UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period ended
OR
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number
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(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of | (I.R.S. Employer |
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(Address of Principal Executive Office) | (Zip Code) |
Registrant's telephone number, including area code: (
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ |
¨ | Smaller reporting company | ||
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
Securities registered pursuant to Section 12(b) of the Act: None
There were
INDEX
PASSUR Aerospace, Inc. and Subsidiary
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PART I. | Financial Information |
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Item 1. | 3 | |
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| Consolidated Balance Sheets as of July 31, 2022 (unaudited) | 3 |
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| Consolidated Statements of Operations (unaudited) | 4 |
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| Consolidated Statements of Operations (unaudited) | 5 |
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| Consolidated Statements of Stockholders’ Deficit (unaudited) | 6 |
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| Consolidated Statements of Cash Flows (unaudited) | 7 |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 20 |
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Item 3. | 29 | |
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Item 4. | 29 | |
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PART II. | Other Information |
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Item 1. | 30 | |
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Item 1A. | 30 | |
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Item 5. | 31 | |
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Item 6. | 31 | |
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33 | ||
Page 2 of 27
PART I: Financial Information
Item 1. Financial Statements
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Balance Sheets
July 31, 2022 |
| October 31, 2021 | |
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Assets |
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Current assets: |
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Cash | $ |
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Accounts receivable, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Capitalized software development costs, net |
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Property and equipment, net |
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Operating lease right-of-use assets |
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Other assets |
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Total assets | $ |
| $ |
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Liabilities and stockholders' deficit |
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Current liabilities: |
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Accounts payable | $ |
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Accrued liabilities - Stimulus funding |
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Accrued expenses and other current liabilities |
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Operating lease liabilities, current portion |
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Deferred revenue, current portion |
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Total current liabilities |
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Deferred revenue, long term portion |
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Note payable - related party |
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Operating lease liabilities, non-current |
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Total liabilities |
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Commitments and contingencies |
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Stockholders' deficit: |
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Preferred shares - authorized |
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Common shares - authorized |
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Additional paid-in capital |
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Accumulated deficit | ( |
| ( |
( |
| ( | |
Treasury stock, at cost, | ( |
| ( |
Total stockholders' deficit | ( |
| ( |
Total liabilities and stockholders' deficit | $ |
| $ |
See accompanying notes to consolidated financial statements.
Page 3 of 27
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
| Three months ended | ||
| July 31, | ||
2022 |
| 2021 | |
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Revenues | $ |
| $ |
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Operating expenses: |
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Cost of revenues |
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Research and development expenses |
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Selling, general, and administrative expenses |
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(Loss)/Income from operations | $( |
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Interest expense - related party |
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Loss before income taxes | ( |
| ( |
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Provision for income taxes |
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Net loss | $( |
| $( |
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Net loss per common share - basic | $( |
| $( |
Net loss per common share - diluted | $( |
| $( |
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Weighted average number of common shares outstanding - basic |
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Weighted average number of common shares outstanding - diluted |
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See accompanying notes to consolidated financial statements.
Page 4 of 27
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
| Nine months ended | ||
| July 31, | ||
2022 |
| 2021 | |
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Revenues | $ |
| $ |
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Operating expenses: |
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Cost of revenues |
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Research and development expenses |
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Selling, general, and administrative expenses |
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(Loss)/Income from operations | $( |
| $ |
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Interest expense - related party |
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(Loss)/Income before income taxes | ( |
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Provision for income taxes |
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Net (loss)/income | $( |
| $ |
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Net (loss)/income per common share - basic | $( |
| $ |
Net (loss)/income per common share - diluted | $( |
| $ |
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Weighted average number of common shares outstanding - basic |
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Weighted average number of common shares outstanding - diluted |
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See accompanying notes to consolidated financial statements.
Page 5 of 27
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Stockholders’ Deficit
(Unaudited)
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| Nine Months ended July 31, 2022 | |||||||||
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| Additional |
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| Total |
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| Common Stock |
| Paid-In |
| Accum. |
| Treasury |
| Stockholders | |
| Shares | Amount |
| Capital |
| Deficit |
| Stock |
| Deficit | |
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Balance at October 31, 2021 |
| $ |
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| $( |
| $( |
| $( | |
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Stock-based compensation expense |
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Net loss |
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Balance at January 31, 2022 |
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Stock-based compensation expense |
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Net loss |
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Balance at April 30, 2022 |
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| $( |
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| $( | |
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Stock-based compensation expense |
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Net loss |
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Balance at July 31, 2022 |
| $ |
| $ |
| $( |
| $( |
| $( | |
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| Nine Months ended July 31, 2021 | |||||||||
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| Additional |
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| Total |
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| Common Stock |
| Paid-In |
| Accum. |
| Treasury |
| Stockholders | |
| Shares | Amount |
| Capital |
| Deficit |
| Stock |
| Deficit | |
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Balance at October 31, 2020 |
| $ |
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| $( |
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| $( | |
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Stock-based compensation expense |
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Net income |
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Balance at January 31, 2021 |
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Stock-based compensation expense |
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Net loss |
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Balance at April 30, 2021 |
| $ |
| $ |
| $( |
| $( |
| $( | |
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Stock-based compensation expense |
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Net loss |
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Balance at July 31, 2021 |
| $ |
| $ |
| $( |
| $( |
| $( | |
See accompanying notes to consolidated financial statements.
Page 6 of 27
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
| Nine months ended July 31, | ||
2022 |
| 2021 | |
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Cash flows from operating activities |
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Net (loss)/income | $( |
| $ |
Adjustments to reconcile net (loss)/income to net cash used in operating activities: |
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Depreciation and amortization |
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Recovery of doubtful accounts | ( |
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Federal Stimulus credits utilized | ( |
| ( |
Stock-based compensation |
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Operating lease assets and liabilities, net |
| ( | |
Changes in operating assets and liabilities: |
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Accounts receivable | ( |
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Prepaid expenses and other current assets | ( |
| ( |
Other assets |
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Accounts payable | ( |
| ( |
Accrued expenses and other current liabilities |
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Deferred revenue | ( |
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Total adjustments |
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Net cash used in operating activities | ( |
| ( |
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Cash flows used in investing activities |
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Property and equipment |
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Net cash used in investing activities |
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Cash flows from financing activities |
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Proceeds under Federal Stimulus grant program |
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Proceeds from notes payable - related party |
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Net cash provided by financing activities |
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(Decrease)/Increase in cash | ( |
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Cash - beginning of period |
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Cash - end of period | $ |
| $ |
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Supplemental cash flow information |
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Cash paid during the period for: |
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Interest - related party | $ |
| $ |
Income taxes | $ |
| $ |
See accompanying notes to consolidated financial statements.
Page 7 of 27
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements
Nine Months Ended July 31, 2022
(Unaudited)
1.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, airports, fixed based operators (FBOs) and air navigation service providers (ANSPs). The Company provides a cloud-based platform, ARiVA™, that manages and optimizes operations for our customers.
PASSUR delivers digital solutions to global aviation operations, meeting the needs of global air travel as well as supporting the recovery of the aviation industry from the COVID-19 crisis. The structure and execution of operations within the aviation industry have fundamentally changed as a result of this crisis due to the significant change in the economics required to support current conditions, return to normal operations and profitability, and assist in mitigating health risks.
PASSUR continues to apply artificial intelligence powered by machine learning to aviation data, addressing the industry’s most costly challenges, including the management and optimization of airspace, airport assets, aircraft, and day of flight operations.
The Company provides its solutions to airlines and airports in the United States, as well as an airline in Latin America. The global market presents an opportunity to network more customers in a broader market. Solutions offered by PASSUR help to ensure flight completion. They cover the entire flight life cycle, from gate to gate, and result in reductions in overall costs and carbon emissions, while maximizing revenue opportunities, improving operational efficiency, and enhancing the passenger experience.
The Company is a supplier and partner to the air transportation industry. While many of the Company’s customers are experiencing increases in air travel volume, spending to invest in programs to promote operational efficiencies and productivity usually lag such increases. As a result, the Company experienced downturns in its revenues year-to-date in fiscal 2022 and for the fiscal year 2021. The Company continues to believe that its products and professional service engagements are critical to the efficient operation of the air transportation market. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q.
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, 2021, filed with the Securities and Exchange Commission (“SEC”) on January 26, 2022; 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 necessary to present fairly the Company’s consolidated financial position as of July 31, 2022, and its consolidated results of operations for the three and nine months ended July 31, 2022 and July 31, 2021, respectively.
The results of operations for the interim period stated above are not necessarily indicative of the results of operations to be recorded for the full fiscal year ending October 31, 2022.
Certain financial information in the footnotes has been rounded to the nearest thousand for presentation purposes.
Liquidity
The Company’s current liabilities exceeded its current assets (excluding deferred revenue) by $
Page 8 of 27
If the Company’s business does not generate sufficient cash flows from operations to meet its operating cash requirements, the Company will attempt to obtain external financing on commercially reasonable terms. However, the Company has received a commitment from G.S. Beckwith Gilbert, dated September 12, 2022, that if the Company, at any time, is unable to meet its obligations through September 13, 2023, 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 Company’s assets.
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), enacted in March 2020, as well as subsequently enacted legislation, including the American Rescue Plan Act of 2021 (the “Rescue Act”), have provided economic support for, among others, businesses in the aviation industry. The Company has received grants under both the CARES Act and the Rescue Act (collectively referred to herein as the “CARES Act grants”), totaling approximately $6,498,000, as described in more detail below.
1.In July 2020, the Company entered into an agreement with the U.S. Department of the Treasury to receive an aggregate of $
2.On February 12, 2021, the Company received an additional “top off” disbursement of $
3.On March 5, 2021, the Company entered into a Payroll Support Program Extension Agreement with the U.S. Department of the Treasury for an award the Company received under the CARES Act Payroll Support Program (“PSP2”). The total amount awarded to the Company under PSP2 was approximately $
4.On April 16, 2021, the Company entered into a Payroll Support Program 3 Agreement with the U.S. Department of the Treasury for an award the Company will receive under the Rescue Act (“PSP3”). The total amount awarded to the Company under PSP3 was approximately $
The Company expended the remaining balance of funds received under the various Payroll Support Programs during the three months ended January 31, 2022. The amount of unused stimulus funding as of July 31, 2022 and October 31, 2021 was $
Page 9 of 27
The Company believes that it has operated in compliance with all the provisions and requirements under the CARES Act, the Rescue Act and the Payroll Support Program Agreements up through and including the period ended July 31, 2022, and fully intends to continue to comply with all such provisions and requirements. Consequently, the Company has accounted for the advanced funds as grants not requiring repayment and recognized such amounts in income as qualifying salaries, wages and benefits were incurred. The Company reduced its compensation expense by $
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 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.
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:
·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.
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 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-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 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.
Page 10 of 27
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, in accordance 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.
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.
Some of the Company’s contracts with its customers contain multiple performance obligations subject to allocation of transaction prices. Some contracts contain material rights, in the form of non-refundable up-front fees. Such fees are amortized to income over an estimated average customer life. Differences in actual average customer life compared with estimates may result in changes to amounts amortized to income. In the case of professional services, revenue recognition may be dependent on estimating the amount of time needed to complete various tasks within a contract and estimating the actual amount of completion at any point in time. Revisions to such estimates at any time may result in adjustments to the amounts of revenue recognized.
B.Disaggregation
The disaggregation of revenue by customer and type of performance obligation is as follows:
Revenue by type of customer: |
| Three Months |
| Three Months |
| Nine Months |
| Nine Months |
Airlines |
| $ |
| $ |
| $ |
| $ |
Airports |
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Other |
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Total Revenue |
| $ |
| $ |
| $ |
| $ |
Page 11 of 27
Revenue by type of performance obligation: |
| Three Months |
| Three Months |
| Nine Months |
| Nine Months |
Subscription services |
| $ |
| $ |
| $ |
| $ |
Professional services |
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Total Revenue |
| $ |
| $ |
| $ |
| $ |
C.Contract Balances
The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows:
| Accounts |
| Unbilled |
| Deferred | |
Balance at November 1, 2021 | $ |
| $ |
| $ | |
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Balance at July 31, 2022 |
| $ |
| $ |
| $ |
The differences in the opening and closing balances of the Company’s unbilled receivable and deferred revenue primarily result 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-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 nine months ended July 31, 2022 that was included in the deferred revenue balance at November 1, 2021 was approximately $1,244,000.
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.
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| 12 months or |
| Greater than |
Subscription services |
| $ |
| $ |
Professional services |
| $ |
| $ |
Material rights |
| $ |
| $ |
*Approximately 100% of subscription services and 90% of material rights 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 communication costs, data feeds costs, compensation and benefit costs and amortization of previously capitalized software development costs (referred to as “Capitalized Assets”). Cost of revenues in each reporting period was impacted by previously capitalized costs associated with software development and data center projects. In prior periods, the labor and fringe benefit costs of the Company employees involved in creating Capitalized Assets were capitalized, rather than expensed, and amortized over three years, as determined by their projected useful life. The Company did not capitalize any software development costs, as well as network and data center costs, subsequent to January 31, 2020. Given business conditions in the aviation industry surrounding the unprecedented COVID-19 pandemic, the Company’s software efforts were concentrated in the areas of maintenance of existing products.
Page 12 of 27
PASSUR’s services are powered by a combination of FAA data plus commercial ADS-B aggregator feeds and other data feeds available to the Company, which provide a more cost-effective solution and allow us to focus more on value-added analytics, and less on sensor technology.
Additionally, due to the financial and economic hardships that have been experienced by the Company’s customers and air transportation support vendors in the ongoing COVID-19 environment (described in “3. Impact of the COVID-19 Pandemic”, below), there has been a significant amount of uncertainty surrounding the ability of our customers to either renew and/or maintain their current levels of committed contracts with the Company. As a result of the industry changes in response to the COVID-19 pandemic, the Company anticipates that its level of Capitalized Assets, including related amortization of such costs, will decrease in the future, as the Company’s technological efforts are focused more on maintenance of existing products.
Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted to provide economic relief to those impacted by the COVID-19 pandemic. The CARES Act made various tax law changes, including, among other things: (i) modified the federal net operating loss rules, including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes; (ii) enhanced recoverability of AMT tax credit carryforwards; (iii) delayed payment of employer payroll taxes; (iv) increased the limitation on business interest expenses under IRC Section 163(j) for the 2019 and 2020 tax years to permit additional expensing of interest; and (v) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k). As of October 31, 2021, the Company had approximately $26,239,000 of net operating losses, which cannot be carried back to prior years to generate tax refunds since no tax had been paid in those years by the Company.
The Company’s provision for income taxes consists of federal, state and foreign taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary.
The estimated annual effective tax rate for the fiscal year ending October 31, 2022 is 0%. This calculation reflects estimated income tax expense based on our current year annual pretax income forecast which is offset by a reduction in the valuation allowance. The Company maintains a full valuation allowance against its deferred tax assets.
For the three and nine months ended July 31, 2022, the Company recorded an income tax provision of $
For the three and nine months ended July 31, 2021, the Company recorded an income tax provision of $
Accounts Receivable
The Company records accounts receivable for agreements where amounts due from customers are contractually required and are non-refundable. The carrying amount of accounts receivable 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. Accounts receivable balances include amounts attributable to deferred revenues. The Company’s accounts receivable balances included $
The Company has a history of successfully collecting all amounts due from its customers under the original terms of its subscription agreements and believes that its products and professional service engagements are critical to the efficient operation of the air transportation market.
The provision for doubtful accounts was $
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Capitalized Software Development Costs
The Company capitalizes costs related to the development of internal use software in accordance with authoritative guidance issued by the FASB on internal-use software, ASC 350-40, “Internal-Use Software.” The Company expenses all costs incurred during the preliminary project stage of its development, and capitalizes the costs incurred during the application development stage. For periods through January 31, 2020, costs incurred relating to upgrades and enhancements to the software were capitalized if it had been determined that these upgrades or enhancements add additional functionality to the software. Costs incurred to maintain and support products after they became available were charged to expense as incurred. The Company did not capitalize any software development costs subsequent to January 31, 2020.
Due to the financial and economic hardships that have been experienced by airlines, airports and air transportation support vendors in the ongoing COVID-19 environment (described in “3. Impact of the COVID-19 Pandemic” below), there has been a significant amount of uncertainty surrounding the ability of our customers to continue to perform their contracts with the Company. Given these business conditions, the Company’s software efforts were concentrated in the areas of maintenance of existing products. As a result, the Company did not capitalize any software development costs during the three and nine months ended July 31, 2022 and July 31, 2021, respectively. The Company amortized $
As a result of the industry changes in response to the COVID-19 pandemic, the Company anticipates that its level of capitalized software development costs, including related amortization of such costs, will decrease in the future, as the Company’s technological efforts are focused more on maintenance of existing products.
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.
Deferred Tax Assets
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 assets 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 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, 2021, the Company had available federal net operating loss carryforwards of $
Net (Loss)/Income per Share Information
Basic net (loss)/income per share is computed based on the weighted average number of shares outstanding. Diluted (loss)/earnings per share is computed similarly to basic (loss)/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. The Company’s 2009 Stock Incentive Plan, which expired on February 24, 2019, and 2019 Stock Incentive Plan (the “Plan”), allow for a cashless exercise. Shares used to calculate net (loss)/income per share are as follows:
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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 is 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 $
On August 16, 2021, the Company’s Board of Directors adopted the Second Amendment to the Plan, to authorize the granting of restricted stock unit (RSU) awards under the Plan. Each RSU represents the right to receive, following vesting, one share of the Company’s Common Stock. In connection with the Second Amendment to the Plan, the Board of Directors has authorized an aggregate of 800,000 RSU awards to be granted under the Plan. As of January 31, 2022, 797,500 RSU awards were granted under the Plan at a grant date fair market value of $0.63 per share, which RSU awards vest ratably over a three-year period. All 797,500 RSU awards were granted on October 22, 2021. Compensation expense related to RSU awards was $35,000 and $0 for the three months ended July 31, 2022 and July 31, 2021, respectively. Compensation expense related to RSU awards was $118,000 and $0 for the nine months ended July 31, 2022 and July 31, 2021, respectively.
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 significant shareholder and Non-Executive Chairman of the Board, 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.
Recent Accounting Pronouncements Adopted
In February 2016, the FASB issued ASU 2016-02, which amends the ASC and creates Topic 842, Leases (“Topic 842”). Topic 842 requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous GAAP on the balance sheet. On November 1, 2019, the Company adopted Topic 842. As a result of the adoption of Topic 842, the Company recognized operating lease right-of-use (“ROU”) assets and liabilities of $1,497,000 and $1,620,000, respectively. The Company does not have any finance lease ROU assets and liabilities. There was no change to our consolidated statements of operations or cash flows, as a result of the adoption.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance was effective for fiscal years beginning after December 15, 2020, including interim periods therein. Topic 740 did not have a material effect on the Company’s consolidated financial statements or any disclosures within these consolidated financial statements.
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Accounting Pronouncements Issued but not yet Adopted
In June 2016, the FASB issued ASU 2016-13, “Current Expected Credit Losses” (ASU 2016-13), which introduces an impairment model based on expected, rather than incurred, losses. Additionally, it requires expanded disclosures regarding (a) credit risk inherent in a portfolio and how management monitors the portfolio’s credit quality; (b) management’s estimate of expected credit losses; and (c) changes in estimates of expected credit losses that have taken place during the period. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022. The Company has not yet quantified the impact of ASU 2016-13 on its consolidated financial statements. However, it is not expected to have a material effect on the Company’s consolidated financial statements.
3. Impact of the COVID-19 Pandemic
The aviation and travel industries, which are served by the Company and its products, have been severely affected by the ongoing COVID-19 outbreak. Travel restrictions and other measures imposed by most jurisdictions, coupled with the public’s reluctance to travel during the pandemic, resulted in a precipitous decline in demand for air travel, and our customers in the aviation and travel industries drastically reduced their capacity and operations from 2020 into 2021 as compared to 2019, which in turn has resulted in a significant reduction of demand for our products and services. As a result, the Company has faced increased economic pressures and continued to experience a significant loss of revenue during the nine- month periods ended July 31, 2022 and July 31, 2021. While the Company anticipates a return to an improved economic environment in fiscal 2023 given the state of vaccinations, treatments available, and changes in public behaviors, the recovery depends on many factors, the outcomes of which are uncertain or unknown at this time, such as, among other things, the scope, severity and duration of any variants to the COVID-19 virus, the continuing actions taken to contain the pandemic or to mitigate its impact, the acceptance and public distribution of treatments and vaccines for the disease (including its variants), and the length of time before the public feels safe to travel. All of these variables may have an impact on how quickly the industry can recover, which in turn may affect the revenue and earnings levels of the Company going forward. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q.
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), enacted in March 2020, as well as subsequently enacted legislation, including the American Rescue Plan Act of 2021 (the “Rescue Act”), have provided economic support for, among others, businesses in the airline industry. The Company has received grants under both the CARES Act and the Rescue Act (collectively referred to herein as the “CARES Act grants”), totaling approximately $6,498,000, as described in more detail below.
1.In July 2020, the Company entered into an agreement with the U.S. Department of the Treasury to receive an aggregate of $3,003,000 in emergency relief through the CARES Act Payroll Support Program (“PSP1”). The relief payments were received in three installments from July 2020 through September 2020. Pursuant to the Payroll Support Program Agreement, the relief payments must be used exclusively for the continuation of payment of certain employee wages, salaries and benefits. The Company has used such relief payments for such purpose. The PSP1 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2020, as well as other conditions including prohibitions on share repurchases and dividends through September 30, 2021, and certain limitations on executive compensation that applied through March 24, 2022.
2.On February 12, 2021, the Company received an additional “top off” disbursement of $875,000 under PSP1, subject to the terms and conditions described above.
3.On March 5, 2021, the Company entered into a Payroll Support Program Extension Agreement with the U.S. Department of the Treasury for an award the Company received under the CARES Act Payroll Support Program (“PSP2”). The total amount awarded to the Company under PSP2 was approximately $1,310,000. The relief payments under PSP2 were received in two installments of approximately $655,000 each on March 8, 2021 and April 26, 2021. As with the original grant under PSP1, PSP2 proceeds were required to be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such relief payments for such purpose. The PSP2 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through the later of March 31, 2021, or the date on which the Company has expended all of the payroll support, as well as other conditions including prohibitions on share repurchases and dividends through the later of March 31, 2022, or the date on which the Company has expended all of the payroll support, and certain limitations on executive compensation that apply through October 1, 2022.
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4.On April 16, 2021, the Company entered into a Payroll Support Program 3 Agreement with the U.S. Department of the Treasury for an award the Company received under the Rescue Act (PSP3”). The total amount awarded to the Company under PSP3 was approximately $1,310,000. The first installment, in the amount of approximately $655,000, was received by the Company on April 29, 2021. The second installment of approximately $655,000 was received by the Company on May 27, 2021. The Company does not anticipate any additional stimulus grant payments under the Payroll Support Programs. As with the original grants under PSP1 and PSP2, proceeds under PSP3 were required to be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such proceeds for such purpose. The PSP3 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through the later of September 30, 2021, or the date on which the Company has expended all of the payroll support, as well as other conditions including prohibitions on share repurchases and dividends through September 30, 2022, and certain limitations on executive compensation that apply through April 1, 2023.
The Company expended the remaining balance of funds received under the various Payroll Support Programs during the three months ended January 31, 2022. The amount of unused stimulus funding as of July 31, 2022 and October 31, 2021 was $0 and $856,000, respectively, and is shown in the balance sheet under current liabilities as Accrued Liabilities - Stimulus Funding.
The Company believes that it has operated in compliance with all the provisions and requirements under the CARES Act, the Rescue Act and the Payroll Support Program Agreements up through and including the period ended July 31, 2022, and fully intends to continue to comply with all such provisions and requirements. Consequently, the Company has accounted for the advanced funds as grants not requiring repayment and recognized such amounts in income as qualifying salaries, wages and benefits were incurred. The Company reduced its compensation expenses by $0 and $1,189,000 during the three months ended July 31, 2022 and July 31, 2021, respectively, and by $789,000 and $3,377,000 during the nine months ended July 31, 2022 and July 31,2021, respectively. If the Company does not comply with the provisions of the CARES Act, the Rescue Act and the Payroll Support Program Agreements, the Company may be required to repay the government funds and also be subject to other remedies.
Additionally, provisions under the CARES Act allowed the Company to defer payment of the employer’s share of social security taxes incurred from March of 2020 through December 31, 2020. The amount of payroll taxes subject to deferred payment was approximately $139,000. Under the terms of the legislation, 50% of the deferred payroll taxes, or approximately $70,000, was due and payable by December 31, 2021 (which amount has been paid by the Company), and the remaining 50%, or approximately $69,000, will become due and payable by December 31, 2022.
As previously disclosed, the Company took several actions beginning in April 2020 and prior to receiving the CARES Act funds, to mitigate the effects of the COVID-19 pandemic on its business and align its operating costs with its outlook for the foreseeable future. The effects of such actions are reflected in the costs of revenues, research and development and administrative costs for the three and nine months ended July 31, 2022 and July 31, 2021, and the Company anticipates that such cost savings will continue to benefit the Company for the remainder of fiscal 2022. However, if the recovery of the air transportation industry accelerates and revenue levels quickly return to pre-COVID-19 levels, these levels of cost savings may not be practicable or sustainable to support the operations necessary for the increased level of revenue. During the nine months ended July 31, 2022, the Company made investments in, among other areas, infrastructure and marketing, to benefit the longer-term growth of the Company. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q.
4. Leases
The Company accounts for leases under the guidance of Topic 842, requiring the recognition of ROU assets and associated lease liabilities related to operating leases. The accounting for finance leases under Topic 842 is consistent with the prior accounting for capital leases. The Company elected not to apply the measurement and recognition requirements of Topic 842 to short-term leases (i.e., leases with a term of 12 months or less). Accordingly, short-term leases will not be recorded as ROU assets or lease liabilities on the Company’s consolidated balance sheets, and the related lease payments will be recognized in net earnings on a straight-line basis over the lease term.
The Company recognizes a lease liability and a related ROU asset at the commencement date for leases on its consolidated balance sheet, excluding short-term leases as noted above. The lease liability is equal to the present value of unpaid lease payments over the remaining lease term. The Company’s lease term at the commencement date may reflect options to extend or terminate the lease when it is reasonably certain that such options will be exercised. To determine the present value of the lease liability, the Company uses an incremental borrowing rate, which is defined as the rate of interest that the Company would have to pay to borrow (on a collateralized basis over a similar term) an amount equal to the lease payments in similar economic environments. The ROU asset is based on the corresponding lease liability adjusted for certain costs such as initial direct costs, prepaid lease payments and lease incentives received. Both operating and finance lease ROU assets are reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a ROU asset is impaired, any remaining balance of the ROU asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life.
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After the lease commencement date, the Company evaluates lease modifications, if any, that could result in a change in the accounting for leases. For a lease modification, an evaluation is performed to determine if it should be treated as either a separate lease or a change in the accounting of an existing lease. In addition, significant changes in events or circumstances within the Company’s control are assessed to determine whether a change in the accounting for leases is required.
Certain of the Company’s leases provide for variable lease payments for the right to use an underlying asset that vary due to changes in facts and circumstances occurring after the commencement date, other than the passage of time. Variable lease payments that are dependent on an index or rate (e.g., Consumer Price Index) are included in the initial measurement of the lease liability, the initial measurement of the ROU asset, and the lease classification test based on the index or rate as of the commencement date. Any changes from the commencement date estimation of the index- and rate-based variable payments are expensed as incurred in the period of the change. Variable lease payments that are not known at the commencement date and are determinable based on the performance or use of the underlying asset, are not included in the initial measurement of the lease liability or the ROU asset, but instead are expensed as incurred. The Company’s variable lease payments primarily include common area maintenance and real estate taxes.
As of July 31, 2022, the Company had operating leases primarily for offices and its now-decommissioned PASSUR and Surface Multilateration (“SMLAT”) systems, with remaining terms of approximately two months to 4.5 years. The Company’s office lease contracts include options to extend the leases for up to five years. The Company’s office located in Stamford, Connecticut, was previously located in a 5,300 square foot office at an average annual cost of $220,000, under a lease expiring on June 30, 2023. On October 6, 2020, the Company modified this agreement, reducing the amount of square footage under rental and extending the term to June 30, 2025, at the reduced average annual rental rate of $61,000. The Company’s office located in Orlando, Florida, was subject to a lease through August 31, 2021, at an average annual rental rate of $74,000. Effective as of September 1, 2021, the Company entered into a new lease for its Orlando office, for approximately 1,800 square feet for a term of 64 months at an average annual rental of $51,400.
A summary of total lease costs and other information for the period relating to the Company’s operating leases is as follows:
| Three Months Ended | Three Months Ended |
| Nine Months Ended | Nine Months Ended |
Total lease cost | July 31, 2022 | July 31, 2021 |
| July 31, 2022 | July 31, 2021 |
Operating lease cost | $ | $ |
| $ | $ |
Short-term lease cost | $ | $ |
| $ | $ |
Variable lease cost | $ | $ |
| $ | $ |
Total | $36,932 | $66,231 |
| $102,479 | $209,526 |
Other information |
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Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows from operating leases | $ |
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Right-of-use assets obtained in exchange for new operating lease liabilities | $ |
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Weighted-average remaining lease term - operating leases | years | |
Weighted-average discount rate - operating leases |
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The total future minimum lease payments, over the remaining lease term, relating to the Company’s operating leases for the remainder of fiscal year 2022 and for each of the next four fiscal years and thereafter is as follows:
Fiscal Year Ended October 31: | Operating Leases |
2022 | $ |
2023 | |
2024 | |
2025 | |
2026 | |
Thereafter | |
Total future minimum lease payments | $ |
Less imputed interest | ( |
Total | $ |
The following table summarizes scheduled maturities of the Company’s contractual obligations relating to operating leases for which cash flows are fixed and determinable as of July 31, 2022:
Fiscal Year Ended October 31: | Payments Due in |
2022 | $ |
2023 | |
2024 | |
2025 | |
2026 | |
Thereafter | |
Total contractual obligations | $ |
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(1)Minimum operating lease commitments only include base rent. Certain leases provide for contingent rents that are not measurable at inception and primarily include common area maintenance and real estate taxes. These amounts are excluded from minimum operating lease commitments and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount is reasonably measurable. Such amounts have not been material to total rent expense.
As of July 31, 2022, the Company did not have any finance leases or leases that had not yet commenced as of such date. As described above, effective as of September 1, 2021, the Company entered into a new lease for its primary software development facility, located in Orlando, Florida.
5. Notes Payable – Related Party
On January 29, 2021, the Company and Mr. Gilbert entered into a Seventh Debt Extension Agreement effective January 29, 2021, pursuant to which the Company cancelled an outstanding promissory note in the amount of $9,071,000 issued to Mr. Gilbert on January 27, 2020 (the “Sixth Gilbert Note”) and issued Mr. Gilbert a new promissory note (the “Seventh Gilbert Note”) in the amount of $
On January 26, 2022, the Company and Mr. Gilbert entered into an Eighth Debt Extension Agreement, effective as of January 26, 2022, pursuant to which the Company cancelled the Seventh Gilbert Note and issued Mr. Gilbert a new promissory note (the “Eighth Gilbert Note”) in the amount of $
On April 30, 2022, the Company and Mr. Gilbert entered into a Ninth Debt Replacement Agreement, effective as of March 15, 2022, pursuant to which the Company cancelled the Eighth Gilbert Note and issued Mr. Gilbert a new promissory note (the “Ninth Gilbert Note”) in the amount of $
On July 31, 2022, the Company and Mr. Gilbert entered into a Tenth Debt Replacement Agreement, effective as of May 1, 2022, pursuant to which the Company cancelled the Ninth Gilbert Note and issued Mr. Gilbert a new promissory note (the “Tenth Gilbert Note”) in the amount of $
During the first nine months of fiscal 2022, the Company did not make any payments to Mr. Gilbert for interest accrued under the Seventh Gilbert Note, the Eighth Gilbert Note and the Ninth Gilbert Note through July 31, 2022. The total amount of accrued interest due was $
The Company has evaluated its financial position as of July 31, 2022, including an operating loss of $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The information provided in this Quarterly Report on Form 10-Q (including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Liquidity and Capital Resources” below) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 regarding the Company's future plans, objectives, and expected performance. The words “believe,” “may,” “will,” “could,” “should,” “would,” “anticipate,” “estimate,” “expect,” “project,” “intend,” “objective,” “seek,” “strive,” “might,” “likely result,” “build,” “grow,” “plan,” “goal,” “expand,” “position,” or similar words, or the negatives of these words, or similar terminology, identify forward-looking statements. These statements are based on assumptions that the Company believes are reasonable, but are subject to a wide range of risks and uncertainties, and a number of factors could cause the Company's actual results to differ materially from those expressed in the forward-looking statements referred to above. These factors include, without limitation, the risks and uncertainties discussed under Part II, Item 1A, “Risk Factors” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, in this Quarterly Report on Form 10-Q, the uncertainties related to the ability of the Company to sell its existing product and professional service lines, as well as its new products and professional services (due to potential competitive pressure from other companies or other products), as well as the potential for terrorist attacks, changes in fuel costs, airline bankruptcies and consolidations, economic conditions, and other risks detailed in the Company's periodic report filings with the SEC. Other uncertainties which could impact the Company include, without limitation, uncertainties with respect to future changes in governmental regulation and the impact that such changes in regulation will have on the Company’s business. Additional uncertainties include, without limitation, uncertainties relating to: (1) the Company's ability to find and maintain the personnel necessary to sell, manufacture, and service its products; (2) its ability to adequately protect its intellectual property; and (3) its ability to secure future financing. Readers are cautioned not to place undue reliance on these forward-looking statements, which relate only to events as of the date on which the statements are made and which reflect management’s analysis, judgments, belief, or expectation only as of such date.
Moreover, investors are cautioned to interpret many of the risks identified and discussed in this Quarterly Report on Form 10-Q, as well as the risks set forth above, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19. The spread of COVID-19 has severely impacted many economies throughout the world, with businesses being forced to cease or limit operations for long or indefinite periods of time. Measures taken to contain the spread of the virus, including travel bans, quarantines and closures of non-essential services, have triggered significant disruptions to businesses worldwide, with particular concentration on the aviation industry that the Company serves. The federal government has responded with monetary and fiscal interventions to aid in stabilizing the economy, and the Company has received assistance under the Payroll Support Program for Air Carriers and Contractors, part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), as well as subsequently enacted legislation, including the American Rescue Plan Act of 2021 (the “Rescue Act”; the grants under the CARES Act and the Rescue Act, collectively, referred to herein as the “CARES Act grants”).
The aviation and travel industries, which are served by the Company and its products, have been severely affected by the ongoing COVID-19 outbreak, initially as a result of travel restrictions and other measures imposed by most jurisdictions. As a result of the pandemic, the Company has faced increased economic pressures and experienced a significant loss of revenue from the start of the pandemic through the nine-month period ended July 31, 2022. While the Company anticipates a return to an improved economic environment in fiscal 2023 given the state of vaccinations and treatments available and changes in public behaviors, the recovery depends on many factors, the outcomes of which are uncertain or unknown at this time, such as, among other things, the scope, severity and duration of the pandemic (including the emergence of any new variants to the COVID-19 virus and any resurgences of cases), the continuing actions taken to contain the pandemic or to mitigate its impact, the acceptance and public distribution of treatments and vaccines for the disease (including its variants), the length of time before the public feels safe to travel, the economic stimulus programs available to affected industries and consumers, and the status of governmental and private reopening plans. All of these variables will impact how quickly the industry can recover, which in turn may affect the revenue and earnings levels of the Company.
Description of Business
PASSUR® Aerospace, Inc. (“PASSUR” or the “Company”), a New York corporation founded in 1967, is a leading business intelligence company, providing predictive analytics and decision support technology for the aviation industry primarily to improve the operational performance and cash flow of airlines, airports, fixed based operators (FBOs) and air navigation service providers (ANSPs). The Company is recognized as a leader in providing a cloud-based platform, ARiVA™, that manages and optimizes operations for our customers.
PASSUR delivers digital solutions that are essential to global aviation operations, meeting the needs of global air travel as well as supporting the recovery of the aviation industry from the COVID-19 crisis. The structure and execution of operations within the aviation industry has fundamentally changed as a result of this crisis due to the significant change in the economics required to support current conditions, a return to normal operations and profitability, and to assist in mitigating health risks.
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PASSUR continues to be a pioneer applying artificial intelligence powered by machine learning to aviation data, addressing the industry’s most costly challenges, including the management and optimization of airspace, airport assets, aircraft, and day of flight operations.
Operational efficiency is more important now than ever to eliminate sources of waste, variability, and inflexibility in operations. The Company addresses these significant industry problems by using our technology platform, combined with professional services, to provide solutions that predict, prioritize, prevent and help the industry recover from unexpected disruptions. These disruptions have long been seen as the cost of doing business in the industry and are even more pronounced today and create greater uncertainty to the industry. The Company provides actionable intelligence to enable the industry to manage their operations more efficiently and increase profits. Our core business addresses some of the aviation industry’s most intractable and costly challenges, including, but not limited to, underutilization of airspace and airport capacity, delays, cancellations, and diversions. Several independent studies have estimated the annual direct costs of such inefficiencies to airlines in the United States at over $8 billion annually and worldwide direct cost at over $30 billion annually.
Solutions offered by PASSUR help to ensure flight completion. They cover the entire flight life cycle, from gate to gate, and result in reductions in overall costs and carbon emissions, while maximizing revenue opportunities, improving operational efficiency, and enhancing the passenger experience.
The Company provides its solutions to airlines and airports in the United States, as well as an airline in Latin America. The global market presents an opportunity to network more customers in a broader market.
The Company’s business plan is to continue to focus on increasing subscription-based revenues from its suite of software applications, and professional services designed to address the needs of the aviation industry and the U.S. government. The Company helps customers alleviate constraints without the cost of expensive infrastructure upgrades and gets them fully operational within months, to capture more revenue during peak travel periods. The Company’s goal is to help solve problems faced by its customers and increase profits, by focusing on:
·Improving visibility across departments;
·Improving the quality of planning data; and
·Automating data driven decision support for capacity and demand to meet the spikes in revenue opportunity.
For the three months ended July 31, 2022, total revenue decreased 2% to $1,484,000, compared with $1,510,000 for the same period in fiscal year 2021. The loss/income from operations for the three months ended July 31, 2022 declined to a loss of $1,188,000, as compared with income from operations of $202,000 for the same period in fiscal year 2021. For the three months ended July 31, 2022, the net loss was $1,489,000, or $0.19 per diluted share, as compared to a net loss of $64,000, or $0.01 per diluted share, for the same period in fiscal year 2021. During the three months ended July 31, 2022 and July 31, 2021, the Company used the CARES Act financing for eligible payroll costs to offset a portion of its total eligible payroll costs by $0 and $1,189,000, respectively. The Company expended the remaining balance of funds received under the various Payroll Support Programs during the three months ended January 31, 2022.
For the nine months ended July 31, 2022, total revenue decreased 7% to $4,341,000, as compared with $4,670,000 for the same period in fiscal year 2021. The income from operations for the nine months ended July 31, 2022 decreased to a loss of $2,461,000, as compared to income from operations of $811,000 for the same period in fiscal year 2021. For the nine months ended July 31, 2022, the net loss was $3,294,000, or $0.43 per diluted share, as compared to net income of $21,000, or $0.00 per diluted share, for the same period in fiscal year 2021. During the nine months ended July 31, 2022 and July 31, 2021, the Company was able to use the CARES Act financing for eligible payroll costs to offset a portion of its total eligible payroll costs by $789,000 and $3,377,000, respectively. The Company expended the remaining balance of funds received under the various Payroll Support Programs during the three months ended January 31, 2022.
Results of Operations
Revenues
Management concentrates its efforts on the sale of business intelligence, predictive analytics, and decision support product applications. Such efforts include the continued development of existing products, new product offerings and to a lesser extent, professional services.
The Company is a supplier and partner to the air transportation industry. Many of the Company’s customers continue to be impacted by the ongoing COVID-19 outbreak, which caused a precipitous decline in demand for air travel and resulted in our customers in the aviation and travel industries drastically reducing their capacity and operations from 2020 into 2021, as compared to 2019. As a result, the Company has experienced downturns in its revenues from the start of the global pandemic and continuing into fiscal 2022. While many of the Company’s customers are now experiencing increases in air travel volume, spending to invest in programs to promote operational efficiencies and productivity usually lag such increases. As a result, the Company experienced downturns in its revenues
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year-to-date in fiscal 2022 compared with fiscal year 2021. The Company continues to believe that its products and professional service engagements are critical to the efficient operation of the air transportation market.
For the three months ended July 31, 2022, total revenues decreased by $26,000, or 2%, to $1,484,000, as compared with $1,510,000 for the same period in 2021. The decrease in total revenues was primarily due to a decrease in subscription revenue of $27,000, or 2%. Professional services revenue of $171,000 was a slight increase as compared with the same period in the prior year. The decrease in subscription revenue was concentrated in the Airport sector, primarily due to the expiration of a large Canadian airport contract that was not renewed.
For the nine months ended July 31, 2022, total revenues decreased by $329,000, or 7%, to $4,341,000, as compared with $4,670,000 for the same period in 2021. The decrease in total revenues was primarily due to a decrease in subscription revenues of $234,000, as compared with the same period in the prior year. The decrease in subscription revenue was primarily due to the expiration of a large Canadian airport contract that was not renewed. Professional services revenue declined $95,000 or 24% to $296,000 during the nine months ended July 31, 2022 compared with $391,000 during the same period ended July 31, 2021 as a result of the non-recurrence of a one-time consulting project in the prior year.
The decreases in subscription revenues for the three and nine months ended July 31, 2022 were primarily due to decreases in airport business, partially offset by incremental revenue recognized in fiscal year 2022, mainly related to data services.
Expenses
In response to the uncertainty surrounding the prospects of airlines and airports and the travel industry as a result of the continuing global COVID-19 pandemic and the declines in revenues that the Company has experienced from the start of the global pandemic and continuing into the first three quarters of fiscal 2022, the Company has reviewed its operating costs to more closely align those costs with its outlook for the foreseeable future. Prior to receiving the CARES Act funds, the Company took steps to reduce its operating costs going forward, which steps included terminating or furloughing certain positions and instituting a temporary pay reduction plan beginning in the second quarter of 2020, reducing the use of outside consultants where possible, rationalizing the PASSUR Network, and reducing and/or eliminating other operating expenses that were not critical to the short-term outlook of the Company. During the nine months ended July 31, 2022, the Company continued to benefit from these cost savings when compared to the same period for the prior year. However, such savings were offset in the current fiscal quarter by the impact of lower federal stimulus credits available to the Company and investments made by the Company in infrastructure and marketing. The Company anticipates the continuation of these cost savings programs into the remainder of fiscal year 2022 to offset the additional technology infrastructure and marketing costs. However, if the recovery of the air transportation industry accelerates and revenue levels quickly return to pre-COVID-19 levels, these levels of cost savings may not be practicable or sustainable to support the operations necessary for the increased level of revenue.
Cost of Revenues
For the three months ended July 31, 2022, cost of revenues increased $648,000, or 112%, to $1,227,000, as compared to $579,000 for the same period in fiscal year 2021. For the three months ended July 31, 2022 and July 31, 2021, the Company used the CARES Act financing for eligible payroll costs to offset a portion of its costs of revenues by $0 and $521,000, respectively. Excluding the impact of the CARES Act grants, cost of revenues were $1,227,000 and $1,100,000 for the three months ended July 31, 2022 and July 31, 2021, respectively, an increase of $127,000. For the nine months ended July 31, 2022, cost of revenues increased $1,397,000, or 81%, to $3,112,000, as compared to $1,715,000 in the same period in fiscal year 2021. For the nine months ended July 31, 2022 and July 31, 2021, the Company was able to use the CARES Act financing for eligible payroll costs to offset a portion of its costs of revenues by $341,000 and $1,404,000, respectively. Excluding the impact of the CARES Act grants, cost of revenues were $3,453,000 and $3,119,000 for the nine months ended July 31, 2022 and July 31, 2021, respectively, an increase of $334,000. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q. The increases in cost of revenues during the three- and nine-month periods ended July 31, 2022 compared with the respective periods in fiscal 2021, were primarily attributable to lower federal stimulus credits available to offset compensation costs and, for the nine month period ended July 31, 2022, higher costs of technology infrastructure, such as cloud hosting fees, professional services, and restricted stock amortization costs. These increases were partially offset by savings in the areas of data feeds and communication costs.
For the reasons explained above in Part I, Item 1, “Notes to Consolidated Financial Statements – 2. Basis of Presentation and Significant Accounting Policies - Capitalized Software Development Costs”, in this Quarterly Report on Form 10-Q, going forward, the Company anticipates lower levels of capitalized software costs, including amortization expenses associated with these assets, as the Company’s technological efforts are focused more on maintenance of existing products.
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Research and Development
For the three months ended July 31, 2022, research and development expenses increased by $35,000, or 63%, to $91,000, as compared with $56,000 for the same period in fiscal year 2021. For the three months ended July 31, 2022 and July 31, 2021, the Company used the CARES Act financing for eligible payroll costs to offset a portion of its research and development expenses by $0 and $31,000, respectively. Excluding the impact of the CARES Act grants, research and development expenses were $91,000 and $87,000 for the three months ended July 31, 2022 and July 31, 2021, respectively, an increase of $4,000. For the nine months ended July 31, 2022, research and development expenses increased $91,000, or 58%, to $248,000, as compared to $157,000 for the same period in fiscal year 2021. For the nine months ended July 31, 2022 and July 31, 2021, the Company was able to use the CARES Act financing for eligible payroll costs to offset a portion of its research and development costs by $20,000 and $95,000, respectively. Excluding the impact of the CARES Act grants, research and development costs were $268,000 and $252,000 for the nine months ended July 31, 2022 and July 31, 2021, respectively, an increase of $16,000. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q. The increases in research and development expenses during the three- and nine-month periods ended July 31, 2022, as compared with the respective periods in fiscal 2021, were primarily attributable to lower federal stimulus credits available to offset higher compensation costs.
The Company’s research and development efforts include activities associated with new product development, as well as the enhancement and improvement of the Company's existing software and information products. The Company anticipates that it will continue to invest in its software portfolio to develop, maintain, and support existing and newly developed applications for its customers.
Selling, General, and Administrative
For the three months ended July 31, 2022, selling, general, and administrative expenses increased $681,000, or 101%, to $1,353,000, as compared to $672,000 for the same period in fiscal year 2021. For the three months ended July 31, 2022 and July 31, 2021, the Company used the CARES Act financing for eligible payroll costs to offset a portion of its selling, general and administrative expenses by $0 and $637,000, respectively. Excluding the impact of the CARES Act grants, selling, general and administrative expenses were $1,353,000 and $1,309,000 for the three months ended July 31, 2022 and July 31, 2021, respectively, an increase of $44,000. For the nine months ended July 31, 2022, selling, general and administrative expenses increased $1,455,000, or 73%, to $3,442,000, as compared to $1,987,000 for the same period in fiscal year 2021. For the nine months ended July 31, 2022 and July 31, 2021, the Company was able to use the CARES Act financing for eligible payroll costs to offset a portion of its selling, general and administrative expenses by $428,000 and $1,878,000, respectively. Excluding the impact of the CARES Act grants, selling, general and administrative expenses were $3,870,000 and $3,865,000 for the nine months ended July 31, 2022 and July 31, 2021, respectively, an increase of $5,000. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q. The increases in selling, general, and administrative expenses for the three- and nine- month periods ended July 31, 2022, as compared with the respective periods in fiscal 2021, were primarily due to lower federal stimulus credits available to offset compensation costs, higher compensation and marketing costs.
Loss/Income from Operations
For the three months ended July 31, 2022, income from operations decreased by $1,390,000 to a loss of $1,188,000, as compared with income from operations of $202,000 for the same period in fiscal year 2021. For the three months ended July 31, 2022 and July 31, 2021, the Company used the CARES Act financing for eligible payroll costs to offset a portion of its total eligible payroll costs by $0 and $1,189,000, respectively. Excluding the impact of the CARES Act grants, the loss from operations for the three months ended July 31, 2022 remained unchanged at $1,188,000 while income from operations for the three months ended July 31, 2021 decreased by $1,189,000 to a loss of $987,000. The increase in the loss from operations of $201,000 was primarily due to decreases in revenue coupled with higher compensation costs, as a result of lower federal stimulus credits available, and increased technology infrastructure and marketing costs, as compared to the same periods in fiscal year 2021. For the nine months ended July 31, 2022, income from operations decreased by $3,272,000 to a loss of $2,461,000, as compared with income from operations of $811,000 for the same period in fiscal year 2021. For the nine months ended July 31, 2022 and July 31, 2021, the Company was able to use the CARES Act financing for eligible payroll costs to offset a portion of its total eligible payroll costs by $789,000 and $3,377,000, respectively. Excluding the impact of the CARES Act grants, the loss from operations for the nine months ended July 31, 2022 increased by $789,000 to a loss of $3,250,000 and income from operations for the nine months ended July 31, 2021 decreased by $3,377,000 to a loss of $2,566,000. The increase in the loss from operations of $684,000 was primarily due to decreases in revenue coupled with higher compensation costs, as a result of lower federal stimulus credits available, and increased technology infrastructure and marketing costs, as compared to the same periods in fiscal year 2021.
Interest Expense – Related Party
Interest expense – related party increased $35,000, or 13% for the three months ended July 31, 2022, as compared to the same period in fiscal 2021, and increased $42,000, or 5%, for the nine months ended July 31, 2022, as compared to the same period in fiscal year 2021, due to the higher principal balance outstanding on the note during fiscal year 2022.
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Net Loss/Income
The net loss was $1,489,000, or $0.19 per diluted share, for the three months ended July 31, 2022, as compared to a net loss of $64,000, or $0.01 per diluted share, for the same period in 2021. The net loss for the three months ended July 31, 2022 was not affected by the usage of proceeds from the CARES Act grants, while the net loss for the three months ended July 31, 2021 increased by $1,189,000 to a loss of $1,253,000 (exclusive of the impact of the CARES Act grants). The net loss was $3,294,000, or $0.43 per diluted share, for the nine months ended July 31, 2022, as compared to net income of $21,000, or $0.00 per diluted share, for the same period in 2021. Excluding the impact of the CARES Act grants, the net loss for the nine months ended July 31, 2022 increased by $789,000 to a loss of $4,083,000, while the net income for the nine months ended July 31, 2021 decreased by $3,377,000 to a net loss of $3,356,000. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q. The increase in net losses for the three- and nine- month periods ended July 31, 2022, respectively, as compared with the same periods in the prior fiscal year, was the result of lower levels of revenue, coupled with lower levels of federal stimulus funds available to offset eligible compensation costs, coupled with higher infrastructure and marketing costs.
Liquidity and Capital Resources
The Company’s current liabilities exceeded its current assets (excluding deferred revenues) by $940,000 as of July 31, 2022.
The note payable to a related party, G.S. Beckwith Gilbert, the Company’s significant shareholder and Non-Executive Chairman of the Board, with a maturity of November 1, 2023, was $12,492,000 at July 31, 2022. The Company has accrued and unpaid interest under these borrowings for the first nine months of fiscal 2022 in the amount of $833,000, which amount is included in accrued expenses and other current liabilities at July 31, 2022. During fiscal year 2021, the Company paid Mr. Gilbert all accrued interest incurred for fiscal 2021 in the amount of $1,057,000. The Company’s stockholders’ equity had a deficit of $14,083,000 at July 31, 2022. The Company reported a net loss of $3,294,000 for the nine months ended July 31, 2022.
On January 29, 2021, the Company and Mr. Gilbert entered into a Seventh Debt Extension Agreement effective January 29, 2021, pursuant to which the Company cancelled an outstanding promissory note in the amount of $9,071,000 issued to Mr. Gilbert on January 27, 2020 (the “Sixth Gilbert Note”) and issued Mr. Gilbert a new promissory note (the “Seventh Gilbert Note”) in the amount of $10,692,000, consisting of a principal of $9,585,000 and unpaid interest of $1,107,000 accrued under the Sixth Gilbert Note through October 31, 2020. Under the terms of the Seventh Gilbert Note, the Company agreed to pay the unpaid interest of $1,107,000 accrued under the Sixth Gilbert Note and included in the Seventh Gilbert Note at the time and on the terms set forth in the Seventh Gilbert Note. Under the terms of the Seventh Gilbert Note, the maturity date of the loan was extended to November 1, 2022, and the annual interest rate remained at 9 ¾%, with annual interest payments required to be made on October 31st of each year (although any accrued interest can be paid before such time without penalty). The note payable was secured by the Company’s assets. The amendments to the Sixth Gilbert Note were determined to be a modification of the debt instrument and no gain or loss was recorded as a result of the transactions. During the year ended October 31, 2021, the Company paid Mr. Gilbert all accrued interest due for the fiscal 2021 year under the Sixth Gilbert Note and the Seventh Gilbert Note in the amount of $1,057,000.
On January 26, 2022, the Company and Mr. Gilbert entered into an Eighth Debt Extension Agreement, effective as of January 26, 2022, pursuant to which the Company cancelled the Seventh Gilbert Note and issued Mr. Gilbert a new promissory note (the “Eighth Gilbert Note”) in the amount of $10,692,000, which represented the total amount due and owing under the Seventh Gilbert Note as of January 26, 2022. Under the terms of the Eighth Gilbert Note, the maturity date of the loan was extended to November 1, 2023, and the annual interest rate remained 9 ¾%, with annual interest payments required to be made on October 31st of each year (although any accrued interest can be paid before such time without penalty). The note payable is secured by the Company’s assets.
On April 30, 2022, the Company and Mr. Gilbert entered into a Ninth Debt Replacement Agreement, effective as of March 15, 2022, pursuant to which the Company cancelled the Eighth Gilbert Note and issued Mr. Gilbert a new promissory note (the “Ninth Gilbert Note”) in the amount of $11,692,000, which represented the total amount due and owing under the Eighth Gilbert Note as of January 26, 2022. Under the terms of the Ninth Gilbert Note, the maturity date of the loan remains November 1, 2023, and the annual interest rate remained 9.75%, with annual interest payments required to be made on October 31st of each year (although any accrued interest can be paid before such time without penalty). The note payable is secured by the Company’s assets.
On July 31, 2022, the Company and Mr. Gilbert entered into a Tenth Debt Replacement Agreement, effective as of May 1, 2022, pursuant to which the Company cancelled the Ninth Gilbert Note and issued Mr. Gilbert a new promissory note (the “Tenth Gilbert Note”) in the amount of $12,492,000, which represented the total amount due and owing under the Ninth Gilbert Note plus additional borrowings during the three months ended July 31, 2022. Under the terms of the Tenth Gilbert Note, the maturity date of the loan remains November 1, 2023, and the annual interest rate remained 9.75%, with annual interest payments required to be made on October 31st of each year (although any accrued interest can be paid before such time without penalty). The note payable is secured by the Company’s assets.
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During the first nine months of fiscal 2022, the Company did not make any payments to Mr. Gilbert for interest accrued under the Seventh Gilbert Note, the Eighth Gilbert Note, and the Ninth Gilbert Note through July 31, 2022. The total amount of accrued interest due was $833,000, which amount is included in accrued expenses and other current liabilities at July 31, 2022. During the nine months ended July 31, 2021, the Company paid Mr. Gilbert interest accrued on the Sixth Gilbert Note in the total amount of $791,000. During the nine-month period ended July 31, 2022, Mr. Gilbert made additional loans to the Company under the Tenth Gilbert Note in the amount of $1,800,000. Mr. Gilbert did not loan the Company any additional funds during the nine-month period ended July 31, 2021.
Management is addressing the Company’s working capital deficiency by aggressively marketing the Company’s capabilities in its existing product and professional service lines, as well as in new products and professional services which are continually being developed and deployed. Management believes that the continued development of its existing suite of software products and professional services, which address the wide array of needs of the aviation industry, will continue to lead to increased growth in the Company’s customer-base and subscription-based revenues. However, there are no assurances that such growth will be achieved.
The Company has evaluated its financial position as of July 31, 2022, including an operating loss of $2,461,000 for the nine months ended July 31, 2022, a working capital deficit of $940,000 (excluding deferred revenues) and shareholders’ equity deficit of $14,083,000 as of July 31, 2022, and has requested and received a commitment from Mr. Gilbert, dated September 12, 2022, that if the Company, at any time, is unable to meet its obligations through September 13, 2023, Mr. Gilbert will provide the Company with the necessary continuing financial support to meet such obligations. Such commitment for financial support may be in the form of additional advances or loans to the Company, in addition to the deferral of principal and/or interest payments due on the existing loans, if deemed necessary.
The CARES Act, enacted in March 2020, as well as subsequently enacted legislation, including the Rescue Act, have provided economic support for, among others, businesses in the aviation industry. The Company has received proceeds from the CARES Act grants, totaling approximately $6,498,000, as described in more detail below.
1.The Company has been granted government funds of approximately $3.0 million in the aggregate pursuant to the PSP1 for Air Carriers and Contractors under the CARES Act. Pursuant to the Payroll Support Program Agreement entered into by the Company with the U.S. Department of the Treasury in July 2020, the relief payments must be used exclusively for the continuation of payment of certain employee wages, salaries and benefits. The Company has used such relief payments for such purpose. Pursuant to the terms of the Payroll Support Program Agreement, the Company must, among other things, refrain from conducting involuntary employee layoffs or furloughs or reducing employee rates of pay or benefits through September 30, 2020, refrain from paying dividends or engaging in share repurchases through September 30, 2021, and limit certain executive compensation through March 24, 2022. Pursuant to the terms of the Payroll Support Program Agreement, the Company must maintain certain internal controls and records relating to the CARES Act funds and comply with certain reporting requirements.
2.On February 12, 2021, the Company received an additional “top off” disbursement of $875,000 under PSP1, subject to the terms and conditions described above.
3.On March 5, 2021, the Company entered into a Payroll Support Program Extension Agreement with the U.S. Department of the Treasury for an award the Company received under the CARES Act Payroll Support Program (“PSP2”). The total amount awarded to the Company under PSP2 was approximately $1,310,000. The relief payments under PSP2 were received in two installments of approximately $655,000 each on March 8, 2021 and April 26, 2021. As with the original grant under the PSP1, PSP2 proceeds must be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such relief payments for such purpose. Pursuant to the terms of the Payroll Support Program Extension Agreement, the Company must, among other things, refrain from conducting involuntary employee layoffs or furloughs or reducing employee rates of pay or benefits through the later of March 31, 2021, or the date on which the Company has expended all of the payroll support, refrain from paying dividends or engaging in share repurchases through the later of March 31, 2022, or the date on which the Company has expended all of the payroll support, and limit certain executive compensation through October 1, 2022. Pursuant to the terms of the Payroll Support Program Extension Agreement, the Company must also maintain certain internal controls and records relating to the CARES Act funds and comply with certain reporting requirements.
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4.On April 16, 2021, the Company entered into a Payroll Support Program 3 Agreement with the U.S. Department of the Treasury for an award the Company received under the Rescue Act (“PSP3”). The total amount awarded to the Company under PSP3 was approximately $1,310,000. The first installment, in the amount of approximately $655,000, was received by the Company on April 29, 2021. The second installment of approximately $655,000 was received by the Company on May 27, 2021. The Company does not anticipate any additional stimulus grant payments under the Payroll Support Programs. As with the original grants under PSP1 and PSP2, proceeds under PSP3 must be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such relief payments for such purpose. Pursuant to the terms of the Payroll Support Program 3 Agreement, the Company must, among other things, refrain from conducting involuntary employee layoffs or furloughs or reducing employee rates of pay or benefits through the later of September 30, 2021, or the date on which the Company has expended all of the payroll support, refrain from paying dividends or engaging in share repurchases through September 30, 2022, and limit certain executive compensation through April 1, 2023. Pursuant to the terms of the Payroll Support Program 3 Agreement, the Company must also maintain certain internal controls and records relating to the CARES Act funds and comply with certain reporting requirements.
The Company expended the remaining balance of funds received under the various Payroll Support Programs during the three months ended January 31, 2022. The amount of unused stimulus funding as of July 31, 2022 and October 31, 2021 was $0 and $856,000, respectively, and is shown in the balance sheet under current liabilities as Accrued Liabilities - Stimulus Funding.
The Company believes that it has operated in compliance with all the provisions and requirements under the CARES Act, the Rescue Act and the Payroll Support Program Agreements up through and including the period ended July 31, 2022, and fully intends to continue to comply with all such provisions and requirements. Consequently, the Company has accounted for the advanced funds as grants not requiring repayment and recognized such amounts in income as qualifying salaries, wages and benefits have been incurred. The Company reduced its compensation expense by $0 and $1,189,000 during the three months ended July 31, 2022 and July 31, 2021, respectively, and by $789,000 and $3,377,000 during the nine months ended July 31, 2022 and July 31, 2021, respectively, as the CARES Act grant proceeds received by the Company were used to fund eligible payroll costs. If the Company does not continue to comply with the provisions of the CARES Act, the Rescue Act and the Payroll Support Program Agreements, the Company may be required to repay the government funds and also be subject to other remedies.
Net cash used in operating activities was $3,153,000 for the nine months ended July 31, 2022, as compared with net cash used of $3,165,000 for the nine months ended July 31, 2021, and consisted of a net loss of $3,294,000, which includes the use of federal stimulus credits of ($789,000), adjustments consisting of depreciation and amortization expenses of $443,000 and stock-based compensation expense of $252,000, a net increase in accounts payable and accrued expenses of $791,000, a decrease in deferred revenue of ($406,000), an increase in accounts receivable (including changes in doubtful accounts provisions) and prepaid expenses and other current assets of ($103,000) and ($52,000), respectively, and changes in operating lease assets and liabilities, net, of $5,000. During the nine months ended July 31, 2022, the Company increased its borrowing under the notes payable – related parties by $1,800,000. During the nine months ended July 31, 2021, the Company received $3,494,000 of the CARES Act grant proceeds.
The Company actively monitors the costs associated with supporting the business, and continually seeks to identify and reduce any unnecessary costs as part of its cost reduction initiatives, while strategically reinvesting back into the business as part of its long-term plans. As described above, the Company has taken aggressive steps to reduce its cost structure, including, but not limited to, reductions in force, furloughs and salary reduction plans. The Company will continue to monitor costs in relation to its revenue and will take further actions as necessary consistent with the requirements of the CARES Act, the Rescue Act and the Payment Support Program Agreements. The Company believes that it has the ability to reduce operating costs further if, at any time, such adjustments would be necessary to align the Company’s financial condition, liquidity, and capital resources with the ongoing uncertain outlook resulting from the COVID-19 pandemic or otherwise. However, if the recovery of the air transportation industry accelerates and revenue levels quickly return to pre-COVID-19 levels, the levels of cost savings already taken or which may be taken by the Company may not be practical or sustainable to support the operations necessary for the increased level of revenue. Additionally, the aviation market has been impacted by budgetary constraints, airline bankruptcies and consolidations, current economic conditions, the continued war on terrorism, and fluctuations in fuel costs. The aviation market is extensively regulated by government agencies, particularly the FAA and the National Transportation Safety Board, and management anticipates that new regulations relating to air travel may continue to be issued. Substantially all of the Company’s revenues are derived from customers that serve, or are served by, the aviation industry. Any new regulations or changes in the economic situation of the aviation industry could have an impact on the future operations of the Company, either positively or negatively.
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Despite the financial and economic hardships that the air transportation industry has experienced, which includes the Company’s customers and air transportation support vendors, in the ongoing COVID-19 environment, as well as the industry changes in response to the COVID-19 pandemic, interest by potential customers in the Company’s information and decision support software products and its professional services remains strong. As a result, the Company believes that, subject to the factors described under Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q, future revenues will increase on an annualized basis. However, there are no guarantees that such annualized future revenue increases will occur in the absence of funding under the CARES Act and the Rescue Act. If revenues do not increase and the Company’s cost-structure is not adjusted accordingly, losses may occur. The extent of such profits or losses will be dependent on sales volume achieved and the Company’s ability to optimize its cost structures. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
None.
Critical Accounting Policies and Estimates
The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosures of contingent assets and liabilities based upon accounting policies management has implemented. These significant accounting policies are disclosed in Part II, Item 8, “Notes to Consolidated Financial Statements – 1. Description of Business and Significant Accounting Policies”, in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2021. These policies and estimates are critical to the Company’s business operations and an understanding of its results of operations. The impact and any associated risks related to these policies on the Company’s business operations are discussed throughout Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2021, as such policies affect the Company’s reported financial results. The actual impact of these factors may differ under different assumptions or conditions.
Revenue Recognition
The Company recognizes revenue in accordance with 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:
·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.
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-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 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
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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, in accordance with the terms of 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 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 service.
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.
Some of the Company’s contracts with its customers contain multiple performance obligations subject to allocation of transaction prices. Some contracts contain material rights, in the form of non-refundable up-front fees. Such fees are amortized to income over an estimated average customer life. Differences in actual average customer life compared with estimates may result in changes to amounts amortized to income. In the case of professional services, revenue recognition may be dependent on estimating the amount of time needed to complete various tasks within a contract and estimating the actual amount of completion at any point in time. Revisions to such estimates at any time may result in adjustments to the amounts of revenue recognized.
Leases
The Company accounts for leases under the guidance of Topic 842, requiring the recognition of ROU assets and associated lease liabilities related to operating leases. The accounting for finance leases under Topic 842 is consistent with the prior accounting for capital leases. The Company elected not to apply the measurement and recognition requirements of Topic 842 to short-term leases (i.e., leases with a term of 12 months or less). Accordingly, short-term leases will not be recorded as ROU assets or lease liabilities on the Company’s consolidated balance sheets, and the related lease payments will be recognized in net earnings on a straight-line basis over the lease term.
The Company recognizes a lease liability and a related ROU asset at the commencement date for leases on its consolidated balance sheet, excluding short-term leases as noted above. The lease liability is equal to the present value of unpaid lease payments over the remaining lease term. The Company’s lease term at the commencement date may reflect options to extend or terminate the lease when
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it is reasonably certain that such options will be exercised. To determine the present value of the lease liability, the Company uses an incremental borrowing rate, which is defined as the rate of interest that the Company would have to pay to borrow (on a collateralized basis over a similar term) an amount equal to the lease payments in similar economic environments. The ROU asset is based on the corresponding lease liability adjusted for certain costs such as initial direct costs, prepaid lease payments and lease incentives received. Both operating and finance lease ROU assets are reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a ROU asset is impaired, any remaining balance of the ROU asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life.
After the lease commencement date, the Company evaluates lease modifications, if any, that could result in a change in the accounting for leases. For a lease modification, an evaluation is performed to determine if it should be treated as either a separate lease or a change in the accounting of an existing lease. In addition, significant changes in events or circumstances within the Company’s control are assessed to determine whether a change in the accounting for leases is required.
Certain of the Company’s leases provide for variable lease payments for the right to use an underlying asset that vary due to changes in facts and circumstances occurring after the commencement date, other than the passage of time. Variable lease payments that are dependent on an index or rate (e.g., Consumer Price Index) are included in the initial measurement of the lease liability, the initial measurement of the ROU asset, and the lease classification test based on the index or rate as of the commencement date. Any changes from the commencement date estimation of the index- and rate-based variable payments are expensed as incurred in the period of the change. Variable lease payments that are not known at the commencement date and are determinable based on the performance or use of the underlying asset, are not included in the initial measurement of the lease liability or the ROU asset, but instead are expensed as incurred. The Company’s variable lease payments primarily include common area maintenance and real estate taxes.
As of July 31, 2022, the Company had operating leases primarily for offices and its now-decommissioned PASSUR and SMLAT systems, with remaining terms of approximately two months to 4.years. The Company’s office lease contracts include options to extend the leases for up to five years. As of July 31, 2022, the Company did not have any finance leases or leases that had not yet commenced as of such date. Effective as of September 1, 2021, the Company relocated its office within Orlando, Florida, under the terms of a new 64-month lease.
Accounting for Federal Payroll Support Program (“PSP”) Funds
The PSP funds received under the CARES Act and the Rescue Act during fiscal years 2020 and 2021 are accounted for as grants not requiring repayment. The Company recognizes such amounts received in income as qualifying salaries, wages and benefits are incurred. As described above, the PSP funds advanced are conditioned upon the Company complying with certain provisions and requirements included in the Payroll Support Program Agreements. If the Company does not comply with the provisions and requirements therein and under the CARES Act and the Rescue Act, the PSP funds advanced would be subject to repayment. The Company believes that it is in compliance with all applicable provisions and requirements under the Payroll Support Program Agreements and the CARES Act and the Rescue Act for the fiscal years 2022, 2021 and 2020.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report on Form 10-Q, management carried out an evaluation, under the supervision, and with the participation of, the Company's Chief Executive Officer and Executive Vice President of Finance and Administration, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules. The Company believes that a control system, no matter how well designed and operated, can provide only reasonable assurance, not absolute assurance, that the objectives of the control system are met. Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, the Company's Chief Executive Officer and Executive Vice President of Finance and Administration have concluded that such controls and procedures were effective at a reasonable assurance level as of July 31, 2022.
Changes in Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) within the fiscal quarter to which this report relates, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II. Other Information
Item 1. Legal Proceedings
The Company is not aware of any material, existing or pending legal proceedings to which the Company or its Subsidiary is a party or to which any of its properties are subject. There are no proceedings in which any of the Company’s directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest that is adverse to the Company’s interests.
Item 1A. Risk Factors
Risks Relating to the Aviation Industry
The Company’s ability to successfully implement its revenue growth plan depends on the aviation industry’s recovery from the continuing coronavirus (COVID-19) pandemic.
During the past two years, the aviation and travel industries, which are served by the Company and its products, have been severely affected by the continuing COVID-19 outbreak. Travel restrictions and other measures imposed by most jurisdictions, coupled with the general public’s reluctance to travel during the pandemic, resulted in a precipitous decline in demand for air travel. As a result, our customers in the aviation and travel industries drastically reduced their capacity and operations from 2020 into 2021, as compared to 2019, which in turn has resulted in a significant reduction of demand for our products and services. As a result, the Company has faced increased economic pressures and experienced a significant loss of revenue from the outset of the pandemic through the period ended July 31, 2022.
While the Company anticipates a return to an improved economic environment in fiscal 2023, the recovery in the aviation and travel industries will depend on many factors, the outcomes of which are uncertain or unknown at this time, such as, among other things, the scope, severity and duration of any variants to the COVID-19 virus, the continuing actions taken to contain the pandemic or to mitigate its impact, the acceptance and public distribution of treatments and vaccines for the disease (including its variants), and the length of time before the public feels safe to travel. All of these variables may have an impact on how quickly the aviation industry can recover, which in turn may affect the revenue and earnings of the Company going forward. See Part I, Item 1, “Notes to Consolidated Financial Statements – 3. Impact of the COVID-19 Pandemic”, in this Quarterly Report on Form 10-Q.
Risks Relating to Operations, Financial Performance and Capital Resources
The cessation of funding under the CARES Act and the Rescue Act may have a significant negative impact on the Company’s results of operations.
The Company’s results of operations for the nine-month periods ended July 31, 2022 and July 31, 2021 were substantially improved by the receipt of funding under the CARES Act and the Rescue Act. Excluding the impact of the CARES Act grants, the Company’s loss from operations, loss before income taxes and net loss for the nine months ended July 31, 2022 increased by approximately $789,000, resulting in an operating loss of $3,250,000, a loss before income taxes of $4,083,000, and a net loss of $4,083,000. For the nine months ended July 31, 2021, excluding the impact of the CARES Act grants, income from operations, income before income taxes and net income decreased by $3,377,000, resulting in an operating loss of $2,566,000, a loss before income taxes of $3,356,000, and a net loss of $3,356,000. The Company does not currently anticipate receiving similar funding during the year ending October 31, 2022. Accordingly, there are no assurances that the Company will be able to achieve the same level of financial performance for the year ending October 31, 2022, as compared to the year ended October 31, 2021.
The Company may be unable to raise additional funds to meet its operating capital requirements going forward.
If the Company is unable to generate sufficient cash flows from operations to meet its operating capital requirements, the Company may need to obtain external capital on commercially reasonable terms. The Company has received a commitment from G.S. Beckwith Gilbert, the Company’s significant shareholder and Non-Executive Chairman of the Board, dated September 12, 2022, that if the Company, at any time, is unable to meet its obligations through September 13, 2023, 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. While Mr. Gilbert has provided similar financial support commitments to the Company in the past, there are no assurances that this commitment will continue to be available to the Company beyond September 13, 2023.
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If the Company is not successful in meeting its revenue growth targets for fiscal 2022 and is unable to further reduce expenses without impairing its ability to implement its growth strategy, then it may be necessary for the Company to obtain additional capital from third parties on market terms then generally available to companies similarly situated with the Company. Although the Company frequently monitors the market for available investment capital, the Company cannot now predict whether additional capital will be available or the costs, terms and conditions under which additional capital may be available to it. Consequently, there can be no assurances that the Company will be able to obtain additional capital to implement its business plan for revenue growth.
A discussion of additional risks and uncertainties associated with the Company and its business are set forth in Part I, Item 1A, “Risk Factors” in our 2021 Annual Report on Form 10-K for the fiscal year ended October 31, 2021.
Item 5. Other Information.
On September 12, 2022, the Company’s significant shareholder and Non-Executive Chairman of the Board confirmed his commitment to provide the Company with the necessary continuing financial support to meet its obligations through September 13, 2023. A copy of the commitment is attached as Exhibit 10.4 to this Form 10-Q and incorporated by reference into this Item 5.
Item 6. Exhibits.
3.1 | The Company’s composite Certificate of Incorporation, dated as of January 24, 1990, is incorporated by reference from our Annual Report on Form 10-K for the fiscal year ended October 31, 1989. |
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10.1 | |
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10.1.1 | |
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10.1.2 | |
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10.2 | |
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10.3 | |
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10.4* | Commitment of G.S. Beckwith Gilbert, dated September 12, 2022. |
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10.6* | |
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10.7 | |
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10.8 | |
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31.1* | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2* | Certification of Executive Vice President of Finance and Administration pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.2* | |
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101.ins* | XBRL Instance |
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101.xsd* | XBRL Schema |
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101.cal* | XBRL Calculation |
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101.def* | XBRL Definition |
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101.lab* | XBRL Label |
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101.pre* | XBRL Presentation |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| PASSUR AEROSPACE, INC. | |
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Dated: September 12, 2022 | By: | /s/ Brian G. Cook |
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| Brian G. Cook |
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| President and Chief Executive Officer |
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Dated: September 12, 2022 | By: | /s/ Allison O’Neill |
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| Allison O’Neill |
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| Executive Vice President of Finance |
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EXHIBIT 10.4
Field Point Capital Management Company
One Landmark Square, Suite 1905
Stamford, CT 06901
September 12, 2022
PASSUR Aerospace, Inc.
3452 Lake Lynda Drive, Suite 190
Orlando, FL 32817
As Chairman of the Board as well as the principal shareholder of PASSUR Aerospace, Inc. (“PASSUR Aerospace” or the “Company”), I make the following commitment to the Company with respect to the period from the date of this commitment through September 13, 2023.
Liquidity
I commit that if the Company at any time is unable to meet its obligations through September 13, 2023, that I will provide the necessary continuing financial support to the Company to ensure the Company’s ability to operate as a going concern through the period ending September 13, 2023. Such continuing support may take the form of additional loans or advances to PASSUR Aerospace in addition to the deferral of principal and/or interest payments due on outstanding loans to PASSUR Aerospace as referred to above.
These commitments are not conditional and are irrevocable through the period ending September 13, 2023.
I, G.S. Beckwith Gilbert, having the financial wherewithal to enter into this irrevocable commitment, make the above commitments to the Company and its shareholders.
/s/G.S. Beckwith Gilbert
G.S. Beckwith Gilbert
President
EXHIBIT 10.5
This Debt Replacement Agreement (this “Agreement”) is made and entered into as of this 31st day of July 2022, by and between G. S. Beckwith Gilbert, of 35 Vista Drive, Greenwich, CT 06830 (“Lender”), and PASSUR Aerospace, Inc. (formerly MEGADATA CORPORATION), a New York corporation, with a principal place of business at 3452 Lake Lynda Drive, Suite 190, Orlando FL, 32817 (“Borrower” or “PASSUR Aerospace”):
WHEREAS, PASSUR Aerospace has issued a promissory note to Lender for value received; and
WHEREAS, Lender and PASSUR Aerospace desire to modify certain terms and conditions of the debt replacement agreement that was signed on April 30, 2022 (the “Ninth Replacement Note”), as of the date of this Agreement and issue a tenth replacement promissory note (the “Tenth Replacement Note”) in exchange for the Ninth Replacement Note and other value received upon the terms and conditions set forth herein (the “Exchange”); and
WHEREAS, the total amount due and owing under the promissory note as of July 31, 2022 is $12,491,625, under the terms of the Ninth Replacement Note.
NOW, THEREFORE, in consideration of the foregoing and the agreements contained herein, the parties hereby agree as follows:
1.MODIFICATION OF PREVIOUS NOTES:
The Ninth Replacement Note shall be exchanged for the Tenth Replacement Note as set forth herein.
2.ISSUANCE AND TERMS OF TENTH REPLACEMENT NOTE; THE EXCHANGE:
For value received, on the date hereof, PASSUR Aerospace shall issue the Tenth Replacement Note to Lender in the amount of $12,491,625, in exchange for the Ninth Replacement Note. The Tenth Replacement Note will be in the form attached as Exhibit A hereto and will have the following terms:
(a)TERM. The principal and accrued interest amount of the Tenth Replacement Note, shall be paid in full on or by November 1, 2023.
(b)INTEREST. The Tenth Replacement Note or any New Replacement Note shall bear interest on the unpaid principal amount, from the date of issuance until paid in full at maturity. Interest shall be payable at the annual rate of 9¾% from May 1, 2022 to November 1, 2023 payable in cash. Interest payments shall be made annually at October 31 of each year.
(c)PREPAYMENT TERMS. The Tenth Replacement Note or any New Replacement Note plus accrued interest may be prepaid in full at anytime without penalty.
(d)SECURITY INTEREST: The security interest previously conveyed to lender shall continue in full force and effect as an integral part of the Tenth Replacement Note, as described in Section 3 of the Tenth Replacement Note.
(a)AMENDMENT AND MODIFICATION. This Agreement may be amended, modified and supplemented only by a written instrument signed by all of the parties hereto expressly stating that such instrument is intended to amend, modify or supplement this Agreement.
(b)ENTIRE AGREEMENT. This Agreement and the Tenth Replacement Note contain the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters.
(c)SEVERABILITY. If any provision of this Agreement shall be determined to be invalid or unenforceable under law, such determination shall not affect the validity or enforceability of the remaining provisions of this Agreement.
(d)GOVERNING LAW; JURISDICTION. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the conflicts of law rules of such state.
(e)COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party, it being understood that both parties need not sign the same counterpart.
[Signature page follows]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year written above.
PASSUR Aerospace, Inc.
3452 Lake Lynda Drive, Suite 190
Orlando, FL 32817
By: /s/ Brian Cook
Name: Brian Cook
Title: President and Chief Executive Officer
By: /s/ Allison O’Neill
Name: Allison O’Neill
Title: Executive Vice President Finance and Administration
LENDER
G.S. Beckwith Gilbert
35 Vista Drive
Greenwich, CT 06830
By: /s/ G.S. Beckwith Gilbert
Name: G.S. Beckwith Gilbert
$12,491,625 ORLANDO, FLORIDA
AS OF JULY 31, 2022
For value received, PASSUR Aerospace, Inc. (formerly MEGADATA CORPORATION), a New York corporation (hereinafter referred to as “Borrower”), hereby unconditionally PROMISES TO PAY to the order of G.S. Beckwith Gilbert (“Lender”), or his permitted assigns, to an account designated by Lender, in lawful money of the United States of America and in immediately available funds, the sum of twelve million four hundred ninety-one thousand six hundred and twenty-five dollars ($12,491,625). Interest shall be payable at the annual rate of 9 ¾% from May 1, 2022 to November 1, 2023 payable in cash. Interest payments shall be made, annually at October 31 of each year.
1.The principal amount evidenced hereby will be repaid in full on November 1, 2023, plus all accrued and unpaid interest hereunder as of November 1, 2023, which shall also be payable on such date.
2.Notwithstanding the foregoing, the principal amount of the indebtedness evidenced hereby, together with all accrued interest, shall be immediately due and payable upon written notice to Borrower from Lender upon the happening of any of the following Events of Default:
(a)Any of the assets of Borrower shall be attached, seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors of Borrower and shall remain unstayed or undismissed for thirty (30) consecutive days; any person other than Borrower shall apply for the appointment of a receiver, trustee or custodian for any of the assets of Borrower and shall remain unstayed or undismissed for thirty (30) consecutive days; or Borrower shall have concealed, removed or permitted to be concealed or removed, any part of its property, with the intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its property or the incurring of an obligation which may be fraudulent under any bankruptcy, fraudulent conveyance or other similar law;
(b)A case or proceeding shall have been commenced against Borrower in a court having competent jurisdiction seeking a decree or order in respect of Borrower (i) under title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Borrower or of any substantial part of its properties, or (iii) ordering the winding-up or liquidation of the affairs of Borrower and such case or proceeding shall remain undismissed or unstayed for thirty (30) consecutive days or such court shall enter a decree or order granting the relief sought in such case or proceeding;
(c)Borrower shall have (i) filed a petition seeking relief under title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) consented to the institution of proceedings thereunder or to the filing of any such petition or to the appointment of or
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taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) of Borrower or of any substantial part of its properties, (iii) failed generally to pay its debts as such debts become due, or (iv) taken any corporate action in furtherance of any such action;
(d)Final judgment or judgments (after the expiration of all times to appeal therefrom) for the payment of money in excess of $100,000 in the aggregate shall be rendered against Borrower and the same shall not be vacated, stayed, bonded, paid or discharged for a period of thirty (30) days; or
(e)Any other event shall have occurred which would have a material adverse effect on Borrower or its assets or financial condition in Lender’s reasonable judgment and such event continues to exist for at least thirty (30) days after Lender has given Borrower a written notice thereof.
3.As security for any and all liabilities of Borrower to Lender, now existing or hereafter arising hereunder, or otherwise, Lender is hereby given a lien upon and a security interest in any and all moneys or other property (i.e., goods and merchandise, as well as any and all documents relative thereto; also, funds, securities, chooses in action and any and all other forms of property whether real, personal or mixed, and any right, title or interest of Borrower therein or thereto), and/or the proceeds thereof, including (without limitation of the foregoing) that in safekeeping or in which Borrower may have any interest. In the event any one or more Events of Default has occurred and is continuing, Lender shall have all of the rights and remedies provided to a secured party by the Uniform Commercial Code in effect in New York State at that time and, in addition thereto, Borrower further agrees that (1) in the event that notice is necessary, written notice delivered to Borrower at its principal executive offices ten business days prior to the date of public sale of the property subject to the lien and security interest created herein or prior to the date after which private sale or any other disposition of said property will be made shall constitute reasonable notice, but notice given in any other reasonable manner or at any other reasonable time shall be sufficient, (2) in the event of sale or other disposition of such property, Lender may apply the proceeds of any such sale or disposition to the satisfaction of Lender’s reasonable attorneys’ fees, legal expenses and other costs and expenses incurred in connection with the retaking, holding, preparing for sale, and selling of the property, and (3) without precluding any other methods of sale, the sale of property shall have been made in a commercially reasonable manner if conducted in conformity with reasonable commercial practices of banks disposing of similar property.
4.Demand, presentment, protest and notice of nonpayment and protest are hereby waived by Borrower.
5.This Note has been executed, delivered and accepted in the State of New York and shall be interpreted, governed by, and construed in accordance with, the laws of the State of New York.
[Signature page follows]
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IN WITNESS WHEREOF, Borrower has caused this Note to be executed as of the date first above written.
PASSUR Aerospace, Inc.
By: /s/ Brian Cook
Brian Cook
Title: Chief Executive Officer
3
Exhibit 31.1
CERTIFICATION PURSUANT TO RULE 13a-14(a) or 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian G. Cook, certify that:
1.I have reviewed this quarterly report on Form 10-Q of PASSUR Aerospace, Inc.;
2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: September 12, 2022 |
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| By: | /s/ Brian G. Cook |
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| Brian G. Cook |
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| President and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO RULE 13a-14(a) or 15d-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Allison O’Neill, certify that:
1.I have reviewed this quarterly report on Form 10-Q of PASSUR Aerospace, Inc.;
2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: September 12, 2022 |
|
|
| By: | /s/ Allison O’Neill |
|
| Allison O’Neill |
|
| Executive Vice President of Finance and Administration |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of PASSUR Aerospace, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended July 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian G. Cook, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| By: | /s/ Brian G. Cook |
|
| Brian G. Cook |
|
| Chief Executive Officer |
|
| September 12, 2022 |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report of PASSUR Aerospace, Inc. (the “Company”) on Form 10-Q for the fiscal quarter ended July 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Allison O’Neill, Executive Vice President of Finance and Administration of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| By: | /s/ Allison O’Neill |
|
| Allison O’Neill |
|
| Executive Vice President of Finance and Administration |
|
| September 12, 2022 |
Document and Entity Information - shares |
9 Months Ended | |
|---|---|---|
Jul. 31, 2022 |
Sep. 01, 2022 |
|
| Details | ||
| Registrant CIK | 0000225628 | |
| Fiscal Year End | --10-31 | |
| Registrant Name | PASSUR AEROSPACE, INC. | |
| SEC Form | 10-Q | |
| Period End date | Jul. 31, 2022 | |
| Tax Identification Number (TIN) | 11-2208938 | |
| Number of common stock shares outstanding | 7,712,091 | |
| Filer Category | Non-accelerated Filer | |
| Current with reporting | Yes | |
| Interactive Data Current | Yes | |
| Shell Company | false | |
| Small Business | true | |
| Emerging Growth Company | false | |
| Document Quarterly Report | true | |
| Document Transition Report | false | |
| Securities Act File Number | 000-7642 | |
| Entity Incorporation, State or Country Code | NY | |
| Entity Address, Address Line One | 3452 Lake Lynda Dr | |
| Entity Address, Address Line Two | Suite 190 | |
| Entity Address, City or Town | Orlando | |
| Entity Address, State or Province | FL | |
| Entity Address, Postal Zip Code | 32817 | |
| City Area Code | 203 | |
| Local Phone Number | 622-4086 | |
| Amendment Flag | false | |
| Document Fiscal Year Focus | 2022 | |
| Document Fiscal Period Focus | Q3 |
Consolidated Balance Sheets - Parenthetical - $ / shares |
Jul. 31, 2022 |
Oct. 31, 2021 |
|---|---|---|
| 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 | 8,496,526 | 8,496,526 |
| Common Stock, Shares, Outstanding | 8,496,526 | 8,496,526 |
| Treasury Stock, Shares | 784,435 | 784,435 |
Consolidated Statement of Operations - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jul. 31, 2022 |
Jul. 31, 2021 |
Jul. 31, 2022 |
Jul. 31, 2021 |
|
| Details | ||||
| Revenues | $ 1,483,960 | $ 1,509,808 | $ 4,340,577 | $ 4,669,573 |
| Operating expenses | ||||
| Cost of revenues | 1,227,394 | 579,491 | 3,111,778 | 1,714,615 |
| Research and development expenses | 91,050 | 55,802 | 247,977 | 156,685 |
| Selling, general, and administrative expenses | 1,353,213 | 672,399 | 3,441,903 | 1,987,183 |
| Operating Expenses | 2,671,657 | 1,307,692 | 6,801,658 | 3,858,483 |
| Income/(Loss) from operations | (1,187,697) | 202,116 | (2,461,081) | 811,090 |
| Interest expense - related party | 301,608 | 266,400 | 832,762 | 790,513 |
| Income/(Loss) before income taxes | (1,489,305) | (64,284) | (3,293,843) | 20,577 |
| Provision for income taxes | 0 | 0 | 0 | 0 |
| Net Income/(Loss) | $ (1,489,305) | $ (64,284) | $ (3,293,843) | $ 20,577 |
| Net income/(loss) per common share - basic | $ (0.19) | $ (0.01) | $ (0.43) | $ 0.00 |
| Net income/(loss) per common share - diluted | $ (0.19) | $ (0.01) | $ (0.43) | $ 0.00 |
| Weighted average number of common shares outstanding - basic | 7,712,091 | 7,712,091 | 7,712,091 | 7,712,091 |
| Weighted average number of common shares outstanding - diluted | 7,712,091 | 7,712,091 | 7,712,091 | 7,748,451 |
1. Nature of Business |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| 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, providing predictive analytics and decision support technology for the aviation industry primarily to improve the operational performance and cash flow of airlines, airports, fixed based operators (FBOs) and air navigation service providers (ANSPs). The Company provides a cloud-based platform, ARiVA™, that manages and optimizes operations for our customers.
PASSUR delivers digital solutions to global aviation operations, meeting the needs of global air travel as well as supporting the recovery of the aviation industry from the COVID-19 crisis. The structure and execution of operations within the aviation industry have fundamentally changed as a result of this crisis due to the significant change in the economics required to support current conditions, return to normal operations and profitability, and assist in mitigating health risks.
PASSUR continues to apply artificial intelligence powered by machine learning to aviation data, addressing the industry’s most costly challenges, including the management and optimization of airspace, airport assets, aircraft, and day of flight operations.
The Company provides its solutions to airlines and airports in the United States, as well as an airline in Latin America. The global market presents an opportunity to network more customers in a broader market. Solutions offered by PASSUR help to ensure flight completion. They cover the entire flight life cycle, from gate to gate, and result in reductions in overall costs and carbon emissions, while maximizing revenue opportunities, improving operational efficiency, and enhancing the passenger experience.
The Company is a supplier and partner to the air transportation industry. While many of the Company’s customers are experiencing increases in air travel volume, spending to invest in programs to promote operational efficiencies and productivity usually lag such increases. As a result, the Company experienced downturns in its revenues year-to-date in fiscal 2022 and for the fiscal year 2021. The Company continues to believe that its products and professional service engagements are critical to the efficient operation of the air transportation market. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q. |
2. Basis of Presentation and Significant Accounting Policies |
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| 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, 2021, filed with the Securities and Exchange Commission (“SEC”) on January 26, 2022; 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 necessary to present fairly the Company’s consolidated financial position as of July 31, 2022, and its consolidated results of operations for the three and nine months ended July 31, 2022 and July 31, 2021, respectively.
The results of operations for the interim period stated above are not necessarily indicative of the results of operations to be recorded for the full fiscal year ending October 31, 2022.
Certain financial information in the footnotes has been rounded to the nearest thousand for presentation purposes.
Liquidity
The Company’s current liabilities exceeded its current assets (excluding deferred revenue) by $940,000 as of July 31, 2022. The note payable to a related party, G.S. Beckwith Gilbert, the Company’s significant shareholder and Non-Executive Chairman of the Board, with a maturity of November 1, 2023, was $12,492,000 at July 31, 2022. The Company has accrued and unpaid interest under these borrowings for the first nine months of fiscal 2022 in the amount of $833,000, which amount is included in accrued expenses and other current liabilities at July 31, 2022. During fiscal year 2021, the Company paid Mr. Gilbert all accrued interest incurred for fiscal 2021 in the amount of $1,057,000. The Company’s stockholders’ equity had a deficit of $14,083,000 at July 31, 2022. The Company reported a net loss of $3,294,000 for the nine months ended July 31, 2022.
If the Company’s business does not generate sufficient cash flows from operations to meet its operating cash requirements, the Company will attempt to obtain external financing on commercially reasonable terms. However, the Company has received a commitment from G.S. Beckwith Gilbert, dated September 12, 2022, that if the Company, at any time, is unable to meet its obligations through September 13, 2023, 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 Company’s assets.
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), enacted in March 2020, as well as subsequently enacted legislation, including the American Rescue Plan Act of 2021 (the “Rescue Act”), have provided economic support for, among others, businesses in the aviation industry. The Company has received grants under both the CARES Act and the Rescue Act (collectively referred to herein as the “CARES Act grants”), totaling approximately $6,498,000, as described in more detail below.
1.In July 2020, the Company entered into an agreement with the U.S. Department of the Treasury to receive an aggregate of $3,003,000 in emergency relief through the CARES Act Payroll Support Program (“PSP1”). The relief payments were received in three installments from July 2020 through September 2020. Pursuant to the Payroll Support Program Agreement, the relief payments must be used exclusively for the continuation of payment of certain employee wages, salaries and benefits. The Company has used such relief payments for such purpose. The PSP1 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2020, as well as other conditions including prohibitions on share repurchases and dividends through September 30, 2021, and certain limitations on executive compensation that applied through March 24, 2022. 2.On February 12, 2021, the Company received an additional “top off” disbursement of $875,000 under PSP1, subject to the terms and conditions described above. 3.On March 5, 2021, the Company entered into a Payroll Support Program Extension Agreement with the U.S. Department of the Treasury for an award the Company received under the CARES Act Payroll Support Program (“PSP2”). The total amount awarded to the Company under PSP2 was approximately $1,310,000. The relief payments under PSP2 were received in two installments of approximately $655,000 each on March 8, 2021 and April 26, 2021. As with the original grant under PSP1, PSP2 proceeds were required to be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such relief payments for such purpose. The PSP2 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through the later of March 31, 2021, or the date on which the Company has expended all of the payroll support, as well as other conditions including prohibitions on share repurchases and dividends through the later of March 31, 2022, or the date on which the Company has expended all of the payroll support, and certain limitations on executive compensation that apply through October 1, 2022. 4.On April 16, 2021, the Company entered into a Payroll Support Program 3 Agreement with the U.S. Department of the Treasury for an award the Company will receive under the Rescue Act (“PSP3”). The total amount awarded to the Company under PSP3 was approximately $1,310,000. The first installment, in the amount of approximately $655,000, was received by the Company on April 29, 2021. The second installment of approximately $655,000 was received by the Company on May 27, 2021. The Company does not anticipate any additional stimulus grant payments under the Payroll Support Programs. As with the original grants under PSP1 and PSP2, proceeds under PSP3 were required to be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such proceeds for such purpose. The PSP3 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through the later of September 30, 2021, or the date on which the Company has expended all of the payroll support, as well as other conditions including prohibitions on share repurchases and dividends through September 30, 2022, and certain limitations on executive compensation that apply through April 1, 2023.
The Company expended the remaining balance of funds received under the various Payroll Support Programs during the three months ended January 31, 2022. The amount of unused stimulus funding as of July 31, 2022 and October 31, 2021 was $0 and $856,000, respectively, and is shown in the balance sheet under current liabilities as Accrued Liabilities - Stimulus Funding.
The Company believes that it has operated in compliance with all the provisions and requirements under the CARES Act, the Rescue Act and the Payroll Support Program Agreements up through and including the period ended July 31, 2022, and fully intends to continue to comply with all such provisions and requirements. Consequently, the Company has accounted for the advanced funds as grants not requiring repayment and recognized such amounts in income as qualifying salaries, wages and benefits were incurred. The Company reduced its compensation expense by $0 and $1,189,000 during the three months ended July 31, 2022 and July 31, 2021, respectively, and by $789,000 and $3,377,000 during the nine months ended July 31, 2022 and July 31, 2021, respectively, as the CARES Act grant proceeds received by the Company were used to fund eligible payroll costs. If the Company does not comply with the provisions of the CARES Act, the Rescue Act and the Payroll Support Program Agreements, the Company may be required to repay the government funds and also be subject to other remedies.
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 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.
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: ·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.
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 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-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 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, in accordance 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.
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.
Some of the Company’s contracts with its customers contain multiple performance obligations subject to allocation of transaction prices. Some contracts contain material rights, in the form of non-refundable up-front fees. Such fees are amortized to income over an estimated average customer life. Differences in actual average customer life compared with estimates may result in changes to amounts amortized to income. In the case of professional services, revenue recognition may be dependent on estimating the amount of time needed to complete various tasks within a contract and estimating the actual amount of completion at any point in time. Revisions to such estimates at any time may result in adjustments to the amounts of revenue recognized.
B.Disaggregation
The disaggregation of revenue by customer and type of performance obligation is as follows:
C.Contract Balances
The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows:
The differences in the opening and closing balances of the Company’s unbilled receivable and deferred revenue primarily result 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-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 nine months ended July 31, 2022 that was included in the deferred revenue balance at November 1, 2021 was approximately $1,244,000.
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.
*Approximately 100% of subscription services and 90% of material rights 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 communication costs, data feeds costs, compensation and benefit costs and amortization of previously capitalized software development costs (referred to as “Capitalized Assets”). Cost of revenues in each reporting period was impacted by previously capitalized costs associated with software development and data center projects. In prior periods, the labor and fringe benefit costs of the Company employees involved in creating Capitalized Assets were capitalized, rather than expensed, and amortized over three years, as determined by their projected useful life. The Company did not capitalize any software development costs, as well as network and data center costs, subsequent to January 31, 2020. Given business conditions in the aviation industry surrounding the unprecedented COVID-19 pandemic, the Company’s software efforts were concentrated in the areas of maintenance of existing products.
PASSUR’s services are powered by a combination of FAA data plus commercial ADS-B aggregator feeds and other data feeds available to the Company, which provide a more cost-effective solution and allow us to focus more on value-added analytics, and less on sensor technology.
Additionally, due to the financial and economic hardships that have been experienced by the Company’s customers and air transportation support vendors in the ongoing COVID-19 environment (described in “3. Impact of the COVID-19 Pandemic”, below), there has been a significant amount of uncertainty surrounding the ability of our customers to either renew and/or maintain their current levels of committed contracts with the Company. As a result of the industry changes in response to the COVID-19 pandemic, the Company anticipates that its level of Capitalized Assets, including related amortization of such costs, will decrease in the future, as the Company’s technological efforts are focused more on maintenance of existing products.
Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted to provide economic relief to those impacted by the COVID-19 pandemic. The CARES Act made various tax law changes, including, among other things: (i) modified the federal net operating loss rules, including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes; (ii) enhanced recoverability of AMT tax credit carryforwards; (iii) delayed payment of employer payroll taxes; (iv) increased the limitation on business interest expenses under IRC Section 163(j) for the 2019 and 2020 tax years to permit additional expensing of interest; and (v) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k). As of October 31, 2021, the Company had approximately $26,239,000 of net operating losses, which cannot be carried back to prior years to generate tax refunds since no tax had been paid in those years by the Company.
The Company’s provision for income taxes consists of federal, state and foreign taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary.
The estimated annual effective tax rate for the fiscal year ending October 31, 2022 is 0%. This calculation reflects estimated income tax expense based on our current year annual pretax income forecast which is offset by a reduction in the valuation allowance. The Company maintains a full valuation allowance against its deferred tax assets.
For the three and nine months ended July 31, 2022, the Company recorded an income tax provision of $0. The effective tax rate for the three and nine months ended July 31, 2022 was 0% on a pretax loss of $1,489,000 and $3,294,000, respectively. The effective rate differs from the U.S. federal corporate tax rate of 21% due to the valuation allowance.
For the three and nine months ended July 31, 2021, the Company recorded an income tax provision of $0. The effective tax rate for the three and nine months ended July 31, 2021 was 0% on a pretax (loss)/income of ($64,000) and $21,000, respectively. The effective rate differed from the U.S. federal statutory rate of 21% due to the valuation allowance and the use of net operating losses offset by a reduction in the valuation allowance.
Accounts Receivable
The Company records accounts receivable for agreements where amounts due from customers are contractually required and are non-refundable. The carrying amount of accounts receivable 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. Accounts receivable balances include amounts attributable to deferred revenues. The Company’s accounts receivable balances included $166,000 of unbilled receivables associated with contractually committed services provided to existing customers during the nine months ended July 31, 2022, which will be invoiced subsequent to July 31, 2022. At October 31, 2021, the Company’s accounts receivable balance included $89,000 of unbilled receivables associated with contractually committed services provided to existing customers during the twelve months ended October 31, 2021.
The Company has a history of successfully collecting all amounts due from its customers under the original terms of its subscription agreements and believes that its products and professional service engagements are critical to the efficient operation of the air transportation market.
The provision for doubtful accounts was $52,000 and $183,000 as of July 31, 2022 and October 31, 2021, 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.
Capitalized Software Development Costs
The Company capitalizes costs related to the development of internal use software in accordance with authoritative guidance issued by the FASB on internal-use software, ASC 350-40, “Internal-Use Software.” The Company expenses all costs incurred during the preliminary project stage of its development, and capitalizes the costs incurred during the application development stage. For periods through January 31, 2020, costs incurred relating to upgrades and enhancements to the software were capitalized if it had been determined that these upgrades or enhancements add additional functionality to the software. Costs incurred to maintain and support products after they became available were charged to expense as incurred. The Company did not capitalize any software development costs subsequent to January 31, 2020.
Due to the financial and economic hardships that have been experienced by airlines, airports and air transportation support vendors in the ongoing COVID-19 environment (described in “3. Impact of the COVID-19 Pandemic” below), there has been a significant amount of uncertainty surrounding the ability of our customers to continue to perform their contracts with the Company. Given these business conditions, the Company’s software efforts were concentrated in the areas of maintenance of existing products. As a result, the Company did not capitalize any software development costs during the three and nine months ended July 31, 2022 and July 31, 2021, respectively. The Company amortized $121,500 and $364,000 of capitalized software development costs during both the three and nine months ended July 31, 2022 and the three and nine months ended July 31, 2021, respectively. The Company recorded amortization of the software on a straight-line basis over the estimated useful life of the software, typically over three years, within “Cost of Revenues”.
As a result of the industry changes in response to the COVID-19 pandemic, the Company anticipates that its level of capitalized software development costs, including related amortization of such costs, will decrease in the future, as the Company’s technological efforts are focused more on maintenance of existing products.
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.
Deferred Tax Assets
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 assets 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 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, 2021, the Company had available federal net operating loss carryforwards of $26,812,000, of which $14,032,000 are indefinite lived, but only available to offset 80% of future taxable income, and $12,780,000 will expire in various tax years from fiscal year 2022 through fiscal year 2038.
Net (Loss)/Income per Share Information
Basic net (loss)/income per share is computed based on the weighted average number of shares outstanding. Diluted (loss)/earnings per share is computed similarly to basic (loss)/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. The Company’s 2009 Stock Incentive Plan, which expired on February 24, 2019, and 2019 Stock Incentive Plan (the “Plan”), allow for a cashless exercise. Shares used to calculate net (loss)/income per share are as follows:
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 is 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 $37,000 and $65,000 for the three months ended July 31, 2022 and July 31, 2021, respectively. Stock-based compensation expense was $135,000 and $178,000 for the nine months ended July 31, 2022 and July 31, 2021, respectively. Stock-based compensation is primarily included in selling, general, and administrative expenses.
On August 16, 2021, the Company’s Board of Directors adopted the Second Amendment to the Plan, to authorize the granting of restricted stock unit (RSU) awards under the Plan. Each RSU represents the right to receive, following vesting, one share of the Company’s Common Stock. In connection with the Second Amendment to the Plan, the Board of Directors has authorized an aggregate of 800,000 RSU awards to be granted under the Plan. As of January 31, 2022, 797,500 RSU awards were granted under the Plan at a grant date fair market value of $0.63 per share, which RSU awards vest ratably over a three-year period. All 797,500 RSU awards were granted on October 22, 2021. Compensation expense related to RSU awards was $35,000 and $0 for the three months ended July 31, 2022 and July 31, 2021, respectively. Compensation expense related to RSU awards was $118,000 and $0 for the nine months ended July 31, 2022 and July 31, 2021, respectively.
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 significant shareholder and Non-Executive Chairman of the Board, 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.
Recent Accounting Pronouncements Adopted
In February 2016, the FASB issued ASU 2016-02, which amends the ASC and creates Topic 842, Leases (“Topic 842”). Topic 842 requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous GAAP on the balance sheet. On November 1, 2019, the Company adopted Topic 842. As a result of the adoption of Topic 842, the Company recognized operating lease right-of-use (“ROU”) assets and liabilities of $1,497,000 and $1,620,000, respectively. The Company does not have any finance lease ROU assets and liabilities. There was no change to our consolidated statements of operations or cash flows, as a result of the adoption.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance was effective for fiscal years beginning after December 15, 2020, including interim periods therein. Topic 740 did not have a material effect on the Company’s consolidated financial statements or any disclosures within these consolidated financial statements.
Accounting Pronouncements Issued but not yet Adopted In June 2016, the FASB issued ASU 2016-13, “Current Expected Credit Losses” (ASU 2016-13), which introduces an impairment model based on expected, rather than incurred, losses. Additionally, it requires expanded disclosures regarding (a) credit risk inherent in a portfolio and how management monitors the portfolio’s credit quality; (b) management’s estimate of expected credit losses; and (c) changes in estimates of expected credit losses that have taken place during the period. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022. The Company has not yet quantified the impact of ASU 2016-13 on its consolidated financial statements. However, it is not expected to have a material effect on the Company’s consolidated financial statements. |
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3. Impact of the COVID-19 Pandemic |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Notes | |
| 3. Impact of the COVID-19 Pandemic | 3. Impact of the COVID-19 Pandemic
The aviation and travel industries, which are served by the Company and its products, have been severely affected by the ongoing COVID-19 outbreak. Travel restrictions and other measures imposed by most jurisdictions, coupled with the public’s reluctance to travel during the pandemic, resulted in a precipitous decline in demand for air travel, and our customers in the aviation and travel industries drastically reduced their capacity and operations from 2020 into 2021 as compared to 2019, which in turn has resulted in a significant reduction of demand for our products and services. As a result, the Company has faced increased economic pressures and continued to experience a significant loss of revenue during the nine- month periods ended July 31, 2022 and July 31, 2021. While the Company anticipates a return to an improved economic environment in fiscal 2023 given the state of vaccinations, treatments available, and changes in public behaviors, the recovery depends on many factors, the outcomes of which are uncertain or unknown at this time, such as, among other things, the scope, severity and duration of any variants to the COVID-19 virus, the continuing actions taken to contain the pandemic or to mitigate its impact, the acceptance and public distribution of treatments and vaccines for the disease (including its variants), and the length of time before the public feels safe to travel. All of these variables may have an impact on how quickly the industry can recover, which in turn may affect the revenue and earnings levels of the Company going forward. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q.
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), enacted in March 2020, as well as subsequently enacted legislation, including the American Rescue Plan Act of 2021 (the “Rescue Act”), have provided economic support for, among others, businesses in the airline industry. The Company has received grants under both the CARES Act and the Rescue Act (collectively referred to herein as the “CARES Act grants”), totaling approximately $6,498,000, as described in more detail below.
1.In July 2020, the Company entered into an agreement with the U.S. Department of the Treasury to receive an aggregate of $3,003,000 in emergency relief through the CARES Act Payroll Support Program (“PSP1”). The relief payments were received in three installments from July 2020 through September 2020. Pursuant to the Payroll Support Program Agreement, the relief payments must be used exclusively for the continuation of payment of certain employee wages, salaries and benefits. The Company has used such relief payments for such purpose. The PSP1 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2020, as well as other conditions including prohibitions on share repurchases and dividends through September 30, 2021, and certain limitations on executive compensation that applied through March 24, 2022.
2.On February 12, 2021, the Company received an additional “top off” disbursement of $875,000 under PSP1, subject to the terms and conditions described above.
3.On March 5, 2021, the Company entered into a Payroll Support Program Extension Agreement with the U.S. Department of the Treasury for an award the Company received under the CARES Act Payroll Support Program (“PSP2”). The total amount awarded to the Company under PSP2 was approximately $1,310,000. The relief payments under PSP2 were received in two installments of approximately $655,000 each on March 8, 2021 and April 26, 2021. As with the original grant under PSP1, PSP2 proceeds were required to be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such relief payments for such purpose. The PSP2 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through the later of March 31, 2021, or the date on which the Company has expended all of the payroll support, as well as other conditions including prohibitions on share repurchases and dividends through the later of March 31, 2022, or the date on which the Company has expended all of the payroll support, and certain limitations on executive compensation that apply through October 1, 2022.
4.On April 16, 2021, the Company entered into a Payroll Support Program 3 Agreement with the U.S. Department of the Treasury for an award the Company received under the Rescue Act (PSP3”). The total amount awarded to the Company under PSP3 was approximately $1,310,000. The first installment, in the amount of approximately $655,000, was received by the Company on April 29, 2021. The second installment of approximately $655,000 was received by the Company on May 27, 2021. The Company does not anticipate any additional stimulus grant payments under the Payroll Support Programs. As with the original grants under PSP1 and PSP2, proceeds under PSP3 were required to be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such proceeds for such purpose. The PSP3 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through the later of September 30, 2021, or the date on which the Company has expended all of the payroll support, as well as other conditions including prohibitions on share repurchases and dividends through September 30, 2022, and certain limitations on executive compensation that apply through April 1, 2023.
The Company expended the remaining balance of funds received under the various Payroll Support Programs during the three months ended January 31, 2022. The amount of unused stimulus funding as of July 31, 2022 and October 31, 2021 was $0 and $856,000, respectively, and is shown in the balance sheet under current liabilities as Accrued Liabilities - Stimulus Funding.
The Company believes that it has operated in compliance with all the provisions and requirements under the CARES Act, the Rescue Act and the Payroll Support Program Agreements up through and including the period ended July 31, 2022, and fully intends to continue to comply with all such provisions and requirements. Consequently, the Company has accounted for the advanced funds as grants not requiring repayment and recognized such amounts in income as qualifying salaries, wages and benefits were incurred. The Company reduced its compensation expenses by $0 and $1,189,000 during the three months ended July 31, 2022 and July 31, 2021, respectively, and by $789,000 and $3,377,000 during the nine months ended July 31, 2022 and July 31,2021, respectively. If the Company does not comply with the provisions of the CARES Act, the Rescue Act and the Payroll Support Program Agreements, the Company may be required to repay the government funds and also be subject to other remedies.
Additionally, provisions under the CARES Act allowed the Company to defer payment of the employer’s share of social security taxes incurred from March of 2020 through December 31, 2020. The amount of payroll taxes subject to deferred payment was approximately $139,000. Under the terms of the legislation, 50% of the deferred payroll taxes, or approximately $70,000, was due and payable by December 31, 2021 (which amount has been paid by the Company), and the remaining 50%, or approximately $69,000, will become due and payable by December 31, 2022.
As previously disclosed, the Company took several actions beginning in April 2020 and prior to receiving the CARES Act funds, to mitigate the effects of the COVID-19 pandemic on its business and align its operating costs with its outlook for the foreseeable future. The effects of such actions are reflected in the costs of revenues, research and development and administrative costs for the three and nine months ended July 31, 2022 and July 31, 2021, and the Company anticipates that such cost savings will continue to benefit the Company for the remainder of fiscal 2022. However, if the recovery of the air transportation industry accelerates and revenue levels quickly return to pre-COVID-19 levels, these levels of cost savings may not be practicable or sustainable to support the operations necessary for the increased level of revenue. During the nine months ended July 31, 2022, the Company made investments in, among other areas, infrastructure and marketing, to benefit the longer-term growth of the Company. See Part II, Item 1A, “Risk Factors”, in this Quarterly Report on Form 10-Q. |
4. Leases |
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| 4. Leases | 4. Leases
The Company accounts for leases under the guidance of Topic 842, requiring the recognition of ROU assets and associated lease liabilities related to operating leases. The accounting for finance leases under Topic 842 is consistent with the prior accounting for capital leases. The Company elected not to apply the measurement and recognition requirements of Topic 842 to short-term leases (i.e., leases with a term of 12 months or less). Accordingly, short-term leases will not be recorded as ROU assets or lease liabilities on the Company’s consolidated balance sheets, and the related lease payments will be recognized in net earnings on a straight-line basis over the lease term.
The Company recognizes a lease liability and a related ROU asset at the commencement date for leases on its consolidated balance sheet, excluding short-term leases as noted above. The lease liability is equal to the present value of unpaid lease payments over the remaining lease term. The Company’s lease term at the commencement date may reflect options to extend or terminate the lease when it is reasonably certain that such options will be exercised. To determine the present value of the lease liability, the Company uses an incremental borrowing rate, which is defined as the rate of interest that the Company would have to pay to borrow (on a collateralized basis over a similar term) an amount equal to the lease payments in similar economic environments. The ROU asset is based on the corresponding lease liability adjusted for certain costs such as initial direct costs, prepaid lease payments and lease incentives received. Both operating and finance lease ROU assets are reviewed for impairment, consistent with other long-lived assets, whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. After a ROU asset is impaired, any remaining balance of the ROU asset is amortized on a straight-line basis over the shorter of the remaining lease term or the estimated useful life.
After the lease commencement date, the Company evaluates lease modifications, if any, that could result in a change in the accounting for leases. For a lease modification, an evaluation is performed to determine if it should be treated as either a separate lease or a change in the accounting of an existing lease. In addition, significant changes in events or circumstances within the Company’s control are assessed to determine whether a change in the accounting for leases is required.
Certain of the Company’s leases provide for variable lease payments for the right to use an underlying asset that vary due to changes in facts and circumstances occurring after the commencement date, other than the passage of time. Variable lease payments that are dependent on an index or rate (e.g., Consumer Price Index) are included in the initial measurement of the lease liability, the initial measurement of the ROU asset, and the lease classification test based on the index or rate as of the commencement date. Any changes from the commencement date estimation of the index- and rate-based variable payments are expensed as incurred in the period of the change. Variable lease payments that are not known at the commencement date and are determinable based on the performance or use of the underlying asset, are not included in the initial measurement of the lease liability or the ROU asset, but instead are expensed as incurred. The Company’s variable lease payments primarily include common area maintenance and real estate taxes.
As of July 31, 2022, the Company had operating leases primarily for offices and its now-decommissioned PASSUR and Surface Multilateration (“SMLAT”) systems, with remaining terms of approximately two months to 4.5 years. The Company’s office lease contracts include options to extend the leases for up to five years. The Company’s office located in Stamford, Connecticut, was previously located in a 5,300 square foot office at an average annual cost of $220,000, under a lease expiring on June 30, 2023. On October 6, 2020, the Company modified this agreement, reducing the amount of square footage under rental and extending the term to June 30, 2025, at the reduced average annual rental rate of $61,000. The Company’s office located in Orlando, Florida, was subject to a lease through August 31, 2021, at an average annual rental rate of $74,000. Effective as of September 1, 2021, the Company entered into a new lease for its Orlando office, for approximately 1,800 square feet for a term of 64 months at an average annual rental of $51,400.
A summary of total lease costs and other information for the period relating to the Company’s operating leases is as follows:
The total future minimum lease payments, over the remaining lease term, relating to the Company’s operating leases for the remainder of fiscal year 2022 and for each of the next four fiscal years and thereafter is as follows:
The following table summarizes scheduled maturities of the Company’s contractual obligations relating to operating leases for which cash flows are fixed and determinable as of July 31, 2022:
(1)Minimum operating lease commitments only include base rent. Certain leases provide for contingent rents that are not measurable at inception and primarily include common area maintenance and real estate taxes. These amounts are excluded from minimum operating lease commitments and are included in the determination of total rent expense when it is probable that the expense has been incurred and the amount is reasonably measurable. Such amounts have not been material to total rent expense.
As of July 31, 2022, the Company did not have any finance leases or leases that had not yet commenced as of such date. As described above, effective as of September 1, 2021, the Company entered into a new lease for its primary software development facility, located in Orlando, Florida. |
5. Notes Payable - Related Party |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Notes | |
| 5. Notes Payable - Related Party | 5. Notes Payable – Related Party
On January 29, 2021, the Company and Mr. Gilbert entered into a Seventh Debt Extension Agreement effective January 29, 2021, pursuant to which the Company cancelled an outstanding promissory note in the amount of $9,071,000 issued to Mr. Gilbert on January 27, 2020 (the “Sixth Gilbert Note”) and issued Mr. Gilbert a new promissory note (the “Seventh Gilbert Note”) in the amount of $10,692,000, consisting of a principal of $9,585,000 and unpaid interest of $1,107,000 accrued under the Sixth Gilbert Note through October 31, 2020. Under the terms of the Seventh Gilbert Note, the Company agreed to pay the unpaid interest of $1,107,000 accrued under the Sixth Gilbert Note and included in the Seventh Gilbert Note at the time and on the terms set forth in the Seventh Gilbert Note. Under the terms of the Seventh Gilbert Note, the maturity date of the loan was extended to November 1, 2022, and the annual interest rate remained at 9.75%, with annual interest payments required to be made on October 31st of each year (although any accrued interest can be paid before such time without penalty). The note payable was secured by the Company’s assets. The amendments to the Sixth Gilbert Note were determined to be a modification of the debt instrument and no gain or loss was recorded as a result of the transactions. During the year ended October 31, 2021, the Company paid Mr. Gilbert all accrued interest due for the fiscal 2021 year under the Sixth Gilbert Note and the Seventh Gilbert Note in the amount of $1,057,000.
On January 26, 2022, the Company and Mr. Gilbert entered into an Eighth Debt Extension Agreement, effective as of January 26, 2022, pursuant to which the Company cancelled the Seventh Gilbert Note and issued Mr. Gilbert a new promissory note (the “Eighth Gilbert Note”) in the amount of $10,692,000, which represented the total amount due and owing under the Seventh Gilbert Note as of January 26, 2022. Under the terms of the Eighth Gilbert Note, the maturity date of the loan was extended to November 1, 2023, and the annual interest rate remained 9.75%, with annual interest payments required to be made on October 31st of each year (although any accrued interest can be paid before such time without penalty). The note payable was secured by the Company’s assets.
On April 30, 2022, the Company and Mr. Gilbert entered into a Ninth Debt Replacement Agreement, effective as of March 15, 2022, pursuant to which the Company cancelled the Eighth Gilbert Note and issued Mr. Gilbert a new promissory note (the “Ninth Gilbert Note”) in the amount of $11,692,000, which represented the total amount due and owing under the Eighth Gilbert Note as of January 26, 2022. Under the terms of the Ninth Gilbert Note, the maturity date of the loan remains November 1, 2023, and the annual interest rate remained 9.75%, with annual interest payments required to be made on October 31st of each year (although any accrued interest can be paid before such time without penalty). The note payable is secured by the Company’s assets.
On July 31, 2022, the Company and Mr. Gilbert entered into a Tenth Debt Replacement Agreement, effective as of May 1, 2022, pursuant to which the Company cancelled the Ninth Gilbert Note and issued Mr. Gilbert a new promissory note (the “Tenth Gilbert Note”) in the amount of $12,492,000, which represented the total amount due and owing under the Ninth Gilbert Note plus additional borrowings during the three months ended July 31, 2022. Under the terms of the Tenth Gilbert Note, the maturity date of the loan remains November 1, 2023, and the annual interest rate remained 9.75%, with annual interest payments required to be made on October 31st of each year (although any accrued interest can be paid before such time without penalty). The note payable is secured by the Company’s assets.
During the first nine months of fiscal 2022, the Company did not make any payments to Mr. Gilbert for interest accrued under the Seventh Gilbert Note, the Eighth Gilbert Note and the Ninth Gilbert Note through July 31, 2022. The total amount of accrued interest due was $833,000, which amount is included in accrued expenses and other current liabilities at July 31, 2022. During the nine months ended July 31, 2022, Mr. Gilbert loaned the Company an additional $1,800,000, under the Eighth Gilbert Note, the Ninth Gilbert Note and the Tenth Gilbert Note. During the nine months ended July 31, 2021, the Company paid Mr. Gilbert interest accrued on the Sixth Gilbert Note in a total amount of $791,000. During the nine months ended July 31, 2021, Mr. Gilbert did not loan the Company any additional funds.
The Company has evaluated its financial position as of July 31, 2022, including an operating loss of $2,461,000 for the nine months ended July 31, 2022 and a working capital deficit of $940,000 (excluding deferred revenues) as of July 31, 2022, and has requested and received a commitment from Mr. Gilbert, dated September 12, 2022, that if the Company, at any time, is unable to meet its obligations through September 13, 2023, 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 Significant Accounting Policies: Liquidity (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Policies | |
| Liquidity | Liquidity
The Company’s current liabilities exceeded its current assets (excluding deferred revenue) by $940,000 as of July 31, 2022. The note payable to a related party, G.S. Beckwith Gilbert, the Company’s significant shareholder and Non-Executive Chairman of the Board, with a maturity of November 1, 2023, was $12,492,000 at July 31, 2022. The Company has accrued and unpaid interest under these borrowings for the first nine months of fiscal 2022 in the amount of $833,000, which amount is included in accrued expenses and other current liabilities at July 31, 2022. During fiscal year 2021, the Company paid Mr. Gilbert all accrued interest incurred for fiscal 2021 in the amount of $1,057,000. The Company’s stockholders’ equity had a deficit of $14,083,000 at July 31, 2022. The Company reported a net loss of $3,294,000 for the nine months ended July 31, 2022.
If the Company’s business does not generate sufficient cash flows from operations to meet its operating cash requirements, the Company will attempt to obtain external financing on commercially reasonable terms. However, the Company has received a commitment from G.S. Beckwith Gilbert, dated September 12, 2022, that if the Company, at any time, is unable to meet its obligations through September 13, 2023, 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 Company’s assets.
The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), enacted in March 2020, as well as subsequently enacted legislation, including the American Rescue Plan Act of 2021 (the “Rescue Act”), have provided economic support for, among others, businesses in the aviation industry. The Company has received grants under both the CARES Act and the Rescue Act (collectively referred to herein as the “CARES Act grants”), totaling approximately $6,498,000, as described in more detail below.
1.In July 2020, the Company entered into an agreement with the U.S. Department of the Treasury to receive an aggregate of $3,003,000 in emergency relief through the CARES Act Payroll Support Program (“PSP1”). The relief payments were received in three installments from July 2020 through September 2020. Pursuant to the Payroll Support Program Agreement, the relief payments must be used exclusively for the continuation of payment of certain employee wages, salaries and benefits. The Company has used such relief payments for such purpose. The PSP1 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through September 30, 2020, as well as other conditions including prohibitions on share repurchases and dividends through September 30, 2021, and certain limitations on executive compensation that applied through March 24, 2022. 2.On February 12, 2021, the Company received an additional “top off” disbursement of $875,000 under PSP1, subject to the terms and conditions described above. 3.On March 5, 2021, the Company entered into a Payroll Support Program Extension Agreement with the U.S. Department of the Treasury for an award the Company received under the CARES Act Payroll Support Program (“PSP2”). The total amount awarded to the Company under PSP2 was approximately $1,310,000. The relief payments under PSP2 were received in two installments of approximately $655,000 each on March 8, 2021 and April 26, 2021. As with the original grant under PSP1, PSP2 proceeds were required to be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such relief payments for such purpose. The PSP2 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through the later of March 31, 2021, or the date on which the Company has expended all of the payroll support, as well as other conditions including prohibitions on share repurchases and dividends through the later of March 31, 2022, or the date on which the Company has expended all of the payroll support, and certain limitations on executive compensation that apply through October 1, 2022. 4.On April 16, 2021, the Company entered into a Payroll Support Program 3 Agreement with the U.S. Department of the Treasury for an award the Company will receive under the Rescue Act (“PSP3”). The total amount awarded to the Company under PSP3 was approximately $1,310,000. The first installment, in the amount of approximately $655,000, was received by the Company on April 29, 2021. The second installment of approximately $655,000 was received by the Company on May 27, 2021. The Company does not anticipate any additional stimulus grant payments under the Payroll Support Programs. As with the original grants under PSP1 and PSP2, proceeds under PSP3 were required to be used exclusively for the continuation of payment of certain employee wages, salaries, and benefits. The Company has used such proceeds for such purpose. The PSP3 relief payments were conditioned on the Company’s agreement to, among other things, refrain from conducting involuntary employee layoffs or furloughs through the later of September 30, 2021, or the date on which the Company has expended all of the payroll support, as well as other conditions including prohibitions on share repurchases and dividends through September 30, 2022, and certain limitations on executive compensation that apply through April 1, 2023.
The Company expended the remaining balance of funds received under the various Payroll Support Programs during the three months ended January 31, 2022. The amount of unused stimulus funding as of July 31, 2022 and October 31, 2021 was $0 and $856,000, respectively, and is shown in the balance sheet under current liabilities as Accrued Liabilities - Stimulus Funding.
The Company believes that it has operated in compliance with all the provisions and requirements under the CARES Act, the Rescue Act and the Payroll Support Program Agreements up through and including the period ended July 31, 2022, and fully intends to continue to comply with all such provisions and requirements. Consequently, the Company has accounted for the advanced funds as grants not requiring repayment and recognized such amounts in income as qualifying salaries, wages and benefits were incurred. The Company reduced its compensation expense by $0 and $1,189,000 during the three months ended July 31, 2022 and July 31, 2021, respectively, and by $789,000 and $3,377,000 during the nine months ended July 31, 2022 and July 31, 2021, respectively, as the CARES Act grant proceeds received by the Company were used to fund eligible payroll costs. If the Company does not comply with the provisions of the CARES Act, the Rescue Act and the Payroll Support Program Agreements, the Company may be required to repay the government funds and also be subject to other remedies. |
2. Basis of Presentation and Significant Accounting Policies: Principles of Consolidation (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| 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 Significant Accounting Policies: Use of Estimates (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| 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 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. |
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy (Policies) |
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| 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 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: ·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.
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 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-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 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, in accordance 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.
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.
Some of the Company’s contracts with its customers contain multiple performance obligations subject to allocation of transaction prices. Some contracts contain material rights, in the form of non-refundable up-front fees. Such fees are amortized to income over an estimated average customer life. Differences in actual average customer life compared with estimates may result in changes to amounts amortized to income. In the case of professional services, revenue recognition may be dependent on estimating the amount of time needed to complete various tasks within a contract and estimating the actual amount of completion at any point in time. Revisions to such estimates at any time may result in adjustments to the amounts of revenue recognized.
B.Disaggregation
The disaggregation of revenue by customer and type of performance obligation is as follows:
C.Contract Balances
The opening and closing balances of the Company's accounts receivable, unbilled receivables, and deferred revenues are as follows:
The differences in the opening and closing balances of the Company’s unbilled receivable and deferred revenue primarily result 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-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 nine months ended July 31, 2022 that was included in the deferred revenue balance at November 1, 2021 was approximately $1,244,000.
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.
*Approximately 100% of subscription services and 90% of material rights 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. |
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2. Basis of Presentation and Significant Accounting Policies: Cost of Revenues (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Policies | |
| Cost of Revenues | Cost of Revenues
Costs associated with subscription and maintenance revenues consist primarily of communication costs, data feeds costs, compensation and benefit costs and amortization of previously capitalized software development costs (referred to as “Capitalized Assets”). Cost of revenues in each reporting period was impacted by previously capitalized costs associated with software development and data center projects. In prior periods, the labor and fringe benefit costs of the Company employees involved in creating Capitalized Assets were capitalized, rather than expensed, and amortized over three years, as determined by their projected useful life. The Company did not capitalize any software development costs, as well as network and data center costs, subsequent to January 31, 2020. Given business conditions in the aviation industry surrounding the unprecedented COVID-19 pandemic, the Company’s software efforts were concentrated in the areas of maintenance of existing products.
PASSUR’s services are powered by a combination of FAA data plus commercial ADS-B aggregator feeds and other data feeds available to the Company, which provide a more cost-effective solution and allow us to focus more on value-added analytics, and less on sensor technology.
Additionally, due to the financial and economic hardships that have been experienced by the Company’s customers and air transportation support vendors in the ongoing COVID-19 environment (described in “3. Impact of the COVID-19 Pandemic”, below), there has been a significant amount of uncertainty surrounding the ability of our customers to either renew and/or maintain their current levels of committed contracts with the Company. As a result of the industry changes in response to the COVID-19 pandemic, the Company anticipates that its level of Capitalized Assets, including related amortization of such costs, will decrease in the future, as the Company’s technological efforts are focused more on maintenance of existing products. |
2. Basis of Presentation and Significant Accounting Policies: Income Taxes (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Policies | |
| Income Taxes | Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act") was enacted to provide economic relief to those impacted by the COVID-19 pandemic. The CARES Act made various tax law changes, including, among other things: (i) modified the federal net operating loss rules, including permitting federal net operating losses incurred in 2018, 2019, and 2020 to be carried back to the five preceding taxable years in order to generate a refund of previously paid income taxes; (ii) enhanced recoverability of AMT tax credit carryforwards; (iii) delayed payment of employer payroll taxes; (iv) increased the limitation on business interest expenses under IRC Section 163(j) for the 2019 and 2020 tax years to permit additional expensing of interest; and (v) enacted a technical correction so that qualified improvement property can be immediately expensed under IRC Section 168(k). As of October 31, 2021, the Company had approximately $26,239,000 of net operating losses, which cannot be carried back to prior years to generate tax refunds since no tax had been paid in those years by the Company.
The Company’s provision for income taxes consists of federal, state and foreign taxes, as applicable, in amounts necessary to align the Company’s year-to-date tax provision with the effective rate that it expects to achieve for the full year. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary.
The estimated annual effective tax rate for the fiscal year ending October 31, 2022 is 0%. This calculation reflects estimated income tax expense based on our current year annual pretax income forecast which is offset by a reduction in the valuation allowance. The Company maintains a full valuation allowance against its deferred tax assets.
For the three and nine months ended July 31, 2022, the Company recorded an income tax provision of $0. The effective tax rate for the three and nine months ended July 31, 2022 was 0% on a pretax loss of $1,489,000 and $3,294,000, respectively. The effective rate differs from the U.S. federal corporate tax rate of 21% due to the valuation allowance.
For the three and nine months ended July 31, 2021, the Company recorded an income tax provision of $0. The effective tax rate for the three and nine months ended July 31, 2021 was 0% on a pretax (loss)/income of ($64,000) and $21,000, respectively. The effective rate differed from the U.S. federal statutory rate of 21% due to the valuation allowance and the use of net operating losses offset by a reduction in the valuation allowance. |
2. Basis of Presentation and Significant Accounting Policies: Accounts Receivable (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Policies | |
| Accounts Receivable | Accounts Receivable
The Company records accounts receivable for agreements where amounts due from customers are contractually required and are non-refundable. The carrying amount of accounts receivable 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. Accounts receivable balances include amounts attributable to deferred revenues. The Company’s accounts receivable balances included $166,000 of unbilled receivables associated with contractually committed services provided to existing customers during the nine months ended July 31, 2022, which will be invoiced subsequent to July 31, 2022. At October 31, 2021, the Company’s accounts receivable balance included $89,000 of unbilled receivables associated with contractually committed services provided to existing customers during the twelve months ended October 31, 2021.
The Company has a history of successfully collecting all amounts due from its customers under the original terms of its subscription agreements and believes that its products and professional service engagements are critical to the efficient operation of the air transportation market.
The provision for doubtful accounts was $52,000 and $183,000 as of July 31, 2022 and October 31, 2021, 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 Significant Accounting Policies: Capitalized Software Development Costs (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Policies | |
| Capitalized Software Development Costs | Capitalized Software Development Costs
The Company capitalizes costs related to the development of internal use software in accordance with authoritative guidance issued by the FASB on internal-use software, ASC 350-40, “Internal-Use Software.” The Company expenses all costs incurred during the preliminary project stage of its development, and capitalizes the costs incurred during the application development stage. For periods through January 31, 2020, costs incurred relating to upgrades and enhancements to the software were capitalized if it had been determined that these upgrades or enhancements add additional functionality to the software. Costs incurred to maintain and support products after they became available were charged to expense as incurred. The Company did not capitalize any software development costs subsequent to January 31, 2020.
Due to the financial and economic hardships that have been experienced by airlines, airports and air transportation support vendors in the ongoing COVID-19 environment (described in “3. Impact of the COVID-19 Pandemic” below), there has been a significant amount of uncertainty surrounding the ability of our customers to continue to perform their contracts with the Company. Given these business conditions, the Company’s software efforts were concentrated in the areas of maintenance of existing products. As a result, the Company did not capitalize any software development costs during the three and nine months ended July 31, 2022 and July 31, 2021, respectively. The Company amortized $121,500 and $364,000 of capitalized software development costs during both the three and nine months ended July 31, 2022 and the three and nine months ended July 31, 2021, respectively. The Company recorded amortization of the software on a straight-line basis over the estimated useful life of the software, typically over three years, within “Cost of Revenues”.
As a result of the industry changes in response to the COVID-19 pandemic, the Company anticipates that its level of capitalized software development costs, including related amortization of such costs, will decrease in the future, as the Company’s technological efforts are focused more on maintenance of existing products. |
2. Basis of Presentation and Significant Accounting Policies: Long-lived Assets (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| 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 asset’s revised life. |
2. Basis of Presentation and Significant Accounting Policies: Deferred Tax Asset (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Policies | |
| Deferred Tax Asset | Deferred Tax Assets
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 assets 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 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, 2021, the Company had available federal net operating loss carryforwards of $26,812,000, of which $14,032,000 are indefinite lived, but only available to offset 80% of future taxable income, and $12,780,000 will expire in various tax years from fiscal year 2022 through fiscal year 2038. |
2. Basis of Presentation and Significant Accounting Policies: Net Loss Per Share Information (Policies) |
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| Net Loss Per Share Information | Net (Loss)/Income per Share Information
Basic net (loss)/income per share is computed based on the weighted average number of shares outstanding. Diluted (loss)/earnings per share is computed similarly to basic (loss)/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. The Company’s 2009 Stock Incentive Plan, which expired on February 24, 2019, and 2019 Stock Incentive Plan (the “Plan”), allow for a cashless exercise. Shares used to calculate net (loss)/income per share are as follows:
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2. Basis of Presentation and Significant Accounting Policies: Stock-based Compensation (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| 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 is 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 $37,000 and $65,000 for the three months ended July 31, 2022 and July 31, 2021, respectively. Stock-based compensation expense was $135,000 and $178,000 for the nine months ended July 31, 2022 and July 31, 2021, respectively. Stock-based compensation is primarily included in selling, general, and administrative expenses.
On August 16, 2021, the Company’s Board of Directors adopted the Second Amendment to the Plan, to authorize the granting of restricted stock unit (RSU) awards under the Plan. Each RSU represents the right to receive, following vesting, one share of the Company’s Common Stock. In connection with the Second Amendment to the Plan, the Board of Directors has authorized an aggregate of 800,000 RSU awards to be granted under the Plan. As of January 31, 2022, 797,500 RSU awards were granted under the Plan at a grant date fair market value of $0.63 per share, which RSU awards vest ratably over a three-year period. All 797,500 RSU awards were granted on October 22, 2021. Compensation expense related to RSU awards was $35,000 and $0 for the three months ended July 31, 2022 and July 31, 2021, respectively. Compensation expense related to RSU awards was $118,000 and $0 for the nine months ended July 31, 2022 and July 31, 2021, respectively. |
2. Basis of Presentation and Significant Accounting Policies: Fair Value of Financial Instruments (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Policies | |
| Fair Value of Financial Instruments | 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 significant shareholder and Non-Executive Chairman of the Board, 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 Significant Accounting Policies: Recent Accounting Pronouncements (Policies) |
9 Months Ended |
|---|---|
Jul. 31, 2022 | |
| Policies | |
| Recent Accounting Pronouncements | Recent Accounting Pronouncements Adopted
In February 2016, the FASB issued ASU 2016-02, which amends the ASC and creates Topic 842, Leases (“Topic 842”). Topic 842 requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous GAAP on the balance sheet. On November 1, 2019, the Company adopted Topic 842. As a result of the adoption of Topic 842, the Company recognized operating lease right-of-use (“ROU”) assets and liabilities of $1,497,000 and $1,620,000, respectively. The Company does not have any finance lease ROU assets and liabilities. There was no change to our consolidated statements of operations or cash flows, as a result of the adoption.
In December 2019, the FASB issued ASU 2019-12, “Income Taxes Topic 740-Simplifying the Accounting for Income Taxes” (“ASU 2019-12”), which intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application of Topic 740. This guidance was effective for fiscal years beginning after December 15, 2020, including interim periods therein. Topic 740 did not have a material effect on the Company’s consolidated financial statements or any disclosures within these consolidated financial statements.
Accounting Pronouncements Issued but not yet Adopted In June 2016, the FASB issued ASU 2016-13, “Current Expected Credit Losses” (ASU 2016-13), which introduces an impairment model based on expected, rather than incurred, losses. Additionally, it requires expanded disclosures regarding (a) credit risk inherent in a portfolio and how management monitors the portfolio’s credit quality; (b) management’s estimate of expected credit losses; and (c) changes in estimates of expected credit losses that have taken place during the period. ASU 2016-13 is effective for fiscal years beginning after December 15, 2022. The Company has not yet quantified the impact of ASU 2016-13 on its consolidated financial statements. However, it is not expected to have a material effect on the Company’s consolidated financial statements. |
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Disaggregation of Revenue (Tables) |
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| Performance Obligation | ||||||||||||||||||||||||||||||||||||||||||||||
| Disaggregation of Revenue |
|
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Schedule of Contract Balances (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2022 | |||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||
| Schedule of Contract Balances |
|
||||||||||||||||||||||||||||
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Transaction Price Allocated to the Remaining Performance Obligation Schedule (Tables) |
9 Months Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2022 | |||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||
| Transaction Price Allocated to the Remaining Performance Obligation Schedule |
|
2. Basis of Presentation and Significant Accounting Policies: Net Loss Per Share Information: Schedule of Earnings per share basic and diluted (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Earnings per share basic and diluted |
|
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4. Leases: Schedule of lease costs and other information relating to the Company's operating leases (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of lease costs and other information relating to the Company's operating leases |
|
4. Leases: Schedule of Future Minimum Rental Payments for Operating Leases (Tables) |
9 Months Ended | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2022 | |||||||||||||||||||||
| Tables/Schedules | |||||||||||||||||||||
| Schedule of Future Minimum Rental Payments for Operating Leases |
|
4. Leases: Schedule of Maturities of Contractual Obligations Relating to Operating Leases (Tables) |
9 Months Ended | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jul. 31, 2022 | |||||||||||||||||
| Tables/Schedules | |||||||||||||||||
| Schedule of Maturities of Contractual Obligations Relating to Operating Leases |
|
2. Basis of Presentation and Significant Accounting Policies: Liquidity (Details) - USD ($) |
3 Months Ended | 9 Months Ended | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
May 27, 2021 |
Apr. 29, 2021 |
Apr. 26, 2021 |
Apr. 16, 2021 |
Mar. 08, 2021 |
Mar. 05, 2021 |
Feb. 12, 2021 |
Jul. 31, 2020 |
Jul. 31, 2022 |
Jul. 31, 2021 |
Jul. 31, 2022 |
Jul. 31, 2021 |
Oct. 31, 2021 |
|
| Current Assets Exceed Current Liabilities, Excluding Deferred Revenue | $ 940,000 | $ 940,000 | |||||||||||
| Proceeds from Grantors | 833,000 | ||||||||||||
| Shareholders' Deficit, rounded | 14,083,000 | 14,083,000 | |||||||||||
| Net Income/(loss), rounded | (1,489,000) | $ (64,000) | (3,294,000) | $ 21,000 | |||||||||
| Accrued Liabilities And Other Liabilities Rounded | $ 0 | 0 | $ 856,000 | ||||||||||
| Federal Stimulus Credits Utilized Rounded | $ 0 | 1,189,000 | |||||||||||
| Accrued Interest on Existing Gilbert Note | |||||||||||||
| Debt Instrument, Increase, Accrued Interest | $ 1,057,000 | ||||||||||||
| CARES Act Payroll Support Program | |||||||||||||
| Proceeds from Loans | $ 655,000 | $ 655,000 | $ 655,000 | $ 1,310,000 | $ 655,000 | $ 1,310,000 | $ 875,000 | $ 3,003,000 | |||||
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Disaggregation of Revenue (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jul. 31, 2022 |
Jul. 31, 2021 |
Jul. 31, 2022 |
Jul. 31, 2021 |
|
| Revenue (Rounded) | $ 1,484,000 | $ 1,510,000 | $ 4,341,000 | $ 4,670,000 |
| Subscription services | ||||
| Revenue (Rounded) | 1,313,000 | 1,340,000 | 4,045,000 | 4,279,000 |
| Professional Services | ||||
| Revenue (Rounded) | 171,000 | 170,000 | 296,000 | 391,000 |
| Airlines | ||||
| Revenue (Rounded) | 220,000 | 149,000 | 732,000 | 660,000 |
| Airports | ||||
| Revenue (Rounded) | 896,000 | 1,215,000 | 2,811,000 | 3,695,000 |
| Other | ||||
| Revenue (Rounded) | $ 368,000 | $ 146,000 | $ 798,000 | $ 315,000 |
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Schedule of Contract Balances (Details) - USD ($) |
Jul. 31, 2022 |
Oct. 31, 2021 |
|---|---|---|
| Details | ||
| Accounts Receivable | $ 745,000 | $ 720,000 |
| Unbilled Receivable | 166,000 | 89,000 |
| Deferred Revenue | $ 1,088,000 | $ 1,494,000 |
2. Basis of Presentation and Significant Accounting Policies: Revenue Recognition Policy: Transaction Price Allocated to the Remaining Performance Obligation Schedule (Details) |
9 Months Ended |
|---|---|
|
Jul. 31, 2022
USD ($)
| |
| Subscription services | |
| Transaction price allocated to the remaining performance obligation, Revenue recognized in 12 months or less | $ 3,239,000 |
| Transaction price allocated to the remaining performance obligation, Revenue recognized in greater than 12 months | 1,026,000 |
| Professional Services | |
| Transaction price allocated to the remaining performance obligation, Revenue recognized in 12 months or less | 62,000 |
| 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 | 81,000 |
| Transaction price allocated to the remaining performance obligation, Revenue recognized in greater than 12 months | $ 136,000 |
2. Basis of Presentation and Significant Accounting Policies: Income Taxes (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jul. 31, 2022 |
Jul. 31, 2021 |
Jul. 31, 2022 |
Jul. 31, 2021 |
|
| Details | ||||
| Provision for income taxes | $ 0 | $ 0 | $ 0 | $ 0 |
| Income Tax Expense Benefit Percentage | 0.00% | 0.00% | 0.00% | 0.00% |
| Net Income/(loss), rounded | $ (1,489,000) | $ (64,000) | $ (3,294,000) | $ 21,000 |
2. Basis of Presentation and Significant Accounting Policies: Accounts Receivable (Details) - USD ($) |
Jul. 31, 2022 |
Oct. 31, 2021 |
|---|---|---|
| Details | ||
| Unbilled Receivable | $ 166,000 | $ 89,000 |
| Accounts Receivable, Allowance for Credit Loss | $ 52,000 | $ 183,000 |
2. Basis of Presentation and Significant Accounting Policies: Capitalized Software Development Costs (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jul. 31, 2022 |
Jul. 31, 2021 |
Jul. 31, 2022 |
Jul. 31, 2021 |
|
| Details | ||||
| Capitalized Computer Software, Amortization | $ 121,500 | $ 364,000 | $ 121,500 | $ 364,000 |
2. Basis of Presentation and Significant Accounting Policies: Deferred Tax Asset (Details) |
Oct. 31, 2021
USD ($)
|
|---|---|
| Details | |
| Operating Loss Carryforwards | $ 26,812,000 |
| Operating Loss Carryforwards, indefinite lived | 14,032,000 |
| Operating Loss Carryforwards, will expire in various tax years | $ 12,780,000 |
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 | 9 Months Ended | ||
|---|---|---|---|---|
Jul. 31, 2022 |
Jul. 31, 2021 |
Jul. 31, 2022 |
Jul. 31, 2021 |
|
| Details | ||||
| Weighted average number of common shares outstanding - basic | 7,712,091 | 7,712,091 | 7,712,091 | 7,712,091 |
| Effect of dilutive stock options | 0 | 0 | 0 | 36,360 |
| Weighted average number of common shares outstanding - diluted | 7,712,091 | 7,712,091 | 7,712,091 | 7,748,451 |
| Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | 1,452,500 | 1,472,500 | 1,452,500 | 1,277,500 |
2. Basis of Presentation and Significant Accounting Policies: Stock-based Compensation (Details) - USD ($) |
9 Months Ended | |
|---|---|---|
Jul. 31, 2022 |
Jul. 31, 2021 |
|
| Details | ||
| Share-Based Payment Arrangement, Noncash Expense | $ 37,000 | $ 65,000 |
4. Leases: Schedule of lease costs and other information relating to the Company's operating leases (Details) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Jul. 31, 2022 |
Jul. 31, 2021 |
Jul. 31, 2022 |
Jul. 31, 2021 |
|
| Details | ||||
| Operating lease cost | $ 31,441 | $ 46,969 | $ 85,806 | $ 144,104 |
| Short-term lease cost | 3,398 | 17,848 | 10,335 | 56,555 |
| Variable lease cost | $ 2,093 | $ 1,414 | 6,338 | $ 8,867 |
| Operating cash flows from operating leases | 106,392 | |||
| Right-of-use assets obtained in exchange for new operating lease liabilities | $ 0 | |||
| Operating Lease, Weighted Average Remaining Lease Term | 3 years 9 months 7 days | 3 years 9 months 7 days | ||
| Operating Lease, Weighted Average Discount Rate, Percent | 9.75% | 9.75% | ||
4. Leases: Schedule of Future Minimum Rental Payments for Operating Leases (Details) |
Jul. 31, 2022
USD ($)
|
|---|---|
| Details | |
| Operating Leases, Future Minimum Payments, Remainder of Fiscal Year | $ 29,713 |
| Operating Leases, Future Minimum Payments, Due in Two Years | 117,944 |
| Operating Leases, Future Minimum Payments, Due in Three Years | 116,657 |
| Operating Leases, Future Minimum Payments, Due in Four Years | 96,523 |
| Operating Leases, Future Minimum Payments, Due in Five Years | 57,806 |
| Operating Leases, Future Minimum Payments, Due Thereafter | 9,873 |
| Operating Lease Liability, Gross | 428,516 |
| Operating Leases Future Minimum Payments Interest Included In Payments | (67,462) |
| Operating Lease, Liability | $ 361,054 |
4. Leases: Schedule of Maturities of Contractual Obligations Relating to Operating Leases (Details) |
Jul. 31, 2022
USD ($)
|
|---|---|
| Details | |
| Operating Lease Obligations Maturities Repayments Of Principal, Remainder Of Fiscal Year | $ 28,180 |
| Operating Lease Obligations Maturities Repayments Of Principal, In Year Two | 113,495 |
| Operating Lease Obligations Maturities Repayments Of Principal, In Year Three | 115,082 |
| Operating Lease Obligations Maturities Repayments Of Principal, In Year Four | 96,523 |
| Operating Lease Obligations Maturities Repayments Of Principal, In Year Five | 57,806 |
| Operating Lease Obligations Maturities Repayments Of Principal, Thereafter | 9,873 |
| Operating Lease Obligations Maturities Repayments Of Principal | $ 420,959 |
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