CYREN LTD. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information contained in our consolidated financial statements and the notes thereto. The following discussion and analysis includes forward-looking statements that involve certain risks and uncertainties, including, but not limited to, those described in Item 1A. Risk Factors in our most recent Annual Report on Form 10-K (the "2020 Annual Report") and Item 1A. Risk Factors in the Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2021 . Our actual results may differ materially from those discussed below. See "Special Note Regarding Forward-Looking Statements" below. Overview Purpose built for the cloud, Cyren was an early pioneer and leading innovator of cloud delivered Software-as-a-Service (SaaS) cybersecurity solutions that protect businesses, their employees and customers against threats from email, files, and the web. We believe our cloud-based approach to security sets us apart from other vendors in the market. Our security solutions are architected around the fundamental belief that cyber security is a race against time - and the cloud best enables the speed, sophistication, and advanced automation needed to detect and block threats as they emerge on the internet. As more and more businesses move their data and applications to the cloud, they need a security provider that is able to keep pace.
Security threats are more prevalent and stealthier than ever. As cybercrime has become more sophisticated, every malware, phishing, and ransomware variant is unique, making it more difficult to detect attacks. While organizations have traditionally protected their users with gateway security appliances at their network perimeter, more frequent and evasive attacks combined with a more distributed workforce are reducing the effectiveness of this approach. Traditional appliances lack the real-time threat intelligence and processing power to detect emerging threats, and the growth of mobile devices and an increasingly distributed workforce means that more and more business is conducted outside of the traditional network perimeter. As a result, when new attacks appear in a matter of seconds, legacy cybersecurity products can leave companies vulnerable for hours, days, or even weeks.
Cyren's cloud security products and services fall into three categories:
? Cyren Threat Detection Services - these services detect a variety of threats
in email, files, and from the web, and are embedded into products from the
world's leading email providers, cyber security vendors and managed service
providers. Cyren Threat Detection Services include our Email Security
Detection Engine, Malware Detection Engine, Web Security Engine, and Threat
Analysis Service.
? Cyren Threat Intelligence Data - Cyren's Threat Intelligence Products provide
valuable threat intelligence data that can be used by enterprise or OEM
customers to support threat detection, threat hunting, and incident response.
Cyren's Threat Intelligence offerings include IP Reputation Intelligence,
Phishing Intelligence, Malware Intelligence, and Zombie Intelligence.
? Cyren Enterprise Email Security Products - these include cloud-based solutions
designed for enterprise customers and are sold either directly or through
channel partners. Cyren Enterprise Email Security products include Cyren Email
Security, a cloud-based secure email gateway, and Cyren Inbox Security, an
anti-phishing product for Microsoft 365.
Key Opportunities and Challenges
Threat Landscape
The last several years have possibly experienced the greatest amount of dramatic
global incidents directly related to malware and cyber threats since the advent
of the internet. From election hacks to global ransomware attacks, malware
threats are at an all-time high. Phishing attacks have become increasingly
common, and no company, large or small seems immune to these threats. Hackers
have become more successful at monetizing these attacks, and as long as these
activities prove lucrative, we expect these incidents to continue.
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Cloud and Mobility
Businesses are going through a massive change in their IT strategies as they
look to drive more business value, agility, and better customer experiences,
while cloud and mobility are becoming increasingly important, as evidenced by
the following trends:
? Business internet traffic continues to increase every year;
? Data and applications are increasingly moving to the cloud;
? More and more users are working remotely, particularly since the COVID-19
pandemic;
? Buyers continue to move away from traditional on-premise solutions;
? Mature and legacy on-premise deployments are reaching the end of life and are
increasingly being replaced by cloud and SaaS alternatives;
? IT security staffing shortages;
? Increasingly fast, sophisticated, expensive, and high-profile attacks target
organizations of all sizes;
? Compliance and regulatory mandates;
? Heightened cybercrime activity among commercial enterprises and nation-states;
? Automation is increasingly considered critical to accelerating detection and
protection; and
? The need to simplify operations through vendor consolidation.
These are some of the reasons why we believe Cyren's vision for 100% cloud security is compelling to IT security teams looking to protect their businesses in today's cloud-centric mobile-first world.
Growing Our Enterprise Business
Cyren has prioritized growing its enterprise revenues. With the mid-2020 release of our anti-phishing solution, Cyren Inbox Security (CIS), we believe helping enterprises mitigate phishing attacks is our most significant revenue growth opportunity. Given the substantial size of the enterprise anti-phishing market, Cyren believes this new revenue stream has the potential to grow faster than our legacy OEM business. As this CIS business grows, it will gradually contribute to a larger portion of our overall revenue, and as a result, we expect deferred revenue to increase and our operating results and cash flow to improve. Investments in Operations, Research and Development and Sales and Marketing Our cost of revenues, research and development expenses, and sales and marketing expenses are all significant contributing factors to our operating losses. Over time, we expect we will increase utilization of our cloud infrastructure which we expect will provide the opportunity for improved gross margins. Our investments in research and development are required in order to enhance and improve our solutions. In the future, we expect to lower the rate of R&D investment as a percentage of revenue. The return on our sales and marketing investment is tied to attracting new customers and enhancing our business with existing customers, thereby lowering the overall sales and marketing costs as a percent of revenues. During 2020 we reduced our overall headcount in order to reduce expenses, and we believe managing future headcount and expense growth will be key in improving our gross and operating margins over time. In the third quarter of 2021, headcount remained consistent with the second quarter of 2021. Headcount on a year-over-year basis is down by about 10% which has led to a decline in operating expenses on a year-to-date basis compared to the corresponding period a year ago. We continue to monitor expenses and where possible, reduce expenses. We believe managing future headcount and expense growth will be key in improving our gross and operating margins over time given the recent decline in revenue.
Components of our Operating Results
Revenue
We derive revenues from the sale of real-time cloud-based services for each of Cyren's email security, web security, antimalware, and advanced threat protection offerings.
We sell all of our solutions as subscription services, either to OEMs and service providers or directly or indirectly to enterprises.
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Cost of Revenue
Personnel costs, which consist of salaries, benefits, bonuses, and stock-based
compensation for employees that operate our cloud infrastructure and provide
support services to our customers, as well as data center costs, are the most
significant components of our cost of revenues. Other costs include third-party
contractors, royalties for use of third-party technologies, amortization of
intangibles, and depreciation of data center equipment. We expect these costs
may increase in absolute dollars as we continue to optimize our cloud
infrastructure and our support services, but should reduce as a percentageof overall revenue. Operating Expenses Our operating expenses consist of research and development, sales and marketing, and general and administrative expenses. Personnel costs, which consist of salaries, benefits, bonuses, and stock-based compensation, are the most significant component of our operating expenses. Operating expenses also include allocated overhead costs for facilities, IT, and depreciation. We expect operating expenses to increase in absolute dollars as we continue to grow. Research and Development. Research and development expenses consist primarily of personnel costs and outsourced engineering services. We believe these investments are crucial for our ability to continue to enhance the functionality of our services, as well as to develop and introduce new services to the market. Development costs related to internal use technology that supports our security services are capitalized on the balance sheet, while other development costs are expensed as they are incurred. Sales and Marketing. Sales and marketing expenses primarily include personnel costs, sales commissions, marketing activities, and travel associated with sales and marketing. We market and sell our services worldwide through our sales organization and distribution channels. We capitalize sales commissions paid to internal sales personnel and amortize these expenses over an estimated period of benefit that reflects the expected future revenue streams. We reduced sales and marketing expenses in 2020 but anticipate that we may need to increase investment in these areas related to products newly launched in 2020 and enhance our sales and marketing efforts to support further growth. Sales personnel are typically not immediately productive, and therefore the increase in expenses we incur when adding personnel is not immediately accompanied by increased revenue and in some cases may not result in increased revenue if these new sales personnel are unsuccessful in becoming productive.
General and Administrative. General and administrative expenses consist primarily of personnel costs, audit fees, legal expenses, recruiting expenses, and other general operating costs. We expect our general and administrative expenses to grow in absolute dollars as we continue our operational growth.
Other Income (Expense), net
Other income (expense), net consists generally of capital gain or loss from the sale of assets.
Financial Expenses, net Financial expenses, net consist mainly of foreign exchange gains and losses, interest expense on our outstanding debt, and interest income earned on our cash and cash equivalents. In 2020 and 2021, these expenses also included income related to the accounting for a multi-year arrangement where a customer paid upfront the full contract value. This has been deemed a significant financing component under ASC 606. Tax Benefit Our tax benefit is derived primarily from income taxes in foreign jurisdictions in which we conduct business. We estimate income taxes in each of the jurisdictions in which we operate. This process involves determining income tax expense together with calculating the deferred income tax expense related to temporary differences resulting from the differing treatment of items for tax and accounting purposes. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. These temporary differences result in deferred tax assets and liabilities, which are included net as applicable within our balance sheets. For most of our recent years, we have incurred operating losses inIsrael and theU.S. , where we have recorded a full valuation allowance against our deferred tax assets in those jurisdictions. -26- RESULTS OF OPERATIONS
The following table sets forth financial data for the three and nine months
ended
Three months ended Nine months ended
September 30 September 30
2021 % 2020 % 2021 % 2020 %
Unaudited Unaudited Unaudited Unaudited
Revenues $ 7,461 100 % $ 9,114 100 % $ 23,827 100 % $ 27,944 100 %
Cost of revenues 3,732 50 % 3,792 42 % 11,332 48 % 11,168 40 %
Gross profit 3,729 50 % 5,322 58 % 12,495 52 % 16,776 60 %
Operating expenses:
Research and
development, net 4,100 55 % 4,769 52 % 12,460 52 % 12,264 44 %
Sales and marketing 2,785 37 % 2,942 32 % 8,154 34 % 9,123 33 %
General and
administrative 2,336 31 % 2,302 25 % 6,801 29 % 6,992 25 %
Total operating
expenses 9,221 124 % 10,013 110 % 27,415 115 % 28,379 102 %
Operating loss (5,492 ) (74 )% (4,691 ) (51 )% (14,920 ) (63 )% (11,603 ) (42 )%
Other income
(expense), net 5 0 % 1 0 % (12 ) 0 % 9 0 %
Financial expense, net (320 ) (4 )% (235 ) (3 )% (821 ) (3 )% (757 ) (3 )%
Loss before taxes (5,807 ) (78 )% (4,925 ) (54 )% (15,753 ) (66 )% (12,351 ) (44 )%
Tax benefit 20 0 % 33 0 % 181 1 % 94 0 %
Net loss $ (5,787 ) (78 )% $ 4,892 (54 )% $ (15,572 ) (65 )% $ (12,257 ) (44 )%
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Three and Nine months Ended
Revenues. Revenues for the three and nine months endedSeptember 30, 2021 decreased$1.7 million , or 18%, and$4.1 million or 15%, respectively, as compared to the corresponding periods last year. The decrease was mainly driven by a contract reduction from our largest customer (as first disclosed in the Q3 2020 Form 10-Q), which was effective in Q2 2021 and is detailed in Note 6.b. The revenue impact of this contract reduction was$0.7 million and$1.7 million for the three and nine months endedSeptember 30, 2021 , respectively. Customer renewals at lower values and churn, coupled with the end of life of several legacy Enterprise products during 2020 also contributed to the decline in revenue for the respective periods. During the second quarter of 2020, the Company released two new products, Cyren Inbox Security and Threat InDepth. Since these product launches, the Company has signed numerous new customer contracts representing over$2.5 million in revenue, but due to the timing and ratable nature of the contracts, there was not a material amount of revenue recognized in the nine months of 2021. Cost of Revenues. Cost of revenues for the three months endedSeptember 30, 2021 were consistent with the corresponding period last year. Cost of revenue for the nine months endedSeptember 30, 2021 increased by$0.2 million or 1% as compared to the corresponding periods last year. For the three months endedSeptember 30, 2021 , cost of revenues represented 50% of revenue, compared to 42% during the prior year, and accordingly, gross margins for the period were 50% for the three months endedSeptember 30, 2021 compared to 58% for the same period in the prior year. For the nine months endedSeptember 30, 2021 cost of revenues represented 48% of revenue, compared to 40% during the prior year, and accordingly, gross margins for the period were 52% for the nine months endedSeptember 30, 2021 compared to 60% for the same period in the prior year. The increase on a year-to-date basis is driven by an increase in amortization of capitalized development expenses of$0.3 million as a result of the newest Enterprise products launched in Q2 2020, an increase in bonus and stock-based compensation expense of$0.2 million and$0.1 million in the use of consultants. Offsetting the overall increase was a decrease in payroll and related costs of approximately$0.1 million due to a decline employee headcount of 32 employees as ofSeptember 30, 2021 compared to 35 as ofSeptember 30, 2020 . Additional decreases were related to$0.2 million in costs associated with our global network and data centers as well as depreciation associated with data center assets and$0.1 million associated with royalties due to the decline in revenue.
Operating Expenses. Total operating expenses for the three and nine months ended
Operating expenses for the three months endedSeptember 30, 2021 , represented 124% of revenue, compared to 110% for the three months endedSeptember 30, 2020 . For the nine months endedSeptember 30, 2021 , operating expenses represented 115% of revenue, compared to 102% for the nine months endedSeptember 30, 2020 . The decrease in operating expenses was primarily due to a decrease in employee headcount, which totaled 171 employees at the end ofSeptember 30, 2021 , compared to 191 employees at the end ofSeptember 30, 2020 . -28- Research and Development, Net. Research and development expenses, net decreased$0.7 million , or 14% for the three months endedSeptember 30, 2021 . For the nine months endedSeptember 30, 2021 , research and development expenses, net increased by$0.2 million or 2% as compared to the corresponding period last year. R&D expense, net for the three months endedSeptember 30, 2021 represented 55% of revenue, compared to 52% a year ago. For the nine months endedSeptember 30, 2021 , R&D expense, net represented 52% of revenue compared to 44% a year ago. R&D headcount was 111 employees as ofSeptember 30, 2021 compared to 118 as ofSeptember 30, 2020 .
Capitalization of technology development, which reduces expenses, decreased to zero for the three months endedSeptember 30, 2021 from$0.2 million for the three months endedSeptember 30, 2020 primarily driven by the new product launch in the second quarter of 2020 which as a result, in subsequent quarters, the capitalization has declined, leading to higher R&D costs. This was offset by the one-time write-off of$0.7 million in Q3 2020 of a previously capitalized R&D project that did not reoccur in Q3 2021. The decrease in R&D expense, net is also driven by reduced employee headcount leading to lower payroll and related costs of$0.2 million .
Capitalization of technology development, which reduces expenses, decreased to$0.2 million for the nine months endedSeptember 30, 2021 from$1.8 million for the nine months endedSeptember 30, 2020 primarily driven by the new product launch in the second quarter of 2020 which as a result, in subsequent quarters, the capitalization has declined, leading to higher R&D costs. This was offset by the one-time write-off of$0.7 million in Q3 2020 of a previously capitalized R&D project that did not reoccur in Q3 2021. The decrease in R&D expense, net is also driven by reduced employee headcount leading to lower payroll and related costs of$0.5 million and a decrease in the use of outside services and consultants of$0.2 million . Sales and Marketing. Sales and marketing expenses decreased$0.2 million , or 5% for the three months endedSeptember 30, 2021 and decreased by$1.0 million , or 11%, for the nine months endedSeptember 30, 2021 , as compared to the corresponding periods last year. Sales and marketing expenses for the three months endedSeptember 30, 2021 represented 37% of revenue, compared to 32% a year ago. For the nine months endedSeptember 30, 2021 , sales and marketing expenses represented 34% of revenue compared to 33% a year ago. For the three months endedSeptember 30, 2021 compared to the same period a year ago, the decrease in sales and marketing expense was due to a reduction of overall sales and marketing headcount to 33 employees at the end of the third quarter of 2021 compared to 41 employees at the end of the third quarter of 2020. The primary driver of the decline is due to payroll and related costs decreasing by$0.1 million as a result of the decrease in headcount. For the nine months endedSeptember 30, 2021 compared to the same period a year ago, the decrease in sales and marketing expense was due to a reduction of overall sales and marketing headcount to 33 employees at the end of the third quarter of 2021 compared to 41 employees at the end of the third quarter of 2020. Payroll and payroll-related costs decreased by$0.7 million , intangible asset amortization decreased by$0.1 million as an asset had been fully amortized in Q3 2020, travel and related costs decreased by$0.1 million , and allocated costs to sales and marketing decreased by$0.2 million due the decline in headcount. These decreases were offset by an increase in the use of outside services by$0.1 million to enhance our sales and marketing efforts to support the growth of our 2020 new product releases. General and Administrative. General and administrative (G&A) expenses for the three months endedSeptember 30, 2021 were consistent with the corresponding periods last year. For the nine months endedSeptember 30, 2021 , G&A expenses decreased by$0.2 million , or 3%, as compared to the corresponding periods last year. G&A expenses for the three months endedSeptember 30, 2021 represented 31% of revenue, compared to 25% a year ago. G&A expense for the nine months endedSeptember 30, 2021 represented 29% of revenue, compared to 25% a year ago. For the nine months endedSeptember 30, 2021 compared to the same period a year ago, legal expenses increased by$0.3 million primarily due to additional legal work related to two capital raises in 2021 compared to only one in 2020. This increase was offset by a decrease in travel-related costs of$0.1 million due to COVID-19, a decrease in bad debt expense of$0.2 million due to improved customer collections, a$0.1 million decrease in Corporate & IT allocations due to the decline in headcount and a$0.1 million decrease due to the reduction in the use of certain outside services and consultants. -29- Other Income (Expense), Net. Other income, net for the three months endedSeptember 30, 2021 was$0.005 million primarily related to a miscellaneous cash receipt. Other income, net for the three months endedSeptember 30, 2020 was$0.001 million with$0.001 million related to the proceeds on the disposal
of fixed assets. Other income, net for the nine months endedSeptember 30, 2021 was an expense of$0.012 million primarily related to the disposal of fixed assets associated with the exit of an office lease of$0.017 million offset by a miscellaneous cash receipt of$0.005 million . Other income, net for the nine months endedSeptember 30, 2020 was$0.009 million with$0.013 million of expense associated with the disposal of fixed assets associated with the exit of an office lease offset by income of$0.021 million related to miscellaneous cash receipts. Financial Expense, Net. Financial expenses, net, were consistent for the three months endedSeptember 30, 2021 as compared to the corresponding periods last year. For the nine months endedSeptember 30, 2021 , financial expenses, net decreased by$0.06 million or 8%, as compared to the corresponding periods last year. For the nine months endedSeptember 30, 2021 , interest expenses increased by$0.06 million due to a full quarter of interest expense for the three months endedMarch 31, 2021 due to the issuance of the Convertible Debentures onMarch 19, 2020 which resulted in a partial period of interest expense in the first quarter of 2020. Effective Corporate Tax Rates
Corporate tax rates and real capital gains tax in
Our German subsidiary is subject to German tax at a consolidated rate of approximately 30%.
Other non-Israeli subsidiaries are taxed according to the tax laws in their respective countries of residence.
We do not provide deferred tax liabilities when we intend to reinvest earnings of foreign subsidiaries indefinitely. As ofSeptember 30, 2021 , there are no undistributed earnings of foreign subsidiaries. We may currently qualify as an "industrial company" within the definition of the Law for the Encouragement of Industry (Taxation) and, as such, we may be eligible for certain tax benefits, including, inter alia, special depreciation rates for machinery, equipment and buildings, amortization of patents, certain other intangible property rights and deduction of share issuance expenses.
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Net Operating Loss Carry-Forwards
As ofDecember 31, 2020 ,Cyren Ltd.'s net operating loss carryforwards for tax purposes amounted to$102.0 million and capital loss carryforwards of$17.8 million which may be carried forward and offset against taxable income in the future, for an indefinite period. As ofDecember 31, 2020 , theU.S. subsidiary had net operating loss carryforwards of$40.7 million for federal tax purposes and$10.6 million for state tax purposes. These losses may offset any futureU.S. taxable income of theU.S. subsidiary and will expire in the years 2021 through 2040. Management currently believes that based upon its estimations for future taxable income, it is more likely than not that the deferred tax assets regarding the loss carryforwards will not be utilized in the foreseeable future. Thus, a valuation allowance was provided to reduce deferred tax assets to their realizable value.
LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses since inception and expects to continue to incur losses for the foreseeable future and therefore, the Company intends to finance operating costs over the next twelve months through a combination of existing cash on hand, reducing operating spend, potentially divesting non-core assets, and future issuances of equity and/or debt securities. As ofSeptember 30, 2021 , we had an accumulated deficit of$264.2 million , cash and cash equivalents of$17.9 million , and generated a year-to-date net loss of$15.6 million . We have incurred losses since inception and expect to continue to incur losses for the foreseeable future. Current assets amounted to approximately$24.3 million with current liabilities of approximately$25.3 million , resulting in negative working capital (defined as current assets minus current liabilities) of approximately$1.0 million . The current cash balance and historical trend of cash used in operations along with the maturity of the convertible notes inDecember 2021 , lack of certainty regarding a future capital raise and our ability to renegotiate the term of the convertible notes, raise substantial doubt about our ability to continue as a going concern for the next twelve months from the date of issuance of this Form 10-Q. As the convertible notes mature inDecember 2021 , the Company is currently negotiating to restructure the convertible notes with the noteholders and at this time is uncertain as to the outcome. If the restructuring discussions are not successful, the Company intends to use its available cash resources to repay the principal upon maturity per the terms of the convertible notes. The inability to borrow or raise sufficient funds on commercially reasonable terms, would have serious consequences to our financial condition and results of operations. Our future capital requirements will depend on many factors, including, but not limited to our growth, market acceptance of our offerings, the timing and extent of spending to support our efforts to develop our platform, and the expansion of sales and marketing activities. We may be required to seek additional equity or debt financing. If additional financing is required from outside sources, we may not be able to raise it on terms acceptable to us or at all. If we issue additional equity securities to raise additional funds, further dilution to existing stockholders may occur. However, we cannot predict with certainty the outcome of our actions to generate liquidity, including the availability of additional financing. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected.
Please see the Financingssection below for more details on the Company's recent efforts to fund operating activities.
Outlook OnJuly 8, 2021 , the shareholders of the Company approved an increase in the number of authorized ordinary shares from 110,000,000 ordinary shares of nominal valueNIS 0.15 per share to 160,000,000 ordinary shares of nominal valueNIS 0.15 per share. The Company's ability to continue as a going concern is dependent upon the Company growing the business, obtaining the necessary financing to meet its obligations, repay its liabilities arising from normal business operations, and the Company's ability to gain compliance with the Nasdaq Capital Market listing standards (see Item 1A Risk Factors in the 2020Annual Report and Item 1A. Risk Factors in the Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2021 for additional information). The initial cure period ended onOctober 5, 2021 . The Company received a 180-day extension inOctober 2021 to meet the minimum bid price requirement. The Company now has untilApril 4, 2022 to meet this requirement. The Company will continue to monitor the bid price for its ordinary shares and consider various options available to it if the ordinary shares do not trade at a level that is likely to regain compliance. These options include effecting a reverse stock split. There can be no assurance that the Company will regain compliance with the minimum bid price requirement or maintain compliance with any of the other Nasdaq continued listing requirements. The Company is currently negotiating to restructure the convertible notes with the noteholders and at this time is uncertain as to the outcome. The Company's ability to raise additional equity is limited by the number of authorized shares available. While the Company intends to finance operating costs over the next twelve months through a combination of existing cash on hand, reducing operating spend, potentially divesting non-core assets, amending the terms of outstanding debt securities, and future issuances of equity and/or debt securities the Company cannot predict the availability of additional financing or the outcome of its actions to generate liquidity or regain compliance with the Nasdaq Capital Market listing standards. Over the past several years, the Company has devoted most of its effort to research and development and increasing revenues through additional investments in sales and marketing. The Company generated a net loss of$15.6 million for the nine months endedSeptember 30, 2021 and a negative cash flow of$12.5 million from operating activities for the nine months endedSeptember 30, 2021 . The Company has incurred losses since inception and expects to continue to incur losses for the foreseeable future. -31-
Cash Flows from Operating Activities
Cash used in operating activities was
For the nine months endedSeptember 30, 2021 , the primary factors affecting our operating cash flows during the period were our net loss of$15.6 million , adjusted for non-cash items of$1.8 million of stock-based compensation expense,$1.3 million for amortization of our non-cash operating lease expense,$3.9 million for depreciation and amortization of our property, equipment, and intangible assets,$1.0 million for amortization of deferred commissions and$1.0 million associated with interest and amortization of debt issuance costs associated with our convertible notes and debentures. The primary drivers of the changes in operating assets and liabilities were a$1.5 million decrease in operating lease liabilities, a$0.8 million decrease in capitalization of deferred commissions, a$0.7 million decrease in prepaid expenses and other receivables, and offset by an increase in trade receivables of$2.9 million primarily driven by a delayed payment from a customer of$2.1 million which
was received inOctober 2021 . For the nine months endedSeptember 30, 2020 , the factors affecting our operating cash flows during the period were our net loss of 12.3 million, adjusted for non-cash items of$1.9 million of stock-based compensation expense,$1.5 million for amortization of our operating lease right-of-use assets,$3.9 million for depreciation and amortization of our property, equipment and intangible assets, and$1.2 million for amortization of deferred commissions. The primary drivers of the changes in operating assets and liabilities were an increase of$1.0 million in deferred revenue offset by a$1.5 million decrease in operating lease liabilities and a$0.9 million decrease in capitalization of deferred commissions.
Cash Flows from Investing Activities
For the nine months ended
For the nine months ended
Our capital expenditures over the past three years has consisted primarily of continued investment in R&D and purchases of property and equipment to modernize and expand our data centers and to invest in our infrastructure to support new products and to facilitate the growth of the Company.
Capitalization of technology has decreased in 2021 compared to 2020 primarily due to the new products launched in the first half of 2020.
Cash Flows from Financing Activities
For the nine months endedSeptember 30, 2021 , net cash generated by financing activities was$21.9 million as we issued to several institutional investors inFebruary 2021 in a registered direct offering (the "Offering") 12,000,000 of our ordinary shares at a purchase price of$1.15 per share for net proceeds of approximately$12.6 million . InSeptember 2021 , we issued 14,152,779 ordinary shares to certain institutional investors at a purchase from of$0.72 per share for net proceeds of approximately$9.3 million . For the nine months endedSeptember 30, 2020 , net cash generated by financing activities was$9.4 million which was attributable to the Convertible Debentures issued onMarch 19, 2020 with gross proceeds of$10.2 million , offset by the payment of debt issuance costs of$0.8 million . Working Capital As ofSeptember 30, 2021 , we had negative working capital of$1.0 million and as ofSeptember 30, 2020 , we had positive working capital of$0.4 million . The decrease in working capital in 2021 compared to 2020 was driven by the$10.0 million convertible notes which are dueDecember 2021 and as a result, are presented in current liabilities as ofSeptember 30, 2021 , compared to long-term liabilities as ofSeptember 30, 2020 and offset by a higher cash balance as ofSeptember 30, 2021 compared toSeptember 30, 2020 due to the capital raise
noted above inSeptember 2021 . -32- Financings OnDecember 5, 2018 , the Company issued$10.0 million aggregate principal amount of convertible notes in a private placement to affiliates of an existing minority institutional shareholder. The convertible notes are unsecured, unsubordinated obligations of Cyren and carry a 5.75% interest rate, payable semi-annually in (i) 50% cash and (ii) 50% cash or ordinary shares at Cyren's election. The notes have a 3-year term and mature inDecember 2021 , unless converted in accordance with their terms prior to maturity. The notes were issued with a conversion price of$3.90 per share which was subject to adjustment using a weighted-average ratchet mechanism based on the size and price of future equity offerings and the total shares outstanding. We are currently negotiating to restructure the convertible notes with the noteholders to postpone the final repayment date by several months under certain terms, although there is no assurance that we will be able to do so on commercially reasonable terms or at all. If the restructuring discussions are not successful, the Company intends to use its available cash resources to repay the principal upon maturity per the terms of the convertible notes. OnNovember 7, 2019 , we completed a rights offering that raised gross proceeds of$8.0 million . As a result of this offering, the conversion price of the convertible notes was adjusted to$3.73 . In addition, the convertible notes are subject to immediate conversion upon any change in control in the Company (or subject to repayment if the price in the change in control transaction is less than the conversion price). OnMarch 19, 2020 , we issued$10.25 million aggregate principal amount of Convertible Debentures in a private placement to certain investors. The Convertible Debentures are secured by a guarantee by two of our subsidiaries and carry a 5.75% interest rate, payable semi-annually in cash or, subject to the satisfaction of certain equity conditions, in ordinary shares. The Convertible Debentures mature inMarch 2024 , unless converted in accordance with their terms prior to maturity. The Convertible Debentures have an initial conversion price of$0.75 per share, subject to adjustments. If the closing bid price of our ordinary shares has been at least$2.25 (subject to adjustment) for at least 20 trading days during any 30 consecutive trading day period, and certain conditions are satisfied, we may force a conversion of all or any part of the outstanding principal amount of the Convertible Debentures, accrued and unpaid interest and any other amounts then owing, subject to certain conditions. OnFebruary 16, 2021 , we issued to several institutional investors in a registered direct offering, 12,000,000 of our Ordinary Shares at a purchase price of$1.15 per share for net proceeds of approximately$12.6 million . We intend to use the proceeds from this offering for working capital and general corporate purposes. As a result of this offering, the conversion price of the convertible notes was adjusted to$3.38 . We also issued to the placement agent or its designees warrants to purchase up to 720,000 ordinary shares, representing 6% of the aggregate number of ordinary shares sold in the offering. The placement agent warrants have an exercise price equal to$1.4375 , or 125% of the offering price, per Ordinary Share and became exercisable onAugust 16, 2021 for five years from the effective date of the offering. OnSeptember 17, 2021 , we issued to several institutional investors in a private placement, 14,152,799 of our ordinary shares at a purchase price of$0.72 per share and warrants to purchase up to 14,152,779 ordinary shares at an exercise price of$0.60 per share. The warrants will be exercisable immediately and terminate onMarch 17, 2025 . As a result of this offering, the conversion price of the convertible notes was adjusted to$3.02 . We also issued to the placement agent or its designees warrants to purchase up to 849,167 ordinary shares, representing 6.0% of the aggregate number of ordinary shares sold in the offering. The placement agent warrants have an exercise price equal to$0.90 per share, or 125% of the offering price per share and were exercisable immediately and terminate onMarch 17, 2025 . -33- Registration Statements In connection with our private placement toWarburg Pincus inNovember 2017 , in which we issued approximately 10.6 million ordinary shares for$1.85 per share, we andWarburg Pincus entered into a registration rights agreement, which, among other things, providesWarburg Pincus with three demand registration rights, piggyback and shelf registration rights. The demand registration rights became exercisable as ofAugust 6, 2018 , subject to certain customary blackout periods. In connection with the issuance of the Convertible Debentures, we entered into a registration rights agreement with the purchasers. Pursuant to that agreement, we filed a registration statement on Form S-3 with theSEC covering the resale of our ordinary shares that are issuable to the purchasers upon any conversion of the Convertible Debentures or as interest payments. OnSeptember 21, 2018 , we filed a shelf registration statement on Form F-3 with theSEC , which we converted to a Form S-3 onAugust 16, 2019 . This registration statement enables us to issue debt securities, ordinary shares, warrants, or subscription rights up to an aggregate amount of$50 million . Under the rules governing shelf registration statements, we will file a prospectus supplement with theSEC which describes the amount and type of securities being offered each time we issue securities under this registration statement. No securities were issued under the registration statement on Form F-3. InNovember 2019 , we issued shares as part of our rights offerings, and inFebruary 2021 , we issued shares in the registered direct offering using our Form S-3 as described above. OnOctober 1, 2021 , as a part of the private placement noted above inSeptember 2021 , we a filed shelf registration statement on Form S-3 with theSEC . This registration registered 29,154,725 ordinary shares, consisting of (i) 14,152,779 ordinary shares, (ii) 14,152,779 ordinary shares issuable upon the exercise of warrants issued in a private placement described above, and (iii) 849,167 ordinary shares issuable upon exercise of the placement agent warrants issued in a private placement described above.
Off-Balance Sheet Arrangements
As of
Critical Accounting Policies and Estimates
Our significant accounting policies are discussed in Note 2. Significant Accounting Policies to our consolidated financial statements included in the Company's 2020 Annual Report. There have been no significant changes to these policies for the three months endedSeptember 30, 2021 , except as described in Note 2. Significant Accounting Policies to our condensed consolidated financial statements are included elsewhere in this Quarterly Report. The critical accounting policies requiring estimates, assumptions, and judgments that we believe have the most significant impact on our consolidated financial statements are described in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations included in our 2020 Annual Report.
Recent Accounting Pronouncements
Please refer to Note 2. Significant Accounting Policies to our condensed consolidated financial statements included elsewhere in this Quarterly Report for a full description of recent accounting pronouncements.
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