IMAGEWARE SYSTEMS, INC. Forward-Looking Statements
This Quarterly Report on Form 10-Q (this "Quarterly Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All forward-looking statements included in this report are based on information available to us as of the date hereof and we assume no obligation to update any forward-looking statements. Forward-looking statements involve known or unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements, or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to those items discussed under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , and in Item 1A of Part II of this Quarterly Report. The following discussion of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements included elsewhere within this Quarterly Report. Fluctuations in annual and quarterly results may occur as a result of factors affecting demand for our products, such as the timing of new product introductions by us and by our competitors and our customers' political and budgetary constraints. Due to such fluctuations, historical results and percentage relationships are not necessarily indicative of the operating results for any future period. As used in this Quarterly Report, "we", "us", "our", "Imageware", "Imageware Systems", "IWS", or the "Company" refers toImageware Systems, Inc. , aDelaware corporation, and all of its subsidiaries. OverviewImageware Systems, Inc. ("Imageware ," the "Company," "we," "our") provides biometric solutions to identify, verify, and authenticate people based on their true identity, rather than on what keys and codes they have. A pioneer in the field,Imageware was the first multimodal biometric solution provider in history and holds dozens of patents, including some of the most cited patents in the industry. Our Cloud-based and on-premises solutions provide faster, more accurate identification to better secure communities, data, and assets. In fact, governments, law enforcement agencies, and public and private enterprises worldwide trustImageware with critical identity solutions which manage millions of identities every day. Our patented Imageware Biometric Engine® is one of the most accurate and fastest biometrics matching engines in the industry, capable of our patented biometrics fusion. We are a "biometrics first" company, leveraging unique human characteristics to provide unparalleled accuracy for identification while protecting your identity. Our product portfolio, called the Imageware Identity Platform, is built around three key areas: Enroll & Identify, Badge & Credential, and Authenticate. All of these areas are built on top of the Imageware Biometric Engine. The Platform is a fully-modular, customizable, and pre-integrated portfolio of capabilities to support state and local law enforcement, Federal agencies, and enterprises alike. Enroll & Identify
The Enroll & Identify area includes four key modules: Imageware Proof, Imageware Capture, Imageware Identify, and Imageware Investigate.
Imageware Proof enables an entity to prove someone's identity from their biometrics, government issued ID, and 3rd party databases (such as credit bureau data). Imageware Capture enables the fastest capture of biographic and biometric detail (such as face, fingerprint, palm print, iris, and SMT's) in the industry. Imageware Identify enables a user to identify someone from their biometrics in seconds. Imageware Investigate enables an officer to create digital lineups very quickly. Badge & Credential
The Badge & Credential area includes two key modules: Imageware Credential (formerly EPI Suite) and Imageware Digital ID. Imageware Credential enables a user to design, build, and print badges for access control systems. This includes tickets, smart badges, wristbands, Personal Identity Verification ("PIV") cards, and more. Imageware Digital ID is a decentralized identity service that enables self-sovereign identity underpinned by blockchain technology tied to biometrics.
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Table of Contents
Authenticate
The Authenticate area includes Imageware Authenticate, which enables users to
leverage multimodal biometrics hosted in a central server or cloud to log in to
services and applications from any device. Imageware Authenticate is easily
integrated into existing solutions leveraging OpenID Connect ("OIDC"), Security
Assertion Mark-up Language ("SAML"), or OAuth2 protocols, and includes a
software development kit ("SDK") for partners and customers to easily embed into
their existing applications.
Imageware Biometric Engine
The Imageware Biometric Engine® is a patented biometric identity and
authentication database built for multi-biometric enrollment, management and
authentication. It is hardware agnostic and can utilize different types of
biometric algorithms from any vendor. It allows different types of biometrics to
be operated at the same time on a seamlessly integrated platform. It is also
offered as an SDK, enabling developers and system integrators to implement
biometric solutions or integrate biometric capabilities, into existing
applications.
Imageware Law Enforcement
Our modules are leveraged across many industries and use cases with minimal
customization needed. One of the key areas includes our Law Enforcement 2.0
solution which enables state, local and Federal agencies to quickly capture,
archive, search, retrieve, and share digital images, fingerprints and other
biometrics, as well as criminal history records on a stand-alone, networked,
wireless or browser-based platform. Our Imageware Law Enforcement 2.0 solution
includes Imageware Capture, Imageware Identify, Imageware Investigate, Imageware
Credential, and Imageware Authenticate. Other modules can also be easily
leveraged as needed.
Critical Accounting Policies and Estimates
The discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles inthe United States ("GAAP"). The preparation of these consolidated financial statements in accordance with GAAP requires us to utilize accounting policies and make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingencies as of the date of the consolidated financial statements and the reported amounts of revenue and expense during a fiscal period.The Securities and Exchange Commission ("SEC") considers an accounting policy to be critical if it is important to a company's financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Significant estimates include the evaluation of our ability to continue as a going concern, the allowance for doubtful accounts receivable, assumptions used in the Black-Scholes model to calculate the fair value of share based payments, fair value of financial instruments issued with and affected by the Series D Financing, assumptions used in the application of revenue recognition policies, and assumptions used in the application of fair value methodologies to calculate the fair value of pension assets and obligations. Critical accounting policies are those that, in management's view, are most important in the portrayal of our financial condition and results of operations. Management believes there have been no material changes during the three months endedMarch 31, 2022 to the critical accounting policies discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K (the "Annual Report") for the year endedDecember 31, 2021 . Results of Operations This management's discussion and analysis of financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and related notes contained elsewhere in this Quarterly Report. -24-
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Table of Contents Comparison of the Three Months EndedMarch 31, 2021 to the Three Months EndedMarch 31, 2020 Three Months Ended March 31, Net Product Revenue 2022 2021 $ Change % Change (dollars in thousands) Software and royalties$ 141 $ 39 $ 102 262 %
Percentage of total net product revenue 67 % 70 % Hardware and consumables
$ 43 $ 13 $ 30 231 %
Percentage of total net product revenue 21 % 23 % Services
$ 26 $ 4 $ 22 550 % Percentage of total net product revenue 12 % 7 % Total net product revenue$ 210 $ 56 $ 154 275 % Software and royalty revenue increased approximately$102,000 during the three months endedMarch 31, 2022 as compared to the corresponding period in 2021. This increase is attributable to higher identification project related revenue of approximately$87,000 , higher law enforcement software revenue of approximately$30,000 , higher sales of boxed identity management software sold through our distribution channel of approximately$3,000 offset by lower identification royalties of approximately$18,000 .
Revenue from the sale of hardware and consumables increased approximately
Services revenue is comprised primarily of software integration services, system installation services and customer training. Such revenue increased approximately$22,000 during the three months endedMarch 31, 2022 as compared to the corresponding period of 2021 due to an increase in the service element of project related work completed during the three months endedMarch 31, 2022 . We believe that the period-to-period fluctuations of identity management software revenue in project-oriented solutions are largely due to the timing of government procurement with respect to the various programs we are pursuing. Although no assurances can be given, based on management's current visibility into the timing of potential government procurements, potential partnerships and current pilot programs, we believe that we will see an increase in government procurement and implementations with respect to identity management initiatives; however, government procurement initiatives, implementations and pilots are frequently delayed and extended and we cannot predict the timing of such initiatives. As discussed more fully elsewhere in this Quarterly Report, the full extent of COVID-19's impact on our operations and financial performance depends on future developments that are uncertain and unpredictable, including the duration and spread of the pandemic, its impact on capital and financial markets and any new information that may emerge concerning the severity of the virus, its spread to other regions as well as the actions taken to contain it, among others. During the three months endedMarch 31, 2022 , we have focused on strategically modernizing our modules within the Imageware Identity Platform, prioritized by market opportunities. We relaunched Imageware Authenticate (formerly GoVerify ID®) inFebruary 2021 . This relaunch includes a new container and microservices-based architecture along with refreshed mobile and desktop clients. We believe these updates will result in additional customers implementing our Imageware Authenticate solution. Additionally, we launched Imageware Capture, our first module of the Law Enforcement 2.0 solution inOctober 2021 and Imageware Investigate inDecember 2021 . These are the first of many modules that we plan to build and modernize throughout 2022 and beyond. Prior to releasing Imageware Investigate, we closed our largest software-as-a-service (SaaS) deal in the Company's history withImageware Investigate. Management believes that these initiatives will result in the expansion of our solutions into state & local law enforcement, federal government, and enterprises alike. Three Months Ended Maintenance Revenue March 31, (dollars in thousands) 2022 2021 $ Change % Change Total maintenance revenue$ 635 $ 677 $ (42 ) (6 )% -25-
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Table of Contents Maintenance revenue was approximately$635,000 for the three months endedMarch 31, 2022 , as compared to approximately$677,000 for the corresponding period in 2021. Identity management maintenance revenue generated from identification software solutions was approximately$323,000 for the three months endedMarch 31, 2022 as compared to approximately$361,000 during the comparable period in 2021. Law enforcement maintenance revenue was approximately$312,000 and$316,000 for the three months endedMarch 31, 2022 and 2021, respectively. The decrease of$4,000 in law enforcement software maintenance revenue for the three months endedMarch 31, 2022 as compared to the corresponding period of 2021 is reflective of the expiration of certain maintenance contracts. The decrease of$38,000 in our Identity Management maintenance revenue for the three months endedMarch 31, 2022 as compared to the corresponding period of 2021 is also reflective of the expiration of certain maintenance contracts. We anticipate growth of our maintenance revenue through the retention of existing customers combined with the expansion of our installed base resulting from the completion of project-oriented work; however, we cannot predict the timing of this anticipated growth. Three Months Ended Cost of Product Revenue March 31, (dollars in thousands) 2022 2021
$ Change % Change
Software and royalties $ 5 $ - $ 5 100 % Percentage of software and royalty product revenue 4 % 0 % Hardware and consumables$ 27 $ 9$ 18 200 % Percentage of hardware and consumables product revenue 63 % 69 % Services $ - $ - $ - - % Percentage of services product revenue 0 % 0 % Total product cost of revenue$ 32 $ 9$ 23 256 % Percentage of total product revenue 15 % 16 % The cost of software and royalty product revenue increased approximately$5,000 due primarily to higher software and royalty revenue for the three months endedMarch 31, 2022 of approximately$102,000 . The cost of software and royalty product revenue as a percentage of software and royalty revenue increased to 4% during the three months endedMarch 31, 2022 as compared to 0% for the corresponding 2021 period as the 2021 period contained revenue being comprised of solutions containing no third-party software costs or software customization. In addition to changes in costs of software and royalty product revenue caused by revenue level fluctuations, costs of products can vary as a percentage of product revenue from period to period depending upon level of software customization and third-party software license content included in product sales during a given period. The cost of revenue for our hardware and consumables sales increased by approximately$18,000 for the three months endedMarch 31, 2022 as compared to the corresponding period in 2021 due to higher hardware and consumable revenue of$30,000 . Three Months Ended Maintenance Cost of Revenue March 31, (dollars in thousands) 2022 2021 $ Change % Change Total maintenance cost of revenue$ 100 $ 110 $ (10 ) (9 )% 16 % 16 % -26-
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Table of Contents
Cost of maintenance revenue decreased approximately
Three Months Ended
Product Gross Profit March 31,
(dollars in thousands) 2022 2021 $ Change % Change
Software and royalties $ 136 $ 39 $ 97 249 %
Percentage of software and royalty
product revenue 96 % 100 %
Hardware and consumables $ 16 $ 4 $ 12 300 %
Percentage of hardware and consumables
product revenue 21 % 31 %
Services $ 26 $ 4 $ 22 550 %
Percentage of services product revenue 100 % 100 %
Total product gross profit $ 178 $ 47 $ 131 279 %
Percentage of total product revenue 85 % 84 %
Software and royalty gross profit increased approximately $97,000 for the three
months ended March 31, 2022 from the corresponding period in 2021 due primarily
to higher software and royalty revenue of approximately $102,000 . In addition to
changes in costs of software and royalty product revenue caused by revenue level
fluctuations, costs of products can vary as a percentage of product revenue from
period to period depending upon level of software customization and third-party
software license content included in product sales during a given period.
Hardware and consumables gross profit increased approximately $12,000 for the
three months ended March 31, 2022 from the corresponding period in 2021 due
primarily to higher hardware and consumables revenue of approximately $30,000
offset by higher cost of hardware and consumables revenue of approximately
$18,000 .
Services gross profit increased approximately $22,000 for the three months ended
March 31, 2022 as compared to the corresponding period in 2021 due to higher
service revenue of approximately $22,000 for the three months ended March 31,
2022 as compared to the corresponding period in 2021.
Three Months Ended
Maintenance Gross Profit March 31,
(dollars in thousands) 2022 2021 $ Change % Change
Total maintenance gross profit $ 535 $ 567 $ (32 ) (6 )%
Percentage of total maintenance revenue 84 % 84 %
Gross profit related to maintenance revenue decreased 6% or approximately
$32,000 for the three months ended March 31, 2022 as compared to the
corresponding period in 2021. This decrease reflects lower maintenance revenue
of approximately $42,000 combined with lower cost of maintenance revenue of
approximately $10,000 . Lower maintenance revenue reflects the expiration of
certain maintenance contracts and lower maintenance cost of revenue reflects
reductions in fixed maintenance costs through headcount reductions. Maintenance
gross profit can change from period to period depending upon both the level and
complexity of engineering service resources utilized in the provision of
maintenance services.
Three Months Ended
Operating Expense March 31,
(dollars in thousands) 2022 2021 $ Change % Change
General and administrative $ 1,176 $ 1,347 $ (171 ) (13 )% Percentage of total net revenue 139 % 184 % Sales and marketing
$ 626 $ 724 $ (98 ) (14 )% Percentage of total net revenue 74 % 99 %
Research and development
(26 )%
Percentage of total net revenue 103 % 159 %
Depreciation and amortization
(67 )%
Percentage of total net revenue 1 % 2 %
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Table of Contents
General and Administrative Expense
General and administrative expense is comprised primarily of salaries and other employee-related costs for executive, financial, and other infrastructure personnel. General legal, accounting and consulting services, insurance, occupancy and communication costs are also included with general and administrative expense. The dollar decrease of approximately$171,000 during the three months endedMarch 31, 2022 as compared to the corresponding period in 2021 is comprised of the following major components: ? Decrease in personnel related expense of approximately$86,000 due to headcount reductions; ? Decrease in professional services of approximately$246,000 from reductions in contractor fees, professional services and Board of Director fees of approximately$136,000 , lower general corporate expense of$18,000 , , lower audit related fees of approximately$89,000 , lower patent related expense of approximately$64,000 and lower legal fees of approximately$9,000 offset by higher contract services of approximately$65,000 and higher investor relations fees of approximately$5,000 . ? Increase in licenses, dues and other costs of approximately$7,000 ; ? Increase in stock-based compensation expense of approximately$299,000 ; ? Decrease in financing expense of approximately$32,000 ; ? Decrease in rent, office related expenses and other of approximately$120,000 due primarily to the sublease of certain office facilities; ? Increase in insurance costs of approximately$3,000 ; and ? Increase in bad debt expense of approximately$4,000 . We continue to focus our efforts on achieving additional future operating efficiencies by reviewing and improving upon existing business processes and evaluating our cost structure. We believe these efforts will allow us to continue to gradually decrease our level of general and administrative expense expressed as a percentage of total revenue. Sales and Marketing Sales and marketing expense consists primarily of the salaries, commissions, other incentive compensation, employee benefits and travel expense of our sales, marketing, and business development functions. The dollar decrease of approximately$98,000 during the three months endedMarch 31, 2022 as compared to the corresponding period in 2021 is primarily comprised of the following major components: ? Decrease in personnel related expense of approximately$135,000 driven primarily by the effect of headcount reductions; ? Decrease in contract services and dues and subscriptions of approximately$33,000 resulting from decreased utilization of certain sales contract services of approximately$48,000 offset by dues and subscriptions of approximately$15,000 ; ? Increase in travel, trade show expense of approximately$19,000 due to the resumption of sales travel and trade show attendance; ? Increase in stock-based compensation expense of approximately$106,000 ; and ? Decrease in advertising and demo equipment expense and other miscellaneous selling related expense of approximately$28,000 ; and ? Decrease in ourMexico sales office and other expense of approximately$27,000 due to headcount reductions at this location. -28-
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Table of Contents Research and Development Research and development expense consists primarily of salaries, employee benefits and outside contractors for new product development, product enhancements, custom integration work and related facility costs. Such expense decreased approximately$300,000 for the three months endedMarch 31, 2022 as compared to the corresponding period in 2021 due primarily to the following major components: ? Decrease in personnel related expense of approximately$394,000 driven primarily by the effect of headcount decreases; ? Increase in contractor fees and contract services of approximately$98,000 resulting from the replacement of certain function with contract labor;
? Increase in stock based-compensation expense of approximately
? Decrease in office related expense,
engineering tools, supplies,
communications (including internet)
and travel of approximately $104,000 .
Depreciation and Amortization
During the three months endedMarch 31, 2022 and 2021, depreciation and amortization expense was approximately$6,000 and$18,000 , respectively. The relatively small amount of depreciation and amortization reflects the relatively small property and equipment carrying value.
Interest Expense (Income), Net
For the three months endedMarch 31, 2022 and 2021, we recognized net interest expense of$53,000 and$0 , respectively. Interest expense for the three months endedMarch 31, 2022 is comprised of approximately$24,000 in coupon interest related to borrowings under our 2021 Credit Facility and approximately$29,000 from amortization of debt discount associated with the 2021 Credit Facility. Other (income) expense, net
During the three months ended
Change in Fair Value of Derivative Liabilities
For the three months endedMarch 31, 2022 , we recognized expense of approximately$667,000 from the decrease of derivative liabilities arising from the consummation of the Series D Financing inNovember 2020 . Such increase was determined by management using fair value methodologies and is included as income under the caption "Change in fair value of derivative liabilities" in our condensed consolidated statement of operations for three months endedMarch 31, 2022 . For the three months endedMarch 31, 2021 , we recognized income of approximately$1,172,000 from the decrease of derivative liabilities arising from the consummation of the Series D Financing inNovember 2020 . Such decrease was determined by management using fair value methodologies and is included as income under the caption "Change in fair value of derivative liabilities" in our condensed consolidated statement of operations for three months endedMarch 31, 2021 .
Loss on Extinguishment of Derivative Liabilities and Debt
During the three months endedMarch 31, 2021 , we recognized a loss on the extinguishment of derivative liabilities of approximately$335,000 pursuant to the conversion of 354 shares of Series D Preferred into Common Stock. Such loss is included in the caption "Loss on extinguishment of derivative liabilities and debt" in our condensed consolidated statement of operations for three months endedMarch 31, 2021 .
There were no extinguishments of derivative liabilities during the three months
ended
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Table of Contents
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
Going Concern and Management's Plans
Historically, our principal sources of cash have included proceeds from the
issuance of common and preferred stock and proceeds from the issuance of debt,
and, to a lesser extent, customer payments from the sale of our products. Our
principal uses of cash have included cash used in operations, product
development, and payments relating to purchases of property and equipment. We
expect that our principal uses of cash in the future will be for product
development, including customization of identity management products for
enterprise and consumer applications, further development of intellectual
property, development of Software-as-a-Service ("SaaS") capabilities for
existing products as well as general working capital requirements. Management
expects that, as our revenue grows, our sales and marketing and research and
development expense will continue to grow, albeit at a slower rate and, as a
result, we will need to generate significant net revenue to achieve and sustain
positive cash flows from operations. Historically, the Company has not been able
to generate sufficient net revenue to achieve and sustain positive cash flows
from operations, and this condition is currently expected to continue for the
foreseeable future. As a result, the Company has been dependent on equity and
debt financings to satisfy its working capital requirements and continue as a
going concern. Due to the Company's deteriorating liquidity, management has
determined that there is substantial doubt about the Company's ability to
continue as a going concern.
At March 31, 2022 and December 31, 2021 , we had negative working capital of
$10,289,000 and $8,046,000 , respectively. Included in our negative working
capital as of March 31, 2022 and December 31, 2021 are $6,024,000 and
$5,292,000 , respectively, of derivative liabilities which are not required to be
settled in cash except in the event of the consummation of a change of control
or at any time after the fourth anniversary of the Series D Preferred issuance,
at which time the holders of the Series D Preferred may require the Company to
redeem in cash any or all of the holder's outstanding Series D Preferred at an
amount equal to the Series D Liquidation Preference Amount. At March 31, 2022
the Liquidation Preference Amount totaled $23,469,000 . Considering the
financings consummated in 2021, as well as our projected cash requirements, and
assuming we are unable to generate incremental revenue, our available cash will
be insufficient to satisfy our cash requirements in the near term and the next
twelve months from the date of this filing. At May 20, 2022 , cash on hand
approximated $215,000 . Based on the Company's rate of cash consumption during
the year ended December 31, 2021 , the first quarter ended March 31, 2022 and the
second quarter ended June 30, 2022 , the Company estimates it will need
additional capital in the second quarter of 2022 and its prospects for obtaining
that capital are uncertain. As a result of the Company's historical losses,
financial condition, and challenges raising additional capital given the
volatile capital markets, there is substantial doubt about the Company's ability
to continue as a going concern.
To address our working capital requirements, management is actively seeking
additional financing, of which no assurances can be given that we will be
successful. In addition, the Company has instituted several cost cutting
measures and has utilized cash proceeds available under the Credit Facility with
the Lenders (See Note 1), and under the purchase agreement with Lincoln Park to
satisfy its working capital requirements ("LPC Purchase Agreement") (See Note
1). In addition, as reported in the Company's Quarterly Report on Form 10-Q
filed with the SEC on August 23, 2021 , on August 12, 2021 , the Company retained
an investment bank to initiate a review of available alternatives to maximize
shareholder value, which may include, among other alternatives, (i) a merger,
consolidation, or other business combination or a purchase involving all or a
substantial amount of the business, securities or assets of the Company, and/or
(ii) the private placement of securities to meet its working capital
requirements or otherwise as necessary in connection with the consummation of
any of the above transactions. Other than the LPC Purchase Agreement with
Lincoln Park and our Credit Facility with Nantahala, which are currently
restricted in our ability to access additional capital, there are currently no
financing arrangements to support our projected cash shortfall. We currently
have no other commitments to purchase additional debt and/or equity securities,
or other agreements, and no assurances can be given that we will be successful
in raising additional debt and/or equity securities, or entering into any other
transaction that addresses our ability to continue as a going concern. The
consummation of a transaction will involve substantial dilution to the Company's
stockholders.
In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the accompanying
consolidated balance sheet is dependent upon continued operations of the
Company, which, in turn, is dependent upon the Company's ability to continue to
raise capital, generate positive cash flows from operations, or otherwise
consummate a transaction that addresses the Company's working capital
requirements. There is no assurance that the Company will be able to obtain
additional capital, consummate a transaction that addresses its liquidity
concerns, or operate at a profit or generate positive cash flows in the future.
Therefore, management's plans do not alleviate the substantial doubt of the
Company's ability to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.
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Table of Contents Operating Activities We used net cash of$1,441,000 in operating activities for the three months endedMarch 31, 2022 , which consisted of net loss of$2,698,000 and a decrease in working capital and other assets and liabilities of$37,000 . Those amounts are offset by approximately$1,294,000 of non-cash expenses comprised of$667,000 from the change in fair value of derivative liabilities,$592,000 in stock-based compensation,$6,000 in depreciation and amortization and$29,000 in amortization expense of debt discount on our line of credit. During the three months endedMarch 31, 2022 , we generated cash of$174,000 from decreases in current assets combined with$78,000 from decreases in our operating leases right-of-use assets and used cash of$133,000 through decreases in current liabilities and deferred revenue. We used net cash of$3,290,000 in operating activities for the three months endedMarch 31, 2021 , which consisted of net loss of$1,885,000 and an increase in working capital and other assets and liabilities of$767,000 . Those amounts are in addition to approximately$638,000 of non-cash income, including$1,172,000 in income from the change in fair value of derivative liabilities offset by$78,000 in stock-based compensation,$18,000 in depreciation and amortization$82,000 in non-cash expense from the disposal of fixed assets,$21,000 from the issuance of Common Stock as compensation in lieu of cash and$335,000 from loss on extinguishment of derivative liabilities. During the three months endedMarch 31, 2021 , we used cash of$459,000 from increases in current assets combined with$10,000 from decreases in our operating leases right-of-use assets and used cash of$298,000 through decreases in current liabilities and deferred revenue. Investing Activities
There was no net cash used or provided by investing activities during the three
months ended
During the three months ended
Financing Activities Cash generated from financing activities for the three months endedMarch 31, 2022 consisted of approximately$1,050,000 received by the Company in the form of drawdowns from its Credit Facility.
There was no net cash used or provided by financing activities during the three
months ended
Inflation
We do not believe that inflation has had a material impact on our historical operations or profitability.
Off-Balance Sheet Arrangements
AtMarch 31, 2022 , we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, special purpose or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we did not engage in trading activities involving non-exchange traded contracts. As a result, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We do not have relationships and transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties except as disclosed elsewhere in this Quarterly Report.
Recently Issued Accounting Standards
Please refer to the section "Recently Issued Accounting Standards" in Note 2 of our Notes to the unaudited Condensed Consolidated Financial Statements.
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