| SIGNIFICANT ACCOUNTING POLICIES | NOTE
2: SIGNIFICANT
ACCOUNTING POLICIES The
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States ("U.S. GAAP").
a. Use
of estimates: The
preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, judgments
and assumptions. The Company's management believes that the estimates, judgments and assumptions used are reasonable based
upon information available at the time they are made. These estimates, judgments and assumptions can affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
b. Financial
statements in U.S. dollars: Cyren's
revenues, and certain of its subsidiary's revenues, are generated mainly in U.S. dollars. In addition, most of their costs
are incurred in U.S. dollars. The Company's management believes that the U.S. dollar is the primary currency of the economic
environment in which Cyren and certain of its subsidiaries operate. Thus, the functional and reporting currency of Cyren and certain
of its subsidiaries is the U.S. dollar. Cyren
and certain subsidiaries' transactions and balances denominated in U.S. dollars are presented at their original amounts.
Non-dollar transactions and balances have been re-measured to U.S. dollars in accordance with ASC 830, "Foreign Currency
Matters". All transaction gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar
currencies are reflected in the statements of operations as financial income or expenses, as appropriate. For
those subsidiaries whose functional currency has been determined to be their local currency, assets and liabilities are translated
at year-end exchange rates and statements of operations items are translated at average exchange rates prevailing during the year.
Such translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in shareholders'
equity.
c. Principles
of consolidation: The
consolidated financial statements include the accounts of Cyren and its subsidiaries. All intercompany balances and transactions
have been eliminated upon consolidation.
d. Cash
equivalents: Cash
equivalents are short-term highly liquid investments that are readily convertible to cash with original maturities of three months
or less at acquisition.
e. Restricted
deposits: The
Company maintains certain deposits amounts restricted as to withdrawal or use. On December 31, 2019, the Company maintained a
balance of $576 which is restricted and is held as collateral for a bank guarantee and a letter of credit provided to the lessors
of two of the Company's offices. The balance is presented on the balance sheets within the long-term restricted lease deposits
balance.
f. Property
and equipment: Property
and equipment are stated at cost, net of accumulated depreciation. Depreciation of leasehold improvements is computed using the
straight-line method over the shorter of the lease term or the estimated useful life of the asset or improvement. Cost of maintenance
and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives
of the assets as outlined below:
Useful
Life
(In
Years)
Cost:
Computers
and peripheral equipment 3-11
Office
furniture and equipment 3-14
Leasehold
improvements 3-10
g. Intangible
assets: Intangible assets that are not considered to have an
indefinite useful life are amortized over their estimated useful lives, which range from 1 to 20 years. Acquired customer contracts
and relationships are amortized over their estimated useful lives in proportion to the economic benefits realized. This accounting
policy results in accelerated amortization of such customer contracts and relationships arrangements as compared to the straight-line
method. Technology, Intellectual Property and Trademark are amortized over their estimated useful lives on a straight-line basis.
h . Impairment
of long-lived assets: The Company's long-lived assets (assets group)
to be held or used, including right-of-use assets and identifiable intangibles 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 may not be recoverable. Recoverability
of these assets is measured by comparison of the carrying amount of each asset group to the future undiscounted cash flows the
asset group is expected to generate. If the asset is considered to be impaired, the amount of any impairment is measured as the
difference between the carrying value and the fair value of the impaired asset. In the fourth quarter of 2019, we have recognized an
impairment loss of $224 related to, an acquired intangible asset from a prior acquisition. We have determined that the benefit
of the acquired R&D would not be realized. This amount has been recognized in cost of revenue. The
Company did not record an impairment related to the year-ended December 31, 2018.
i. Goodwill: Goodwill
represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets
acquired. Goodwill is not amortized, but rather is subject to an impairment test. The
Company performs an annual impairment test at December 31, of each fiscal year, or more frequently if impairment indicators are
present. The Company operates in one operating segment, and this segment comprises its only reporting unit. ASC
350 prescribes a two-phase process for impairment testing of goodwill. The first phase screens for impairment, while the second
phase (if necessary) measures impairment. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds
its estimated fair value determined using market capitalization. In such case, the second phase is then performed, and the Company
measures impairment by comparing the carrying amount of the reporting unit's goodwill to the implied fair value of that
goodwill. An impairment loss is recognized in an amount equal to the excess. ASC 350 allows an entity to first assess qualitative
factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. An entity is not required
to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more
likely than not that its fair value is less than its carrying amount. Alternatively, ASC 350 permits an entity to bypass the qualitative
assessment for any reporting unit and proceed directly to performing the first step of the goodwill impairment test. Accordingly,
the Company elected to proceed directly to the first step of the quantitative goodwill impairment test and compares the fair value
of the reporting unit with its carrying value. For
each of the two years in the period ended December 31, 2019, no impairment losses have been identified.
j. Fair
value measurements: The carrying amounts of cash and cash equivalents,
trade receivables, prepaid expenses, other receivables, trade payables and other payables, approximate their fair values due to
the short-term maturities of such financial instruments. 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. A three-tiered fair value hierarchy is established
as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:
Level 1 - Quoted
prices (unadjusted) in active markets for identical assets or liabilities that the Company can access at the measurement date.
Level 2 - Inputs
other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 - Unobservable
inputs for the asset or liability. The
availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including,
for example, the type of instrument, the liquidity of markets and other characteristics particular to the transaction. To the
extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of
fair value requires more judgment and the instruments are categorized as Level 3. 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.
k. Derivative
financial instruments: The
Company accounts for derivatives based on ASC 815 ("Derivatives and Hedging"). ASC 815 requires the Company to recognize
all derivatives on the balance sheet at fair value. Under
these standards, the Company separately accounts for the liability and derivative component as an implicit or explicit term that
affects some or all of the cash flows or the value of other exchanges required by a contract in a manner similar to a derivative
instrument. The derivative component at issuance is recognized at fair value, based on the fair value of a similar instrument
that does not have a conversion feature. The liability component is presented at its discounted value based on the excess of the
principal amount of the debentures over the fair value of the derivative component, after adjusting for an allocation of debt
issuance costs. The effective portion of the gain or loss on the derivative instrument is reported in the consolidated statements
of operations under financial expenses, net.
l . Revenue
recognition: The
Company derives its revenues in accordance with ASC 606 from the sale of real-time cloud-based services for each of Cyren's
email security, web security, antimalware and advanced threat protection offerings. The
Company sells all of its solutions as subscription services, either through OEMs, which are considered end-users, or as complete
security services directly to enterprises. The
Company recognizes revenue under the core principle that transfer of control to the Company's customers should be depicted
in an amount reflecting the consideration the Company expects to receive in revenue. In order to achieve that core principle,
the Company applies the following five-step approach:
1) Identification
of the contract, or contracts, with the customer
2) Identification
of the performance obligation in the contract
3) Determination of the transaction price - The transaction
price is determined based on the consideration to which the Company expects to be entitled in exchange for transferring services
and products to the customer. Variable consideration is included in the transaction price if, in the Company's judgment,
it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Generally, the Company
does not provide price protection, stock rotation, rebates, or right of return. In 2019, one contract contained a significant financing
component. Variable
Consideration -
4) Allocation
of the transaction price to the performance obligations in the contract -
5) Recognition
of revenue when, or as, the Company satisfies a performance obligation Subscription
Service Revenue Deferred Revenue - In the event cash payments were not received in advance
and the issuance of the invoice resulted only in entry to trade receivables and deferred revenue, these amounts would not be reflected
on the balance sheet. Deferred
commissions The
Company capitalizes sales commissions paid to internal sales personnel that are generally incremental to the acquisition of customer
contracts. These costs are recorded as deferred commissions on the consolidated balance sheets. The Company determines whether
costs should be deferred based on its sales compensation plans, if the commissions are incremental and would not have occurred
absent the customer contract. Sales commissions for renewal of a subscription contract are not considered commensurate with the
commissions paid for the acquisition of the initial subscription contract given the substantive difference in commission rate
between new and renewal contracts. Commissions paid upon the initial acquisition of a contract are amortized over an estimated
period of benefit while commissions paid related to renewal contracts are amortized over a contractual renewal period. Amortization
is recognized based on the expected future revenue streams under the customer contracts. Amortization of deferred sales commissions
is included in sales and marketing expense in the accompanying consolidated statements of operations. The Company determines the
period of benefit for commissions paid for the acquisition of the initial subscription contract by taking into consideration factors
such as peer estimates of technology lives, and customer lives as well as the Company's own historical data. The Company
classifies deferred commissions as current or long-term based on the timing of when the Company expects to recognize the expense.
The Company periodically reviews these deferred commission costs to determine whether events or changes in circumstances have
occurred that could impact the period of benefit of these deferred contract acquisition costs. There were no material impairment
losses recorded during the periods presented. For
the years ended December 31, 2019 and 2018, the Company capitalized $961 and $2,307 of commission costs, respectively, and amortized
$1,199 and 1,351, respectively.
m. Research
and development costs, net: Research
and development costs are charged to statements of operations as incurred, except for capitalized technology.
n . Capitalized
technology: The
Company capitalizes development costs incurred during the application development stage which are related to internal-use technology
that supports its security services. Costs related to preliminary project activities and post implementation activities are expensed
as incurred as research and development costs on the statements of operations. Capitalized internal-use technology is included
in intangible assets on the balance sheet and is amortized on a straight-line basis over its estimated useful life, which is generally one to three years.
Amortization expenses are recognized under cost of goods sold. Management evaluates the useful lives of these assets on an annual
basis and tests for impairment whenever events or changes in circumstances occur that could impact the recoverability of these
assets.
o. Government
grants: The
Company received Israeli government grants for funding certain approved research and development projects. These grants are recognized
at the time the Company is entitled to such grants, on the basis of the related costs incurred and recorded as a deduction of
research and development costs. The deduction in research and development costs due to government grants amounted to $0 and $69
in 2019 and 2018, respectively.
p. Concentrations
of credit risk: The
Company has no significant off-balance-sheet concentration of credit risk. Financial
instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents
and trade receivables. The majority of the Company's cash and cash equivalents are invested in dollars and are deposited
in major banks in the United States, Germany, Iceland, UK and Israel. Such investments in the United States may be in excess of
insured limits and are not insured in other jurisdictions. Management believes that the financial institutions that hold the Company's
investments are institutions with high credit standing, and accordingly, minimal credit risk exists with respect to these investments. The trade receivables of the Company are derived from
transactions with companies located primarily in North America, Europe, Israel and Asia. An allowance for doubtful accounts is
determined with respect to those amounts that the Company has determined to be doubtful of collection. The provision for doubtful
accounts amounted $129 and $20 at December 31, 2019 and 2018, respectively. Bad debt expense for December 31, 2019 was $138 and
a benefit of $52 for December 31, 2018.
q. Accounting
for stock-based compensation: ASC
718 - "Compensation-stock Compensation"- ("ASC 718") requires companies to estimate the fair value of
equity-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is
ultimately expected to vest is recognized as an expense over the requisite service periods in the Company's consolidated
statements of operations. The
Company recognizes compensation expense for the value of its awards on a straight-line basis over the requisite service period
of each of the awards, net of estimated forfeitures. Estimated forfeitures are based on actual historical pre-vesting forfeitures.
ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates. Estimated forfeitures are based on actual historical pre-vesting forfeitures (pursuant to the adoption
of ASU 2016-09, the Company made a policy election to estimate the number of awards that are expected to vest). The
Company estimates the fair value of stock options granted using the Black-Scholes option-pricing model. The option-pricing model
requires a number of assumptions, of which the most significant are the expected stock price volatility and the expected option
term. Expected volatility was calculated based upon actual historical stock price movements over the most recent periods ending
on the grant date, equal to the expected term of the options. The expected term of options granted represents the period of time
that options granted are expected to be outstanding, based upon historical experience. The risk-free interest rate is based on
the yield from U.S. treasury bonds with an equivalent term. The Company has historically not paid dividends and has no foreseeable
plans to pay dividends. The
fair value for options granted in 2019 and 2018 is estimated at the date of grant using a Black-Scholes options pricing model
with the following assumptions:
Year
ended
Stock
options 2019 2018
Volatility 46%-50 % 49%-51 %
Risk-free interest
rate 1.5%-2.5 % 2.3%-3.1 %
Dividend
yield 0 % 0 %
Expected term (years) 3.7-4.0 3.6-5.0
r. Basic
and diluted loss per share: Basic
loss per share has been computed using the weighted-average number of ordinary shares outstanding during the year. Diluted loss
per share is computed based on the weighted average number of ordinary shares outstanding during each year, plus the weighted
average number of dilutive potential ordinary shares considered outstanding during the year. In
2019 and 2018 there is no difference between the denominator of basic and diluted loss per share.
s . Severance
pay: The
Company's liability for severance pay in Israel is calculated pursuant to Israel's Severance Pay Law based on the
most recent salary of the employees multiplied by the number of years of employment as of the balance sheet date. Employees are
entitled to one month's salary for each year of employment or a portion thereof. The Company's obligation for all
of its Israeli employees is fully provided by monthly deposits with severance pay funds and insurance policies, and by an accrual.
The value of those funds and policies is recorded as an asset in the Company's balance sheet. The
deposited funds include profits and losses accumulated up to the balance sheet date. The deposited funds may be withdrawn only
upon the fulfillment of the obligation pursuant to Israel's Severance Pay Law or labor agreements. The value of the deposited
funds is based on the cash surrendered value of these policies. Effective
October 2014, the Company's agreements with new employees in Israel, are under Section 14 of the Severance Pay Law, 1963.
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 service, no additional calculations are conducted between the parties
regarding the matter of severance pay and no additional payment is 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. Severance
benefit for the years ended December 31, 2019 and 2018 was $47 and $108, respectively.
t . Treasury
shares: The
Company repurchases its ordinary shares from time to time on the open market and holds such shares as treasury shares. The Company
presents the cost to repurchase treasury shares as a reduction in shareholders' equity. The
Company reissues treasury shares under the stock purchase plan, upon exercise of option and upon issuance of shares upon acquisitions.
Reissuance of treasury shares is accounted for in accordance with ASC 505-30 whereby gains are credited to additional paid-in
capital and losses are charged to additional paid-in capital to the extent that previous net gains are included therein; otherwise
to accumulated deficit. The Company's treasury share balance was $0.0
and $998 as of December 31, 2019 and 2018, respectively.
u . Income
taxes: The
Company accounts for income taxes in accordance with ASC 740, "Income Taxes" ("ASC 740"). ASC 740 prescribes
the use of the liability method whereby deferred tax asset and liability account balances are determined based on differences
between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The Company provides a valuation allowance to reduce deferred
tax assets to amounts more likely than not to be realized. ASC
740 contains a two-step approach to recognizing and measuring a liability for uncertain tax positions. The first step is to evaluate
the tax position taken or expected to be taken in a tax return by determining if the weight of available evidence indicates that
it is more likely than not that, on an evaluation of the technical merits, the tax position will be sustained on audit, including
resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount
that is more than 50% (cumulative basis) likely to be realized upon ultimate settlement.
v. Comprehensive
loss: The
Company accounts for comprehensive loss in accordance with ASC No. 220, "Comprehensive Income". Comprehensive loss
generally represents all changes in shareholders' equity during the period except those resulting from investments by, or
distributions to, shareholders. The Company determined that its items of other comprehensive income (loss) relate to gains and
losses from functional currency translation adjustments on behalf of subsidiaries whose functional currency has been determined
to be their local currency.
w . Recently
issued and adopted pronouncements: In February 2016, the FASB issued ASU 2016-02, "Leases",
on the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors).
The new standard supersedes the lease requirements in Accounting Standards Codification (ASC) Topic 840, "Leases"
and requires lessees, to classify leases as either finance or operating leases based on the principle of whether or not the lease
is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based
on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required
to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of their classification.
Leases with a term of 12 months or less will be accounted for in a manner similar to the accounting under existing guidance for
operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent
to existing guidance for sales-type leases, direct financing leases and operating leases. The Company adopted ASU 2016-02 as of
January 1, 2019, using the modified retrospective approach. For additional information regarding the Company's accounting
for leases, please refer to Note 8. In June 2018, the FASB issued ASU No. 2018-07, "Compensation
– Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting." These amendments
expand the scope of Topic 718, Compensation - Stock Compensation (which currently only includes stock-based payments to employees)
to include stock-based payments issued to nonemployees for goods or services. Consequently, the accounting for stock-based payments
to nonemployees and employees will be substantially aligned. This ASU supersedes Subtopic 505-50, Equity - Equity-Based Payments
to Non-Employees. Adoption of this standard had an immaterial impact on the Company's consolidated financial statement.
x . New
accounting pronouncements not yet adopted: In
August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic
350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract In January 2017, the FASB
issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates
step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value
of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero
or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment
tests performed in fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company is currently assessing
the impact of the adoption of this standard on its consolidated financial statements and footnote disclosures. The Company
does not expect that adoption of this standard will have a material impact on its consolidated financial statements In
June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. ASU 2016-13 amends the impairment model to utilize an expected loss methodology in place of the currently used incurred
loss methodology, which will result in the more timely recognition of losses. The new accounting standard will be effective for
the fiscal year beginning on January 1, 2020, including interim periods within that year. The Company does not expect that adoption
of this standard will have a material impact on its consolidated financial statements |
