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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
| X | Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended October 31, 2014
OR
| _ | Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the transition period from ___ to ___
Commission file number 0-7642
PASSUR AEROSPACE, INC.
(Exact Name of Registrant as Specified in Its Charter)
New York 11-2208938
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Landmark Square, Suite 1900, Stamford, Connecticut 06901
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: 203-622-4086
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes [ ] No [X]
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the Registrant has submitted electronically and
posted on its corporate Website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the Registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See the definitions of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ]
(Do not check if a smaller reporting company) Smaller reporting company [X]
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Act). Yes [ ] No [X]
The aggregate market value of the voting shares of the Registrant held by
non-affiliates as of April 30, 2014 was $5,244,000
The number of shares of common stock, $0.01 par value,
outstanding as of January 12, 2015 was 7,672,026
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 2015 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days of October 31, 2014, are incorporated by reference into Part III
of this Form 10-K.
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Forward Looking Statements
The consolidated financial information provided in this Annual Report on Form
10-K (including, without limitation, "Management's Discussion and Analysis of
Financial Condition and Results of Operations", and "Liquidity and Capital
Resources", below) contains "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 regarding the Company's
future plans, objectives, and expected performance. The words "believe," "may,"
"will," "could," "should," "would," "anticipate," "estimate," "expect,"
"project," "intend," "objective," "seek," "strive," "might," "likely result,"
"build," "grow," "plan," "goal," "expand," "position," or similar words, or the
negatives of these words, or similar terminology, identify forward-looking
statements. These statements are based on assumptions that the Company believes
are reasonable, but are subject to a wide range of risks and uncertainties, and
a number of factors could cause the Company's actual results to differ
materially from those expressed in the forward-looking statements referred to
above. These factors include, without limitation, the risks and uncertainties
discussed under "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the uncertainties related to the
ability of the Company to sell PASSUR(R) Network Systems information
capabilities in its existing product and professional service lines, as well as
in new products and professional services (due to potential competitive pressure
from other companies or other products), as well as the current uncertainty in
the aviation industry due to terrorist events, the continued war on terrorism,
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; (3) its ability to
secure future financing. Readers are cautioned not to place undue reliance on
these forward-looking statements, which relate only to events as of the date on
which the statements are made and which reflect management's analysis,
judgments, belief, or expectation only as of such date. The Company undertakes
no obligation to publicly update any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
Readers are advised, however, to consult any further disclosures we make on
related subjects in our Forms 10-Q and 8-K.
PART I
ITEM 1. BUSINESS
PASSUR Aerospace, Inc. ("PASSUR(R)" or the "Company") is a business
intelligence, predictive analytics, and big data company. Our mission is to
connect the world's aviation professionals onto a single platform to improve
global air traffic efficiencies.
PASSUR(R) has a broad and global customer network. PASSUR(R)'s products are used
by all of the top North American airlines, over 125 airlines worldwide, over 60
airports including 73% of the top 30 airports, approximately 200 business
aviation organizations, and the US government.
Our core business addresses some of aviation's most intractable and costly
operational and financial challenges, including underutilization of airspace and
airport capacity, delays, cancellations, and diversions. Several studies have
put the annual direct costs to the system of such inefficiencies at over $30
billion.
Solutions offered by PASSUR(R) cover the entire flight life cycle, from gate to
gate, and result in reductions in overall costs, fuel costs, and emissions,
while maximizing revenue opportunities, as well as improving operational
efficiency, and enhancing the passenger experience. The Company provides data
consolidation, information, decision support, predictive analytics,
collaborative solutions, and professional services.
We provide airlines and airports the ability to get the most out of today's air
traffic management system. As the FAA brings new capabilities online, we, with
our customers, will have the ability to develop additional efficiency solutions.
Essentially all commercial companies using the airspace depend on information
from the FAA for flight tracking. PASSUR(R) augments and integrates FAA
information with data from PASSUR(R)'s independent network (the largest passive
commercial radar network in the world), which has over 180 radar locations
covering North America from coast to coast. PASSUR(R) provides faster aircraft
position updates (from one to 4.6 seconds), and more complete information on
aircraft. PASSUR(R)'s sensors receive aircraft and drone signals in Mode A, C,
S, and Automatic Dependent Surveillance-Broadcast ("ADS-B"), providing position,
altitude, beacon code, and tail number, among other information.
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PASSUR(R) receives signals from aircraft that, when combined with our historical
database of aircraft and airport behavior, including that recorded by our
network over the last 10 years, allows us to know more about what has happened
historically, and what is happening in real-time. In addition, the historical
database, also accessible in real-time, allows us to predict how aircraft, the
airspace, and airports are going to perform, and more importantly, how the
aircraft, the airspace, and airport should perform.
PASSUR(R) offers companies products that are commercially proven, commercially
accepted, and with a demonstrated Return on Investment ("ROI") for airlines and
airports - providing a critical bridge between the commercial and government
opportunities of the Federal Aviation Administration's ("FAA") Next Generation
Air Transportation System ("NextGen"), the new National Airspace System due for
implementation across the United States in stages over the next 10 years.
NextGen proposes to transform the U.S. air traffic control system from an aging
ground-based system to a satellite-based system.
PASSUR(R) CORE CAPABILITIES
PASSUR(R) INTEGRATED TRAFFIC MANAGEMENT
PASSUR(R) Integrated Traffic Management ("PITM") is, in the Company's opinion,
the industry's first, fully integrated air traffic management suite. The PITM
platform provides an opportunity to sell a full, interconnected product suite,
all at one time, to any one customer. PITM provides the ability to more easily
sell additional solutions to existing PASSUR(R) customers, and is well-suited to
the seamless introduction of enhancements.
PITM is a metrics-focused, Key Performance Indicator ("KPI") driven solution
suite - allowing the customer to first view the most critical information for
its operation, and then, as necessary, enabling the user to drill down for
better visualization and analysis.
PITM focuses on the major operational constraints, from diversions, to airspace
and surface optimization, to hub optimization. The platform connects multiple
organizations onto one platform - providing a collaborative experience. It
allows for problem resolution between organizations in areas such as departure
metering or airspace and hub optimization. PITM is also a platform enabling
PASSUR(R)'s partner companies to provide their solutions to PASSUR(R)'s
customers. PITM is fully web-delivered - allowing easy access from any
web-accessed location.
INTEGRATED SURVEILLANCE NETWORK AND INTEGRATED AVIATION DATABASE
The Company operates what it believes to be the largest and most extensive
private commercial aircraft and airspace passive surveillance networks in the
world. The PASSUR(R) Network integrates additional key surveillance sources, to
include (ADS-B, ASDE-X, Mode S, en Route Radar, Airline OOOI data, ACARS, fleet
databases, as well as other sources).
The PASSUR(R) Network creates a direct data feed of critical flight and airspace
behavior and conditions, an essential precursor resource for predictive
analytics, real-time decision support, and performance analysis tools.
All the surveillance data acquired by the PASSUR(R) Network is integrated and
correlated into specialized databases to support predictive, real-time, and post
operational requirements. PASSUR(R) databases consolidate multiple overlapping
data sets to ensure completeness, accuracy, fulfillment of specific operational
requirements, and the normalization of data for a single-source authoritative
record of operational performance. The data processed in these master data
repositories supports the key capabilities and attributes of the PASSUR(R)
software.
PREDICTIVE ANALYTICS
PASSUR(R) decision support solutions are supported by predictive analytics
algorithms, which use extensive historical data mining and pattern recognition
to predict specific and detailed operating conditions, as well as dynamic
predictions based on the extrapolations of real-time surveillance data.
PASSUR(R) predictive analytics are built on several core capabilities:
o Real-time surveillance from the PASSUR(R) Network gives the necessary breadth
and granularity of data to support detailed scenario building and pattern
recognition. Includes "fast-time simulation" of the airport surface and terminal
area operation, applying the necessary decisions and constraints that
controllers will have to apply in managing the traffic, as well as, addressing
the highly nonlinear and non-stationary nature of the airport operating
environment.
o Archiving and accessing years of historical data in real-time; the detailed,
granular data acquired by the PASSUR(R) Network, supplemented by many other data
sources collected within the integrated aviation database, is stored and
correlated, providing the large sample sizes required to accurately model future
performance based on past performance under similar or identical conditions.
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o PASSUR(R) is recognized by airlines as having the best Estimated Times of
Arrival (ETAs) in the industry. Over 5 different airlines have informed us that
PASSUR(R)'s ETAs were better than their ETAs.
DECISION SUPPORT DASHBOARDS, KPIS, AND MANAGEMENT BY EXCEPTION
Many PASSUR(R) solutions are delivered in "dashboard" format, simplifying and
condensing extensive amounts of information into the most relevant operational
and business metrics, thereby presenting them in a manner that supports
immediate performance assessment and actionable decisions. PASSUR(R) solutions
are designed so that users are alerted in real-time to specific conditions and
recommended action, only when operations reach certain user-defined thresholds,
thereby preventing information overload.
COLLABORATIVE CAPABILITIES AND INDUSTRIAL NETWORKS
Many PASSUR(R) solutions include a collaborative layer plus tools which allow
for instant information sharing, coordination of effort, and working with a
common operating picture across a wide range of users in the aviation community.
These include industrial networking capabilities, which leverage new
technologies for business uses in the aviation sector, such as PASSUR(R)'s
Airport Information Network(TM) (a single North American wide site for real time
airport conditions, diversion management, and delay mitigation, used by hundreds
of aviation professionals in real time).
PROFESSIONAL SERVICES TO SUPPORT BIG DATA
Many business intelligence and big data experts believe the most effective and
meaningful way to implement big data is to target the data to the appropriate
problem (in this case the need to optimize the efficiency of the airspace)
through the advice and recommendations of industry experts.
The Company has experienced airline, air traffic, airport intelligence,
financial, operational metrics, and business aviation professionals, with
specific expertise in the operational and business needs, requirements,
objectives, and constraints of the aviation industry.
These individuals understand the external environment in which they operate (the
"National Airspace System"); and are able to translate these internal
requirements and external conditions into targeted information solutions. These
subject matter experts are complemented by a technical team of software
engineers, data analysts, radar engineers, database architects, physicists, and
statisticians, who have years of expertise in managing complex surveillance
networks (hardware and software), as well as interpreting and converting
complex, live aviation data feeds into robust decision support software
solutions.
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SPECIFIC PRODUCTS AND SERVICES
The Company offers targeted solutions for specific customer requirements:
Key growth drivers
Category Solutions PASSUR(R) solution description
---------------- --------------- ----------------------------------------------- -----------------------------------------------
[] Solutions that focus on the [] Collaboration within and between airports
"throughput" rate of the operation - is a world-wide trend
the efficiency with which planes cycle
through the arrival-surface-departure- [] Surface Management, Departure Metering, and
SURFACE en-route-arrival cycle Airspace Optimization are key NextGen
MANAGEMENT, capabilities, which the Company believes
DEPARTURE [] Improving traffic throughput in the air will most likely be mandated at the top 20
EFFICIENCY METERING, and on the surface, addressing key airports in the coming years
AIRSPACE bottle-necks in demand / capacity
OPTIMIZATION currently [] Worldwide opportunity for optimizing a
[] PASSUR(R) Surface (SMLAT) - a low cost, fragmented capability, addressing
effective way to introduce surface required information through automation and
surveillance at an airport, either to standardization
extend coverage to areas that are not
currently within an existing surface [] Drive to provide smarter flight deck
surveillance system's capture, or to solutions
introduce surface surveillance to an
airport which doesn't have any
---------------- -- --------------- ----------------------------------------------- ------------------------------------------------
[] Solutions that address the hub [] An accurate estimated time of arrival
management areas of aircraft arrivals, ("ETA") is essential for airline operation
ARRIVAL gate management resources, turn times - and is also one of the foundational
MANAGEMENT, and connections elements of Trajectory Based Operations, a
HUB ETA huge new market segment
OPTIMIZATION SOLUTION, HUB [] Closely related to efficiency solutions
CONTROL (above) that focus on throughput, but [] Optimizing the hub is a key revenue and
CENTER with a specialized emphasis on the cost focus for airlines - and these
SOLUTIONS ETA arrival component solutions address many key hub business
metrics for airlines and airports
[] Drive to provide smarter flight deck
solutions
---------------- -- --------------- ----------------------------------------------- ------------------------------------------------
[] Comprehensive solutions, including [] Diversion management is one of the top
DIVERSION flight deck solutions, addressing two operational focus areas for airlines and
MANAGEMENT, related, high profile expensive and airports
DIVERSION TARMAC DELAY disruptive problems - diversions and
AND TARMAC MANAGEMENT extended on board tarmac delays - which [] Tarmac delay and possible related fines
DELAY now have the added complication of are a major focus for airlines and
being directly associated with airports
potential fines of millions of dollars
per event along with very damaging [] Drive to provide smarter flight deck
negative publicity solutions
---------------- -- --------------- ----------------------------------------------- ------------------------------------------------
[] Leveraging unique assets (including [] Similar to Smart Cities, Smart Airports,
REVENUE data from PASSUR(R)'s radar surveillance through the use of big data, will be a
MANAGEMENT, network) to power other aviation very large opportunity
BIG DATA/ COST systems, and into decision support
DASHBOARD MANAGEMENT dashboards, which aggregate, correlate, [] Integrating smart data solutions into
EXECUTIVE and simplify many different data sets bigger Enterprise Resource Planning
DECISION and information points and present them solutions will be essential for large
MAKING in a way which supports management by airports and airlines
exception and metric-driven management
[] Governments want to know everything
possible about the threats posed by
General Aviation aircraft
[] Improving the fuel pricing and reducing
unnecessary staffing costs for fixed-based
operators ("FBOs") is critical for their
margin growth
---------------- -- --------------- ----------------------------------------------- ------------------------------------------------
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SURVEILLANCE GATE TO GATE [] Knowing everything there is to know [] Gate to gate tracking is the goal of all
AND FLIGHT FLIGHT about a specific flight throughout the aviation organizations and flight and
DATA OBJECT TRACKING AND entire "flight lifecycle" from airspace visualization will always be a
FULL FLIGHT departure to arrival requirement
KNOWLEDGE
[] Consolidating/fusing multiple live [] Flight Data Object is a major NextGen
data sources seamlessly to create a Project
gate-to-gate visualization of live
flight movement and airspace/surface
conditions over integrated moving maps
[] Also referred to as "Flight/NAS
Object"
[] Also forms the basis for many of our
archived / historical data sets
[] This information is key for the
government to track multiple flight
legs
The Company believes its products, solutions, and services help its aviation
customers generate significant returns by:
(1) Improving financial performance and cutting costs;
(2) Improving operational efficiency and effectiveness;
(3) Increasing safety and security; and
(4) Improving the passenger experience.
The Company believes its business opportunities come from the following industry
conditions and demand drivers:
[] AIRLINES HAVE MONEY TODAY AND ARE WILLING TO INVEST IN TECHNOLOGY
Airlines are profitable and are expected to increase spending on
technology, particularly when the technology can lower costs, increase
revenue and improve customer satisfaction.
[] A COMBINATION OF SAFETY-BASED AIR TRAFFIC MANAGEMENT AND EFFICIENCY-BASED
AIR TRAFFIC MANAGEMENT
Large government contracts are expected to combine both safety and
efficiency capabilities. Many of the requested efficiency capabilities are
derived from our airline and airport customer's needs.
[] SOME OF OUR AIRLINE CUSTOMERS HAVE ASKED US TO BE THEIR COLLABORATIVE
DECISION MAKING VEHICLE
Large airlines need collaborative decision vehicles including common
operating platforms, enabling instant coordination between Sys Ops, hubs
and regional operators, and between airlines and airports, to solve complex
operational procedures.
[] SHIFT FROM GOVERNMENT TO COMMERCIAL SPENDING
Governments in the US, Canada, and Europe are turning to private industry
to develop many of the higher-level capabilities that build on those basic
infrastructure investments.
[] SHIFT FROM HARDWARE TO INFORMATION
Across almost all industries there has been a continuous movement from
selling hardware to selling information, big data, and predictive
analytics. Much greater value is placed on the information being generated
from hardware than the value of the hardware itself.
[] COMMON USE SYSTEMS FROM AIRLINE TO AIRPORT CENTRIC
Airports are increasingly being tasked with providing more operational
services previously provided by each airline (which led to redundant costs
and inefficient business and operational practices). When airports provide
collective services, redundancy and costs can be reduced.
[] AUTOMATION VS. MANUAL PROCESSES
Many complex and expensive operational processes at airlines and airports
are still manual, opening a large opportunity for automation for cost
savings and efficiencies. This is especially true of anything relating to
irregular operations, airspace and surface management, and operations with
a heavy requirement for collaboration among airlines and airports.
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[] AIRLINES ARE CONSOLIDATING INTO MUCH LARGER NETWORKS OF GREATER COMPLEXITY
There is higher demand for a common operating platform that can service
their entire system.
[] THE TRAVELING PUBLIC WILL NO LONGER ACCEPT SEVERE DISRUPTIONS
Public policy in the form of expensive fines levied on airlines reflects
this change of attitude.
[] CARBON EMISSIONS ARE BECOMING A GREATER FOCUS
Airlines are increasingly sensitive to the industry's carbon footprint.
[] ADS-B DATA AVAILABILITY WILL INCREASE
ADS-B will eventually become a ubiquitous form of aircraft surveillance.
PASSUR(R)'s entire network is ADS-B ready. Many overseas markets have no
legacy ground-based radar, and will be ADS-B dependent as they grow.
[] CONSUMERS WANT BETTER INFORMATION RELATING TO AVIATION
There is a need for more detailed, accurate and timely information to
improve predictability in the travel experience, requiring data and
predictive analytics, independent of any one carrier.
The Company currently owns nineteen issued patents, and has an additional
thirteen patent applications which are pending with the United States Patent
Office. The issued patents expire in various years through 2031.
The Company also owns a federal trademark registration in the mark PASSUR(R) for
use with both the PASSUR(R) hardware system installation, and the software
products which use the data derived from the PASSUR(R) Network and other
sources; and allowed federal trademark applications for the marks NextGen2 and
NextGen3, for use with PASSUR(R) Integrated Traffic Management modules and
capabilities.
HOW PASSUR AEROSPACE, INC. GENERATES REVENUE
The Company's revenues are generated by selling: (1) subscription-based,
real-time decision and solution information; (2) professional services; and (3)
annual maintenance contracts for PASSUR(R) Radar Systems. Under the subscription
model, the customer signs, at a minimum, a one-year contract for access to the
information services. The agreement also provides that the information from the
PASSUR(R) Network cannot be resold, used by others, or used for unauthorized
purposes.
DISTRIBUTION METHOD
The Company's direct sales force sells its products, as well as authorized
distributors who sell PASSUR(R)'s products as part of their total solution, e.g.
for environmental management.
COMPETITION
PASSUR(R) has developed a full suite of capabilities to reduce inefficiencies
and improve performance across the markets it serves. There is no other company,
to the best of PASSUR(R)'s knowledge, which offers these capabilities. There
are, however, other forms of flight tracking, surveillance, and aviation
business intelligence products. Depending on the end use of the Company's
products, primary competitors include Sabre Systems, Inc., Airbus Industries,
Lockheed Martin Corporation, Saab Sensis Corporation, and Excelis. The Company
also sells certain data solutions through systems integrators, including Bruel &
Kjaer, some of whom may also sell products that are competitive with those
offered by the Company. Most of these companies have larger sales forces and
greater financial resources than the Company.
SOURCE OF MATERIALS
The Company obtains its components from distributors and manufacturers
throughout the United States. The Company has multiple sources from which to
obtain a majority of its components.
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DEPENDENCE ON CERTAIN CUSTOMERS
Two customers accounted for 24% or $2,707,000 of total revenues in fiscal year
2014 and one customer accounted for 11% or $1,269,000 of total revenues in
fiscal year 2013. There were no significant accounts receivable balances for
these customers as of the fiscal year ended October 31, 2014.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts include activities associated
with the enhancement, maintenance, and improvement of the Company's existing
hardware, software, and information products. These expenses amounted to
$673,000 and $635,000 in fiscal years 2014 and 2013, respectively.
ENVIRONMENTAL COSTS
The Company is not aware of any environmental issues which would have a material
adverse effect on future capital expenditures or current and future business
operations.
EMPLOYEES
The Company employed thirty-seven employees, of which thirty-two were full time,
including nine officers, as of October 31, 2014. None of its employees are
subject to any collective bargaining agreements.
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ITEM 1A. RISK FACTORS
THE COMPANY'S SUCCESS IS DEPENDENT ON THE AVIATION INDUSTRY. IF THE COMPANY DOES
NOT EXECUTE ITS BUSINESS PLAN, OR IF THE MARKET FOR ITS SERVICES FAILS TO
DEVELOP DUE TO ECONOMIC AND OTHER FACTORS AFFECTING THE AVIATION INDUSTRY, THE
COMPANY'S RESULTS OF OPERATIONS AND FINANCIAL RESULTS COULD BE ADVERSELY
AFFECTED.
The Company's revenues are solely derived from the aviation industry. The
Company's future revenues and results of operations are dependent on its
continued execution of its subscription-based revenue strategy and development
of new software solutions and applications for the aviation industry. Due to
economic and other factors affecting the aviation industry, there is no
assurance that the Company will be able to continue to report growth in its
subscription-based business or sustain its current subscription business. If the
Company is unable to sustain and/or increase its levels of revenues, and if it
is not successful in reducing costs, its cash requirements may increase and
results of operations will be adversely affected.
Additionally, the aviation industry has been impacted by budgetary constraints,
as well as airline bankruptcies and consolidations, changes in fuel costs, the
terrorist events of September 11, 2001, and the continued war on terrorism. The
terrorist attacks of September 11, 2001 caused fundamental and permanent changes
in the airline industry, including substantial revenue declines and cost
increases, which resulted in industry-wide liquidity issues. Additional
terrorist attacks, or fear of such attacks, even if not made directly, would
negatively affect the airline industry (through, for example, increased
security, insurance, and other costs, and lost revenue due to increased ticket
refunds and decreased ticket sales), which would, in turn, negatively affect the
Company.
The aviation industry is extensively regulated by government agencies,
particularly the Federal Aviation Administration and the National Transportation
Safety Board. New air travel regulations have been, and management anticipates
will continue to be, implemented that could have a negative impact on airline
and airport revenues. Since substantially all of the Company's current revenues
are derived from either airport, airline, or related businesses, continued
increased regulations of the aviation industry, or a continued downturn in the
aviation industry's economic situation, could have a material adverse effect on
the Company.
RELIANCE ON THE COMPANY'S QUARTERLY OPERATING RESULTS AS AN INDICATION OF FUTURE
RESULTS IS INAPPROPRIATE DUE TO POTENTIALLY SIGNIFICANT FLUCTUATIONS.
The Company's future revenues and results of operations may fluctuate
significantly due to a combination of factors, including:
o Delays and/or decreases in the signing and invoicing of new contracts;
o The length of time needed to initiate and complete customer contracts;
o The introduction and market acceptance of new and enhanced products
and services;
o The costs associated with providing existing and new products and
services;
o Economic conditions and the impact on the aviation industry of the
terrorist events of September 11, 2001 and the continued war on
terrorism; and
o The potential of future terrorist acts against the aviation industry
and the adverse effects of any further terrorist attacks or other
international hostilities.
Accordingly, quarter-to-quarter comparisons of its results of operations should
not be relied upon as an indication of performance.
THE COMPANY MAY BE UNABLE TO RAISE ADDITIONAL FUNDS TO MEET OPERATING CAPITAL
REQUIREMENTS IN THE FUTURE.
While the Company's operations were cash flow positive for the fiscal years
ended October 31, 2014 and 2013, and has a history of profitable operations for
nine years, future liquidity and capital requirements are difficult to predict,
as they depend on numerous factors, including the maintenance and growth of
existing product lines and service offerings, as well as the ability to develop,
provide, and sell new products and services in an industry for which liquidity
and resources are already adversely affected.
9
In recent years, the Company has generated significant cash to meet its capital
requirements, and is expected to continue to do so in the future. However, in
future years, the Company may need to raise additional funds in order to support
discretionary capital expenditures and execute its business plan. These funds,
in some cases, may be beyond its scope and normal operating requirements. In
such case, the Company may be required to seek alternate sources of financing
(which may not be available on favorable terms or at all) or abandon such
activities by either: (1) terminating or eliminating certain operating
activities; (2) terminating personnel; (3) eliminating marketing activities;
and/or (4) eliminating research and development programs. If any of the
aforementioned occurs, the Company's ability to expand could become adversely
affected.
THE COMPANY, MORE THAN NINE YEARS AGO, INCURRED OPERATING LOSSES AND NEGATIVE
CASH FLOWS FROM OPERATIONS.
The Company has been profitable for the current and previous nine fiscal years.
The Company had income before taxes of $863,000 and $637,000 for fiscal years
ended October 31, 2014 and 2013, respectively. The Company's ability to maintain
profitability will depend upon its ability to generate significant increased
revenues through new and existing customer agreements, additional services,
and/or products offered to existing and new customers, as well as to deploy
PASSUR(R) Systems in inventory and control costs associated with business
operations. There can be no assurance that the Company will be able to execute
on these requirements. The Company is profitable but may not be able to sustain
or increase its profits on a quarterly or annual basis in the future.
A LIMITED NUMBER OF CUSTOMER CONTRACTS ACCOUNTS FOR A HIGH PERCENTAGE OF THE
COMPANY'S REVENUES, AND THE INABILITY TO REPLACE A KEY CUSTOMER CONTRACT COULD
ADVERSELY AFFECT ITS RESULTS OF OPERATIONS, BUSINESS, AND FINANCIAL CONDITION.
The Company relies on a small number of customer contracts for a large
percentage of its revenues and expects that a significant percentage of its
revenues will continue to be derived from a limited number of customer
contracts. The Company's top five customers accounted for 46% of its revenue in
fiscal year 2014. The Company's business plan is to obtain additional customers,
but the Company anticipates that near-term revenues and operating results will
continue to depend on large contracts from a small number of customers.
Additionally, the aviation industry, particularly the airline sector, has
experienced bankruptcies and consolidations recently. Bankruptcy filings or
consolidations by our existing customers may adversely affect our ability to
continue such services and collect payments due to the Company by such
customers. As a result of this concentration of our customer base, an inability
to replace one or more of these large customer contracts could materially
adversely affect our business, financial condition, operating results, and cash
flow.
THE SOFTWARE BUSINESS FOR THE AVIATION INDUSTRY IS HIGHLY COMPETITIVE, AND
FAILURE TO ADAPT TO THE CHANGING INDUSTRY NEEDS COULD ADVERSELY AFFECT OUR
RESULTS OF OPERATIONS, BUSINESS, AND FINANCIAL CONDITION.
The industry in which we compete is marked by rapid and substantial technology
change, the steady emergence of new companies and products, as well as evolving
industry standards and changing customer needs. We compete with many established
companies in the industry we serve, and some of these companies may have
substantially greater financial, marketing, and technology resources, larger
distribution capabilities, earlier access to potential customers, and greater
opportunities to address customers' various information technology requirements.
As the aviation industry seeks to be more cost effective, product pricing
becomes increasingly important for our customers. As a result, we may experience
increased competition from certain low-priced competitors. We continue to
develop new products, professional services, and existing product enhancements,
but may still be unsuccessful in meeting the needs of our industry in light of
other alternatives available in the market. In addition, the pricing of new
products, professional services, and existing product enhancements may be above
what is required by the market place. Should the Company's investment in
capitalized software development costs become impaired, there would be a
negative impact on the Company's profitability. Our inability to bring new
products, professional services, and existing product enhancements to the market
in a timely manner, or the failure to achieve industry acceptance, could
adversely affect our business, financial condition, operating results, and cash
flow.
THE COMPANY DEPENDS UPON CERTAIN KEY PERSONNEL AND MAY NOT BE ABLE TO RETAIN
THESE EMPLOYEES.
The Company's future performance depends on the continued services of its key
sales, technical, and engineering personnel. The Company continues to depend on
the efforts of a limited number of key personnel. The employment of any of the
Company's key personnel could cease at any time, which could have an adverse
affect on our business.
10
THE PASSUR(R) NETWORK COULD EXPERIENCE DISRUPTIONS, WHICH COULD AFFECT THE
DELIVERY OF DATA.
AT&T hosts and maintains the Company's network infrastructure through an
existing frame-relay and MPLS network and the Company's wireless network is
hosted and maintained by Sprint. If AT&T or Sprint experiences system failures,
or fails to adequately maintain the frame-relay MPLS and wireless networks, the
Company may experience interruption of delivery of data/software services and
customers may terminate or elect not to continue to subscribe to these services
in the future. The Company's network infrastructure may be vulnerable to
computer viruses, break-ins, denial of service attacks, and similar disruptive
problems. Computer viruses, break-ins, denial of service attacks, or other
problems caused by third parties, could lead to interruptions, delays, or
cessation in service to customers. There is currently no existing technology
that provides absolute security. Such incidents could deter potential customers
and adversely affect existing customer relationships.
THE COMPANY MAY BE SUBJECT TO NEW GOVERNMENT REGULATIONS RELATING TO THE
DISTRIBUTION OF FLIGHT-TRACKING DATA.
The Company currently maintains strict security regulations for its data in
order to comply with current government regulations. Due to the continued
growing safety needs and concerns of the aviation industry, new government
regulations may be implemented. Such new regulations may, in some cases, hinder
the Company's ability to provide current and/or additional services.
UNAUTHORIZED USE OF THE COMPANY'S INTELLECTUAL PROPERTIES BY THIRD PARTIES MAY
DAMAGE AND/OR ADVERSELY AFFECT ITS BUSINESS.
The Company regards its trademarks, trade secrets, and all other intellectual
property as critical to its future success. Unauthorized use of its intellectual
property by third parties may damage and/or impair its business. The Company
relies on trademarks, trade secrets, patent protection, and contracts, including
confidentiality and non-exclusive license agreements with its customers,
employees, consultants, strategic partners, and others, to protect its
intellectual property rights. Despite these precautions, it may be possible for
third parties to obtain and use the Company's intellectual property without its
prior knowledge and/or authorization. Prosecuting infringers could be time
consuming and costly, and, irrespective of whether or not the Company is
successful, could disrupt its business.
The Company currently owns nineteen issued patents, and has an additional
thirteen patent applications which are pending with the United States Patent
Office, some of which relate to newly developed internet-based software
applications. The issued patents expire in various years through 2031. The
Company intends to seek additional patents on its products, technological
advances, and/or software applications, when appropriate. There can be no
assurance that patents will be issued for any of its pending or future patent
applications, or that any claims allowed from such applications will be of
sufficient scope, or provide adequate protection or any commercial advantage to
the Company. Additionally, competitors may be able to design around patents and
possibly affect commercial interests.
The Company also owns a federal trademark registration in the mark PASSUR(R) for
use with both the PASSUR(R) hardware system installation, and the software
products which use the data derived from the PASSUR(R) Network and other
sources; and allowed federal trademark applications for the marks NextGen2 and
NextGen3, for use with PASSUR(R) Integrated Traffic Management modules and
capabilities. The PASSUR(R) NextGen2 and NextGen3 federal registrations will
allow the Company to enforce its rights in the marks in the federal court
system. The registrations do not assure that others will be prevented from using
similar trademarks in connection with related products and/or services.
DEFENDING AGAINST INTELLECTUAL PROPERTY CLAIMS COULD POSE SIGNIFICANT LEGAL AND
PROFESSIONAL COSTS, AND IF UNSUCCESSFUL, COULD ADVERSELY AFFECT THE COMPANY.
The Company cannot guarantee that its future products, technologies, and
software applications will not inadvertently infringe valid patents or other
intellectual property rights held by third parties. The Company may be subject
to legal proceedings and claims from time to time relating to the intellectual
property of others. Investigation of any such claims from third parties alleging
infringement of their intellectual property, whether with or without merit, can
be expensive and could affect development, marketing, selling, or delivery of
its products. Defending against intellectual property infringement claims could
be time consuming and costly, and, irrespective of whether or not the Company is
successful, could disrupt its business. The Company may incur substantial
expenses in defending against these third party claims, regardless of their
merit. Successful infringement claims against the Company may result in
significant monetary liability and could adversely affect its business,
financial condition, operating results, and cash flow.
11
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company's headquarters are located at One Landmark Square, Suite 1900,
Stamford, Connecticut, in part of a six building, 800,000 square foot office
park. Effective June 26, 2009, the Company entered into a five-year lease for
4,000 square feet of office space. This lease was modified during fiscal year
2010, extending the term of the original lease through January 31, 2018, and
adding 1,300 square feet of office space, resulting in a total average annual
rental rate of $230,000.
The Company's software development and manufacturing facility is located in a
one-story, 36,000 square foot building at 35 Orville Drive, Bohemia, New York.
The Company, which renewed the lease through October 31, 2015, leases 12,000
square feet at an average annual rental rate of $126,000.
The Company has satellite offices in Reston, Virginia; Bloomington, Minnesota;
and Orlando, Florida.
The Company believes these rates are competitive and are at or below market
rates. The Company's headquarters and software development and manufacturing
facility are suitable for its requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings to which the
Company or its Subsidiary is a party or to which any of its properties are
subject.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
(a) MARKET INFORMATION
The Company's Common Stock, par value $0.01 per share (the "Common Stock"), is
traded on the over-the-counter bulletin board.
The following table sets forth the reported high and low sales prices for the
Company's common stock for each quarterly period during the Company's last two
fiscal years, as reported by the National Quotation Bureau, Inc.:
PRICES*
PERIOD
HIGH LOW
FISCAL YEAR ENDED OCTOBER 31, 2014
FIRST QUARTER $3.15 $2.50
SECOND QUARTER $3.45 $2.71
THIRD QUARTER $3.50 $2.50
FOURTH QUARTER $4.00 $2.75
Fiscal year ended October 31, 2013
First quarter $4.45 $3.80
Second quarter $4.16 $3.10
Third quarter $3.59 $2.60
Fourth quarter $3.25 $2.50
* The quotations represent prices on the over-the-counter bulletin board
between dealers in securities and do not include retail markup, markdown,
or commission; and do not necessarily represent actual transactions.
(b) HOLDERS
The number of registered equity security holders of record as of January 12,
2015 was 211, as shown in the records of the Company's transfer agent.
(c) DIVIDENDS
The Company has never paid cash dividends on its shares. The Company does not
anticipate paying cash dividends in the foreseeable future.
13
(d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Information with respect to securities authorized for issuance under the
Company's equity compensation plans as of October 31, 2014 is as follows:
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE
ISSUED UPON EXERCISE OF EXERCISE PRICE OF NUMBER OF SECURITIES REMAINING
PLAN CATEGORY OUTSTANDING STOCK OPTIONS, OUTSTANDING STOCK AVAILABLE FOR FUTURE ISSUANCE UNDER
WARRANTS, AND RIGHTS (a) OPTIONS, WARRANTS, EQUITY COMPENSATION PLANS (EXCLUDING
AND RIGHTS SECURITIES REFLECTED IN COLUMN (A))
Equity compensation plan approved
by security holders 916,500 $2.64 910,500
Equity compensation plans not
approved by security holders -- -- --
-------------------------------------------------------------------------------------------
Total 916,500 $2.64 910,500
===========================================================================================
ITEM 6. SELECTED FINANCIAL DATA: Not Required.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. 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. The Company has identified the policies and estimates below as
critical to its business operations and the understanding of its results of
operations. The impact and any associated risks related to these policies on the
Company's business operations are discussed throughout Management's Discussion
and Analysis of Financial Condition and Results of Operations, where such
policies affect its reported financial results. The actual impact of these
factors may differ under different assumptions or conditions.
OVERVIEW
PASSUR(R) is a business intelligence, predictive analytics, and big data
Company. Our mission is to connect the world's aviation professionals onto a
single platform to improve global air traffic efficiencies.
PASSUR(R) has a broad and global customer network. PASSUR(R)'s products are used
by all of the top North American airlines, over 125 airlines worldwide, over 60
airports including 73% of the top 30 airports, approximately 200 business
aviation organizations, and the US government.
Our core business addresses some of aviation's most intractable and costly
operational and financial challenges, including underutilization of airspace and
airport capacity, delays, cancellations, and diversions. Several studies have
put the annual direct costs to the system of such inefficiencies at over $30
billion.
PASSUR(R) continues to develop business intelligence, big data, and
collaborative decision making products and more complete solutions, with
measurable results, for its customers around the world.
In fiscal year 2014, total revenue increased $455,000, or 4%, to $11,490,000,
from $11,035,000 in fiscal year 2013, primarily as a result of higher revenues
from the Company's airline and government customers, which was partially offset
by a decrease in business aviation revenue in fiscal year 2014. The profit
impact of this revenue increase was offset in part by increases in operating
costs and expenses of $276,000 or 3%, resulting in an overall increase in income
from operations of $179,000 to a level of $1,104,000 in fiscal year 2014, from
$925,000 in the prior year.
14
Our five major objectives are:
1. INCREASE OUR EMPHASIS ON REVENUE GROWTH IN PASSUR(R)'S CORE COMMERCIAL
MARKETS.
o 100% of the major North American airlines, over 125 of world-wide
airlines, and 73% of the top 30 US airports use at least one of
PASSUR(R)'s solutions.
o There were several major product introductions or new releases in
2014, among others: PASSUR(R) Surface Multilateration ("SMLAT"),
Surface Metering and Sequencing, Airport Surface Performance tools,
gate-to-gate Estimated Times of Arrival ("ETAs"), and international
expansion of the PASSUR(R) Collaborative Information Exchange
platform.
2. INTRODUCE THOSE SAME PRODUCTS DEVELOPED FOR THE COMMERCIAL MARKETS TO
THE GOVERNMENT MARKETS, CREATING A STANDARD PLATFORM BETWEEN THE COMMERCIAL
AND GOVERNMENT CUSTOMERS, THEREBY PROVIDING IMMEDIATE RETURNS WHILE
FACILITATING LARGER GOVERNMENT PROGRAMS. EXAMPLES INCLUDE:
o Through the sponsorship of our airline customers, the FAA now uses
PASSUR(R) solutions at multiple facilities throughout the US, creating
a common operating platform between airlines and air traffic control.
The PASSUR(R) solutions use metrics and tools that represent
commercial operator's priorities and perspectives, yet allow for a
data-driven, collaborative management of constraints and optimization
between these two critical aviation constituencies.
o Through an innovative program at a major northeastern US airport,
PASSUR(R) has introduced a new level of coordination between airlines
and the FAA to ensure the most optimal sequencing of arrivals and
departures to reduce on board delays and fuel burn. PASSUR(R)'s
solution was developed in collaboration with its airline customers and
the FAA to ensure a successful commercial-government partnership.
o We continue to assemble a program to assist operators and governments
to affordably and continuously track their aircraft to maintain
positive control at all times, and in the event of an incident or
accident, to predict, track, and provide immediate diagnostics.
3. DEVELOP STRATEGIC RELATIONSHIPS WITH MAJOR COMPANIES TO BROADEN THE
REACH OF PASSUR(R) PRODUCTS IN THE WORLD-WIDE COMMERCIAL AND GOVERNMENT
MARKETS. EXAMPLES INCLUDE:
o PASSUR(R) continues to work with various companies, like Raytheon
Company ("Raytheon"), to jointly provide integrated solutions to
assist the airline, airport, and air traffic management community save
money, enhance operational efficiency, increase safety and security,
and foster a reduction in the impact on the environment, as well as
enhance the passenger experience.
o In 2014, PASSUR(R) focused its partnership efforts on adapting its
existing departure metering and sequencing solutions to address the
needs of the anticipated FAA Terminal Flight Data Manager program.
4. FURTHER BUILD PASSUR(R)'S MARKET SHARE DOMESTICALLY AND INTERNATIONALLY.
EXAMPLES INCLUDE:
o In April 2013, PASSUR(R) launched a partnership with the IATA, which
resulted in development of the ITOP, PASSUR(R)'s introductory
collaborative system for global airlines, now used by 98 of IATA's
international airline members.
o In 2014, this capability was expanded to support IATA's operational
services in Brazil - initially to support the 2014 FIA World Cup
traffic, but since then has been extended.
5. FURTHER EXPAND THE REACH OF PASSUR(R)'S INNOVATIVE COLLABORATIVE
INFORMATION SHARING PLATFORM, WHICH BRINGS TOGETHER LOCAL, REGIONAL,
NATIONAL, AND INTERNATIONAL AVIATION STAKEHOLDERS IN REAL TIME TO MANAGE
COMPLEX, EXPENSIVE, AND DISRUPTIVE EVENTS.
o PASSUR(R) worked to ensure that PASSUR(R)'s collaborative platform was
used by key stakeholders to manage major events, including:
o Super Bowl XLVIII, February 2, 2014 - regional coordination among
all affected airports and surface departure metering on the
Monday after the Super Bowl.
o Chicago TRACON fire, May 14, 2014 - live coordination of holding
and diversions between airports, airlines, IATA, ACI, and NBAA to
ensure no single airport facility was overwhelmed
disproportionately with diversions (as occurred at Hartford, CT
on Oct. 29, 2011). There were 89 diversions from O'Hare
International Airport during the height of the event. 34
different airports handled the diversions and no single airport
handled more than 11% of the diversions.
15
o Chicago Center Fire, September 26, 2014 - Very similar
coordination and results to the Chicago TRACON fire on May 14,
2014.
o Los Angeles and Oakland ARTCC Outage, May 6, 2014.
o PASSUR(R) ITOP and Airport Information Network ("AIN") used
extensively during this event to manage airline/airport
coordination of diversions and airport status.
o Our global collaborative decision making program, when combined with our
national collaborative system (AIN), the local collaborative network
("PASSUR(R) OPSnet"), allowed us to further build market share, and scale
our business, with minimal incremental costs.
We believe these programs will continue to provide value to the Company and its
stockholders.
The Company's revenues are generated by selling: (1) subscription-based
real-time decision and solutions information; (2) professional services; and (3)
annual maintenance contracts for PASSUR(R) Radar Systems.
The Company's major product development and marketing achievements during fiscal
year 2014 are summarized below. The Company:
1. Continued to expand its surface management engagements with airlines and
airports. Surface management is a core enabling technology for traffic
management efficiency programs provided to both commercial and government
markets, including pending NextGen programs. Developments over the past
year include:
o Announced that Southwest Airlines contracted for PASSUR(R) Surface
Management for 35 US airports across its network to streamline turn
times, reduce fuel burn, and enhance on time performance.
o Launched SMLAT - a new ground-based sensor system to extend PASSUR(R)
coverage to runways and taxiways ("movement areas") as well as ramps,
alleyways, and throats ("non-movement areas"). SMLAT is a low-cost,
effective way to introduce surface surveillance at an airport, either
to extend coverage to areas that are not currently within an existing
surface surveillance system's capture, or to introduce surface
surveillance to an airport that doesn't have any. SMLAT uses passive
multilateration sensors to generate real-time data on aircraft and
vehicles moving on the airport's surface. This data is integrated with
other existing surface surveillance systems to expand the capabilities
for surface management of our PITM suite, a web-based integrated
business intelligence platform that targets key constraints throughout
the lifecycle of a flight to minimize fuel costs and emissions and to
improve schedule integrity and the passenger experience. SMLAT is
ADS-B enabled, making it readily adaptable to the growing deployment
of ADS-B equipped aircraft.
o Significantly enhanced its surface metering and sequencing solutions,
which are designed to optimize the flow of aircraft on departure and
arrival by minimizing taxi queue lengths, fuel burn, on-board delays,
schedule disruptions, and gate conflicts. Advances include:
o Introduced new automated processes that allow airlines to
coordinate departure and arrival sequences with FAA Air Traffic
Control Towers ("ATCT"), to better integrate airline business and
operational priorities with ATCT procedures. This allows airlines
to prioritize high value flights with on-time arrivals and
departures, and minimize fuel burn and taxi delays. This solution
takes advantage of investments made in NextGen surface
surveillance infrastructure.
o Introduced new automated processes into the PASSUR(R) de-icing
and runway departure metering solution, designed to make it
easier for airports to model and then manage the optimal
departure program, and for airlines to adjust their departure
preferences on the fly with minimal manual effort. This solution
is designed to keep departure taxi queues to a minimum, ensure
the shortest time between gate departure and takeoff, minimize
fuel burn, and reduce on-board delays. This solution takes
advantage of investments made in NextGen data sharing.
o Introduced several significant enhancements to the PASSUR(R)
surface visualization and performance solution ("Web Tracker"),
including tools to manage gate usage and status, track surface
non-aircraft vehicles, and to better analyze the performance of
the surface operation.
16
2. Launched a major enhancement to PASSUR(R)'s ETA predictive solution - now
expanding the predictive reach of PASSUR(R)'s ETA from "wheels up
departure" all the way to gate arrival. This extended predictive accuracy
window greatly enhances the value of PASSUR(R)'s ETA for airlines, allowing
them to optimize gate resources and turn times at highly constrained,
tightly scheduled airports, and more effectively manage the risks of "crew
timeouts" that are part of new, more stringent FAA rest regulations.
Multiple, independent airline studies have shown the PASSUR(R) ETA to be
the most accurate in the industry.
3. Expanded the integration of PASSUR(R)'s collaborative information sharing
platform, further integrating our local, regional, national, and
international airline, airport, and other industry stakeholder users into a
single resource for collaboration, communication, and coordination of major
events in real time. Major events that were managed in 2014 are described
above in the major objective section in item 5.
4. Expanded the footprint of the ITOP from the US to Brazil where, in
collaboration with IATA, the product was used for the FIFA Soccer World
Cup. As a result of the successful deployment during the World Cup,
participating airlines decided to continue the use of ITOP Brazil. ITOP is
a PASSUR(R) designed and hosted web platform that provides airlines
worldwide the ability to minimize same-day constraints in by providing
access to critical information about airspace and airport operations,
expert traffic management support, and real time alerts and updates - all
on a single, live, collaborative portal.
5. Launched PITM to an additional major US airline. This includes modules for
surface management and diversion management system-wide.
6. Expanded the capabilities of PASSUR(R) Integrated Traffic Management, a web
hosted integrated business intelligence platform that targets key
constraints through the entire life cycle of the flight, to optimize fuel
costs and emissions, schedule integrity, and the passenger experience. New
capabilities include:
o Enhanced forecasted weather capabilities, which drive the program's
terminal airspace throughput optimization predictions. Users can now
adapt their own preferred weather models directly into the ATC Portal
dashboard.
o Enhanced airport performance predictions, refined to allow users to
more easily match the weather prediction to the expected and optimal
performance of the airport.
o Expanded the number of airports configured for the System Metrics Key
Performance Indicator dashboard, which provides real time trend
indicators on the efficiency of key metrics in the traffic system.
o Added diversion and cancellation information to PASSUR(R)'s flagship
dashboard, PASSUR(R) Portal.
o Added several major enhancements to PASSUR(R) surface management
solutions.
7. Expanded the "data fusion" of the PASSUR(R) network, to support several
unique PASSUR(R) solutions such as diversion management and landing fee
management, among others. PASSUR(R) data fusion includes linking all
PASSUR(R)s into a single contiguous surveillance network, to ensure
seamless, high-resolution flight and airspace coverage throughout the
entire flight trajectory wherever a PASSUR(R) is located and integrating
and displaying multiple additional data sources. Including the addition
this year of ADS-B and ASSC for surface management and landing fee
management as well as a unique process for increasing the completeness and
accuracy of landings at an airport using an aircraft's beacon code and tail
number, which adds value to PASSUR(R)'s aviation fees and charges solution
delivered to airlines and airports.
8. Expanded PASSUR(R)'s role as a provider of real time and historical
business intelligence and customer service optimization tools to two of the
world's largest chains of FBOs. PASSUR(R)'s tools are used to ensure timely
servicing of aircraft and passengers, retention of customers within the
entirety of the FBO network, and targeting of high value prospects for
revenue growth.
9. Announced a collaboration with Raytheon to improve the predictability of
air travel, increase efficiencies for airlines, and create a safer, more
hassle-free travel experience for passengers. The cooperative agreement
includes the integration of PASSUR(R)'s business analysis and predictive
analytics decision support software with Raytheon's air traffic management
systems.
17
10. Announced an agreement with INFORM GmbH to develop enhanced
turn-management solutions for airlines and airports. The companies began to
connect their software and data for a launch project with a mutual airline
customer, one of the largest in the world. The combined solution will
deliver greater predictability, reliability, and schedule integrity, with
fewer delays and disruptions for airlines and airports.
11. Was awarded two major airport contracts after public competitions:
o Metropolitan Washington Airports Authority for surface management,
collaborative information sharing (including local, regional, national
and international connectivity), real time operational dashboards,
operational performance analysis, and aviation fees and charges
revenue management.
o Minneapolis St. Paul Metropolitan Airport Commission for collaborative
information sharing (including local, regional, national and
international connectivity), surface management, real-time operational
dashboards, and operational performance analysis.
12. Was awarded one additional patent, related to airport efficiency, bringing
the total number of PASSUR(R) patents to nineteen, with thirteen filed and
pending.
The Company's business plan is to continue to focus on increasing
subscription-based revenues from its suite of software applications, and to
develop new applications and professional services designed to address the needs
of the aviation industry and the US government. The Company's strategy is to
help solve problems faced by its customers and is built on the following basic
objectives: (1) continue extending the reach of the PASSUR(R) Network, which
provides the proprietary backbone for many of its solutions; (2) continue
integrating multiple additional industry data sets into its integrated aviation
database, including data from a variety of additional aircraft, airspace, and
ground surveillance technologies, in order to ensure that PASSUR(R) is the
primary choice for data integration and management for large aviation
organizations; (3) continue developing decision support solutions built on
business intelligence, predictive analytics, and web-dashboard technology; and
(4) continue developing the Company's professional service capabilities, in
order to ensure that its solutions can be fully implemented in the customer's
work environment, with minimal demand on the customer's internal resources.
The Company shipped twenty-one and installed five Company-owned PASSUR(R)
Systems during fiscal year 2014 (installations include systems shipped in the
current and previous fiscal year). The shipped and installed PASSUR(R) Systems
are capitalized as part of the Company-owned PASSUR(R) Network. The Company will
continue to expand the PASSUR(R) Network by shipping and installing additional
PASSUR(R) Systems throughout fiscal year 2015. Management anticipates that
future PASSUR(R) sites will provide increased coverage for the PASSUR(R) Network
by increasing the Company's ability to contract with new customers at such
locations, and by providing existing customers with additional data solutions.
The Company will continue to market the business intelligence, predictive
analytics, as well as decision support applications and solutions derived from
the PASSUR(R) Network, directly to the aviation industry and organizations that
serve, or are served by, the aviation industry. There were one hundred and
eighty-five Company-owned PASSUR(R) Systems located at airports worldwide at the
end of fiscal year 2014. Redundant PASSUR(R) Systems have been installed at
major customer locations.
REVENUES
Management concentrates its efforts on the sale of business intelligence,
predictive analytics, and decision support product applications, utilizing data
primarily derived from the PASSUR(R) Network. Such efforts include the continued
development of new products, professional services, and existing product
enhancements.
In fiscal year 2014, total revenue increased $455,000, or 4%, to $11,490,000,
from $11,035,000 in fiscal year 2013, primarily as a result of higher revenues
from the Company's existing customers as well as a new government customer,
which was partially offset by a decrease in business aviation revenue in fiscal
year 2014.
The Company provided services to all of the top 8 North American Airlines and
73% of the top 30 North American airports, in both fiscal years 2014 and 2013.
18
The Company continues to develop and deploy new software applications and
solutions, as well as a wide selection of products which address customers'
needs, easily delivered through web-based applications, as well as other new
products which include stand-alone professional services.
COST OF REVENUES
Costs associated with subscription and maintenance revenues consist primarily of
direct labor, depreciation of PASSUR(R) Network Systems, amortization of
capitalized software development costs, communication costs, data feeds,
allocated overhead costs, travel and entertainment, and consulting fees. Also,
included in cost of revenues are costs associated with upgrades to PASSUR(R)
Systems necessary to make such systems compatible with new software
applications, as well as the ordinary repair and maintenance of existing
PASSUR(R) Systems. Additionally, cost of revenues in each reporting period is
impacted by: (1) the number of PASSUR(R) System units added to the PASSUR(R)
Network, which include the production, shipment, and installation of these
assets, which are capitalized to the PASSUR(R) Network; and (2) capitalized
costs associated with software development and data center projects. Both of
these are referred to as "Capitalized Assets", and are depreciated and/or
amortized over their respective useful lives and charged to cost of revenues.
The Company does not break down its costs by product.
Cost of revenues decreased $664,000, or 12%, in fiscal year 2014, as compared to
fiscal year 2013, due in part to a decrease in communication costs of $214,000
(due to the adaptation of a lower cost network infrastructure) as well as a
decrease in compensation costs of $127,000, and an increase of $532,000 in
capitalized manufacturing, shipping and installation costs of PASSURs and
SMLATs, plus an increase of $286,000 in the capitalization of software
development costs. These reductions in cost of revenues were partially offset by
a $222,000 increase in depreciation and amortization costs and lower capitalized
labor and overhead of $271,000 at the Company's Orlando data center.
The increase in capitalized manufacturing costs of $299,000, and the increase in
capitalized costs of $233,000 for a total of $532,000, related to an increase in
the number of PASSUR(R)s and SMLAT units shipped and installed in the field
during the current fiscal year.
When the Company uses its employees to manufacture PASSUR(R)s and SMLAT Systems,
build capital assets, and ship and install PASSUR(R)s and SMLAT systems in the
field, there is a reduction in cost of revenues due to the fact that the
labor-related costs for these systems are capitalized, rather than expensed.
Most of the Company's other costs of revenue are fixed, so the increase in
revenue resulted in a decrease in cost of sales as a percentage of revenue from
52% to 44% in the current fiscal year.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts include activities associated
with new product development, as well as the enhancement and improvement of the
Company's existing hardware, software, and information products. Research and
development expenses increased $38,000, or 6%, in fiscal year 2014, as compared
to fiscal year 2013, primarily due to an increase in payroll and related costs
and travel and entertainment expenses.
The Company anticipates that it will continue to invest in research and
development to develop, maintain, and support existing and newly developed
applications for its customers. There were no customer-sponsored research and
development activities during fiscal years 2014 or 2013. Research and
development expenses are funded by current operations.
19
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenses increased $903,000, or 24%, in
fiscal year 2014, as compared to fiscal year 2013, due to an increase in payroll
and related costs of $477,000, as a result of an increase in headcount, as well
as increases in marketing expenses of $197,000 (primarily due to a user
conference-the prior conference was held in 2012 ), and higher travel and
entertainment expenses of $173,000.
INCOME FROM OPERATIONS
Revenues increased $455,000, or 4%, to $11,490,000, total costs and expenses
increased $276,000, or 3%, to $10,386,000, and income from operations increased
$179,000, or 19%, to $1,104,000 in fiscal year 2014 as compared to fiscal year
2013.
INTEREST EXPENSE - RELATED PARTY
Interest expense - related party decreased $47,000, or 16%, in fiscal year 2014,
as compared to fiscal year 2013, due to a reduction in note payable of $500,000
during fiscal year 2014 and a reduction of $400,000 in the principal amount of
the loan in the fourth quarter of fiscal year 2013.
INCOME BEFORE INCOME TAXES
Income before income taxes increased $225,000, or 35%, to $863,000 in fiscal
year 2014, as compared to fiscal year 2013, due to an increase in income from
operations of $179,000 and a reduction in interest expense of $47,000.
INCOME TAXES
The effective tax rate for fiscal year 2014 is 59.6%, as compared to 55.8% in
the previous fiscal year 2013. This increase is primarily due to an adjustment
to the historical deferred tax rate. The statuary income tax expense at 34% for
fiscal year 2014 is $294,000. This varies from the actual income tax expense of
$515,000 primarily due to $68,000 of permanent differences of meals and
entertainment and ISO stock compensation, state income of taxes of $87,000 (net
of federal benefit) and a change to the historical deferred tax rate of $67,000.
The Company's provision for income taxes in each year consists of current
federal, state, and local minimum taxes.
At October 31, 2014, the Company had available a federal net operating loss
carry-forward of $9,149,000 for income tax purposes, which will expire in
various tax years from fiscal year 2021 through fiscal year 2034. The Company
evaluates whether a valuation allowance related to deferred tax assets is
required each reporting period. A valuation allowance is established if, based
on the weight of available evidence, it is more likely than not that some
portion or all of the deferred income tax asset will not be realized. The
Company follows ASC 740, "Income Taxes", where tax benefits are recognized only
for tax positions that are more likely than not to be sustained upon examination
by tax authorities. The amount recognized is measured as the largest amount of
benefit that is greater than 50% likely to be realized upon ultimate settlement.
Unrecognized tax benefits are tax benefits claimed in tax returns that do not
meet these recognition and measurement standards. At October 31, 2014 and 2013,
the Company did not have any uncertain tax positions. As permitted by ASC
740-10, the Company's accounting policy is to prospectively classify accrued
interest and penalties related to any unrecognized tax benefits in its income
tax provision.
NET INCOME
The Company had net income of $348,000, or $0.04 per diluted share, in fiscal
year 2014 as compared to net income of $282,000, or $0.04 per diluted share, in
fiscal year 2013.
IMPACT OF INFLATION
In the opinion of management, inflation has not had a material effect on the
operations of the Company including selling prices, capital expenditures, and
operating expenses.
20
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liabilities exceeded current assets by $745,000 at October
31, 2014. The note payable to a related party, G.S. Beckwith Gilbert, the
Company's significant shareholder and Chairman, was $3,864,880 at October 31,
2014, with a maturity of November 1, 2016. The Company's stockholders' equity
was $11,073,000 at October 31, 2014. The Company had net income of $348,000 for
fiscal year 2014.
Management is addressing the Company's working capital deficiency by
aggressively marketing the Company's PASSUR(R) Network Systems information
capabilities in its existing product and professional service lines, as well as
in new products and professional services, which are continually being developed
and deployed. Management believes that 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.
If the Company's business plan does not generate sufficient cash flows from
operations to meet the Company's operating cash requirements, the Company will
attempt to obtain external financing.
During fiscal year 2013, the Company paid fiscal year 2013 interest to G.S.
Beckwith Gilbert, the Company's significant shareholder and Chairman, of
$288,000, representing the entire fiscal year 2013 interest due, thereby meeting
the payment requirements of the loan agreement. In the fourth quarter of 2013,
the Company made $400,000 in principal payments, bringing the principal amount
of the note payable due to G.S. Beckwith Gilbert to $4,364,880 on October 31,
2013.
During fiscal year 2014, the Company paid fiscal year 2014 interest to G.S.
Beckwith Gilbert of $241,000, representing the entire fiscal year 2014 interest
due, thereby meeting the payment requirements of the loan agreement. During
fiscal year 2014, the Company made $500,000 in principal payments, bringing the
principal amount of the note payable due to G.S. Beckwith Gilbert to $3,864,880
on October 31, 2014.
On June 11, 2014, the Company entered into a Debt Extension Agreement with G.S.
Beckwith Gilbert, effective June 11, 2014, pursuant to which the Company and Mr.
Gilbert agreed to modify certain terms and conditions of the Gilbert Note. The
maturity date of the Gilbert Note was due on November 1, 2014, and the total
amount of principal and interest due and owing as of June 11, 2014 was
$3,891,934. Pursuant to the Debt Extension Agreement, the Company issued a new
note to Mr. Gilbert in the principal amount of $3,864,880 (the "New Gilbert
Note") in exchange for the Gilbert Note and the Company agreed to pay the
accrued interest under the Gilbert Note as of June 11, 2014, in an amount equal
to $27,054, at the time and on the terms set forth in the Gilbert Note. Under
the terms of the New Gilbert Note, the maturity date was extended to November 1,
2016 and the annual interest rate remained at 6%. Interest payments under the
New Gilbert Note shall be made annually at October 31 of each year. The note
payable is secured by the Company's assets.
The Company believes that its liquidity is adequate to meet operating and
investment requirements through January 28, 2016. During such period the Company
does not anticipate borrowing additional funds
Net cash provided by operating activities was $4,433,000 for fiscal year 2014,
and consisted of $348,000 of net income, depreciation and amortization of
$2,805,000, stock-based compensation expense of $310,000, and the provision for
deferred taxes of $475,000, with the balance consisting of an increase in
operating assets and liabilities. Net cash used in investing activities was
$3,590,000 for fiscal year 2014, expended primarily for Capitalized software
development costs, additions to the PASSUR(R) Network, and a second data center
at an off-site location. Net cash used in financing activities was $648,000 for
fiscal year 2014, and primarily consisted of a $500,000 repayment on the note
payable - related party plus $181,000, for employee's cashless exercise of stock
options.
The Company is actively addressing the increasing costs associated with
supporting the business, and plans to identify and reduce any unnecessary costs
as part of its cost reduction initiatives. Additionally, the aviation market has
been impacted by budgetary constraints, airline bankruptcies and consolidations,
current economic conditions, the continued war on terrorism, and fluctuations in
fuel costs. The aviation market is extensively regulated by government agencies,
particularly the Federal Aviation Administration 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 airports, airlines, and organizations that serve, or are served
by, the aviation industry. Any new regulations or changes in the economic
situation of the aviation industry could have an impact on the future operations
of the Company, either positively or negatively.
Interest by potential customers in the information and decision support software
products obtained from PASSUR(R) Network Systems and its professional services
remains strong. As a result, the Company anticipates an increase in future
revenues from its airline and airport business. However, the Company cannot
predict if such revenues will materialize. If sales do not increase, losses may
occur. The extent of such profits or losses will be dependent on sales volume
achieved and Company cost reduction initiatives.
OFF-BALANCE SHEET ARRANGEMENTS
None.
21
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
GENERAL
The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires the
Company to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities, based on accounting policies management has
implemented. The Company has identified the policies and estimates below as
critical to its business operations and the understanding of its results of
operations. The impact and any associated risks related to these policies on the
Company's business operations are discussed throughout Management's Discussion
and Analysis of Financial Condition and Results of Operations, where such
policies affect its reported financial results. The actual impact of these
factors may differ under different assumptions or conditions. The Company's
accounting policies that require management to apply significant judgment and
estimates include:
REVENUE RECOGNITION
The Company recognizes revenue in accordance with FASB ASC 605-15, ("Revenue
Recognition in Financial Statements") which requires that four basic criteria
must be met before revenues can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the fee is fixed and determinable; and (4) collectability is reasonably
assured.
The Company's revenues are generated by selling: (1) subscription-based,
real-time decision and solution information; (2) professional services; and (3)
annual maintenance contracts for PASSUR(R) Radar Systems.
Revenues generated from subscription and maintenance agreements are recognized
over the term of such executed agreements and/or customer's receipt of such data
or services. In accordance with ASC 605-15, we recognize revenue when persuasive
evidence of an arrangement exists which is evidenced by a signed agreement, the
service has been deployed, as applicable, to its hosted servers, the fee is
fixed and determinable, and collection of the resulting receivable is reasonably
assured. The Company records revenues pursuant to individual contracts on a
month-by-month basis, as outlined by the applicable agreement. In many cases,
the Company may invoice respective customers in advance of the specified period,
either quarterly or annually, which coincides with the terms of the agreement.
In such cases, the Company will defer at the close of each month and/or
reporting period, any subscription or maintenance revenues invoiced for which
services have yet to be rendered, in accordance with ASC 605-15. Revenues
generated by professional services are recognized over the term of such executed
agreements.
The individual offerings that are included in arrangements with our customers
are identified and priced separately to the customer based upon the stand alone
price for each individual element sold in the arrangement irrespective of the
combination of products and services which are included in a particular
arrangement. As such, the units of accounting are based on each individual
element sold, and revenue is allocated to each element based on selling price.
Selling price is determined using vendor-specific objective evidence ("VSOE") if
available, third-party evidence ("TPE") if VSOE is not available, or best
estimate of selling price ("BESP") if neither VSOE or TPE is available. BESP
must be determined in a manner that is consistent with that used to determine
the price to sell the specific elements on a standalone basis. Our best estimate
of selling price is established considering multiple factors including, but not
limited to, pricing practices with different classes of customers, geographies
and other factors contemplated in negotiating the arrangement with the customer.
22
From time to time, the Company will enter into an agreement with a customer to
receive a one-time fee for rights including, but not limited to, the rights to
use certain data at an agreed upon location(s) for a specific use and/or for an
unlimited number of users. These fees are recognized as revenue ratably over the
term of the agreement or expected useful life of such arrangement, whichever is
longer, but typically five years.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes costs related to the development of internal use
software in accordance with 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. Costs incurred relating to upgrades and enhancements to the
software are capitalized if it is determined that these upgrades or enhancements
add additional functionality to the software. Software costs are included in
"Capitalized software development costs, net" on the Company's balance sheet and
are depreciated using the straight-line method over their estimated useful life,
generally five years.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company follows the provisions of FASB ASC 360-10, "Impairment and Disposal
of 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 revised life.
All of the Company's capitalized assets are recorded at cost (which may also
include salaries and related overhead costs incurred during production and/or
development) and depreciated and/or amortized over the asset's estimated useful
life for financial statement purposes. The estimated useful life represents the
projected period of time that the asset will be productively employed by the
Company and is determined by management based on many factors, including
historical experience with similar assets, technological life cycles, and
industry standards for similar assets. Circumstances and events relating to
these assets are monitored to ensure that changes in asset lives or impairments
(see "Impairment of Long-Lived Assets" above) are identified and prospective
depreciation or impairment expense is adjusted accordingly.
The Company's long-lived assets, which include the PASSUR(R) Network and
Property, plant and equipment, totaled $6,752,000, and accounted for 37% of the
Company's total assets as of October 31, 2014.
At each reporting period, management evaluates the carrying values of the
Company's assets. The evaluation considers the undiscounted cash flows generated
from current contractual revenue sources and the anticipated forecast revenue
derived from each asset. The Company then evaluates these revenues on an overall
basis to determine if any impairment issues exist. As of October 31, 2014, based
upon management's evaluation of the above asset groups, no impairment of these
asset groups exist. If these forecasts are not met, the Company may have to
record impairment charges not previously recorded.
DEPRECIATION AND AMORTIZATION
The net PASSUR(R) Network, net Capitalized software development costs, and net
Property, plant and equipment totaled $5,429,000, $6,845,000, and $1,323,000,
respectively, at October 31, 2014. In management's judgment, the estimated
depreciable lives used to calculate the annual depreciation and amortization
expense are appropriate.
Depreciation and amortization are provided on the straight-line basis over the
estimated useful lives of the assets, as follows:
PASSUR(R) Network 7 years
Capitalized software development costs 5 years
Property and equipment 3 to 10 years
The PASSUR(R) Network is comprised of PASSUR(R) Systems, which include the
direct and indirect production, shipping, and installation costs incurred for
each PASSUR(R) System, which are recorded at cost, net of accumulated
depreciation. Depreciation is charged to cost of revenues and is calculated
using the straight-line method over the estimated useful life of the asset,
which is estimated at seven years. PASSUR(R) Systems which are not installed,
raw materials, work-in-process, and finished goods components are carried at
cost and no depreciation is recorded.
Total depreciation and amortization expense was $2,805,000 in fiscal year 2014,
and consisted of $1,172,000, $1,261,000, and $372,000 for the PASSUR(R) Network,
Capitalized software development costs, and Property, plant and equipment,
respectively.
23
STOCK-BASED COMPENSATION
The Company follows the provisions of FASB ASC 718, "Compensation-Stock
Compensation", which requires measurement of compensation cost for all
stock-based awards at fair value on date of grant, and recognition of
stock-based compensation expense over the service period for awards expected to
vest. The fair value of stock options was determined using the Black-Scholes
valuation model. Such fair value is recognized as an expense over the service
period, net of forfeitures. Stock-based compensation expense was $310,000 and
$275,000 in fiscal years 2014 and 2013, respectively, and was primarily included
in selling, general, and administrative expenses.
The Company's stock options vest over a period of five years. The fair value for
these stock options was estimated at the date of grant using a Black-Scholes
stock option pricing model, with the following weighted average assumptions for
fiscal years 2014 and 2013; risk-free interest rate of 1.62% to 3.54%,
volatility factor of the expected market price of the Company's common stock of
117%, no dividend yield, and a weighted average expected life of the stock
options of 5.5 to 6.5 years.
RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue
from Contracts with Customers: Topic 606" ("ASU 2014-09"), to supersede nearly
all-existing revenue recognition guidance under U.S. GAAP. The core principle of
ASU 2014-09 is to recognize revenues when promised goods or services are
transferred to customers in an amount that reflects the consideration that is
expected to be received for those goods or services, ASU 2014-09 defines a five
step process to achieve this core principle and, in doing so, it is possible
more judgment and estimates may be required within the revenue recognition
process than required under existing U.S. GAAP including identifying performance
obligations in the contract, estimating the amount of variable consideration to
include in the transaction price and allocating the transaction price to each
separate performance obligation. We are currently evaluating the impact of our
pending adoption of ASC 2014-09 on our consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK: NOT
REQUIRED.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Part IV, Item 15(a)(1) of this Annual Report on Form 10-K for the Company's
annual financial statements.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this Annual Report on Form 10-K,
management carried out an evaluation, under the supervision, and with the
participation of, the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures (as such term is defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")). The
Company 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 Annual Report on Form 10-K, the Company's
Chief Executive Officer and Chief Financial Officer have concluded that such
controls and procedures were effective at a reasonable assurance level as of
October 31, 2014.
24
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting (as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act). The Company's internal
control over financial reporting is a process designed under the supervision of
its Chief Executive Officer and Chief Financial Officer to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of the Company's financial statements for external reporting in accordance with
accounting principles generally accepted in the United States. Management
evaluates the effectiveness of the Company's internal control over financial
reporting using the criteria set forth by the 1992 Committee of Sponsoring
Organizations of the Treadway Commission ("COSO") in Internal
Control--Integrated Framework. Due to its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only reasonable
assurance of achieving their control objectives. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management, under the supervision and with the participation of the Company's
Chief Executive Officer and Chief Financial Officer, conducted an evaluation of
the effectiveness of the Company's internal control over financial reporting as
of October 31, 2014. Based on this evaluation, management concluded that the
Company's internal control over financial reporting was effective as of October
31, 2014.
This Annual Report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to rules of the Securities and Exchange Commission that
permit the Company to provide only management's report in this Annual Report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) within the fourth fiscal quarter ended October 31, 2014, that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On January 26, 2015, Mr. Whitman (81) and Mr. Morgan (72) each notified the
Company of their decision to retire as members of the Board of Directors,
effective January 31, 2015. Mr. Whitman also served as Chairman of the Executive
Committee of the board and Mr. Morgan served as Chairman of the Compensation
Committee of the board. Mr. Whitman's and Mr. Morgan's retirements were not the
result of any disagreement with the Company on any matter relating to the
Company's operations, policies, or practices.
25
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE OF THE
REGISTRANT
(A) IDENTIFICATION OF DIRECTORS
The following table sets forth the names and ages of the Company's directors, as
well as the year each individual became a director, and the position(s) with the
Company, if any, held by each individual.
NAME AGE DIRECTOR SINCE DIRECTOR POSITION AND OFFICERS
WITH COMPANY
---------------------------------------------------------------------------------------------
G.S. Beckwith Gilbert 72 1997 Chairman of the Board and Director
John R. Keller 74 1997 Executive Vice President and Director
Bruce N. Whitman (1) 81 1997 Chairman of the Executive Committee and Director
Paul L. Graziani 57 1997 Chairman of the Audit Committee and Director
James T. Barry 53 2000 President, Chief Executive Officer, and Director
James J. Morgan (2) 72 2005 Chairman of the Compensation Committee and Director
Kurt J. Ekert 44 2009 Director
Peter L. Bloom 57 2009 Director
Richard L. Haver 68 2010 Director
Robert M. Stafford 72 2013 Director
Ronald V. Rose 63 2014 Director
Each director is elected to serve until the succeeding Annual Meeting of
Stockholders and until his successor is duly elected and qualified.
(1) As discussed in Item 9B, on January 26, 2015, Mr. Whitman notified the
Company of his retirement as a director of the Company, effective January 31,
2015. He also served as Chairman of the Executive Committee of the Board.
(2) As discussed in Item 9B, on January 26, 2015, Mr. Morgan notified the
Company of his retirement as a director of the Company, effective January 31,
2015. He also served as Chairman of the Compensation Committee of the Board.
26
(b) IDENTIFICATION OF EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's executive
officers, as well as the office(s) held by each individual, and the year in
which each executive officer began to serve in such capacity.
NAME AGE OFFICER SINCE OFFICER POSITION AND OFFICERS
WITH COMPANY
-----------------------------------------------------------------------------------------
James T. Barry 53 1998 President, Chief Executive Officer,
and Director
Jeffrey P. Devaney 55 2004 Chief Financial Officer, Treasurer,
and Secretary
John R. Keller 74 1967 Executive Vice President and Director
Dr. James A. Cole 74 1988 Senior Vice President of Research and
Development
Matthew H. Marcella 57 2003 Vice President of Software Development
Ron A. Dunsky 52 2003 Senior Vice President of Marketing and
Business Development
Thomas S. White 59 2011 Executive Vice President of Operations
William S. Leber, Jr. 55 2012 Senior Vice President, Strategic Alliances
and GovernmentAffairs
Keith D. Wichman 50 2012 Vice President and General Manager, Global
Airline Solutions
Each officer is elected to serve at the discretion of the Board of Directors.
(c) IDENTIFICATION OF CERTAIN SIGNIFICANT EMPLOYEES
None.
(d) FAMILY RELATIONSHIP
None.
27
(e) BUSINESS EXPERIENCE
The following sets forth the business experience of the Company's directors and
executive officers:
G.S. Beckwith Gilbert Mr. Gilbert has continued to serve as the Company's
Chairman of the Board since his election in 1997. Mr.
Gilbert was appointed Chief Executive Officer in
October of 1998 and served as such until his
retirement from that post on February 1, 2003. Mr.
Gilbert is President and Chief Executive Officer of
Field Point Capital Management Company, a
merchant-banking firm, a position he has held since
1988. Mr. Gilbert is also Chairman Emeritus and a
member of the Board of Fellows of Harvard Medical
School, a Director of the Yale Cancer Center, and a
member of the Council on Foreign Relations. Mr.
Gilbert's current service as Chairman of the Board of
the Company and prior service as Chief Executive
Officer of the Company, as well as his prior board and
executive management experience, allow him to provide
in-depth knowledge of the Company and other valuable
insight and knowledge to the Board.
Bruce N. Whitman Mr. Whitman has been a Director of the Company since
1997 and is the Chairman of the Executive Committee.
Mr. Whitman joined FlightSafety International in 1961
as Assistant to the President after two years as
Senior Executive Assistant with the National Business
Aircraft Association. Later that year, he was elected
Vice President and a Director. In 1962, he was named
Executive Vice President. He was promoted to his
present position of Chairman, CEO & President,
FlightSafety International in 2003. He served on the
Associate Membership Advisory Council of the National
Business Aircraft Association and Board of Governors
and Executive Committees of the FlightSafety
Foundation and the Civil Air Patrol. He is also a
former Director and Chairman of the Audit Committee of
Petroleum Helicopters and chaired the Nominating,
Compensation and Governance Committees of the Aviall
Board of Directors. He was also a member of the Board
of Directors of FlightSafety Boeing Training
International; a Director of the General Aviation
Manufacturers Association; and an Executive Committee
member of NATA's Air Charter Safety Foundation. He is
past president and a Director of The Wings Club. Bruce
is currently Co-Chairman of the Board of the
Congressional Medal of Honor Foundation; Chairman of
the Audit Committee and member of the Executive
Committee of ORBIS International; and a Director
Emeritus of the Smithsonian National Air and Space
Museum and the Civil Air Patrol. He is on the Board of
the Air Force Academy Falcon Foundation and past Vice
Chairman; a Trustee and member of the Executive
Committee of the National World War II Museum and
Trustee of Kent School; member of the Boards of the
Aerospace Industries Association, Business Executives
for National Security, Corporate Angel Network and
Vice Chairman of the USO of Metropolitan New York. Mr.
Whitman's knowledge of the Company through his service
as a Director and Chairman of the Executive Committee,
as well as his extensive participation as a member of
business and charitable organization boards, enable
him to bring valuable insights and knowledge to the
Board.
Paul L. Graziani Mr. Graziani has been a Director of the Company since
1997 and is the Chairman of the Audit Committee. He
currently serves as Chief Executive Officer of
Analytical Graphics, Inc. ("AGI"), a leading producer
of commercially available analysis and visualization
software for the aerospace, defense, and intelligence
communities, a position he has held since January
1989. Until March 2009, he also served as AGI's
President. In recent times, Mr. Graziani has been
recognized as "CEO of the Year" by the Philadelphia
region's Eastern Technology Council and the Chester
County Chamber of Business and Industry; "Entrepreneur
of the Year" regional winner by Ernst & Young; and
"Businessman of the Year" by the local Great Valley
Regional Chamber of Commerce. He sits on the Boards of
Directors of the United States Geospatial Intelligence
Foundation ("USGIF") and Federation of Galaxy
Explorers ("FOGE"), and is a member of the board of
governors of the Civil Air Patrol ("CAP"). He is an
associate fellow of the American Institute of
Aeronautics and Astronautics ("AIAA") and has formerly
served on the advisory board for Penn State Great
Valley. After fulfilling his board tenure, he was
recently elected to the honorary position of Life
Director of The Space Foundation. In 2009 AGI was
named a "Top Small Workplace" by the Wall Street
Journal and the non-profit organization Winning
Workplaces. Mr. Graziani's knowledge of the Company
through his service as a Director of the Company, as
well as his experience as CEO of a software company,
allow him to bring valuable insight and knowledge to
the Board.
28
James J. Morgan Mr. Morgan has been a Director of the Company since
September 12, 2005 and is the Chairman of the
Compensation Committee. Mr. Morgan is also a partner
in the New York City based private equity firm
Jacobson Partners, a position he has held since
September 2001 and is a Director of Swan Products LLC.
Mr. Morgan retired in 1997 as President and Chief
Executive Officer of Philip Morris U.S.A. Mr. Morgan's
knowledge of the Company through his service as a
Director of the Company, as well as his prior
experience as a CEO, allows him to bring valuable
insight and knowledge to the Board.
Kurt J. Ekert Mr. Ekert has been a Director of the Company since
September 10, 2009. Mr. Ekert is currently Executive
Vice President & Chief Commercial Officer, Travelport
Worldwide Ltd, and has held this position since 2010,
which includes global responsibility for sales,
customer engagement, product, marketing, pricing,
supplier services/content, and operations. From 2006
to 2010, Mr. Ekert was Chief Operating Officer, GTA by
Travelport, a global, multi-channel travel
intermediary focused on hotels and travel services.
Prior to joining GTA, he was Senior Vice President,
Travelport Supplier Services, where he oversaw
supplier sales, strategy, and content for the
Travelport Americas business and consumer groups
including Galileo and Orbitz Worldwide. At Travelport,
he also has held the positions of Group Vice
President, Strategy and Business Development, and
Chief Operating Officer, Travelport/Orbitz for
Business. Prior to joining Travelport, Mr. Ekert's
experience in the travel industry included a number of
senior finance roles at Continental Airlines. Before
Continental, he spent four years as an active duty
U.S. Army officer. Mr. Ekert received a B.S. from the
Wharton School of the University of Pennsylvania and a
MBA from the University of South Carolina. Mr. Ekert's
knowledge of the Company through his service as a
Director of the Company, as well as his executive
management and business experience in the travel
industry, allow him to bring valuable insight and
knowledge to the Board.
Peter L. Bloom Mr. Bloom has been a Director of the Company since
December 10, 2009. Mr. Bloom is currently an Advisory
Director at General Atlantic, where he has worked
since 1996. As a Managing Director at General
Atlantic, he was responsible for technology due
diligence on prospective investments and assistance to
the CEO and senior management teams of portfolio
companies on technology strategy and guidance on
emerging technology trends. Prior to joining General
Atlantic, Mr. Bloom spent thirteen years at Salomon
Brothers in a variety of roles in both technology and
fixed income sales and trading. He received the
Carnegie Mellon/AMS Achievement Award in Managing
Information Technology for his work managing the
technology implementation of a new distributed
computing architecture that supported the company's
global business operations. He graduated from
Northwestern University in 1978 with a B.A. in
Computer Studies and Economics. He is a member of
Business Executives for National Security and an
Associate Founder of Singularity University. He is
also a member of the FCC Technical Advisory Council.
He is currently the Chairman of DonorsChoose, which
was named the most innovative charity in America by
Stanford Business School and Amazon. Mr. Bloom is also
the co-founder and Chairman of Peak Rescue Institute.
He is a member of the board of The Food Bank for New
York City and the Cancer Research Institute and the
Connected Warrior Foundation. Mr. Bloom's knowledge of
the Company through his service as a Director of the
Company, as well as his executive management and
business experience and technology expertise, allow
him to bring valuable insight and knowledge to the
Board.
Richard L. Haver Mr. Haver has been a Director of the Company since
October 8, 2010. Mr. Haver retired from Northrop
Grumman Corporation in December 2010 following 10
years of service with Northrop and the TRW component
acquired by Northrop in 2002. His position at Northrop
Grumman was Vice President for Intelligence Programs.
He earned a B.A. degree in History from Johns Hopkins
University in 1967. He served on active duty in the
U.S. Navy from 1967 to 1973. In 1973, Mr. Haver became
a civilian intelligence analyst in the Anti-Submarine
Warfare Systems branch at the Naval Intelligence
Support Center. In 1976, he was selected as a
department head at the Navy Field Operational
Intelligence Office ("NFOIO"), and the next year
became the Technical Director of the Naval Ocean
Surveillance Information Center. He subsequently held
the senior civilian position at NFOIO, serving as
Technical Director until assuming the position of
Special Assistant to the Director of Naval
Intelligence in 1981. He was selected as Deputy
Director of Naval Intelligence in June 1985, a
position he held until 1989. Mr. Haver was selected by
Secretary of Defense Dick Cheney in July 1989 to the
position of Assistant to the Secretary of Defense for
Intelligence Policy. From 1992 to 1995, he served as
the Executive Director for Intelligence Community
Affairs. In 1998, he assumed the duties of Chief of
Staff of the National Intelligence Council and Deputy
to the Assistant Director of Central Intelligence for
Analysis and Production. In 1999, Mr. Haver joined TRW
as Vice President and Director, Intelligence Programs.
He led business development and marketing activities
in the intelligence market area for their Systems &
29
Information Technology Group. He also served as
liaison to the group's strategic and tactical C3
business units, as well as TRW's Telecommunications
and Space & Electronics groups. Mr. Haver was selected
by Vice President Cheney to head the Administration's
Transition Team for Intelligence and then selected by
Secretary of Defense Donald Rumsfeld as the Special
Assistant to the Secretary of Defense for
Intelligence. He returned to the private sector in
2003. Mr. Haver is now consulting to both government
and private industry associated with the National
Security and Intelligence fields, as well as volunteer
work, and service on various boards and panels. Mr.
Haver's knowledge of the Company through his service
as a Director of the Company, as well as his executive
management and business experience in the intelligence
field, allow him to bring valuable insight and
knowledge to the Board.
Robert M. Stafford Mr. Stafford has been a Director of the Company since
June 12, 2013. Mr. Stafford is currently the Chairman
and CEO of Stafford Capital Management, where he has
worked since 1986, and the Managing Partner of Pacific
Management Ltd., where he has also worked since 1986.
Mr. Stafford received a bachelor's degree from
Princeton University in 1963 and an MBA from Stanford
Graduate School of Business in 1968. Mr. Stafford's
extensive financial experience allows him to bring
valuable insight and knowledge to the Board.
Ronald V. Rose Mr. Rose has been a Director of the Company since
December 17, 2014. Mr. Rose now serves as the Vice
Chairman, and was formerly CEO, of Decisyon, Inc., a
company which accelerates business process improvement
through collaborative business intelligence
technologies. Prior to Decisyon, Mr. Rose served as
Senior Vice President of Dell.com at Dell Inc., where
he ran a multi-billion dollar B2B business unit. Prior
to Dell, Mr. Rose served as Chief Information Officer
of Priceline.com for eleven years during which time
the company successfully made the transition from a
pre-IPO startup to a multi-billion dollar global
travel company. Mr. Rose began his career at Delta Air
Lines focusing on transaction systems. Mr. Rose holds
a Bachelor of Science degree from Tulane University
and the University of Aberdeen Scotland. Mr. Rose
received a Masters of Science in Information
Technology from the Georgia Institute of Technology.
Mr. Rose is a private pilot. Mr. Rose's experience as
CEO of a software company in the data analytics and
collaborative decision making technology sector allow
him to bring valuable insight and knowledge to the
Board.
John R. Keller Mr. Keller serves as Executive Vice President of the
Company, a position he has held since the Company's
inception in 1967 as one of the co-founders. Mr.
Keller has also been a Director of the Company since
1997. Mr. Keller received his bachelor's and master
degrees in electrical engineering from New York
University in 1960 and 1962, respectively. Mr.
Keller's knowledge of the Company through his service
as a Director and Executive Vice President of the
Company allow him to bring valuable insight and
knowledge to the Board.
James T. Barry Mr. Barry was named President of the Company on April
14, 2003 and Chief Executive Officer on February 1,
2003. Since Mr. Barry joined the Company in 1998, he
has held the positions of Chief Operating Officer,
Chief Financial Officer, Secretary, and Executive Vice
President. Mr. Barry has also been a Director of the
Company since 2000. From 1989 to 1998, he was with
DIANON Systems, Inc., most recently as Vice President
of Marketing. Prior to DIANON, Mr. Barry was an
officer in the United States Marine Corps. Mr. Barry's
knowledge of the Company through his service as a
Director, President, and Chief Executive Officer of
the Company allow him to bring valuable insight and
knowledge to the Board.
Dr. James A. Cole Dr. Cole currently serves as Senior Vice President and
the Director of Research and Development of the
Company, a position he has held since July 1988. Dr.
Cole earned a Ph.D. in physics from Johns Hopkins
University in 1966. He is a current member of the
American Association for the Advancement of Science,
American Physical Society, Association for Computing
Machinery, Institute of Electrical and Electronic
Engineers and IEEE Computer Society. Dr. Cole has been
with the Company since 1974.
30
Jeffrey P. Devaney Mr. Devaney joined the Company as Chief Financial
Officer, Treasurer, and Secretary on June 14, 2004.
Prior to joining the Company, Mr. Devaney was the
Chief Financial Officer at Cierant Corporation from
2002 to 2004. From 2000 to 2001, he was a Controller
at SageMaker, Inc. From 1995 to 2000, he was the
Controller at Information Management Associates, Inc.
Matthew H. Marcella Mr. Marcella was named Vice President - Software
Development on January 15, 2003. Mr. Marcella joined
the Company in 2001 from Cityspree Inc., where he
served as lead software architect from 2000 to 2001.
From 1996 to 2000, he was a Vice President at Deutsche
Bank and Nomura Securities. From 1995 to 1996, he was
a Technical Officer at UBS Securities.
Ron A. Dunsky Mr. Dunsky was named Senior Vice President of
Marketing and Business Development in August 2014.
Previously Mr. Dunsky was Senior Vice President and
General Manager, Worldwide Airports and Corporate
Aviation for PASSUR Aerospace, in January 2012. Mr.
Dunsky joined PASSUR Aerospace in February 2001, as
Director of Marketing and New Product Development. In
May of 2003, he was named Vice President, Marketing
and New Product Development. Prior to joining PASSUR
Aerospace, Mr. Dunsky was Senior Editor with the New
York bureau of ABCNews.com, with a focus on aviation
content. Prior to ABCNews.com, he was a Senior
Producer at CNN (New York Bureau), with special
responsibilities for shaping and managing the
network's coverage of the aviation industry. Prior to
CNN, Mr. Dunsky was a business reporter for the PBS
nightly newscast, The McNeil-Lehrer Newshour, after
having first served as the program's communications
director. He began his career as creative director for
one of the pioneering social marketing firms, Manifest
Communications of Toronto, Canada.
Thomas S. White Mr. White was named Executive Vice President of
Operations on May 4, 2012. He joined the Company in
2007 as a consultant and in 2008 became an employee
and the Director of Air Traffic Management. He was
promoted to Vice President of Air Traffic Management
in 2010 and Senior Vice President of Technology in
2011. Prior to joining the Company, Mr. White spent 32
years in government service with the FAA and the U.S.
Military. Between 2002 and 2007 he was a Senior
Manager for the FAA in New York. Before the FAA, he
was also a U.S. Army Special Ops helicopter pilot
serving with Task Force 160th.
William S. Leber, Jr. Mr. Leber joined the Company as Vice President, Air
Traffic Innovations, in February 2012. In February
2014, he was promoted to Senior Vice President,
Strategic Alliances and Government Affairs. His
responsibilities include strategy formulation
specifically in international expansion and strategic
alliances. He was formerly a Research Analyst
Principal and Senior Manager for Lockheed Martin in
their Collaborative ATM Practice. As an airline
operations expert, he has been a participant and
leader in Collaborative Decision Making ("CDM")
development since the early 1990's. He was a Chief
Flight Dispatcher and worked for Northwest Airlines
and Delta Air Lines for 26 years. He is a member of
the FAA's REDAC - NAS Operations Subcommittee where he
was Co-Chair of the Weather - ATM Integration Work
Group. Mr. Leber is a former Chair of the CDM Future
Concepts WG and a former Co-Chair of ATA's overall CDM
effort. He is also the former President and Co-founder
of the Airline Dispatchers Federation, a non-union
professional association.
Keith D. Wichman Mr. Wichman joined the Company as Vice President,
Airline Solutions and Product Management in December
2012. In February 2013, he was promoted to Vice
President and General Manager, Global Airline
Solutions. Previously, he served at GE Aviation for 14
years as a technical expert and business leader for
avionics, airline operations, and Air Traffic
Management. He was Chief Engineer of GE's Flight
Management Systems product line and Director of ATM
and Airline Efficiency Services. Previously, Mr.
Wichman served 13 years as a lead Flight Controls and
Handling Qualities researcher at NASA-Dryden Flight
Research Center in California, followed by 3 years at
Charles Stark Draper Laboratory in Massachusetts. He
holds Bachelor's and Master's degrees in Aerospace
Engineering from the University of Cincinnati and the
University of Michigan, respectively. Mr. Wichman is
an instrument Rated Commercial Pilot and held a Flight
Instructor Certificate for 10 years.
31
(f) INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
The Company knows of no event which occurred during the past ten years and which
is described in Item 401(f) of Regulation S-K relating to any director or
executive officer of the Company.
(g) IDENTIFICATION OF AUDIT COMMITTEE
Our Board of Directors has appointed an Audit Committee, consisting of three
directors. All of the members of the Audit Committee are independent of our
Company and management, as independence is defined under applicable Financial
Industry Regulatory Authority ("FINRA") rules. The Audit Committee consists of
Mr. Graziani, Mr. Whitman and Mr. Ekert.
(h) AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that Mr. Graziani, Chairman of the
Company's Audit Committee, meets the Securities and Exchange Commission's
criteria of an "audit committee financial expert" as set forth in item
407(d)(5)(ii) of Regulation S-K. Mr. Graziani acquired the attributes necessary
to meet such criteria by holding positions that provided relevant experience.
Mr. Graziani is independent, as defined under applicable FINRA rules.
(i) SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's directors, executive
officers, and 10% stockholders to file reports of ownership and reports of
change in ownership of the Company's Common Stock and other equity securities
with the Securities and Exchange Commission. Directors, executive officers, and
10% stockholders are required to furnish the Company with copies of all Section
16(a) forms they file. Based on a review of the copies of such reports
furnished, the Company believes that during the fiscal year ended October 31,
2014, the Company's directors, executive officers, and 10% stockholders filed on
a timely basis all reports required by Section 16(a) of the Exchange Act.
(j) BOARD NOMINATIONS BY SHAREHOLDERS
There have not been any material changes to the procedures by which the
Company's stockholders may recommend nominees to the Company's board of
directors, as disclosed in the definitive proxy statement on Schedule 14A, filed
on February 27, 2014 by the Company with the Securities and Exchange Commission
in connection with the Company's 2014 Annual Meeting of Stockholders.
(k) CODE OF ETHICS
The Company hereby incorporates by reference into this Item the information
contained under the heading "Code of Ethics" in the Company's definitive proxy
statement that will be filed with the Securities and Exchange Commission within
120 days of October 31, 2014 (the "2015 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The Company hereby incorporates by reference into this Item the information
contained under the heading "Executive Compensation" in the 2015 Proxy
Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The Company hereby incorporates by reference into this Item the information
contained under the heading "Security Ownership of Certain Beneficial Owners and
Management" in the 2015 Proxy Statement.
For information regarding securities authorized for issuance under the Company's
equity compensation plans, see Item 5(d) above.
32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) TRANSACTIONS WITH RELATED PERSONS
During fiscal year 2013, the Company paid fiscal year 2013 interest to G.S.
Beckwith Gilbert, the Company's significant shareholder and Chairman, of
$288,000, representing the entire fiscal year 2013 interest due, thereby meeting
the payment requirements of the loan agreement. In the fourth quarter of 2013,
the Company made $400,000 in principal payments, bringing the principal amount
of the note payable due to G.S. Beckwith Gilbert to $4,364,880 on October 31,
2013.
During fiscal year 2014, the Company paid fiscal year 2014 interest to G.S.
Beckwith Gilbert of $241,000, representing the entire fiscal year 2014 interest
due, thereby meeting the payment requirements of the loan agreement. During
fiscal year 2014, the Company made $500,000 in principal payments, bringing the
principal amount of the note payable due to G.S. Beckwith Gilbert to $3,864,880
on October 31, 2014.
On June 11, 2014, the Company entered into a Debt Extension Agreement with G.S.
Beckwith Gilbert, effective June 11, 2014, pursuant to which the Company and Mr.
Gilbert agreed to modify certain terms and conditions of the Gilbert Note. The
maturity date of the Gilbert Note was due on November 1, 2014, and the total
amount of principal and interest due and owing as of June 11, 2014 was
$3,891,934. Pursuant to the Debt Extension Agreement, the Company issued a new
note to Mr. Gilbert in the principal amount of $3,864,880 (the "New Gilbert
Note") in exchange for the Gilbert Note and the Company agreed to pay the
accrued interest under the Gilbert Note as of June 11, 2014, in an amount equal
to $27,054, at the time and on the terms set forth in the Gilbert Note. Under
the terms of the New Gilbert Note, the maturity date was extended to November 1,
2016 and the annual interest rate remained at 6%. Interest payments under the
New Gilbert Note shall be made annually at October 31 of each year. The note
payable is secured by the Company's assets.
Effective May 1, 2012, the Company entered into a one-year agreement to sublease
space to Field Point Capital Management Company, owned 100% by G.S. Beckwith
Gilbert, the Company's significant shareholder and Chairman, for 1,300 square
feet of office space at an annual rental rate of $52,000, which is the same rate
paid by the Company. In fiscal year 2012, the Company received payments of
$27,000 from such sublease. In fiscal year 2013, the agreement was terminated as
of February 28, 2013 and the Company received payments of $17,000 from such
sublease.
(b) DIRECTOR INDEPENDENCE
The Board of Directors had determined, after considering all the relevant facts
and circumstances, that all named directors, except for Mr. Gilbert, Mr. Barry,
and Mr. Keller, are independent directors, as "independence" is defined in
accordance with the FINRA standards.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Company hereby incorporates by reference into this Item the information
contained under the heading "Principal Accounting Fees and Services" in the 2015
Proxy Statement.
33
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A) LIST OF DOCUMENTS FILED AS A PART OF THIS ANNUAL REPORT ON FORM 10-K:
PAGE
(1) Index to Consolidated Financial Statements
Included in Part II of This Report:
Report of Independent Registered Public F-1
Accounting Firm - BDO USA, LLP
Consolidated Balance Sheets as of F-2
October 31, 2014 and 2013
Consolidated Statements of F-3
Income for the years ended
October 31, 2014 and 2013
Consolidated Statements of Stockholders' F-4
Equity for the years ended
October 31, 2014 and 2013
Consolidated Statements of F-5
Cash Flows for the years ended
October 31, 2014 and 2013
Notes to Consolidated Financial F-6
Statements
(2) Index to Financial Statement Schedule: N/A
Schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been omitted.
34
(c) INDEX TO EXHIBITS
The following exhibits are required to be filed with this Annual Report on Form
10-K by Item 15(a)(3).
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.
3.2 The Company's By-laws, dated as of May 16, 1988, are incorporated by
reference to Exhibit 3-14 to our Annual Report on Form 10-K for the
fiscal year ended October 31, 1998.
10.1 The Company's 1988 Bonus Pool Plan is incorporated by reference to
Exhibit 10-1 to our Annual Report on Form 10-K for the fiscal year
ended October 31, 1998.
10.2 The Company's 1988 Stock Option Plan is incorporated by reference to
Exhibit 10-3 to our Annual Report on Form 10-K for the fiscal year
ended October 31, 1998.
10.3 The Company's Amended 1999 Stock Incentive Plan is incorporated by
reference to Exhibit 10.3 of our Report on Form 8-K filed on April 17,
2006.
10.4 Severance Agreement with Yitzhak N. Bachana effective October 2, 1998
is incorporated by reference from our Form 8-K, dated October 13,
1998.
10.5 Letter of Agreement for employment services, dated December 28, 1999,
between the Company and Ken J. McNamara is incorporated by reference
to Exhibit 10.5 to our Annual Report on Form 10-K for the fiscal year
ended October 31, 1999.
10.6 Letter of Agreement for employment services, dated September 5, 2002,
between the Company and Delon Dotson is incorporated by reference to
Exhibit 99.1 to our Form 8-K, dated September 12, 2002.
10.7 Debt Agreement, dated November 1, 2003, between the Company and G.S.
Beckwith Gilbert is incorporated by reference to Exhibit 10-1 to our
Form 8-K, dated January 23, 2004.
10.8 Debt Extension Agreement, dated as of November 1, 2004, between the
Company and G.S. Beckwith Gilbert is incorporated by reference to
Exhibit 10.1 to our Current Report on Form 8-K on February 1, 2005.
10.9 Debt Extension Agreement, made as of November 1, 2005, between the
Company and G.S. Beckwith Gilbert, is incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K filed on February 6,
2006.
10.10 Debt Extension Agreement, made as of November 1, 2006, between the
Company and G.S. Beckwith Gilbert, is incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K filed on January 5,
2007.
10.11 Debt Extension Agreement, made as of November 1, 2007, between the
Company and G.S. Beckwith Gilbert is incorporated by reference to
Exhibit 10.3 to our Current Report on Form 8-K filed on January 17,
2008.
10.12 Debt Extension Agreement, made as of November 1, 2008, between the
Company and G.S. Beckwith Gilbert is incorporated by reference to
Exhibit 10.2 to our Current Report on Form 8-K filed on January 28,
2009.
10.13 Form of Securities Purchase Agreement, dated May 9, 2011 is
incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed on May 9, 2011.
10.14 Debt Conversion Agreement and Secured Promissory Note, dated May 9,
2011 is incorporated by reference to Exhibit 10.2 to our Current
Report on Form 8-K filed on May 9, 2011.
10.15 Amendment No.1 to Secured Promissory Note, dated September 6, 2011 is
incorporated by reference to Exhibit 10.1 to our Current Report on
Form 8-K filed on September 7, 2011.
35
10.16 Commitment of G.S. Beckwith Gilbert, dated March 6, 2013 is
incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q filed on March 14, 2013.
10.17 Commitment of G.S. Beckwith Gilbert, dated June 10, 2013 is
incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q filed on June 13, 2013.
10.18 Commitment of G.S. Beckwith Gilbert, dated September 5, 2013 is
incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q filed on September 13, 2013.
10.19 Commitment of G.S. Beckwith Gilbert, dated January 16, 2014 is
incorporated by reference to Exhibit 10.19 to our Annual Report on
Form 10-K for the fiscal year ended October 31, 2013
10.20 Commitment of G.S. Beckwith Gilbert, dated March 7, 2014 is
incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q filed on March 13, 2014.
10.21 Commitment of G.S. Beckwith Gilbert, dated June 11, 2014 is
incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q filed on June 12, 2014.
10.22 Debt Extension Agreement, dated June 11, 2014 is incorporated by
reference to Exhibit 10.2 to our Quarterly Report on Form 10-Q filed
on June 12, 2014.
10.23 Secured Promissory Note, dated June 11, 2014 is incorporated by
reference to Exhibit 10.3 to our Quarterly Report on Form 10-Q filed
on June 12, 2014.
10.24 Commitment of G.S. Beckwith Gilbert, dated September 9, 2014 is
incorporated by reference to Exhibit 10.1 to our Quarterly Report on
Form 10-Q filed on September 12, 2014.
21 List of Subsidiaries is incorporated by reference to our Annual Report
on Form 10-K report for the fiscal year ended October 31, 1981.
23.1* Consent of Independent Registered Public Accounting Firm.
31.1* Certification of Chief Executive Officer 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.
31.2* Certification of Chief Financial Officer 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.
32.1* Certification of Chief Executive Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2* Certification of Chief Financial Officer pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101.ins** XBRL Instance
101.xsd** XBRL Schema
101.cal** XBRL Calculation
101.def** XBRL Definition
101.lab** XBRL Label
101.pre** XBRL Presentation
______________________
* Filed herewith.
** Furnished herewith.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PASSUR AEROSPACE, INC.
Dated: January 28, 2015 By: /s/ James T. Barry
------------------
James T. Barry
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
Dated: January 28, 2015 /s/ James T. Barry
------------------
James T. Barry
President and Chief Executive Officer
(Principal Executive Officer)
Dated: January 28, 2015 /s/ Jeffrey P. Devaney
----------------------
Jeffrey P. Devaney
Chief Financial Officer, Treasurer,
and Secretary
(Principal Financial and Accounting
Officer)
37
SIGNATURES (CONTINUED)
Dated: January 28, 2015 /s/ G.S. Beckwith Gilbert
-------------------------
G.S. Beckwith Gilbert
Chairman of the Board and Director
Dated: January 28, 2015 /s/ John R. Keller
------------------
John R. Keller
Executive Vice President and Director
Dated: January 28, 2015 /s/ Bruce N. Whitman
--------------------
Bruce N. Whitman
Chairman of the Executive Committee
and Director
Dated: January 28, 2015 /s/ Paul L. Graziani
--------------------
Paul L. Graziani
Chairman of the Audit Committee and
Director
Dated: January 28, 2015 /s/ James J. Morgan
--------------------
James J. Morgan
Chairman of the Compensation
Committee and Director
Dated: January 28, 2015 /s/ Kurt J. Ekert
-----------------
Kurt J. Ekert
Director
Dated: January 28, 2015 /s/ Peter L. Bloom
------------------
Peter L. Bloom
Director
Dated: January 28, 2015 /s/ Richard L. Haver
--------------------
Richard L. Haver
Director
Dated: January 28, 2015 /s/ Robert M. Strafford
-----------------------
Robert M. Stafford
Director
Dated: January 28, 2015 /s/ Ronald V. Rose
------------------
Ronald V. Rose
Director
38
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
PASSUR Aerospace, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of PASSUR
Aerospace, Inc. and Subsidiary as of October 31, 2014 and 2013 and the related
consolidated statements of income, stockholders' equity, and cash flows for the
years then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of PASSUR Aerospace,
Inc. and Subsidiary at October 31, 2014 and 2013, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ BDO USA, LLP
Melville, New York
January 28, 2015
F - 1
39
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Balance Sheets
October 31, 2014 and 2013
2014 2013
------------- -------------
Assets
Current assets:
Cash $ 648,727 $ 454,650
Accounts receivable, net 1,368,758 1,637,844
Deferred tax asset, current 537,283 926,771
Prepaid expenses and other current assets 164,179 174,960
------------- -------------
Total current assets 2,718,947 3,194,225
PASSUR(R) Network, net 5,428,490 5,337,740
Capitalized software development costs, net 6,844,509 6,126,868
Property and equipment, net 1,323,349 1,346,868
Deferred tax asset, non-current 2,035,088 2,121,136
Other assets 142,482 152,868
------------- -------------
Total assets $ 18,492,865 $ 18,279,705
============= =============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 650,653 $ 561,559
Accrued expenses and other current liabilities 833,292 722,898
Deferred revenue, current portion 1,979,873 1,931,374
------------- -------------
Total current liabilities 3,463,818 3,215,831
Deferred revenue, less current portion 90,679 135,722
Notes payable - related party 3,864,880 4,364,880
------------- -------------
7,419,377 7,716,433
Commitment and contingencies
Stockholders' equity:
Preferred shares - authorized 5,000,000 shares,
par value $.01 per share; none issued or outstanding -- --
Common shares - authorized 10,000,000 shares,
par value $.01 per share; issued 8,225,526 and outstanding
7,529,026 in fiscal year 2014; issued 8,041,001
and outstanding 7,344,501 in fiscal year 2013 82,255 80,410
Additional paid-in capital 15,273,524 15,113,495
Accumulated deficit (2,658,816) (3,007,158)
------------- -------------
12,696,963 12,186,747
Treasury stock, at cost, 696,500 shares in fiscal years 2014 and 2013 (1,623,475) (1,623,475)
------------- -------------
Total stockholders' equity 11,073,488 10,563,272
------------- -------------
Total liabilities and stockholders' equity $ 18,492,865 $ 18,279,705
============= =============
See accompanying notes to consolidated financial statements.
F - 2
40
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Income
Years Ended October 31, 2014 and 2013
2014 2013
------------- -------------
Revenues $ 11,489,667 $ 11,035,058
Cost and expenses:
Cost of revenues 5,087,017 5,751,450
Research and development 673,016 635,316
Selling, general, and administrative expenses 4,626,071 3,723,233
------------- -------------
10,386,104 10,109,999
------------- -------------
Income from operations 1,103,563 925,059
Interest expense - related party 240,572 287,564
------------- -------------
Income before income taxes 862,991 637,495
Income tax expense, net 514,649 355,593
------------- -------------
Net income $ 348,342 $ 281,902
============= =============
Net income per common share - basic $ .05 $ .04
============= =============
Net income per common share - diluted $ .04 $ .04
============= =============
Weighted average number of common shares outstanding - basic 7,457,915 7,263,626
============= =============
Weighted average number of common shares outstanding - diluted 7,743,893 7,765,937
============= =============
See accompanying notes to consolidated financial statements.
F - 3
41
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Years Ended October 31, 2014 and 2013
Additional Total
Common paid-in Accumulated Treasury stockholders'
Shares stock capital deficit stock equity
----------- ----------- ------------- ------------ ------------ -------------
Balance at November 1, 2012 7,193,140 $ 78,896 $ 15,120,556 $ (3,289,060) $ (1,623,475) $ 10,286,917
Exercise of common stock options, 151,361 1,514 (282,431) (280,917)
net of surrender of shares to pay taxes
Stock-based compensation expense 275,370 275,370
Net income 281,902 281,902
----------- ----------- ------------- ------------ ------------ -------------
Balance at October 31, 2013 7,344,501 $ 80,410 $ 15,113,495 $ (3,007,158) $ (1,623,475) $ 10,563,272
Exercise of common stock options,
net of surrender of shares to pay taxes 184,525 1,845 (150,372) (148,527)
Stock-based compensation expense 310,401 310,401
Net income 348,342 348,342
----------- ----------- ------------- ------------ ------------ -------------
Balance at October 31, 2014 7,529,026 $ 82,255 $ 15,273,524 $ (2,658,816) $ (1,623,475) $ 11,073,488
=========== =========== ============= ============ ============ =============
See accompanying notes to consolidated financial statements.
F - 4
42
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended October 31, 2014 and 2013
2014 2013
------------ -----------
Cash flows from operating activities
Net income $ 348,342 $ 281,902
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,805,249 2,589,668
Provision for deferred taxes 475,536 353,799
Provision (recovery) of doubtful accounts receivable 1,456 (12,969)
Stock-based compensation expense 310,401 275,370
Changes in operating assets and liabilities:
Accounts receivable 267,630 (149,209)
Prepaid expenses and other current assets 10,781 (44,132)
Other assets 10,386 40,558
Accounts payable 89,094 (106,679)
Accrued expenses and other current liabilities 110,394 (4,749)
Deferred revenue 3,456 399,011
------------ -----------
Total adjustments 4,084,383 3,340,668
------------ -----------
Net cash provided by operating activities 4,432,725 3,622,570
Cash flows from investing activities
PASSUR(R) Network, net (1,263,193) (494,123)
Capitalized software development costs, net (1,978,356) (1,692,599)
Property and equipment, net (348,572) (561,334)
------------ -----------
Net cash used in investing activities (3,590,121) (2,748,056)
Cash flows from financing activities
Repayments of notes payable - related party (500,000) (400,000)
Surrender of shares to pay withholding taxes (180,026) (283,747)
Proceeds from exercise of stock options 31,500 2,830
------------ -----------
Net cash used in financing activities (648,527) (680,917)
------------ -----------
Increase in cash 194,077 193,597
Cash - beginning of year 454,650 261,053
------------ -----------
Cash - end of year $ 648,727 $ 454,650
============ ===========
Supplemental cash flow information
Cash paid during the year for:
Interest - related party $ 241,000 $ 288,000
Income taxes $ 9,000 $ 41,000
See accompanying notes to consolidated financial statements.
F - 5
43
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements
October 31, 2014
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is a business intelligence, predictive analytics, and big data
Company. Our mission is to connect the world's aviation professionals onto a
single platform to improve global air traffic efficiencies. The Company believes
it operates in one operating segment.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of PASSUR Aerospace,
Inc. and its wholly-owned Subsidiary. All significant inter-company transactions
and balances have been eliminated in consolidation.
Certain financial information in the footnotes has been rounded to the nearest
thousand for presentation purposes.
REVENUE RECOGNITION POLICY
The Company recognizes revenue in accordance with FASB ASC 605-15, ("Revenue
Recognition in Financial Statements") which requires that four basic criteria
must be met before revenues can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the fee is fixed and determinable; and (4) collectability is reasonably
assured.
The Company's revenues are generated by selling: (1) subscription-based,
real-time decision and solution information; (2) professional services; and (3)
annual maintenance contracts for PASSUR(R) Radar Systems.
Revenues generated from subscription and maintenance agreements are recognized
over the term of such executed agreements and/or customer's receipt of such data
or services. In accordance with ASC 605-15, we recognize revenue when persuasive
evidence of an arrangement exists which is evidenced by a signed agreement, the
service has been deployed, as applicable, to its hosted servers, the fee is
fixed and determinable, and collection of the resulting receivable is reasonably
assured. The Company records revenues pursuant to individual contracts on a
month-by-month basis, as outlined by the applicable agreement. In many cases,
the Company may invoice respective customers in advance of the specified period,
either quarterly or annually, which coincides with the terms of the agreement.
In such cases, the Company will defer at the close of each month and/or
reporting period, any subscription or maintenance revenues invoiced for which
services have yet to be rendered, in accordance with ASC 605-15. Revenues
generated by professional services are recognized over the term of such executed
agreements.
The individual offerings that are included in arrangements with our customers
are identified and priced separately to the customer based upon the stand alone
price for each individual element sold in the arrangement irrespective of the
combination of products and services which are included in a particular
arrangement. As such, the units of accounting are based on each individual
element sold, and revenue is allocated to each element based on selling price.
Selling price is determined using vendor-specific objective evidence ("VSOE") if
available, third-party evidence ("TPE") if VSOE is not available, or best
estimate of selling price ("BESP") if neither VSOE or TPE is available. BESP
must be determined in a manner that is consistent with that used to determine
the price to sell the specific elements on a standalone basis. Our best estimate
of selling price is established considering multiple factors including, but not
limited to, pricing practices with different classes of customers, geographies
and other factors contemplated in negotiating the arrangement with the customer.
F - 6
44
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION POLICY (CONTINUED)
From time to time, the Company will enter into an agreement with a customer to
receive a one-time fee for rights including, but not limited to, the rights to
use certain data at an agreed upon location(s) for a specific use and/or for an
unlimited number of users. These fees are recognized as revenue ratably over the
expected life of the customer relationship period, typically five years.
Deferred revenue is classified on the Company's balance sheet as a liability
until such time as revenue from services is properly recognized as revenue in
accordance with ASC 605-15 and the corresponding agreement.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
SUBSEQUENT EVENTS
Management has evaluated subsequent events after the balance sheet date, through
the issuance of the financial statements, for appropriate accounting and
disclosure.
ACCOUNTS RECEIVABLE
The Company has a history of successfully collecting all amounts due from its
customers under the original terms of its subscription agreements without making
concessions. The Company records accounts receivables for agreements where
amounts due from customers are contractually required and are non-refundable.
The carrying amount of accounts receivables is reduced by a valuation allowance
tha reflects our best estimate of the amounts that will not be collected. Net
accounts receivables is comprised of the monthly, quarterly, or annual committed
amounts due from customers pursuant to the terms of each respective customer's
agreement. Account receivable balances include amounts attributable to deferred
revenues.
The provision for doubtful accounts was $30,000 and $29,000 as of October 31,
2014 and 2013, respectively. In addition to reviewing delinquent accounts
receivable, the Company considers many factors in estimating our reserve,
including historical data, experience, customer types, credit worthiness and
econominc trends. The Company monitors its outstanding accounts receivable
balances and believes the provision is reasonable.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets.
Amortization of leasehold improvements is calculated on a straight-line basis
over the estimated useful life of the improvements or the term of the lease,
including renewal options expected to be exercised, whichever is shorter.
PASSUR(R) NETWORK
The PASSUR(R) Network is comprised of PASSUR(R) Systems, which include the
direct and indirect production, shipping, and installation costs incurred for
each PASSUR(R) System, which are recorded at cost, net of accumulated
depreciation. Depreciation is charged to cost of revenues and is recorded using
the straight-line method over the estimated useful life of the asset, which is
estimated at seven years. PASSUR(R) Systems which are not installed, raw
materials, work-in-process, and finished goods components are carried at cost
and no depreciation is recorded.
F - 7
45
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company follows the provisions of ASC 350-40, "Internal Use Software." ASC
350-40 provides guidance for determining whether computer software is
internal-use software, and on accounting for the proceeds of computer software
originally developed or obtained for internal use and then subsequently sold to
the public. It also provides guidance on capitalization of the costs incurred
for computer software developed or obtained for internal use. The Company
expenses all costs incurred during the preliminary project stage of its
development, and capitalizes the costs incurred during the application
development stage. Costs incurred relating to upgrades and enhancements to the
software are capitalized if it is determined that these upgrades or enhancements
add additional functionality to the software. Costs incurred to improve and
support products after they become available are charged to expense as incurred.
The Company capitalized $1,978,000 as of October 31, 2014 and $1,693,000 as of
October 31, 2013. The Company records amortization of the software on a
straight-line basis over the estimated useful life of the software, typically
five years.
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 revised life.
COST OF REVENUES
Costs associated with subscription and maintenance revenues consist primarily of
direct labor, depreciation of PASSUR(R) Network Systems, amortization of
Capitalized software development costs, communication costs, data feeds,
allocated overhead costs, travel and entertainment, and consulting fees. Also
included in cost of revenues are costs associated with upgrades to PASSUR(R)
Systems necessary to make such systems compatible with new software
applications, as well as the ordinary repair and maintenance of existing
PASSUR(R) Systems. Additionally, cost of revenues in each reporting period is
impacted by: (1) the number of PASSUR(R) Systems added to the Network, which
includes the cost of production, shipment, and installation of these assets,
which are capitalized to the PASSUR(R) Network; and (2) new capitalized costs
associated with software development projects. Both of these are referred to as
"Capitalized Assets", and are depreciated and/or amortized over their respective
useful lives and charged to cost of revenues.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred income taxes are recorded to reflect the temporary differences in the
tax bases of the assets or liabilities and their reported amounts in the
financial statements. The Company recognizes deferred tax assets and liabilities
for the expected future tax consequences of events that have been included in
the Company's financial statements or tax returns. Under this method, deferred
tax assets and liabilities are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount currently estimated to be realized. The Company follows ASC
740, "Income Taxes", where tax benefits are recognized only for tax positions
that are more likely than not to be sustained upon examination by tax
authorities. The amount recognized is measured as the largest amount of benefit
that is greater than 50% likely to be realized upon ultimate settlement.
Unrecognized tax benefits are tax benefits claimed in tax returns that do not
meet these recognition and measurement standards. At October 31, 2014 and 2013,
the Company did not have any uncertain tax positions. As permitted by ASC
740-10, the Company's accounting policy is to prospectively classify accrued
interest and penalties related to any unrecognized tax benefits in its income
tax provision.
F - 8
46
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are expensed as incurred.
NET INCOME PER SHARE INFORMATION
Basic net income per share is computed based on the weighted average number of
shares outstanding. Diluted net income per share is based on the sum of the
weighted average number of common shares outstanding and common stock
equivalents. Shares used to calculate net income per share for fiscal years 2014
and 2013 are as follows:
2014 2013
------------ ------------
Basic weighted average shares outstanding 7,457,915 7,263,626
Effect of dilutive stock options 285,978 502,311
------------ ------------
Diluted weighted average shares outstanding 7,743,893 7,765,937
============ ============
Weighted average shares which are not
included in the calculation of
diluted net income per share because
their impact is anti-dilutive
Stock options 630,522 325,000
============ ============
Weighted average options to purchase 630,522 and 325,000 shares of common stock
at prices ranging from $2.73 to $5.00 per share that were outstanding during
2014 and 2013 were excluded from each respective year's computation of diluted
earnings per share. In each of these years, such options' exercise prices
exceeded the average market price of our common stock, thereby causing the
effect of such options to be anti-dilutive.
DEFERRED REVENUE
Deferred revenue includes amounts attributable to advances received on customer
agreements, which may be prepaid either annually or quarterly. Revenues from
such customer agreements are recognized as income ratably over the period that
coincides with the respective agreement.
The Company recognizes initial set-up fee revenues and associated costs on a
straight-line basis over the estimated life of the customer relationship period,
typically five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts of the Company's cash, receivables, accounts payable, and
accrued liabilities approximate their fair values principally because of the
short-term nature of these items. The fair value of related party debt is not
practicable to determine due primarily to the fact that the Company's related
party debt is held by its Chairman and significant shareholder, and the Company
does not have any third-party debt with which to compare.
Additionally, on a recurring basis, the Company uses fair value measures when
analyzing asset impairments. Long-lived assets and certain identifiable
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined such indicators are present, and the review
indicates that the assets will not be fully recoverable based on the
undiscounted estimated future cash flows expected to result from the use of the
asset, their carrying values are reduced to estimated fair value.
F - 9
47
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1.DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company follows FASB ASC 718 "Compensation-Stock Compensation", which
requires measurement of compensation cost for all stock-based awards at fair
value on date of grant, and recognition of stock-based compensation expense over
the service period for awards expected to vest. The fair value of stock options
was determined using the Black-Scholes valuation model. Such fair value is
recognized as an expense over the service period, net of forfeitures.
Stock-based compensation expense was $310,000 and $275,000 in fiscal years 2014
and 2013, respectively, and was primarily included in selling, general, and
administrative expenses.
The Company's stock options vest over a period of five years. The fair value for
these stock options was estimated at the date of grant using a Black-Scholes
stock option pricing model, with the following weighted average assumptions for
fiscal years 2014 and 2013; risk-free interest rate of 1.62% to 3.54%,
volatility factor of the expected market price of the Company's common stock of
117%, no dividend yield, and a weighted average expected life of the stock
options of 5.5 to 6.5 years.
COMPREHENSIVE INCOME
The Company's comprehensive income is equivalent to that of the Company's total
net income for fiscal years 2014 and 2013.
ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue
from Contracts with Customers: Topic 606" (ASU 2014-09), to supersede nearly
all-existing revenue recognition guidance under U.S. GAAP. The core principle of
ASU 2014-09 is to recognize revenues when promised goods or services are
transferred to customers in an amount that reflects the consideration that is
expected to be received for those goods or services, ASU 2014-09 defines a five
step process to achieve this core principle and, in doing so, it is possible
more judgment and estimates may be required within the revenue recognition
process than required under existing U.S. GAAP including identifying performance
obligations in the contract, estimating the amount of variable consideration to
include in the transaction price and allocating the transaction price to each
separate performance obligation. We are currently evaluating the impact of our
pending adoption of ASC 2014-09 on our consolidated financial statements.
2. Property and Equipment
Property and equipment consist of the following as of October 31, 2014 and 2013:
Estimated
useful lives 2014 2013
------------ ------------ ------------
Leasehold improvements 3-5 years $ 207,000 $ 207,000
Equipment 5-10 years 4,976,000 4,627,000
Furniture and fixtures 5-10 years 538,000 538,000
------------ ------------
5,721,000 5,372,000
Less accumulated depreciation 4,397,000 4,025,000
------------ ------------
Total $ 1,324,000 $ 1,347,000
============ ============
The Company recorded depreciation expense on the assets included in Property and
equipment of $372,000 and $259,000 for fiscal years 2014 and 2013, respectively.
F - 10
48
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
3. PASSUR(R) NETWORK
As of October 31, 2014 and 2013, the Company had $16,871,000 and $15,605,000 of
Company-owned PASSUR(R) Systems capitalized, and $11,442,000 and $10,267,000 of
accumulated depreciation related to such costs, resulting in a net asset of
$5,429,000 and $5,338,000, respectively. Depreciation is charged to cost of
revenues and is calculated using the straight-line method over the estimated
useful life of the asset, which is estimated at seven years. PASSUR(R) Systems
which are not installed in the PASSUR(R) Network are carried at cost and no
depreciation is recorded. The cost of these uninstalled PASSUR(R) Systems
amounted to $139,000 and $867,000 as of October 31, 2014 and 2013, respectively.
The Company capitalized $1,263,000 and $494,000 of costs to the PASSUR(R)
Network during fiscal years 2014 and 2013, respectively. Included in the
PASSUR(R) Network as of October 31, 2014 and 2013, are $1,369,000 and $849,000
of costs pertaining to raw material, work-in-process, and finished goods
components. Depreciation expense related to the Company-owned PASSUR(R) Network
was $1,172,000 and $1,222,000 in fiscal years 2014 and 2013, respectively. The
Company did not dispose of any PASSUR(R) Network assets in fiscal years 2014 or
2013.
4. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
As of October 31, 2014 and 2013, the Company had $13,012,000 and $11,034,000 of
Capitalized software development costs, and $6,168,000 and $4,907,000 of
accumulated amortization related to such costs, resulting in a net asset of
$6,845,000 and $6,127,000, respectively. Amortization related to capitalized
software development projects was $1,261,000 and $1,109,000 in fiscal years 2014
and 2013, respectively. For the next five years, beginning in fiscal year 2015,
future amortization expense for Capitalized software development costs where
amortization has commenced, is estimated to approximate $1,331,000, $1,319,000,
$1,194,000, $887,000, and $240,000. As of October 31, 2014, the Company had
$1,874,000 of Capitalized software development costs relating to projects in
development which are not yet subject to amortization.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following as of
October 31, 2014 and 2013:
2014 2013
----------- ------------
Payroll, payroll taxes, and benefits $ 523,000 $ 453,000
Professional fees 136,000 157,000
Marketing expenses 21,000 16,000
Bonus & commissions -- 11,000
Travel expenses 76,000 53,000
Other liabilities 76,000 33,000
----------- ------------
Total $ 832,000 $ 723,000
=========== ============
F - 11
49
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
6. NOTES PAYABLE
During fiscal year 2013, the Company paid fiscal year 2013 interest to G.S.
Beckwith Gilbert, the Company's significant shareholder and Chairman, of
$288,000, representing the entire fiscal year 2013 interest due, thereby meeting
the payment requirements of the loan agreement. In the fourth quarter of 2013,
the Company made $400,000 in principal payments, bringing the principal amount
of the note payable due to G.S. Beckwith Gilbert to $4,364,880 on October 31,
2013.
During fiscal year 2014, the Company paid fiscal year 2014 interest to G.S.
Beckwith Gilbert of $241,000, representing the entire fiscal year 2014 interest
due, thereby meeting the payment requirements of the loan agreement. During
fiscal year 2014, the Company made $500,000 in principal payments, bringing the
principal amount of the note payable due to G.S. Beckwith Gilbert to $3,864,880
on October 31, 2014.
On June 11, 2014, the Company entered into a Debt Extension Agreement with G.S.
Beckwith Gilbert, effective June 11, 2014, pursuant to which the Company and Mr.
Gilbert agreed to modify certain terms and conditions of the Gilbert Note. The
maturity date of the Gilbert Note was due on November 1, 2014, and the total
amount of principal and interest due and owing as of June 11, 2014 was
$3,891,934. Pursuant to the Debt Extension Agreement, the Company issued a new
note to Mr. Gilbert in the principal amount of $3,864,880 (the "New Gilbert
Note") in exchange for the Gilbert Note and the Company agreed to pay the
accrued interest under the Gilbert Note as of June 11, 2014, in an amount equal
to $27,054, at the time and on the terms set forth in the Gilbert Note. Under
the terms of the New Gilbert Note, the maturity date was extended to November 1,
2016 and the annual interest rate remained at 6%. Interest payments under the
New Gilbert Note shall be made annually at October 31 of each year. The note
payable is secured by the Company's assets.
7. LEASES
The Company's headquarters, located in Stamford, Connecticut, are subject to a
lease through January 31, 2018, at an average annual rental rate of $230,000.
The Company's software development and manufacturing facility, located in
Bohemia, New York, is subject to a lease through October 31, 2015, at an average
annual rental rate of $126,000. These leases provide for additional payments of
real estate taxes and other operating expenses over the base amount in the
rental agreement. Other short-term operating leases are included below. All
other operating leases are under a month-to-month arrangement. Rent expense was
$445,000 and $386,000 for fiscal years 2014 and 2013, respectively.
Contractual obligations
Fiscal Year Ended October 31: under operating leases
--------------------------------------------------------------------------------
2015 426,000
2016 265,000
2017 270,000
2018 96,000
Thereafter --
----------
Total minimum contractual obligations $1,057,000
==========
F - 12
50
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES
The Company's provision for income taxes in each fiscal year consists of current
federal, state, and local minimum taxes.
A reconciliation of the U.S statutory tax rate to the Company's effective tax
rate for fiscal years 2014 and 2013 is as follows:
2014 2013
Amount Percent Amount Percent
----------- ---------- ----------- -----------
U.S. statutory tax $ 294,000 34.0% $ 217,000 34.0%
Permanent differences (1) 68,000 7.8 77,000 12.1
State tax, net of federal benefit 87,000 10.1 62,000 4.7
Change in deferred tax rate 66,000 7.7 -- --
----------- ---------- ----------- -----------
Income tax expense (benefit), net $ 515,000 59.6% $ 356,000 55.8%
=========== ========== =========== ===========
(1) Permanent differences are comprised of stock compensation of $126,000 and
$63,000, in fiscal years 2014 and 2013, respectively, partially off set by other
permanent differences of $58,000 in fiscal year 2014, as well as additional
other permanent differences of $14,000 in fiscal year 2013.
The tax effect of temporary differences that give rise to deferred tax assets
and liabilities as of October 31, 2014 and 2013 is as follows:
2014 2013
-------------- -----------------
Deferred tax assets and liabilities:
Net operating loss carry-forward $ 3,007,000 $ 3,665,000
Accrued vacation 126,000 115,000
Allowance for doubtful accounts receivable 12,000 11,000
Stock compensation-nonqualified 148,000 111,000
Depreciation (721,000) (854,000)
-------------- -----------------
Deferred tax assets and liabilities $ 2,572,000 $ 3,048,000
============== =================
In accordance with accounting standards, the Company has not recorded a deferred
tax asset related to the net operating losses resulting from the exercise of
disqualifying stock options in the accompanying financial statements. The
cumulative amount of unrecognized tax benefits from the exercise of stock
options at October 31, 2014 was approximately $1,435,000, and if the Company is
able to utilize this benefit in the future, it would result in a credit to
additional paid-in capital.
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PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The income tax expense (benefit) for fiscal years ended October 31, 2014 and
2013 is as follows:
2014 2013
------------- ----------------
Current:
Federal $ -- $ (14,000)
State 39,000 16,000
------------- ----------------
Income tax provision-current 39,000 2,000
Deferred:
Federal 415,000 303,000
State 61,000 51,000
------------- ----------------
Total income tax expense (benefit), net $ 515,000 $ 356,000
============= ================
At October 31, 2014, the Company had available a federal net operating loss
carry-forward of $9,149,000 for income tax purposes, which will expire in
various tax years from fiscal year 2021 through fiscal year 2034. The Company
evaluates whether a valuation allowance related to deferred tax assets is
required each reporting period. A valuation allowance is established if, based
on the weight of available evidence, it is more likely than not that some
portion or all of the deferred income tax asset will not be realized. At October
31, 2013, the Company had available a federal net operating loss carry-forward
of $10,224,000 for income tax purposes, which will expire in various tax years
from fiscal year 2020 through fiscal year 2033.
At October 31, 2014 and 2013, the Company did not have any uncertain tax
positions. As permitted by ASC 740-10, the Company's accounting policy is to
prospectively classify accrued interest and penalties related to any
unrecognized tax benefits in its income tax provision. The Company's tax return
years that are subject to examination by taxing authorities are fiscal years
1999 through 2005 and fiscal years 2010 through 2014.
9. STOCK OPTIONS
In fiscal year 2009, the Company's Board of Directors approved the Company's
2009 stock option plan, which provides for the granting of stock options for up
to 500,000 shares of the Company's common stock. During fiscal year 2010, the
plan was amended to provide for the granting of another 500,000 stock option
shares, for a total provision of 1,000,000 stock option shares of the Company's
common stock as of October 31, 2010. During fiscal year 2011, the plan was
amended for the granting of another 500,000 stock option shares, for a total
provision of 1,500,000 stock option shares of the Company's common stock as of
October 31, 2013 and 2014. The Company's prior stock option plan, which provided
for the granting of stock options for up to 2,200,000 shares of the Company's
common stock, expired during fiscal year 2009.
The Black-Scholes stock option valuation model was developed for use in
estimating the fair value of traded stock options, which have no vesting
restrictions and are fully transferable. In addition, stock option valuation
models require the input of highly subjective assumptions including expected
stock price volatility.
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52
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
9. STOCK OPTIONS (CONTINUED)
There were 910,500 shares of common stock reserved for future issuance under the
Company's 2009 stock option plan as of October 31, 2014. For fiscal years 2014
and 2013, stock-based compensation expenses of $310,000 and $275,000 was
primarily charged to selling, general, and administrative expense. There was
$682,000 of unrecognized stock-based compensation costs expected to be
recognized over a weighted average period of 3.07 years as of October 31, 2014.
The Company had 256,400 shares in unrecognized stock-based options as of October
31, 2014.
Information with respect to the Company's stock options for fiscal years 2014
and 2013 is as follows:
Weighted Weighted average
Number of average remaining contractual Aggregate
stock exercise term (in years) intrinsic
options price value
Stock options outstanding at November 1, 2012 1,341,500 $ 1.63
Stock options granted 70,000 $ 3.34
Stock options exercised (254,000) $ .32
Stock options forfeited and expired (56,500) $ 1.09
-----------
Outstanding at October 31, 2013 1,101,000 $ 2.07
Stock options granted 72,500 $ 3.39
Stock options exercised (252,000) $ .42
Stock options forfeited (5,000) $ .51
-----------
Stock options outstanding at October 31, 2014 916,500 $ 2.64 4.97 $ 1,405,000
=========== ======= ===================== ==============
Stock options exercisable at October 31, 2014 660,100 $ 2.21 3.69 $ 1,285,000
=========== ======= ===================== ==============
The weighted average grant date fair value of the Company's stock options
granted during fiscal years 2014 and 2013 was $2.97 and $2.94, respectively. The
total intrinsic value of stock options exercised was $694,000 and $760,000
during fiscal years 2014 and 2013, respectively.
10. MAJOR CUSTOMERS
The Company's principal business is to provide its customers business
intelligence and predictive analytics solutions serving the needs of the
aviation industry, primarily airlines, airports, and other aviation related
companies. The Company believes it operates in one operating segment. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral. Credit losses historically have been immaterial.
Two customers accounted for 24% or $2,707,000 of total revenues in fiscal year
2014 and one customer accounted for 11% or $1,269,000 of total revenues in
fiscal year 2013. There were no significant accounts receivable balances for
these customers as of the fiscal year ended October 31, 2014
The Company had foreign sales of $213,000 and $245,000 in fiscal years 2014 and
2013, respectively. All sales, including foreign sales, are denominated in U.S.
dollars.
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