have paid $17.9 million in construction costs of the $35.5 million purchase commitment.

The agreements with the construction company provide for termination following a certain period after notice.

Upon termination we will be responsible for payment for work performed to date.

During the year ended December 31, 2021, we entered into a three-year collaboration and option agreement with BlueRock Therapeutics LP (“BlueRock”) under which the Company granted BlueRock an option to execute an exclusive or non-exclusive license to develop, manufacture and commercialize cell therapy products (See Part I, Item 1, Notes to Condensed Consolidated Financial Statements (Unaudited), Note 14 - Related Parties for details into the BlueRock agreement).

In consideration for the option, the Company is responsible for up to $10.0 million in research and development costs and expenses associated with the collaboration plan incurred over the three-year term.

We have also entered into license agreements under which we are obligated to make annual maintenance payments of $0.1 million and specified milestone and royalty payments.

Milestone and royalty payment obligations under these agreements are contingent upon future events, such as our achievement of specified development, regulatory, and sales milestones, or generating product sales.

As of June 30, 2022, we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales.

We have entered into sponsored research agreements under which we are obligated to pay $0.7 million, $0.8 million and $0.2 million in 2022, 2023 and 2024, respectively.

Following the Closing, 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.

Refer to Note 3, Stockholders’ Equity (Deficit), for further details of the contingent earnout.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles, or GAAP.

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes.

On an ongoing basis, we evaluate our estimates and judgments.

We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements.

We define our critical accounting policies as those under U.S.

GAAP that require us to make subjective estimates and judgments about matters that are inherently uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles.

Other than the new critical accounting policy and estimate discussed below, there have been no material changes to our critical accounting policies and estimates as compared to those described in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in our Current Report on Form 8-K dated June 8, 2022, which was filed with the SEC on June 15, 2022.

Contingent Earnout Liability

In connection with the Reverse Recapitalization, Legacy Senti equity holders are entitled to receive as additional merger consideration of up to 2,000,000 shares of our common stock in the aggregate, in two equal tranches of 1,100,000 shares of common stock per tranche, for no consideration upon the occurrence of certain triggering events, including a change of control event.

In accordance with ASC 815-40, Derivatives and Hedging , as certain terms of the Contingent Earnout Shares were not indexed to the common stock, they were accounted for as a liability 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 comprehensive loss.

The estimated fair value of the Contingent Earnout Shares was determined using a Monte Carlo simulation valuation model using a distribution of potential outcomes.

The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including our current common stock price, expected volatility, risk-free rate, expected term and expected dividend yield.

The common stock price was based on the closing price of our common stock as reported on the date at the Reverse Recapitalization and each reporting date.

Historically, we have been a private company and lack company-specific and implied volatility information of our common stock.

Therefore, we estimated our expected volatility based on the historical volatility of a representative group of public companies in the biotechnology industry for the expected terms.

The risk-free rate was determined by reference to the U.S.

Treasury yield curve for time periods approximately equal to the expected term of the Contingent Earnout Shares.

The expected dividend yield was 0% based on the fact that we have never paid or declared dividends.

The risk free rate and expected volatility requires significant judgment and actual results can differ from assumed and estimated amounts.

Emerging Growth Company Status

The Jumpstart Our Business Startups Act (“JOBS”) Act permits an emerging growth company to take advantage of an extended transition to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies.

The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act, and has elected to not take advantage of the benefits of this extended transition period.

We expect to remain an emerging growth company until the earlier of:

(1) the last day of the fiscal year (a) following the fifth anniversary of the closing of the Dynamics Initial Public Offering (“IPO”) (which occurred on May 25, 2021), (b) in which we have total annual revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter and our net sales for the year exceed $100 million;

and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding, rolling three-year period.

Smaller Reporting Company Status

The Company is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K.

Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements.

We will remain a smaller reporting company if (1) the market value of our common stock held by non-affiliates is less than $250 million as of the last business day of the second fiscal quarter, or (2) our annual revenues in our most recent fiscal year completed before the last business day of our second fiscal quarter are less than $100 million and the market value of our common stock held by non-affiliates is less than $700 million as of the last business day of the second fiscal quarter.

Segment Information

We have one business activity and operate in one reportable segment.

Quantitative and Qualitative Disclosures About Market Risk

This item is not applicable as we are a smaller reporting company.

As a “smaller reporting company,” we are not required to provide this information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis