CYREN LTD.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Quarterly Report on Form 10-Q
("Quarterly Report") describe the principal factors affecting the financial
results, liquidity, capital resources and critical accounting estimates of Cyren
LTD ("Cyren," "we," "our," "us," or the "Company"), and 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 "2021 Annual Report"). Our actual
results may differ materially from those discussed below. See "Special Note
Regarding Forward-Looking Statements" below.
OVERVIEW
Cyren was an early pioneer and leading innovator of cloud-delivered Software-as-a-Service (SaaS) cyber security solutions that protect businesses, their employees and customers against threats from email, files, and the Internet.
We believe our cloud-based approach to security sets us apart from other vendors in the market. Our security solutions are engineered 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. 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 the 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 Internet, 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 - these products provide valuable threat intelligence data that can be used by enterprise or original equipment manufacturer (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.
OnJune 1, 2022 , we entered into a definitive Sale and Purchase Agreement (the "SPA") withContent Services Group GmbH to sell all the equity interests in our legacy secure email gateway business and wholly owned subsidiary,Cyren GmbH (the "Cyren GmbH Transaction"). OnAugust 1, 2022 , the Company completed the Cyren GmbH Transaction and received the initial €9.4 million payment (equivalent to$9.6 million as of the closing date). Under the terms of the SPA, a holdback in the amount of €0.7 million (the "Holdback Amount") is currently held in an escrow to satisfy certain claims. The Holdback Amount, less deductions for claims against the Company, if any, will be released to the Company no later than twelve months after the closing date. -22- -------------------------------------------------------------------------------- Table of Contents Subsequent to the closing date, the Company paid approximately$1.4 million in expenses associated with the Cyren GmbH Transaction. Furthermore, the Company estimates that the final purchase price will be reduced by$0.4 million based on working capital and other adjustments and has accrued a current liability as ofSeptember 30, 2022 . Beyond that, the Company is using the proceeds from the sale for working capital and general corporate purposes.
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.
Cloud and Mobility
Businesses are experiencing a significant 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;
•Businesses continue to move away from traditional on-premise solutions;
•Mature and legacy on-premise deployments are reaching end of life and are increasingly being replaced by cloud and SaaS alternatives;
•IT security teams have experienced staffing shortages;
•Increasingly fast, sophisticated, expensive and high-profile attacks target organizations of all sizes;
•Compliance and regulatory mandates have increased;
•Cybercrime activity among commercial enterprises and nation states has heightened;
•Automation is increasingly considered critical to accelerating detection and protection; and
•Businesses need to simplify operations through vendor consolidation.
Given these trends, 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.
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. We believe
that 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
research and development 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. We otherwise continue to
monitor 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 longer-term declining revenue trends.
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Growing Our Enterprise Business
Cyren has prioritized growing its enterprise revenues. With the mid-2020 release
of our anti-phishing solution, Cyren Inbox Security, 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 Cyren Inbox Security business grows, it has the
potential to eventually contribute to a larger portion of our overall revenue,
and longer term, we expect deferred revenue to increase and our operating
results and cash flow to improve.
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, threat detection services and threat intelligence data product offerings.
We sell all of our solutions as subscription services, either to OEMs and service providers or directly or indirectly to enterprises.
Cost of Revenue
Personnel costs, which consist of salaries, benefits, bonuses and share-based compensation for employees who operate our network 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.
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 share-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. Sales and marketing expenses have increased in 2022 as we have enhanced our efforts to support further growth and invested in strategies related to new products launched in 2020. Newly hired 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 continue to grow in absolute dollars as we continue our business pursuits.
Other Income (Expense), net
Other income (expense), net generally consists of capital gain or loss from the sale of assets.
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Financial Expenses, net
Financial expenses, net primarily consists of foreign exchange gains and losses,
interest expense on our outstanding debt, and interest income earned on our cash
and cash equivalents. In 2021 and 2022, 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 Accounting Standards Codification ("ASC") 606, Revenue
Recognition.
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. -25-
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RESULTS OF OPERATIONS
The following table sets forth our financial results for the three and nine
months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
(Unaudited and USD in % of % of % of % of
thousands) Amount Revenue* Amount Revenue* Amount Revenue* Amount Revenue*
Revenues $ 5,834 100 % $ 5,616 100 % $ 17,302 100 % $ 18,166 100 %
Cost of revenues 3,015 52 3,311 59 9,677 56 9,941 55
Gross profit 2,819 48 2,305 41 7,625 44 8,225 45
Operating expenses:
Research and development,
net 3,449 59 3,516 63 11,174 65 10,606 58
Sales and marketing 2,705 46 2,447 44 7,677 44 7,097 39
General and
administrative 2,178 37 2,162 38 6,972 40 6,262 34
Total operating expenses 8,332 143 8,125 145 25,823 149 23,965 132
Operating loss (5,513) (94) (5,820) (104) (18,198) (105) (15,740) (87)
Other income (loss), net (4) - 4 - (6) - (13) -
Financial income
(expenses), net (7) - (282) (5) 104 1 (705) (4)
Loss before taxes on
income (5,524) (95) (6,098) (109) (18,100) (105) (16,458) (91)
Tax benefit (expenses) 1 - (20) - 12 - 43 -
Net loss from continuing
operations $ (5,523) (95) % $ (6,118) (109) % $ (18,088) (105) % $ (16,415) (90) %
Income (loss) from
operations of
discontinued operations,
including loss on
classification as held
for sale (575) (10) % 331 6 % (6,929) (40) % 843 5 %
Net loss $ (6,098) (105) % $ (5,787) (103) % $ (25,017) (145) % $ (15,572) (86) %
* Percentages may not sum to 100% due to rounding.
As of
Revenues
For the three months endedSeptember 30, 2022 , revenues increased$0.2 million , or 3.9%, compared to the same period in 2021. Revenue from our OEM business increased 1.7% resulting from growth of ourThreat Intelligence Service solution. Revenue from our Enterprise business increased 48.7%, as our Cyren Inbox Security solution continued to generate year-over-year sales growth. -26- -------------------------------------------------------------------------------- Table of Contents For the nine months endedSeptember 30, 2022 , revenues declined$0.9 million , or 4.8% compared to the same period in 2021. The decrease was mainly driven by a contract reduction from our largest customer (as first disclosed in our Form 10-Q for the quarter endedSeptember 30, 2020 ), which was effective in the second quarter of 2021. The revenue impact of this contract reduction was$0.7 million . Additionally, revenue was adversely impacted by customer contract expirations or renewals at lower values coupled with the end of life of several legacy products that began during 2020. These declines were partially offset by new customers added in 2021 and 2022 in our Threat InDepth and Cyren Inbox Security products. We released Cyren Inbox Security and Threat InDepth in the second quarter of 2020. Since these product launches, we have signed numerous new customer contracts representing over$3.8 million in estimated revenue over the lives of the contracts, but due to the timing, duration and ratable nature of the contracts, we did not recognize a material amount of related revenue for the nine months endedSeptember 30, 2022 .
Cost of Revenues
For each of the three and nine months endedSeptember 30, 2022 , cost of revenues declined$0.3 million , compared to the same periods in 2021. These declines were driven by favorable foreign exchange effects. Furthermore, certain hardware and software assets that support our products became fully depreciated during the periods. These declines were partially offset by an increase in costs associated with maintaining our data center operations.
As of
Operating Expenses
For the three months endedSeptember 30, 2022 , operating expenses increased$0.2 million , or 2.5%, compared to the same period in 2021, driven by an increase in marketing expenses of 0.3 million, or 10.5%, partially offset by a decline in research and development, net of$0.1 million , or 1.9%, while general and administrative expenses remained relatively flat. For the nine months endedSeptember 30, 2022 , operating expenses increased$1.9 million , or 7.8%, compared to the same period in 2021, the result of increases in general and administrative expenses of$0.7 million , or 11.3%, marketing expenses of$0.6 million , or 8.2%, and research and development of$0.6 million , or 5.4%.
Research and Development, Net
For the three months endedSeptember 30, 2022 , research and development declined$0.1 million , or 1.9%, compared to the same period in 2021. This decline was largely the result of lower compensation expenses. For the nine months endedSeptember 30, 2022 , research and development increased$0.6 million , or 5.4%, compared to the same period in 2021. This increase was driven primarily by the reduction in capitalization of technology development, which has the effect of increasing expenses. As ofSeptember 30, 2022 , we employed 78 employees within research and development compared to 111 employees as ofSeptember 30, 2021 . EffectiveAugust 1, 2022 , 23 employees transitioned withCyren GmbH as part of theCyren GmbH Transaction. Sales and Marketing For the three months endedSeptember 30, 2022 , sales and marketing expenses increased$0.3 million , or 10.5%, compared to the same period in 2021. For the nine months endedSeptember 30, 2022 , sales and marketing expenses increased$0.6 million , or 8.2%, compared to the same period in 2021. These increases were driven by our usage of global demand generation programs and consultants in an effort to increase sales and marketing efforts to support the growth of the Cyren Inbox Security product.
As of
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General and Administrative
For the three months ended September 30, 2022 , general and administrative
expenses increased 0.7% compared to the same period in 2021. For the nine months
ended September 30, 2022 , general and administrative expenses increased $0.7
million , or 11.3%, compared to the same period in 2021. This increase is
primarily due to an increase in expenses for outside service, consultants and
legal expenses, including costs associated with the Special Meeting of the
Company's shareholders held in February 2022 , which accounted for a $0.4 million
increase year over year.
As of September 30, 2022 , we employed 19 employees in general and administrative
functions compared to 27 employees as of September 30, 2021 . Effective August 1,
2022 , five employees transitioned with Cyren GmbH as part of the Cyren GmbH
Transaction .
Other Income (Expense), Net
For the three months endedSeptember 30, 2022 , other income, net decreased$8 thousand compared to the same period in 2021. For the nine months endedSeptember 30, 2022 , other income, net decreased$7 thousand , compared to the same period in 2021.
Financial Income (Expenses), Net
For the three months endedSeptember 30, 2022 , financial income (expenses), net, increased$0.3 million compared to the same period in 2021. For the nine months endedSeptember 30, 2022 , financial income (expenses), net, increased$0.8 million compared to the same period in 2021. These increases were driven by changes in foreign exchange rates, as the significant decline in the Euro (EUR) against theU.S. dollar (USD) during 2022 caused a reduction in certain of our EUR-denominated liabilities.
Income Taxes
Effective Corporate Tax Rates
For the three and nine months ended
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, 2022 , we carried no undistributed earnings of foreign subsidiaries. We may 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.
Net Operating Loss Carryforwards
As of
As ofDecember 31, 2021 ,Cyren Inc. , ourU.S. subsidiary, had net operating loss carryforwards of$42.8 million for federal tax purposes and$12.9 million for state tax purposes. These losses may offset any futureU.S. taxable income of theU.S. subsidiary and will expire in the years 2022 through 2041. 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 as ofSeptember 30, 2022 , to reduce deferred tax assets to their realizable value. -28-
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LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred losses since inception and expects to continue to incur losses for the foreseeable future. The Company intends to finance operating costs over the next twelve months through a combination of utilizing existing cash on hand, reducing operating spend, potentially divesting assets, and future issuances of equity and/or debt securities. As ofSeptember 30, 2022 , we had an accumulated deficit of$296.6 million , and cash and cash equivalents of$13.5 million . Current assets amounted to$17.9 million with current liabilities of approximately$13.9 million , resulting in working capital of$4.0 million . For the nine months endedSeptember 30, 2022 , we recorded a net loss of$25.0 million . We have incurred losses since inception and expect to continue to incur losses for the foreseeable future. The current cash balance and historical trend of cash used in operations along with the lack of certainty regarding a future capital raise, provides substantial doubt about our ability to continue as a going concern for the next twelve months from the date of issuance of this Quarterly Report. The inability to borrow or raise sufficient funds on commercially reasonable terms, would have serious consequences to our financial condition and results of operations. As previously discussed, onAugust 1, 2022 , the Company completed theCyren GmbH Transaction and received the initial €9.4 million payment (equivalent to$9.6 million as of the closing date). Under the terms of the SPA, a holdback in the amount of €0.7 million (the "Holdback Amount") is currently held in an escrow to satisfy certain claims. The Holdback Amount, less deductions for claims against the Company, if any, will be released to the Company no later than twelve months after the closing date. Subsequent to the closing date, the Company has paid approximately$1.4 million in expenses associated with the Cyren GmbH Transaction. Furthermore, the Company estimates that the final purchase price will be reduced by$0.4 million based on working capital and other adjustments and has accrued a current liability as ofSeptember 30 , 2022The Company is using the proceeds from the sale for working capital and general corporate purposes. 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 products, and the expansion of sales and marketing activities based on our market opportunities. We expect to require 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 shareholders 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.
Cash Flow Analysis
Cash Flows from Operating Activities
Our primary source of cash provided by operating activities is revenues
generated from sales of our services. Our primary uses of cash from operating
activities include personnel costs, costs associated with maintaining our data
centers and services necessary to support our customers.
Operating cash flow is calculated by adjusting our net loss for changes in
working capital, as well as by excluding non-cash items such as: depreciation,
non-cash operating lease expense, amortization expense of intangible assets,
share-based compensation, impairment of research and development capitalization,
amortization of deferred commissions, deferred taxes, net, non-cash interest
expense on the convertible notes and Convertible Debentures.
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For the nine months ended September 30, 2022 , cash used in operating activities
was $9.0 million as compared to cash used in operating activities of $12.5
million for the same period in 2021.
For the nine months ended September 30, 2022 , the most significant factor
affecting our operating cash flows was our net loss of $25.0 million , which
included loss from discontinued operations of $6.9 million pertaining to the
Cyren GmbH sale. Net cash used by operating activities also was the result of
changes in operating lease liabilities of $1.7 million ; prepaid expenses and
other receivables of $1.3 million ; deferred commissions of $1.2 million ; and
trade receivables of $0.9 million . This was partially offset by changes in
deferred revenues of $6.1 million ; amortization of intangible assets of $1.7
million ; share-based compensation of $1.6 million ; employee and payroll
accruals, depreciation of $1.0 million and operating lease right-of-use asset of
$0.9 million .
For the nine months ended September 30, 2021 , the primary factors affecting our
operating cash flows during the period were our net loss of $15.6 million , which
included income from continuing operations of 0.8 million pertaining to the
Cyren GmbH Transaction, and adjusted for non-cash items of $1.7 million of
stock-based compensation expense, $1.0 million for amortization of our non-cash
operating lease expense, $3.9 million for depreciation and amortization of our
property, equipment, and intangible assets, and $0.6 million for amortization of
deferred commissions. The primary drivers of the changes in operating assets and
liabilities were a $1.2 million decrease in operating lease liabilities, a $0.6
million decrease in capitalization of deferred commissions, a $0.6 million
decrease in prepaid expenses and other receivables, and a decrease in trade
receivables of $2.6 million .
Cash Flows from Investing Activities
Cash used in investing activities primarily consists of payments related to capitalized technology, purchases of computer and network equipment to support our data center infrastructure, and furniture and equipment. The extent of these investments will be affected by our ability to expand relationships with existing customers, grow our customer base, as well as constraints on cash expenditures due to our financial position and the current economic environment.
For the nine months ended
For the nine months ended
Our capital expenditures over the last several years consisted primarily of continued investment in research and development and purchases of property and equipment to modernize and expand our data centers and to invest in our infrastructure to support new products and facilitate the Company's growth. We anticipate that capital expenditures for 2022 will be approximately$0.2 million .
Cash Flows from Financing Activities
The changes in cash flows from financing activities primarily relate to the issuance of the Convertible Debentures, and the issuance of ordinary shares and warrants to fund operations, offset by the repayment of debt upon maturity.
For the nine months endedSeptember 30, 2022 , net cash generated by financing activities was$10.9 million as we issued to several institutional investors inFebruary 2022 in a private placement, 3,129,075 ordinary shares at a purchase price of$3.835 per share (or ordinary share equivalent) and associated warrants for net proceeds of approximately$10.9 million . For the nine months endedSeptember 30, 2021 , net cash generated by financing activities was$12.6 million as we issued to several institutional investors inFebruary 2021 , 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 . -30- -------------------------------------------------------------------------------- Table of Contents Financings OnFebruary 16, 2021 , we issued to several institutional investors in a registered direct offering, 600,000 of our ordinary shares at a purchase price of$23.00 per share for net proceeds of approximately$12.6 million . We used the proceeds from this offering for working capital and general corporate purposes. We also issued to the placement agent or its designees warrants to purchase up to 36,000 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$28.75 , 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, 707,639 of our ordinary shares at a purchase price of$14.40 per share and warrants to purchase up to 707,639 ordinary shares at an exercise price of$12.00 per share for net proceeds of approximately$10.2 million . We used the gross proceeds from this offering for working capital and general corporate purposes. The warrants were exercisable immediately and terminate onMarch 17, 2025 . We also issued to the placement agent or its designees warrants to purchase up to 42,459 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$18.00 per share, or 125% of the offering price per share, were exercisable immediately and terminate onMarch 17, 2025 . OnFebruary 14, 2022 , we issued to several institutional investors in a private placement, 3,129,075 ordinary shares (or ordinary share equivalents) and warrants to purchase up to 3,129,075 ordinary shares at a purchase price of$3.835 per share (or ordinary share equivalent) and associated warrant for net proceeds of approximately$12 million . We used the gross proceeds from this offering for working capital and general corporate purposes. The warrants were exercisable immediately, have an exercise price of$3.71 per ordinary share and terminate onAugust 16, 2027 . We also issued to the placement agent or its designees warrants to purchase up to 187,745 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$4.79 per share, or 125% of the offering price per share, were exercisable immediately and terminate onFebruary 15, 2027 . Registration Statements 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. 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. OnJuly 28, 2022 , we filed a replacement shelf registration statement on Form S-3 to replace the existing S-3 that expired onAugust 16, 2022 . Our market capitalization may limit our ability to raise additional capital in the public markets. Although we are currently eligible to use our Form S-3, we are limited to selling no more than one-third of our unaffiliated market capitalization, or public float, on Form S-3 in a 12-month period as our public float is below$75 million . Outlook The Company has incurred losses since inception and expects to continue to incur losses for the foreseeable future. The Company intends to finance operating costs over the next twelve months through a combination of utilizing existing cash on hand, reducing operating spend, potentially divesting assets, and future issuances of equity and/or debt securities. The Company's ability to continue as a going concern is dependent upon growing its business, obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations. 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 assets, 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 maintain compliance with the Nasdaq Capital Market listing standards. -31- -------------------------------------------------------------------------------- Table of Contents At a Special Meeting of the Company's shareholders held onFebruary 7, 2022 , the Company's shareholders approved a Reverse Share Split (including the relevant amendments to the Articles ofAssociation of the Company ) within a range of 1:4 to 1:20, and amendments to the Company's Articles of Association authorizing an increase in the Company's authorized share capital (and corresponding authorized ordinary shares) by up toNIS 216 million . The board of directors approved the implementation of a one-for-twenty Reverse Share Split and an increase in the Company's authorized share capital byNIS 216 million toNIS 240 million . The Reverse Share Split was effective onFebruary 8, 2022 , and the Company's ordinary shares began trading on a split-adjusted basis onFebruary 9, 2022 . Following the Reverse Share Split and increase in authorized share capital, the total number of ordinary shares that the Company is authorized to issue is 80 million shares. While the Company was able to regain compliance with the Nasdaq minimum bid price requirement inFebruary 2022 following the effectiveness of the Reverse Share Split, there can be no assurance that the Company will continue to meet the Nasdaq listing requirements. The inability to remain listed on Nasdaq may make it difficult for us to raise additional capital. 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. For the nine months endedSeptember 30, 2022 , the Company generated a net loss of$25.0 million and a negative cash flow from operating activities of$9.0 million . For the year endedDecember 31, 2021 , the Company recorded a net loss of$23.0 million and a negative cash flow from operating activities of$16.5 million . The Company has incurred losses since inception and expects to continue to incur losses for the foreseeable future.
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 2021 Annual Report. There have been no significant changes to these policies for the three months endedSeptember 30, 2022 , except as described in Note 2 - Significant Accounting Policies to our condensed consolidated financial statements 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 2021 Annual Report.
Please refer to Note 2 - Significant Accounting Policies for a full description of recent accounting pronouncements.
Goodwill represents the excess of the purchase price over the estimated fair value of net assets of a business acquired in a business combination. Under ASC Topic 350, Intangibles -Goodwill and Other ("ASC 350"), goodwill is not amortized, but rather is subject to impairment test at least annually. The Company performs an annual impairment test as ofDecember 31 of each year, or more frequently if events or changes in circumstances indicate the carrying value may not be recoverable.Goodwill is tested for impairment at the reporting unit level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the reporting unit does not pass the qualitative assessment, the Company carries out a quantitative test for impairment of goodwill by comparing the fair value of the reporting unit with the carrying amount of the reporting unit that includes goodwill. The Company may bypass the qualitative assessment and proceed directly to performing the quantitative goodwill impairment test.
The Company operates in one operating segment, and this segment comprises its only reporting unit.
It is possible that changes in circumstances existing at the measurement date or at other times in the future, or in the numerous estimates associated with management's judgments, assumptions and estimates made in assessing the fair value of our goodwill, could result in an impairment charge of a portion or all of our goodwill. If the Company recorded an impairment charge, its financial position and results of operations would be adversely affected. For additional information, see "Risk Factors" in Item 1A of Part II of this report. We will continue to monitor certain events that impact our operations to determine if an interim assessment of goodwill impairment should be performed prior to the next required assessment date ofDecember 31, 2022 . -32-
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RUSSIAN INVASION OF
We maintain sales operations, employees, and customers located in multiple countries. We have contractors inUkraine that assist in our operations group which support our products. The ongoing military conflict betweenUkraine andRussia has resulted in minimal interruption of our operations inUkraine and we are developing alternative plans should our contractors not be available for a period of time. While the precise effect of the ongoing military conflict and the sanctions on the Russian and global economies remains uncertain, should tensions continue to increase, financial markets may continue to experience significant volatility as well as economic and security consequences.
While as of the date of this Quarterly Report there have not been any material impacts from the above-mentioned matter in our consolidated financial statements, we are continuously monitoring the developments to assess any potential future impacts that may arise as a result of the ongoing crisis.
Other potential consequences include, but are not limited to, growth in the number of popular uprisings in the region, increased political discontent, especially in the regions most affected by the conflict or economic sanctions, increase in cyberterrorism activities and attacks, displacement of persons to regions close to the areas of conflict and an increase in the number of refugees fleeing acrossEurope , among other unforeseen social and humanitarian effects. A protracted conflict betweenUkraine andRussia , any escalation or expansion of that conflict, and the financial and economic sanctions and the above-mentioned adverse effect on the wider global economy and market conditions could, in turn, have a material adverse effect on our business, financial condition and results of operations
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