NOTE 2: - SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements have been prepared in accordance with the United States Generally Accepted Accounting Principles, or U.S. GAAP.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates, judgments, and assumptions that are reasonable based upon information available at the time they are made. Estimates are primarily used for, but not limited to, percentage of completion in revenue recognition, allocation of the purchase consideration in the connection with Kokomodo Transaction, impairment of goodwill and intangible assets, valuation of share-based compensation and forfeiture rate, valuation of warrants and determining the valuation and terms of leases. These estimates, judgments and assumptions can affect the amounts reported in the financial statements and accompanying notes, and actual results could differ from those estimates.

The U.S. dollar is the primary currency of the economic environment in which the Company and the Subsidiaries operate. Thus, the U.S. dollar is the Company’s functional and reporting currency. Accordingly, non-dollar denominated transactions and balances have been re-measured into the functional currency in accordance with ASC 830, “Foreign Currency Matters”. All transaction gains and losses from the re-measured monetary balance sheet items are reflected in the consolidated statements of operations as financial income or expenses, as appropriate.

The consolidated financial statements include the accounts of the Company and its Subsidiaries. NCIs in subsidiaries represent the equity in Ever After Foods and Kokomodo not attributable, directly or indirectly, to the Company. NCIs are presented in equity separately from the equity attributable to the shareholders of the Company. Profit or loss are attributed to the Company and to NCIs. Losses are attributed to non-controlling interests even if they result in a negative balance of non-controlling interests in the consolidated statements of operations.

The Company treats transactions with NCIs as transactions with its equity owners. Accordingly, for sales or purchases of shares to or from non-controlling interests, the difference between any consideration received or paid and the portion sold or acquired of the carrying value of the net assets of the subsidiary is recorded in equity.

Intercompany transactions and balances have been eliminated upon consolidation.

Cash equivalents are short-term highly liquid investments that are readily convertible to cash with maturities of three months or less at the date acquired.

Bank deposits with original maturities of more than three months but less than one year are presented as part of short-term bank deposit. Deposits are presented at their cost which approximates market values including accrued interest. Interest on deposits is recorded as financial income.

Restricted cash is cash used to secure the Company’s credit line and derivative and hedging transactions. The restricted cash is presented at cost which approximates market values including accrued interest.

Long-term restricted bank deposits with maturities of more than one year used to secure operating lease agreement are presented at cost which approximates market values including accrued interest.

The Company recognizes revenue in accordance with ASC 606, “Revenue from Contracts with Customers”, and all the related amendments, when a performance obligation is a promise to provide a distinct service or a series of distinct services. Services that are not distinct are bundled with other services in the contract until a bundle of services that are distinct are created. A service promised to a customer is distinct if the customer can benefit from the service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the service to the customer is separately identifiable from other promises in the contract.

Revenues are recognized when the control of the performance of the obligations are transferred to the customer, in an amount that reflects the consideration to which the Company expects to be entitled, excluding sales taxes.

The Company determines revenue recognition through the following five steps:

The Company derives its revenues mainly from services provided to CDMO clients and revenues related to a POC, collaboration with a leading international agriculture corporation in the AgTech field. As such, the Company contracts with its customers, may contain the following main performance obligations: (i) training cell manufacturing staff for GMP, and of non-GMP; (ii) quality assurance and quality control tests; (iii) performing engineering runs and clinical batches; (iv) protocol development; and (v) evaluation and analysis of results. The Company evaluates each performance obligation to determine if it is satisfied at a point in time or over time.

For contracts that contain multiple performance obligations, the Company allocates the transaction price to each performance obligation based on the relative standalone selling price, or SSP, for each performance obligation. The Company uses judgment in determining the SSP for its performance obligations. To determine SSP, the Company maximizes the use of observable standalone sales and observable data, where available.

Revenue from services provided is recognized over time when the control of the services promised to a customer is transferred to the customer. The Company recognizes revenue from such contracts over time, using the percentage of completion accounting method. The Company recognizes revenue as the work is performed, based on a ratio between labor effort incurred to date compared to the total estimated labor effort for the contract. Incurred labor effort represents work performed that corresponds with, and thereby best depicts, the transfer of control of the services to the customer. Determining the projected labor costs requires understanding the project-specific circumstances, including the specific terms and conditions of each contract, changes to the project schedule, and complexity of the project.

Revenue is recognized net of any taxes collected from customers which are subsequently remitted to governmental entities (e.g., sales tax and other indirect taxes).

Amounts are billed as work progresses in accordance with agreed-upon contractual terms, or upon achievement of contractual milestones.

The Company applies the practical expedient and does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised services to the customer will be one year or less.

For each contract which includes prepayment terms, the Company evaluates whether the contract includes a significant financing component. The Company’s contracts with customer prepayment terms do not include a significant financing component because the primary purpose of such contracts is not to receive financing from the customers.

Advances from customers

The Company records advances from customers when cash payments from customers are received in advance of the Company’s performance obligations to provide services. As of June 30, 2025 and 2024, the Company received upfront payments of a total of $148 and $43, respectively, from customers which are expected to be recognized as revenue once the service has been performed. The Company expects to satisfy the majority of its performance obligations associated with advances from customers within one year or less. The Company elected the short-term contract practical expedient for the remaining performance obligations, as the Company’s contracts have an original expected duration of less than one year.

During the year ended June 30, 2025 and 2024, the Company recognized $43 and $7 that were included in the advances from customers balance on June 30, 2024 and 2023, respectively.

Cost of revenues is comprised of manufacturing costs related to the Company’s CDMO and AgTech businesses, which primarily consist of materials, personnel-related and overhead costs.

Property and equipment are stated at cost, net of accumulated depreciation and impairments. Depreciation is calculated by the straight-line method over the estimated useful lives of the assets, at the following annual rates:

Repairs and maintenance expenditures, which are not considered improvements and do not extend the useful life of property and equipment, are expensed as incurred.

The Company’s long-lived assets are reviewed for impairment in accordance with ASC 360, “Property, Plant and Equipment”, whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. The recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets (asset group) to the future undiscounted cash flows expected to be generated by the assets. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During fiscal years 2025 and 2024, no impairment losses were recorded.

Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired. Under ASC 350, “Intangible - Goodwill and Other”, or ASC 350, goodwill is not amortized but rather is subject to an annual impairment test. ASC 350 allows an entity to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If the qualitative assessment does not result in a more likely than not indication of impairment, no further impairment testing is required. If the Company elects not to use this option, or if the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, then the Company prepares a quantitative analysis to determine whether the carrying value of a reporting unit exceeds its estimated fair value. If the carrying value of a reporting unit would exceed its estimated fair value, the Company would have recognized an impairment of goodwill for the amount of this excess (see notes 5 and 6).

The Company accounts for share-based compensation in accordance with ASC 718, “Compensation-Share Compensation”, or ASC 718, which requires companies to estimate the fair value of equity-based payment awards on the date of grant using an option-pricing model. The Company estimates the fair value of share options granted using the Black-Scholes option-pricing model. The Company accounts for employees’, officers’ and consultants share-based payment awards classified as equity awards, such as restricted share units, or RSUs, and restricted shares, or RS, using the grant-date fair value. The fair value of share-based payment transactions is recognized as an expense over the requisite service period, net of estimated forfeitures. The Company estimates forfeitures based on historical experience and anticipated future conditions.

The Company recognized compensation cost for an award with service conditions that has a graded vesting schedule using the accelerated method based on the multiple-option award approach.

The fair value of service-based share option grants is estimated on the grant date using a Black-Scholes option-pricing model and compensation expenses related to share options, RS and RSUs grants are recognized on a graded vesting schedule over the vesting period. The expected term represents the period that service-based share option grants are expected to be outstanding. When establishing the expected term assumption, the Company utilizes the simplified method.

Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of salaries, taxes and other employee benefits, share-based compensation expenses, subcontractors and materials used for research and development activities, including clinical trials, manufacturing costs and professional services. All costs associated with research and development are expensed as incurred.

Grants received from the Israel Innovation Authority, or the IIA, are recognized when the grant becomes receivable, provided there was reasonable assurance that the Company will comply with the conditions attached to the grant and there was reasonable assurance the grant will be received. The grant is deducted from the research and development expenses as the applicable costs are incurred (see also note 10b).

During fiscal years 2025 and 2024, the Company also received (in cash) non-royalty bearing grants from the European Union research and development consortiums, under Horizon 2020, Horizon Europe, U.S. National Institute of Allergy and Infectious Diseases, or the NIAID, and from the IIA, under the CRISPR-IL consortium and Placental Mucosal Associated Invariant T, or MAIT, in the aggregate amount of approximately $1,613 and $1,113, for the years ended June 30, 2025 and 2024, respectively. The non-royalty bearing grants for funding the projects are recognized at the time the Company is entitled to each such grant based on the related costs incurred and recorded as a deduction from research and development expenses.

Research and development expenses, net for the years ended June 30, 2025 and 2024 include participation in research and development expenses in the amount of approximately $1,153 and $1,334, respectively.

Basic and diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the year, including equity classified pre-funded warrants and unexercised vested options with no par value exercise price. All outstanding share options, unvested RSUs, RS, pre-funded warrants and warrants have been excluded from the calculation of the diluted loss per common share because all such securities are anti-dilutive for each of the periods presented.

Income taxes are computed using the asset and liability method. Under ASC 740, “Income Taxes”, or ASC 740, the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is recognized to the extent that it is more likely than not that the deferred taxes will not be realized in the foreseeable future.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. Accounting guidance addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the consolidated financial statements, under which a Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, short-term bank deposits, long-term restricted bank deposits and customers receivables.

The majority of the Company’s financial instruments listed above are mainly invested in the New Israeli Shekel, or NIS, and U.S. dollar deposits of major banks in Israel and in the United States. Deposits in the United States may be in excess of insured limits and are not insured in other jurisdictions. Generally, these deposits may be redeemed upon demand and therefore bear minimal risk. The Company invests its surplus cash in cash deposits in financial institutions and has established guidelines, approved by the Company’s Investment Committee, relating to diversification and maturities to maintain safety and liquidity of the investments.

The majority of the Company’s agreements with employees in Israel are subject to Section 14 of the Israeli Severance Pay Law, 1963, or the Severance Pay Law. The Company’s contributions for severance pay have replaced its severance obligation. Upon contribution of the full amount of the employee’s monthly salary for each year of employment, no additional obligation exists regarding the matter of severance pay and no additional payments are made by the Company to the employee. Further, the related obligation and amounts deposited on behalf of the employee for such obligation are not stated on the balance sheet, as the Company is legally released from the obligation to employees once the deposit amounts have been paid.

For the Company’s Chief Executive Officer, or the CEO, whose agreement is not subject to Section 14 of the Severance Pay Law, the liability for severance pay is calculated pursuant to Severance Pay Law, based on the most recent salary of the employee multiplied by the number of years of employment, as of the balance sheet date. The CEO is entitled to one month’s salary for each year of employment or a portion thereof. The Company’s liability to the CEO is fully provided by monthly deposits with insurance policies and by an accrual. The value of these policies is recorded as an asset in the Company’s balance sheet. 

The deposited funds may be withdrawn only upon the fulfillment of the obligation pursuant to the Severance Pay Law or labor agreements. The value of the deposited funds is based on the cash surrendered value of these policies, and includes immaterial profits or losses accumulated up to the balance sheet date.

Severance expenses for the years ended June 30, 2025 and 2024 were $663 and $632, respectively.

The Company accounts for derivatives and hedging based on ASC 815, “Derivatives and hedging”, as amended and related interpretations, or ASC 815, which requires the Company to recognize all derivatives on the balance sheet at fair value.

If a derivative does not meet the definition of a hedging instrument, the changes in fair value are included in earnings. Cash flows related to Company’s current hedging are classified as operating activities. The Company enters into option and forward contracts in order to limit the exposure to exchange rate fluctuation associated with expenses mainly incurred in NIS and its loan from the EIB that is linked to the Euro. Since the derivative instruments that the Company holds do not meet the definition of hedging instruments under ASC 815, any gain or loss derived from such instruments is recognized immediately as “financial income (expenses), net”.

The Company measured the fair value of the contracts in accordance with ASC 820, “Fair Value Measurement”, or ASC 820. Foreign currency derivative contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments. The net income (losses) from derivatives instruments recognized in “Financial income (expenses), net” during the years ended June 30, 2025 and 2024 were $251 and $148, respectively (see note 12).

Operating leases are included in operating lease right-of-use, or ROU, asset, and operating lease liability. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses the incremental borrowing rate based on the information available at the lease commencement date as the rate implicit in the lease is not readily determinable. The determination of the incremental borrowing rate requires management judgment based on information available at lease commencement. The operating lease ROU assets also include adjustments for prepayments and accrued lease payments. Operating lease cost is recognized on a straight-line basis over the expected lease term. Lease agreements with a non-cancelable term of less than twelve months are not recorded on the balance sheets.

Lease terms will include options to extend or terminate the lease when it is reasonably certain that the Company will either exercise or not exercise the option to renew or terminate the lease.

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, restricted cash, short-term bank deposits and restricted bank deposits and other current assets, trade payable and other accounts payable and accrued expenses, approximate fair value because of their generally short-term maturities.

The Company measures its derivative instruments at fair value under ASC 820. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company categorized each of its fair value measurements in one of these three levels of hierarchy.

The Company measures its liability pursuant to the Finance Contract based on the aggregate outstanding amount of the combined principal and accrued interest thereunder (see note 9).

The Company measures its liability for Pre-Funded Warrants and Common Warrants (defined below) at fair value using Level 3 unobservable inputs, in accordance with the fair value hierarchy defined in ASC 820 (see note 2v and 11).

The Company accounts for warrants and pre-funded warrants based on ASC 480, “Distinguishing Liabilities from Equity”, or ASC 480, as either equity-classified or liability-classified instruments based on an assessment of the warrants and pre-funded warrant’s specific terms and applicable authoritative guidance. The assessment considers whether the warrants and pre-funded warrants are freestanding financial instruments, meet the definition of a liability under ASC 480, and meet all of the requirements for equity classification, including whether the warrants and pre-funded warrants are indexed to the Company’s own common stock and whether the warrants and pre-funded warrants holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among all other classification conditions pursuant to ASC 815-40. This assessment is conducted at the time of the warrants and pre-funded warrants issuance and in any change in circumstances that could affect the classification. Warrants and pre-funded warrants that meet all the criteria for equity classification, are required to be recorded as a component of additional paid-in capital. Warrants that do not meet all the criteria for equity classification, are required to be recorded as liabilities at their initial fair value on the date of issuance and remeasured to fair value at each balance sheet date thereafter. During year ended June 30, 2025, the liability-classified Common Warrants and Pre-Funded Warrants (defined below) were recorded under liabilities. As of June 30, 2025, these instruments were reclassified to equity, following the removal of the 19.99% beneficial ownership limitation upon obtaining the Shareholder Approval (defined below). The Shareholder Approval was obtained at the Company’s annual meeting of shareholders held on June 30, 2025. Changes in the estimated fair value of the Common Warrants and Pre-Funded Warrants are recognized in “Financial expenses, net” in the consolidated statements of operations (see also note 11).

ASU No. 2023-07 - “Segment Reporting–Improvements to Reportable Segments Disclosures (Topic 280)”, or ASU 2023-07:

In November 2023, the Financial Accounting Standards Board, or FASB issued ASU 2023-07, which improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this ASU (1) require that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker, or the CODM, and included within each reported measure of segment profit or loss; (2) require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition; (3) require that a public entity provide all annual disclosures about a reportable segment’s profit or loss and assets currently required by Topic 280 in interim periods; (4) clarify that if the CODM uses more than one measure of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources, a public entity may report one or more of those additional measures; and (5) require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure or measures of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments in this ASU are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and should be applied retrospectively to all periods presented. The Company’s CODM, the CEO, reviews the Company’s operating results on an aggregate basis and manages the Company’s operations as a single operating segment. The CODM uses consolidated net loss to assets performance and utilizes this information in allocating resources and in assessing performance by monitoring budget versus actual results (see also note 13).

ASU No. 2023-09 - “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”, or ASU 2023-09:

In December 2023, the FASB issued ASU 2023-09, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and allows adoption on a prospective basis, with a retrospective option. The Company is in the process of assessing the impacts and method of its adoption. The Company is currently evaluating the effect that ASU 2023-09 will have on its consolidated financial statements and related disclosures.

ASU No. 2024-03 - “Income Statement: Reporting Comprehensive Income - Expense Disaggregation Disclosures”, or ASU 2024-03:

In November 2024, the FASB issued ASU 2024-03, which requires more detailed information about specified categories of expenses (purchases of inventory, employee compensation, depreciation, amortization, and depletion), which are included in certain expense captions presented on the face of the income statement, as well as disclosures about selling expenses. ASU 2024-03 is effective for fiscal years beginning after December 15, 2026, and for interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The amendments may be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of ASU 2024-03, or (2) retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.

ASU No. 2025-05- “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets”, or ASU 2025-05:

In July 2025, the FASB issued ASU 2025-05. This amendment introduces a practical expedient for the application of the current expected credit loss model to current accounts receivable and contract assets. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company is currently evaluating this guidance to determine the impact it may have on its consolidated financial statements disclosures.

For all periods presented, net loss is the same as comprehensive loss as there are no comprehensive income items.

The Company records accruals for loss contingencies to the extent that it concludes their occurrence is probable and that the related liabilities are estimable. As of June 30, 2025 and 2024, the Company has not recorded any accruals in this regard.