Discontinued Operations and Assets Held for Sale

6 Months Ended

Jun. 30, 2022

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

NOTE 9 – DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE

The Board of Directors of authID considers it in the best interests of the Company to focus its business activities on providing biometric identity verification products and services by means of our proprietary IDaaS platform.  Accordingly, on May 4, 2022, the Board approved a plan to exit from certain non-core activities comprising the MultiPay correspondent bank payments services in Colombia and the Cards Plus cards manufacturing and printing business in South Africa.

Cards Plus business in South Africa

The Company plans to exit the Cards Plus business and is in discussions with a buyer to purchase the Company’s interests in Cards Plus.

The estimated sale price is $300,000 less selling costs which resulted in a charge of approximately $68,000 for the Cards Plus. In the six months ended June 30, 2022, the Company also recorded an impairment charge of approximately $144,000 for certain intangible assets of Cards Plus.

MultiPay business in Colombia

The Company plans to exit the MultiPay business in Colombia in an orderly fashion, honoring our obligations to employees, customers and under applicable laws and regulations.  We plan to maintain our customer support and operations team in Bogota, which performs essential functions to support the global operations of our Verified family of products.

The Company will incur certain costs associated with its employees and other contractual obligations.  MultiPay will continue to service its customer base in the interim as it will look to minimize all such costs and in addition to realize proceeds from the potential disposition or use of its assets. 

As of June 30, 2022, MultiPay has notified the customers and the impacted employees of the Company’s plan. MultiPay also communicated to each employee their compensation entitlements and severance packages under its retention plan and obligations under the appropriate statutes.

As of June 30, 2022, MultiPay is working with a major customer to implement a transition plan to provide an essential service for certain bill pay services which will probably result in the leasing and sale of certain of MultiPay’s proprietary software as well as the assumption by the customer of certain expenses.

The Company expects to incur costs associated with the proposed exit of the MultiPay business which include approximately $195,000 for payment to employees and consultants including statutory obligations and certain contingent retention bonuses; and approximately $57,000 for accelerated depreciation (non-cash) for certain assets which reflects their estimated remaining useful life.  In the six months ended June 30, 2022, MultiPay recorded $68,000 of additional expense for employee obligations during the transitional period. We should have a revenue offset to certain expenses as we solidify the sale of the assets.

MultiPay has accelerated the depreciation of certain assets with the effective date of the announcement to reflect the estimated remaining useful life.

The operations of Cards Plus and MultiPay for the three and six months ended June 30, 2022 on a consolidated basis are below (unaudited):

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Discontinued Operations
Total Revenues, net	$	579,246		$	431,010		$	1,021,556		$	871,949
Operating expenses:
Cost of sales		336,540			156,905			520,064			371,228
General and administrative		372,750			315,914			658,132			635,625
Impairment loss		67,984			-			211,703			-
Depreciation and amortization		11,572			15,351			39,774			44,984
Total operating expenses		788,846			488,170			1,429,673			1,051,837
Loss from operations		(209,600	)		(57,160	)		(408,117	)		(179,888	)
Other income (expense):
Other income		4,334			11,725			8,029			13,262
Interest expense, net		-			(2,631	)		(364	)		(2,637	)
Other income, net		4,334			9,094			7,665			10,625
Loss before income taxes		(205,266	)		(48,066	)		(400,452	)		(169,263	)
Income tax expense		(1,041	)		(1,326	)		(6,578	)		(2,595	)
Loss from discontinued operations	$	(206,307	)	$	(49,392	)	$	(407,030	)	$	(171,858	)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Cards Plus
Total Revenues, net	$	510,142		$	334,679		$	883,300		$	679,435
Operating Expenses:
Cost of Sales		336,540			156,905			520,064			371,228
General and administrative		167,390			151,453			322,699			286,977
Impairment loss		67,984			-			211,703			-
Depreciation and amortization		4,667			16,113			25,897			35,233
Total operating expenses		576,581			324,471			1,080,363			693,438
Income (loss) from operations		(66,439	)		10,208			(197,063	)		(14,003	)
Other income (expense):
Other income		3,468			1,914			6,816			3,451
Interest expense,  net		-			(1,111	)		(364	)		(2,637	)
Other income, net		3,468			803			6,452			814
Income (loss) before income taxes		(62,971	)		11,011			(190,611	)		(13,189	)
Income tax expense		-			-			(4,681	)		-
Income (loss) from discontinued operations	$	(62,971	)	$	11,011		$	(195,292	)	$	(13,189	)

	Three Months Ended June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
MultiPay
Total Revenues, net	$	69,104		$	96,331		$	138,256		$	192,514
Operating Expenses:
General and administrative		205,360			164,461			335,433			348,648
Depreciation and amortization		6,905			(762	)		13,877			9,751
Total operating expenses		212,265			163,699			349,310			358,399
Loss from operations		(143,161	)		(67,368	)		(211,054	)		(165,885	)
Other Income:
Other income		866			8,291			1,213			9,811
Loss before income taxes		(142,295	)		(59,077	)		(209,841	)		(156,074	)
Income tax expense		(1,041	)		(1,326	)		(1,897	)		(2,595	)
Loss from discontinued operations	$	(143,336	)	$	(60,403	)	$	(211,738	)	$	(158,669	)

As a result of meeting the discontinued operations/assets held for sale criteria for Cards Plus and the MultiPay operations, the assets and liabilities have been reclassified as assets held for sale as of the respective balance sheet date as follows (unaudited):

	June 30, 2022		December 31, 2021
Discontinued Operations
Current assets:
Cash	$	340,380	$	270,707
Accounts receivable, net		105,844		110,977
Inventory		301,837		153,149
Other current assets		33,834		94,919
Current assets held for sale		781,895		629,752
Noncurrent assets:
Property and equipment, net		56,891		93,132
Intangible assets		-		153,004
Other assets		17,090		66,695
Noncurrent assets held for sale		73,981		312,831
Total assets held for sale	$	855,876	$	942,583
Current liabilities:
Accounts payable and accrued expenses	$	259,217	$	235,348
Deferred revenue		274,901		47,823
Notes payable obligation, current portion		-		1,579
Capital lease obligation, current portion		-		10,582
Total liabilities held for sale	$	534,118	$	295,332

	June 30, 2022		December 31, 2021
Cards Plus
Current assets:
Cash	$	325,247	$	182,518
Accounts receivable, net		36,139		88,235
Inventory		301,837		153,149
Other current assets		9,306		52,678
Current assets held for sale		672,529		476,580
Noncurrent assets:
Property and equipment, net		-		24,619
Intangible assets		-		153,004
Noncurrent assets held for sale		-		177,623
Total assets held for sale	$	672,529	$	654,203
Current liabilities:
Accounts payable and accrued expenses	$	121,195	$	122,725
Deferred revenue		274,901		47,823
Notes payable obligation, current portion		-		1,579
Capital lease obligation, current portion		-		10,582
Total liabilities held for sale	$	396,096	$	182,709

	June 30, 2022		December 31, 2021
MultiPay
Current Assets:
Cash	$	15,133	$	88,189
Accounts receivable, net		69,705		22,742
Other current assets		24,528		42,241
Current assets held for sale		109,366		153,172
Noncurrent Assets:
Property and equipment, net		56,891		68,513
Other assets		17,090		66,695
Noncurrent assets held for sale		73,981		135,208
Total assets held for sale	$	183,347	$	288,380
Current Liabilities:
Accounts payable and accrued expenses	$	138,022	$	112,623
Total liabilities held for sale	$	138,022	$	112,623

As a result of meeting the discontinued operations/assets held for sale criteria for Cards Plus and the MultiPay operations, the cash flow from operating activities related to discontinued operations is presented separately on the statement of cash flows as summarized below:

	Six Months Ended June 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(407,030	)	$	(171,858	)
Adjustments to reconcile net loss with cash flows from operations:
Depreciation and amortization expense		39,774			45,002
Impairment of intangible assets		211,703			-
Changes in operating assets and liabilities:
Accounts receivable		6,332			(41,323	)
Net investment in direct financing lease		(17,306	)		81,931
Other current assets		106,920			(18,763	)
Inventory		(140,653	)		113,870
Accounts payable and accrued expenses		(11,425	)		(135,413	)
Deferred revenue		227,078			(65,709	)
Adjustments relating to discontinued operations		422,423			(20,405	)
Cashflows from discontinued operations	$	15,393		$	(192,263	)

Notes to Financial Statements – Discontinued Operations

Inventories

Inventory of plastic/ID cards, digital printing material, which are held by Cards Plus Pty Ltd., are at the lower of cost (using the average method) or market. The Plastic/ID cards and digital printing material are used to provide plastic loyalty ID and other types of cards.

Inventories at June 30, 2022 and December 31, 2021, consist of cards inventory. As of June 30, 2022 and December 31, 2021, respectively, the Company recorded an inventory valuation allowance of approximately $23,000 and $20,000, respectively to reflect net realizable value of the cards inventory.

Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.

Revenue Recognition

Cards Plus recognizes revenue for the design and production of cards at the point in time when products are shipped, or services have been performed due to the short-term nature of the contracts. As of June 30, 2022 and December 31, 2021, Cards Plus had approximately $275,000 and $48,000, respectively, of contract liability from payments received in advance that will be earned in future periods.

MultiPay recognizes revenue for variable fees generated for payment processing solutions that are earned on a usage fee over time based on monthly transaction volumes or on a monthly flat fee rate. Additionally, MultiPay also sells certain equipment from time to time for which revenue is recognized upon delivery to the customer.  

Revenue related to direct financing leases is outside the scope of Topic 606 and is recognized over the term of the lease using the effective interest method.  

Note Payable

Cards Plus had an installment loan payable at a rate of 10.8% that was repaid in full the first quarter of 2022. The outstanding loan balance was $1,579 as of December 31, 2021.

Lease Obligation

Cards Plus entered into a lease in March 2017 for the rental of its printer for its secured plastic and credential card products business under an arrangement that is classified as a finance lease. The leased equipment was amortized on a straight-line basis over its lease term including the last payment (61 payments) and ownership transferred to the Company. The lease was fully paid off as of June 30, 2022.

Impairment loss

During the six months ended June 30, 2022, Cards Plus recorded an impairment loss of approximately $143,000 associated with its intangible assets. We also recorded an additional $68,000 reserve as we estimate net realizable value of the net assets held for sale will be lower than their net book value.

Leases

In October 2021, MultiPay entered into a one-year lease for approximately $2,900 per month in Bogota, Colombia. MultiPay provided notice that it will not be renewing the current lease.

Cards Plus leases space for its operation in South Africa. The lease term was through June 30, 2022, and the facility is being rented on a month-to-month basis. The approximate monthly rent is $8,000.