References

in this report (the "Quarterly Report") to "we," "us" or the "Company" refer to Dynamics Special Purpose Corp. References to our "management" or our "management team" refer to our officers and directors, and references to the "Sponsor" refer to Dynamics Sponsor LLC. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking Statements

This Quarterly Report includes "forward-looking statements" that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as "expect," "believe," "anticipate," "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 Company's most recent Annual Report on 10-K, filed with the U.S. Securities and Exchange Commission (the "SEC") on March 7, 2022. 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

We are a blank check company incorporated on March 1, 2021 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We expect to continue to incur significant costs in the pursuit of our initial business combination, including our proposed initial business combination with Senti. We cannot assure you that our plans to complete our initial business combination, including our proposed initial business combination with Senti, will be successful.

Recent Developments

On December 19, 2021, we entered into the Business Combination Agreement with Merger Sub and Senti. The Business Combination Agreement provides, among other things, that on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Senti, with Senti surviving as a wholly-owned subsidiary of the Company. Upon the Closing, the Company will change its name to "Senti Biosciences, Inc." and its ticker symbol on the Nasdaq Global Market, where it expects to be listed, is expected to change to "SNTI."

The Business Combination Agreement and the transactions contemplated thereby were approved by the boards of directors of each of the Company and Senti. We intend to effectuate our proposed initial business combination with Senti using a combination of cash from the proceeds of our Initial Public Offering (and the concurrent private placement of shares to our Sponsor), the proceeds of the sale of our shares to private investors in connection with our initial business combination (the Subscriptions) and shares issued to the current owners of Senti.


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For further information regarding the Business Combination Agreement and our
proposed initial business combination with Senti, please refer to "
Part I, Item 1. Business
" of our Annual Report on Form
10-K,
which was filed with the SEC on March 7, 2022, and the Current Report on Form
8-K
announcing the proposed business combination, which was filed with the SEC on
December 20, 2021.

Results of Operations



We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities to date were organizational activities, those
necessary to prepare for our Initial Public Offering, and, after our Initial
Public Offering, identifying target companies for a business combination,
conducting due diligence on such target companies and negotiating the Business
Combination Agreement with Senti, which we anticipate will give effect to our
initial business combination. We do not expect to generate any operating
revenues (if any) until after the completion of our initial business
combination. We generate
non-operating
income in the form of interest income on cash and cash equivalents held
following our Initial Public Offering. We incur expenses as a result of being a
public company (for legal, financial reporting, accounting and auditing
compliance) and we incurred expenses for due diligence in connection with
identifying Senti as the target company for our initial business combination.

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

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

Liquidity and Capital Resources

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

Simultaneously with the closing of our Initial Public Offering, our Sponsor purchased an aggregate of 715,500 shares of Class A Common Stock at a price of $10.00 per share (i.e. the Private Placement Shares), generating gross proceeds of $7,155,000. A portion of the proceeds from the sale of the Private Placement Shares was added to the net proceeds from our Initial Public Offering held in the Trust Account. If we do not complete our initial business combination within 24 months of the closing of our Initial Public Offering, the proceeds from the sale of the Private Placement Shares held in the Trust Account will be used to fund the redemption of our Public Shares (subject to the requirements of applicable law).

For the three months ended March 31, 2022, net cash used in operating activities was $492,630, which was primarily due to our net loss of $1,309,849, and non-cash interest and dividend income on investments held in the trust account of $23,162 offset in part by a changes in working capital accounts of $840,381.

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

As of March 31, 2022, we had cash of $396,693 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to complete our proposed initial business combination with Senti.

We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less taxes payable and deferred underwriting fees), to complete our initial business combination with Senti. We may withdraw interest income (if any) to pay franchise and income taxes, if any. Our annual income tax obligations will depend on the amount of interest and other income earned on the amount held in the Trust Account. We expect the interest income earned on the amount in the Trust Account (if any) will be sufficient to pay our income taxes. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our proposed initial business combination with Senti, the remaining amount held in the Trust Account will be used as working capital to finance the operations of Senti, to make other acquisitions and to pursue our growth strategies.


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We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business while our initial business combination with Senti is completed. However, if our estimates of the costs of operating our business during this period are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial business combination. In order to fund working capital deficiencies or finance transaction costs in connection with our proposed initial business combination with Senti, our sponsor, or an affiliate of our sponsor, or certain of our officers or directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts, but no proceeds from our Trust Account would be used for such repayment. Up to $2,000,000 of such loans, if made, may be convertible into shares of the post-business combination entity at a price of $10.00 per share at the option of the lender. The shares would be identical to the Private Placement Shares. The terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. We do not expect to seek loans from parties other than our Sponsor, affiliates of our Sponsor or our officers or directors as we do not believe third parties would be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.



Off-Balance
Sheet Arrangements

We did not have any
off-balance
sheet arrangements as of March 31, 2022 and December 31, 2021.

Contractual Obligations

Underwriters Agreement



In connection with our Initial Public Offering, the Company granted the
underwriter a
45-day
option to purchase up to 3,000,000 additional shares of Class A Common Stock to
cover over-allotments at the Initial Public Offering price, less the
underwriting discounts and fees. The underwriter exercised its over-allotment
option in full on May 28, 2021.

The underwriter was paid a cash underwriting fee of $0.20 per share, or $4,600,000 in the aggregate, upon the closing of our Initial Public Offering. In addition, approximately $0.306 per share, or $7,050,000 in the aggregate, may be payable to the underwriter for deferred underwriting fees (this amount having being reduced from $8,050,000 by $1,000,000 by agreement with the underwriter on December 17, 2021). The deferred underwriting fee will become payable to the underwriter from the amount held in the Trust Account solely in the event that the Company completes its initial business combination, subject to the terms of the underwriting agreement.

Financial Advisor Agreement

On December 16, 2021, the Company entered into an agreement (the "Financial Advisor Agreement") with Morgan Stanley & Co. LLC ("Morgan Stanley") for financial advisory services in connection with our potential initial business combination with Senti, which services Morgan Stanley had been engaged to provide, and which services Morgan Stanley had provided, since August 4, 2021. The Financial Advisor Agreement shall terminate automatically on December 16, 2022 unless terminated earlier, with or without cause, by either the Company or Morgan Stanley. The Company will pay Morgan Stanley a fee of $1,000,000 upon the consummation of our proposed initial business combination with Senti.


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Placement Agent Agreement

On September 21, 2021, the Company entered into an agreement (the "Placement Agent Agreement") with Morgan Stanley, J.P. Morgan Securities LLC and BofA Securities, Inc. (together, the "Placement Agents") for services in connection with the placement of shares of our Class A Common Stock to certain private investors which is anticipated to occur concurrently with the completion our potential initial business combination with Senti. The Placement Agent Agreement shall terminate automatically on August 28, 2022 unless terminated earlier, with or without cause, by either the Company or any Placement Agent (as to itself only). The Company will pay to the Placement Agents a total fee equal to 4.0% of the aggregate price at which the shares of our Class A Common Stock are sold to the private investors, which fee shall be payable upon the consummation of the placement of the shares. Each of the Placement Agents will receive 33.3% of the fee.

Registration Rights

The holders of the Founder Shares, Private Placement Shares and any Class A Common Stock issuable upon conversion of any working capital loans from our Sponsor, officers or directors have registration rights pursuant to a registration and stockholder rights agreement signed in connection with our Initial Public Offering. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain "piggy-back" registration rights with respect to registration statements filed subsequent to the completion of our initial business combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

In addition, it is anticipated that each signatory to the Investor Rights Agreement, other than the Company, will be granted certain registration rights with respect to their respective shares of Class A Common Stock. Further, shares of Class A Common Stock issued to the private investors making Subscriptions will have registration rights pursuant to the Subscription Agreements following the consummation of the proposed business combination with Senti.

Business Combination Agreement

As set forth in Note 1 of the accompanying financial statements, we have entered into the Business Combination Agreement with Merger Sub and Senti pursuant to which, among other things, Merger Sub will merge with and into Senti, with Senti surviving as a wholly-owned subsidiary of the Company. We have also entered into various ancillary transaction documents to give effect to the Merger, which are described throughout this Quarterly Report.

Critical Accounting Policies

The preparation of unaudited condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:

Net Loss Per Common Share

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

Class A Common Stock Subject to Possible Redemption



We account for our Class A Common Stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") 480,
Distinguishing Liabilities from Equity
. Shares of Class A Common Stock subject to mandatory redemption are classified
as a liability instrument and measured at fair value. Conditionally redeemable
common stock (including common stock that features redemption rights that are
either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within our control) is classified as
temporary equity. At all other times, common stock is classified as
stockholders' equity. Our Class A Common Stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, Class A Common Stock subject
to possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' equity section of our unaudited condensed
consolidated balance sheet. Immediately upon the closing of the Initial Public
Offering, the Company recognized the remeasurement from initial book value to
redemption amount value. The change in the carrying value of the redeemable
Class A Common Stock subject to possible redemption resulted in charges against
additional
paid-in
capital and accumulated deficit.

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Recent Accounting Standards

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

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