PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements
October 31, 2019
1. Description of Business and Significant Accounting Policies
Nature of Business
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), and eighty-seven business aviation 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 10 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.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Liquidity
The Company’s current liabilities exceeded current assets, excluding deferred revenue by $785,000 as of October 31, 2019. The note payable to a related party, G.S. Beckwith
Gilbert, the Company’s significant shareholder and Chairman, was $8,150,000 at October 31, 2019, with a maturity of November 1, 2021. The Company’s stockholders’ equity was $456,000 at October 31, 2019. The Company had a net loss of $3,837,000 for
the year ended October 31, 2019.
If the Company’s business plan does not generate sufficient cash flows from operations to meet the Company’s operating cash requirements, the Company will attempt to obtain
external financing on commercially reasonable terms. However, the Company has received a commitment from Mr. Gilbert, dated January 27, 2020, that if the Company, at any time, is unable to meet its obligations through January 27, 2021, Mr. Gilbert
will provide the necessary continuing financial support to the Company in order for the Company 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.
Basis of Presentation
The consolidated financial statements include the accounts of PASSUR Aerospace, Inc. and its wholly-owned Subsidiary. All significant inter-company transactions and balances have
been eliminated in consolidation.
Certain financial information in the footnotes has been rounded to the nearest thousand for presentation purposes.
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 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:
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Identification of the contract, or contracts, with a customer;
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•
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Identification of the performance obligations in the contract;
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•
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Determination of transaction price;
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•
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Allocation of transaction price to performance obligations in the contract; and
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•
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Recognition of revenue when, or as, the Company satisfies a performance obligation.
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The Company recognized revenue during the fiscal year ended October 31, 2019, of $15,046,000 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"). 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.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
A.
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Nature of performance obligations
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Subscription services revenue
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.
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 Company’s 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 Company’s 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 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 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 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 services.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
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.
The disaggregation of revenue by customer and type of performance obligation is as follows:
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Year Ended
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Revenue by type of customer:
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October 31, 2019
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Airlines
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$
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9,349,000
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Airports
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5,608,000
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Other
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89,000
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Total Revenue
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$
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15,046,000
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Year Ended
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Revenue by type of performance obligation:
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October 31, 2019
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Subscription services
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$
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14,736,000
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Professional services
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310,000
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Total Revenue
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$
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15,046,000
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The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows:
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Accounts
Receivable
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Unbilled
Receivable
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Deferred
Revenue
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Balance at November 1, 2018
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$
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1,175,000
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$
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12,000
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$
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3,191,000
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Balance at October 31, 2019
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$
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1,041,000
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$
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100,000
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$
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3,241,000
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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 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 fiscal
year ended October 31, 2019 that was included in the deferred revenue balance at November 1, 2018 was $2,809,000.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Unbilled accounts receivable relates to the delivery of subscription and professional services for which the related billings will occur in a future period.
D.
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Transaction Price Allocated to the Remaining Performance Obligation
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The following table discloses the aggregate amount of the transaction price allocated to the remaining performance obligations as of the end of the reporting
period, and when the Company expects to recognize the revenue.
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12 months
or less
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Greater
than 12
months *
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Subscription services
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$
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5,342,000
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$
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1,879,000
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Professional services
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$
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84,000
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$
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-
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Material rights
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$
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194,000
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$
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373,000
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*Approximately 95% 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.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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
Company’s 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.
Subsequent Events
Management has evaluated subsequent events after the balance sheet date, through the date of issuance of the financial statements, for appropriate accounting and disclosure.
Accounts Receivable, net
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 Company’s 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 customer’s agreement. Account receivable
balances include amounts attributable to deferred revenues. The Company’s accounts receivable balances included $100,000 of unbilled receivables associated with contractually committed services provided to existing customers during the twelve months
ended October 31, 2019, which will be invoiced subsequent to October 31, 2019. As of October 31, 2018, the Company’s accounts receivable balance included $12,000 of unbilled receivables associated with contractually committed services provided to
existing customers.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
The provision for doubtful accounts was $165,000 and $159,000 as of October 31, 2019, and 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.
Property and Equipment
Property and equipment are recorded at cost and are depreciated on a straight-line basis over the estimated useful lives of the related assets. Amortization of leasehold
improvements is calculated on a straight-line basis over the estimated useful life of the improvements or the term of the lease, including renewal options expected to be exercised, whichever is shorter.
PASSUR Network
The PASSUR Network is comprised of PASSUR and SMLAT Systems, which include the direct production, shipping, and installation costs incurred for each PASSUR and SMLAT System, which are recorded at
cost, net of accumulated depreciation. 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. PASSUR and SMLAT Systems which are not installed, raw materials, work-in-process, and finished goods components 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 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 asset’s revised life.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
During the fiscal year ended October 31, 2018, the Company recorded approximately $230,000, $510,000 and $960,000, a total of $1,700,000, of
costs associated with an increase in the provision for obsolete and slow moving PASSUR Network parts and supplies, an impairment charge and write-off of carrying amounts related to certain PASSUR Network systems, and capitalized software development
costs, respectively. Please refer to footnotes below for further details. The Company did not have any additions to inventory reserves, impairment charges, or write-offs during the fiscal year ended October 31, 2019.
Cost of Revenues
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 Systems added to the
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
The Company follows the liability method of accounting for income taxes. Deferred income taxes are recorded to reflect the temporary differences in the tax bases of the assets or
liabilities and their reported amounts in the financial statements. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s financial statements or tax
returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are
expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount currently estimated to be realized. After considering the impact of the current year loss, including the Company’s increased
expenses and weighting all available positive and negative evidence, the Company concluded that it was not more likely than not that the net deferred tax asset would be realized.
The Company follows ASC 740, “Income Taxes,” (“ASC 740”) where tax benefits are recognized only for tax positions that are more likely than not to be sustained upon examination
by tax authorities. The amount recognized is measured as the largest amount of benefit that is greater than 50% likely to be realized upon ultimate settlement. Unrecognized tax benefits are tax benefits claimed in tax returns that do not meet these
recognition and measurement standards. At October 31, 2019, the Company did not have any uncertain tax positions. As permitted by ASC 740-10, the Company’s accounting policy is to prospectively classify accrued interest and penalties related to any
unrecognized tax benefits in its income tax provision.
On December 22, 2017 the U.S. government enacted comprehensive tax reform commonly referred to as the Tax Cuts and Jobs Act (“TCJA”). Under 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 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) further limited 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 was administratively effective on January 1, 2018, the Company’s blended U.S. federal tax rate for the 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%.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
In response to the TCJA, the U.S. Securities and Exchange Commission (“SEC”) staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provided guidance
on accounting for the tax effects of TCJA. The purpose of SAB 118 was to address any uncertainty or diversity of view in applying ASC Topic 740, Income Taxes in the reporting period in which the TCJA was enacted. SAB 118 addressed situations where
the accounting was incomplete for certain income tax effects of the TJCA upon issuance of a company’s financial statements for the reporting period which include the enactment date. SAB 118 allowed for a provisional amount to be recorded if it was a
reasonable estimate of the impact of the TCJA. Additionally, SAB 118 allowed for a measurement period to finalize the impacts of the TCJA, not to extend beyond one year from the date of enactment.
In connection with the TCJA, the Company recorded income tax benefit of $1,127,000 related to the re-measurement of our deferred tax assets and liabilities for
the reduced U.S. federal corporate tax rate of 21%. Such amount was fully offset by a change in our valuation allowance. The Company’s accounting for the TCJA was complete as of October 31, 2018, with no significant differences from our provisional
estimates.
Research and Development Costs
Research and development costs are expensed as incurred.
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. Shares used to calculate net loss per share for fiscal years 2019 and 2018
are as follows:
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2019
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|
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2018
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Basic Weighted average shares outstanding
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7,696,091
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|
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7,696,091
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Effect of dilutive stock options
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-
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-
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Diluted weighted average shares outstanding
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7,696,091
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|
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7,696,091
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Weighted average shares which are not included in the calculation of diluted net loss per share because their impact is anti-dilutive. These shares consist of stock options.
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1,847,000
|
|
|
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1,522,000
|
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Weighted average options to purchase 1,847,000 and 1,522,000 shares of common stock at prices ranging from $1.10 to $5.00 per share that were outstanding during fiscal years 2019
and 2018, were excluded from each respective year’s computation of diluted earnings per share. In each of these years, such options’ exercise prices exceeded the average market price of our common stock, thereby causing the effect of such options to
be anti-dilutive.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
Deferred Revenue
Deferred revenue includes amounts attributable to advances received or billings related to customer agreements, which are contractually required and are
non-refundable, and may be prepaid either annually, quarterly, or monthly. Deferred revenues from such customer agreements are recognized as revenue ratably over the period that coincides with the respective agreement. The Company recognizes initial
set-up fee revenues and associated costs on a straight-line basis over the estimated life of the customer relationship period, typically five years.
Fair Value of Financial Instruments
The recorded amounts of the Company’s cash, receivables, 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 Company’s 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.
Stock-Based Compensation
The Company follows FASB ASC 718 “Compensation-Stock Compensation,” which requires measurement of compensation cost for all stock-based awards at fair value on date of grant, and
recognition of stock-based compensation expense over the service period for awards expected to vest. The fair value of stock options was determined using the Black-Scholes valuation model. Such fair value is recognized as an expense over the service
period, net of forfeitures. Stock-based compensation expense was $613,000 and $646,000 for the year ended October 31, 2019 and 2018, respectively, and was primarily included in selling, general, and administrative expenses.
Comprehensive Loss
The Company’s comprehensive loss is equivalent to that of the Company’s total net loss for fiscal years 2019 and 2018.
Recent Accounting Pronouncements Adopted
In May 2014, the FASB issued Topic 606. Topic 606 supersedes the revenue recognition requirements in Topic 605 and requires the recognition of revenue when
promised goods or services are transferred to customers in an amount that reflects the considerations to which the entity expects to be entitled to in exchange for those goods or services. Topic 606 also includes Subtopic 340-40, “Other Assets and Deferred Costs - Contracts with Customers,” which requires the deferral of incremental costs of obtaining a contract with a customer.
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 fiscal year ended October 31, 2019, of $15,046,000 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.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. Description of Business and Significant Accounting Policies (continued)
In May 2017, the FASB issued ASU 2017-09, “Compensation—Stock 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.
Accounting Pronouncements Issued but not yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” requiring lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months.
During July 2018, the FASB issued additional updates to the new lease accounting standard. ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” clarifies certain aspects of the new lease accounting standard. In
addition, ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” provides companies with the option to apply the provisions of the new lease accounting standard on the date of adoption (effective date of November 1, 2019 for the Company), and
recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, without adjusting the comparative periods presented, as initially required.
The Company will adopt the new lease accounting standard as of November 1, 2019 and has elected to apply the provisions of the standard on the date of adoption. Accordingly, the Company will not
restate prior year comparative periods for the impact of the new lease accounting standard. The Company will elect the package of practical expedients permitted under the transition guidance within the new lease accounting standard, which permits
the Company not to reassess the following for any expired or existing contracts: (i) whether any contracts contain leases; (ii) lease classification (i.e. operating lease or finance/capital lease); and (iii) initial direct costs.
The Company anticipates that the adoption of the new lease accounting standard will result in the recognition of approximately $1,400,000 to $1,600,000 of
right-of-use assets and lease liabilities at November 1, 2019, consisting primarily of operating leases relating to real estate for offices and PASSUR and SMLAT systems. Adoption of this standard will not materially impact the Company’s Consolidated
Statement of Operations or Consolidated Statement of Cash Flows.
2. Property and Equipment, net
Property and equipment consist of the following as of October 31, 2019 and 2018:
|
Estimated useful lives
|
|
2019
|
|
|
2018
|
|
Leasehold improvements
|
3-5 years
|
|
$
|
216,000
|
|
|
$
|
216,000
|
|
Equipment
|
5-10 years
|
|
|
6,413,000
|
|
|
|
6,212,000
|
|
Furniture and fixtures
|
5-10 years
|
|
|
593,000
|
|
|
|
593,000
|
|
|
|
|
|
7,222,000
|
|
|
|
7,021,000
|
|
Less accumulated depreciation
|
|
|
|
6,670,000
|
|
|
|
6,348,000
|
|
Total
|
|
|
$
|
552,000
|
|
|
$
|
673,000
|
|
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
2. Property and Equipment, net (continued)
The Company recorded depreciation expense on the assets included in property and equipment of $322,000 and $439,000 for the year ended October 31, 2019 and 2018, respectively.
3. PASSUR Network, net
PASSUR Network consists of the following as of October 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
PASSUR Network, beginning balance
|
|
$
|
19,242,000
|
|
|
$
|
19,788,000
|
|
Additions
|
|
|
15,000
|
|
|
|
322,000
|
|
Disposals
|
|
|
(355,000
|
)
|
|
|
(128,000
|
)
|
Write-off
|
|
|
-
|
|
|
|
(510,000
|
)
|
Inventory reserve
|
|
|
-
|
|
|
|
(230,000
|
)
|
Total capitalized PASSUR Network costs
|
|
|
18,902,000
|
|
|
|
19,242,000
|
|
Less accumulated depreciation
|
|
|
14,953,000
|
|
|
|
14,441,000
|
|
PASSUR Network, ending balance, net
|
|
$
|
3,949,000
|
|
|
$
|
4,801,000
|
|
The Company capitalized $61,000 and $242,000, of PASSUR Network costs, for the year ended October 31, 2019 and 2018, respectively. Depreciation expense
related to the Company-owned PASSUR Network was $868,000 and $785,000 for the years ended October 31, 2019 and 2018, respectively. Depreciation is charged to cost of revenues and is calculated using the straight-line method over the estimated useful
life of the asset, which is estimated at seven and five years for PASSUR and SMLAT systems, respectively.
Additionally, the Company purchased parts for the PASSUR Network totaling $3,000 and $152,000, during the year ended October 31, 2019 and 2018, respectively. The Company used
$49,000 and $73,000 of PASSUR Network parts for repairs during the year ended October 31, 2019 and 2018, respectively.
The net carrying balance of the PASSUR Network as of October 31, 2019 and 2018 was $3,949,000 and $4,801,000, respectively. Included in the net carrying balance as of October 31,
2019, were parts and finished goods for PASSUR and SMLAT Systems totaling $1,298,000 and $533,000, respectively, which have not yet been installed. As of October 31, 2018, $1,316,000 and $576,000 of parts and finished goods for PASSUR and SMLAT
systems, respectively, were included in the net carrying balance of the PASSUR Network. PASSUR and SMLAT Systems which are not installed are carried at cost and not depreciated until installed.
As of October 31, 2019, depreciation expense for the PASSUR Network assets, where depreciation has commenced, is estimated to approximate $854,000, $610,000, $442,000, $136,000,
and $47,000, for the fiscal years ended October 31, 2020, 2021, 2022, 2023 and 2024, respectively.
During fiscal year 2018, the Company increased its reserve for PASSUR Network parts and supplies by $230,000, bringing the reserve to approximately $270,000. Additionally, during
fiscal year 2018, the Company determined that certain PASSUR Network assets were no longer likely to generate future revenue as a result of a change in a customer’s requirements at a specific location, which resulted in an impairment charge and
write-off of approximately $510,000. These costs were recorded within “Cost of Revenues”. During the year ended October 31, 2019, the Company disposed of four PASSUR Network assets, with a net book value of zero. During the year ended October 31,
2018, the Company disposed of one PASSUR Network asset, with a net book value of zero and deinstalled and returned to inventory, one PASSUR Network asset with a net book value of $23,000. The Company did not record any impairments related to any of
the PASSUR Network assets in fiscal year 2019.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
4. Capitalized Software Development Costs
PASSUR Software Development costs consist of the following as of October 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Software development costs, beginning balance
|
|
$
|
21,159,000
|
|
|
$
|
19,918,000
|
|
Additions
|
|
|
2,573,000
|
|
|
|
2,503,000
|
|
Impairment charge
|
|
|
-
|
|
|
|
(1,262,000
|
)
|
Total capitalized software development costs
|
|
|
23,732,000
|
|
|
|
21,159,000
|
|
Less accumulated amortization
|
|
|
15,413,000
|
|
|
|
13,017,000
|
|
Software development costs, ending balance, net
|
|
$
|
8,319,000
|
|
|
$
|
8,142,000
|
|
The Company’s capitalization of software development projects was $2,573,000 and $2,503,000 for the year ended October 31, 2019 and 2018, respectively. Amortization expense
related to capitalized software development projects was $2,396,000 and $2,295,000 for the year ended October 31, 2019 and 2018, respectively.
As of October 31, 2019, amortization expense for capitalized software development costs where amortization has commenced is estimated to approximate $2,519,000, $2,082,000,
$1,589,000, $923,000, and $234,000, for the fiscal years ending October 31, 2020, 2021, 2022, 2023 and 2024, respectively. As of October 31, 2019, the Company had $973,000 of capitalized software development costs relating to projects currently still
in development, therefore, are not yet subject to amortization.
During fiscal year 2018, the Company reviewed the value of its capitalized software products and determined that some capitalized software products would no longer be marketed or
made available for subscription sales as currently developed, which resulted in an impairment charge of the net carrying amount of approximately $960,000. These costs were recorded within “Cost of Revenues”. The
Company did not record any impairments related to capitalized software development projects in fiscal year 2019.
5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consist of the following as of October 31, 2019 and 2018:
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
5. Accrued Expenses and Other Current Liabilities (continued)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Payroll, payroll taxes, and benefits
|
|
$
|
186,000
|
|
|
$
|
304,000
|
|
Professional fees
|
|
|
197,000
|
|
|
|
272,000
|
|
Travel expenses
|
|
|
73,000
|
|
|
|
142,000
|
|
Accrued rent
|
|
|
151,000
|
|
|
|
151,000
|
|
Other liabilities
|
|
|
182,000
|
|
|
|
320,000
|
|
Total
|
|
$
|
789,000
|
|
|
$
|
1,189,000
|
|
6. Notes Payable
During the year ended October 31, 2019, the Company paid G.S. Beckwith Gilbert, the Company’s significant shareholder and Chairman, interest incurred
on the existing debt agreement with Mr. Gilbert (the “Existing Gilbert Note”) through July 31, 2019, for a total amount equal to $516,000. During fiscal year 2019, Mr. Gilbert loaned the Company an additional $2,100,000 to primarily fund the
Company’s near-term investment strategy to enhance the Company’s technology platform, in the form of software development personnel, third-party contractors, and PASSUR Network infrastructure support. As of October 31, 2019, the loan balance totaled
$8,150,000.
During the first quarter of fiscal year 2020, Mr. Gilbert loaned the Company an additional $520,000. On January 27, 2020, the Company issued Mr. Gilbert the Sixth Replacement
Note in the amount of $9,071,000 representing the outstanding principal and interest owed as of such date.
During the year ended October 31, 2018, the Company paid interest to Mr. Gilbert of $336,000, representing the entire fiscal year 2018 interest
due, thereby meeting the payment requirements of the loan agreement. During fiscal year 2018, Mr. Gilbert loaned the Company an additional $2,250,000 to primarily fund the Company’s near-term investment strategy to enhance the Company’s
technology platform. As of October 31, 2018, the loan balance totaled $6,050,000.
On January 27, 2020, the Company entered into a Sixth Debt Extension Agreement with Mr. Gilbert, effective January 27, 2020, pursuant to which the Company
and Mr. Gilbert agreed to modify certain terms and conditions of the Existing Gilbert Note. The maturity date of the Existing Gilbert Note was due on November 1, 2020, and the total amount of principal and interest due for the fourth quarter of
fiscal year 2019 and first quarter of fiscal year 2020 and owing as of January 27, 2020, was $9,071,000. Pursuant to the Sixth Debt Extension Agreement, the Company issued a new note to Mr. Gilbert in the amount of $9,071,000 (the “Sixth Replacement
Note”) equal to principal of $8,670,000 and accrued interest of $401,000, and cancelled the Existing Gilbert Note. The Company agreed to pay accrued interest equal to $401,000, included in the Sixth Replacement Note, at the time and on the terms set
forth in the Sixth Replacement Note. Under the terms of the Sixth Replacement Note, the maturity date was extended to November 1, 2021, and the annual interest rate remained at 9 3/4%. Interest payments under the Sixth Replacement Note shall be made
annually on October 31st of each year. The note payable is secured by the Company’s assets.
The Company has paid all interest incurred on the Existing Gilbert Note through July 31, 2019, totaling $516,000. As of October 31,
2019, the Company’s notes payable balance included accrued interest on the Existing Gilbert Note of $200,000, representing interest incurred during the fourth quarter of 2019. The amendments to the Sixth Replacement
Note was determined to be a modification of the debt instrument and no gain or loss was recorded as a result of the transactions.
The Company evaluated its financial position at October 31, 2019, including an operating loss of $3,132,000 and working capital deficit of $3,648,000 and has
requested and received a commitment from G.S. Beckwith Gilbert, dated January 27, 2020, that if the Company, at any time, is unable to meet its obligations through January 27, 2021, Mr. Gilbert will provide the necessary continuing financial support
to the Company in order for the Company 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.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
7. Leases
The Company’s headquarters, located in Stamford, Connecticut, are subject to a lease through June 30, 2023, at an average annual rental rate of $220,000. The Company’s software
development and manufacturing facility, located in Bohemia, New York, is subject to a lease through October 31, 2020, at an average annual rental rate of $139,000. The Company’s primary software development facility, located in Orlando, Florida, is
subject to a lease through August 31, 2021, at an average annual rental rate of $72,000. The company also has a regional office in Vienna, Virginia, which is subject to a lease through July 31, 2021, at an average rental rate of $83,000. An
additional regional office in Irving, Texas is subject to a lease through April 30, 2023, at an annual rate of $60,000. These leases provide for additional payments of real estate taxes and other operating expenses over the base amount in the rental
agreement. Other short-term operating leases are included below. All other operating leases are under a month-to-month arrangement. Rent expense, which includes utilities, was $655,000 and $618,000 for the year ended October 31, 2019 and 2018,
respectively.
|
|
Contractual obligations
|
|
Fiscal Year Ended October 31:
|
|
under
operating
leases
|
|
|
|
|
|
2020
|
|
|
609,833
|
|
2021
|
|
|
437,746
|
|
2022
|
|
|
308,520
|
|
2023
|
|
|
195,183
|
|
Thereafter
|
|
|
-
|
|
Total minimum contractual obligations
|
|
$
|
1,551,282
|
|
The Company’s provision for income taxes in each fiscal year consists of current federal, state, and local minimum taxes.
The income tax expense for fiscal years ended October 31, 2019 and 2018 consisted of the following:
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
|
|
2019
|
|
|
2018
|
|
Current:
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
$
|
(10,000
|
)
|
|
$
|
5,000
|
|
Income tax provision-current
|
|
$
|
(10,000
|
)
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
-
|
|
|
$
|
-
|
|
State
|
|
$
|
-
|
|
|
$
|
-
|
|
Total income tax (benefit)/expense, net
|
|
$
|
(10,000
|
)
|
|
$
|
5,000
|
|
The difference between income taxes expected at the U.S federal statutory income tax rate and the reported income tax expense are summarized as follows:
|
|
2019
|
|
|
2018
|
|
|
|
Amount
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
U.S. statutory tax
|
|
$
|
(808,000
|
)
|
|
|
21.0
|
%
|
|
$
|
(1,273,000
|
)
|
|
|
23.2
|
%
|
Stock compensation
|
|
|
102,000
|
|
|
|
-2.6
|
%
|
|
|
128,000
|
|
|
|
-2.3
|
%
|
Meals and entertainment
|
|
|
9,000
|
|
|
|
-0.2
|
%
|
|
|
9,000
|
|
|
|
-0.2
|
%
|
State tax, net of federal benefit
|
|
|
(164,000
|
)
|
|
|
4.2
|
%
|
|
|
(209,000
|
)
|
|
|
3.8
|
%
|
Tax law changes (U.S. Tax Reform)
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
1,127,000
|
|
|
|
-20.5
|
%
|
Other
|
|
|
44,000
|
|
|
|
-1.1
|
%
|
|
|
(44,000
|
)
|
|
|
0.8
|
%
|
Change in Valuation Allowance
|
|
|
807,000
|
|
|
|
-21.0
|
%
|
|
|
267,000
|
|
|
|
-4.9
|
%
|
Income tax (benefit)/expense, net
|
|
$
|
(10,000
|
)
|
|
|
0.3
|
%
|
|
$
|
5,000
|
|
|
|
-0.1
|
%
|
The tax effect of temporary differences that give rise to deferred tax assets and liabilities as of October 31, 2019 and 2018 is as follows:
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. Income Taxes (continued)
|
|
2019
|
|
|
2018
|
|
Deferred tax assets and liabilities:
|
|
|
|
|
|
|
Net operating loss carry-forward
|
|
$
|
3,758,000
|
|
|
$
|
3,037,000
|
|
Deferred Revenue
|
|
|
92,000
|
|
|
|
84,000
|
|
Allowance for doubtful accounts receivable
|
|
|
43,000
|
|
|
|
41,000
|
|
Stock compensation-nonqualified
|
|
|
205,000
|
|
|
|
171,000
|
|
Accruals
|
|
|
81,000
|
|
|
|
104,000
|
|
Deferred rent
|
|
|
29,000
|
|
|
|
37,000
|
|
Deferred interest
|
|
|
97,000
|
|
|
|
-
|
|
Depreciation
|
|
|
(427,000
|
)
|
|
|
(402,000
|
)
|
Sub-total
|
|
$
|
3,878,000
|
|
|
$
|
3,072,000
|
|
Valuation allowance
|
|
|
(3,878,000
|
)
|
|
|
(3,072,000
|
)
|
Deferred tax assets and liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
At October 31, 2019, the Company had available a federal net operating loss carryforward of $15,565,000, of which $2,785,000 are indefinite lived and $12,780,000 will expire in
various tax years from fiscal year 2022 through fiscal year 2038.
At October 31, 2019 and 2018, the Company did not have any uncertain tax positions. As permitted by ASC 740-10, the Company’s accounting policy is to prospectively classify accrued
interest and penalties related to any unrecognized tax benefits in its income tax provision. The Company’s tax return years that are subject to examination by taxing authorities are fiscal years 2016 through 2019.
9. Stock-Based Compensation
On February 26, 2019, the Board of Directors of the Company, subject to shareholder approval, unanimously adopted the 2019 Stock Incentive Plan (the “Plan”), to
replace the Company’s 2009 Stock Incentive Plan, as amended (the “2009 Plan”), which expired on February 24, 2019. The Plan became effective upon the date of its adoption by the Board, subject to shareholder approval within twelve months of the date
of such adoption. The Plan provides for the granting of stock options for up to 5,000,000 shares of the Company’s common stock. On April 9, 2019, the Company’s shareholders approved the Plan.
The Black-Scholes stock option valuation model was developed for use in estimating the fair value of traded stock options, which have no vesting restrictions and
are fully transferable. In addition, stock option valuation models require the input of highly subjective assumptions including expected stock price volatility.
Information with respect to the Company’s stock options for fiscal years 2019 and 2018 is as follows:
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
9. Stock-Based Compensation (continued)
|
|
Number
of stock
options
|
|
|
Weighted
average
exercise price
|
|
|
Weighted
average
remaining contractual
term (in years)
|
|
|
Aggregate
intrinsic
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at November 1, 2017
|
|
|
1,594,000
|
|
|
$
|
3.52
|
|
|
|
6.9
|
|
|
$
|
84,000
|
|
Stock options granted
|
|
|
82,500
|
|
|
$
|
2.38
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
-
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Stock options forfeited
|
|
|
(154,500
|
)
|
|
$
|
3.43
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at October 31, 2018
|
|
|
1,522,000
|
|
|
$
|
3.47
|
|
|
|
6.2
|
|
|
$
|
1,800
|
|
Stock options granted
|
|
|
542,500
|
|
|
$
|
1.96
|
|
|
|
|
|
|
|
|
|
Stock options exercised
|
|
|
-
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Stock options forfeited
|
|
|
(217,500
|
)
|
|
$
|
1.98
|
|
|
|
|
|
|
|
|
|
Stock options outstanding at October 31, 2019
|
|
|
1,847,000
|
|
|
$
|
3.20
|
|
|
|
6.4
|
|
|
$
|
2,200
|
|
Stock options exercisable at October 31, 2019
|
|
|
995,000
|
|
|
$
|
3.59
|
|
|
|
4.7
|
|
|
$
|
-
|
|
The weighted average grant date fair value of the Company’s stock options granted during fiscal years 2019 and 2018 was $1.96 and $2.38, respectively. There were
no stock options exercised during fiscal year 2019 and 2018.
The Company’s stock options vest over a period of five years. The fair value for these stock options was estimated at the date of grant using a Black-Scholes
stock option pricing model, with the following weighted average assumptions for fiscal years 2019 and 2018:
|
|
Years ended
October 31,
|
|
|
|
2019
|
|
|
2018
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
87 - 117
|
%
|
|
|
93 - 117
|
%
|
Risk-free interest rate
|
|
|
1.43 – 2.94
|
%
|
|
|
2.24 - 2.91
|
%
|
Expected term (years)
|
|
|
6.5
|
|
|
|
6.5
|
|
Discount for post-vesting restrictions
|
|
|
N/A
|
|
|
|
N/A
|
|
The Company recognized share-based compensation expense for all awards issued under the Company’s stock equity plans in the following line items in the
consolidated statement of operations:
|
|
2019
|
|
|
2018
|
|
Cost of revenues
|
|
$
|
17,000
|
|
|
$
|
25,000
|
|
Research and development
|
|
$
|
110,000
|
|
|
$
|
110,000
|
|
Selling, general and administrative
|
|
$
|
486,000
|
|
|
$
|
511,000
|
|
|
|
$
|
613,000
|
|
|
$
|
646,000
|
|
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
9. Stock-Based Compensation (continued)
The following table summarizes the plans under which the Company granted equity compensation as of October 31, 2019:
Name of Plan
|
|
Shares
Authorized
|
|
|
Shares Available
for Grant
|
|
|
Shares
Outstanding
|
|
Last Date for Grant
of Shares
|
PASSUR Aerospace, Inc., 2009 Stock Incentive Plan
|
|
|
3,000,000
|
|
|
|
0
|
|
|
|
1,529,599
|
|
February 24, 2019
|
PASSUR Aerospace, Inc., 2019 Stock Incentive Plan
|
|
|
5,000,000
|
|
|
|
4,682,500
|
|
|
|
317,500
|
|
February 26, 2029
|
All outstanding options granted under the Company’s equity plans have terms of ten years. The Company’s stock options vest over a period of five years.
There was $1,249,000 of unrecognized stock-based compensation costs expected to be recognized over a weighted average period of 3.0 years as of October 31, 2019.
The Company had 852,000 shares in unvested stock-based options as of October 31, 2019.
10. Major Customers
The Company’s principal business is to provide predictive analytics and decision support technology for the aviation industry to primarily improve the operational
performance and cash flow of airlines. The Company believes it operates in one operating segment. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Three customers accounted for 55%, or
$8,296,000, of total revenues in fiscal year 2019. One customer accounted for 24% or $3,599,000, a second customer accounted for 20% or $2,985,000, and a third customer accounted for 11% or $1,713,000 of total revenues in fiscal year 2019. Three
customers accounted for 53%, or $7,798,000, of total revenues in fiscal year 2018. One customer accounted for 23% or $3,344,000, a second customer accounted for 20% or $2,995,000, and a third customer accounted for 10% or $1,459,000 of total revenues
in fiscal year 2018.
As of October 31, 2019, the Company had three customers each of which accounted for 10% or more of the accounts receivable balance. One customer accounted for
19%, or $224,000, a second customer accounted for 14%, or $173,000, and a third customer accounted for 13% or $158,000. As of October 31, 2018, the Company had two customers each of which accounted for 10% or more of the accounts receivable balance.
One customer accounted for 33%, or $446,000, and a second customer accounted for 21%, or $278,000. Credit losses historically have been immaterial, although, there is one customer, which is not one of the major customers described above, with a
significant past due accounts receivable balance, which the Company has fully reserved as of the fiscal year ended October 31, 2019.
The Company had foreign sales of $1,226,000 and $978,000 in fiscal years 2019 and 2018, respectively. All sales, including foreign sales, are denominated in U.S.
dollars.
F - 23