Senti Biosciences Holdings, Inc. 10-Q

Item 1. FINANCIAL STATEMENTS (UNAUDITED) SENTI BIOSCIENCES, INC. Condensed Consolidated Balance Sheets (unaudited) (in thousands, except share and per share data) June 30, December 31, 2022 2021 Assets Cash and cash equivalents $ 139,800 $ 56,034 Trade and other receivables 573 483 Prepaid expenses and other current assets 3,546 3,676 Total current assets 143,919 60,193 Restricted cash 3,257 3,257 Property and equipment, net 35,505 12,368 Operating lease right-of-use assets 19,474 20,708 Other long-term assets 207 176 Total assets $ 202,362 $ 96,702 Liabilities and Stockholders’ Equity (Deficit) Accounts payable $ 5,755 $ 5,187 Early exercise liability, current portion 297 626 Deferred revenue 833 1,656 Accrued expenses and other current liabilities 9,056 5,331 Operating lease liabilities 1,857 1,743 Total current liabilities 17,798 14,543 Operating lease liabilities, net of current portion 29,018 20,988 Contingent earnout liability 810 — Early exercise liability, net of current portion 470 619 Deferred revenue, net of current portion — 176 Total liabilities 48,096 36,326 Commitments and contingencies (Note 13) Redeemable convertible preferred stock (A and B), $ 0.0001 par value; zero and 19,517,990 shares authorized at June 30, 2022 and December 31, 2021; zero and 19,517,988 shares issued and outstanding at June 30, 2022 and December 31, 2021; aggregate liquidation preference of zero and $ 163.8 million at June 30, 2022 and December 31, 2021, respectively — 171,833 Stockholders’ equity (deficit): Preferred stock, $ 0.0001 par value; 10,000,000 and zero shares authorized at June 30, 2022 and December 31, 2021; zero and zero shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively — — Common stock, $ 0.0001 par value; 500,000,000 and 27,006,600 shares authorized at June 30, 2022 and December 31, 2021; 43,368,270 and 2,972,409 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively 4 — Additional paid-in capital 292,698 3,619 Accumulated deficit ( 138,436 ) ( 115,076 ) Total stockholders’ equity (deficit) 154,266 ( 111,457 ) Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit) $ 202,362 $ 96,702 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents SENTI BIOSCIENCES, INC. Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) (in thousands, except share and per share data) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenue Contract revenue $ 1,108 $ 778 $ 1,962 $ 822 Grant income 250 15 500 43 Total revenue 1,358 793 2,462 865 Operating expenses Research and development 9,247 5,235 16,849 10,138 General and administrative 13,882 4,554 19,141 8,865 Total operating expenses 23,129 9,789 35,990 19,003 Loss from operations ( 21,771 ) ( 8,996 ) ( 33,528 ) ( 18,138 ) Other income (expense) Interest income, net 27 2 31 2 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 ) — ( 14,742 ) Other income (expense) 25 ( 95 ) ( 30 ) ( 131 ) Total other income (expense), net 10,219 ( 3,011 ) 10,168 ( 14,871 ) Net loss and comprehensive loss $ ( 11,552 ) $ ( 12,007 ) $ ( 23,360 ) $ ( 33,009 ) Net loss per share, basic and diluted $ ( 0.86 ) $ ( 4.13 ) $ ( 2.80 ) $ ( 11.45 ) Weighted-average shares outstanding, basic and diluted 13,446,622 2,909,105 8,336,451 2,883,582 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents SENTI BIOSCIENCES, INC. Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) (in thousands, except share data) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance as of December 31, 2020 11,536,136 $ 89,662 2,838,376 $ — $ 1,044 $ ( 59,757 ) $ ( 58,713 ) Issuance of Series B redeemable convertible preferred stock, net of preferred stock tranche liability of $ 33 thousand and issuance costs of $ 6 thousand 277,977 2,294 — — — — — Issuance of common stock — — 563,460 — 1,432 — 1,432 Early exercise of common stock options — — ( 512,670 ) — ( 1,329 ) — ( 1,329 ) Stock-based compensation — — — — 372 — 372 Net loss — — — — — ( 21,002 ) ( 21,002 ) Balance as of March 31, 2021 11,814,113 91,956 2,889,166 — 1,519 ( 80,759 ) ( 79,240 ) Issuance of Series B redeemable convertible preferred stock, including extinguishment of preferred stock tranche liability of $ 15.2 million 7,703,875 79,877 — — — — — Issuance of common stock — — 12,891 — 21 — 21 Vesting of early exercise of common stock options — — 13,099 — 28 — 28 Stock-based compensation — — — — 562 — 562 Net loss — — — — — ( 12,007 ) ( 12,007 ) Balance as of June 30, 2021 19,517,988 $ 171,833 2,915,156 $ — $ 2,130 $ ( 92,766 ) $ ( 90,636 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents SENTI BIOSCIENCES, INC. Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) (in thousands, except share data) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance as of December 31, 2021 19,517,988 $ 171,833 2,972,409 $ — $ 3,619 $ ( 115,076 ) $ ( 111,457 ) Issuance of common stock — — 172,606 — 422 — 422 Vesting of early exercise of common stock options — — 143,524 — 375 — 375 Stock-based compensation — — — — 661 — 661 Net loss — — — — — ( 11,808 ) ( 11,808 ) Balance as of March 31, 2022 19,517,988 171,833 3,288,539 — 5,077 ( 126,884 ) ( 121,807 ) Conversion of redeemable convertible preferred stock into common stock in connection with the Reverse Recapitalization, net of transaction costs ( 19,517,988 ) ( 171,833 ) 19,517,988 2 171,833 — 171,835 Issuance of common stock upon Reverse Recapitalization, net of transaction costs — — 19,975,963 2 112,180 — 112,182 Contingent earnout liability recognized upon closing of the Reverse Recapitalization — — — — ( 9,688 ) — ( 9,688 ) Cancellation and exchange of convertible note in connection with Reverse Capitalization — — 517,500 — 5,184 — 5,184 Gain recognized on fair value of embedded derivative after cancellation and exchange of convertible note — — — — ( 1,289 ) — ( 1,289 ) Vesting of early exercised options — — 41,047 — 102 — 102 Stock-based compensation — — — — 9,225 — 9,225 Exercise of options of common stock — — 27,233 — 74 — 74 Net loss — — — — — ( 11,552 ) ( 11,552 ) Balance as of June 30, 2022 — $ — 43,368,270 $ 4 $ 292,698 $ ( 138,436 ) $ 154,266 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents SENTI BIOSCIENCES, INC. Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Six Months Ended June 30, 2022 2021 Cash flows from operating activities Net loss $ ( 23,360 ) $ ( 33,009 ) Adjustments to reconcile net loss to net cash from operating activities: Depreciation 512 347 Amortization of operating lease right-of-use assets 1,433 757 Gain on extinguishment of convertible notes ( 1,289 ) — Change in fair value of contingent earnout liability ( 8,878 ) — Change in preferred stock tranche liability — 14,742 Stock-based compensation expense 9,886 934 Loss on write-off of fixed assets 13 — Other non-cash charges 8 — Changes in assets and liabilities: Accounts receivable ( 90 ) ( 345 ) Prepaid expenses and other assets ( 1,372 ) ( 779 ) Accounts payable 234 910 Accrued expenses and other current liabilities 203 649 Deferred revenue ( 999 ) 2,663 Operating lease liabilities 7,945 ( 728 ) Net cash from operating activities ( 15,754 ) ( 13,859 ) Cash flows from investing activities Purchases of property and equipment ( 18,640 ) ( 626 ) Net cash from investing activities ( 18,640 ) ( 626 ) Cash flows from financing activities Proceeds from Merger and related Pipe financing, net of transaction costs 112,464 — Proceeds from issuance of common stock upon exercise of stock options 521 1,453 Proceeds from issuance of convertible notes 5,175 — Proceeds from issuance of Series B redeemable convertible preferred stock, net of issuance costs — 66,952 Payment of deferred offering costs — ( 480 ) Net cash from financing activities 118,160 67,925 Net change in cash and cash equivalents 83,766 53,440 Cash, cash equivalents, and restricted cash, beginning of the year 59,291 31,034 Cash, cash equivalents, and restricted cash, end of the year $ 143,057 $ 84,474 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents 139,800 82,942 Restricted Cash 3,257 1,532 Total cash, cash equivalents and restricted cash 143,057 84,474 Supplemental disclosures of noncash financing and investing items Purchase of property and equipment in accounts payable and accrued expenses 9,371 427 Recognition of Series B preferred stock tranche liability — 33 Extinguishment of Series B preferred stock tranche liability — 15,210 5 Table of Contents Six Months Ended June 30, 2022 2021 Merger and related PIPE financing costs included in accounts payable and accrued expenses 263 — Deferred transaction costs related to pending business combination in accounts payable and accrued expenses — 1,161 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Organization and Description of Business Senti Biosciences, Inc. and its subsidiaries, (the “Company” or “Senti”), is a biotechnology company that was founded to create a new generation of smarter medicines that outmaneuver complex diseases using novel and unprecedented approaches. Senti Bio has built a synthetic biology platform that enables it to program next-generation cell and gene therapies with what we refer to as “gene circuits.” These gene circuits, which are created from novel and proprietary combinations of DNA sequences, reprogram cells with biological logic to sense inputs, compute decisions and respond to their cellular environments. The Company is headquartered in South San Francisco, California. On June 8, 2022 (the “Closing Date”), Dynamics Special Purpose Acquisition Corp. (“Dynamics”or “DYNS”) consummated a merger pursuant to which Explore Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and wholly owned subsidiary of Dynamics, merged with and into Senti Sub I, Inc. (formerly named Senti Biosciences, Inc. (“Legacy Senti”), with Legacy Senti surviving as a wholly-owned subsidiary of Dynamics (such transactions, the “Merger,” and, collectively with the other transactions described in the merger agreement (as defined below, the “Reverse Recapitalization”). As a result of the Merger, Dynamics was renamed Senti Biosciences, Inc. Refer to Note 3, Reverse Recapitalization, for further details of the Merger. Liquidity and Going Concern The Company has devoted substantially all of its efforts to organizing and staffing, business planning, raising capital, and conducting preclinical studies and has not realized substantial revenues from its planned principal operations. To date, the Company has financed its operations primarily through a Reverse Recapitalization, the sale of equity securities and convertible debt and, to a lesser extent, through collaboration agreements and governmental grants. At June 30, 2022 and December 31, 2021, the Company had an accumulated deficit of 138.4 million and 115.1 million, respectively. The Company’s net losses were $ 23.4 million and $ 33.0 million for the six months ended June 30, 2022 and 2021, respectively. Substantially all of the Company’s net losses resulted from costs incurred in connection with the Company’s research and development programs and from general and administrative costs associated with the Company’s operations. The Company expects to incur substantial operating losses and negative cash flows from operations for the foreseeable future as the Company advances its preclinical activities and clinical trials for its product candidates in development . As of June 30, 2022, the Company had cash, cash equivalents and restricted cash of $ 143.1 million. Based on the cash and cash equivalents on hand, the Company believes its combined cash and cash equivalents will be sufficient to fund operations, including clinical trial expenses and capital expenditure requirements, for at least 12 months from the issuance date of these interim financial statements. The Company’s continued existence is dependent upon management’s ability to develop profitable op erations. Management is devoting substantially all of its efforts to developing its business and raising capital and there can be no assurance that the Company’s efforts will be successful. No assurance can be given that management’s actions will result in profitable operations or the meeting of ongoing liquidity needs. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the accounts of Senti Biosciences, Inc., and its 7 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. We have one business activity and operate in one reportable segment. Unless otherwise noted, the Company has retroactively adjusted all common and preferred share and related price information to give effect to the exchange ratio established in the Merger Agreement. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the valuation of stock-based awards, the accrual for research and development expenses, the valuation of contingent earnout, the valuation of convertible notes, the valuation of common and redeemable convertible preferred stock, the valuation of preferred stock tranche liability, standalone selling price (“SSP”) and the determination of the incremental borrowing rate. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates. Unaudited Interim Condensed Consolidated Financial Statements The accompanying interim condensed consolidated financial statements and the related footnote disclosures are unaudited. These unaudited interim financial statements have been prepared on the same basis as the audited financial statements, and in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2022 and its results of operations for the three and six months ended June 30, 2022 and 2021, and cash flows for the six months ended June 30, 2022 and 2021. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or any other period. The December 31, 2021 year-end condensed consolidated balance sheet was derived from audited annual financial statements but does not include all disclosures from the annual financial statements. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2021 and the related notes included in the Company’s Registration Statement on Form S-1, filed with the SEC on June 28, 2022, and amended on July 29, 2022, which provides a more complete discussion of the Company’s accounting policies and certain other information. There have been no material changes to the Company’s significant accounting policies as of and for the three and six months ended June 30, 2022, as compared to the significant accounting policies described in the Company’s audited annual consolidated financial statements as of and for the year ended December 31, 2021, except as discussed below. Contingent Earnout Equity In connection with the Reverse Recapitalization and pursuant to the Merger dated as of June 8, 2022 by and among the Merger Sub and Legacy Senti, former holder of the Legacy Senti common stock and Legacy Senti preferred stock are entitled to receive as additional consideration of up to 2,000,000 shares of the Company’s Common Stock (the “Contingent Earnout Shares”), comprised of two separate tranches of 1,000,000 shares per tranche, for no consideration upon the achievement of certain share price milestones within a period of two and three years . If there is a change of control within the three-year period following the closing of the Merger that results in a per share price equal to or in excess of certain share price milestones not previously met, then the Company shall issue the earnout shares to the holders of Legacy Senti common stock and preferred stock. In accordance with ASC 815-40, Derivatives and Hedging , as certain terms of the contingent earnout shares were not indexed to the common stock, equity treatment is precluded and liability classification is required at the Reverse Recapitalization date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other (expense) income, net in the condensed consolidated statements of operations and comprehensive loss. A portion of 8 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) the earnout shares were granted to holders of Legacy Senti common stock that are subject to repurchase so was accounted for as stock-based compensation and as of the date of the Merger and expensed as there was no remaining service period. The estimated fair value of the Contingent Earnout Shares was determined using a Monte Carlo simulation using a distribution of potential outcomes on a monthly basis over a three-year period prioritizing the most reliable information available. The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including the current Company common stock price, expected volatility, risk-free rate, expected term and expected dividend yield. 3. Reverse Recapitalization On June 8, 2022, Merger Sub, a wholly-owned subsidiary of Dynamics, merged with Legacy Senti, with Legacy Senti surviving as a wholly-owned subsidiary of Dynamics. At the effective time of the Merger: • each outstanding share of Legacy Senti common stock was converted into approximately 0.1957 shares of the Company’s common stock; • each outstanding share of preferred stock of Legacy Senti was cancelled and converted into the aggregate number of shares of the Company’s common stock that would be issued upon conversion of the shares of Legacy Senti preferred stock based on the applicable conversion ratio immediately prior to the effective time, multiplied by approximately 0.1957 ; • each outstanding option to purchase Legacy Senti’s common stock was converted into an option to purchase a number of shares of the Company’s common stock equal to the number of shares of Legacy Senti common stock subject to such option multiplied by approximately 0.1957 , rounded down to the nearest whole share, at an exercise price per share equal to the current exercise price per share for such option divided by approximately 0.1957 , rounded up to the nearest whole cent; and • all shares of Dynamics Class A common stock were redesignated as common stock, par value $ 0.0001 per share, of the Company. Former holders of the Legacy Senti common stock and preferred stock are eligible to receive up to an aggregate of 2.0 million additional shares of the Company’s common stock in the aggregate in two equal tranches of 1.0 million shares if the volume-weighted average closing sale price of the common stock is greater than or equal to $ 15.00 and $ 20.00 , respectively, for any 20 trading days within any 30 consecutive trading day period. The first and second tranche term is two and three years , respectively, from the closing of the Merger. If there is a change of control within the three-year period following the closing of the Merger that results in a per share price equal to or in excess of the $ 15.00 and $ 20.00 share price milestones not previously met, then the Company shall issue the earnout shares to the holders of Legacy Senti common stock and preferred stock. Refer to Note 8, Stockholders’ Equity (Deficit) , for further details of the contingent earnout liability. In association with the Merger, Dynamics entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “PIPE Investors”). Pursuant to the Subscription Agreements, the PIPE Investors purchased an aggregate of 5,060,000 shares of the Company’s common stock (the “PIPE Shares”) in a private placement at a price of $ 10.00 per share for an aggregate purchase price of $ 50.6 million (the “PIPE Financing”). The PIPE Financing was consummated in connection with the Merger. Concurrently with the closing of the Merger, the unsecured convertible promissory note (the “May 2022 Note”) in the principal amount of $ 5.2 million that was previously issued by Legacy Senti to Bayer Healthcare LLC (“Bayer”) on May 19, 2022 was automatically cancelled and exchanged for 517,500 shares of Class A Common Stock (the “Note Exchange”) at a price of $ 10.00 per share. The shares of Class A Common Stock issued in the Note Exchange are entitled to the same registration rights granted to the PIPE Investors with respect to the PIPE Shares. Refer to Note 7, Convertible Note , for further details of the convertible note. 9 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) The number of shares of the Company’s common stock outstanding immediately following the consummation of the Merger was: Shares Owned by Dynamics’ stockholders 14,915,963 Issued to PIPE Investors 5,060,000 Issued to Bayer in connection with convertible note cancellation and exchange 517,500 Issued to Legacy Senti stockholders 23,163,614 (1) Early exercised shares subject to repurchase ( 288,807 ) Total shares of common stock immediately after Merger 43,368,270 ________________ (1) Includes 19,517,988 shares of common stock issued upon conversion of Legacy Senti’s redeemable convertible preferred stock. The Merger is accounted for as a reverse recapitalization in accordance with U.S. GAAP. Under this method of accounting, Dynamics is treated as the acquired company for financial reporting purposes and Legacy Senti is treated as the acquiror. This determination is primarily based on the fact that subsequent to the Merger, the Legacy Senti stockholders hold a majority of the voting rights of the combined company, Legacy Senti comprises all of the ongoing operations of the combined company, Legacy Senti comprises a majority of the carryover governing body of the combined company, and Legacy Senti’s senior management comprises all of the senior management of the combined company. Accordingly, for accounting purposes, the Merger was treated as the equivalent of Legacy Senti issuing shares for the net assets of Dynamics, accompanied by a recapitalization. The net assets of Dynamics were stated at historical costs. No goodwill or other intangible assets were recorded. Operations prior to the Merger are those of Legacy Senti. In connection with the Merger, the Company received $ 140.7 million in proceeds from the Merger and related PIPE Financing, including the Bayer convertible note cancellation and exchange. The Company incurred $ 23.3 million of transaction costs, consisting of banking, legal, and other professional fees, which was recorded as a reduction of proceeds to additional paid-in capital. In addition, there were $ 0.3 million of unpaid transaction costs included in accounts payable and accrued expenses as of June 30, 2022. 4. Fair Value Measurements The following tables summarize the estimated value of cash equivalents and restricted cash (in thousands): June 30, 2022 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash equivalents: Money market fund $ 139,800 $ — $ — $ 139,800 Restricted cash: Money market fund 3,257 — — 3,257 Total $ 143,057 $ — $ — $ 143,057 10 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) December 31, 2021 Amortized Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash equivalents: Money market fund $ 56,034 $ — $ — $ 56,034 Restricted cash: Money market fund 3,257 — — 3,257 Total $ 59,291 $ — $ — $ 59,291 Financial assets and liabilities measured and recognized at fair value are as follows (in thousands): June 30, 2022 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market fund $ 139,800 $ — $ — $ 139,800 Restricted cash: Money market fund 3,257 — — 3,257 Total Assets $ 143,057 $ — $ — $ 143,057 Liabilities: Contingent earnout liability $ — $ — $ 810 $ 810 Total Liabilities $ — $ — $ 810 $ 810 December 31, 2021 Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market fund $ 56,034 $ — $ — $ 56,034 Restricted cash: Money market fund 3,257 — — 3,257 Total Assets $ 59,291 $ — $ — $ 59,291 No securities have contractual maturities of longer than one year. There were no transfers between Levels 1, 2, or 3 for any of the periods presented. The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial instruments (in thousands): Contingent Earnout Liability Fair value as of December 31, 2021 $ — Contingent earnout liability recognized upon the closing of the reverse recapitalization ( 9,688 ) Change in fair value included in other income (expense) 8,878 Fair value as of June 30, 2022 $ ( 810 ) The fair value of the Contingent Earnout Liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. 11 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) In determining the fair value of the Contingent Earnout Liability, the Company used the 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 (see Note 8). Preferred Stock Tranche Liability The subsequent fair values of the preferred stock tranche liability recognized in connection with the issuance of Series B redeemable convertible preferred stock financing were determined with the assistance of a third-party valuation specialist using significant inputs not observable in the market which constitute Level 3 measurements within the fair value hierarchy. The following reflects the significant quantitative inputs used in the valuation of the preferred stock tranche liability as of December 31, 2020 using a Monte Carlo valuation model and/or Black-Scholes option pricing model: December 31, 2020 Subsequent Measurement Dates Tranche Features 2 and 3 Call Option Tranche 2 and 3 Forward Contracts Estimated fair value of Series B redeemable convertible preferred stock (1) $ 1.62 $ 1.62 Discount rate 0.11 % 0.11 % Time to liquidity (years) 0.5 0.5 Expected volatility 73.8 % N/A Probability of call option and forward contract 10 % 90 % Strike Price $ 1.6427 $ 1.6427 Value of each tranche feature $ 0.326 $( 0.023 ) _______________ (1) Fair value of the Series B redeemable convertible preferred stock was estimated using the Backsolve method. The weighted-average fair value of the tranche features on a per share basis was $ 0.012 as of December 31, 2020 for a preferred stock tranche liability of $ 0.4 million as of December 31, 2020. In January 2021, the Company issued additional Series B redeemable convertible preferred stock and recorded an addition to the tranche liability of $ 33 thousand in recognition of the obligation to sell additional shares at a fixed price in the event that certain agreed-upon milestones are achieved or at the election of investors. The following reflects the significant quantitative inputs used in the valuation of the preferred stock tranche liability as of March 31, 2021 using a Black-Scholes pricing model and a scenario analysis: March 31, 2021 Tranche 2 Tranche 3 (Public) Tranche 3 (Staying Private) Forward Call No Value Call Forward No Value Estimated fair value of Series B redeemable convertible preferred stock (1) $ 2.0796 $ 2.3386 N/A $ 1.3023 $ 1.3023 N/A Discount rate 0.03 % 0.05 % N/A 0.06 % 0.06 % N/A Time to liquidity (years) 0.08 0.5 N/A 0.75 0.75 N/A Probability of call option and forward contract 100.0 % 25.0 % 75.0 % 45.0 % 5.0 % 50.0 % Strike price $ 1.6427 $ 1.6427 N/A $ 1.6427 $ 1.6427 N/A Expected volatility N/A 80.00 % N/A 80.00 % N/A N/A Value of each tranche feature $ 0.437 $ 0.873 $ — $ 0.251 $( 0.340 ) $ — Total value of tranche feature (in millions) $ 8.6 $ 4.3 $ 1.9 12 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) _______________ (1) Fair value of the Series B redeemable convertible preferred stock for Tranche 3 was estimated using guideline IPO transactions for the public scenario and the Black-Scholes based option pricing model for the staying-private scenario, and for Tranche 2 was based on a weighting of the public and staying-private scenarios used for Tranche 3. The total value of Tranche 2 was determined as a forward contract for a total of $ 8.6 million. The value of Tranche 3 was determined using public company and staying-private scenarios for a total value of $ 4.3 million and $ 1.9 million, respectively. The Company applied a 75 % weighting to the public scenario and a 25 % weighting to the staying-private scenario, resulting in a value of Tranche 3 rights of $ 3.7 million. The weighted average fair value of the tranche feature on a per share basis was $ 0.312 as of March 31, 2021 for a total preferred stock tranche liability of $ 12.3 million resulting in a change in fair value of the preferred stock tranche liability of $ 11.8 million for the three months ended March 31, 2021. In April 2021, the Company’s Board of Directors determined that certain technical milestones within the Series B agreements had been achieved and approved the notice to call tranches 2 and 3, subject to requisite stockholders’ written election and related waivers. The second and third closings occurred on May 14, 2021 and all shares of the Series B redeemable convertible preferred stock were acquired thereby extinguishing the preferred stock tranche liability. The value of the tranche rights acquired on May 14, 2021 was determined using the current value method as both tranches were called by the Company on the valuation date. The following reflects the significant quantitative inputs used in the valuation of the preferred stock tranche liability as of May 14, 2021 using a weighted comparable guideline IPO (high and low) and special purpose acquisition company (“SPAC”) transactions for the public scenario and the Black-Scholes pricing model for the staying private scenario: May 14, 2021 Tranches 2 and 3 Public Scenario Staying Private Scenario Call Call Estimated fair value of Series B redeemable convertible preferred stock $ 2.18 $ 1.58 Scenario weighting 75.0 % 25.0 % Value of each tranche feature $ 1.637 $ 0.395 Weighted-average value of Series B redeemable convertible preferred stock $ 2.032 The difference between the weighted-average value of Series B redeemable convertible preferred stock of $ 2.032 and the strike price of $ 1.6427 is the $ 0.3893 weighted-average fair value of the tranche feature on a per share basis as of May 14, 2021 for a total fair value of $ 15.2 million resulting in a change in fair value of the preferred stock tranche liability of $ 2.9 million for the three months ended June 30, 2021. The following table provides a roll-forward of the change in the preferred stock tranche liability (in thousands): Preferred Stock Tranche Liability Balance as of December 31, 2020 435 Recognition of tranche rights from January 2021 issuance 33 Change in fair value 14,742 Tranche liability extinguishment ( 15,210 ) Balance as of December 31, 2021 $ — 13 Table of Contents 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): June 30, December 31, 2022 2021 Prepaid expenses (including prepaid rent) 2,535 798 Deposits 983 1,157 Reverse Recapitalization deferred offering costs — 1,446 Other 28 275 Total prepaid expenses and other current assets $ 3,546 $ 3,676 Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): June 30, December 31, 2022 2021 Lab equipment $ 6,395 $ 4,988 Leasehold improvements 1,830 431 Computer equipment and software 342 262 Furniture and fixtures 294 294 Construction in progress 28,762 8,048 Property and equipment at cost 37,623 14,023 Less: accumulated depreciation ( 2,118 ) ( 1,655 ) Property and equipment, net $ 35,505 $ 12,368 Depreciation totaled $ 0.5 million and $ 0.3 million for the six months ended June 30, 2022 and 2021, respectively and $ 0.3 million and $ 0.2 million for the three months ended June 30, 2022 and 2021, respectively. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consisted of the following (in thousands): June 30, December 31, 2022 2021 Accrued professional and service fees $ 7,234 $ 2,555 Accrued employee-related expenses 1,799 2,665 Other accrued expenses 23 111 Total accrued expenses and other current liabilities $ 9,056 $ 5,331 6. Operating Leases The Company’s operating leases are primarily for its corporate headquarters located in South San Francisco, California and for additional office and laboratory space located in Alameda, California (“Alameda lease”) that commenced on July 30, 2021. 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 14 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 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 is 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 June 30, Six Months Ended June 30, 2022 2021 2022 2021 Operating lease cost $ 1,325 $ 679 $ 2,650 $ 1,359 Short-term lease cost 27 — 30 — Variable lease cost 182 161 353 404 Total lease cost $ 1,534 $ 840 $ 3,033 $ 1,763 Six Months Ended June 30, 2022 2021 Other information: Operating cash flows net inflows and (outflows) from operating lease $ 6,740 $ ( 1,320 ) Remeasurement of ROU and lease liabilities due to changes in the timing of receipt of lease incentives 199 — Weighted-average remaining lease term 8.2 years 5.8 years Weighted-average discount rate 9.1 % 8.9 % As of June 30, 2022, the Company had received $ 8.1 million of the $ 17.5 million tenant improvements allowance. As of June 30, 2022 and 2021, 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 June 30, 2022, were as follows (in thousands): 2022, for the remainder of the year $ 1,394 2023 6,272 2024 7,265 2025 7,489 2026 7,723 Thereafter 30,230 Total undiscounted lease payments 60,373 Less imputed interest ( 20,137 ) Tenant improvement reimbursements ( 9,361 ) Total lease liabilities $ 30,875 15 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 7. Convertible Note On May 19, 2022, in connection with the Merger, Legacy Senti issued $ 5.2 million in unsecured convertible promissory notes for the purchase price of $ 5.2 million. The May 2022 Note was due May 2024 and interest accrued at an annual rate of 3.0 %. The May 2022 Note was cancellable and exchangeable or convertible under any of the following circumstances: • Automatic conversion upon the closing of the Business Combination Agreement with Dynamics. The outstanding principal under this note shall be cancelled and exchanged automatically into that number of shares of Dynamics common stock as is equal to (a) the entire principal amount under this note divided by (b) $ 10.00 . Upon conversion of this note, any and all accrued interest under this note shall immediately and automatically be cancelled and forgiven. The shares issued upon conversion of this note shall have the same rights and entitlements as the shares issued in connection with the PIPE by Dynamics. • Automatic conversion upon closing of a qualified Initial Public Offering (“IPO”). The note and any accrued unpaid interest shall be automatically converted into shares of the equity securities issued in the qualified IPO at a conversion price equal to the product of (a) 80 %, and (b) the price per share of the Company’s common stock issued to the public in the qualified IPO. • Automatic conversion upon closing of non-qualified financing. The note and any accrued unpaid interest shall be automatically converted into shares of the Company’s equity securities issued in such non-qualified financing at a conversion price per share equal to the product of (a) 80 %, and (b) the lowest per-share selling price of the equity securities issued to other investors in the non-qualified financing. • If the note has not been repaid or previously converted, on or after the maturity date, at the election of the holder, the outstanding balance shall either (a) be repaid in cash in an amount equal to the outstanding principal, or (b) be converted into that number of shares of Legacy Senti’s Series B Preferred Stock equal to the outstanding balance divided by the original issuance price of the Series B Preferred Stock. On June 8, 2022, concurrently with the closing of the Merger, the May 2022 Note was automatically cancelled and exchanged for 517,500 shares of Class A Common Stock at a price of $ 10.00 per share. In accordance with the accounting guidance for an extinguishment of convertible debt instruments with a conversion feature that is separately accounted for as a derivative, the Company determined that the cancellation and exchange should be accounted for as an extinguishment of the May 2022 Note and a gain on extinguishment of $ 1.3 million was recorded at the closing of the Merger and all accrued interest at the time of the Merger was reversed and recorded to additional paid in capital. 8. Stockholders’ Equity (Deficit) Redeemable Convertible Preferred Stock The Company’s redeemable convertible preferred stock consisted of the following as of December 31, 2021 (in thousands, except per share amounts): December 31, 2021 Issue Price Shares Authorized Shares Issued and Outstanding Net Carrying Value Aggregate Liquidation Preference Series A $ 1.6427 6,888,563 6,888,563 $ 57,408 $ 57,822 Series B $ 1.6427 12,629,427 12,629,425 $ 114,425 $ 106,012 Total 19,517,990 19,517,988 $ 171,833 $ 163,834 16 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) In connection with the Merger, all previously issued and outstanding redeemable convertible preferred stock was converted into an equivalent number of shares of common stock of the Company on a one -to-one basis, then multiplied by the Exchange Ratio pursuant to the Merger Agreement. Refer to Note 3, Reverse Recapitalization, for further details of the Merger. 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 redeemable convertible preferred stock with respect to dividend rights and rights upon liquidation, winding up, and dissolution of the Company. Through June 30, 2022, no cash dividends have been declared or paid. At June 30, 2022 and December 31, 2021, the Company was authorized to issue 500,000,000 and 27,006,600 shares of common stock, respectively all at a par value of $ 0.0001 per share, and had reserved the following shares for future issuance: June 30, December 31, 2022 2021 Series A and B redeemable convertible preferred stock — 19,517,988 Unvested early exercised common stock 288,807 473,373 Stock options to purchase common stock 8,779,368 2,291,838 Common stock options available for future grant under stock option plan 2,492,735 717,617 Total 11,560,910 23,000,816 On June 8, 2022, upon the Closing, all of the outstanding redeemable convertible preferred stock was converted to Common Stock pursuant to the conversion rate effective immediately prior to the Merger and the Exchange Ratio and the remaining amount was reclassified to additional paid-in capital. Refer to Note 3, Reverse Recapitalization, for further details of the Merger. 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 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 June 30, 2022. Contingent Earnout Equity 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. 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 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 17 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 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 and recorded as an expense, as there was no remaining service period. The Contingent Earnout Liability was remeasured to fair value as of June 30, 2022, resulting in the recording of a non-cash gain of $ 8.9 million for the three and six months ended June 30, 2022, 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: June 08, 2022 June 30, 2022 Current stock price $ 7.51 $ 1.97 Expected share price volatility 81.0 % 85.0 % Risk-free interest rate 2.94 % 2.99 % Estimated dividend yield 0.0 % 0.0 % Expected term (years) 3.0 3.0 9. Revenue The Company’s revenue consists of amounts received related to research services provided to customers. Contract Revenue In May 2019, the Company entered into a collaborative development agreement. The Company determined that the agreement contained three distinct promises; research and development, design services, and intellectual property, which will be accounted for as a single combined performance obligation of research and development services recognized over time. The development agreement included $ 0.3 million of fixed consideration allocated to a single performance obligation and an additional $ 0.3 million of variable consideration. At the inception of the development agreement, it was not probable that a significant reversal of revenue would not occur and therefore the variable consideration was fully constrained. Throughout the development agreement period, several parameters of the research and development services were changed, which increased the uncertainty of achieving the remaining performance obligations. Therefore, in December 2021, the contract asset of $ 0.3 million was reversed due to this increased uncertainty. 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 expects 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. 18 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 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 both collaboration agreements, 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. For the three months ended June 30, 2022 and 2021, the Company recorded revenue, which was previously included in deferred revenue at the beginning of each period, of $ 0.5 million and $ 0.3 million, respectively, and for the six months ended June 30, 2022 and 2021, the Company recorded revenue, which was previously included in the deferred revenue at the beginning of each period, of $ 1.0 million and $ 0.3 million, respectively. Contract asset balances related to unbilled revenue for our collaboration agreements were zero as of June 30, 2022 and 2021, and are presented within prepaid expenses and other current assets on the condensed consolidated balance sheets. Grant Income In 2021, the Small Business Innovation Research (“SBIR”) awarded the Company a grant in the amount of $ 2.0 million over two years subject to meeting certain terms and conditions. The purpose of the grant is to support the further development of SENTI-202 for acute myeloid leukemia towards clinical development. Grant income was recognized when qualified research and development costs were incurred and the Company obtained reasonable assurance that the terms and conditions of the grant were met. Entity-wide information During the three months ended June 30, 2022, Customers A and B accounted for 82 % and 18 %, respectively, of revenue. During the three months ended June 30, 2021, Customers A, B and C accounted for 86 %, 2 % and 12 %, respectively, of revenue. During the six months ended June 30, 2022, Customers A and B accounted for 80 % and 20 %, respectively, of revenue. During the six months ended June 30, 2021, Customer A, B and C accounted for 79 %, 5 % and 16 %, respectively, of revenue. All revenues were generated in the United States for the three and six months ended June 30, 2022 and 2021. 10. Stock-Based Compensation On June 8, 2022, upon the Merger, the Company adopted a 2022 Stock Incentive Plan (the “2022 Plan”) authorizing the grant of incentive stock options (“ISOs”), to employees, including employees of any parent or subsidiary, and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to employees, directors and consultants, including employees and consultants of the Company’s affiliates. As of June 30, 2022, the Company is authorized to issue up to 2,492,735 , of shares of common stock under the 2022 Plan in which the exercise price of an 19 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) ISO and NSO shall not be less than 100 % of the fair market value of a common stock share on the date of grant. The exercise price of an ISO granted to a 10 % stockholder shall not be less than 110 % of the fair value of the common stock share on the date of grant. Stock options awarded under the Plan expire ten years after the grant date. On January 1 of each year commencing January 1, 2023, the 2022 Plan will automatically increase by 5 % of the outstanding number of shares of common stock of the Company on December 31 or such lesser number of shares as approved by the Company’s board of directors. The 2022 Plan replaced the Legacy Senti 2016 Stock Incentive Plan (the “2016 Plan”). As of June 30, 2022 and December 31, 2021, Legacy Senti was authorized to issue up to 12,828,363 of shares of common stock under the 2016 Plan. Following the Merger, no additional stock awards will be granted under the 2016 Plan. All awards previously granted and outstanding as of the effective date of the Merger, were adjusted to reflect the impact of the Merger as described in Note 3, Reverse Recapitalization, but otherwise remain in effect pursuant to their original terms. The shares underlying any award granted under the 2016 Plan that are forfeited back to or repurchased or reacquired by the Company, will revert to and again become available for issuance under the 2022 Plan. The following table summarizes the Company’s stock option activity, excluding performance and market awards: Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 2,291,838 $ 4.39 9.1 $ 11,304 Exercised ( 199,807 ) $ 2.49 — $ — Forfeited ( 424,485 ) $ 2.77 — $ — Outstanding at June 30, 2022 1,667,546 $ 5.02 8.5 $ 9 Vested and exercisable at June 30, 2022 421,763 $ 3.60 7.8 $ 9 Early Exercise of Stock Options into Restricted Stock For the six months ended June 30, 2022 and 2021, the Company issued zero and 512,670 shares of common stock upon exercise of unvested stock options, respectively. As of June 30, 2022 and December 31, 2021, 288,807 and 473,373 shares were held by employees subject to repurchase at an aggregate price of $ 0.8 million and $ 1.2 million, respectively. Performance Awards In connection with the Merger, on December 19, 2021, the Legacy Senti approved 8,400,892 performance awards to existing employees that vest contingent upon the satisfaction of both a four -year service condition and a performance condition tied to the consummation of the Merger. The awards and the associated recognition of stock-based compensation were contingent on the Merger being consummated. As of the approval date of the performance awards, Legacy Senti did not have sufficient common stock available for issuance. Upon the Merger, the Company increased number of shares authorized and 6,796,074 awards were granted on June 8, 2022. Refer to Note 8, Stockholders’ Equity (Deficit), for further details of the shares of common stock authorized. Number of Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (Years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2021 — $ — — $ — Granted 6,796,074 $ 9.92 — $ — Outstanding at June 30, 2022 6,796,074 $ 9.92 9.4 $ — Vested and exercisable at June 30, 2022 — $ — — $ — 20 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Market Awards In connection with the Business Combination Agreement with DYNS, on December 19, 2021, Legacy Senti approved 605,451 market awards to its co-founder and Chief Executive Officer, Dr. Timothy Lu that vest contingent upon the satisfaction of all three of the following conditions: a service condition, a performance condition tied to the consummation of the Merger, and market conditions. The market condition is achieved in four tranches, where 25 % of the options will vest when the trading price of the Company’s stock is above various thresholds of price per share. The award and the associated recognition of stock-based compensation are contingent on the Merger being consummated. As of the approval date, the Legacy Senti did not have sufficient common stock available for issuance to allow for exercise of the stock options. Upon the Merger, the Company increased number of shares authorized and 315,748 awards were granted on June 8, 2022. Refer to Note 8, Stockholders’ Equity (Deficit), for further details of the shares of common stock authorized. Stock-Based Compensation Expense In determining the fair value of the stock-based awards, the Company uses the assumptions below for the Black-Scholes option pricing model, which are subjective and generally require significant judgment. Fair Value of Common Stock — The fair value of the shares of common stock has historically been determined by the Company’s board of directors as there was no public market for the common stock. The board of directors determined the fair value of the common stock by considering a number of objective and subjective factors, including: third-party valuations of the Company’s common stock, the valuation of comparable companies, the Company’s operating and financial performance, and general and industry-specific economic outlook, amongst other factors. As of the closing of the Merger and going forward, the fair value of common stock will be based on the publicly traded market value. Expected Term —The expected term represents the period that the Company’s stock options are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). Volatility —The expected volatility is based on the average historical volatility of comparable publicly-traded peer companies, over a period equal to the expected term of the stock option grants, as the Company was not publicly traded prior to the Merger and does not have a trading history for its common stock for a sufficient period of time subsequent to the Merger. Risk-free Rate —The risk-free rate assumption is based on the U.S. Treasury zero-coupon issues in effect at the time of grant for periods corresponding with the expected term of the option. Dividends —The Company has never paid dividends on its common stock and does not anticipate paying dividends on common stock. Therefore, the Company uses an expected dividend yield of zero. The assumptions used to determine the grant date fair value of non-market based, stock options granted were as follows, presented on a weighted-average basis: Six Months Ended June 30, 2022 2021 Expected term (in years) 5.8 6.0 Expected volatility 78 % 83 % Risk-free interest rate 3.0 % 0.7 % Dividend yield — — 21 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Total stock-based compensation expense was as follows (in thousands): Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 General and administrative $ 7,863 $ 498 $ 8,322 $ 818 Research and development 1,362 64 1,564 116 Total stock-based compensation expense $ 9,225 $ 562 $ 9,886 $ 934 As of June 30, 2022, the total unrecognized stock-based compensation was approximately $ 32.1 million, expected to be recognized over a weighted-average period of 2.26 years. As of December 31, 2021, the total unrecognized stock-based compensation was approximately $ 9.2 million, expected to be recognized over a weighted-average period of 3.1 years. 11. Income Tax No provision for income taxes was recorded for the three and six months ended June 30, 2022 and 2021, respectively. Deferred tax assets generated from the Company’s net operating losses have been fully reserved, as the Company believes it is not more likely than not that the benefit will be realized due to the Company’s net operating losses generated to date. Effective January 1, 2022, under the Tax Cuts and Jobs Act, for tax purposes the Company is required to capitalize and subsequently amortize all R&D expenditures over five years for research activities conducted in the U.S. and over fifteen years for research activities conducted outside of the U.S. Given the significant loss and credit carryforwards in the U.S., the Company does not anticipate to have a change in valuation allowance assertion. 12. Net Loss Per Share A reconciliation of net loss available to common stockholders and the number of shares in the calculation of basic and diluted loss per share is as follows: Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net loss $ ( 11,552 ) $ ( 12,007 ) $ ( 23,360 ) $ ( 33,009 ) Weighted-average shares used in computing net loss per share, basic and diluted 13,446,622 2,909,105 8,336,451 2,883,582 Net loss per share attributable to common stockholders, basic and diluted $ ( 0.86 ) $ ( 4.13 ) $ ( 2.80 ) $ ( 11.45 ) The following potential common stock securities were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods presented because including them would have been anti-dilutive (on an as-converted basis): Three and Six Months Ended June 30, 2022 2021 Series A and B redeemable convertible preferred stock — 19,517,988 Stock options to purchase common stock 8,779,368 1,815,431 Unvested early exercised options 288,807 499,571 Contingent earnout common stock 2,000,000 — Total 11,068,175 21,832,990 22 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 13. Commitments and Contingencies In the ordinary course of business, we enter into contractual agreements with third parties that include non-cancelable payment obligations, for which we are liable in future periods. On June 3, 2021, the Company entered into a lease agreement for a new cGMP facility in Alameda, California to support planned initial clinical trials for our product candidates (Note 6). The lease will expire in 2032 with future undiscounted operating lease payments of $ 46.0 million over an initial lease period of eleven years . In 2021, the Company began construction of the cGMP facility. As of June 30, 2022 the Company 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, the Company will be responsible for payment for work performed to date. In 2021, the Company entered into a three-year collaboration and option agreement with BlueRock Therapeutics LP (“BlueRock”) under which the Company granted BlueRock an option to acquire an exclusive or non-exclusive license to develop, manufacture and commercialize cell therapy products (Note 14). In consideration for the option, the Company is responsible for up to $ 10.0 million in costs and expenses incurred over the three-year term. As of June 30, 2022, purchase commitments related to sponsored research agreements amounted to approximately $ 1.7 million. The Company has entered into license agreements under which they are obligated to make annual maintenance payments of $ 0.1 million and specified milestone and royalty payments. Future milestone and royalty payments under these agreements are not considered contractual obligations since the payments under these agreements are contingent upon future events, such as the Company’s achievement of specified development, regulatory, and sales milestones, or generating product sales. As of June 30, 2022, the Company is unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. 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 liability. Legal Proceedings The Company is subject to claims and assessments from time to time in the ordinary course of business but does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations, or cash flows. Indemnifications In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has never incurred material costs to defend lawsuits or settle claims related to these indemnification provisions and has never accrued any liabilities related to such obligations in its condensed consolidated financial statements. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company currently has directors’ and officers’ insurance. 23 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 14. Related Parties Preferred Stockholders The Company issued Series A convertible redeemable preferred stock and Series B redeemable convertible preferred stock in February 2018 and October 2020, respectively, to certain related parties, including New Enterprise Associates 15, L.P. and its affiliates (“NEA”) and 8VC and its affiliates (“8VC”). In February 2018, the outstanding convertible notes held by NEA and 8VC, as well as Dr. Timothy Lu, our Chief Executive Officer, converted into additional shares of Series A redeemable convertible preferred stock while in October 2020, the outstanding convertible notes held by NEA and 8VC converted into additional shares of Series B redeemable convertible preferred stock, both in accordance with the terms of the note agreements. On June 8, 2022, in conjunction with the Merger, each outstanding share of preferred stock of Legacy Senti was cancelled and converted into the aggregate number of shares of the Company’s common stock that would be issued upon conversion of the shares of Legacy Senti preferred stock based on the applicable conversion ratio immediately prior to the effective time, multiplied by the Exchange Ratio, rounded down to the nearest whole share. As of June 30, 2022, no shares of preferred stock remain outstanding. NEA NEA held 4,429,725 and zero shares of common stock as of June 30, 2022 and December 31, 2021, respectively. NEA held zero and 2,642,934 shares of outstanding Series A redeemable convertible preferred stock as of June 30, 2022 and December 31, 2021, respectively, as well as zero and 536,791 shares of outstanding Series B redeemable convertible preferred stock, respectively. NEA held one of the seven seats on the Company’s Board of Directors as of June 30, 2022 and December 31, 2021. Bayer Healthcare LLC On May 19, 2022, Legacy Senti issued to Bayer a $ 5.2 million unsecured convertible promissory note. On June 8, 2022, the May 2022 Note was automatically cancelled and exchanged for 517,500 shares of Class A Common Stock at a price of $ 10.00 per share. Refer to Note 7, Convertible Note , for further details of the convertible note. On May 21, 2021, the Company entered into a collaboration and option agreement (“BlueRock Agreement”) with BlueRock Therapeutics LP (“BlueRock”), a wholly-owned subsidiary of Bayer, pursuant to which the Company granted to BlueRock an option (“BlueRock Option”), on a collaboration program-by-collaboration program basis, to obtain an exclusive or non-exclusive license to develop, manufacture and commercialize cell therapy products that contain cells of specified types and which incorporate an option gene circuit from such collaboration program or a closely related derivative gene circuit. The Company is responsible for up to $ 10 million in costs and expenses incurred in connection with the research plan and related activities to be conducted over a term of three years as specified in the collaboration and option agreement. If the Company and BlueRock agree to add new research activities to the research plan, then BlueRock will be obligated to reimburse the Company for the costs and expenses incurred that, together with costs and expenses incurred under the initial research plan, exceed $ 10 million. The Company concluded that the Agreement is not within the scope of ASC 808, Collaborative Arrangements , because the Company did not receive any consideration and therefore, is not exposed to both significant risks and rewards for the arrangement. The Company also determined that the agreement is also not currently within the scope of ASC 606 because the BlueRock Agreement does not currently meet the criteria of a contract with a customer, and will not be within the scope of ASC 606 until any consideration is paid. Potential future milestone payments and royalties are subject to BlueRock’s exercise of the BlueRock Option and execution of a commercial license agreement by both parties. Under the BlueRock Agreement, the specific financial terms for milestone payments and royalties will be negotiated and agreed to only after the option is exercised. As of June 30, 2022, Bayer held 5,878,488 shares of the Company’s common stock. As of December 31, 2021, Bayer held 5,360,988 shares of Series B redeemable convertible preferred stock and held one of the seven seats on 24 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) the Board of Directors of Legacy Senti. Bayer’s parent company is Bayer AG, which served as the lead investor in our Series B financing through its Leaps by Bayer unit. Accordingly, Bayer is considered a related party. 15. Subsequent Events The Company evaluated subsequent events and transactions that occurred up to the date the unaudited condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements. 25 Table of Contents