Document and Entity Information
Document and Entity Information - shares | 6 Months Ended | |
Apr. 30, 2019 | Jun. 01, 2019 | |
Details | ||
Registrant Name | PASSUR AEROSPACE, INC. | |
Registrant CIK | 0000225628 | |
SEC Form | 10-Q | |
Period End date | Apr. 30, 2019 | |
Fiscal Year End | --10-31 | |
Trading Symbol | pssr | |
Tax Identification Number (TIN) | 112208938 | |
Number of common stock shares outstanding | 7,696,091 | |
Filer Category | Non-accelerated Filer | |
Current with reporting | Yes | |
Small Business | true | |
Emerging Growth Company | false | |
Amendment Flag | false | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Entity Incorporation, State Country Name | New York | |
Entity Address, Address Line One | One Landmark Square | |
Entity Address, Address Line Two | Suite 1900 | |
Entity Address, City or Town | Stamford | |
Entity Address, State or Province | Connecticut | |
Entity Address, Postal Zip Code | 06901 | |
City Area Code | 203 | |
Local Phone Number | 622-4086 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Apr. 30, 2019 | Oct. 31, 2018 |
Current assets: | ||
Cash | $ 877,714 | $ 100,856 |
Accounts receivable, net | 990,330 | 1,186,664 |
Prepaid expenses and other current assets | 421,618 | 199,173 |
Total current assets | 2,289,662 | 1,486,693 |
PASSUR Network, net | 4,425,951 | 4,800,750 |
Capitalized software development costs, net | 8,371,969 | 8,141,589 |
Property and equipment, net | 584,899 | 672,601 |
Other assets | 93,180 | 112,551 |
Total assets | 15,765,661 | 15,214,184 |
Current liabilities: | ||
Accounts payable | 1,010,109 | 989,958 |
Accrued expenses and other current liabilities | 1,175,381 | 1,189,342 |
Deferred revenue, current portion | 4,207,158 | 2,847,323 |
Total current liabilities | 6,392,648 | 5,026,623 |
Deferred revenue, long term portion | 382,517 | 409,971 |
Note payable - related party | 6,960,000 | 6,050,000 |
Other Liabilities | 96,992 | 113,273 |
Total liabilities | 13,832,157 | 11,599,867 |
Stockholders' equity: | ||
Preferred shares - authorized 5,000,000 shares, par value $0.01 per share; none issued or outstanding | 0 | 0 |
Common shares - authorized 20,000,000 shares, respectively, par value $0.01 per share; issued 8,480,526 at April 30, 2019 and October 31, 2018, respectively | 84,804 | 84,804 |
Additional paid-in capital | 17,664,341 | 17,345,450 |
Accumulated deficit | (13,881,963) | (11,882,259) |
Stockholders' Equity before Treasury Stock | 3,867,182 | 5,547,995 |
Treasury stock, at cost | (1,933,678) | (1,933,678) |
Total stockholders' equity | 1,933,504 | 3,614,317 |
Total liabilities and stockholders' equity | $ 15,765,661 | $ 15,214,184 |
Consolidated Balance Sheets - P
Consolidated Balance Sheets - Parenthetical - $ / shares | Apr. 30, 2019 | Oct. 31, 2018 |
Details | ||
Preferred Stock, Shares Authorized | 5,000,000 | 5,000,000 |
Preferred Stock, Par or Stated Value Per Share | $ 0.01 | $ 0.01 |
Preferred Stock, Shares Issued | 0 | 0 |
Preferred Stock, Shares Outstanding | 0 | 0 |
Common Stock, Shares Authorized | 20,000,000 | 20,000,000 |
Common Stock, Par or Stated Value Per Share | $ 0.01 | $ 0.01 |
Common Stock, Shares, Issued | 8,480,526 | 8,480,526 |
Common Stock, Shares, Outstanding | 8,480,526 | 8,480,526 |
Treasury Stock, Shares | 784,435 | 784,435 |
Consolidated Statement of Opera
Consolidated Statement of Operations - USD ($) | 3 Months Ended | 6 Months Ended | ||
Apr. 30, 2019 | Apr. 30, 2018 | Apr. 30, 2019 | Apr. 30, 2018 | |
Details | ||||
Revenues | $ 3,634,124 | $ 3,501,842 | $ 7,290,248 | $ 7,015,329 |
Cost of expenses: | ||||
Cost of revenues | 2,036,347 | 2,026,121 | 4,068,766 | 4,265,421 |
Research and development expenses | 139,318 | 149,163 | 283,273 | 303,829 |
Selling, general, and administrative expenses | 2,422,361 | 2,276,284 | 4,668,259 | 4,497,113 |
Operating Expenses | 4,598,026 | 4,451,568 | 9,020,298 | 9,066,363 |
Loss from operations | (963,902) | (949,726) | (1,730,050) | (2,051,034) |
Interest expense - related party | 167,765 | 70,088 | 335,684 | 135,800 |
Other loss | 0 | 4,506 | 0 | 4,506 |
Loss before income taxes | (1,131,667) | (1,024,320) | (2,065,734) | (2,191,340) |
Provision for income taxes | 0 | 0 | 0 | 0 |
Net loss | $ (1,131,667) | $ (1,024,320) | $ (2,065,734) | $ (2,191,340) |
Net loss per common share - basic | $ (0.15) | $ (0.13) | $ (0.27) | $ (0.28) |
Net loss per common share - diluted | $ (0.15) | $ (0.13) | $ (0.27) | $ (0.28) |
Weighted average number of common shares outstanding - basic | 7,696,091 | 7,696,091 | 7,696,091 | 7,696,091 |
Weighted average number of common shares outstanding - diluted | 7,696,091 | 7,696,091 | 7,696,091 | 7,696,091 |
Consolidated Statements of Shar
Consolidated Statements of Shareholders' Deficit - USD ($) | Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | Total |
Stockholders' Equity Attributable to Parent, Beginning Balance at Oct. 31, 2017 | $ 84,804 | $ 16,699,337 | $ (6,397,874) | $ (1,933,678) | $ 8,452,589 |
Shares, Outstanding, Ending Balance at Jan. 31, 2018 | 8,480,526 | ||||
Stock-based compensation | 171,112 | 0 | 0 | 171,112 | |
Net loss | 0 | (1,167,019) | 0 | (1,167,019) | |
Shares, Outstanding, Beginning Balance at Oct. 31, 2017 | 8,480,526 | ||||
Stockholders' Equity Attributable to Parent, Ending Balance at Jan. 31, 2018 | $ 84,804 | 16,870,449 | (7,564,893) | (1,933,678) | 7,456,682 |
Stockholders' Equity Attributable to Parent, Beginning Balance at Oct. 31, 2017 | $ 84,804 | 16,699,337 | (6,397,874) | (1,933,678) | 8,452,589 |
Shares, Outstanding, Ending Balance at Apr. 30, 2018 | 8,480,526 | ||||
Stock-based compensation | 341,640 | ||||
Net loss | (2,191,340) | ||||
Shares, Outstanding, Beginning Balance at Oct. 31, 2017 | 8,480,526 | ||||
Stockholders' Equity Attributable to Parent, Ending Balance at Apr. 30, 2018 | $ 84,804 | 17,040,977 | (8,589,213) | (1,933,678) | 6,602,890 |
Stockholders' Equity Attributable to Parent, Beginning Balance at Jan. 31, 2018 | $ 84,804 | 16,870,449 | (7,564,893) | (1,933,678) | 7,456,682 |
Shares, Outstanding, Ending Balance at Apr. 30, 2018 | 8,480,526 | ||||
Stock-based compensation | 170,528 | 0 | 0 | 170,528 | |
Net loss | 0 | (1,024,320) | 0 | (1,024,320) | |
Shares, Outstanding, Beginning Balance at Jan. 31, 2018 | 8,480,526 | ||||
Stockholders' Equity Attributable to Parent, Ending Balance at Apr. 30, 2018 | $ 84,804 | 17,040,977 | (8,589,213) | (1,933,678) | 6,602,890 |
Stockholders' Equity Attributable to Parent, Beginning Balance at Oct. 31, 2018 | $ 84,804 | 17,345,450 | (11,882,259) | (1,933,678) | 3,614,317 |
Shares, Outstanding, Ending Balance at Jan. 31, 2019 | 8,480,526 | ||||
Stock-based compensation | 155,747 | 0 | 0 | 155,747 | |
Net loss | 0 | (934,067) | 0 | (934,067) | |
Effect of new accounting standard | 0 | 66,030 | 0 | 66,030 | |
Shares, Outstanding, Beginning Balance at Oct. 31, 2018 | 8,480,526 | ||||
Stockholders' Equity Attributable to Parent, Ending Balance at Jan. 31, 2019 | $ 84,804 | 17,501,197 | (12,750,296) | (1,933,678) | 2,902,027 |
Stockholders' Equity Attributable to Parent, Beginning Balance at Oct. 31, 2018 | $ 84,804 | 17,345,450 | (11,882,259) | (1,933,678) | 3,614,317 |
Shares, Outstanding, Ending Balance at Apr. 30, 2019 | 8,480,526 | ||||
Stock-based compensation | 318,891 | ||||
Net loss | (2,065,734) | ||||
Shares, Outstanding, Beginning Balance at Oct. 31, 2018 | 8,480,526 | ||||
Stockholders' Equity Attributable to Parent, Ending Balance at Apr. 30, 2019 | $ 84,804 | 17,664,341 | (13,881,963) | (1,933,678) | 1,933,504 |
Stockholders' Equity Attributable to Parent, Beginning Balance at Jan. 31, 2019 | $ 84,804 | 17,501,197 | (12,750,296) | (1,933,678) | 2,902,027 |
Shares, Outstanding, Ending Balance at Apr. 30, 2019 | 8,480,526 | ||||
Stock-based compensation | 163,144 | 0 | 0 | 163,144 | |
Net loss | 0 | (1,131,667) | 0 | (1,131,667) | |
Shares, Outstanding, Beginning Balance at Jan. 31, 2019 | 8,480,526 | ||||
Stockholders' Equity Attributable to Parent, Ending Balance at Apr. 30, 2019 | $ 84,804 | $ 17,664,341 | $ (13,881,963) | $ (1,933,678) | $ 1,933,504 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 6 Months Ended | |
Apr. 30, 2019 | Apr. 30, 2018 | |
Cash flows from operating activities | ||
Net loss | $ (2,065,734) | $ (2,191,340) |
Adjustments to reconcile net loss to net cash provided by operating activities: | ||
Depreciation and amortization | 1,714,085 | 1,713,176 |
Other Liabilities | (16,281) | 56,351 |
Stock-based compensation | 318,891 | 341,640 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 196,334 | (414,273) |
Prepaid expenses and other current assets | (242,790) | (136,575) |
Other assets | 19,371 | 8,274 |
Accounts payable | 20,151 | 54,011 |
Accrued expenses and other current liabilities | (13,960) | 11,493 |
Accrued interest - related party | 0 | 70,088 |
Deferred revenue | 1,398,410 | 1,231,074 |
Total adjustments | 3,394,211 | 2,935,259 |
Net cash provided by operating activities | 1,328,477 | 743,919 |
Cash flows used in investing activities | ||
PASSUR Network | (41,031) | (185,444) |
Software development costs | (1,342,336) | (1,302,349) |
Property and equipment | (78,252) | (86,864) |
Net cash used in investing activities | (1,461,619) | (1,574,657) |
Cash flows from financing activities | ||
Proceeds from notes payable - related party | 910,000 | 925,000 |
Net cash provided by financing activities | 910,000 | 925,000 |
Increase in cash | 776,858 | 94,262 |
Cash - beginning of period | 100,856 | 275,146 |
Cash - end of period | 877,714 | 369,408 |
Supplemental cash flow information | ||
Interest - related party | 335,684 | 65,713 |
Income taxes | $ (12,200) | $ 1,245 |
1. Nature of Business
1. Nature of Business | 6 Months Ended |
Apr. 30, 2019 | |
Notes | |
1. Nature of Business | 1. Nature of Business PASSUR Aerospace, Inc. (PASSUR or the Company), a New York corporation founded in 1967, is a business intelligence company that provides the aviation industry with predictive analytics and decision support technology 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 to address the aviation industrys intractable and costly challenges, including, but not limited to, the underutilization of airspace and airport capacity, delays, cancellations, and diversions. The Companys 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, and has specific expertise in the operational and business needs, requirements, objectives, and constraints of the aviation industry. PASSURs mission is to improve global air traffic efficiencies by connecting the worlds aviation professionals on a single aviation intelligence platform, making PASSUR an element in addressing the aviation industrys 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 passengers. PASSURs 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 hundred business aviation organizations, 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 worlds largest commercial passive radar network, which updates flight tracks every 1 to 4.6 seconds. Our radar network powers a proprietary database that is accessible in real-time and delivers timely, accurate information and solutions via PASSURs industry-leading algorithms and business logic. Solutions offered by PASSUR help to ensure flight completion, covering the entire flight life cycle, from gate to gate, result in reductions in overall costs and carbon emissions, help to maximize revenue opportunities, improve operational efficiency and enhance the passenger experience. PASSURs commercial solutions enable aviation operators to optimize performance in todays 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), Europe and Asia; government data; customer data; and data from third party partners. PASSURs sensors receive aircraft and drone signals in Mode A, C, S, and Automatic Dependent Surveillance-Broadcast (ADS-B), and provide 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 15 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. |
2. Basis of Presentation and Si
2. Basis of Presentation and Significant Accounting Policies | 6 Months Ended |
Apr. 30, 2019 | |
Notes | |
2. Basis of Presentation and Significant Accounting Policies | 2. Basis of Presentation and Significant Accounting Policies The consolidated financial information contained in this quarterly report on Form 10-Q represents interim 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, 2018, 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 Companys consolidated financial position as of April 30, 2019, and its consolidated results of operations for the three and six months ended April 30, 2019, and 2018. 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. Certain financial information in the footnotes has been rounded to the nearest thousand for presentation purposes. Liquidity The Companys current assets exceeded current liabilities, excluding deferred revenue, by $104,000 as of April 30, 2019. The note payable to a related party, G.S. Beckwith Gilbert, the Companys significant shareholder and Chairman, was $6,960,000 at April 30, 2019, with a maturity of November 1, 2020. The Companys stockholders equity was $1,934,000 at April 30, 2019. The Company had a net loss of $2,066,000 for the six months ended April 30, 2019. If the Companys 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 June 11, 2019, that if the Company, at any time, is unable to meet its obligations through June 11, 2020, G.S. Beckwith 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 Companys assets. Principles of Consolidation The consolidated financial statements include the accounts of PASSUR and its wholly-owned subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Companys significant estimates include those related to revenue recognition, stock-based compensation, software development costs, the PASSUR Network and income taxes. Actual results could differ from those estimates. Revenue Recognition Policy The Company recognizes revenue in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers ("Topic 606") 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: · Identification of the contract, or contracts, with a customer; · Identification of the performance obligations in the contract; · Determination of transaction price; · Allocation of transaction price to performance obligations in the contract; and · Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company recognized revenue during the three and six months ended April 30, 2019, of $3,634,000 and $7,290,000, respectively, under Topic 606, which was not materially different from what would have been recognized under Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition ("Topic 605") A. Nature of performance obligations Subscription services revenue Subscription services revenue is comprised of cloud-based subscription fees that provide the customer the right to access the Companys 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 Companys subscription contracts include a fixed amount of consideration that is recognized ratably over the non-cancellable 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 Companys 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 Companys 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. Professional services revenue Professional services primarily consist of value assessments and customer training services. Payment for professional services is generally a fixed fee or a fee based on time and materials. The obligation to provide professional services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as the Company satisfies its performance obligations. For professional services, revenue is recognized by measuring progress toward the complete satisfaction of the Companys obligation. Progress for services that are contracted for a fixed price is generally measured based on hours incurred as a portion of total estimated hours, and as a practical expedient, progress for services that are contracted for time and materials is generally based on the amount the Company has the right to invoice. Professional services contracts are generally one year or less in length, billed either in advance, upon pre-defined milestones or as services are rendered, which coincides with the terms of the agreement. The Companys professional service contracts do not have a significant financing component and customer invoices are typically due within 30 days. Material rights 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 Companys 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 from 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. Contracts with Multiple Performance Obligations Some of the Companys 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 services. Other policies and judgments 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. B. Disaggregation The disaggregation of revenue by customer and type of performance obligation is as follows: Three Months Ended Six Months Ended Revenue by type of customer: April 30, 2019 April 30, 2019 Airlines $ 2,211,000 $ 4,429,000 Airports 1,418,000 2,841,000 Other 5,000 20,000 Total Revenue $ 3,634,000 $ 7,290,000 Three Months Ended Six Months Ended Revenue by type of performance obligation: April 30, 2019 April 30, 2019 Subscription services $ 3,629,000 $ 7,225,000 Professional services 5,000 65,000 Total Revenue $ 3,634,000 $ 7,290,000 C. Contract Balances The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows: Accounts Receivable Unbilled Receivable Deferred Revenue Balance at November 1, 2018 $ 1,175,000 $ 12,000 $ 3,191,000 Balance at April 30, 2019 $ 987,000 $ 3,000 $ 4,590,000 The difference in the opening and closing balances of the Companys unbilled receivable and deferred revenue primarily results from the timing difference between the Companys performance and the customers 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 Companys 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 total contract value of annual or multi-year, non-cancellable 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 and six months ended April 30, 2019 that was included in the deferred revenue balance at November 1, 2018 was $260,000 and $2,585,000. Unbilled accounts receivable relates to the delivery of subscription and/or professional services for which the related billings will occur in a future period. D. Transaction Price Allocated to the Remaining Performance Obligation The following table discloses the aggregate amount of the transaction price allocated to the remaining performance obligations as of the end of the reporting period, and when the Company expects to recognize the revenue. 12 months or less Greater than 12 months * Subscription services $ 7,068,000 $ 1,958,000 Professional services $ 59,000 $ - Material rights $ 168,000 $ 290,000 *Approximately 97% of these amounts are expected to be recognized between 12 and 36 months. The table above includes amounts billed and not yet recognized as revenue, as well as, unrecognized future committed billings in customer contracts and excludes future billing amounts for which the customer has a termination for convenience right in their agreement. Cost of Revenues Costs associated with subscription and maintenance revenues consist primarily of direct labor, depreciation of PASSUR and Surface Multilateration (SMLAT) Network Systems (both collectively, the PASSUR Network), 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 Systems added to the PASSUR Network, which includes the cost of production, shipment, and installation of these assets, which are capitalized to the 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. Income Taxes On December 22, 2017 the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (TCJA). Under Accounting Standards Codification (ASC) 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The TCJA made broad and complex changes to the U.S. tax code, including, but not limited to: (1) reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018; (2) changed the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3) accelerated expensing on certain qualified property; (4) created a new limitation on deductible interest expense to 30% of tax adjusted EBITDA through 2021 and then 30% of tax adjusted EBIT thereafter; (5) eliminated the corporate alternative minimum tax; and (6) imposed further limitations on the deductibility of executive compensation under IRC §162(m) for tax years beginning after December 31, 2017. As the reduction in the U.S. federal corporate tax rate is administratively effective on January 1, 2018, our blended U.S. federal tax rate for the fiscal year ended October 31, 2018, was approximately 23.2%. The U.S. federal corporate tax rate for the fiscal year ended on and after October 31, 2019 is 21%. Given our full valuation allowance position, the Company did not record an income tax expense (benefit) in connection with the TCJA. The Company completed its accounting for the TCJA as of October 31, 2018. The Companys provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Companys year-to-date tax provision with the effective rate that it expects to achieve for the full year. For both the three and six months ended April 30, 2019 and 2018, the Company did not record an income tax provision (benefit). The Company is projecting its annual effective tax rate for the six months ended April 30, 2019 to be 0% as its net deferred tax assets are not realizable on a more-likely-than-not basis. 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 where 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 the Companys best estimate of the amounts that will not be collected. Net accounts receivable is comprised of the monthly, quarterly, or annual committed amounts due from customers pursuant to the terms of each respective customers agreement. Account receivable balances include amounts attributable to deferred revenues. The Companys accounts receivable balances included $3,000 of unbilled receivables associated with contractually committed services provided to existing customers as of the six months ended April 30, 2019, which will be invoiced subsequent to April 30, 2019. At October 31, 2018, the Companys accounts receivable balance included $12,000 of unbilled receivables associated with contractually committed services provided to existing customers during the twelve months ended October 31, 2018. The provision for doubtful accounts was $159,000 as of April 30, 2019 and October 31, 2018, respectively. In addition to reviewing delinquent accounts receivable, the Company considers many factors in estimating its reserve, including historical data, experience, customer types, credit worthiness, and economic trends. The Company monitors its outstanding accounts receivable balances and believes the provision is adequate. PASSUR Network The PASSUR Network is comprised of PASSUR and SMLAT Systems, which includes the direct production, shipping, and installation costs incurred for each PASSUR and SMLAT System, which are recorded at cost, net of accumulated depreciation. The Company capitalized $61,000 of PASSUR Network costs for both the three and six months ended April 30, 2019. Additionally, the Company used $13,000 and $22,000 of PASSUR Network parts for repairs during the three and six months ended April 30, 2019, respectively, and did not make any material purchases of parts during the same period. Depreciation expenses related to the Company-owned PASSUR Network was $210,000 and $416,000 for the three and six months ended April 30, 2019, respectively. Depreciation is charged to cost of revenues and is recorded using the straight-line method over the estimated useful life of the asset, which is estimated at five years for SMLAT Systems and seven years for PASSUR Systems. For the three and six months ended April 30, 2018, the Company capitalized $58,000 and $125,000, respectively, of PASSUR Network costs. Additionally, the Company purchased parts for the PASSUR Network totaling $20,000 and $72,000 and used $7,000 and $11,000 of PASSUR Network parts for repairs during the three and six months ended April 30, 2018, respectively. Depreciation expenses related to the Company-owned PASSUR Network was $176,000 and $352,000 for the three and six months ended April 30, 2018, respectively. The net carrying balance of the PASSUR Network as of April 30, 2019, and October 31, 2018, was $4,426,000 and $4,801,000, respectively. Included in the net carrying balance as of April 30, 2019 and October 31, 2018, were parts and finished goods for the PASSUR Network totaling $1,857,000 and $1,892,000, respectively, which have not yet been installed. PASSUR Network assets which are not installed are carried at cost and not depreciated until installed. Capitalized Software Development Costs The Company follows the provisions of ASC 350-40, Internal Use Software (ASC 350-40). 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 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 $647,000 and $1,342,000 of software development costs during the three and six months ended April 30, 2019, respectively. For the three and six months ended April 30, 2018, the Company capitalized $754,000 and $1,302,000, respectively, of software development costs. The Company amortized $592,000 and $1,112,000 of capitalized software development costs during the three and six months ended April 30, 2019, respectively. For the three and six months ended April 30, 2018, the Company amortized $581,000 and $1,100,000 of capitalized software development costs. The Company records amortization of the software on a straight-line basis over the estimated useful life of the software, typically over five years within Cost of Revenues. 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. Assets to be disposed of are carried at the lower of their carrying value or fair value, less costs to sell. The Company evaluates the periods of amortization continually in 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 assets revised life. Deferred Tax Asset Each reporting period, the Company assesses the realizability of its deferred tax assets to determine if it is more-likely-than-not that some portion, or all, of the deferred tax asset will be realized. The Company considered all available positive and negative evidence including the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operating results. The ultimate realization of a deferred tax asset is ultimately dependent on sufficient taxable income within the available carryback and/or carryforward periods to utilize the deductible temporary differences. Based on the weight of available evidence including recent financial operating results, the Company determined its net deferred tax assets are not realizable on a more-likely-than-not basis and that a valuation allowance is required against its net deferred tax assets. At October 31, 2018, the Company had available federal net operating loss carryforwards of $12,780,000, of which $4,715,000 are indefinite lived and $8,065,000 will expire in various tax years from fiscal year 2022 through fiscal year 2038. Fair Value of Financial Instruments The recorded amounts of the Companys cash, receivables, and accounts payables approximate their fair values principally because of the short-term nature of these items. The fair value of related party debt is not practicable to determine due primarily to the fact that the Companys related party debt is held by 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. Net Loss per Share Information Basic net loss per share is computed based on the weighted average number of shares outstanding. Diluted earnings per share is computed similarly to basic earnings per share, except that it reflects the effect of common shares issuable upon exercise of stock options, using the treasury stock method in periods in which they have a dilutive effect. On February 26, 2019, the Board of Directors of the Company (the Board), subject to shareholder approval, unanimously adopted the 2019 Stock Incentive Plan (the Plan), to replace the Companys 2009 Stock Incentive Plan, as amended (the 2009 Plan), which expired February 24, 2019. The Companys shareholders approved the Plan on April 9, 2019, and the Plan became effective upon the date of its adoption by the Board. The Plan allows for a cashless exercise. Shares used to calculate net loss per share are as follows: For the three months ended For the six months ended April 30, April 30, 2019 2018 2019 2018 Basic Weighted average shares outstanding 7,696,091 7,696,091 7,696,091 7,696,091 Effect of dilutive stock options - - - - Diluted weighted average shares outstanding 7,696,091 7,696,091 7,696,091 7,696,091 Weighted average shares which are not included in the calculation of diluted net income per share because their impact is anti-dilutive. These shares consist of stock options. 1,734,500 1,606,500 1,734,500 1,606,500 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 the 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 $163,000 and $319,000 for the three and six months ended April 30, 2019, respectively. Stock-based compensation expense was $171,000 and $342,000 for the three and six months ended April 30, 2018, respectively. Stock-based compensation is primarily included in selling, general, and administrative expenses. Recent Accounting Pronouncements Adopted In May 2014, the FASB issued Topic 606 . Other Assets and Deferred Costs - Contracts with Customers On November 1, 2018, the Company adopted Topic 606 using the modified retrospective transition method which resulted in an adjustment to retained earnings for the cumulative effect of applying the standard to all contracts not completed as of the adoption date. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Revenue recognition remained substantially unchanged following adoption of Topic 606 and therefore the adoption of Topic 606 did not have a material impact on revenues. The primary impact of adopting Topic 606 relates to the accounting for nonrefundable up-front fees. The Company recognized revenue during the three and six months ended April 30, 2019, of $3,634,000 and $7,290,000, respectively, 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. In May 2017, the FASB issued ASU 2017-09, CompensationStock Compensation: Topic 718 Scope of Modification Accounting (ASU 2017-09), to clarify when to account for a change in the terms or conditions of a share-based payment award as a modification. Under the new standard, modification is required only if the fair value, the vesting conditions, or the classification of an award as equity or liability changes as a result of the change in terms or conditions. The Company adopted this guidance during the quarter ended January 31, 2019, using the prospective method, with no material impact to its consolidated financial statements and related disclosures. Recent Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU 2016-02, which amends the ASC and creates Topic 842, Leases (Topic 842). Topic 842 will require lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous GAAP on the balance sheet. This guidance is effective for annual periods beginning after December 15, 2018, which will be effective for the Company beginning November 1, 2019, and early adoption is permitted. The Company's preliminary analysis indicates that the Company will recognize a liability for remaining lease payments and a right-of-use asset related to the Company's operating lease covering its corporate office and other facilities that expires through various dates through June 2023. The Company is in the initial stages of evaluating the effect of the standard on the Company's financial statements. |
3. Notes Payable - Related Part
3. Notes Payable - Related Party | 6 Months Ended |
Apr. 30, 2019 | |
Notes | |
3. Notes Payable - Related Party | 3. Notes Payable Related Party On January 28, 2019, the Company entered into a Fifth Debt Extension Agreement with G.S. Beckwith Gilbert, the Companys Chairman and significant stockholder, effective January 28, 2019, pursuant to which the Company and Mr. Gilbert agreed to modify certain terms and conditions of the debt agreement with Mr. Gilbert (the Past Gilbert Note). The maturity date of the Past Gilbert Note was November 1, 2019, and the total amount of principal and interest due and owing as of January 28, 2019 under the Past Gilbert Note was $7,122,000. Pursuant to the Fifth Debt Extension Agreement, the Company issued to Mr. Gilbert a new debt agreement, which has a principal amount of $6,960,000 (the Gilbert Note), in exchange for the Past Gilbert Note and agreed to pay Mr. Gilbert $162,000 of interest which accrued under the Past Gilbert Note during the first quarter of fiscal year 2019, at the time and on the terms set forth in the Past Gilbert Note. The Gilbert Note bears a maturity date of November 1, 2020, with an annual interest rate of 9.75%. Interest payments are due by October 31 st The Company has evaluated its financial position as of April 30, 2019, including an operating loss of $1,730,000 for the six months ended April 30, 2019 and working capital deficit of $4,103,000 as of April 30, 2019, and has requested and received a commitment from Mr. Gilbert, dated June 11, 2019, that if the Company, at any time, is unable to meet its obligations through June 11, 2020, 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. |
2. Basis of Presentation and _2
2. Basis of Presentation and Significant Accounting Policies: Liquidity (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Liquidity | Liquidity The Companys current assets exceeded current liabilities, excluding deferred revenue, by $104,000 as of April 30, 2019. The note payable to a related party, G.S. Beckwith Gilbert, the Companys significant shareholder and Chairman, was $6,960,000 at April 30, 2019, with a maturity of November 1, 2020. The Companys stockholders equity was $1,934,000 at April 30, 2019. The Company had a net loss of $2,066,000 for the six months ended April 30, 2019. If the Companys 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 June 11, 2019, that if the Company, at any time, is unable to meet its obligations through June 11, 2020, G.S. Beckwith 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 Companys assets. |
2. Basis of Presentation and _3
2. Basis of Presentation and Significant Accounting Policies: Principles of Consolidation (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Principles of Consolidation | Principles of Consolidation The consolidated financial statements include the accounts of PASSUR and its wholly-owned subsidiary. All significant inter-company transactions and balances have been eliminated in consolidation. |
2. Basis of Presentation and _4
2. Basis of Presentation and Significant Accounting Policies: Use of Estimates (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Companys significant estimates include those related to revenue recognition, stock-based compensation, software development costs, the PASSUR Network and income taxes. Actual results could differ from those estimates. |
2. Basis of Presentation and _5
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Revenue Recognition Policy | Revenue Recognition Policy The Company recognizes revenue in accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers ("Topic 606") 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: · Identification of the contract, or contracts, with a customer; · Identification of the performance obligations in the contract; · Determination of transaction price; · Allocation of transaction price to performance obligations in the contract; and · Recognition of revenue when, or as, the Company satisfies a performance obligation. The Company recognized revenue during the three and six months ended April 30, 2019, of $3,634,000 and $7,290,000, respectively, under Topic 606, which was not materially different from what would have been recognized under Accounting Standards Codification ("ASC") Topic 605, Revenue Recognition ("Topic 605") A. Nature of performance obligations Subscription services revenue Subscription services revenue is comprised of cloud-based subscription fees that provide the customer the right to access the Companys 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 Companys subscription contracts include a fixed amount of consideration that is recognized ratably over the non-cancellable 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 Companys 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 Companys 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. Professional services revenue Professional services primarily consist of value assessments and customer training services. Payment for professional services is generally a fixed fee or a fee based on time and materials. The obligation to provide professional services is generally satisfied over time, with the customer simultaneously receiving and consuming the benefits as the Company satisfies its performance obligations. For professional services, revenue is recognized by measuring progress toward the complete satisfaction of the Companys obligation. Progress for services that are contracted for a fixed price is generally measured based on hours incurred as a portion of total estimated hours, and as a practical expedient, progress for services that are contracted for time and materials is generally based on the amount the Company has the right to invoice. Professional services contracts are generally one year or less in length, billed either in advance, upon pre-defined milestones or as services are rendered, which coincides with the terms of the agreement. The Companys professional service contracts do not have a significant financing component and customer invoices are typically due within 30 days. Material rights 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 Companys 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 from 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. Contracts with Multiple Performance Obligations Some of the Companys 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 services. Other policies and judgments 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. B. Disaggregation The disaggregation of revenue by customer and type of performance obligation is as follows: Three Months Ended Six Months Ended Revenue by type of customer: April 30, 2019 April 30, 2019 Airlines $ 2,211,000 $ 4,429,000 Airports 1,418,000 2,841,000 Other 5,000 20,000 Total Revenue $ 3,634,000 $ 7,290,000 Three Months Ended Six Months Ended Revenue by type of performance obligation: April 30, 2019 April 30, 2019 Subscription services $ 3,629,000 $ 7,225,000 Professional services 5,000 65,000 Total Revenue $ 3,634,000 $ 7,290,000 C. Contract Balances The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows: Accounts Receivable Unbilled Receivable Deferred Revenue Balance at November 1, 2018 $ 1,175,000 $ 12,000 $ 3,191,000 Balance at April 30, 2019 $ 987,000 $ 3,000 $ 4,590,000 The difference in the opening and closing balances of the Companys unbilled receivable and deferred revenue primarily results from the timing difference between the Companys performance and the customers 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 Companys 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 total contract value of annual or multi-year, non-cancellable 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 and six months ended April 30, 2019 that was included in the deferred revenue balance at November 1, 2018 was $260,000 and $2,585,000. Unbilled accounts receivable relates to the delivery of subscription and/or professional services for which the related billings will occur in a future period. D. Transaction Price Allocated to the Remaining Performance Obligation The following table discloses the aggregate amount of the transaction price allocated to the remaining performance obligations as of the end of the reporting period, and when the Company expects to recognize the revenue. 12 months or less Greater than 12 months * Subscription services $ 7,068,000 $ 1,958,000 Professional services $ 59,000 $ - Material rights $ 168,000 $ 290,000 *Approximately 97% of these amounts are expected to be recognized between 12 and 36 months. The table above includes amounts billed and not yet recognized as revenue, as well as, unrecognized future committed billings in customer contracts and excludes future billing amounts for which the customer has a termination for convenience right in their agreement. |
2. Basis of Presentation and _6
2. Basis of Presentation and Significant Accounting Policies: Cost of Revenues (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Cost of Revenues | Cost of Revenues Costs associated with subscription and maintenance revenues consist primarily of direct labor, depreciation of PASSUR and Surface Multilateration (SMLAT) Network Systems (both collectively, the PASSUR Network), 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 Systems added to the PASSUR Network, which includes the cost of production, shipment, and installation of these assets, which are capitalized to the 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. |
2. Basis of Presentation and _7
2. Basis of Presentation and Significant Accounting Policies: Income Taxes (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Income Taxes | Income Taxes On December 22, 2017 the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (TCJA). Under Accounting Standards Codification (ASC) 740, the effects of changes in tax rates and laws are recognized in the period which the new legislation is enacted. The TCJA made broad and complex changes to the U.S. tax code, including, but not limited to: (1) reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018; (2) changed the rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017; (3) accelerated expensing on certain qualified property; (4) created a new limitation on deductible interest expense to 30% of tax adjusted EBITDA through 2021 and then 30% of tax adjusted EBIT thereafter; (5) eliminated the corporate alternative minimum tax; and (6) imposed further limitations on the deductibility of executive compensation under IRC §162(m) for tax years beginning after December 31, 2017. As the reduction in the U.S. federal corporate tax rate is administratively effective on January 1, 2018, our blended U.S. federal tax rate for the fiscal year ended October 31, 2018, was approximately 23.2%. The U.S. federal corporate tax rate for the fiscal year ended on and after October 31, 2019 is 21%. Given our full valuation allowance position, the Company did not record an income tax expense (benefit) in connection with the TCJA. The Company completed its accounting for the TCJA as of October 31, 2018. The Companys provision for income taxes consists of federal and state taxes, as applicable, in amounts necessary to align the Companys year-to-date tax provision with the effective rate that it expects to achieve for the full year. For both the three and six months ended April 30, 2019 and 2018, the Company did not record an income tax provision (benefit). The Company is projecting its annual effective tax rate for the six months ended April 30, 2019 to be 0% as its net deferred tax assets are not realizable on a more-likely-than-not basis. |
2. Basis of Presentation and _8
2. Basis of Presentation and Significant Accounting Policies: Accounts Receivable (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Accounts Receivable | 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 where 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 the Companys best estimate of the amounts that will not be collected. Net accounts receivable is comprised of the monthly, quarterly, or annual committed amounts due from customers pursuant to the terms of each respective customers agreement. Account receivable balances include amounts attributable to deferred revenues. The Companys accounts receivable balances included $3,000 of unbilled receivables associated with contractually committed services provided to existing customers as of the six months ended April 30, 2019, which will be invoiced subsequent to April 30, 2019. At October 31, 2018, the Companys accounts receivable balance included $12,000 of unbilled receivables associated with contractually committed services provided to existing customers during the twelve months ended October 31, 2018. The provision for doubtful accounts was $159,000 as of April 30, 2019 and October 31, 2018, respectively. In addition to reviewing delinquent accounts receivable, the Company considers many factors in estimating its reserve, including historical data, experience, customer types, credit worthiness, and economic trends. The Company monitors its outstanding accounts receivable balances and believes the provision is adequate. |
2. Basis of Presentation and _9
2. Basis of Presentation and Significant Accounting Policies: PASSUR Network (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
PASSUR Network | PASSUR Network The PASSUR Network is comprised of PASSUR and SMLAT Systems, which includes the direct production, shipping, and installation costs incurred for each PASSUR and SMLAT System, which are recorded at cost, net of accumulated depreciation. The Company capitalized $61,000 of PASSUR Network costs for both the three and six months ended April 30, 2019. Additionally, the Company used $13,000 and $22,000 of PASSUR Network parts for repairs during the three and six months ended April 30, 2019, respectively, and did not make any material purchases of parts during the same period. Depreciation expenses related to the Company-owned PASSUR Network was $210,000 and $416,000 for the three and six months ended April 30, 2019, respectively. Depreciation is charged to cost of revenues and is recorded using the straight-line method over the estimated useful life of the asset, which is estimated at five years for SMLAT Systems and seven years for PASSUR Systems. For the three and six months ended April 30, 2018, the Company capitalized $58,000 and $125,000, respectively, of PASSUR Network costs. Additionally, the Company purchased parts for the PASSUR Network totaling $20,000 and $72,000 and used $7,000 and $11,000 of PASSUR Network parts for repairs during the three and six months ended April 30, 2018, respectively. Depreciation expenses related to the Company-owned PASSUR Network was $176,000 and $352,000 for the three and six months ended April 30, 2018, respectively. The net carrying balance of the PASSUR Network as of April 30, 2019, and October 31, 2018, was $4,426,000 and $4,801,000, respectively. Included in the net carrying balance as of April 30, 2019 and October 31, 2018, were parts and finished goods for the PASSUR Network totaling $1,857,000 and $1,892,000, respectively, which have not yet been installed. PASSUR Network assets which are not installed are carried at cost and not depreciated until installed. |
2. Basis of Presentation and_10
2. Basis of Presentation and Significant Accounting Policies: Capitalized Software Development Costs (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Capitalized Software Development Costs | Capitalized Software Development Costs The Company follows the provisions of ASC 350-40, Internal Use Software (ASC 350-40). 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 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 $647,000 and $1,342,000 of software development costs during the three and six months ended April 30, 2019, respectively. For the three and six months ended April 30, 2018, the Company capitalized $754,000 and $1,302,000, respectively, of software development costs. The Company amortized $592,000 and $1,112,000 of capitalized software development costs during the three and six months ended April 30, 2019, respectively. For the three and six months ended April 30, 2018, the Company amortized $581,000 and $1,100,000 of capitalized software development costs. The Company records amortization of the software on a straight-line basis over the estimated useful life of the software, typically over five years within Cost of Revenues. |
2. Basis of Presentation and_11
2. Basis of Presentation and Significant Accounting Policies: Long-lived Assets (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Long-lived Assets | 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. Assets to be disposed of are carried at the lower of their carrying value or fair value, less costs to sell. The Company evaluates the periods of amortization continually in 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 assets revised life. |
2. Basis of Presentation and_12
2. Basis of Presentation and Significant Accounting Policies: Deferred Tax Asset (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Deferred Tax Asset | Deferred Tax Asset Each reporting period, the Company assesses the realizability of its deferred tax assets to determine if it is more-likely-than-not that some portion, or all, of the deferred tax asset will be realized. The Company considered all available positive and negative evidence including the reversal of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operating results. The ultimate realization of a deferred tax asset is ultimately dependent on sufficient taxable income within the available carryback and/or carryforward periods to utilize the deductible temporary differences. Based on the weight of available evidence including recent financial operating results, the Company determined its net deferred tax assets are not realizable on a more-likely-than-not basis and that a valuation allowance is required against its net deferred tax assets. At October 31, 2018, the Company had available federal net operating loss carryforwards of $12,780,000, of which $4,715,000 are indefinite lived and $8,065,000 will expire in various tax years from fiscal year 2022 through fiscal year 2038. |
2. Basis of Presentation and_13
2. Basis of Presentation and Significant Accounting Policies: Fair Value of Financial Instruments (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The recorded amounts of the Companys cash, receivables, and accounts payables approximate their fair values principally because of the short-term nature of these items. The fair value of related party debt is not practicable to determine due primarily to the fact that the Companys related party debt is held by 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. |
2. Basis of Presentation and_14
2. Basis of Presentation and Significant Accounting Policies: Net Loss Per Share Information (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Net Loss Per Share Information | Net Loss per Share Information Basic net loss per share is computed based on the weighted average number of shares outstanding. Diluted earnings per share is computed similarly to basic earnings per share, except that it reflects the effect of common shares issuable upon exercise of stock options, using the treasury stock method in periods in which they have a dilutive effect. On February 26, 2019, the Board of Directors of the Company (the Board), subject to shareholder approval, unanimously adopted the 2019 Stock Incentive Plan (the Plan), to replace the Companys 2009 Stock Incentive Plan, as amended (the 2009 Plan), which expired February 24, 2019. The Companys shareholders approved the Plan on April 9, 2019, and the Plan became effective upon the date of its adoption by the Board. The Plan allows for a cashless exercise. Shares used to calculate net loss per share are as follows: For the three months ended For the six months ended April 30, April 30, 2019 2018 2019 2018 Basic Weighted average shares outstanding 7,696,091 7,696,091 7,696,091 7,696,091 Effect of dilutive stock options - - - - Diluted weighted average shares outstanding 7,696,091 7,696,091 7,696,091 7,696,091 Weighted average shares which are not included in the calculation of diluted net income per share because their impact is anti-dilutive. These shares consist of stock options. 1,734,500 1,606,500 1,734,500 1,606,500 |
2. Basis of Presentation and_15
2. Basis of Presentation and Significant Accounting Policies: Stock-based Compensation (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Stock-based Compensation | 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 the 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 $163,000 and $319,000 for the three and six months ended April 30, 2019, respectively. Stock-based compensation expense was $171,000 and $342,000 for the three and six months ended April 30, 2018, respectively. Stock-based compensation is primarily included in selling, general, and administrative expenses. |
2. Basis of Presentation and_16
2. Basis of Presentation and Significant Accounting Policies: Recent Accounting Pronouncements (Policies) | 6 Months Ended |
Apr. 30, 2019 | |
Policies | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements Adopted In May 2014, the FASB issued Topic 606 . Other Assets and Deferred Costs - Contracts with Customers On November 1, 2018, the Company adopted Topic 606 using the modified retrospective transition method which resulted in an adjustment to retained earnings for the cumulative effect of applying the standard to all contracts not completed as of the adoption date. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Revenue recognition remained substantially unchanged following adoption of Topic 606 and therefore the adoption of Topic 606 did not have a material impact on revenues. The primary impact of adopting Topic 606 relates to the accounting for nonrefundable up-front fees. The Company recognized revenue during the three and six months ended April 30, 2019, of $3,634,000 and $7,290,000, respectively, 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. In May 2017, the FASB issued ASU 2017-09, CompensationStock Compensation: Topic 718 Scope of Modification Accounting (ASU 2017-09), to clarify when to account for a change in the terms or conditions of a share-based payment award as a modification. Under the new standard, modification is required only if the fair value, the vesting conditions, or the classification of an award as equity or liability changes as a result of the change in terms or conditions. The Company adopted this guidance during the quarter ended January 31, 2019, using the prospective method, with no material impact to its consolidated financial statements and related disclosures. Recent Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU 2016-02, which amends the ASC and creates Topic 842, Leases (Topic 842). Topic 842 will require lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous GAAP on the balance sheet. This guidance is effective for annual periods beginning after December 15, 2018, which will be effective for the Company beginning November 1, 2019, and early adoption is permitted. The Company's preliminary analysis indicates that the Company will recognize a liability for remaining lease payments and a right-of-use asset related to the Company's operating lease covering its corporate office and other facilities that expires through various dates through June 2023. The Company is in the initial stages of evaluating the effect of the standard on the Company's financial statements. |
2. Basis of Presentation and_17
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Disaggregation of Revenue (Tables) | 6 Months Ended |
Apr. 30, 2019 | |
Customer | |
Disaggregation of Revenue | Three Months Ended Six Months Ended Revenue by type of customer: April 30, 2019 April 30, 2019 Airlines $ 2,211,000 $ 4,429,000 Airports 1,418,000 2,841,000 Other 5,000 20,000 Total Revenue $ 3,634,000 $ 7,290,000 |
Performance Obligation | |
Disaggregation of Revenue | Three Months Ended Six Months Ended Revenue by type of performance obligation: April 30, 2019 April 30, 2019 Subscription services $ 3,629,000 $ 7,225,000 Professional services 5,000 65,000 Total Revenue $ 3,634,000 $ 7,290,000 |
2. Basis of Presentation and_18
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Schedule of Contract Balances (Tables) | 6 Months Ended |
Apr. 30, 2019 | |
Tables/Schedules | |
Schedule of Contract Balances | Accounts Receivable Unbilled Receivable Deferred Revenue Balance at November 1, 2018 $ 1,175,000 $ 12,000 $ 3,191,000 Balance at April 30, 2019 $ 987,000 $ 3,000 $ 4,590,000 |
2. Basis of Presentation and_19
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Transaction Price Allocated to the Remaining Performance Obligation Schedule (Tables) | 6 Months Ended |
Apr. 30, 2019 | |
Tables/Schedules | |
Transaction Price Allocated to the Remaining Performance Obligation Schedule | 12 months or less Greater than 12 months * Subscription services $ 7,068,000 $ 1,958,000 Professional services $ 59,000 $ - Material rights $ 168,000 $ 290,000 |
2. Basis of Presentation and_20
2. Basis of Presentation and Significant Accounting Policies: Net Loss Per Share Information: Schedule of Earnings per share basic and diluted (Tables) | 6 Months Ended |
Apr. 30, 2019 | |
Tables/Schedules | |
Schedule of Earnings per share basic and diluted | For the three months ended For the six months ended April 30, April 30, 2019 2018 2019 2018 Basic Weighted average shares outstanding 7,696,091 7,696,091 7,696,091 7,696,091 Effect of dilutive stock options - - - - Diluted weighted average shares outstanding 7,696,091 7,696,091 7,696,091 7,696,091 Weighted average shares which are not included in the calculation of diluted net income per share because their impact is anti-dilutive. These shares consist of stock options. 1,734,500 1,606,500 1,734,500 1,606,500 |
2. Basis of Presentation and_21
2. Basis of Presentation and Significant Accounting Policies: Liquidity (Details) - USD ($) | 6 Months Ended | |
Apr. 30, 2019 | Oct. 31, 2018 | |
Details | ||
Current Assets Exceed Current Liabilities, Excluding Deferred Revenue | $ 104,000 | |
Note payable - related party | 6,960,000 | $ 6,050,000 |
Stockholders' Equity (Rounded) | 1,934,000 | |
Net Loss (Rounded) | $ (2,066,000) |
2. Basis of Presentation and_22
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy (Details) - USD ($) | 3 Months Ended | 6 Months Ended |
Apr. 30, 2019 | Apr. 30, 2019 | |
Details | ||
Revenue (Rounded) | $ 3,634,000 | $ 7,290,000 |
Deferred Revenue, Revenue Recognized | $ 260,000 | $ 2,585,000 |
2. Basis of Presentation and_23
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Disaggregation of Revenue (Details) - USD ($) | 3 Months Ended | 6 Months Ended |
Apr. 30, 2019 | Apr. 30, 2019 | |
Revenue (Rounded) | $ 3,634,000 | $ 7,290,000 |
Subscription services | ||
Revenue (Rounded) | 3,629,000 | 7,225,000 |
Professional Services | ||
Revenue (Rounded) | 5,000 | 65,000 |
Airlines | ||
Revenue (Rounded) | 2,211,000 | 4,429,000 |
Airports | ||
Revenue (Rounded) | 1,418,000 | 2,841,000 |
Other | ||
Revenue (Rounded) | $ 5,000 | $ 20,000 |
2. Basis of Presentation and_24
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Schedule of Contract Balances (Details) - USD ($) | Apr. 30, 2019 | Oct. 31, 2018 |
Details | ||
Accounts Receivable | $ 987,000 | $ 1,175,000 |
Unbilled Receivable | 3,000 | 12,000 |
Deferred Revenue | $ 4,590,000 | $ 3,191,000 |
2. Basis of Presentation and_25
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Transaction Price Allocated to the Remaining Performance Obligation Schedule (Details) | 6 Months Ended |
Apr. 30, 2019USD ($) | |
Subscription services | |
Transaction price allocated to the remaining performance obligation, Revenue recognized in 12 months or less | $ 7,068,000 |
Transaction price allocated to the remaining performance obligation, Revenue recognized in greater than 12 months | 1,958,000 |
Professional Services | |
Transaction price allocated to the remaining performance obligation, Revenue recognized in 12 months or less | 59,000 |
Transaction price allocated to the remaining performance obligation, Revenue recognized in greater than 12 months | 0 |
Material Rights | |
Transaction price allocated to the remaining performance obligation, Revenue recognized in 12 months or less | 168,000 |
Transaction price allocated to the remaining performance obligation, Revenue recognized in greater than 12 months | $ 290,000 |
2. Basis of Presentation and_26
2. Basis of Presentation and Significant Accounting Policies: Accounts Receivable (Details) - USD ($) | Apr. 30, 2019 | Oct. 31, 2018 |
Details | ||
Unbilled Receivable | $ 3,000 | $ 12,000 |
Accounts Receivable, Allowance for Credit Loss | $ 159,000 | $ 159,000 |
2. Basis of Presentation and_27
2. Basis of Presentation and Significant Accounting Policies: PASSUR Network (Details) - USD ($) | Apr. 30, 2019 | Oct. 31, 2018 | Apr. 30, 2019 | Apr. 30, 2018 | Apr. 30, 2019 | Apr. 30, 2018 |
Details | ||||||
PASSUR Network Costs, Capitalized | $ 61,000 | $ 58,000 | $ 61,000 | $ 125,000 | ||
PASSUR Network Parts Used in Repairs | 13,000 | 7,000 | 22,000 | 11,000 | ||
Depreciation of PASSUR Network costs | 210,000 | 176,000 | 416,000 | 352,000 | ||
Purchased Parts for PASSUR Network | $ 20,000 | $ 72,000 | ||||
PASSUR NETWORK, Net (Rounded) | $ 4,426,000 | $ 4,801,000 | ||||
Part and Finished Goods for the PASSUR Network | $ 1,857,000 | $ 1,892,000 | $ 1,857,000 | $ 1,857,000 |
2. Basis of Presentation and_28
2. Basis of Presentation and Significant Accounting Policies: Capitalized Software Development Costs (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Apr. 30, 2019 | Apr. 30, 2018 | Apr. 30, 2019 | Apr. 30, 2018 | |
Details | ||||
Payments to Develop Software | $ 647,000 | $ 754,000 | $ 1,342,000 | $ 1,302,000 |
Capitalized Computer Software, Amortization | $ 592,000 | $ 581,000 | $ 1,112,000 | $ 1,100,000 |
2. Basis of Presentation and_29
2. Basis of Presentation and Significant Accounting Policies: Deferred Tax Asset (Details) | Oct. 31, 2018USD ($) |
Details | |
Operating Loss Carryforwards | $ 12,780,000 |
Operating Loss Carryforwards, indefinite lived | 4,715,000 |
Operating Loss Carryforwards, will expire in various tax years | $ 8,065,000 |
2. Basis of Presentation and_30
2. Basis of Presentation and Significant Accounting Policies: Net Loss Per Share Information: Schedule of Earnings per share basic and diluted (Details) - shares | 3 Months Ended | 6 Months Ended | ||
Apr. 30, 2019 | Apr. 30, 2018 | Apr. 30, 2019 | Apr. 30, 2018 | |
Details | ||||
Weighted average number of common shares outstanding - basic | 7,696,091 | 7,696,091 | 7,696,091 | 7,696,091 |
Effect of dilutive stock options | 0 | 0 | 0 | 0 |
Weighted average number of common shares outstanding - diluted | 7,696,091 | 7,696,091 | 7,696,091 | 7,696,091 |
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 1,734,500 | 1,606,500 | 1,734,500 | 1,606,500 |
2. Basis of Presentation and_31
2. Basis of Presentation and Significant Accounting Policies: Stock-based Compensation (Details) - USD ($) | 3 Months Ended | 6 Months Ended | ||
Apr. 30, 2019 | Apr. 30, 2018 | Apr. 30, 2019 | Apr. 30, 2018 | |
Details | ||||
Share-based Payment Arrangement, Noncash Expense | $ 163,000 | $ 171,000 | $ 319,000 | $ 342,000 |
3. Notes Payable - Related Pa_2
3. Notes Payable - Related Party (Details) - USD ($) | 6 Months Ended | |
Apr. 30, 2019 | Oct. 31, 2018 | |
Details | ||
Note payable - related party | $ 6,960,000 | $ 6,050,000 |
Interest rate on related party note payable | 9.75% | |
Interest Paid (Rounded) | $ 336,000 | |
Operating Income Loss (Rounded) | (1,730,000) | |
Working Capital Deficit | $ 4,103,000 |