Discontinued Operations and Assets Held for Sale

9 Months Ended

Sep. 30, 2022

Discontinued Operations and Assets Held for Sale [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 authentication products and services by means of our proprietary Verified 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 financial statements of Cards Plus are classified as a discontinued operation and an asset held for sale, as all required classification criteria under appropriate accounting standards were met as of June 30, 2022.

On August 29, 2022, the Company completed the sale of Cards Plus for a price of $300,000 of which $150,000 was received and the remaining balance of $150,000 recorded in other current asset is expected to be received within one year, less $3,272 in costs to sell (net), and recognized a loss of $188,247 from the transaction. The following table summarizes the assets and liabilities of the Cards Plus sale and the consideration received (unaudited):

	Amount
Carrying value of net assets sold:
Cash	$	299,505
Accounts receivable		61,879
Inventory		231,955
Other current assets		1,490
Total current assets		594,829
Property and equipment		21,127
Total assets		615,956
Accounts payable		76,094
Accrued expenses		43,728
Deferred revenue		11,159
Total current liabilities		130,981
Net assets sold	$	484,975
Sale Consideration on disposition of net assets:
Proceeds	$	300,000
Legal fee		(5,511	)
Write off net payable with CP		2,239
Net Consideration		296,728
Net loss on sale of a discontinued operation	$	(188,247	)

MultiPay business in Colombia

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

As of September 30, 2022, all impacted employees left the Company. The Company also paid to each employee their severance packages under MultiPay’s retention plan and obligations under the appropriate statutes.

As of September 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 likely result in the sale of the Company’s proprietary software as well as the assumptions of certain expenses.

The Company expects to incur costs associated with the proposed exit of the MultiPay business which include approximately $203,000 for payment to employees and consultants including statutory obligations and certain contingent retention bonuses of which $113,000 was already paid during the quarter ended September 30, 2022 and the remaining balance of $90,000 is in accrual; and approximately $41,000 for accelerated amortization (non-cash) for certain technology licenses.

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 nine months ended September 30, 2022 and September 30, 2021 on a consolidated basis are below (unaudited):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Discontinued Operations Total Revenues, net	$	446,643		$	359,000		$	1,468,199		$	1,230,949
Operating Expenses:
Cost of sales		145,205			121,184			665,269			492,412
General and administrative		276,866			472,336			1,003,003			1,107,961
Impairment loss		-			-			143,698			-
Depreciation and amortization		(6,749	)		30,286			33,025			75,270
Total operating expenses		415,322			623,806			1,844,995			1,675,643
Income (Loss) from operations		31,321			(264,806	)		(376,796	)		(444,694	)
Other Income (Expense):
Other income		12,792			1,851			20,821			15,113
Interest expense, net		-			(1,144	)		(364	)		(3,781	)
Other income, net		12,792			707			20,457			11,332
Income (Loss) before income taxes		44,113			(264,099	)		(356,339	)		(433,362	)
Income tax expense		(468	)		(1,119	)		(7,046	)		(3,714	)
Income (Loss) from discontinued operations		43,645			(265,218	)		(363,385	)		(437,076	)
Loss from sale of discontinued operations		(188,247	)		-			(188,247	)		-
Total loss from discontinued operations	$	(144,602	)	$	(265,218	)	$	(551,632	)	$	(437,076	)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Cards Plus
Total Revenues, net	$	380,372		$	276,335		$	1,263,672		$	955,770
Operating Expenses:
Cost of sales		145,205			121,184			665,269			492,412
General and administrative		21,539			156,341			412,243			443,318
Impairment loss		-			-			143,698			-
Depreciation and amortization		(1,482	)		23,160			24,415			58,393
Total operating expenses		165,262			300,685			1,245,625			994,123
Income (loss) from operations		215,110			(24,350	)		18,047			(38,353	)
Other Income (Expense):
Other income		2,103			1,848			8,919			5,299
Interest expense, net		-			(1,144	)		(364	)		(3,781	)
Other income, net		2,103			704			8,555			1,518
Income (Loss) before income taxes		217,213			(23,646	)		26,602			(36,835	)
Income tax expense		-			-			(4,681	)		-
Income (Loss) from discontinued operations		217,213			(23,646	)		21,921			(36,835	)
Loss from sale of discontinued operations		(188,247	)		-			(188,247	)		-
Total income (loss) from discontinued operations	$	28,966		$	(23,646	)	$	(166,326	)	$	(36,835	)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
MultiPay
Total Revenues, net	$	66,271		$	82,665		$	204,527		$	275,179
Operating Expenses:
General and administrative		255,327			315,995			590,760			664,643
Depreciation and amortization		(5,267	)		7,126			8,610			16,877
Total operating expenses		250,060			323,121			599,370			681,520
Loss from operations		(183,789	)		(240,456	)		(394,843	)		(406,341	)
Other Income:
Other income		10,689			3			11,902			9,814
Other income		10,689			3			11,902			9,814
Loss before income taxes		(173,100	)		(240,453	)		(382,941	)		(396,527	)
Income tax expense		(468	)		(1,119	)		(2,365	)		(3,714	)
Loss from discontinued operations	$	(173,568	)	$	(241,572	)	$	(385,306	)	$	(400,241	)

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:

	September 30, 2022		December 31, 2021
	(unaudited)
Discontinued Operations Current Assets:
Cash	$	11,342	$	270,707
Accounts receivable, net		70,070		110,977
Inventory		-		153,149
Other current assets		-		94,919
Current assets held for sale		81,412		629,752
Noncurrent Assets:
Property and equipment, net		28,857		93,132
Intangible assets		-		153,004
Other assets		-		66,695
Noncurrent assets held for sale		28,857		312,831
Total assets held for sale	$	110,269	$	942,583
Current Liabilities:
Accounts payable and accrued expenses	$	100,368	$	235,348
Deferred revenue		-		47,823
Notes payable obligation, current portion		-		1,579
Capital lease obligation, current portion		-		10,582
Total liabilities held for sale	$	100,368	$	295,332

	September 30, 2022		December 31, 2021
	(unaudited)
Cards Plus Current Assets:
Cash	$	-	$	182,518
Accounts receivable, net		-		88,235
Inventory		-		153,149
Other current assets		-		52,678
Current assets held for sale		-		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	$	-	$	654,203
Current Liabilities:
Accounts payable and accrued expenses	$	-	$	122,725
Deferred revenue		-		47,823
Notes payable obligation, current portion		-		1,579
Capital lease obligation, current portion		-		10,582
Total liabilities held for sale	$	-	$	182,709

	September 30, 2022		December 31 2021
	(unaudited)
MultiPay Current Assets:
Cash	$	11,342	$	88,189
Accounts receivable, net		70,070		22,742
Other current assets		-		42,241
Current assets held for sale		81,412		153,172
Noncurrent Assets:
Property and equipment, net		28,857		68,513
Other assets		-		66,695
Noncurrent assets held for sale		28,857		135,208
Total assets held for sale	$	110,269	$	288,380
Current Liabilities:
Accounts payable and accrued expenses		100,368		112,623
Total liabilities held for sale	$	100,368	$	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 activity related to discontinued operations is presented separately on the statement of cash flows as summarized below (unaudited):

	Nine Months Ended September 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(363,385	)	$	(437,076	)
Adjustments to reconcile net loss with cash flows from operations:
Depreciation and amortization expense		42,364			83,122
Impairment of intangible assets		143,701			-
Changes in operating assets and liabilities:
Accounts receivable		(14,288	)		427,034
Net investment in direct financing lease		-			(7,257	)
Other current assets		186,370			81,418
Inventory		(78,806	)		47,480
Accounts payable and accrued expenses		(16,092	)		(228,912	)
Deferred revenue		(36,663	)		(47,494	)
Adjustments relating to discontinued operations		226,586			355,391
Net Cash flows from discontinued operations	$	(136,799	)	$	(81,685	)

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 as of December 31, 2021, consist of cards inventory. As of December 31, 2021, the Company recorded an inventory valuation allowance of approximately $20,000 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.

Inventories decreased to zero as the Company completed the sale of Cards Plus business on August 29, 2022.

Revenue Recognition

Cards Plus – The Company 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. Additionally, the cards produced by the Company have no alternative use and the Company has an enforceable right to payment for work performed should the contract be cancelled. As of December 31, 2021, Cards Plus had approximately $48,000 of contract liability from payments received in advance that will be earned in future periods. Contract liability decreased to zero as the Company completed the sale of Cards Plus business on August 29, 2022.

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.

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.

Impairment loss

During the three and nine months ended September 30, 2022, Cards Plus recorded an impairment loss of zero and approximately $143,000, respectively associated with its intangible assets.

Leases

In October 2021, MultiPay entered into a one-year lease for approximately $2,900 per month in Bogota, Colombia. MultiPay terminated the lease as of September 30, 2022.

Cards Plus leased space for its operations in South Africa. The facility was rented on a month-to-month basis with monthly rent of approximately $8,000 through August 29, 2022 as the Company completed the sale of Cards Plus business.