Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,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):

PASSUR Aerospace, Inc. (“PASSUR” or the “Company”), a New York corporation founded in 1967, is a 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. PASSUR uses big data, within the aviation intelligence platform and a suite of web-based solutions that address the aviation industry’s intractable and costly challenges, including, but not limited to, the underutilization of airspace and airport capacity, delays, cancellations, and diversions. The Company’s technology platform is supported by its Aviation Intelligence Center of Excellence, 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 mission is to improve global air traffic efficiencies by connecting the world’s aviation professionals onto a single aviation intelligence platform, making PASSUR an element in addressing the aviation industry’s system-wide inefficiencies. We are an aviation intelligence company that makes air travel more predictable, gate-to-gate, by using predictive analytics generated from our own big data – to mitigate constraints for airlines and their customers.

PASSUR’s information solutions are used by the five largest North American airlines, more than 60 airport customers, including 20 of the top 30 North American airports (with PASSUR solutions also used at the remaining ten airports by one or more airline customers), over a hundred85 business aviation customers,customer locations, and the U.S. government.

PASSUR provides data aggregation and consolidation, information, decision support, predictive analytics, collaborative solutions, and professional services. 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 help to ensure flight completion, covering the entire flight life cycle, from gate to gate, and result in reductions in overall costs and carbon emissions, while helping to maximize revenue opportunities, as well as improving operational efficiency and enhancing the passenger experience.

PASSUR’s commercial solutions give aviation operators the ability to optimize performance in today’s air traffic management system, while also achieving Next Generation Air Transportation System (“NextGen”) and Single European Sky ATM Research objectives.

PASSUR integrates data from multiple sources, including its independent network of surveillance sensors installed throughout North America creating coast to coast coverage, as well as locations in Europe and Asia; government data; customer data; and data from third party partners. PASSUR’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 receives signals from aircraft that, when combined with its historical database of aircraft and airport behavior, including information recorded by its network over the last 1510 years, allow the Company to know more about what has happened historically and what is happening in real-time. In addition, the historical database allows the Company to predict how aircraft, the airspace, and airports are going to perform, and more importantly, how the aircraft, the airspace, and airports should perform.

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 ended October 31, 2019.

The Company’s current assets exceeded current liabilities, excluding deferred revenue, exceeded current assets by $2,021,000$1,120,000 as of January 31, 2019.2020. The outstanding amount under the note payable to a related party, G.S. Beckwith Gilbert, the Company’s significant shareholder and Non-Executive Chairman (the “Existing Gilbert Note”), was $6,960,000 at$9,080,000 as of January 31, 2019,2020, with an annual interest rate of 9 ¾% and a maturity of November 1, 2021. At January 31, 2020, the notes payable balance included accrued interest on the Existing Gilbert Note of $410,000, representing interest incurred during the fourth quarter of 2019 and the first quarter of 2020. The Company’s stockholders’ equity was $2,902,000$42,000 at January 31, 2019.2020. The Company had a net loss of $934,000$583,000 for the three months ended January 31, 2019.

If the Company’s business does not generate sufficient cash flows from operations to meet its operating cash requirements, the Company will attempt to obtain external financing on commercially reasonable terms. However, the Company has received a commitment from G.S. Beckwith Gilbert, dated March 18, 2019,13, 2020, that if the Company, at any time, is unable to meet its obligations through March 18, 2020, G.S. Beckwith13, 2021, Mr. Gilbert will provide the Company with the necessary continuing financial support to meet such obligations. Such commitment for financial support may be in the form of additional advances or loans to the Company, in addition to the deferral of principal and/or interest payments due on the existing loans, if deemed necessary. The note payable is secured by the Company’s assets.

The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows:

The difference in the opening and closing balances of the Company’s unbilled receivable and deferred revenue primarily results from the timing difference between the Company’s performance and the customer’s payment.

Deferred revenue includes amounts billed to customers for which the revenue recognition criteria has not yet been met. Deferred revenue primarily consists of billings or payments received in advance of revenue recognition from the Company’s subscription services and, to a lesser extent, professional services. Deferred revenue is recognized as the Company satisfies its performance obligations. The Company generally invoices its customers in monthly, quarterly or annual installments for subscription services. Accordingly, the deferred revenue balance does not generally represent the

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total contract value of annual or multi-year, non-cancelable subscription arrangements. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue and the remaining portion is recorded as noncurrent. The amount of revenue recognized during the three months ended January 31, 20192020 that was included in the deferred revenue balance at November 1, 20182019 was $2,325,000.

Unbilled accounts receivable relates to the delivery of subscription and professional services for which the related billings will occur in a future period.

On January 28, 2019,27, 2020, the Company entered into a FifthSixth Debt Extension Agreement with G.S. BeckwithMr. Gilbert, the Company’s Chairman and significant stockholder, effective January 28, 2019,27, 2020, pursuant to which the Company and Mr. Gilbert agreed to modify certain terms and conditions of the existing debt agreement with Mr.Existing Gilbert (the “Existing Gilbert Note”).Note. The maturity date of the Existing Gilbert Note was due on November 1, 2019,2020, and the total amount of principal and interest due for the fourth quarter of fiscal year 2019 and first quarter of fiscal year 2019 interest due2020 and owing as of January 28, 2019,27, 2020, was $7,122,000.$9,071,000. Pursuant to the FifthSixth Debt Extension Agreement, the Company issued a new note to Mr. Gilbert in the principal amount of $6,960,000$9,071,000, (the “Fifth“Sixth Replacement Note”) in exchange forequal to a principal of $8,670,000 and accrued interest through January 27, 2020 of $401,000, and cancelled the Existing Gilbert Note and theNote. The Company agreed to pay the first quarter of fiscal year 2019 accrued interest underincluded in the Existing GilbertSixth Replacement Note, as of January 28, 2019, in an amount equal to $162,000, at the time and on the terms set forth in the Existing GilbertSixth Replacement Note. Under the terms of the FifthSixth Replacement Note, the maturity date was extended to November 1, 2020,2021, and the annual interest rate remained at 9 3/4%9.75%. Interest payments under the FifthSixth Replacement Note shall be made annually on October 31st of each year. The Fifth Replacement Notenote payable is secured by the Company’s assets.

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 its existing product and professional service lines, as well as its new products and professional services (due to potential competitive pressure from other companies or other products), as well as the potential for terrorist 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.

The Company provides data aggregationa complete set of integrated, collaborative tools to allow airlines, airports, and consolidation, information, decision support, predictive analytics, collaborativeair navigation service providers to better predict, prioritize, prevent, and recover from inevitable unexpected disruptions. These disruptions have long been seen as the cost of doing business in the industry, which we have proven can be mitigated, in part, through the integrated use of our software.

As such, we provide digital solutions to the global travel industry and professional services. To enable this unique offering, PASSUR® ownshelp customers improve punctuality, optimize turn times and operatesgate utilization, ensure schedule integrity (e.g., passenger connections), improve block-time performance, and reduce fuel burn/emissions.

The Company provides its solutions to the largest commercial passive radar networkairlines and airports in the world that updates flight tracks every 1 to 4.6 seconds, powering a proprietary database that is accessibleUnited States. Currently over 60% of all flights in real-time and delivers timely, accurate information and solutions via PASSUR’s industry-leading algorithms and business logic includedthe United States are, in its products.

Our core business addresses some of the aviation industry’s most intractable and costly challenges, including, but not limited to, underutilization of airspace and airport capacity, delays, cancellations, and diversions, among others. Several independent studies have estimated the annual direct costs of such inefficiencies to airlines in the United States at over $8 billion annually, and worldwide direct cost at over $30 billion annually.

Solutions offered by PASSUR help to ensure flight completion. They cover the entire flight life cycle, from gate to gate, and result in reductions in overall costs and carbon emissions, while maximizing revenue opportunities, improving operational efficiency, and enhancing the passenger experience.

The 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 isSpecifically, the objectives of the PASSUR platform are to:

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1)Continue developing decision support solutions built on business intelligence, predictive analytics, and web-dashboard technology;  

2)Continue integrating multiple additional industry data sets into its aviation database, including data from a variety of additional aircraft, airspace, and ground surveillance sources, to help solve problems faced byensure that PASSUR is the primary choice for data integration and management for large aviation organizations;  

3)Continue extending the reach of the PASSUR Network, which provides the proprietary backbone for many of the Company’s solutions; and  

4)Continue developing the Company’s professional service capabilities, in order to make sure that its customers basedsolutions can be fully implemented in its customers’ work environments, with minimal demand on the following product development objectives:

Management concentrates its efforts on the sale of business intelligence, predictive analytics, and decision support product applications, utilizing data primarily derived from the PASSUR Network. Such efforts include the continued development of existing products, new product offerings and, to a lesser extent, professional services.

For the three months ended January 31, 2019,2020, total revenues increased by $143,000,$569,000, or 4%16%, to $3,656,000,$4,225,000, as compared with $3,513,000$3,656,000 for the same period in 2018.2019. The increase in total revenues was primarily due to (i) an increase in subscription revenue of $91,000$355,000, or 3%10% and (ii) an increase in consulting revenue of $52,000$214,000 to $108,000,$323,000, as compared with the prior year.

The increase in subscription revenue for the three months endended January 31, 2019,2020, was primarily due to (i) a new contract for subscription services closed during fiscal year 2020 and (ii) net incremental revenue recognized during the period in fiscal 2019year 2020 related to new contracts closed during fiscal year 2018.2019. These increases were partially offset by expired contracts during the three months ended January 31, 2020.

The Company is engaged in ongoing discussions with two of its customers about the possible renewal of certain existing contracts that expired at various times from January 31, 2020 through February 29, 2020. Certain parts of these contracts have been renewed on a short-term interim basis. If these contracts are not renewed in full or in part, and not replaced by other revenue, the potential impact to the Company’s fiscal year 2020 results could be a loss of revenue of up to $3.9 million dollars as compared to the full fiscal year of 2019.

The increase in consulting revenue of $214,000 to $323,000 for the three months ended January 31, 2020, as compared to $108,000 for the same period in 2019, was due to an increase in the number of consulting agreements performed during the first quarter of 2020, compared to the same period in 2019.

The Company continues to enhance its wide selection of products and develop and deploy new software applications and solutions to better address customers’ needs, all of which are easily delivered through web-based applications or as stand-alone professional services.

Costs associated with subscription and maintenance revenues consist primarily of direct labor, depreciation of PASSUR and SMLAT Network Systems, amortization of capitalized software development costs, communication costs, data feeds, travel and entertainment, and consulting fees. Also included in cost of revenues are costs associated with upgrades to 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 and SMLAT Systems. Additionally, cost of revenues in each reporting period is impacted by: (1) the number of PASSUR and SMLAT System units added to the PASSUR Network, which includes the production, shipment, and installation of these assets (currently largely installed by unaffiliated outside contractors), which are capitalized to the PASSUR Network; and (2) capitalized costs associated with software development and data center projects; and (3) data center projects (all referred to as “Capitalized Assets”). The labor and fringe benefit costs of Company employees involved in creating Capitalized Assets are capitalized, rather than expensed, and amortized, usually over five or seven years, as determined by their projected useful life. The Company does not break down its costs by product.

Cost of revenues decreased $207,000,increased $254,000, or 9%12%, to $2,032,000$2,286,000 for the three months ended January 31, 2019,2020, as compared with the same period in fiscal year 2018.2019. During the three months ended January 31, 2019,2020, the cost of revenues decreaseincrease was primarily attributable to an increasea decrease in capitalized costs associated with software development projects and PASSUR Network Systems of approximately $148,000.$268,000 as compared with the same period in fiscal 2019. When the Company uses its employees to manufacture PASSUR and SMLAT Systems, build capital assets, and ship and install 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, and amortized over 7seven years for PASSUR or 5five years for SMLAT systems. The remaining decreasesincrease in cost of revenues, due to lower capitalization of cost for the three months ended January 31, 2019 were due to the2020, was offset by a net decreasesdecrease of $21,000 in other accountsvarious costs within cost of revenues as compared to the same period in fiscal year 2018.

Finally, as we continue to release product enhancements/new versions to our existing product offerings, and new product offerings, our amortization expenses associated with the historical software capitalization is anticipated to increase. As a result, we anticipate that our software capitalization and amortization expense, when netted, will not have a significant impact on our financial results.

Research and development expenses decreased $11,000,$32,000, or 7%22%, to $144,000,$112,000, for the three months ended January 31, 2019,2020, as compared to $155,000$144,000 for the same period in fiscal year 2018.2019.  The decrease in research and development was primarily attributable to an increasea decrease in personnel related costs, allocated to cost of revenues from research and development as compared to the same period in the prior year.

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. The Company anticipates that it will continue to invest in its software portfolio to develop, maintain, and support existing and newly developed applications for its customers.

Selling, general, and administrative expenses increased $25,000,decreased $78,000, or 1%3%, to $2,246,000$2,168,000 for the three months ended January 31, 2019,2020, as compared to $2,221,000$2,246,000 for the same period in fiscal year 2018.2019. The increasedecrease in selling, general and administrative expense for the three months ended January 31, 2019, is2020 was primarily due to an increasea decrease in personnel related costs, as compared to the same period in the prior year. This decrease was partially offset by increases in professional and sales and marketing consulting expenses of $96,000. This increase was offset by (i) a decrease in depreciation expenses of approximately $27,000 and (ii) net decreases in miscellaneous other accounts within selling, general and administrative expensesfees, as compared to the same period in fiscal year 2018.

For the three months ended January 31, 2019,2020, loss from operations decreased $335,000$425,000 to $766,000,$341,000, as compared with the same period in fiscal year 2018.2019.  The decreaseimprovement was primarily due to (i) an increase in revenue of $143,000$569,000, or 4% and (ii) a decrease16%, which was partially offset by an increase in operating expenses of $193,000$144,000, or 4%3%.

Interest expense – related party increased $102,000,$42,000, or 156%25%, for the three months ended January 31, 2019,2020, as compared to the same periods in fiscal year 2018,2019, due to the higher principal balance outstanding on the note in fiscal year 2019, and2020.

Net Loss

The Company had a net loss of $583,000, or $0.08 per diluted share, for the interest rate increase on the outstanding notethree months ended January 31, 2020, as compared to the same period in fiscal year 2018.

The Company’s current assets exceeded its current liabilities, excluding deferred revenue, exceeded its current assets by $2,021,000$1,120,000 as of January 31, 2019.2020. The Company’s stockholders’ equity was $2,902,000$42,000 as of January 31, 2019.

The outstanding principal amount under the note payable to a related party, G.S. Beckwith Gilbert, the Company’s Non-Executive Chairman and significant stockholder (the “Existing Gilbert Note”), was $6,960,000$9,080,000 as of January 31, 20192020, with an annual interest rate of 9 ¾%, and $6,050,000 as of October 31, 2018, with a maturity date of November 1, 2021. Interest payments are due by October 31st of each fiscal year. At January 31, 2020, the notes payable balance included accrued interest on the Existing Gilbert Note of $410,000, representing interest incurred during the fourth quarter of 2019 and the first quarter of 2020.  ForDuring the three months ended January 31, 2020, Mr. Gilbert loaned the Company an additional $520,000 (which amount is included in the outstanding note payable amount as of January 31, 2020 identified above). Additionally, subsequent to January 31, 2020, Mr. Gilbert loaned the Company an additional $200,000. As of March 13, 2020, the note payable balance, including accrued interest, was $9,379,000. During the three months ended January 31, 2019, the Company paid interest incurred on the note payableExisting Gilbert Note totaling $168,000. During the three months ended January 31, 2019, Mr. Gilbert loaned the Company an additional $910,000 (which amount is included in the outstanding principal amount due as of January 31, 2019 identified above).

On January 28, 2019,27, 2020, the Company entered into a FifthSixth Debt Extension Agreement with G.S. BeckwithMr. Gilbert, the Company’s Chairman and significant stockholder, effective January 28, 2019,27, 2020, pursuant to which the Company and Mr. Gilbert agreed to modify certain terms and conditions of the existing debt agreement with Mr.Existing Gilbert (the “Existing Gilbert Note”).Note. The maturity date of the Existing Gilbert Note was due on November 1, 2019,2020, and the total amount of principal and interest due for the fourth quarter of fiscal year 2019 and first quarter of fiscal year 2019 interest due2020 and owing as ofthrough January 28, 2019,27, 2020, was $7,122,000.$9,071,000. Pursuant to the FifthSixth Debt Extension Agreement, the Company issued a new note to Mr. Gilbert in the principal amount of $6,960,000$9,071,000, (the “Fifth“Sixth Replacement Note”) in exchange forequal to a principal of $8,670,000 and accrued interest through January 27, 2020 of $401,000, and cancelled the Existing Gilbert Note and theNote. The Company agreed to pay the first quarter of fiscal year 2019 accrued interest underincluded in the Existing GilbertSixth Replacement Note, as of January 28, 2019, in an amount equal to $162,000, at the time and on the terms set forth in the Existing GilbertSixth Replacement Note. Under the terms of the FifthSixth Replacement Note, the maturity date was extended to November 1, 2020,2021, and the annual interest rate remained at 9 3/4%¾%. Interest payments under the FifthSixth Replacement Note shall be made annually on October 31st of each year. The Fifth Replacement Notenote payable is secured by the Company’s assets.

Management is addressing the Company’s working capital deficiency by aggressively marketing the Company’s PASSUR 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 the continued development of its existing suite of software products and professional services, which address the wide array of needs of the aviation industry, will continue to lead to increased growth in the Company’s customer-base and subscription-based revenues. However, there are no assurances that such growth will be achieved.

If the Company’s business does not generate sufficient cash flows from operations to meet its operating cash requirements, the Company will attempt to obtain external financing on commercially reasonable terms. However, the Company has received a commitment from G.S. Beckwith Gilbert, dated March 18, 2019,13, 2020, that if the Company, at any time, is unable to meet its obligations through March 18, 2020,13, 2021, Mr. Gilbert will provide the Company with the necessary continuing financial support to meet such obligations. Such commitment for financial support may be in the form of additional advances or loans to the Company, in addition to the deferral of principal and/or interest payments due on the existing loans, if deemed necessary.

Net cash provided by operating activities was $2,601,000$235,000 for the three months ended January 31, 2019,2020, and consisted of a net loss of $934,000,$583,000, partially offset by depreciation and amortization of $825,000,$1,001,000 and stock-based compensation expense of $156,000 and deferred revenue of $2,516,000, with the$147,000. The remaining balance consistingconsisted of a decrease in accounts receivables and other assetsdeferred revenue of $622,000 and a decreasenet increase in accountaccounts payable, accrued expense,expenses and operating liabilities. accrued interest-related party.

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Net cash used in investing activities was $751,000$496,000 for the three months ended January 31, 2019,2020, which was expended for capitalized software development costs and additions to the PASSUR Network.property and equipment. Net cash provided by financing activities was $910,000$543,000 for the three months ended January 31, 20192020 and consisted of proceeds from note payable – related party.party of $520,000 and proceeds from the exercise of stock options of $23,000.  Net cash provided by operating activities increaseddecreased by $43,000$2,365,000 for the three months ended January 31, 2019,2020, as compared to the same period in 2018.

The Company actively monitors the costs associated with supporting the business, and continually seeks to identify and reduce any unnecessary costs as part of its cost reduction initiatives, while strategically reinvesting back into the business as part of its long-term plans. 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 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, 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.

Interest by potential customers in the Company’s information and decision support software products obtained from PASSUR Network Systems and other sources and its professional services remains strong. As a result, the Company believes that future revenues will increase on an annualized basis. However, there are no guarantees that such annualized future revenue increases will occur. If revenues do not increase and the Company’s cost-structure is not adjusted accordingly, losses may occur. The extent of such profits or losses will be dependent on sales volume achieved and the Company’s ability to optimize its cost structures.

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, 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, 2018. The Company had a change to its Revenue Recognition policy, as described below.2019.  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, 2018,2019, as such policies affect its reported financial results. The actual impact of these factors may differ under different assumptions or conditions.

The Company recognizes revenue in accordance with Topic 606,606. The Company accounts for a customer contract when both parties have approved the contract and are committed to perform their respective obligations, each party’s rights can be identified, payment terms can be identified, the contract has commercial substance, and it is probable the Company will collect substantially all of the consideration to which it is entitled.

The Company derives revenue primarily from subscription-based, real-time decision and solution information and professional services. Revenues are recognized when control of these services is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

The Company determines revenue recognition through the following steps:

Subscription services revenue during the three months ended January 31, 2019, of $3,656,000 under Topic 606, which was not materially different from what would have been recognized under Topic 605. The Company recorded an addition to opening accumulated deficit and a reduction to deferred revenue of approximately $66,000, respectively, as of November 1, 2018 due to the impact of adopting Topic 606.

Subscription services revenue is comprised of cloud-based subscription fees that provide the customer the right to access the Company’s software and receive support and updates, if any, for a period of time. The Company has determined such access represents a stand-ready service provided continually throughout the contract term. As such, control and satisfaction of this stand-ready performance obligation is deemed to occur over time. The Company’s subscription contracts include a fixed amount of consideration that is recognized ratably over the non-cancelable contract term, beginning on the date that access is made available to the customer. The passage of time is deemed to be the most faithful depiction of the transfer of control of the services as the customer simultaneously receives and consumes the benefit provided by the Company’s performance. Subscription contracts are generally one to three years in length, billed either, monthly, quarterly or annually, typically in advance, which coincides with the terms of the agreement. The Company’s subscription contracts do not have a significant financing component and customer invoices are typically due within 30 days. There is no significant variable consideration related to these arrangements. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether transfer of control to customers has occurred.

Contracts with customers may include material rights which are also performance obligations. Material rights primarily arise when the contract gives the customer the right to renew subscription services at a discounted price in the future. This may occur from time to time when the Company’s contracts provide an implicit discount as the customer pays a nonrefundable up-front fee in connection with the initial services contract that it does not have to pay again in order to renew the service. These non-refundable up-front fees are not related to any promised service that the customer benefits other than providing access to the subscription service.  Revenue allocated to material rights is recognized when the customer exercises the right over the estimated renewal period of five years or when the right expires. If exercised by the customer, the amount previously deferred for the material right is included in the transaction price of the renewal contract and allocated to the services included in that contract. If expired, revenue is recognized as subscription services revenue in the period the right expired. If the up-front fees do not provide the customer with a material right, then the amount is included in the transaction price of the initial services contract and allocated to the performance obligations in that contract.

Some of the Company’s contracts with customers contain multiple distinct performance obligations. For these contracts, the transaction price is allocated to the separate performance obligations on a relative standalone selling price basis.  The standalone selling price reflects the price the Company would charge for a specific service if it was sold separately in similar circumstances and to similar customers. The Company maximizes the use of directly observable transactions to determine the standalone selling prices for its performance obligations. For subscription services, the Company separately determines the standalone selling prices by type of solution and customer demographics. For professional services, the Company separately determines standalone selling price by type of service.

The commissions that the Company pays for obtaining a contract with a customer are conditional on future service provided by the employee. Therefore, since these costs are not incremental solely based on obtaining a contract, the Company does not defer any commission costs.

The adoption of this standard impacted the Company’s consolidated balance sheet due to the recognition of ROU assets and associated lease liabilities related to operating leases as compared to the previous accounting.  The accounting for finance leases under Topic 606842 is consistent with the prior accounting for capital leases. The impact of the adoption of this standard on the Company’s consolidated statement of earnings and thereforeconsolidated statement of cash flows was not material.  

Per the guidance of Topic 842, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset.  The Company recognizes a lease liability and a related ROU asset at the commencement date for leases on its consolidated balance sheet, excluding short-term leases as noted below. The lease liability is equal to the present value of unpaid lease payments over the remaining lease term. The Company’s lease term at the commencement date may reflect options to extend or terminate the lease when it is reasonably certain that such options will be exercised. To determine the present value of the lease liability, the Company uses an incremental borrowing rate, which is defined as the rate of interest that the Company would have to pay to borrow (on a collateralized basis over a similar term) an amount equal to the lease payments in similar economic environments.  The ROU asset is based on the corresponding lease liability adjusted for certain costs such as initial direct costs, prepaid lease payments and lease incentives received. Both operating and finance lease ROU assets are reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a ROU asset is impaired, any remaining balance of the ROU asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life.

After the lease commencement date, the Company evaluates lease modifications, if any, that could result in a change in the accounting for leases.  For a lease modification, an evaluation is performed to determine if it should be treated as either a separate lease or a change in the accounting of an existing lease. In addition, significant changes in events or circumstances within the Company’s control are assessed to determine whether a change in the accounting for leases is required.

Certain of the Company’s leases provide for variable lease payments for the right to use an underlying asset that vary due to changes in facts and circumstances occurring after the commencement date, other than the passage of time. Variable lease payments that are dependent on an index or rate (e.g., Consumer Price Index) are included in the initial measurement of the lease liability, the initial measurement of the ROU asset, and the lease classification test based on the index or rate as of the commencement date. Any changes from the commencement date estimation of the index- and rate-based variable payments are expensed as incurred in the period of the change. Variable lease payments that are not known at the commencement date and are determinable based on the performance or use of the underlying asset, are not included in the initial measurement of the lease liability or the ROU asset, but instead are expensed as incurred.  The Company’s variable lease payments primarily include common area maintenance and real estate taxes.

Upon the adoption of Topic 606 did not have a material impact on revenues. The primary impact842, the Company made the following accounting policy elections:

Certain of adopting Topic 606 relatesthe Company’s contracts contain lease components as well as non-lease components. Unless an accounting policy is elected to the accountingcontrary, the contract consideration must be allocated to the separate lease and non-lease components in accordance with Topic 842. For purposes of allocating contract consideration, the  

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Company elected not to separate the lease components from non-lease components for nonrefundable up-front fees. all asset classes.  This was applied to all existing leases as of November 1, 2019 and will be applied to new leases on an on-going basis.   

The Company elected not to apply the measurement and recognition requirements of Topic 842 to short-term leases (i.e., leases with a term of 12 months or less).  Accordingly, short-term leases will not be recorded as ROU assets or lease liabilities on the Company’s consolidated balance sheets, and the related lease payments will be recognized revenue duringin net earnings on a straight-line basis over the three months ended January 31, 2019,lease term.   

As a result of $3,656,000 underthe adoption of Topic 606, which was not materially different from what would have been842, the Company recognized under Topic 605. The Company recorded an addition to opening accumulated deficitoperating lease ROU assets and a reduction to deferred revenueliabilities of approximately $66,000,$1,497,000 and $1,620,000, respectively, as of November 1, 2018 due2019. The Company does not have any finance lease ROU assets and liabilities.

The Company has operating leases primarily for offices and PASSUR and SMLAT systems, with remaining terms of approximately 1 year to the impact of adopting Topic 606.

Not applicable.

The Company is not aware of any material, existing or pending legal proceedings to which the Company or its Subsidiary is a party or to which any of its properties are subject.