Senti Biosciences Holdings, Inc. 10-Q

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Senti Biosciences, Inc. (“Senti”) entered into a business combination agreement (the “Agreement”) with Dynamics Special Purpose Corp. (“DYNS”) on December 19, 2021. The transactions contemplated by the terms of the Agreement were completed on June 8, 2022 (the “Closing”), in conjunction with which DYNS changed its name to Senti Biosciences, Inc. (hereafter referred to, collectively with its subsidiaries, as “Senti,” the “Company,” “we,” “us,” or “our,” unless the context otherwise requires). The transactions contemplated in the Agreement are collectively referred to as the “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, 2023 (the “Annual Report”) and filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2024. 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 This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10‑Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “explore,” “intend,” “estimate,” “seek,” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Annual Report and Part II, Item 1A of this Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Overview Senti is an early clinical stage biotechnology company developing next-generation cell and gene therapies engineered with its gene circuit platform technologies for patients living with incurable diseases. Senti’s mission is to create a new generation of smarter therapies that can outsmart complex diseases using novel and unprecedented approaches. To accomplish this mission, Senti has built a synthetic biology platform that it believes may enable it to program next-generation cell and gene therapies with gene circuits. These gene circuits, which Senti created from novel and proprietary combinations of DNA sequences, are designed to reprogram cells with biological logic to sense inputs, compute decisions and respond to their respective cellular environments. Using gene circuits, Senti’s product candidates are designed to precisely kill cancer cells, spare healthy cells, increase specificity to target cells and control the expression of drugs even after administration. Senti is applying its gene circuit technologies to develop a pipeline of medicines that use off-the-shelf chimeric antigen receptor natural killer (“CAR-NK”) cells with the goal of addressing major challenges and providing potentially lifesaving treatments for people living with cancer. Senti’s lead product candidates utilize off-the-shelf healthy adult donor derived NK cells to create CAR-NK cells outfitted with its gene circuit technologies in several oncology indications with high unmet need. We have incurred net losses of $12.1 million and $18.7 million for the three months ended March 31, 2024 and 2023, respectively. As of March 31, 2024 and December 31, 2023, we had cash and cash equivalents of $23.7 million and $35.9 million, respectively, and an accumulated deficit of $256.5 million and $244.3 million, 25 Table of Contents respectively. Net cash flows used in operating activities were $11.7 million and $16.3 million during the three months ended March 31, 2024 and 2023, 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. We expect to continue to incur significant losses for the foreseeable future. We anticipate that our expenses and operating losses will increase substantially over the foreseeable future. The expected increase in expenses will be driven in large part by our ongoing activities, if and as we: • continue to advance our gene circuit platform technologies; • continue preclinical development of our current and future product candidates and initiate additional preclinical studies; • fund clinical development of our current product candidates; • commence clinical studies of our current and future product candidates; • fund manufacturing of our current and future product candidates; • seek regulatory approval of our current and future product candidates; • expand our operational, financial, and management systems and increase personnel, including personnel to support our preclinical and clinical development, and commercialization efforts; • continue to develop, grow, maintain, enforce and defend our intellectual property portfolio; and • incur additional legal, accounting, or other expenses in operating our business, including the additional costs associated with operating as a public company. Recent Developments 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 due 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 a per share 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. 26 Table of Contents 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 year ended December 31, 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 months ended March 31, 2023 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. In November 2023, the Company entered into a Collaboration and Option Agreement with Celest Therapeutics (Shanghai) Co. Ltd. (“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 a product candidate for our SENTI-301A program 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 the SENTI-301A program. 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 option exercise fee and milestone payments, in an aggregate amount of $156.0 million, as well as certain tiered royalty payments. In January 2023, we announced a strategic plan to focus internal resources on SENTI-202 and SENTI-401, to develop gene circuits for other programs with potential partners, and to suspend research and development efforts for SENTI-301A. In January 2024, we announced a strategic plan to streamline business operations and focus our resource allocation to investment on clinical development of SENTI-202, for which an Investigational New Drug (“IND”) application was cleared by the U.S. Food and Drug Administration (“FDA”) in December 2023, and on the partnership of our SENTI-301A program in China with Celest. Components of Results of Operations Total Revenue We currently have no therapeutic products approved for sale, and we have never generated any revenue from the sale of any therapeutic products. Total revenue consists of contract revenue related to research services provided to customers and grant income which is research funding received from grants. Our ability to generate product revenues will depend on our partners’ ability to replicate our results and the successful development and eventual commercialization of our product candidates, which we do not expect for the foreseeable future, if ever. We may also look to generate revenue from collaboration and license agreements in the future. Operating Expenses Our operating expenses consist of research and development expenses, general and administrative expenses, and impairment of long-lived assets. 27 Table of Contents Research and Development Expenses Research and development costs consist primarily of costs incurred for the discovery and preclinical development of our product candidates, which include: • employee-related expenses, including salaries, related benefits, and stock-based compensation expenses for employees engaged in research and development functions; • expenses incurred in connection with research, laboratory consumables and preclinical studies; • the cost of consultants engaged in research and development, regulatory, and clinical related services • the cost to develop our manufacturing process and manufacturing product candidates for use in our research, preclinical studies and clinical trials, including under agreements with third parties, such as consultants, contractors and CMOs; • facilities, depreciation and other expenses, which include allocated expenses for rent and maintenance of facilities, insurance and supplies; • costs related to regulatory compliance; and • the cost of annual license fees. We have not historically tracked research and development expenses by program, with the exception of third-party research projects. Our internal resources, employees and infrastructure are not directly tied to any one research or product candidate discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding these costs incurred for these early-stage research and product candidate discovery programs on a project-specific basis. Our direct external development program expenses reflect external costs attributable to our preclinical development candidates selected for further development as well as INDs and clinical development activities. 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 March 31, 2024 2023 (unaudited) (unaudited) Personnel-related expenses, including share-based compensation $ 2,500 $ 2,391 External services and supplies 4,776 2,191 Office and facilities 1,297 2,223 Other 206 254 Total $ 8,779 $ 7,059 Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact our preclinical development programs. Product candidates in clinical development generally have higher development costs than those in preclinical stages of development, primarily due to the increased size and duration of clinical trials. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the 28 Table of Contents preclinical development of any of our product candidates. However, we expect that our research and development expenses and manufacturing costs will increase in connection with our planned preclinical and clinical development activities in the near term and in the future. The successful development of our current and future product candidates is highly uncertain. This is due to numerous risks and uncertainties, including the following: • negative or inconclusive results from our preclinical studies or clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical studies or clinical trials or abandon any or all of our programs; • product-related side effects experienced by participants in our clinical trials or by individuals using therapeutics similar to our product candidates; • delays in submitting IND applications or comparable foreign applications, or delays or failures to obtain the necessary approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced; • conditions imposed by the FDA or other regulatory authorities regarding the scope or design of our clinical trials; • delays in enrolling research subjects in clinical trials; • high drop-out rates of research subjects; • inadequate supply or quality of product candidate components or materials or other supplies necessary for the conduct of our clinical trials; • Chemistry, manufacturing and control (“CMC”) challenges associated with manufacturing and scaling up biologic product candidates to ensure consistent quality, stability, purity and potency among different batches used in clinical trials; • greater-than-anticipated clinical trial costs; • poor potency or effectiveness of our product candidates during clinical trials; • unfavorable FDA or other regulatory authority inspection and review of a clinical trial or manufacturing site; • failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all; • delays and changes in regulatory requirements, policies and guidelines; and • the FDA or other regulatory authorities interpret our data differently than we do. A change in the outcome of any of these variables may significantly impact the costs and timing associated with the development of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates. General and Administrative Expenses General and administrative expenses consist primarily of salaries and employee-related costs, including stock-based compensation, for personnel in executive, finance and other administrative functions. Other significant costs include legal fees relating to corporate matters, professional fees for accounting and consulting services and an allocation of facility-related costs. 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): 29 Table of Contents Three Months Ended March 31, 2024 2023 (unaudited) (unaudited) Personnel-related expenses, including share-based compensation $ 3,498 $ 6,758 External services and supplies 1,663 1,233 Office and facilities 998 334 Depreciation & Amortization 724 182 Insurance 467 505 Other 172 179 Total $ 7,522 $ 9,191 Other Income (Expense) Interest Income, net Interest income, net consists of interest earned on our cash and cash equivalents, and short-term investments, if any, held during the year, net of interest expense. Change in Fair Value of GeneFab Note Receivable - related party The change in fair value of GeneFab Note Receivable consists of the remeasurement to fair value at each reporting period 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 volatility at each reporting period. 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 per share. 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): 30 Table of Contents Three Months Ended March 31, 2024 2023 Operating expenses: Research and development $ — $ 4,259 General and administrative — 611 Total operating expenses — 4,870 Loss from discontinued operations — (4,870) Net income (loss) from discontinued operations $ — $ (4,870) Results of Operations Comparison of the Three Months Ended March 31, 2024 and 2023 The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023 (in thousands): Three Months Ended March 31, 2024 2023 Change Revenue Contract revenue $ — $ 1,036 $ (1,036) Grant income — 250 (250) Total revenue — 1,286 (1,286) Operating expenses Research and development (included related party cost of $3,632 and $—, respectively) 8,779 7,059 1,720 General and administrative 7,522 9,191 (1,669) Total operating expenses 16,301 16,250 51 Loss from operations (16,301) (14,964) (1,337) Other income (expense) Interest income, net 331 1,061 (730) Change in fair value of contingent earnout liability — 59 (59) Change in fair value of GeneFab Note Receivable - related party 29 — 29 Change in fair value of GeneFab Economic Share - related party 55 — 55 Change in fair value of GeneFab Option - related party 2,314 — 2,314 GeneFab sublease income - related party 1,461 — 1,461 Other income (expense) — (8) 8 Total other income, net 4,190 1,112 3,078 Net loss from continuing operations (12,111) (13,852) 1,741 Net loss from discontinued operations — (4,870) 4,870 Net loss $ (12,111) $ (18,722) $ 6,611 Contract revenue . For the three months ended March 31, 2023, we generated revenue from contracts and license agreements of $1.0 million. The Company earned no revenue in the three months ended March 31, 2024. The decrease of $1.0 million was primarily due to completion of services provided under the Spark collaboration agreement in 2023 that did not occur in 2024. 31 Table of Contents Grant income . For the three months ended March 31, 2023, we generated revenue from grants of $0.3 million, from the SBIR SENTI-202 grant funding. The Company earned no revenue from grants in the three months ended March 31, 2024. Research and development expenses . Research and development expenses were $8.8 million and $7.1 million for the three months ended March 31, 2024 and 2023, respectively. The increase o f $1.7 million w as primarily due to an increase of $2.6 million in external services and supplies cost offset by a decrease of $0.9 million in office and facilities cost . General and administrative expenses . General and administrative expenses were $7.5 million and $9.2 million for the three months ended March 31, 2024 and 2023, respectively. The decrease of $1.7 million was primarily due to a decrease of $3.3 million in personnel-related expenses offset by an increase of $0.7 million in facilities costs, an increase of $0.5 million in depreciation and amortization costs as well as an increase of $0.4 million in professional services costs. Interest income, net . Interest income was $0.3 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively.The decrease is attributed to lower average cash balances in the relevant periods. Change in fair value of GeneFab Option - related party. For the three months ended March 31, 2024, the change in fair value of GeneFab Option was a gain of $2.3 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 March 31, 2024, sublease income was $1.5 million from the sublease to GeneFab for the Alameda facility. Net income (loss) from discontinued operations. For the three months ended March 31, 2023, net loss from discontinued operations was $4.9 million. Discontinued operations relate to the transfer of in-house manufacturing activities in the Alameda facility, to GeneFab, and include the costs and depreciation of equipment and related deposits or liabilities, as well as manufacturing personnel-related costs. Liquidity and Capital Resources Sources of Liquidity From inception to March 31, 2024, we raised aggregate gross proceeds of $300.1 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. Pursuant to the Purchase Agreement, we have the right, in our sole discretion, to sell to Chardan up to the lesser of: (i) $50.0 million of shares of our common stock; and (ii) 8,727,049 shares of common stock at 97% of the volume weighted average price (“VWAP”) of the common stock calculated in accordance with the Purchase Agreement, over a period of 36 months subject to certain limitations and conditions contained in the Purchase Agreement. 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. Other than the issuance of the commitment shares of our common stock to Chardan, we issued 1,300,000 shares of common stock up until March 31, 2024 aggregating to net proceeds of $1.2 million, under the Purchase Agreement. There were no shares issued within the three months ended March 31, 2024. 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 continuing operations since our inception and anticipate we will continue to incur net losses for the foreseeable future. As of March 31, 2024, we had $23.7 million in cash and cash equivalents, and an accumulated deficit of $256.5 million. 32 Table of Contents We will need substantial additional funding to support our continuing operations and pursue our development strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, if at all. Should we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of our product candidates or delay our efforts to expand our product pipeline. As substantial doubt exists about the Company’s ability to continue as a going concern, we may also be required to sell or license to other parties rights to develop or commercialize our product candidates that we would prefer to retain. The 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. 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 due at closing and was netted against prepayment owed by us for manufacturing and research activities to GeneFab. The remaining consideration of $18.9 million will be received in installments during 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. Cash Flows The following table sets forth a summary of our cash flows from continuing and discontinued operations for each of the periods indicated (in thousands): Three Months Ended March 31, 2024 2023 Net cash from operating activities $ (11,682) $ (16,304) Net cash from investing activities (15) (9,497) Net cash from financing activities — (35) Net change in cash and cash equivalents $ (11,697) $ (25,836) Operating Activities For the three months ended March 31, 2024, net cash used in operating activities of $11.7 million was primarily due to our loss of $12.1 million with non-cash adjustments of $2.3 million gain from change in fair value of the GeneFab Option, $1.5 million for depreciation and amortization of operating lease right-of-use-assets and $1.3 million for stock-based compensation expense. Other material changes comprised of $3.5 million decrease in GeneFab prepaid expenses offset by $2.6 million decrease in accounts payable and accrues expenses and $0.9 million decrease in operating lease liabilities. For the three months ended March 31, 2023, net cash used in operating activities of $16.3 million was primarily due to our net loss of $18.7 million with non-cash adjustments of $3.8 million for stock-based compensation expense, $0.9 million for depreciation and amortization of operating lease right-of-use assets and $0.6 million for accretion of discount on short-term investments. Other material changes comprised of $1.6 million decrease in accounts payable and accrued expenses and other current liabilities, $0.4 million decrease in deferred revenue, $0.4 million increase in prepaid expenses and other assets offset by $0.9 million increase in operating lease liabilities. Investing Activities For the three months ended March 31, 2024, net cash used in investing activities was nominal. For the three months ended March 31, 2023, net cash used in investing activities of $9.5 million was due to $18.0 million purchases of short-term investments and $6.5 million purchases of property and equipment offset by $15.0 million cash received upon maturity of short-term investments. 33 Table of Contents Financing Activities For the three months ended March 31, 2024, there was no cash provided by financing activities. For the three months ended March 31, 2023, net cash used in financing activities was nominal. Funding Requirements Based upon our current operating plans, substantial doubt exists about whether our existing cash and cash equivalents will be sufficient to fund our operations, including clinical trial expenses and capital expenditure requirements, beyond twelve months from the date of this Quarterly Report. We anticipate that we will continue to seek additional funding, though the precise timing of such may prove uncertain. Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. Our assumptions may prove to be inaccurate, and we could deplete our capital resources sooner than we expect. Additionally, the process of testing and manufacturing product candidates in preclinical studies and clinical trials is costly and the timing and expenses in these trials are uncertain. Our future capital requirements will depend on many factors, including: • the scope, rate of progress, results and costs of drug discovery, clinical and preclinical development, laboratory testing and clinical trials for our product candidates; • the number and development requirements of product candidates that we may pursue, and other indications for our current product candidates that we may pursue; • the costs, timing and outcome of regulatory review of our product candidates; • the scope and costs of any commercial manufacturing activities; • the cost associated with commercializing any approved product candidates; • the cost and timing of developing our ability to establish sales and marketing capabilities, if any; • the costs of preparing, filing and prosecuting patent applications, maintaining, enforcing and protecting our intellectual property rights, defending intellectual property-related claims and obtaining licenses to third-party intellectual property; • the timing and amount of any milestone and royalty payments we are required to make under our present or future license agreements; • our ability to establish and maintain collaborations on favorable terms, if at all; and • the extent to which we acquire or in-license other product candidates and technologies and associated intellectual property. In order to improve our liquidity, management is actively pursuing additional financing. We will need to obtain substantial additional funding for continuing operations. If we are unable to raise capital when needed, or on attractive terms, we could be forced to delay, reduce or eliminate our research or drug development programs or any future commercialization efforts. Although management continues to pursue these plans, there is no assurance that we will be successful in obtaining sufficient funding on terms acceptable to us to fund continuing operations, if at all. Contractual Obligations and Commitments On June 3, 2021, we entered into a lease agreement for a new cGMP facility in Alameda, California to support planned initial clinical trials for our product candidates. The lease will expire in 2032 with total undiscounted operating lease payments of $46.0 million over an initial lease period of eleven years. See Note 6. Operating Leases for details on our lease obligations. 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 34 Table of Contents 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. 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 7. Stockholders’ Equity, for further details of the contingent earnout. Off-Balance Sheet Arrangements During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under the rules and regulations of the SEC. Critical Accounting Estimates Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements and accompanying notes. On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and assumptions on historical experience, known trends and events, and various other factors that are believed to be reasonable and appropriate under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, we believe the following accounting policies and estimates to be most critical to the preparation of our consolidated financial statements. We define our critical accounting policies as those under U.S. GAAP that require us to make subjective estimates and judgments about matters that are inherently uncertain and are likely to have a material impact on our financial condition and results of operations, as well as the specific manner in which we apply those principles. During the three months ended March 31, 2024, there have not been any other significant changes to our critical accounting policies and estimates, from those presented in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, that are of significance, or potential significance, to us. Emerging Growth Company Status The Jumpstart Our Business Startups Act (“JOBS”) Act permits an emerging growth company to take advantage of an extended transition to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. The Company is an “emerging growth company” as defined in Section 2(a) of the Securities Act, and has elected to not take advantage of the benefits of this extended transition period. We expect to remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of the Dynamics Initial Public Offering (“IPO”) (which occurred on May 25, 2021), (b) in which we have total annual revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds $700 million as of the end of that fiscal year’s second fiscal quarter and our net sales for the year exceed $100 million; and (2) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding, rolling three-year period. Smaller Reporting Company Status The Company is a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company if (1) the 35 Table of Contents market value of our common stock held by non-affiliates is less than $250 million as of the last business day of the second fiscal quarter, or (2) our annual revenues in our most recent fiscal year completed before the last business day of our second fiscal quarter are less than $100 million and the market value of our common stock held by non-affiliates is less than $700 million as of the last business day of the second fiscal quarter. Segment Information We have one business activity and operate in one reportable segment. Item 3. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company,” we are not required to provide this information.