UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[XX] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULYJANUARY 31, 20152016
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______to _______
Commission file number 000-7642
PASSUR AEROSPACE, INC.
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(Exact Name of Registrant as Specified in Its Charter)
New York 11-2208938
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization) Identification No.)
One Landmark Square, Suite 1900, Stamford, Connecticut 06901
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(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code:(203) 622-4086
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Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the Registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the Registrant was required to submit and post such files). YES [X] NO []
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one): Large
accelerated filer [ ]Accelerated filer [ filer[]
Non-accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller reporting company [X]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Act). YES [ ]NO [X]
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There were 7,653,1997,673,199 shares of the Registrant's common stock with a par value of
$0.01 per share outstanding as of September 8, 2015.March 3, 2016.
Page 1 of 19
INDEX
PASSUR Aerospace, Inc.andInc. and Subsidiary
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of JulyJanuary 31, 20152016 (unaudited) 3
and October 31, 2014. 32015.
Consolidated Statements of Income (unaudited) 4
Nine months ended July 31, 2015 and 2014.
Consolidated Statements of Income (unaudited) 5
Three months ended JulyJanuary 31, 20152016 and 2014.2015.
Consolidated Statements of Cash Flows (unaudited) 6
Nine5
Three months ended JulyJanuary 31, 20152016 and 2014.2015.
Notes to Consolidated Financial Statements (unaudited) 76
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 1311
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 1814
Item 4. Controls and Procedures. 1815
PART II. OTHER INFORMATION 1915
Item 5. Other Information. 1915
Item 6. Exhibits. 15
Signatures. 16
Page 2 of 19
Signatures. 20
2
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Balance Sheets
JULYJANUARY 31, OCTOBER 31,
2016 2015
2014
------------------ -------------------------------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 940,804457,476 $ 648,727925,508
Accounts receivable, net 1,195,471 1,368,7582,821,365 1,234,986
Deferred tax asset, current 452,282 537,283551,671 551,671
Prepaid expenses and other current assets 213,718 164,179
------------------ -------------------263,561 157,930
------------- -------------
Total current assets 2,802,275 2,718,947
PASSUR(R)4,094,073 2,870,095
PASSUR Network, net 5,957,501 5,428,4905,882,743 5,902,751
Capitalized software development costs, net 7,468,348 6,844,5097,866,776 7,684,603
Property and equipment, net 1,336,828 1,323,3491,323,798 1,353,532
Deferred tax asset, non-current 1,834,088 2,035,0881,632,281 1,658,557
Other assets 252,289 142,482
------------------ -------------------233,698 239,861
------------- -------------
TOTAL ASSETS $ 19,651,32921,033,369 $ 18,492,865
================== ===================19,709,399
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 610,754568,747 $ 650,653880,819
Accrued expenses and other current liabilities 737,790 833,292942,920 977,900
Deferred revenue, current portion 3,202,109 1,979,873
------------------ -------------------4,283,690 2,680,244
------------- -------------
Total current liabilities 4,550,653 3,463,8185,795,357 4,538,963
Deferred revenue, less current portion 205,932 90,679172,718 197,336
Notes payable - related party 3,500,000 3,864,880
------------------ -------------------
8,256,585 7,419,3773,500,000
------------- -------------
9,468,075 8,236,299
COMMITMENT AND CONTINGENCIES
Stockholders' equity:
Preferred shares - authorized 5,000,000 shares,
par value $0.01 per share; none issued or outstanding -- --
Common shares - authorized 10,000,000 shares,
par value $0.01 per share; issued 8,448,526 and 8,428,526 and 8,225,526
at
JulyJanuary 31, 20152016 and October 31, 2014,2015, respectively 84,285 82,25584,484 84,284
Additional paid-in capital 15,278,062 15,273,52415,731,215 15,663,796
Accumulated deficit (2,343,340) (2,658,816)
------------------ -------------------
13,019,007 12,696,963(2,354,977) (2,379,552)
------------- -------------
13,460,722 13,368,528
Treasury stock, at cost, 775,327 shares at JulyJanuary 31, 2016 and (1,895,428) (1,895,428)
October 31, 2015, and 696,500 shares at October 31, 2014, respectively
(1,624,263) (1,623,475)
------------------ -------------------------------- -------------
Total stockholders' equity 11,394,744 11,073,488
------------------ -------------------11,565,294 11,473,100
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,651,32921,033,369 $ 18,492,865
================== ===================19,709,399
============= =============
See accompanying notes to consolidated financial statements.
Page 3
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
NINE MONTHS ENDED JULY 31,
2015 2014
------------------ -------------------
REVENUES $ 9,229,586 $ 8,574,311
COST AND EXPENSES:
Cost of revenues 3,803,288 3,989,402
Research and development expenses 553,924 506,604
Selling, general, and administrative expenses 4,078,973 3,468,094
------------------ -------------------
8,436,185 7,964,100
------------------ -------------------
INCOME FROM OPERATIONS 793,401 610,211
Interest expense - related party 170,875 180,063
------------------ -------------------
Income before income taxes 622,526 430,148
Provision for income taxes 307,050 156,502
------------------ -------------------
NET INCOME $ 315,476 $ 273,646
================== ===================
Net income per common share - basic $ .04 $ .04
================== ===================
Net income per common share - diluted $ .04 $ .04
================== ===================
Weighted average number of common shares outstanding - basic 7,647,066 7,433,951
================== ===================
Weighted average number of common shares outstanding - diluted 7,769,760 7,713,440
================== ===================
See accompanying notes to consolidated financial statements.
4of 19
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
THREE MONTHS ENDED JULYJANUARY 31,
2016 2015
2014
------------------ -------------------------------- --------------
REVENUES $ 3,244,0753,435,480 $ 2,865,3192,764,012
COST AND EXPENSES:
Cost of revenues 1,296,796 1,300,9681,512,486 1,114,452
Research and development expenses 185,550 171,325183,409 182,275
Selling, general, and administrative expenses 1,670,334 1,168,614
------------------ -------------------
3,152,680 2,640,907
------------------ -------------------1,633,501 1,181,854
------------- --------------
3,329,396 2,478,581
------------- --------------
INCOME FROM OPERATIONS 91,395 224,412106,084 285,431
Interest expense - related party 54,28553,667 59,262
------------------ -------------------------------- --------------
Income before income taxes 37,110 165,15052,417 226,169
Provision for income taxes 14,690 36,408
------------------ -------------------27,842 85,000
------------- --------------
NET INCOME $ 22,42024,575 $ 128,742
================== ===================141,169
============= ==============
Net income per common share - basic $ -- $ .02
================== ===================0.02
============= ==============
Net income per common share - diluted $ -- $ .02
================== ===================0.02
============= ==============
Weighted average number of common shares outstanding - basic 7,630,482 7,529,026
================== ===================7,660,590 7,654,928
============= ==============
Weighted average number of common shares outstanding - diluted 7,753,176 7,812,157
================== ===================7,736,288 7,825,820
============= ==============
See accompanying notes to consolidated financial statements.
5Page 4 of 19
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
NINETHREE MONTHS ENDED JULYJANUARY 31,
2016 2015
2014
------------------ -------------------------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 315,47524,575 $ 273,646141,169
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,237,699 2,088,122785,742 710,085
Provision for deferred taxes 286,000 153,35226,276 85,000
Provision for doubtful accounts 6,675 97,2958,990 --
Stock-based compensation 226,613 236,24257,219 28,695
Changes in operating assets and liabilities:
Accounts receivable 166,612 522,421(1,595,370) (293,796)
Prepaid expenses and other current assets (49,539) (132,053)(56,282) (64,352)
Other assets (109,806) 3,0376,164 6,710
Accounts payable (39,899) (100,143)(312,072) 151,406
Accrued expenses and other current liabilities (95,501) (61,870)(98,318) (129,860)
Deferred revenue 1,337,489 (37,497)
------------------ --------------------1,578,828 19,549
Accrued interest - related party -- 39,937
------------ ------------
Total adjustments 3,966,343 2,768,906
------------------ --------------------401,178 553,374
------------ ------------
Net cash provided by operating activities 4,281,818 3,042,552425,752 694,543
CASH FLOWS FROM INVESTING ACTIVITIES
PASSUR(R)PASSUR Network (1,309,357) (654,319)(196,169) (546,163)
Software development costs (1,769,847) (1,349,081)(621,395) (520,813)
Property and equipment (324,824) (275,340)
------------------ --------------------(86,620) (94,324)
------------ ------------
Net cash used in investing activities (3,404,028) (2,278,740)
------------------ --------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (271,954) --
Surrender of shares to pay withholding taxes -- (180,026)(904,184) (1,161,300)
------------ ------------
Proceeds from the exercise of stock options 51,120 31,500
Repayments of note payable - related party (364,880) (500,000)
------------------ --------------------10,400 34,320
------------ ------------
Net cash used inprovided from financing activities (585,714) (648,526)
================== ====================
Increase10,400 34,320
------------ ------------
Decrease in cash 292,077 115,286(468,032) (432,437)
Cash - beginning of period 925,508 648,727
454,650
------------------ -------------------------------- ------------
Cash - end of period $ 940,804457,476 $ 569,936
================== ====================216,290
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest - related party $ 170,87553,667 $ 180,06319,325
Income taxes $ 34,81250,737 $ 3,1509,033
Non-cash investing activities - purchase
of property and equipment under capital lease $ 63,336 --
See accompanying notes to consolidated financial statements.
6Page 5 of 19
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements
JulyJanuary 31, 20152016
(Unaudited)
1. NATURE OF BUSINESS
PASSUR Aerospace, Inc. ("PASSUR(R)" or the "Company") is a leading business
intelligence company, providing predictive analytics and decision support
technology for the aviation industry primarily to improve the operational
performance and cash flow of airlines and the airports where they operate. The
Company is recognized as a leader in airline and airport operational efficiency
and business aviation marketing and operational solutions, and is a pioneer in
the successful use of big data, company. Our mission is to
connectwith an aviation intelligence platform and suite
of web-based solutions that address the world's aviation professionals onto a single platform to improve
global air traffic efficiencies.
PASSUR(R) has a broad and global customer network. PASSUR(R)'s products are used
by all of the top North American airlines, over 125 airlines worldwide, over 60
airports including 73% of the top 30 airports, approximately 200 business
aviation organizations, and the US government.
Our core business addresses some of aviation'sindustry's most intractable and
costly operational and financial challenges, including underutilizationunder utilization of airspace and airport capacity,
delays, cancellations, and diversions.diversions, among others. Several studies have
estimated the annual direct costs of such inefficiencies at over $30 billion.
The Company's technology platform is supported by its Aviation Intelligence
Center of Excellence ("COE"), a team of subject matter experts with extensive
experience in airline, airport, and business aviation operations, finance, air
traffic management, systems automation, and data visualization, with specific
expertise in the operational and business needs, requirements, objectives, and
constraints of the aviation industry.
PASSUR's solutions are used by the five largest North American airlines, over 60
airport customers (including 22 of the top 30 North American airports as
customers - with PASSUR solutions also used at the remaining top eight airports
by one or more PASSUR airline customers), more than 200 corporate aviation
customers, and the U.S. government.
PASSUR's mission is to improve global air traffic efficiencies by connecting the
world's aviation professionals onto a single aviation intelligence platform.
PASSUR offers companies products that are commercially proven, commercially
accepted, and with a demonstrated return on investment ("ROI") for airlines,
airports, governments, and business aviation companies.
PASSUR provides data aggregation and consolidation, information, decision
support, predictive analytics, collaborative solutions, and professional
services to airlines, airports, governments, and business aviation companies. To
enable this unique offering, PASSUR owns and operates the largest commercial
passive radar network in the world that updates flight tracks every 1 to 4.6
seconds, powering a proprietary database that is accessible in real-time and
delivers timely, accurate information and solutions via PASSUR's
industry-leading algorithms and business logic included in its products.
Solutions offered by PASSUR(R) coverPASSUR help to ensure flight completion, covering the
entire flight life cycle, from gate to gate, and result in reductions in overall
costs fuel costs, and emissions, while maximizing revenue opportunities, as well as
improving operational
efficiency,optimizing airline completion rates and enhancing the passenger experience.
The Company provides data
consolidation, information, decision support, predictive analytics,
collaborative solutions, and professional services.
We provide airlines and airportsPASSUR gives operators the ability to get the most out ofoptimize performance in today's air
traffic management system. Assystem, while bridging the Federal Aviation Administrationneeds of operators and government
aviation agencies through collaborative information exchange, shared procedures,
and common operating metrics. Many of PASSUR's core capabilities developed for
the commercial sector help achieve Next Generation Air Transportation System
("FAA"NextGen") brings
new capabilities online, we, with our customers, willobjectives. We believe these commercial solutions have the ability to
develop additional efficiency solutions.
Essentially all commercial companieshelped
operators extract maximum value and capacity from today's infrastructure while
creating business and operational case studies for several core NextGen
programs.
Commercial aviation operators using the airspace depend on information from the
FAAgovernment Air Navigation Services Provider ("ANSP") for flight, tracking. PASSUR(R)airspace, and
airport information outside their own fleets. PASSUR augments and integrates
FAAgovernment information with data from PASSUR(R)'sits independent network (the largest
passive commercial radar network in the world), which haswith over 180 radar locations
covering North America from coast to coast. PASSUR(R)coast, and other installations in Europe
and Asia. PASSUR provides faster aircraft position updates (from one1 to 4.6
seconds), and more complete information on aircraft. PASSUR(R)'sPASSUR's sensors receive
aircraft and drone signals in Mode A, C, S, and Automatic Dependent
Surveillance-Broadcast ("ADS-B"), providing position, altitude, beacon code, and
tail number, among other information.
PASSUR(R)Page 6 of 19
PASSUR receives signals from aircraft that, when combined with our historical
database of aircraft and airport behavior, including information recorded by our
network over the last 10 years, allows usthe Company to know more about what has
happened historically, and what is happening in real-time. In addition, the
historical database also accessible in real-time, allows usthe Company to predict how aircraft, the airspace,
and airports are going to perform, and more importantly, how the aircraft, the
airspace, and airport should perform.
7
PASSUR(R) offers companies products that are commercially proven, commercially
accepted, and with a demonstrated Return on Investment ("ROI") for airlines and
airports - providing a critical bridge between the commercial and government
opportunities of the FAA's Next Generation Air Transportation System
("NextGen"), the new national airspace system due for implementation across the
United States in stages over the next 10 years. NextGen proposes to transform
the U.S. air traffic control system from an aging ground-based system to a
satellite-based system.
Management is addressing the Company's working capital deficiency (which is only
caused by its deferred revenue balance) by aggressively marketing the Company's
PASSUR(R) Network Systems information capabilities in its existing product and
professional service lines, as well as in new products and professional
services, which are continually being developed and deployed. Management
believes that expanding its existing suite of software products and professional
services, which address the wide array of needs of the aviation industry,
through the continued development of new product and service offerings, will
continue to lead to increased growth in the Company's customer-base and
subscription-based revenues.
If the Company's business plan does not generate sufficient cash flows from
operations to meet the Company's operating cash requirements, the Company will
attempt to obtain external financing.
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial information contained in this quarterly report on
Form 10-Q represents condensed financial data and, therefore, does not include
all footnote disclosures required to be included in financial statements
prepared in conformity with accounting principles generally accepted in the
United States("GAAP"). Such footnote information was included in the Company's
Annual Report on Form 10-K for the year ended October 31, 2014,2015, filed with the
Securities and Exchange Commission ("SEC"); the consolidated financial data
included herein should be read in conjunction with that report. In the opinion
of management, the accompanying unaudited consolidated financial statements
contain all adjustments (which include only normal recurring adjustments)
necessary to present fairly the Company's consolidated financial position as of
JulyJanuary 31, 2015, and its consolidated results of operations and cash flows for
the ninethree months ended JulyJanuary 31, 20152016 and 2014.2015.
The results of operations for the interim period stated above are not
necessarily indicative of the results of operations to be recorded for the full
fiscal year ending October 31, 2015.2016.
Certain financial information in the footnotes has been rounded to the nearest
thousand for presentation purposes.
8
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PASSUR(R)PASSUR and its
wholly-owned subsidiary. All significant inter-company transactions and balances
have been eliminated in consolidation.
REVENUE RECOGNITION POLICY
The Company recognizes revenue in accordance with the Financial Accounting
Standards Board's Accounting Standards Update No.FASB ASC 605-15, "Revenue("Revenue
Recognition in Financial Statements" ("FASB ASC 605-15")which requires that four basic criteria
must be met before revenues can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the fee is fixed andor determinable; and (4) collectability is reasonably
assured.
The Company's revenues are generated by selling: (1) subscription-based,
real-time decision and solution information;information and (2) professional services; and (3)
annual maintenance contracts for PASSUR(R) Radar Systems.services.
Revenues generated from subscription and maintenance agreements are recognized over the term of
such executed agreements and/or customer's receipt of such data or services. In
accordance with FASB ASC 605-15, we recognizethe Company recognizes revenue when persuasive
evidence of an arrangement exists which is evidenced by a signed agreement, the
service has been deployed, as applicable, to its hosted servers, the fee is
fixed andor determinable, and collection of the resulting receivable is reasonably
assured. The Company records revenues pursuant to individual contracts on a
month-by-month basis, as outlined by the applicable agreement. In many cases,
the Company may invoice respective customers in advance of the specified period,
either quarterly or annually, which coincides with the terms of the agreement.
In such cases, the Company will defer at the close of each month and/or
reporting period, any subscription or maintenance revenues invoiced for which services have yet
to be rendered, in accordance with FASB ASC 605-15. Revenues generated by
professional services are recognized over the term of such
executed agreements.when services are provided.
The individual offerings that are included in arrangements with ourthe Company's
customers are identified and priced separately to the customer based upon the
stand alone
pricerelative fair value for each individual element sold in the arrangement
irrespective of the combination of products and services which are included in a
particular arrangement. As such, the units of accounting are based on each
individual element sold, and revenue is allocated to each element based on
selling price. Selling price is determined using vendor-specific objective
evidence ("VSOE") if available, third-party evidence ("TPE") if VSOE is not
available, or best estimate of selling price ("BESP") if neither VSOE or TPE is
available. BESP must be determined in a manner that is consistent with that used
to determine the price to sell the specific elements on a standalone basis. Our bestBest
estimate of selling price is established considering multiple factors including,
but not limited to, pricing practices with different classes of customers,
geographies and other factors contemplated in negotiating the arrangement with
the customer. 9The Company uses either VSOE or BESP.
Page 7 of 19
From time to time, the Company will enter into an agreement with a customer to
receive a one-time fee for rights including, but not limited to, the rights to
use certain data at an agreed upon location(s) for a specific use and/or for an
unlimited number of users. These fees are recognized as revenue ratably over the
term of the agreement or expected useful life of such arrangement, whichever is
longer, but typically five years.
Deferred revenue is classified on the Company's balance sheet as a liability
until such time as revenue from services is properly recognized as revenue in
accordance with ASC 605-15 and the corresponding agreement.
COST OF REVENUES
Costs associated with subscription and maintenance revenues consist primarily of
direct labor, depreciation of PASSUR(R)PASSUR and Surface Multilateration
("SMLAT")SMLAT Network Systems, amortization of
capitalized software development costs, communication costs, data feeds,
allocated overhead costs, travel and entertainment, and consulting fees. Also
included in cost of revenues are costs associated with upgrades to PASSUR(R)PASSUR and
SMLAT Systems necessary to make such systems compatible with new software
applications, as well as the ordinary repair and maintenance of existing PASSUR(R)PASSUR
and SMLAT Systems. Additionally, cost of revenues in each reporting period is
impacted by: (1) the number of PASSUR(R)PASSUR and SMLAT Systems added to the Network,
which includes the cost of production, shipment, and installation of these
assets, which are capitalized to the PASSUR(R)PASSUR Network; and (2) new capitalized
costs associated with software development projects. Both of these are referred
to as "Capitalized Assets", and are depreciated and/or amortized over their
respective useful lives and charged to cost of revenues.
ACCOUNTS RECEIVABLE
The Company has a history of successfully collecting all amounts due from its
customers under the original terms of its subscription agreements without making
concessions. The Company records accounts receivables for agreements whereunder which
amounts due from customers are contractually required and are non-refundable.
The carrying amount of accounts receivables is reduced by a valuation allowance
that reflects ourthe Company's best estimate of the amounts that will not be
collected. Net accounts receivable is comprised of the monthly, quarterly, or
annuallyannual committed amounts due from customers pursuant to the terms of each
respective customer's agreement. Account receivable balances include amounts
attributable to deferred revenues.
The provision for doubtful accounts was $37,000$45,000 and $30,000 as of JulyJanuary 31,
20152016 and October 31, 2014,2015, respectively. In addition to reviewing delinquent accounts
receivable, the Company considers many factors in estimating ourits reserve,
including historical data, experience, customer types, credit worthiness, and
economic trends. The Company monitors its outstanding accounts receivable
balances and believes theits provision is reasonable.
10
PASSUR(R)PASSUR NETWORK
The PASSUR(R)PASSUR Network is comprised of PASSUR(R)PASSUR and SMLAT Systems, which includesinclude the
direct and indirect production, shipping, and installation costs incurred for
each PASSUR(R)PASSUR and SMLAT System, which are recorded at cost, net of accumulated
depreciation. Depreciation is charged to cost of revenues and is calculatedrecorded using
the straight-line method over the estimated useful life of the asset, which is
estimated at five toyears for SMLAT Systems and seven years. PASSUR(R)years for PASSUR Systems.
PASSUR and SMLAT Systems which are not installed, raw materials,
work-in-process, and finished goods components are carried at cost and no
depreciation is recorded.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company follows the provisions of FASB ASC 350-40, "Internal-Use"Internal Use Software."
FASB ASC
350-40 provides guidance for determining whether computer software is
internal-use software, and on accounting for the proceeds of computer software
originally developed or obtained for internal use and then subsequently sold to
the public. It also provides guidance on the capitalization of the costs incurred
for computer software developed or obtained for internal use. The Company
expenses all costs incurred during the preliminary project stage of its
development, and capitalizes the costs incurred during the application
development stage. Costs incurred relating to upgrades and enhancements to the
software are capitalized if it is determined that these upgrades or enhancements
add additional functionality to the software. Costs incurred to improve and
support products after they become available are charged to expense as incurred.
The Company capitalized $621,000 for the three months ended January 31, 2016 and
$521,000 for the three months ended January 31, 2015. The Company records
amortization of the software on a straight-line basis over the shorter of the estimated useful
life of the software, or revenues, typically five years.
The Company capitalized $577,000Page 8 of costs related to software
development projects in the three months ended July 31, 2015, and capitalized
$1,770,000 of costs related to software development projects in the nine months
ended July 31, 2015. As of July 31, 2015, the Company had $1,671,000 of software
development projects still in development and yet to begin amortization.19
LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment when circumstances indicate
the carrying amount of an asset may not be recoverable. Impairment is recognized
to the extent the sum of undiscounted estimated future cash flows expected to
result from the use of the asset is less than the carrying value of the asset.value. Assets to be
disposed of are carried at the lower of their carrying value or fair value, less
estimated costs to sell. The Company evaluates the periods of amortization continually to determinein
determining whether later events and circumstances warrant revised estimates of
useful lives. If estimates are changed, the unamortized costs will be allocated
to the increased or decreased number of remaining periods in the asset's revised useful
life.
DEFERRED TAX ASSET
The Company had a federal net operating loss carry-forward of $8,842,000$7,795,000
available for income tax purposes as of JulyJanuary 31, 2015,2016, which will expire in
various tax years from fiscal year 20212022 through fiscal year 2034.2030. The Company
evaluates whether a valuation allowance related to deferred tax assets is
required each reporting period. A valuation allowance would be established if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred income tax asset will not be realized. The Company's
deferred tax asset amount was $2,286,000$2,184,000 and $2,572,000$2,210,000 as of JulyJanuary 31, 20152016
and October 31, 2014,2015, respectively,and it was determined that it is more likely
than not that the net operating loss carry-forward would be used. As of October
31, 2014,2015, the Company had a federal net operating loss carry-forward of
$9,149,000$7,847,000 available for income tax purposes, which was set towill expire in various tax
years from fiscal year 20212022 through fiscal year 2034.
11
2030.
DEFERRED REVENUE
Deferred revenue includes amounts attributable to advances received or invoices
sent on customer agreements, which are contractually required and are
non-refundable, and may be billedprepaid either annually, quarterly, or quarterly.monthly.
Revenues from such customer agreements are recognized as income ratably as services are provided.over the
period that coincides with the respective agreement.
The Company recognizes initial set-up fee revenues and associated costs on a
straight-line basis over the estimated life of the customer relationship period,
typically five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts of the Company's cash, receivables, accounts payable, and
accrued expenses, and
payablesliabilities approximate their fair values principally because of the
short-term nature of these items. The fair value of related-partyrelated party debt is not
practicable to determine due primarily to the fact that the Company's related-partyrelated
party debt is held by G.S. Beckwith Gilbert, its Chairman and significant shareholder, and the Company
does not have any third-party debt with which to compare.
Additionally, on a recurring basis, the Company uses fair value measures when
analyzing asset impairments. Long-lived assets and certain identifiable
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined such indicators are present, and the review
indicates that the assets will not be fully recoverable based on the
undiscounted estimated future cash flows expected to result from the use of the
asset, their carrying values are reduced to estimated fair value.
Page 9 of 19
NET INCOME PER SHARE INFORMATION
Basic net income per share is computed based on the weighted average number of
shares outstanding. Diluted net incomeearnings per share givesis computed similarly to basic
earnings per share, except that it reflects the effect to all diluted
potentialof common shares outstanding and commonissuable
upon exercise of stock equivalents during the
periodoptions, using the treasury stock method.method in periods in
which they have a dilutive effect. The Company's 2009 Stock Incentive Plan
allows for a cashless exercise. Shares used to calculate net income per share
are as follows:
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
JULY 31, JULY 31,
2015 2014 2015 2014
-------------- ------------- ----------- -------------
Basic weighted average shares outstanding 7,630,482 7,529,026 7,647,066 7,433,951
Effect of dilutive stock options 122,694 283,131 122,694 279,489
-------------- ------------- ----------- -------------
Diluted weighted average shares outstanding 7,753,176 7,812,157 7,769,760 7,713,440
============== ============= =========== =============
Weighted average shares that are not included 908,306 575,869 908,306 579,511
in the calculation of diluted net income per
share because their impact is anti-dilutive.
These shares consist of common stock
equivalents.
12
FOR THE THREE MONTHS ENDED
JANUARY 31,
2016 2015
------------ ------------
Basic weighted average shares outstanding 7,660,590 7,654,928
Effect of dilutive stock options 75,698 170,892
------------ ------------
Diluted weighted average shares outstanding 7,736,288 7,825,820
============ ============
Weighted average shares that are not included in 1,117,802 632,608
the calculation of diluted net income per share
because their impact is anti-dilutive. These
shares consist of stock options.
STOCK-BASED COMPENSATION
The Company follows FASB ASC 718 "Compensation-Stock Compensation", which
requires the measurement of compensation cost for all stock-based awards at fair
value on date of grant, and recognition of stock-based compensation expense over
the service period for awards expected to vest. The fair value of stock options
was determined using the Black-Scholes valuation model. Such fair value is
recognized as an expense over the service period, net of forfeitures.
Stock-based compensation expense was $114,000$57,000 and $82,000 and $227,000 and
$236,000$29,000 for the three and nine months
ended JulyJanuary 31, 20152016 and 2014,2015, respectively, and was primarily included in
selling, general, and administrative expenses.
3. NOTES PAYABLE - RELATED PARTY
The Company has a note payable to G.S. Beckwith Gilbert, the Company's
significant shareholder and Chairman, of $3,500,000 (the "Gilbert$3,500,000(the "Second Replacement
Note") as of JulyJanuary 31, 2015.2016. The GilbertSecond Replacement Note bears a maturity date
of November 1, 2016,2017, with an annual interest rate of 6%. Interest payments are
due by October 31 of each fiscal year. The Company has paid all interest
incurred on the GilbertSecond Replacement Note through JulyJanuary 31, 2015. During the first nine months2016. In February of
fiscal year 2015,2016 the Company made $365,000 inpaid $600,000 of principal payments, bringing the principal amount of the note payableSecond Replacement Note to
$3,500,000 as of July 31, 2015, as compared to $3,865,000 as
of October 31, 2014.G.S. Beckwith Gilbert.
The Company believes that its liquidity is adequate to meet operating and
investment requirements through July 31, 2016.March 3, 2017.
Page 10 of 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
The information provided in this Quarterly Report on Form 10-Q (including,
without limitation, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and "Liquidity and Capital Resources", below)
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 regarding the Company's future plans,
objectives, and expected performance. The words "believe," "may," "will,"
"could," "should," "would," "anticipate," "estimate," "expect," "project,"
"intend," "objective," "seek," "strive," "might," "likely result," "build,"
"grow," "plan," "goal," "expand," "position," or similar words, or the negatives
of these words, or similar terminology, identify forward-looking statements.
These statements are based on assumptions that the Company believes are
reasonable, but are subject to a wide range of risks and uncertainties, and a
number of factors could cause the Company's actual results to differ materially
from those expressed in the forward-looking statements referred to above. These
factors include, without limitation, the risks and uncertainties discussed under
"Risk Factors" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the uncertainties related to the ability of the
Company to sell PASSUR(R) Network Systems information
capabilities in its existing product and professional service lines, as well as
in new products and professional services (due to potential competitive pressure
from other companies or other products), as well as the current uncertainty in
the aviation industry due topotential for terrorist
events, the continued war on terrorism,attacks, changes in fuel costs, airline bankruptcies and consolidations,
economic conditions, and other risks detailed in the Company's periodic report
filings with the SEC. Other uncertainties which could impact the Company
include, without limitation, uncertainties with respect to future changes in
governmental regulation and the impact that such changes in regulation will have
on the Company's business. Additional uncertainties include, without limitation,
uncertainties relating to: (1) the Company's ability to find and maintain the
personnel necessary to sell, manufacture, and service its products; (2) its
ability to adequately protect its intellectual property; and (3) its ability to
secure future financing. Readers are cautioned not to place undue reliance on
these forward-looking statements, which relate only to events as of the date on
which the statements are made and which reflect management's analysis,
judgments, belief, or expectation only as of such date. The Company undertakes
no obligation to publicly update any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
13
DESCRIPTION OF BUSINESS
PASSUR Aerospace, Inc. ("PASSUR(R)" or the "Company") is a business
intelligence,The Company provides data aggregation and consolidation, information, decision
support, predictive analytics, collaborative solutions, and big data company. Our missionprofessional
services to airlines, airports, governments, and business aviation companies. To
enable this unique offering, PASSUR owns and operates the largest commercial
passive radar network in the world that updates flight tracks every 1 to 4.6
seconds, powering a proprietary database that is to
connect the world's aviation professionals onto a single platform to improve
global air traffic efficiencies.
PASSUR(R) has a broadaccessible in real-time and
global customer network. PASSUR(R)'s productsdelivers timely, accurate information and solutions via PASSUR's
industry-leading algorithms and business logic included in its products.
PASSUR's solutions are used by all of the topfive largest North American airlines, over 125 airlines worldwide, over 60
airports including 73%airport customers (including 22 of the top 30 North American airports approximatelyas
customers - with PASSUR solutions also used at the remaining top eight airports
by one or more airline customers), more than 200 businesscorporate aviation organizations,customers,
and the USU.S. government.
Our core business addresses some of aviation's most intractable and costly
operational and financial challenges, including under utilization of airspace
and airport capacity, delays, cancellations, and diversions. Several studies
have estimated the annual direct costs to the system of such inefficiencies at
over $30 billion.
Solutions offered by PASSUR(R)PASSUR help to ensure flight completion. They cover the
entire flight life cycle, from gate to gate, and result in reductions in overall
costs fuel costs, and emissions, while maximizing revenue opportunities, as well as improving
operational efficiency, and enhancing the passenger experience.
The Company provides data
consolidation, information,Company's business plan is to continue to focus on increasing
subscription-based revenues from its suite of software applications, and to
develop new applications and professional services designed to address the needs
of the aviation industry and the U.S. government. The Company's goal is to help
solve problems faced by its customers and is built on the following product
development objectives: (1) continue developing decision support solutions built
on business intelligence, predictive analytics, collaborative solutions, and professional services.
We provide airlines and airports the ability to get the most out of today's air
traffic management system. As the FAA brings new capabilities online, we, with
our customers, will have the ability to developweb-dashboard technology;
(2) continue integrating multiple additional efficiency solutions.
Essentially all commercial companies using the airspace depend on information
from the Federal Aviation Administration ("FAA") for flight tracking. PASSUR(R)
augments and integrates FAA information withindustry data sets into its
integrated aviation database, including data from PASSUR(R)'s independent
network (the largest passive commercial radar network in the world), which has
over 180 radar locations covering North America from coast to coast. PASSUR(R)
provides fastera variety of additional
aircraft, position updates (from one to 4.6 seconds), and more
complete information on aircraft. PASSUR(R)'s sensors receive aircraft and drone
signals in Mode A, C, S, and Automatic Dependent Surveillance-Broadcast
("ADS-B"), providing position, altitude, beacon code, and tail number, among
other information.
PASSUR(R) receives signals from aircraft that, when combined with our historical
database of aircraft and airport behavior, including that recorded by our
network over the last 10 years, allows us to know more about what has happened
historically, and what is happening in real-time. In addition, the historical
database, also accessible in real-time, allows us to predict how aircraft, the airspace, and airports are goingground surveillance technologies, in order to perform,ensure
that PASSUR is the primary choice for data integration and more importantly, howmanagement for large
aviation organizations; (3) continue extending the aircraft, the airspace, and airport should perform.
PASSUR(R) offers companies products that are commercially proven, commercially
accepted, and with a demonstrated Return on Investment ("ROI") for airlines and
airports - providing a critical bridge between the commercial and government
opportunitiesreach of the FAA, Next Generation Air Transportation System ("NextGen"),PASSUR Network,
which provides the new National Airspace System dueproprietary backbone for implementation acrossmany of the United StatesCompany's solutions; and
(4) continue developing the Company's professional service capabilities, in
stages over the next 10 years. NextGen proposesorder to transform the U.S. air
traffic control system from an aging ground-based system to a satellite-based
system.
14ensure that its solutions can be fully implemented in its customers'
work environments, with minimal demand on customers' internal resources.
Page 11 of 19
RESULTS OF OPERATIONS
REVENUES
Management concentrates its efforts on the sale of business intelligence,
predictive analytics, and decision support product applications, utilizing data
primarily derived from the PASSUR(R)PASSUR Network. Such efforts include the continued
development of new products, professional services, and existing product
enhancements.
RevenueRevenues increased $379,000,$671,000, or 13%, and $655,000, or 8%24%, to $3,244,000 and
$9,230,000, respectively,$3,435,000 for the three and nine months ended
JulyJanuary 31, 2015,2016, as compared to the same periodsperiod in fiscal 2014. New customer2015. Customer
subscriptions and
existing customer upgrades to the Company's suite of software applications and services
increased compared to the prior year periodsperiod by $459,000,$555,000, or 17%20%, and $887,000,
or 11%, respectively, for the three
and nine months ended JulyJanuary 31, 2016. The Company had consulting and license revenue of
$118,000 for the three months ended January 31, 2016, as compared to none in the
same period in fiscal 2015. The Company continues to develop and deploy new
software applications and solutions, as well as a wide selection of products
which address customers' needs, easily delivered through web-based applications,
as well as other new products which include stand-alone professional services.
COST OF REVENUES
Costs associated with subscription and maintenance revenues consist primarily of
direct labor, depreciation of PASSUR(R)PASSUR and Surface Multilateration
("SMLAT")Network Systems, amortization of capitalized software development
costs, communication costs, data feeds, allocated overhead costs, travel and
entertainment, and consulting fees. Also included in cost of revenues are costs
associated with upgrades to PASSUR(R)PASSUR and SMLAT Systems necessary to make such
systems compatible with new software applications, as well as the ordinary
repair and maintenance of existing PASSUR(R)PASSUR and SMLAT Systems. Additionally, cost
of revenues in each reporting period is impacted by: (1) the number of PASSUR(R)PASSUR
and SMLAT System units added to the Network, which includes the production,
shipment, and installation of these assets, which are capitalized to the PASSUR(R)PASSUR
Network; and (2) capitalized costs associated with software development and data
center projects. Both of these are referred to as "Capitalized Assets", and are
depreciated and/or amortized over their respective useful lives and charged to
cost of revenues. The Company does not break down its costs by product.
When the Company uses its employees to manufacture PASSUR(R)PASSUR and SMLAT Systems,
build capital assets, and ship and install PASSUR(R)PASSUR and SMLAT Systems in the
field, or for software development, there is a reduction in cost of revenues due
to the fact that the labor-related costs for these systems are capitalized,
rather than expensed in the period.
Cost of revenues remained constantincreased $398,000, or 36%, to $1,512,000 for the three months
ended JulyJanuary 31, 2015, and
decreased $186,000, or 5%,for the nine months ended July 31, 2015,2016, as compared to the same periodsperiod in fiscal year 2014.2015.
In the current three month period compared to the same period in the prior year,
there wasthe increase in cost of revenues primarily resulted from lower capitalized costs
of $122,000 due to a significant increasedecrease in the number of PASSUR(R)PASSUR and SMLAT Systems
manufactured, shipped, and installed in the field, resulting in higher capitalizationamortization of
costs of $252,000. This increased capitalization was partially
offset by an increase in$108,000, higher compensation related costs of $134,000 due to the
hiring of a Chief Technology Officer and additional software developers, $92,000,and an increase in
the amortization of capitalized software projects of $91,000 due to
the release and sale of new products in this fiscal year.
15
In the current nine month period compared to the same period in the prior year,
the reduction in cost of revenues primarily resulted from higher capitalizedconsulting costs of $788,000 due to (1) higher capitalized software development costs, and
(2) an increase in the number of PASSUR(R) and SMLAT Systems manufactured,
shipped,and installed in the field;and was partially offset by an increase in
compensation related costs of $313,000 due to the hiring of a Chief Technology
Officer and additional software developers, higher amortization of software
development projects of $219,000 due to the release and sale of new products,
and lower capitalized data center development costs of $63,000.$78,000.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts include activities associated
with new product development, as well as the enhancement and improvement of the
Company's existing software and information products. Research and development
expenses increased $14,000, or 8%, and $47,000, or 9%,were consistent for the three and nine
months ended JulyJanuary 31, 2015,2016, as
compared to the same periodsperiod in fiscal year 2014,
primarily due to an increase in compensation related costs.2015.
The Company anticipates that it will continue to invest in research and
development to develop, maintain, and support existing and newly developed
applications for its customers.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenses increased $502,000,$452,000, or 43%,and
$611,000, or 18%38%, for
the three and nine months ended JulyJanuary 31, 2015,2016, as compared to the same periodsperiod in
fiscal year 2014.2015. The increase in the current three and
nine monthsmonth period compared to the
same periodsperiod in the prior year was largelyprimarily due to an increase in compensation
and related costs of $268,000 and $519,000,
respectively,$436,000, primarily due to an increase in headcount.
ForPage 12 of 19
INCOME FROM OPERATIONS
Income from operations decreased $179,000, or 63%,for the three months ended
JulyJanuary 31, 2015, recruiting costs increased $75,000 and travel and
entertainment costs increased $45,000,2016, to $106,000 as compared to the same period in fiscal 2014.
INCOME FROM OPERATIONS
Income from operations decreased $133,000, or 59%,for the three months ended
July 31, 2015 and increased $182,000, or 30%, for the nine months ended July 31,
2015, to $91,000 and $793,000, respectfully, as compared to the same periods in
fiscal year
2014.2015. This decrease in the three months ended JulyJanuary 31, 2015,2016, was largely due
to an increase in total costs and expenses of $512,000,$850,000, or 19%34%, partially offset
by an increase in revenue of $379,000,$671,000, or 13%24%, as compared to the same period in
fiscal year 2014. This increase in the nine months ended July
31, 2015, was largely due to an increase in revenue of $655,000, or 8%,
partially offset by an increase in total costs and expenses of $473,000, or 6%,
as compared to the same period in fiscal year 2014.2015.
INTEREST EXPENSE - RELATED PARTY
Interest expense - related party decreased $5,000,$6,000, or 8% and $9,000, or 5%9%, for the three and nine months
ended JulyJanuary 31, 2015,2016, as compared to the same periodsperiod in fiscal year 2014,2015, due
to the lower principal balance on the note.
NET INCOME
The Company had net income of $22,000,$25,000, or $0.00 per diluted share, and $315,000,
or $0.04 per diluted share, for the three
and nine months ended JulyJanuary 31, 2015,2016, as compared to net income of $129,000,$141,000, or $0.02 per diluted share, and $274,000,
or $0.04
per diluted share, for the same periodsperiod in fiscal year 2014.
16
2015.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assetsliabilities exceeded its current liabilities, excluding
deferred revenue,assets by $1,454,000$1,701,000 as
of JulyJanuary 31, 2015.2016. The note payable to a related party, G.S. Beckwith Gilbert,
the Company's significant shareholder and Chairman, was $3,500,000 as of JulyJanuary
31, 2015,2016, with a maturity of November 1, 2017. In February of 2016 (the "Gilbert Note").the Company
paid $600,000 of principal of the Second Replacement Note to G.S. Beckwith
Gilbert.
The Company's stockholders' equity was $11,395,000$11,565,000 as of JulyJanuary 31, 2015.2016. The
Company had net income of $315,000$25,000 for the ninethree months ended JulyJanuary 31, 2015.2016.
Management is addressing the Company's working capital deficiency (which is only
caused by its deferred revenue balance) by
aggressively marketing the Company's PASSUR(R)PASSUR and SMLAT Network Systems
information capabilities in its existing product and professional service lines,
as well as in new products and professional services, which are continually
being developed and deployed.
Since the PASSURs and SMLATS manufactured by PASSUR are not sold, but used by
the Company in its wholly-owned networks, PASSUR's inventory of parts, work in
process, and finished goods (not yet installed in the networks) located at its
plant of $1,785,000 is not included in Total current assets, but rather is
included in the PASSUR Network, net, a long term asset.
Management believes that expanding its existing suite of software products and
professional services, which address the wide array of needs of the aviation
industry, through the continued development of new product and service
offerings, will continue to lead to increased growth in the Company's
customer-base and subscription-based revenues.
If the Company's business plan does not generate sufficient cash flows from
operations to meet the Company's operating cash requirements, the Company will
attempt to obtain external financing.financing on commercially reasonable terms. The
Company believes that its liquidity is adequate to meet operating and investment
requirements through July 31, 2016.March 3, 2017.
Net cash provided by operating activities was $4,282,000$362,000 for the ninethree months
ended JulyJanuary 31, 2015,2016, and consisted of $315,000$25,000 of net income, depreciation and
amortization of $2,238,000,$786,000, and stock-based compensation expense of $227,000,$57,000, with
the balance offset by a decrease in operating assets and an increase in
operating assets and liabilities. Net cash used in investing activities was $3,404,000$904,000 for
the ninethree months ended JulyJanuary 31, 2015,2016, which was expended for capitalized
software development costs, additions to the PASSUR(R)PASSUR Network, and additional
servers at our redundant server center in Orlando, Florida. Net cash usedprovided by
financing was $586,000,$74,000 for the ninethree months ended JulyJanuary 31, 2015,2016, which
consisted of the repayment of note
payable of $365,000, plus the purchase of treasury stock of $272,000an equipment lease for computer servers in Orlando, Florida and less the
exercise of stock options of $51,000.$10,000.
The Company is actively addressingmonitors the increasing costs associated with supporting the business,
and planscontinually seeks to identify and reduce any unnecessary costs as part of
its cost reduction initiatives. Additionally, the aviation market has been
impacted by budgetary constraints, airline bankruptcies and consolidations,
current economic conditions, the continued war on terrorism, and fluctuations in
fuel costs. The aviation market is extensively regulated by government agencies,
particularly the FAA and the National Transportation Safety Board, and
Page 13 of 19
management anticipates that new regulations relating to air travel may continue
to be issued. Substantially all of the Company's revenues are derived from
airlines, airports, airlines, and organizations that serve, or are served by, the aviation
industry. Any new regulations or changes in the economic situation of the
aviation industry could have an impact on the future operations of the Company,
either positively or negatively.
17
Interest by potential customers in the information and decision support software
products obtained from PASSUR(R) and SMLATPASSUR Network Systems and its professional services
remains strong. As a result, the Company anticipates an increase in future
revenues. However, the Company cannot predict if such revenues will materialize.
If salesrevenues do not increase, losses may occur. The extent of such profits or
losses will be dependent on sales volume achieved and Company cost reduction
initiatives.
OFF-BALANCE SHEET ARRANGEMENTS
None.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL
The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosures
of contingent assets and liabilities based upon accounting policies management
has implemented. These significant accounting policies are disclosed in Note 1
to the Company's Annual Report on Form 10-K for the fiscal year ended October
31, 2014,2015, and there have been no material changes to such policies since the
filing of such Annual Report. These policies and estimates are critical to the
Company's business operations and the understanding of its results of
operations. The impact and any associated risks related to these policies on the
Company's business operations are discussed throughout Management's Discussion
and Analysis of Financial Condition and Results of Operations,included in our
Annual Report on Form 10-K for the fiscal year ended October 31, 2014,2015, as such
policies affect its reported financial results. The actual impact of these
factors may differ under different assumptions or conditions.
In May 2014, the Financial Accounting Standards BoardFASB issued Accounting Standards Update No. 2014-09, "Revenue
from Contracts with Customers: Topic 606" ("ASU 2014-09"), to supersede nearly
all existingall-existing revenue recognition guidance under U.S. GAAP. The core principle of
ASU 2014-09 is to recognize revenues when promised goods or services are
transferred to customers in an amount that reflects the consideration that is
expected to be received for those goods or services.services, ASU 2014-09 defines a five
step process to achieve this core principle and, in doing so, it is possible
more judgment and estimates may be required within the revenue recognition
process than required under existing U.S. GAAP including identifying performance
obligations in the contract, estimating the amount of variable consideration to
include in the transaction price and allocating the transaction price to each
separate performance obligation. We are currently evaluating the impact of our
pending adoption of ASUASC 2014-09 on our consolidated financial statements.
In November 2015, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2015-17, Income Taxes (Topic 740) Balance
Sheet Classification of Deferred Assets. This ASU is intended to simplify the
presentation of deferred taxes on the balance sheet and will require an entity
to present all deferred tax assets and deferred tax liabilities as non-current
on the balance sheet. Under the current guidance, entities are required to
separately present deferred taxes as current or non-current. Netting deferred
tax assets and deferred tax liabilities by tax jurisdiction will still be
required under the new guidance. This guidance will be effective beginning in
2018, with early adoption permitted. The Company does not believe this new
accounting standard update will have a material impact on its consolidated
financial statements.
In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-02,
which amends the ASC and creates Topic 842, Leases. Topic 842 will require
lessees to recognize lease assets and lease liabilities for those leases
classified as operating leases under previous US GAAP on the balance sheet. This
guidance is effective for annual periods beginning after December 15, 2018 and
early adoption is permitted. The Company does not believe this new accounting
standard update will have a material impact on its consolidated financial
statements.
Page 14 of 19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
18
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management carried out an
evaluation, under the supervision, and with the participation of, the Company's
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures (as such term is
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934 (the "Exchange Act"). The Company's disclosure controls and procedures are
designed to ensure that information required to be disclosed by the Company in
reports filed or submitted under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the Commission's
rules. The Company believes that a control system, no matter how well designed
and operated, can provide only reasonable assurance, not absolute assurance,
that the objectives of the control system are met. Based on their evaluation as
of the end of the period covered by this report, the Company's Chief Executive
Officer and Chief Financial Officer have concluded that such controls and
procedures were effective at a reasonable assurance level as of JulyJanuary 31,
2015.2016.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) within the fiscal quarter to which this report relates, that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II.OTHERII. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or
15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101.ins* XBRL Instance
101.xsd* XBRL Schema
101.cal* XBRL Calculation
101.def* XBRL Definition
101.lab* XBRL Label
101.pre* XBRL Presentation
* Filed herewith.
**Furnished herewith.
Page 15 of 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PASSUR AEROSPACE, INC.
DATED: SEPTEMBER 11, 2015MARCH 10, 2016 By: /s/ James T. Barry
------------------
James T. Barry
President and Chief Executive Officer
(Principal Executive Officer)
DATED: SEPTEMBER 11, 2015MARCH 10, 2016 By: /s/ David M. Henderson
---------------------------------------------
David M. Henderson
Chief Financial Officer,Senior Vice
President,Treasurer, and
Secretary(Principal Financial and
Accounting Officer)
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