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) 1 September 30, December 31, 2023 2022 Assets Cash and cash equivalents $ 39,430 $ 57,621 Accounts receivable 138 626 GeneFab receivable - related party 18,482 — Short-term investments — 40,942 GeneFab prepaid expenses - related party 17,314 — Prepaid expenses and other current assets 3,643 3,181 Current assets of discontinued operations — 209 Total current assets 79,007 102,579 Restricted cash 6,398 3,366 GeneFab receivable - related party, net of current portion 1,056 — Property and equipment, net 26,433 51,361 Operating lease right-of-use assets 17,018 18,418 GeneFab Economic Share - related party 1,677 — Other long-term assets 177 283 Noncurrent assets of discontinued operations — 4,785 Total assets $ 131,766 $ 180,792 Liabilities and Stockholders’ Equity Accounts payable $ 1,991 $ 1,370 Finance lease liabilities - related party, current portion 96 — Early exercise liability, current portion 135 135 Deferred revenue — 799 GeneFab sublease deferred income - related party 1,047 — Accrued expenses and other current liabilities 4,043 12,576 Operating lease liabilities 2,586 1,988 Current liabilities of discontinued operations 216 1,185 Total current liabilities 10,114 18,053 Finance lease liabilities - related party, net of current portion 25 — Operating lease liabilities, net of current portion 34,606 35,103 Contingent earnout liability 20 227 GeneFab Option - related party 4,020 — Early exercise liability, net of current portion 45 146 Total liabilities 48,830 53,529 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred stock, $ 0.0001 par value; 10,000,000 shares authorized at September 30, 2023 and December 31, 2022; zero shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively — — Common stock, $ 0.0001 par value; 500,000,000 shares authorized at September 30, 2023 and December 31, 2022; 44,477,666 and 44,062,534 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively 4 4 Additional paid-in capital 308,560 300,544 Accumulated other comprehensive income — 1 Accumulated deficit ( 225,628 ) ( 173,286 ) Total stockholders’ equity 82,936 127,263 Total liabilities and stockholders’ equity $ 131,766 $ 180,792 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 SENTI BIOSCIENCES, INC. Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited) (in thousands, except share and per share data) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenue Contract revenue $ 255 $ 1,516 $ 1,978 $ 3,477 Grant income 83 250 583 750 Total revenue 338 1,766 2,561 4,227 Operating expenses Research and development (included related party cost of $ 1,186 , $ – , $ 1,186 and $ – , respectively) 9,092 6,519 23,028 21,108 General and administrative 9,431 9,995 27,871 28,409 Impairment of property and equipment 25,691 — 25,691 — Total operating expenses 44,214 16,514 76,590 49,517 Loss from operations ( 43,876 ) ( 14,748 ) ( 74,029 ) ( 45,290 ) Other income (expense) Interest income, net 583 542 2,438 573 Change in fair value of contingent earnout liability — ( 99 ) 207 8,779 Change in fair value of GeneFab Note Receivable - related party 287 — 287 — Change in fair value of GeneFab Economic Share - related party ( 123 ) — ( 123 ) — Change in fair value of GeneFab Option - related party 5,629 — 5,629 — Gain on extinguishment of convertible notes — — — 1,289 GeneFab sublease income - related party 899 — 899 — Other income (expense) ( 14 ) 2 ( 26 ) ( 28 ) Total other income (expense), net 7,261 445 9,311 10,613 Net loss from continuing operations ( 36,615 ) ( 14,303 ) ( 64,718 ) ( 34,677 ) Net income (loss) from discontinued operations 21,692 ( 2,337 ) 12,376 ( 5,323 ) Net loss ( 14,923 ) ( 16,640 ) ( 52,342 ) ( 40,000 ) Other comprehensive loss Unrealized loss on investments — — ( 1 ) — Comprehensive loss $ ( 14,923 ) $ ( 16,640 ) $ ( 52,343 ) $ ( 40,000 ) Net loss per share, basic and diluted Net loss per share from continuing operations, basic and diluted $ ( 0.83 ) $ ( 0.33 ) $ ( 1.46 ) $ ( 1.73 ) Net income (loss) per share from discontinued operations, basic and diluted 0.49 ( 0.05 ) 0.28 ( 0.26 ) Net loss per share, basic and diluted $ ( 0.34 ) $ ( 0.38 ) $ ( 1.18 ) $ ( 1.99 ) Weighted-average shares outstanding, basic and diluted 44,473,400 43,424,172 44,275,741 20,150,459 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 SENTI BIOSCIENCES, INC. Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) (in thousands, except share data) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance as of December 31, 2021 19,517,988 $ 171,833 2,972,409 $ — $ 3,619 $ — $ ( 115,076 ) $ ( 111,457 ) Exercise of common stock options — — 172,606 — 422 — — 422 Vesting of early exercise of common stock options — — 143,524 — 375 — — 375 Stock-based compensation expense — — — — 661 — — 661 Net loss — — — — — — ( 11,808 ) ( 11,808 ) Balance as of March 31, 2022 19,517,988 171,833 3,288,539 — 5,077 — ( 126,884 ) ( 121,807 ) Conversion of redeemable convertible preferred stock into common stock in connection with the Reverse Recapitalization, net of transaction cost ( 19,517,988 ) ( 171,833 ) 19,517,988 2 171,833 — — 171,835 Issuance of common stock upon Reverse Recapitalization, net of transaction costs — — 19,975,963 2 112,180 — — 112,182 Contingent earnout liability recognized upon closing of the Reverse Recapitalization — — — — ( 9,688 ) — — ( 9,688 ) Cancellation and exchange of convertible note in connection with PIPE financing — — 517,500 — 5,184 — — 5,184 Gain recognized on fair value of embedded derivative on SPAC merger date — — — — ( 1,289 ) — — ( 1,289 ) Exercise of common stock options — — 27,233 — 74 — — 74 Vesting of early exercise of common stock options — — 41,047 — 102 — — 102 Stock-based compensation expense — — — — 9,225 — — 9,225 Net loss — — — — — — ( 11,552 ) ( 11,552 ) Balance as of June 30, 2022 — — 43,368,270 4 292,698 — ( 138,436 ) 154,266 Common Stock Purchase Agreement fee settled in common stock — — 100,000 — 196 — — 196 Additional Reverse Recapitalization transaction costs — — — — ( 223 ) — — ( 223 ) Vesting of early exercise of common stock options — — 170,647 — 454 — — 454 Stock-based compensation expense — — — — 2,290 — — 2,290 Net loss — — — — — — ( 16,640 ) ( 16,640 ) Balance as of September 30, 2022 — $ — 43,638,917 $ 4 $ 295,415 $ — $ ( 155,076 ) $ 140,343 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 SENTI BIOSCIENCES, INC. Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (unaudited) (in thousands, except share data) Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated Deficit Total Stockholders’ Equity (Deficit) Shares Amount Shares Amount Balance as of December 31, 2022 — $ — 44,062,534 $ 4 $ 300,544 $ 1 $ ( 173,286 ) $ 127,263 Vesting of early exercise of common stock options — — 12,660 — 34 — — 34 Stock-based compensation expense — — — 3,763 — — 3,763 Unrealized gain (loss) on investments — — — — — 2 — 2 Net loss — — — — — — ( 18,722 ) ( 18,722 ) Balance as of March 31, 2023 — — 44,075,194 4 304,341 3 ( 192,008 ) 112,340 Vesting of early exercise of common stock options — — 12,660 — 34 — — 34 Issuance of common stock under Employee Stock Purchase Plan (ESPP) — — 377,152 — 308 — — 308 Stock-based compensation expense — — — — 3,434 — — 3,434 Unrealized gain (loss) on investments — — — — — ( 3 ) — ( 3 ) Net loss — — — — — — ( 18,697 ) ( 18,697 ) Balance as of June 30, 2023 — — 44,465,006 4 308,117 — ( 210,705 ) 97,416 Vesting of early exercise of common stock options — — 12,660 — 34 — — 34 Stock-based compensation expense — — 409 — — 409 Net loss — — — — — — ( 14,923 ) ( 14,923 ) Balance as of September 30, 2023 — $ — 44,477,666 $ 4 $ 308,560 $ — $ ( 225,628 ) $ 82,936 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 SENTI BIOSCIENCES, INC. Condensed Consolidated Statements of Cash Flows (unaudited) (in thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities Net loss $ ( 52,342 ) $ ( 40,000 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 2,569 948 Amortization of operating lease right-of-use assets 1,386 2,028 Accretion of discount on short-term investments ( 1,069 ) — Gain on disposal of business ( 21,862 ) — Gain on extinguishment of convertible notes — ( 1,289 ) Change in fair value of contingent earnout liability ( 207 ) ( 8,779 ) Change in fair value of GeneFab Note Receivable - related party ( 287 ) — Change in fair value of GeneFab Economic Share - related party 123 — Change in fair value of GeneFab Option - related party ( 5,629 ) — Impairment of property and equipment 25,691 — Stock-based compensation expense 7,606 12,176 Interest income accrued and not received ( 21 ) — Issuance of common stock for Common Stock Purchase Agreement fee — 196 Other non-cash charges — 21 Changes in assets and liabilities: Accounts receivable 509 ( 363 ) GeneFab receivable - related party ( 2,602 ) — GeneFab prepaid expenses - related party 1,586 — Prepaid expenses and other assets ( 141 ) ( 1,837 ) Accounts payable 465 93 GeneFab sublease deferred income - related party 747 — Accrued expenses and other current liabilities ( 1,195 ) 1,488 Deferred revenue ( 799 ) ( 1,733 ) Operating lease liabilities 114 11,161 Net cash from operating activities ( 45,358 ) ( 25,890 ) Cash flows from investing activities Purchases of short-term investments ( 17,990 ) — Maturities of short-term investments 60,000 — Purchases of property and equipment ( 12,034 ) ( 32,841 ) Net cash from investing activities 29,976 ( 32,841 ) Cash flows from financing activities Proceeds from Merger and related PIPE financing, net of transaction costs — 111,979 Proceeds from issuance of common stock upon exercise of stock options — 521 Proceeds from issuance of common stock under Employee Stock Purchase Plan (ESPP) 308 — Proceeds from issuance of convertible notes — 5,175 Principal finance lease payments ( 85 ) — Net cash from financing activities 223 117,675 6 Nine Months Ended September 30, 2023 2022 Net decrease in cash and cash equivalents ( 15,159 ) 58,944 Cash, cash equivalents, and restricted cash, beginning of period 60,987 59,291 Cash, cash equivalents, and restricted cash, end of period $ 45,828 $ 118,235 Reconciliation of cash, cash equivalents and restricted cash Cash and cash equivalents $ 39,430 $ 114,940 Restricted cash 6,398 3,295 Total cash, cash equivalents and restricted cash $ 45,828 $ 118,235 Supplemental disclosures of noncash financing and investing items Purchases of property and equipment in accounts payable and accrued expenses $ 3 $ 7,360 Refer to Note 3, GeneFab Transaction for details of non-cash items The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Organization and Description of Business Senti Biosciences, Inc. and its subsidiaries (the “Company” or “Senti”), is a biotechnology company that was founded to create a new generation of smarter medicines that outmaneuver complex diseases using novel and unprecedented approaches. Senti has built a synthetic biology platform that enables it to program next-generation cell and gene therapies with what the Company refers to as “gene circuits.” These gene circuits, which are created from novel and proprietary combinations of DNA sequences, reprogram cells with biological logic to sense inputs, compute decisions and respond to their cellular environments. The Company is headquartered in South San Francisco, California. On June 8, 2022 (the “Closing Date”), Dynamics Special Purpose Acquisition Corp. (“Dynamics” or “DYNS”) consummated a merger pursuant to which Explore Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and wholly owned subsidiary of Dynamics, merged with and into Senti Sub I, Inc., formerly named Senti Biosciences, Inc. (“Legacy Senti”), with Legacy Senti surviving as a wholly-owned subsidiary of Dynamics (such transactions, the “Merger,” and, collectively with the other transactions described in the merger agreement (as defined below, the “Reverse Recapitalization”)). As a result of the Merger, Dynamics was renamed Senti Biosciences, Inc. On August 7, 2023, the Company completed a transaction with GeneFab, LLC (“GeneFab”), a new independent contract manufacturing and synthetic biology biofoundry focused on next-generation cell and gene therapies. As part of that transaction, the Company disposed of its non-oncology business and in-house manufacturing services and subleased its manufacturing facility to GeneFab. Liquidity and Going Concern These consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) assuming the Company will continue as a going concern. The going concern assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments to the carrying amounts and classification of assets, liabilities, and reported expenses that may be necessary if the Company were unable to continue as a going concern. The Company has devoted substantially all of its efforts to organizing and staffing, business planning, raising capital, and conducting preclinical studies and has not realized substantial revenues from its planned principal operations. To date, the Company has raised aggregate gross proceeds of $ 299.5 million from the Merger and PIPE Financing, the issuance of shares of its common stock, the issuance of shares of our redeemable convertible preferred stock, the issuance of convertible notes and, to a lesser extent, through collaboration agreements and government grants. At September 30, 2023 and December 31, 2022, the Company had an accumulated deficit of $ 225.6 million and $ 173.3 million , respectively. The Company’s net losses were $ 52.3 million and $ 40.0 million for the nine months ended September 30, 2023 and 2022, respectively. Substantially all of the Company’s net losses resulted from costs incurred in connection with the Company’s research and development programs and from general and administrative costs associated with the Company’s operations including impairment of property and equipment. The Company expects to incur substantial operating losses and negative cash flows from operations for the foreseeable future as the Company advances its preclinical activities and clinical trials for its product candidates in development . As of September 30, 2023 and December 31, 2022, the Company had cash, cash equivalents and short-term investments of $ 39.4 million and $ 98.6 million, respectively. As of November 13, 2023, the issuance date of the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2023, there is uncertainty about whether the Company’s combined cash, cash equivalents, and short-term investments will be sufficient to fund operations, including clinical trial expenses and capital expenditure requirements, beyond twelve months from the issuance date of these financial statements and therefore the Company concluded that substantial doubt existed about the Company’s ability to continue as a going concern. The transaction with GeneFab provided the Company with additional capital in the form of a note receivable 8 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) and rights to future manufacturing and research activities and reduced longer-term operating expenses. Refer to Note 3. GeneFab Transaction , for further details of the GeneFab transaction. The Company’s continued existence is dependent upon management’s ability to raise capital and develop profitable op erations. Management is devoting substantially all of its efforts to developing its business and raising capital, which included the framework agreement with GeneFab, and there can be no assurance that the Company’s efforts will be successful. No assurance can be given that management’s actions will result in profitable operations or the meeting of ongoing liquidity needs. NASDAQ Bid Price Compliance Notice On August 7, 2023, the Company received written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC notifying the Company that, for the last 30 consecutive trading days, the closing bid price of the Company’s common stock had closed below the minimum bid price requirement of $1.00 per share for continued listing on The Nasdaq Global Market. The Company has been provided an initial compliance period of 180 calendar days, or until February 5, 2024, to regain compliance with the minimum bid price requirement. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and as amended by Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The condensed consolidated financial statements include the accounts of Senti Biosciences, Inc., and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. We have one business activity and operate in one reportable segment. Unless otherwise noted, the Company has retroactively adjusted all common and preferred share and related price information to give effect to the exchange ratio established in the Merger Agreement. The Company determined that the assets sold to GeneFab met the criteria for presentation as a discontinued operation. As a result, the Company has retrospectively restated its condensed consolidated balance sheet at December 31, 2022 and condensed consolidated statements of operations for the three and nine months ended September 30, 2022 to reflect the assets and liabilities and operating results, respectively, related to the disposed business in discontinued operations. The Company has chosen not to segregate the cash flows of the disposed business in the condensed consolidated statements of cash flows. Supplemental disclosures related to discontinued operations for the statements of cash flows have been provided in Note 3. GeneFab Transaction . Unless otherwise specified, the disclosures in these condensed consolidated financial statements refer to continuing operations only. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the valuation of stock-based awards, the accrual for research and development expenses, the valuation of contingent earnout, the valuation of GeneFab Option, the valuation of GeneFab Economic Share, the valuation of the GeneFab Note Receivable, the valuation of convertible notes, the valuation of common and redeemable convertible preferred stock, standalone selling price (“SSP”), the discount rate used to discount future cash flows for the impairment of long-lived assets, and the determination of the incremental borrowing rate. The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates. Unaudited Interim Condensed Consolidated Financial Statements 9 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) The accompanying interim condensed consolidated financial statements and the related footnote disclosures are unaudited. These unaudited interim financial statements have been prepared on the same basis as the audited financial statements, and in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2023 and its results of operations for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or any other period. The December 31, 2022 year-end condensed consolidated balance sheet was derived from audited annual financial statements but does not include all disclosures from the annual financial statements. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2022 and the related notes included in the Company’s Form 10-K, filed with the SEC on March 22, 2023, which provides a more complete discussion of the Company’s accounting policies and certain other information. Other than the policies included below, there have been no material changes to the Company’s significant accounting policies as of and for the three and nine months ended September 30, 2023, as compared to the significant accounting policies described in the Company’s audited annual consolidated financial statements as of and for the year ended December 31, 2022. Fair Value Option The Company elected to account for the deferred consideration (GeneFab Note Receivable) and contingent consideration receivable (GeneFab Economic Share) from the GeneFab transaction under the fair value option in ASC 825, Financial Instruments . Accordingly, these instruments were recognized at their fair value at the closing of the transaction and are subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss until settlement. The fair value of the GeneFab Note Receivable was determined by discounting future payments under multiple probability-weighted scenarios using the Company’s cost of borrowing. The fair value of the GeneFab Option was determined using an option pricing method. Refer to Note 3. GeneFab Transaction , for further details of the GeneFab transaction. GeneFab Option The option granted to GeneFab as part of the GeneFab transaction meets the definition of a derivative under ASC 815, Derivatives and Hedging , and does not meet the criteria for equity classification. The derivative liability is recorded at its fair value on issuance and subsequently remeasured each reporting period with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss until settlement. The fair value of the derivative liability was determined using a Black-Scholes option pricing model. Recent Accounting Standards The Company believes that the impact of recently issued accounting standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. 3. GeneFab Transaction On August 7, 2023, the Company entered into a framework agreement with GeneFab and Valere Bio, Inc., a Delaware corporation and the parent company of GeneFab, which is wholly owned by Celadon Partners, LLC, pursuant to which the Company, subject to the terms and conditions therein, sold, assigned and transferred its rights, title and interest in certain of the assets and contractual rights, including all of the Company’s equipment at the Company’s facilities in Alameda and certain of the Company’s non-oncology license, intellectual property related to the schematics for and design of the Alameda facility, and subleased to GeneFab its premises under the lease for the Alameda facility. The transaction will provide the Company with additional capital in the form of a note receivable and rights to future manufacturing and research activities and reduced longer term operating expenses. 10 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Concurrently with the transaction, the Company and GeneFab entered into a development and manufacturing services agreement (the “services agreement”), pursuant to which GeneFab will provide certain services to the Company using the subleased Alameda facility and acquired equipment. As part of this transaction, the Company entered into a transition services agreement with GeneFab whereby certain services are to be provided by each party to the other party during a transition period beginning on the closing of the transaction. Under the terms of the transaction, the Company is entitled to receive total consideration of $ 37.8 million before the end of 2025, of which $ 18.9 million was payable at closing and was netted against prepayment due to GeneFab for future manufacturing and research activities. The remaining $ 18.9 million will be paid to the Company in installments in 2024 and 2025 (the “Note Receivable”), subject to satisfaction of certain conditions. The Company elected to account for the Note Receivable under the fair value option and recorded the Note Receivable at its fair value of $ 16.6 million at the closing date of the transaction. The Note Receivable will be remeasured each reporting period with changes from remeasurement included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. Refer to Note 4. Fair Value Measurement . The Company is entitled to $ 18.9 million in future manufacturing and research activities to be rendered under the services agreement, which are recorded in GeneFab prepaid expenses on the condensed consolidated balance sheet. The Company determined that the $ 18.9 million for future manufacturing and research activities, inclusive of the volume discount provided, was executed at market terms and does not result in any impact to the total consideration received from GeneFab for the disposal of the business. As part of the transaction, the Company subleased the facility in Alameda, California to GeneFab which will support the clinical manufacturing of the Company’s chimeric antigen receptor natural killer (CAR-NK) programs, including SENTI-202. Refer to Note 6. Operating Leases for additional information on the sublease. The Company agreed to grant a license to GeneFab under certain of its intellectual property rights to conduct manufacturing services and to research, develop, manufacture and commercialize products outside of oncology, pursuant to a license agreement under negotiation (the “non-oncology license”). In connection with the transaction, Philip Lee, Ph.D., former Co-Founder and Chief Technology Officer of the Company, assumed the role of Chief Executive Officer of GeneFab. Additionally, GeneFab extended offers of employment to 45 of the Company's employees formerly employed in its research and development and manufacturing functions. All 45 employees accepted the offers of employment and are actively engaged in providing manufacturing and research activities to the Company. GeneFab was granted an option to purchase up to 19,633,444 shares (i.e. up to $ 20.0 million worth) of the Company’s common stock at a purchase price of $ 1.01867 (the “GeneFab Option”). The GeneFab Option is exercisable for a period of 36 months following the execution of the license agreement. The GeneFab Option may be exercised in installments of common stock equal to no more than 19.9 % of the Company’s outstanding shares of common stock as of the closing date of the transaction. The purchase of the remaining shares under the GeneFab Option require stockholder approval. The Company determined that the GeneFab Option was a derivative as the terms of the instrument contain certain provisions that preclude equity classification in accordance with ASC 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity . As such, the GeneFab Option was recorded as a liability at its fair value of $ 9.6 million at the closing date of the transaction and subsequently remeasured with changes in fair value recorded in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. Refer to Note 4. Fair Value Measurement . As additional consideration for the transaction, the Company and GeneFab entered into a seller economic share agreement (the “GeneFab Economic Share”), pursuant to which the Company will be entitled to receive ten percent of the realized gains of GeneFab’s parent company arising and resulting from any cash or in-kind distributions from GeneFab in connection with a dividend or sale event, subject to the terms and conditions of the GeneFab Economic Share. The Company elected to account for the GeneFab Economic Share under the fair value option and recorded the GeneFab Economic Share at its fair value of $ 1.8 million at the date of the transaction. The GeneFab Economic Share will be remeasured each reporting period with changes from remeasurement included in other income (expense) in the condensed consolidated statements of operations and comprehensive loss. Refer to Note 4. Fair Value Measurement . Gain on the Disposal of Business 11 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) As the assets and contractual rights transferred to GeneFab were determined to constitute a business as defined in ASC 805, Business Combinations , the Company accounted for the disposal by applying the derecognition guidance in ASC 810, Consolidation , which requires that a gain or loss be recognized for the difference between the carrying value of the assets sold and the fair value of the consideration received (or receivable). The total fair value of the consideration was determined to be $ 37.3 million, including the GeneFab prepaid expenses of $ 18.9 million, the estimated fair value of the Note Receivable of $ 16.6 million and the estimated fair value of the GeneFab Economic Share of $ 1.8 million. Out of the total consideration, $ 9.6 million was allocated to the GeneFab Option, representing its estimated fair value as of the closing date. In connection with the sale, the Company recognized a gain on disposal in the amount of $ 21.9 million in net income from discontinued operations during the three and nine months ended September 30, 2023, representing the excess of the fair value of the consideration (net of the portion allocated to the GeneFab Option) over the carrying value of the assets sold of $ 5.5 million. The gain on disposal was primarily related to the transfer of the non-oncology intellectual property to GeneFab which had no carrying value. Discontinued Operations In accordance with ASC 205, Presentation of Financial Statements (“ASC 205”), the Company determined that the sale of the non-oncology business, including the equipment and transfer of in-house manufacturing activities in the Alameda facility, to GeneFab represented a strategic shift that will have a major effect on the Company’s operations and financial results, thus meeting the criteria to be reported as discontinued operations. Discontinued operations include the cost and depreciation of equipment and related deposits or liabilities, manufacturing personnel-related costs including costs arising as a result of the disposal such as equity award modifications and severance, and the 12 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) gain from the disposal of the business. Refer to Note 9, Stock-Based Compensation, for further details of the award modifications. The following table summarizes the major classes of assets and liabilities of the discontinued operations (in thousands): September 30, December 31, 2023 2022 Prepaid expenses and other current assets $ — $ 209 Total current assets of discontinued operations $ — $ 209 Property and equipment, net $ — $ 4,775 Other long-term assets — 10 Total non-current assets of discontinued operations $ — $ 4,785 — — Accounts payable $ — $ 897 Accrued expenses and other current liabilities 216 288 Total current liabilities of discontinued operations $ 216 $ 1,185 The following table summarizes the condensed operating results of the discontinued operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating expenses: Research and development $ 1,641 $ 1,537 $ 9,975 $ 3,796 General and administrative ( 1,478 ) 800 ( 496 ) 1,527 Total operating expenses 163 2,337 9,479 5,323 Loss from discontinued operations ( 163 ) ( 2,337 ) ( 9,479 ) ( 5,323 ) Other income (expense) ( 6 ) — ( 6 ) — Gain on disposal of business 21,861 — 21,861 — Net income (loss) from discontinued operations $ 21,692 $ ( 2,337 ) $ 12,376 $ ( 5,323 ) General and administrative expenses were negative for the three and nine months ended September 30, 2023 due to the reversal of compensation expense for unvested awards that were cancelled due to the termination of employees subsequently hired by GeneFab. See Note 9. Stock-Based Compensation. The following table summarizes the condensed cash flow information of the discontinued operations (in thousands): Nine Months Ended September 30, 2023 2022 Operating activities (noncash adjustments to net income): Depreciation $ 185 $ 3 Stock-based compensation ( 2,022 ) 586 Gain on disposal of business ( 21,861 ) — Investing activities: Purchases of property and equipment ( 4,079 ) ( 549 ) Supplemental disclosures of noncash investing items: Purchases of property and equipment in accounts payable and accrued expenses — 308 13 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 4. Fair Value Measurements The following tables summarize the estimated value of cash equivalents and restricted cash (in thousands): September 30, 2023 Adjusted Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash and cash equivalents Restricted cash Short-term investments Cash $ 5,230 $ — $ — $ 5,230 $ 5,230 $ — $ — Level 1: Money market funds 40,598 — — 40,598 34,200 6,398 — Subtotal 40,598 — — 40,598 34,200 6,398 — Total $ 45,828 $ — $ — $ 45,828 $ 39,430 $ 6,398 $ — December 31, 2022 Adjusted Cost Unrealized Gain Unrealized Loss Estimated Fair Value Cash and cash equivalents Restricted cash Short-term investments Level 1: Money market funds $ 45,412 $ — $ — $ 45,412 $ 42,046 $ 3,366 $ — Subtotal 45,412 — — 45,412 42,046 3,366 — Level 2: U.S. Treasury securities 14,866 4 ( 3 ) 14,867 — — 14,867 U.S. agency securities 5,938 — — 5,938 3,983 — 1,955 Commercial Paper 28,122 — — 28,122 5,994 — 22,128 Corporate debt securities 7,590 1 ( 1 ) 7,590 5,598 — 1,992 Subtotal 56,516 5 ( 4 ) 56,517 15,575 — 40,942 Total $ 101,928 $ 5 $ ( 4 ) $ 101,929 $ 57,621 $ 3,366 $ 40,942 No securities have contractual maturities of longer than one year. There were no transfers between Levels 1, 2, or 3 for any of the periods presented. 14 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Contingent Earnout Liability The following table presents a summary of the changes in the fair value of the Contingent Earnout Liability (in thousands): Contingent Earnout Liability Fair value as of December 31, 2022 $ ( 227 ) Change in fair value included in other income (expense) 207 Fair value as of September 30, 2023 $ ( 20 ) The fair value of the Contingent Earnout Liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the Contingent Earnout Liability, the Company used a Monte Carlo simulation value model using a distribution of potential outcomes. The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including the current Company common stock price, expected volatility, risk-free rate, expected term and expected dividend yield. Refer to Note 7. Stockholders’ Equity (Deficit) , for further details of the Contingent Earnout Liability. GeneFab Note Receivable The following table presents a summary of the changes in the fair value of the GeneFab Note Receivable (in thousands): Note Receivable Initial recognition as of August 7, 2023 $ 16,614 Change in fair value included in other income (expense) 287 Fair value as of September 30, 2023 $ 16,901 The fair value of the GeneFab Note Receivable is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The GeneFab Note Receivable is presented within GeneFab receivable on the condensed consolidated balance sheet. The Company has elected to account for the GeneFab Note Receivable under the fair value option in ASC 825, Financial Instruments with changes in fair value reported as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. The fair value of the GeneFab Note Receivable was determined by discounting future payments under multiple probability-weighted scenarios using the Company’s cost of borrowing, which was estimated at 13.72 % as of the initial recognition date, to 13.97 % as of September 30, 2023 based on published CCC-rated corporate bond yields. GeneFab Option The following table presents a summary of the changes in the fair value of the GeneFab Option (in thousands): GeneFab Option Initial recognition as of August 7, 2023 $ ( 9,649 ) Change in fair value included in other income (expense) 5,629 Fair value as of September 30, 2023 $ ( 4,020 ) The fair value of the GeneFab Option is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the GeneFab Option, the Company used a Black-Scholes option pricing model. 15 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) The significant assumptions utilized in the valuation are described below: September 30, August 7 2023 2023 Current stock price $ 0.41 $ 0.90 Expected volatility 105.7 % 86.0 % Risk-free interest rate 4.80 % 4.44 % Expected term (years) 3 3 GeneFab Economic Share The following table presents a summary of the changes in the fair value of the GeneFab Economic Share (in thousands): GeneFab Economic Share Initial recognition as of August 7, 2023 $ 1,800 Change in fair value included in other income (expense) ( 123 ) Fair value as of September 30, 2023 $ 1,677 The fair value of the GeneFab Economic Share is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. The Company has elected to account for the GeneFab Economic Share under the fair value option in ASC 825, Financial Instruments with changes in fair value reported as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. In determining the fair value of the GeneFab Economic Share, the Company used the option pricing method, which allocates total estimated enterprise value to various classes of equity using the Backsolve method. The significant assumptions utilized in the valuation are described below: September 30, August 7 2023 2023 GeneFab equity value $ 35,448 $ 37,314 Volatility 54 % 54 % Risk free rate 4.65 % 4.23 % Expected term 4.5 4.5 16 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): September 30, December 31, 2023 2022 Prepaid expenses (including prepaid rent) 2,503 1,871 Deposits 652 1,209 Other 488 101 Total prepaid expenses and other current assets $ 3,643 $ 3,181 Property and Equipment, Net Property and equipment, net consisted of the following (in thousands): September 30, December 31, 2023 2022 Leasehold improvements $ 22,648 $ 1,869 Lab equipment 8,343 7,855 Furniture and fixtures 326 326 Computer equipment and software 362 374 Construction in progress — 43,892 Property and equipment at cost 31,679 54,316 Less: accumulated depreciation ( 5,246 ) ( 2,955 ) Property and equipment, net $ 26,433 $ 51,361 Buildout of the current good manufacturing practice (cGMP) facility in Alameda was completed in June 2023 and the assets were placed in service. As a result of the change in the manner in which the Company expects to recover the assets associated with the lease on the Alameda facility (refer to Note 3. GeneFab Transaction), the ROU asset and the related leasehold improvements became a separate asset group for the purposes of long-lived asset impairment assessment as of August 7, 2023. This asset group reassessment triggered a need to perform an impairment analysis. The Company concluded that the asset group was not recoverable, as the carrying value of the asset group was less than the sum of undiscounted net cash flows expected to be generated from the use of the asset group. The Company tested the asset group for impairment and recognized an impairment loss in the amount of $ 25.7 million during the three and nine months ended September 30, 2023, representing the difference between the carrying value of the asset group of $ 54.6 million and its estimated fair value of $ 28.9 million, determined based on the discounted cash flows expected to be generated from the use of the asset group through the sublease. Further, the Company determined that the individual fair value of the ROU asset within the asset group exceeded its carrying value as of the impairment testing date. Accordingly, the Company allocated the entire impairment loss to the leasehold improvements associated with the Alameda lease. The adjusted carrying value of the leasehold improvements of $ 20.1 million will be amortized under the existing accounting policy under ASC 842, Leases on a straight-line basis over the remaining lease term. Depreciation totaled $ 1.3 million and $ 0.4 million for the three months ended September 30, 2023 and 2022, respectively, and $ 2.4 million and $ 0.9 million for the nine months ended September 30, 2023 and 2022, respectively. 17 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Accrued Expenses and Other Liabilities Accrued expenses and other liabilities consisted of the following (in thousands): September 30, December 31, 2023 2022 Accrued employee-related expenses $ 2,596 $ 3,496 Accrued professional and service fees related to facility construction — 7,342 Accrued professional and service fees other 1,425 1,709 Other accrued expenses 22 29 Total accrued expenses and other current liabilities $ 4,043 $ 12,576 6. Operating Leases Lessee Accounting The Company’s operating leases are primarily for its corporate headquarters located in South San Francisco, California (“HQ lease”) and for additional office and laboratory space located in Alameda, California (“Alameda lease”). The corporate headquarters lease has an initial term of eight years expiring in 2027, with an option to renew for an additional eight years unless canceled by either party thereafter. The Alameda lease has an initial term of eleven years expiring in 2032, with an option to renew the lease for up to two additional terms of five years . The exercise of these renewal options is not recognized as part of the ROU assets and lease liabilities, as the Company did not conclude, at the commencement date of the leases, that the exercise of renewal options or termination options was reasonably certain. The Alameda lease provides for a tenant improvement allowance of up to $ 17.5 million for the costs relating to the design, permitting and construction of the improvements, to be disbursed by the landlord no later than December 31, 2023. The Company was deemed to be the accounting owner of the tenant improvements primarily because the Company is the principal in the construction and design of the assets, is responsible for costs overruns and retains substantially all economic benefits from the leasehold improvements over their economic lives . Accordingly, the tenant improvement allowance was considered an incentive and was deducted from the initial measurement of the ROU asset and lease liability. The Company estimated the timing of tenant improvement reimbursements at the lease commencement date and upon receipt of the cash incentives, the Company recognized the cash received as an increase in the lease liability. A summary of total lease costs and other information for the period relating to the Company’s operating leases is as follows: Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Operating lease cost $ 1,323 $ 1,326 $ 3,952 $ 3,976 Short-term lease cost 8 20 64 50 Variable lease cost 272 184 894 537 Total lease cost $ 1,603 $ 1,530 $ 4,910 $ 4,563 18 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Nine Months Ended September 30, 2023 2022 Other information: Operating cash flows net inflows and (outflows) from operating lease $ ( 2,449 ) $ 9,225 ROU assets obtained in exchange for operating lease obligations (including remeasurement of ROU and lease liabilities due to changes in the timing of receipt of lease incentives) $ 13 $ 202 Weighted-average remaining lease term 7.6 years 8.2 years Weighted-average discount rate 9.2 % 9.1 % For the three months ended September 30, 2023 and 2022, the Company received no cash and $ 3.2 million, respectively, of $ 17.5 million tenant improvement allowance. For the nine months ended September 30, 2023 and 2022, the Company received $ 2.0 million and $ 11.3 million, respectively, of the $ 17.5 million tenant improvement allowance. Through September 30, 2023, the Company received $ 16.2 million of the tenant improvement allowance inception-to-date. As of September 30, 2023 and 2022, amounts disclosed for ROU assets obtained in exchange for lease obligations include amounts added to the carrying amount of ROU assets resulting from lease modifications and reassessments. Maturities of the Company’s lease liabilities as of September 30, 2023, were as follows (in thousands): 2023, for the remainder of the year $ 1,786 2024 7,254 2025 7,478 2026 7,712 2027 5,769 Thereafter 24,384 Total undiscounted lease payments 54,383 Less imputed interest ( 15,880 ) Tenant improvement allowance remaining ( 1,311 ) Total lease liabilities $ 37,192 Lessor Accounting In connection with the GeneFab transaction, on August 7, 2023, the Company entered into a sublease with GeneFab to sublease the facility included in the Alameda lease, expiring in August 2032. Total sublease income to be earned from this operating lease, in aggregate, will be approximately $ 44.1 million over the remaining term of the sublease agreement. Sublease income was $ 0.8 million for the three and nine months ended September 30, 2023. Variable sublease income was $ 0.1 million for the three and nine months ended September 30, 2023. The Company records sublease income in other income (expense) in the condensed consolidated statement Maturities of the Company’s sublease payments from GeneFab as of September 30, 2023, were as follows (in thousands): 19 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 2023, for the remainder of the year $ 1,065 2024 4,345 2025 4,476 2026 4,610 2027 4,748 Thereafter 23,186 Total undiscounted sublease payments $ 42,430 7. Stockholders’ Equity Common Stock Holders of common stock are entitled to one vote per share, and to receive dividends and, upon liquidation or dissolution, are entitled to receive all assets available for distribution to stockholders. The holders have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Common stock is subordinate to the preferred stock with respect to dividend rights and rights upon liquidation, winding up, and dissolution of the Company; although, no preferred stock is outstanding as of September 30, 2023 and December 31, 2022. Through September 30, 2023, no cash dividends have been declared or paid. At September 30, 2023 and December 31, 2022, the Company was authorized to issue 500,000,000 shares of common stock, all at a par value of $ 0.0001 per share, and had reserved the following shares for future issuance: September 30, December 31, 2023 2022 Common Stock Purchase Agreement 8,327,049 8,327,049 Common stock options issued and outstanding 11,916,927 9,875,675 Restricted Stock Units (RSUs) issued and outstanding 252,720 447,948 Common stock shares available for future issuance under equity plans 3,310,849 2,948,472 Common stock shares available for future issuance under the 2022 Employee Stock Purchase Plan (the "ESPP") 546,155 481,627 Contingent earnout common stock 2,000,000 2,000,000 GeneFab Option 19,633,444 — Unvested early exercised common stock 67,520 105,500 Total 46,054,664 24,186,271 Preferred Stock In connection with the close of the Merger, the Company’s Amended and Restated Certificate of Incorporation provides the Company’s board of directors with the authority to issue $ 0.0001 par value preferred stock in one or more series and to establish from time to time the number of shares to be included in each such series, by adopting a resolution and filing a certification of designations. Voting powers, designations, powers, preferences and relative, participating, optional, special and other rights shall be stated and expressed in such resolutions. There were 10,000,000 shares designated as preferred stock and none were outstanding as of September 30, 2023 and December 31, 2022. Common Stock Purchase Agreement On August 31, 2022, the Company entered into a Common Stock Purchase Agreement and a Registration Rights Agreement (collectively referred to as the “Purchase Agreement”) with Chardan Capital Markets LLC (“Chardan”). Pursuant to the Purchase Agreement, the Company has the right, in its sole discretion, to sell to Chardan up to the lesser of (i) $ 50.0 million of newly issued shares of the Company’s common stock, and (ii) the 20 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Exchange Cap (as defined below) (subject to certain conditions and limitations), from time to time during the 36 -month term of the Purchase Agreement. Under the applicable NASDAQ rules, the Company may not issue to Chardan under the Purchase Agreement more than 8,727,049 shares of common stock, which number of shares is equal to 19.99 % of the common shares outstanding immediately prior to the execution of the Purchase Agreement unless certain exceptions are met (the “Exchange Cap”). The purchase price of the shares of common stock will be determined by reference to the Volume Weighted Average Price (“VWAP”) of the common stock during the applicable purchase date, less a fixed 3 % discount to such VWAP. However, the total shares to be purchased on any day may not exceed 20 % of the trading volume, and the total purchase price on any day may not exceed $ 3.0 million. As consideration for Chardan’s commitment to purchase shares of common stock at the Company’s direction upon the terms and subject to the conditions set forth in the Purchase Agreement, upon execution of the Purchase Agreement, the Company issued 100,000 shares of its common stock to Chardan and paid a $ 0.4 million document preparation fee. Upon execution of the Purchase Agreement, the Company recognized an expense of $ 0.7 million within general and administrative expenses in the Company’s Condensed Consolidated Statements of Operations and Comprehensive Loss for the Chardan related costs and legal fees incurred in connection with the agreement. Other than the issuance of the commitment shares of the Company’s common stock to Chardan, the Company issued 300,000 common stock shares up until December 31, 2022 aggregating to net proceeds of $ 0.7 million, under the Purchase Agreement. There were no shares issued within nine months ended September 30, 2023. Contingent Earnout Equity Following the closing of the Merger, former holders of Legacy Senti common stock and preferred stock may receive up to 2,000,000 additional shares of the Company’s common stock in the aggregate, in two equal tranches of 1,000,000 shares of common stock per tranche. The first and second tranches are issuable if the closing volume weighted average price (“VWAP”) per share of common stock quoted on the Nasdaq (or the exchange on which the shares of common stock are then listed) is greater or equal to $ 15.00 and $ 20.00 , respectively over any twenty trading days within any thirty-day trading period. The first and second tranche term is two and three years , respectively, from the closing of the Merger. If there is a change of control within the three-year period following the closing of the Merger that results in a per share price equal to or in excess of the $ 15.00 and $ 20.00 share price milestones not previously met, then Company shall issue the earnout shares to the holders of Legacy Senti common stock and preferred stock. The estimated fair value of the total Contingent Earnout Shares at the Closing on June 8, 2022, was $ 9.8 million based on a Monte Carlo simulation valuation model. Of this amount, $ 9.7 million was accounted for as a Contingent Earnout Liability because the triggering events that determine the number of Contingent Earnout Shares required to be issued include events that are not solely indexed to the common stock of the Company. The remaining balance of $ 0.1 million relates to holders of Legacy Senti common stock that are subject to repurchase were accounted for as stock-based compensation expense and recorded as an expense, as there was no remaining service period. The Contingent Earnout Liability was remeasured to fair value as of September 30, 2023, resulting in no change for the three months ended September 30, 2023, and a non-cash gain of $ 0.2 million for the nine months ended September 30, 2023, classified within change in fair value of contingent earnout liability in the condensed consolidated statements of operations and comprehensive loss. Assumptions used in the valuation are described below: September 30, December 31, 2023 2022 Current stock price $ 0.63 $ 1.41 Expected share price volatility 83.0 % 85.0 % Risk-free interest rate 3.5 % 4.3 % Estimated dividend yield 0.0 % 0.0 % Expected term (years) 5.9 2.4 21 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 8. Revenue The Company’s revenue consists of amounts received related to research services provided to customers. Contract Revenue In April 2021, the Company entered into a research collaboration and license agreement with Spark Therapeutics, Inc. (“Spark”). Under the agreement, the Company will be responsible for a research program, which includes designing, building and testing five cell type specific-synthetic promoters for use in developing certain gene therapies using the Company’s proprietary technology. The Company received an upfront payment from Spark of $ 3.0 million and Spark is obligated to reimburse the Company for costs and expenses incurred for the research program. The Company expected to complete the research program over a two-year period. The Company assessed this agreement in accordance with ASC 606, Revenue Recognition (“ASC 606”) and concluded that the contract counterparty, Spark, is a customer. The Company identified only one combined performance obligation in the agreement, which is to perform research services, the related joint research plan and committees for the five specified promoters. The Company determined that the research activities for each of the five promoters are not distinct given there is one single research plan that is performed by the same research team and research results for one promoter may provide insights for other promoters. Pursuant to the agreement, once the research program is completed and the Company delivers a data package to Spark, Spark has 24 months (the “Evaluation Period”) to determine whether Spark will exercise its options to obtain field-limited, royalty-bearing licenses to develop, manufacture and commercialize promoters corresponding to each of the five specified promoters being researched. For each licensed promoter option that is exercised, the Company is eligible to receive a license fee, potential research, development and commercial milestone payments and royalties on product sales. Spark may generally terminate the agreement upon 90 days prior written notice or 180 days prior written notice if the licensed promoter is in clinical trials or is being commercialized at the time of termination. The Company evaluated Spark’s optional rights to license, develop, manufacture and commercialize each of the promoter profiles to determine whether they provide Spark with any material rights to purchase the promoter licenses at an incremental discount. The Company’s proprietary technology used to develop the promoters is in the early stages of development, so technological feasibility and probability of developing a product is highly uncertain. As a result, determining the SSP for the optional rights is subject to significant judgment. Given the subjectivity associated with determining the SSP for the right to a future license related to unproven technology at contract inception, the Company also evaluated whether the contract consideration associated with the research services represents the SSP for those services. The Company determined the transaction price, inclusive of the upfront payment and reimbursement of costs and expenses incurred for the research program, is commensurate with SSP for the research being conducted given the specialized nature and reliance on proprietary technology. Based on the Company’s assessment of the optional consideration and the qualitative factors of feasibility and probability of development combined with the quantitative assessment that research services are priced at their SSP, the Company concluded that the license option does not provide Spark with an incremental discount and therefore does not constitute a material right. The transaction price associated with the research services in this agreement consists of the fixed upfront amount of $ 3.0 million and variable consideration. For Spark collaboration agreement, the Company will recognize the transaction price as research and development services are provided, using a cost-based input method to measure the progress toward completion of its performance obligation and to calculate the corresponding amount of revenue to recognize each period. The Company believes that the cost-based input method is the best measure of progress because other measurements would not reflect how the Company transfers the control related to the performance obligation to our customers. In December 2022, the Company amended the research collaboration and license agreement with Spark to allow for an increase in budget and a two-month extension of the research program. As there were no changes to performance obligations and the services to be provided are not distinct from those already transferred, the transaction was accounted for as a contract modification and a cumulative catch-up of $( 0.7 ) million was recognized in December 2022. In May 2023, the Company amended the research collaboration and license agreement with Spark to allow for an increase in budget and additional two-month extension of the research program. As there were no changes to 22 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) performance obligations and the services to be provided are not distinct from those already transferred, the transaction was accounted for as a contract modification with no cumulative catch-up necessary. In July 2023, the Company completed the research collaboration with Spark and the remaining upfront payment was recognized. As of September 30, 2023 and December 31, 2022, there was a total of zero and $ 0.8 million, respectively, remaining of the upfront payment to be recognized over the remaining period of the research program. For the three months ended September 30, 2023 and 2022, the Company recorded revenue, which was previously included in deferred revenue at the beginning of each period, of $ 0.2 million and $ 0.7 million, respectively. For the nine months ended September 30, 2023 and 2022, the Company recorded revenue, which was previously included in the deferred revenue at the beginning of each period, of $ 0.8 million and $ 1.7 million, respectively. Contract asset balances related to unbilled revenue for our collaboration agreements were zero as of September 30, 2023 and 2022, 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. In August 2023, the Company completed the research and development project which was the subject of the SBIR grant. Entity-wide information During the three months ended September 30, 2023, Customers A and B accounted for 75 % and 25 %, respectively, of revenue. During the three months ended September 30, 2022, Customers A and B accounted for 86 % and 14 %, respectively, of revenue. During the nine months ended September 30, 2023, Customers A and B accounted for 77 % and 23 %, respectively, of revenue. During the nine months ended September 30, 2022, Customers A and B accounted for 82 % and 18 %, respectively, of revenue. All revenues were generated in the United States for the three and nine months ended September 30, 2023 and 2022. 9. Stock-Based Compensation 2016 Stock Incentive Plan (as Amended and Restated) The Company’s 2016 Stock Incentive Plan (the “2016 Plan”) provides for the grant of incentive stock options, non-qualified stock options and restricted stock awards to employees, directors, and consultants of the Company. Stock options granted under the 2016 Plan generally vest over four years and expire no later than ten years after the grant date. Following the Merger, the 2016 Plan was terminated. 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, 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. 2022 Stock Incentive Plan On June 8, 2022, upon the Merger, the Company adopted a 2022 Stock Incentive Plan (the “2022 Plan”). The 2022 Plan provides for the grant of incentive stock options to employees, and for the grant of non-statutory stock 23 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to employees, directors and consultants. The exercise price of an option granted under the 2022 Plan shall not be less than the fair market value of a common stock share on the date of grant. With respect to a 10 % stockholder, the exercise price of an option granted shall not be less than 110 % of the fair value of the common stock share on the date of grant. Stock options granted under the 2022 Plan generally vest over four years and expire no later than ten years after the grant date. The Company initially reserved 2,492,735 shares of common stock for issuance under the 2022 Plan. On the first day 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 the last day of the preceding calendar year or such lesser number of shares as approved by the Company’s Board of Directors prior to the effective date of the annual increase. In addition, 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. As of September 30, 2023, the total number of shares of common stock available for issuance under the 2022 Plan is 2,134,033 . 2022 Inducement Equity Plan On August 5, 2022, the Company adopted a 2022 Inducement Equity Plan (the “2022 Inducement Plan”). The 2022 Plan provides for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to persons not previously an employee of the Company and its affiliates. The exercise price of an option granted under the 2022 Inducement Plan shall not be less than the fair market value of a common stock share on the date of grant. Stock options granted under the 2022 Inducement Plan generally vest over four years and expire no later than ten years after the grant date. The Company initially reserved 2,000,000 shares of common stock for issuance under the 2022 Inducement Plan. As of September 30, 2023, the total number of shares of common stock available for issuance under the 2022 Inducement Plan is 1,176,816 . 2022 Employee Stock Purchase Plan On June 8, 2022, upon the Merger, the Company adopted a 2022 Employee Stock Purchase Plan (the “ESPP”). The ESPP allows eligible employees to purchase shares of the Company's common stock at a price equal to 85 % of the lower of the fair market values of the stock on the first day of an offering or on the date of purchase. The Company’s ESPP operates with rolling offering periods, which are generally 24 months. The Company initially reserved 592,584 shares of common stock for issuance under the ESPP. On the first day of each year commencing January 1, 2023, the 2022 Plan will automatically increase by 1 % of the outstanding number of shares of common stock of the Company on the last day of the preceding calendar year or such lesser number of shares as approved by the Company’s Board of Directors prior to the effective date of the annual increase. 24 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) As of September 30, 2023, the total number of shares of common stock available for issuance under the ESPP is 546,155 . Stock options The following table summarizes the Company’s stock option activity and related information under all equity plans, 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, 2022 4,191,426 $ 3.18 9.1 $ 6 Granted 2,850,196 $ 1.62 Forfeited ( 542,863 ) $ 3.60 Outstanding at September 30, 2023 6,498,759 $ 2.46 8.1 $ — Vested and exercisable at September 30, 2023 1,853,574 $ 3.13 7.6 $ — The weighted-averag e gra nt date fair values of stock options granted during the nine months ended September 30, 2023 and 2022 were $ 1.17 and $ 1.27 , respectively. The aggregate intrinsic values of stock options exercised during the nine months ended September 30, 2023 and 2022 were none and $ 2.4 million, respectively. As of September 30, 2023, the unrecognized stock-based compensation expense related to stock options was approximately $ 6.5 million, expected to be recognized over a weighted-average period of 2.4 years. Early Exercise of Stock Options into Restricted Stock For the nine months ended September 30, 2023 and 2022, the Company issued zero shares of common stock upon exercise of unvested stock options. As of September 30, 2023 and December 31, 2022, 67,520 and 105,500 shares were held by employees subject to repurchase at an aggregate price of $ 0.2 million a nd $ 0.3 million, respectively. Performance Awards In connection with the Merger, on December 19, 2021, Legacy Senti approved 8,400,892 performance award options 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 the number of shares authorized and 6,796,074 awards were granted on June 8, 2022. Refer to Note 7, 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, 2022 5,368,501 $ 9.92 9.0 $ — Forfeited ( 266,081 ) $ 9.92 Outstanding at September 30, 2023 5,102,420 $ 9.92 8.0 $ — Vested and exercisable at September 30, 2023 1,699,129 $ 9.92 8.0 $ — 25 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) There were no performance based options granted or exercised during the nine months ended September 30, 2023, and there were 6,796,074 performance based options granted and no performance based options exercised during the nine months ended September 30, 2022. As of September 30, 2023, the unrecognized stock-based compensation expense related to performance based options was approximately $ 4.7 million, expected to be recognized over a weighted-average period of 1.7 years. Market Awards In connection with the Business Combination Agreement with DYNS, on December 19, 2021, Legacy Senti approved 605,451 market award options 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 were contingent on the Merger being consummated. The estimated fair value of the market awards at the grant date was based on a Monte Carlo simulation valuation model. As of the approval date, 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 the number of shares authorized and 315,748 awards were granted on June 8, 2022. Through September 30, 2023 , these market awards did not meet the vesting thresholds. Refer to Note 7, Stockholders’ Equity (Deficit), for further details of the shares of common stock authorized. The were no market based options granted or exercised during the nine months ended September 30, 2023, and there were 315,748 market based options granted and no market based options exercised during the nine months ended September 30, 2022. As of September 30, 2023, the unrecognized stock-based compensation expense related to market based options was approximately $ 0.3 million, expected to be recognized over a weighted-average period of 0.7 years. Restricted Stock Units The following table summarizes the Company’s restricted stock units activity and related information under all equity plans: Number of Restricted Stock Units Weighted-Average Grant Date Fair Value Outstanding at December 31, 2022 447,948 $ 2.50 Forfeited ( 195,228 ) $ 2.50 Outstanding at September 30, 2023 252,720 $ 2.50 As of September 30, 2023, the unrecognized stock-based compensation expense related to restricted stock units was approximately $ 0.3 million, expected to be recognized over a weighted-average period of 1.0 years. Stock-Based Compensation Expense The Company estimates the fair value of stock options using a Black-Scholes option-pricing model. The fair value of restricted stock is based on the fair value of the Company’s common stock on the grant date. 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 26 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 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). The expected term for the ESPP purchase rights is the length of the purchase period. 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: Nine Months Ended September 30, 2023 2022 Expected term (in years) 5.9 6.5 Expected volatility 83 % 79 % Risk-free interest rate 3.5 % 3.0 % Dividend yield — — Total stock-based compensation expense was as follows (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 General and administrative $ 2,153 $ 1,693 $ 8,474 $ 10,014 Research and development 334 397 1,154 1,576 Total stock-based compensation expense $ 2,487 $ 2,090 $ 9,628 $ 11,590 In August 2023, in connection with the GeneFab transaction, the Board of Directors approved the modification of equity awards as part of termination of employment for the Co mpany's employees transferred to GeneFab, including the Company’s Chief Technology Officer. The award modifications included the acceleration of certain non-vested stock options and the extension of the post-termination exercise period of certain vested stock options. The Company accounted for the award modifications under ASC 718, Compensation – Stock Compensation . During the three and nine months ended September 30, 2023, the Company recorded a one-time, noncash incremental compensation expense net of the required reversal of previously recognized compensation attributed to non-vested awards in the amount of $( 2.0 ) million related to the equity awards modifications of the employees that were 27 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) extended offers of employment by GeneFab which was included in net income from discontinued operations in the condensed consolidated statement of operations. Total stock-based compensation expense from discontinued operations was $( 2.1 ) million and $ 0.2 million for the three months ended September 30, 2023 and 2022, respectively, and $( 2.0 ) million and $ 0.6 million for the nine months ended September 30, 2023 and 2022, respectively. 10. Income Tax No provision for income taxes was recorded for the three and nine months ended September 30, 2023 and 2022, 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 cumulative losses generated to date. 11. 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 September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Net loss from continuing operations $ ( 36,615 ) $ ( 14,303 ) $ ( 64,718 ) $ ( 34,677 ) Net income (loss) from discontinued operations $ 21,692 $ ( 2,337 ) $ 12,376 $ ( 5,323 ) Net loss $ ( 14,923 ) $ ( 16,640 ) $ ( 52,342 ) $ ( 40,000 ) Weighted-average shares used in computing net loss per share, basic and diluted 44,473,400 43,424,172 44,275,741 20,150,459 Net loss per share from continuing operations, basic and diluted $ ( 0.83 ) $ ( 0.33 ) $ ( 1.46 ) $ ( 1.73 ) Net income (loss) per share from discontinued operations, basic and diluted 0.49 ( 0.05 ) 0.28 ( 0.26 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.34 ) $ ( 0.38 ) $ ( 1.18 ) $ ( 1.99 ) 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 Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Stock options to purchase common stock 11,916,927 8,757,118 11,916,927 8,757,118 Unvested early exercised options 67,520 118,160 67,520 118,160 Restricted stock units outstanding 252,720 0 252,720 0 Contingent earnout common stock 2,000,000 2,000,000 2,000,000 2,000,000 GeneFab Option 19,633,444 0 19,633,444 0 Total 33,870,611 10,875,278 33,870,611 10,875,278 Refer to Note 3. GeneFab Transaction , for further details of the GeneFab transaction. 28 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 12. Commitments and Contingencies In the ordinary course of business, the Company enters into contractual agreements with third parties that include non-cancelable payment obligations, for which the Company is 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. The lease will expire in 2032 with future undiscounted operating lease payments of $ 46.0 million over an initial lease period of eleven years . Refer to Note 6, Operating Leases , for further details of the leases. 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. Refer to Note 13, Related Parties , for details into the BlueRock agreement. 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 September 30, 2023, purchase commitments related to sponsored research agreements amounted to approximately $ 0.6 million. The Company has entered into license agreements under which it is 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 September 30, 2023, 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 7, 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. Indemnification 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. 13. Related Parties NEA NEA held 4,429,725 shares of the Company’s common stock as of September 30, 2023 and December 31, 2022. NEA held one of the six seats on the Company’s Board of Directors as of September 30, 2023 and December 31, 2022. 29 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) Bayer Healthcare LLC On May 19, 2022, Legacy Senti issued to Bayer a $ 5.2 million unsecured convertible promissory note (“the “May 2022 Note”). On June 8, 2022, the May 2022 Note was automatically cancelled and exchanged for 517,500 shares of Common Stock at a price of $ 10.00 per share. On May 21, 2021, the Company entered into a collaboration and option agreement (“BlueRock Agreement”) with 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. Bayer held 5,878,488 shares, of the Company’s common stock as of September 30, 2023 and December 31, 2022. Bayer held one of the six seats on the Company’s Board of Directors as of September 30, 2023 and December 31, 2022. Bayer’s parent company is Bayer AG, which served as the lead investor in our Series B financing prior to the Merger through its Leaps by Bayer unit. Accordingly, Bayer is considered a related party. Seer, Inc. In January 2023, the Company acquired lab automation equipment purchased from Seer, Inc. (“Seer”) (NASDAQ: SEER). Omid Farokhzad, a member of the Company’s board of directors is the Chief Executive Officer for Seer. The consideration of $ 0.2 million, plus interest, will be paid over a two-year period, and title will transfer to the Company upon final payment. The transaction was classified as a finance lease in accordance with ASC 842. GeneFab, LLC. As a result of the transaction with GeneFab (refer to Note 3. GeneFab Transaction ), whereby Philip Lee, Ph.D., the former Co-Founder and Chief Technology Officer of the Company, assumed the role of Chief Executive Officer of GeneFab, GeneFab is a related party. In connection with the disposal of the business, the Company received the GeneFab Note Receivable and the GeneFab Economic Share and provided GeneFab with the GeneFab Option. Refer to Note 4. Fair Value Measurement. The Company also subleased its manufacturing facility in Alameda to GeneFab and recorded sublease income of $ 0.9 million including variable costs charged for the three and nine months ended September 30, 2023. As of September 30, 2023, the Company had $ 1.2 million of sublease rent and other charges due from GeneFab which are included in GeneFab receivable on the condensed consolidated balance sheet. In connection with the services agreement entered into with GeneFab, the Company is entitled to $ 18.9 million for future services under the agreement, of which $ 17.3 million remained in GeneFab prepaid expenses as of September 30, 2023. Additionally, amounts due from GeneFab related to costs incurred by Senti on its behalf were $ 1.4 million as of September 30 2023 and were recorded in GeneFab receivable on the condensed consolidated balance sheet. The Company incurred $ 1.2 million of research and development expenses under the services agreement during the three and nine months ended September 30, 2023. 30 Table of Contents SENTI BIOSCIENCES, INC. Notes to Condensed Consolidated Financial Statements (unaudited) 14. Subsequent Events On November 6, 2023, the Company entered into a Collaboration and Option Agreement (the “Agreement”) with Celest Therapeutics (Shanghai) Co. Ltd., a limited company organized under the laws of the People’s Republic of China (“Celest”). Subject to the terms and conditions of the Agreement, the Company and Celest will enter into a collaboration under which Celest will lead a pilot trial of SENTI-301A in mainland China, with certain technical support from the Company. In addition, the Company agreed to grant an exclusive option to enter a license agreement with Celest to research, develop, manufacture and commercialize SENTI-301A in mainland China, Hong Kong, Macau, and Taiwan. Outside of these jurisdictions, the Company would retain its rights in SENTI-301A. Pursuant to the Agreement, and beginning with the exercise of the option and entering into a license agreement, the Company may become eligible to receive certain milestone payments, in an aggregate amount of $ 156 million, as well as certain tiered royalty payments. The Agreement contains representations, warranties and covenants of the Company and Celest that are customary for a transaction of this nature. 31 Table of Contents