| 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. Going Concern The
accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern,
which contemplates the realization of assets and liabilities and commitments in the normal course of business. U.S.
GAAP requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt
about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued.
Initially, this evaluation does not consider the potential mitigating effect of management’s plans that have not been fully
implemented. When substantial doubt exists, management evaluates the mitigating effect of its plans if it is probable that (1)
the plans will be effectively implemented within one year after the date the financial statements are issued, and (2) when implemented,
the plans will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue
as a going concern within one year after the date the financial statements are issued or prior to the conditions or events that
create the going concern risk. The
consolidated financial statements as of December 31, 2020 do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty
related to the Company’s ability to continue as a going concern.
e. 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.
f. Restricted deposits: The
Company maintains certain deposits amounts restricted as to withdrawal or use. On December 31, 2020, the Company maintained a
balance of $618 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.
g. 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 3-7
Office furniture and equipment 5-14
Leasehold improvements 3-10
h. Leases: The
Company determines if an arrangement is a lease at inception. Contracts containing a lease are further evaluated for classification
as an operating or finance lease. In determining the leases classification the Company assesses among other criteria: (i) 75%
or more of the remaining economic life of the underlying asset is a major part of the remaining economic life of that underlying
asset; and (ii) 90% or more of the fair value of the underlying asset comprises substantially all of the fair value of the underlying
asset. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and
long-term operating lease liabilities in the Company’s consolidated balance sheets. Finance leases are included in property,
plant and equipment, net, other current liabilities, and long-term finance lease liabilities in the Company’s consolidated
balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the
Company’s obligation to make lease payments arising from the lease. For leases with terms greater than 12 months, the Company
records the ROU asset and liability at commencement date based on the present value of lease payments according to their term. The
Company uses incremental borrowing rates based on the estimated rate of interest for collateralized borrowing over a similar term
of the lease payments at commencement date. The ROU asset also includes any lease payments made and excludes lease incentives.
Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise
that option. Lease expenses are recognized on a straight-line basis over the lease term or the useful life of the leased asset. In
addition, the carrying amount of the ROU and lease liabilities are remeasured if there is a modification, a change in the lease
term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.
i. 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.
j. 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, 2020.
k. 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 is evaluated for impairment annually, or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. The Company has determined that there is a single reporting unit for
the purpose of conducting this goodwill impairment assessment. For purposes of assessing potential impairment, the Company estimates
the fair value of the reporting unit, based on the Company’s market capitalization, and compares this amount to the carrying
value of the reporting unit. If the Company determines that the carrying value of the reporting unit exceeds its fair value, an
impairment charge would be required. The Company performs an annual impairment test at December 31, of each fiscal year,
or more frequently if impairment indicators are present. For
each of the two years in the period ended December 31, 2020, no impairment losses have been identified.
l. 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.
m. 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.
n. 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, anti-malware, 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, 2020 and 2019, the Company capitalized $1,095 and $961 of commission costs, respectively, and amortized
$1,517 and 1,199, respectively.
o. Research and development costs, net: Research
and development costs are charged to statements of operations as incurred, except for capitalized technology.
p. 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.
q. 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. A provision for credit loss account is determined based on historical collection experience, customer creditworthiness,
current and future economic conditions and market conditions with respect to those amounts that the Company has determined to
be doubtful of collection. The provision for credit loss amounted $201 and $129 at December 31, 2020 and 2019, respectively. Bad
debt benefit for December 31, 2020 was $5 and an expense of $138 for December 31, 2019.
r. 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 2020 and 2019 is estimated at the date of grant using a Black-Scholes options pricing model
with the following assumptions:
Year ended December 31,
Stock options 2020 2019
Volatility 47% - 60 % 46% - 50 %
Risk-free interest rate 0.23% -
1.40 % 1.5% -
2.5 %
Dividend yield 0 % 0 %
Expected term (years) 4.10 3.7-4.0
s. Basic and diluted net loss per share: Basic
net loss per share has been computed using the weighted-average number of ordinary shares outstanding during the year. Diluted
net 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
2020 and 2019 there is no difference between the denominator of basic and diluted net loss per share. In periods where the Company
reports a net loss, the effect of anti-dilutive stock options, restricted stock units, Convertible Notes, Convertible Debentures,
and warrants are excluded and diluted net loss per share is equal to basic loss per share. For the years ended December 31, 2020
and 2019, 23,803,669 and 11,352,573 ordinary shares were excluded from the calculation of diluted net EPS due to their anti-dilutive
effect, respectively.
t. 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 year ended December 31, 2020 was $40 and the Severance expense for the year ended December 31, 2019 was $47.
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
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 (“ASU
2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that
is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.
The update to the standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption
permitted. Entities can choose to adopt the ASU 2018-15 prospectively or retrospectively. The adoption of the standard did not
have a material impact on the Company’s consolidated financial statements. 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 adoption
of the standard did not have a material impact on the Company’s 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. This standard requires entities to estimate an expected
lifetime credit loss on financial assets ranging from short-term trade accounts receivable to long-term financings and report
credit losses using an expected losses model rather than the incurred losses model that was previously used. The new accounting
standard was effective for the fiscal year beginning on January 1, 2020, including interim periods within that year. The adoption
of the standard did not have a material impact on the Company’s consolidated financial statements.
x. New accounting pronouncements not yet adopted: In
December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU
2019-12”). ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology
for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.
ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance
is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted. The Company is currently
assessing the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements. In
August 2020, the FASB issued ASU 2020-06, ASC Subtopic 470-20 “Debt—Debt with “Conversion and Other Options”
and ASC subtopic 815-40 “Hedging—Contracts in Entity’s Own Equity”. The standard reduced the number of
accounting models for convertible debt instruments and convertible preferred stock. Convertible instruments that continue to be
subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host
contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and
(2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The
amendments in this update are effective for fiscal years beginning after December 15, 2021, including interim periods within those
fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim
periods within those fiscal years. The Company is currently assessing the impact of the adoption of this standard on its consolidated
financial statements. |
