What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-14 compared with 2023-08-11 · 192 added, 90 removed, 227 unchanged (55% of the section changed)

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

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 Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”) and filed with the Securities and Exchange Commission (the “SEC”) on March 22, 2023.Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

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

Cautionary Statement Regarding Forward-Looking Statements

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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 $18.7 million and $11.6 million for the three months ended June 30, 2023 and 2022, respectively and $37.4 million and $23.4 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023 and December 31, 2022, we had cash, cash equivalents and short-term investments

of $59.6 million and $98.6 million, respectively, and an accumulated deficit of $210.7 million and $173.3 million, respectively.

Net cash flows used in operating activities were $30.0 million and $15.8 million during the six months ended June 30, 2023 and 2022, respectively.

Senti remains on track for having the Investigational New Drug (IND) application for SENTI-202 cleared by the FDA in the fourth quarter of 2023..

We have incurred net losses of $14.9 million and $16.6 million for the three months ended September 30, 2023 and 2022, respectively and $52.3 million and $40.0 million for the nine months ended September 30, 2023 and

2022, respectively.

As of September 30, 2023 and December 31, 2022, we had cash, cash equivalents and short-term investments of $39.4 million and $98.6 million, respectively, and an accumulated deficit of $225.6 million and $173.3 million, respectively.

Net cash flows used in operating activities were $45.4 million and $25.9 million during the nine months ended September 30, 2023 and 2022, respectively.

Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations.

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Recent Developments

On August 10, 2023, we announced a transaction with GeneFab, LLC (“GeneFab”), a new independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies.

The transaction provided us with additional capital and reduced longer term operating expenses.

In connection with the transaction, we will receive approximately $37.8 million in cash before the end of 2025.

Approximately $18.9 million was due at closing, which amount was netted against prepayment owed by us for manufacturing and support services to GeneFab.

The remaining $18.9 million will be paid to us in installments in 2024 and 2025.

In addition, we will receive $8.0 million in manufacturing credit, subject to certain conditions, and will sublease our recently constructed 92,000 square foot current good manufacturing practice (cGMP) facility in Alameda, CA to GeneFab (a portion of which will be subject to the satisfaction of certain conditions).

On August 7, 2023, we completed a transaction with GeneFab, LLC (“GeneFab”), a new independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies.

We sold, assigned and transferred rights, title and interest in certain of our assets and contractual rights, including all of our equipment at our facilities in Alameda and certain of our intellectual property related to the schematics for and design of the Alameda facility.

We subleased our recently constructed 92,000 square foot current good manufacturing practice facility in Alameda, California to GeneFab which will support the clinical manufacturing of our CAR-NK programs, including SENTI-202.

The transaction provided us with additional capital in the form of a note receivable and rights to future manufacturing and research activities and reduced longer term operating expenses.

In connection with the transaction, we are entitled to receive total consideration of $37.8 million before the end of 2025, of which $18.9 million was payable at closing and was netted against prepayment owed by us for manufacturing and research activities to GeneFab.

The remaining $18.9 million will be paid to us in installments in 2024 and 2025, subject to satisfaction of certain conditions.

The Company determined that the $18.9 million for future manufacturing and research activities, inclusive of the volume discount provided, was executed at market terms and does not result in any impact to the total consideration received from GeneFab for the disposal of the business.

We also agreed to grant a license to GeneFab under certain of our intellectual property rights to conduct manufacturing services and to research, develop, manufacture and commercialize products outside of oncology, pursuant to a license agreement under negotiation.

GeneFab was provided an option to purchase up to 19,633,444 shares (i.e.

up to $20.0 million worth) of our common stock at an exercise price of $1.01867 (the “GeneFab Option”).The GeneFab Option is exercisable for a period of 36 months following the execution of the license agreement.

The GeneFab Option may be exercised in installments of common stock equal to no more than 19.9% of our outstanding shares of common stock as of the closing date of the transaction.

As additional consideration for the transaction, we entered into a seller economic share agreement with GeneFab, pursuant to which we will be entitled to receive ten percent of the realized gains of GeneFab’s parent company arising and resulting from any cash or in-kind distributions from GeneFab in connection with a dividend or sale event, subject to the terms and conditions of the GeneFab Economic Share.

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

In connection with the sale, we recognized a gain on disposal in the amount of $21.9 million in net income from discontinued operations during the three and nine months ended September 30, 2023, representing the excess of the fair value of the consideration received and receivable (net of the portion allocated to the GeneFab Option) over the carrying value of the assets sold of $5.5 million.

The gain on disposal was primarily related to the grant of the non-oncology license to GeneFab which had no carrying value.

In accordance with ASC 205, Presentation of Financial Statements , we determined that the disposal of the non-oncology business, including the equipment and transfer of in-house manufacturing services in the Alameda facility, represented a strategic shift that will have a major effect on our operations and financial results, thus meeting the criteria to be reported as discontinued operations.

As a result, we have retrospectively restated our condensed consolidated balance sheet at December 31, 2022 and condensed consolidated statements of operations for the three and nine months ended September 30, 2022 to reflect the assets and liabilities and operating results, respectively, related to the disposed business in discontinued operations.

We have chosen not to segregate the cash flows of the disposed business in the condensed consolidated statements of cash flows.

Supplemental disclosures related to discontinued operations for the statements of cash flows have been provided in Note 3.

GeneFab Transaction to our condensed consolidated financial statements.

Unless otherwise specified, the results of operations refer to continuing operations only.

Components of Results of Operations

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Operating Expenses

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

Our operating expenses consist of research and development expenses, general and administrative expenses, and impairment of property and equipment.

Research and Development Expenses

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• 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;

• 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 clinical trials;

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

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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.

Our research and development expenses related to the assets sold to GeneFab are included in discontinued operations.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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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.

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.

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

Our general and administrative costs related to the assets sold to GeneFab are included in discontinued operations.

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

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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.

Impairment of Property and Equipment

Impairment of property and equipment relates to the impairment of our leasehold improvements for the Alameda facility subleased to GeneFab as a result of our asset group reassessment which triggered a need to perform an impairment analysis following the closing of the GeneFab transaction.

Other Income (Expense)

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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.

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

Change in Fair Value of GeneFab Note Receivable - related party

The change in fair value of GeneFab note receivable consists of the remeasurement to fair value of the deferred consideration due from GeneFab for which we have elected the fair value option.

Change in Fair Value of GeneFab Economic Share - related party

The change in fair value of GeneFab Economic Share is a result of the change in the equity value of GeneFab.

Change in Fair Value of GeneFab Option - related party

The change in fair value of the GeneFab Option consists of the remeasurement to fair value of the derivative liability related to the option provided to GeneFab to acquire up to $20.0 million in shares of our common stock at a purchase price of $1.01867.

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.

GeneFab sublease Income - related party

Other income (expense) is primarily comprised of income from our sublease with GeneFab.

Net Income (Loss) from Discontinued Operations

Net income (loss) from discontinued operations includes the results of our manufacturing and research activities related to the Alameda facility through the disposition date of August 7, 2023.

Net income (loss) from discontinued operations is summarized below (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

2023 2022 2023 2022

Operating expenses:

Research and development $ 1,641 $ 1,537 $ 9,975 $ 3,796

General and administrative (1,478) 800 (496) 1,527

Total operating expenses 163 2,337 9,479 5,323

Loss from discontinued operations (163) (2,337) (9,479) (5,323)

Other income (expense) (6) — (6) —

Gain on disposal of business 21,861 — 21,861 —

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

Results of Operations

Comparison of the Three Months Ended June 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended June 30, 2023 and 2022 (in thousands):

Comparison of the Three Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the three months ended September 30, 2023 and 2022 (in thousands):

Three Months Ended

September 30,

2023 2022 Change

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Operating expenses

Research and development 10,952 9,247 1,705

Research and development (included related party cost of $1,186 and $ -, respectively)

9,092 6,519 2,573

General and administrative 9,431 9,995 (564)

Impairment of property and equipment 25,691 — 25,691

Total operating expenses 44,214 16,514 27,700

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Change in fair value of contingent earnout liability — (99) 99

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

Other expense (4) 25 (29)

Change in fair value of GeneFab Note Receivable - related party 287 — 287

Change in fair value of GeneFab Economic Share - related party (123) — (123)

Change in fair value of GeneFab Option - related party 5,629 — 5,629

GeneFab sublease income - related party 899 — 899

Other income (expense) (14) 2 (16)

Total other income (expense), net 7,261 445 6,816

Net loss from continuing operations (36,615) (14,303) (22,312)

Net income (loss) from discontinued operations 21,692 (2,337) 24,029

Net loss $ (14,923) $ (16,640) $ 1,717

Contract revenue .

For the three months ended June 30, 2023 and 2022, we generated revenue from contracts and license agreements of $0.7 million and $1.1 million, respectively.

The decrease of $0.4 million was primarily due to decline in services provided for the Spark collaboration project.

For the three months ended September 30, 2023 and 2022, we generated revenue from contracts and license agreements of $0.3 million and $1.5 million, respectively.

The decrease of $1.3 million was primarily due to decline in services provided under the Spark collaboration agreement.

Grant income .

For the three months ended June 30, 2023 and 2022, we generated revenue from grants of $0.3 million and $0.3 million, respectively, from the SBIR SENTI-202 grant funding.

For the three months ended September 30, 2023 and 2022, we generated revenue from grants of $0.1 million and $0.3 million, respectively, from the SBIR SENTI-202 grant funding.

Research and development expenses .

Research and development expenses were $11.0 million and $9.2 million for the three months ended June 30, 2023 and 2022, respectively.

The increase o f $1.7 million w as primarily due to an increase of $0.7 million in personnel-related expenses and an increase of $0.9 million in facility costs.

Research and development expenses were $9.1 million and $6.5 million for the three months ended September 30, 2023 and 2022, respectively.

The increase o f $2.6 million w as primarily due to an increase of $0.9 million in personnel-related expenses and an increase of $1.7 million in professional services cost.

General and administrative expenses .

General and administrative expenses were $9.6 million and $13.9 million for the three months ended June 30, 2023 and 2022, respectively.

The decrease of $4.3 million was primarily due to a decrease of $4.9 million in personnel-related expenses, which includes a $4.8 million decrease in stock-based compensation expense, and an increase in insurance of $0.3 million.

General and administrative expenses were $9.4 million and $10.0 million for the three months ended September 30, 2023 and 2022, respectively.

The decrease of $0.6 million was primarily due to a decrease of $0.3 million in personnel-related expenses and a decrease of $1.3 million in professional services costs, offset by an increase of $0.8 million in depreciation and amortization costs as well as an increase of $0.5 million in facilities costs.

Impairment of property and equipment:

Impairment of property and equipment was $25.7 million for the three months ended September 30, 2023 due to the impairment of our leasehold improvements related to the Alameda facility subleased to GeneFab as a result of our asset group reassessment which triggered a need to perform an impairment analysis following the closing of the GeneFab transaction.

Interest income, net .

Interest income was $0.8 million and nominal for the three months ended June 30, 2023 and 2022, respectively, due to a higher average cash balances, as well as an increase in interest rates in the relevant periods.

Interest income was $0.6 million and $0.5 million for the three months ended September 30, 2023 and 2022, respectively, due to higher average cash balances, as well as an increase in interest rates in the relevant periods.

Change in fair value of contingent earnout liability .

For the three months ended June 30, 2023 and 2022, we recognized a non-cash gain of $0.2 million and $8.9 million, respectively.

The decrease of $8.7 million related to the remeasurement of the contingent earnout liability to fair value.

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 as part of the Merger.

Comparison of the Six Months Ended June 30, 2023 and 2022

The following table summarizes our results of operations for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended

For the three months ended September 30, 2023 and 2022, we recognized no gain and a gain of $0.1 million, respectively.

The decrease of $0.1 million related to the decrease in the fair value of our common stock.

Change in fair value of GeneFab Note Receivable - related party.

For the three months ended September 30, 2023, the change in fair value of GeneFab Note Receivable was a gain of $0.3 million primarily due to the change in the discount rate.

Change in fair value of GeneFab Economic Share - related party.

For the three months ended September 30, 2023, the change in fair value of GeneFab Economic Share was a loss of $0.1 million primarily due to the change in the equity value of GeneFab.

Change in fair value of GeneFab Option - related party.

For the three months ended September 30, 2023, the change in fair value of GeneFab Option was a gain of $5.6 million primarily due to the decrease in the fair value of our common stock, which is a significant input in the measurement of the GeneFab Option.

GeneFab sublease income - related party.

For the three months ended September 30, 2023, sublease income was $0.9 million from the sublease to GeneFab for the Alameda facility.

Net income (loss) from discontinued operations.

Net income from discontinued operations was $21.7 million for the three months ended September 30, 2023, compared to net loss from discontinued operations of $2.3 million for the three months ended September 30, 2022.

The increase was primarily due to the gain of $21.9 million on the disposal of the assets sold to GeneFab and a decrease of $2.3 million in stock-based compensation mainly due to the modification of equity awards for terminated employees.

Comparison of the Nine Months Ended September 30, 2023 and 2022

The following table summarizes our results of operations for the nine months ended September 30, 2023 and 2022 (in thousands):

Nine Months Ended

September 30,

2023 2022 Change

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Operating expenses

Research and development 22,270 16,849 5,421

Research and development (included related party cost of $1,186 and $ -, respectively)

23,028 21,108 1,920

General and administrative 27,871 28,409 (538)

Impairment of property and equipment 25,691 — 25,691

Total operating expenses 76,590 49,517 27,073

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Change in fair value of contingent earnout liability 207 8,779 (8,572)

Change in fair value of GeneFab Note Receivable - related party 287 — 287

Change in fair value of GeneFab Economic Share - related party (123) — (123)

Change in fair value of GeneFab Option - related party 5,629 — 5,629

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

Other expense (12) (30) 18

GeneFab sublease income - related party 899 — 899

Other income (expense) (26) (28) 2

Total other income (expense), net 9,311 10,613 (1,302)

Net loss from continuing operations (64,718) (34,677) (30,041)

Net income (loss) from discontinued operations 12,376 (5,323) 17,699

Net loss $ (52,342) $ (40,000) $ (12,342)

Contract revenue .

For the six months ended June 30, 2023 and 2022, we generated revenue from contracts and license agreements of $1.7 million and $2.0 million, respectively.

The decrease of $0.2 million was primarily due to decline in services provided for the Spark collaboration project.

For the nine months ended September 30, 2023 and 2022, we generated revenue from contracts and license agreements of $2.0 million and $3.5 million, respectively.

The decrease of $1.5 million was primarily due to decline in services provided under the Spark collaboration agreement.

Grant income .

For the six months ended June 30, 2023 and 2022, we generated revenue from grants of $0.5 million and $0.5 million, respectively, from the SBIR SENTI-202 grant funding.

For the nine months ended September 30, 2023 and 2022, we generated revenue from grants of $0.6 million and $0.8 million, respectively, from the SBIR SENTI-202 grant funding.

Research and development expenses .

Research and development expenses were $22.3 million and $16.8 million for the six months ended June 30, 2023 and 2022, respectively.

The increase of $5.4 million was primarily due to an increase of $2.7 million in personnel-related expenses, an increase of $1.7 million in facility costs, and an increase of $0.7 million in professional services costs.

Research and development expenses were $23.0 million and $21.1 million for the nine months ended September 30, 2023 and 2022, respectively.

The increase of $1.9 million was primarily due to an increase of $1.0 million in personnel-related expenses, an increase of $0.8 million in facility costs, and an increase of $0.3 million in other costs, partially offset by a decrease of $0.1 million in professional services costs.

General and administrative expenses .

General and administrative expenses were $19.4 million and $19.1 million for the six months ended June 30, 2023 and 2022, respectively.

The increase of $0.3 million was primarily due to an increase of $0.7 million in insurance, an increase of $0.5 million in depreciation and amortization, an increase of $0.4 million in professional services costs offset by a decrease of $1.5 million in personnel-related expenses.

General and administrative expenses were $27.9 million and $28.4 million for the nine months ended September 30, 2023 and 2022, respectively.

The decrease of $0.5 million was primarily due to a decrease of $2.0 million in personnel-related expenses, a decrease of $0.9 million in professional services costs, offset by an increase of $0.6 million in insurance and an increase of $1.2 million in depreciation and amortization.

Impairment of Property and Equipment.

Impairment of property and equipment of $25.7 million for the nine months ended September 30, 2023 was due to the impairment of leasehold improvements related to our Alameda facility subleased to GeneFab as a result of our asset group reassessment which triggered a need to perform an impairment analysis following the closing of the GeneFab transaction.

Interest Income, net.

Interest income was $1.9 million and nominal for the six months ended June 30, 2023 and 2022, respectively, due to a higher average cash balances, as well as an increase in interest rates in the relevant periods.

Interest income was $2.4 million and $0.6 million for the nine months ended September 30, 2023 and 2022, respectively, due to higher average cash balances, as well as an increase in interest rates in the relevant periods.

Change in fair value of contingent earnout liability .

For the six months ended June 30, 2023 and 2022, we recognized a non-cash gain of $0.2 million and $8.9 million, respectively.

The decrease of $8.7 million related to the remeasurement of the contingent earnout liability to fair value.

For the nine months ended September 30, 2023 and 2022, we recognized a non-cash gain of $0.2 million and $8.8 million, respectively.

The decrease of $8.6 million related to the decrease in the fair value of our common stock.

Change in fair value of GeneFab Note Receivable.

For the nine months ended September 30, 2023, the change in fair value of GeneFab Note Receivable was a gain of $0.3 million primarily due to a change in the discount rate.

Change in fair value of GeneFab Economic Share.

For the nine months ended September 30, 2023, the change in fair value of GeneFab Economic Share was a loss of $0.1 million due to a change in the equity value of GeneFab.

Change in fair value of GeneFab Option.

For the nine months ended September 30, 2023, the change in fair value of GeneFab Option was a gain of $5.6 million primarily due to the decrease in the fair value of our common stock, which is a significant input in the measurement of the GeneFab Option.

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 as part of the Merger.

For the nine months ended September 30, 2022, we recognized a gain of $1.3 million upon extinguishment of convertible notes as part of the Merger.

GeneFab sublease income - related party.

For the nine months ended September 30, 2022, sublease income was $0.9 million from the sublease to GeneFab for the Alameda facility.

Net income (loss) from discontinued operations.

Net income from discontinued operations was $12.4 million for the nine months ended September 30, 2023, compared to net loss from discontinued operations of $5.3 million for the nine months ended September 30, 2022.

The increase was primarily due to the gain of $21.9 million on the disposal of the assets sold to GeneFab, a decrease of $2.6 million in stock-based compensation due to the modification of equity awards for terminated employees, partially offset by an increase in research and development expenses of $6.2 million.

Liquidity and Capital Resources

Sources of Liquidity

From inception to June 30, 2023, we raised aggregate gross proceeds of $299.5 million from the Merger and PIPE Financing, the issuance of shares of our common stock, the issuance of shares of our redeemable convertible preferred stock, the issuance of convertible notes and, to a less extent, through collaboration agreements and governmental grants.

From inception to September 30, 2023, we raised aggregate gross proceeds of $299.5 million from the Merger and PIPE Financing, the issuance of shares of our common stock, the issuance of shares of our redeemable convertible preferred stock, the issuance of convertible notes and, to a lesser extent, through collaboration agreements and governmental grants.

On August 31, 2022, we entered into the Purchase Agreement with Chardan.

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Sales and timing of any sales of common stock are solely at our election, and we are under no obligation to sell any securities to Chardan under the Purchase Agreement.

As consideration for Chardan’s commitment to purchase shares of our common stock at our direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, we issued 100,000 shares of our common stock to Chardan and paid a $0.4 million document preparation fee.

Purchase Agreement, we issued 100,000 shares of our common stock to Chardan and paid a $0.4 million document preparation fee.

We recognized an expense of $0.7 million within general and administrative expenses in our Condensed Consolidated Statements of Operations and Comprehensive Loss for the Chardan related costs and legal fees incurred in connection with the agreement.

Other than the issuance of the commitment shares of our common stock to Chardan we issued 300,000 shares of common stock up until June 30, 2023, aggregating to net proceeds of $0.7 million under the Purchase Agreement.

There were no shares issued within six months ended June 30, 2023.

Other than the issuance of the commitment shares of our common stock to Chardan we issued 300,000 shares of common stock up until September 30, 2023, for aggregate net proceeds of $0.7 million under the Purchase Agreement.

There were no shares issued within the nine months ended September 30, 2023.

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, 2023, we had $59.6 million in cash, cash equivalents and short-term investments, and an accumulated deficit of $210.7 million, respectively.

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

As of September 30, 2023, we had $39.4 million in cash, cash equivalents and short-term investments, and an accumulated deficit of $225.6 million.

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

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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.

On August 10, 2023, we announced the transaction with GeneFab, a newly formed independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies.

The transaction provided us with additional capital and reduced longer term operating expenses.

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

Six Months Ended

The transaction with GeneFab, as described in “Recent Developments” above, provided us with additional capital in the form of a note receivable and rights to future manufacturing and research activities and reduced longer term operating expenses.

The remaining consideration of $18.9 million will be received in installments during 2024 and 2025, subject to satisfaction of certain conditions.

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

Nine Months Ended

September 30,

Net cash from operating activities $ (45,358) $ (25,890)

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Operating Activities

For the six months ended June 30, 2023, net cash used in operating activities of $30.0 million was primarily due to our loss of $37.4 million with non-cash adjustments of $7.2 million for stock-based compensation expense, $2.1 million for depreciation and amortization of operating lease right-of-use-assets, $1.0 million for accretion of discount on short-term investments, and $0.2 million for the change in fair value of contingent earnout liability.

Other material changes comprised of $1.2 million decrease in accounts payable and accrued expenses and other current liabilities, $0.6 million decrease in deferred revenue, offset by $1.0 million increase in operating lease liabilities.

For the six months ended June 30, 2022, net cash used in operating activities of $15.8 million was primarily due to our net 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 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 and $0.4 million increase in accounts payable and accrued expenses and other current liabilities, offset by $1.4 million increase in prepaid expenses and other assets and $1.0 million decrease in deferred revenue.

For the nine months ended September 30, 2023, net cash used in operating activities of $45.4 million was primarily due to our loss of $52.3 million with non-cash adjustments of $25.7 million for impairment of property and equipment, $21.9 million gain on disposal of business to GeneFab, $7.6 million for stock-based compensation expense, $5.6 million gain from change in fair value of the GeneFab Option, $4.0 million for depreciation and amortization of operating lease right-of-use-assets, $1.1 million for accretion of discount on short-term investments, $0.3 million gain for the change in fair value of the GeneFab receivable receivable, $0.2 million gain for the change in fair value of contingent earnout liability, and $0.1 million loss for the change in fair value of the GeneFab

Economic Share.

Other material changes comprised of $0.8 million decrease in deferred revenue, offset by $0.1 million increase in operating lease liabilities.

For the nine months ended September 30, 2022, net cash used in operating activities of $25.9 million was primarily due to our net loss of $40.0 million with non-cash adjustments of $12.2 million for stock-based compensation expense, $8.8 million for the change in fair value of contingent earnout liability, $3.0 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 $11.2 million increase in operating lease liabilities, a $1.6 million increase in accounts payable and accrued expenses and other current liabilities, and a 0.4 million decrease in accounts receivable, offset by a $1.8 million increase in prepaid expenses and other assets and a $1.7 million decrease in deferred revenue.

Investing Activities

For the six months ended June 30, 2023, net cash provided by investing activities of $8.8 million was due to $37.0 million cash received upon maturity of short-term investments offset by $18.0 million purchases of short-term investments and $10.2 million purchases of property and equipment.

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

For the nine months ended September 30, 2023, net cash provided by investing activities of $30.0 million was due to $60.0 million cash received upon maturity of short-term investments offset by $18.0 million purchases of short-term investments and $12.0 million purchases of property and equipment.

For the nine months ended September 30, 2022, net cash used in investing activities of $32.8 million, was entirely due to purchases of property and equipment.

Financing Activities

For the six months ended June 30, 2023, $0.2 million cash was provided by financing activities primarily due to $0.3 million proceeds from the issuance of common stock under Employee Stock Purchase Plan (ESPP).

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 proceeds from the issuance of common stock upon exercise of stock options.

For the nine months ended September 30, 2023, $0.2 million cash was provided by financing activities primarily due to $0.3 million proceeds from the issuance of common stock under Employee Stock Purchase Plan (ESPP).

For the nine months ended September 30, 2022, net cash provided by financing activities of $117.7 million was primarily due to $112.0 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 proceeds from the issuance of common stock upon exercise of stock options.

Funding Requirements

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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.

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.

On August 10, 2023, we announced the transaction with GeneFab, a newly formed independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies.

The transaction provided us with additional capital and reduced longer term operating expenses.

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

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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 5 - Operating Leases for details on our lease obligations.

In 2021, we began construction of the cGMP facility.

Buildout of the cGMP facility was completed in June 2023.

As of June 30, 2023, we have paid $40.0 million in construction costs of the $42.2 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.

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 12 - Related Parties for details into the BlueRock agreement).

Operating Leases for details on our lease obligations.

During the year ended December 31, 2021, we entered into a three-year collaboration and option agreement with BlueRock Therapeutics LP (“BlueRock”) under which we 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 13.

Related Parties for details into the BlueRock agreement).

In consideration for the option, we are 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.

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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, 2023, 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 $0.4 million and $0.3 million in 2023 and 2024, respectively.

As of September 30, 2023, 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 $0.3 million in 2023 and 2024, respectively.

Following the closing of the Merger, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of our common stock in the aggregate, in two equal tranches of 1,000,000 shares of common stock per tranche.

Refer to Note 6, Stockholders’ Equity (Deficit), for further details of the contingent earnout.

Refer to Note 7.

Stockholders’ Equity (Deficit), for further details of the contingent earnout.

Off-Balance Sheet Arrangements

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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.

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.

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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.

During the six months ended June 30, 2023, there have not been any other significant changes to our critical accounting policies and estimates, except as noted below, from those presented in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that are of significance, or potential significance, to us.

During the nine months ended September 30, 2023, there have not been any other significant changes to our critical accounting policies and estimates, except as noted below, from those presented in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that are of significance, or potential significance, to us.

Impairment of Long-Lived Assets

As a result of the change in the manner in which the Company expects to recover the assets subject to the GeneFab transaction, the asset group used in the long-lived impairment assessment was changed to two asset groups as of June 30, 2023, the oncology and non-oncology asset group, with the non-oncology including all the assets expected to be transferred in the GeneFab transaction.

This asset group reassessment triggered a need to perform an impairment analysis for the non-oncology asset group that considered the final terms of the transaction as the fair value of the non-oncology asset group and no impairment was deemed necessary.

As a result of the change in the manner in which the Company expects to recover the assets associated with the lease on the Alameda facility to GeneFab, the ROU asset and the related leasehold improvements became a separate asset group for the purposes of long-lived asset impairment assessment.

This asset group reassessment triggered a need to perform an impairment analysis.

The Company tested the asset group for impairment and recognized an impairment loss in the amount of $25.7 million during the three and nine months ended September 30, 2023, representing the difference between the carrying value of the asset group of $54.6 million and its estimated fair value of $28.9 million, determined based on the discounted cash flows expected to be generated from the use of the asset group through the sublease.

Further, the Company determined that the individual fair value of the ROU asset within the asset group exceeded its carrying value as of the impairment testing date.

Accordingly, the Company allocated the entire impairment loss to the leasehold improvements associated with the Alameda lease.

GeneFab Note Receivable

We elected to account for the GeneFab Note Receivable from GeneFab under the fair value option in ASC 825, Financial Instruments (“ASC 825” ) .

The GeneFab Note Receivable was recorded at its fair value on issuance and subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss until settlement.

We estimated the fair value by discounting future payments under multiple probability-weighted scenarios using our cost of borrowing based on published CCC-rated corporate bond yields.

GeneFab Economic Share

We elected to account for the GeneFab Economic Share under the fair value option in ASC 825.

The GeneFab Economic Share was recorded at its fair value on issuance and subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss until settlement.

We estimated the fair value using the option pricing method, which allocates total estimated enterprise value to various classes of equity using the Backsolve method.

Significant assumptions used were the equity value of GeneFab, volatility, risk-free rate, expected term, and dividend yield.

GeneFab Option

The GeneFab Option meets the definition of a derivative under ASC 815, Derivatives and Hedging , and does not meet the criteria for equity classification.

The derivative liability was recorded at its fair value on issuance and subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss until settlement.

The fair value of the

derivative liability was determined using a Black-Scholes option pricing model incorporating assumptions such as the fair value of our common stock, the risk-free rate, volatility, expected term and dividend yield.

Emerging Growth Company Status

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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