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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, 2015
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.
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(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 11-2208938
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(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
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Securities registered pursuant to
Section 12(b) of the Act: NONE
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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 30,2015 was $7,464,000
The number of shares of common stock, $0.01 par value,
outstanding as of January 12, 2016 was 7,673,199
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement for the 2016 Annual
Meeting of Stockholders, to be filed with the Securities and Exchange Commission
within 120 days of October 31, 2015, are incorporated by reference into Part III
of this Form 10-K.
Page 1 of 59
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 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
potential for terrorist attacks, changes in fuel costs, airline bankruptcies and
consolidations, economic conditions, and other risks detailed in the Company's
periodic report filings with the SEC. Other uncertainties which could impact the
Company include, without limitation, uncertainties with respect to future
changes in governmental regulation and the impact that such changes in
regulation will have on the Company's business. Additional uncertainties
include, without limitation, uncertainties relating to: (1) the Company's
ability to find and maintain the personnel necessary to sell, manufacture, and
service its products; (2) its ability to adequately protect its intellectual
property;and (3) its ability to secure future financing. Readers are cautioned
not to place undue reliance on these forward-looking statements, which relate
only to events as of the date on which the statements are made and which reflect
management's analysis, judgments, belief, or expectation only as of such date.
The Company undertakes no obligation to publicly update any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future. 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 leading business
intelligence company, providing predictive analytics and decision support
technology for the aviation industry primarily to improve the operational
performance and cash flow of airlines and the airports where they operate. The
Company is recognized as a leader in airline and airport operational efficiency
and business aviation marketing and operational solutions, and is a pioneer in
the successful use of big data, with an aviation intelligence platform and suite
of web-based solutions that address the aviation industry's most intractable and
costly challenges, including under utilization of airspace and airport capacity,
delays, cancellations, and diversions, among others. Several studies have
estimated the annual direct costs of such inefficiencies at over $30 billion.
The Company's technology platform is supported by its Aviation Intelligence
Center of Excellence ("COE"),a team of subject matter experts with extensive
experience in airline, airport, and business aviation operations, finance, air
traffic management, systems automation, and data visualization,with specific
expertise in the operational and business needs, requirements, objectives, and
constraints of the aviation industry.
PASSUR's information solutions are used by the largest five North American
airlines, over 60 airport customers, including 22 of the top 30 North American
airports, more than 200 corporate aviation customers, as well as the U.S.
government.
PASSUR's mission is to improve global air traffic efficiencies by connecting the
world's aviation professionals onto a single aviation intelligence platform.
PASSUR offers companies products that are commercially proven, commercially
accepted, and with a demonstrated return on investment ("ROI") for airlines,
airports, governments, and business aviation companies.
PASSUR provides data aggregation and consolidation, information, decision
support, predictive analytics, collaborative solutions, and professional
services to airlines,airports, governments, and business aviation companies. To
enable this unique offering, PASSUR owns and operates the largest commercial
passive radar network in the world that updates flight tracks every 1 to 4.6
seconds, powering a proprietary database that is accessible in real-time and
delivers timely, accurate information and solutions via PASSUR's
industry-leading algorithms and business logic included in its products.
Solutions offered by PASSUR help to ensure flight completion,covering the entire
flight life cycle, from gate to gate, and result in reductions in overall costs
and emissions, while maximizing revenue opportunities, as well as improving
operational efficiency and enhancing the passenger experience.
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PASSUR gives operators the ability to optimize performance in today's air
traffic management system, while bridging the needs of operators and government
aviation agencies through collaborative information exchange, shared procedures,
and common operating metrics. Many of PASSUR's core capabilities developed for
the commercial sector help achieve Next Generation Air Transportation
System("NextGen") objectives. We believe these commercial solutions have allowed
operators to extract maximum value and capacity from today's infrastructure
while creating business and operational case studies for several core NextGen
programs.
Commercial aviation operators using the airspace depend on information from the
government Air Navigation Services Provider ("ANSP")for flight, airspace, and
airport information outside their own fleets. PASSUR augments and integrates
government information with data from its independent network (the largest
passive commercial radar network in the world), with over 180 radar locations
covering North America from coast to coast, and other installations in Europe
and Asia. PASSUR provides faster aircraft position updates (from 1 to 4.6
seconds), and more complete information on aircraft. PASSUR's sensors receive
aircraft and drone signals in Mode A, C, S, and Automatic Dependent
Surveillance-Broadcast ("ADS-B"), providing position, altitude, beacon code, and
tail number, among other information.
PASSUR receives signals from aircraft that, when combined with our historical
database of aircraft and airport behavior, including information recorded by our
network over the last 10 years, allows the Company to know more about what has
happened historically, and what is happening in real-time. In addition, the
historical data base allows the Company 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'S STRATEGIC OBJECTIVES
1. Increase airline cash flow and operational performance while growing
PASSUR's revenue in core commercial markets.
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 from the core commercial market while facilitating larger
government programs and contracts.
3. Develop strategic relationships with major companies to broaden the
reach of PASSUR products in the world-wide commercial and government
markets.
4. Further build PASSUR's market share domestically and internationally.
5. Further expand the reach of PASSUR'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.
PASSUR CORE CAPABILITIES
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 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 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 Network is integrated and
correlated into specialized databases to support predictive, real-time, and post
operational requirements. PASSUR 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
software.
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PREDICTIVE ANALYTICS
PASSUR 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
predictive analytics are built on several core capabilities:
o Real-time surveillance from the PASSUR Network gives the necessary
breadth and granularity of data to support detailed scenario building
and pattern recognition. This 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 Detailed, granular data acquired by the PASSUR 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.
o PASSUR is recognized by airlines as having the best flight predicted
arrival time(Estimated Time of Arrival ("ETA") in the industry. More
than seven independent airline studies have demonstrated the PASSUR
predicted arrival time to be more accurate than any other source,
including the airlines' own internally-generated ETAs. The Company
believes that this greater accuracy translates directly into
significant operational and financial benefits in areas such as
completing connections (passengers and bags), reduced fuel
consumption, more efficient staffing plans, and greater on-time
schedule completion.
PASSUR INTEGRATED TRAFFIC MANAGEMENT
PASSUR Integrated Traffic Management ("PITM") is, in the Company's opinion, the
industry's first, fully integrated air traffic optimization suite. 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 helping airlines complete their mission, on time, by focusing on
the major operational constraints such as diversions, airspace and surface
optimization, and 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's partner
companies to provide their solutions to PASSUR's customers. PITM is fully
web-delivered, allowing easy access from any web-accessed location.
DECISION SUPPORT DASHBOARDS, KPIS, AND MANAGEMENT BY EXCEPTION
Many PASSUR solutions are delivered in metrics-driven, 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
solutions are designed so that users are alerted in real-time to specific
conditions and recommended actions, only when operations reach certain
user-defined thresholds, thereby preventing information overload.
COLLABORATIVE CAPABILITIES AND INDUSTRIAL NETWORKS
Many PASSUR solutions include a collaborative layer which allows 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'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.
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AVIATION INTELLIGENCE CENTER OF EXCELLENCE TO SUPPORT BIG DATA
The Company's Aviation Intelligence COE is a team of subject matter experts with
extensive experience in airline, airport, and business aviation operations,
finance, air traffic management, systems automation, and data visualization,with
specific expertise in the operational and business needs, requirements,
objectives, and constraints of the aviation industry.
These experts from the PASSUR COE understand the National Airspace System
("NAS") and are able to translate these internal requirements and external
conditions into information solutions that target specific, measurable problems
with defined operational and financial performance metrics. 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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PRODUCTS AND SERVICES
The Company offers targeted solutions to help airlines complete missions on
time:
CATEGORY PASSUR SOLUTIONS DESCRIPTION KEY GROWTH DRIVERS
[] Web dashboard product that gives [] Enhances airspace throughput and
airlines the ability to analyze capacity.
and act on airspace conditions [] Reduces impact of Traffic
predictively and in real-time. Management Initiatives ("TMI"),
[] Allows airlines to ensure the such as eliminating the need for
optimal flow of traffic into an ground delays or ground stops.
airport in order to preserve [] TMI costs can exceed $160 million
schedule completion and reduce annually for just one airline at
costs. larger airports.
[] Provides predictive analytics, [] One airline saved an estimated $12
alerts, and instant analysis and million per year at just three
TRAFFIC FLOW performance summaries to balance airports through enhanced traffic
MANAGEMENT demand and capacity. flow management with PASSUR solutions.
[] Drone Air Traffic Integration is a [] Assist drone operators seamlessly
new service designed to help integrate into the NAS.
commercial drone operators become
more informed, effective, and
collaborative members of the NAS by
integrating them into PASSUR's aviation
intelligence platform, currently used
by the main NAS stakeholders (airlines,
airports, business aviation, and the
Federal Aviation Administration ("FAA")).
[] Primary customer: airlines, airports,
government, and potentially large drone
operators.
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[] Predictive analytics algorithms leverage [] Reduces the number and costs of
extensive historical data mining and pattern unnecessary diversions.
recognition to predict a range of operating [] Ensures aircraft divert to airports
conditions in advance, allowing airlines to that can enable a faster return to
choose the least costly plane to divert, original destination airport.
DIVERSION cancel/consolidate flights, predict accurate [] Diversions cost U.S. domestic
MANAGEMENT hold times, or divert preemptively. airlines more than $400 million
[] Allows airlines to decrease the number of annually in 2013-2014, disrupting
diversions they experience and optimize ones more than 1.6 million passengers.
that are unavoidable, improving their [] PASSUR reduced one carrier's diversions
profitability, passenger scores, and by 11% that same year, which translates
environmental footprint. into $46 million in savings across the
[] Primary customer: airlines, airports, and industry, or 170,000 fewer disrupted
government. passengers.
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[] An accurate ETA data feed optimizes all [] Benefits include completing connections
existing airline and airport processes and (passengers, bags, and crew), reduced fuel
technology that depend on knowing when an consumption, more efficient staffing
FLIGHT airplane is going to arrive, without plans, greater on-time schedule
PREDICTABILITY requiring expensive or disruptive internal completion, reduced gate holds,
(ETAS AND ETDS) changes. Predictive flight arrival and and helping airlines meet stricter
departure times built on multiple sources, "crew rest" regulations.
including PASSUR's live and historical [] Enables better overall planning
surveillance of the airspace. and scheduling to maximize revenue
[] Provides accurate gate-to-gate ETA and opportunities.
Estimated Time of Departure ("ETD"). [] Missed connections alone at one
[] Primary customer: airlines and airports. airport can cost an airline in
excess of $3 million per year.
[] One airline has reported a $15
million per year cost recovery
since implementing the PASSUR ETA.
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[] PASSUR Surface Management helps to reduce [] Improves the efficiency of arrivals and
extended tarmac delays and taxi-in/taxi-out departures, preserves schedule integrity,
times, prioritize high-value flights, and prioritizes high value flights, and reduces
facilitate an efficient turn management surface delays and fuel burn.
process (transition of an aircraft from [] Reduces the possibility of tarmac delay fines,
arrival to departure). which can exceed $3 million for airlines.
[] A suite of capabilities that combine air [] At one airport using PASSUR Surface
and ground surveillance data, visual Management, over just one year, airlines
tracking of aircraft in the airspace and reduced fuel costs by $10-$15 million,
on the airport surface, decision-support logged 48,000 fewer aircraft taxi hours,
software, and key performance indicator departures, preserves schedule integrity,
SURFACE extended tarmac delays and taxi-in/taxi-out and released 48,000 fewer metric tons of
MANAGEMENT dashboards. carbon emissions into the atmosphere.
[] PASSUR's new surface surveillance sensors
allow airlines and airports to visualize
parts of the airport otherwise not tracked
and monitored.
[] Primary customer: airlines, airports, and
government.
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[] Optimizes the transition of an aircraft
from arrival to departure to ensure an [] Minimizes the frequency, duration,
on-time departure, schedule completion, and downstream effects of delays.
maximum and asset utilization. [] Ensures on-time schedule completion.
[] Minimizes the time required for a plane to [] Excess staffing costs related to
unload from one flight and reload for the inefficient turn times are estimated at
TURN TIME next flight by monitoring and proactively close to $1 million per airport per year
MANAGEMENT alerting to bottlenecks at each phase of the for large networked airlines.
aircraft's cycle through arrival to departure,
allowing flight and passenger handling
resources to be adjusted to ensure an on-time
process.
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[] Allows airports to communicate and [] Reduced tarmac delay fines and
coordinate with airlines and other key incidents.
stakeholders to ensure that operations are [] Operational metrics directly affected
CONNECTIVITY AND optimized with airport-critical information by the lack of timely updates, including
COLLABORATION that is otherwise unavailable. secondary/repeat deicing, delays,
[] Addresses one of the key missing pieces cancellations, and diversions.
in connectivity and collaboration: the [] A large hub airport reduced costs
two-way flow of accurate, timely, and by $12 million using PASSUR Connectivity
complete information between airport and Collaboration capabilities.
operators and airlines.
[] Primary customer: airports (with airlines as
key influencer).
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[] Reduces airlines' operating costs at the [] For airports, the program provides
airport, and ensures all airlines pay the faster revenue capture, fiduciary
correct amount. accountability, revenue predictability,
AVIATION FEES [] Provides unique data independence, accuracy, and more efficient and fair service to
AND CHARGES and reliability - combined with proven airline stakeholders.
reporting, audit, and billing services - to [] For airlines, the program ensures that they
give airports and airlines the assurance that pay only their fair share. In addition,
all billable weight is being captured, that their fees could go down after the airport
the cost of the airfield is being distributed begins collecting all fees owed, and the
fairly and equitably, and that the process is time and effort required to manage their
transparent, automated, and standardized. fees is reduced.
[] Primary customer: airports (with airlines as [] PASSUR Landing Fee Management solution manages
key influencer). $1.2 billion in aviation fees annually.
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 currently owns twenty-three issued patents and has an additional
eleven 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 for
use with both the PASSUR hardware system installation, and the software products
which use the data derived from the PASSUR Network and other sources; and
allowed federal trademark applications for the marks NextGen2 and NextGen3, for
use with PASSUR Integrated Traffic Management modules and capabilities.
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The Company believes its business opportunities come from the following industry
conditions and demand drivers:
AIRLINE INDUSTRY DYNAMICS
o INCREASING AIRLINE PROFITABILITY, DRIVING INVESTMENT IN TECHNOLOGY. We
expect airlines will take advantage of their increased profitability
to invest in technology that can lower costs, increase revenue, and
improve customer satisfaction.
o CONSOLIDATION IN THE AIRLINE INDUSTRY CREATING DEMAND FOR A COMMON
OPERATING SYSTEM. Airlines are consolidating into much larger networks
of greater complexity. There is increasing demand for a common
operating platform that can service their entire system.
o CURRENT RATE OF PROJECTED TRAFFIC GROWTH OUTPACING AVIATION
INFRASTRUCTURE CAPACITY. There is a dynamic and fast-growing market
environment where the projected increase in airline flights over the
next 10 years is expected to outpace the current infrastructure's
ability to meet the needs of the airline operators. PASSUR's solutions
help the aviation industry maximize the capacity of the existing
infrastructure. PASSUR has a business model and platform that can be
easily scaled to handle new opportunities and is continually
identifying new ways to capitalize on and scale these existing
capabilities.
GOVERNMENT POLICY
o NEW LARGE GOVERNMENT CONTRACTS COMBINING BOTH SAFETY AND EFFICIENCY
CAPABILITIES. Today, there is a demand for a combination of
safety-based Air Traffic Management ("ATM") and efficiency-based ATM.
Many of the requested efficiency capabilities are derived from airline
and airport customers' needs.
o FUNDING SHIFT FROM GOVERNMENT TO COMMERCIAL CREATING A NEED FOR A
PORTAL TO THE CIVIL/COMMERCIAL BUSINESS FOR GOVERNMENT CONTRACTORS.
Many companies regard PASSUR's substantial commercial market share as
a means to increase the probability of winning NextGen and government
contracts through the combination of PASSUR's commercial ATM
(efficiency) with a partner's government ATM (safety) capabilities.
PASSUR has been recognized as the commercial leader in aviation
efficiency solutions.
o LOWER TOLERANCE FOR SEVERE DISRUPTIONS. Public policy in the form of
expensive fines levied on airlines reflects this change of attitude.
Consumers want better information relating to aviation, and fewer
delays.
o LIMITING CARBON EMISSIONS BECOMING A GREATER FOCUS. Airlines are
increasingly sensitive to the industry's carbon footprint. Several of
the PASSUR solutions impact both fuel savings as well as reductions in
carbon emissions.
THE CONNECTED AIRPLANE AND INTERNET OF THINGS ("IOT")
o THE CONNECTED AIRPLANE AND THE IOT ARE EXPECTED TO GROW IN THE COMING
YEARS. PASSUR's existing aviation intelligence platform and solutions
can integrate the vast array of data being generated from satellites
and sensors on airplanes. This platform can extract the most important
data and integrate that data into a user-friendly solutions package
for the user's critical real-time decisions.
COLLABORATIVE DECISION MAKING
o AIRLINES ARE REQUESTING A COLLABORATIVE DECISION MAKING PLATFORM.
Large airlines need collaborative decision tools including common
operating platforms, enabling instant coordination between system
operations departments, hubs, and regional operators, and between
airlines and airports, to solve complex operational procedures. Common
use systems will incorporate airport-centric as well as
airline-centric solutions. Airports are increasingly being tasked with
providing more multi-airline operational services, previously provided
by each airline. When airports provide collective services, redundancy
and costs can be reduced. PASSUR has been asked by airlines and
airports to help fulfill this need.
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AUTOMATION AND DATA STANDARDS
o SIGNIFICANT SHIFT FROM MANUAL PROCESSES TO AUTOMATION CREATING LARGE
OPPORTUNITIES FOR COST SAVINGS AND EFFICIENCIES. Many complex and
expensive operational processes at airlines and airports are still
manual, opening a large opportunity for automation enabling the
realization of cost savings and efficiencies. These opportunities are
especially prevalent in the areas of irregular operations, airspace
and surface management, and operations where there is a heavy
requirement for collaboration among airlines and airports.
o PASSUR'S ENTIRE NETWORK HAS BEEN ADS-B READY FOR SOME TIME AND PASSUR
IS LOOKING FORWARD TO CAPITALIZING ON THE INCREASING AVAILABILITY OF
ADS-B DATA. ADS-B will eventually become a ubiquitous form of aircraft
surveillance.
HOW PASSUR AEROSPACE, INC. GENERATES REVENUE
The Company's revenues are generated by selling: (1) subscription-based,
real-time decision and solution information and (2) professional services. 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 Network cannot be resold, used by others, or used
for unauthorized purposes.
DISTRIBUTION METHOD
The Company's direct sales force sells its products, as do authorized
distributors who sell PASSUR's products as part of their total solution, e.g.
for environmental management.
COMPETITION
PASSUR has developed a full suite of capabilities to reduce inefficiencies and
improve performance across the markets it serves. There is no other company, to
PASSUR'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, Airbus, Saab, The Weather Company/IBM, and Harris
Corporation. The Company also sells certain data solutions through systems
integrators, including Bruel & Kjaer, some of which 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.
DEPENDENCE ON CERTAIN CUSTOMERS
Three customers accounted for 41%,or $5,094,000, of total revenues in fiscal
year 2015. One customer accounted for 14% or $1,740,000, a second customer
accounted for 13% or $1,692,000, and a third customer accounted for 13% or
$1,662,000 of total revenues in fiscal year 2015. Two customers accounted for
24%, or $2,707,000, of total revenues in fiscal year 2014. One customer
accounted for 14% or $1,613,000, and a second customer accounted for 10% or
$1,094,000 of total revenues in fiscal year 2014. There were no significant past
due accounts receivable balances for any customers as of the fiscal year ended
October 31, 2015.
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
$725,000 and $673,000 in fiscal years 2015 and 2014, 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.
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EMPLOYEES
The Company employed forty-four employees, of which thirty-nine were full-time,
including eleven officers, as of October 31, 2015. None of its employees is
subject to any collective bargaining agreements.
AVAILABLE INFORMATION
Stockholders may obtain copies of our filings with the SEC, free of charge from
the website maintained by the SEC at www.sec.gov or from our website at
www.passur.com. Further, a copy of this Annual Report on Form 10-K is located at
the SEC's Public Reference Room at 100 F Street NE, Washington, D.C. 20549.
Information on the operation of the Public Reference Room can be obtained by
calling the SEC at 1-800-SEC-0330. Our filings will be available on our website
as soon as reasonably practicable after we electronically file such materials
with the SEC. However, the information from our website is not incorporated by
reference into this report.
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 OR 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, 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 FAA 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
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 acts of
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.
Page 11 or 59
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, 2015 and 2014, and it 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.
In recent years, the Company has generated sufficient cash to meet its capital
requirements. However, in future years,the Company may need to raise additional
funds in order to support discretionary 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: (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 HAS BEEN PROFITABLE FOR THE CURRENT AND PREVIOUS TEN FISCAL YEARS,
BUT, PRIOR TO THAT, INCURRED OPERATING LOSSES AND NEGATIVE CASH FLOWS FROM
OPERATIONS.
The Company has been profitable for over ten years. The Company had income
before taxes of $677,000 and $863,000 for fiscal years ended October 31, 2015
and 2014, 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 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 may
not be able to sustain or increase its profits on a quarterly or annual basis in
the future. Also, should the Company's investment in capitalized software
development costs become impaired, there would be a negative impact on the
Company's profitability.
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 53% of its revenue in
fiscal year 2015. 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 marketplace. 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.
Page 12 to 59
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
effect on our business.
THE PASSUR 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 Multiprotocol Label Switching("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.
SECURITY BREACHES COULD EXPOSE THE COMPANY TO LIABILITY AND DAMAGE ITS
REPUTATION AND BUSINESS.
The Company processes, stores, and transmits large amounts of data and it is
critical to its business strategy that its facilities and infrastructure,
including those provided by customers and vendors, remain secure and are
perceived by the marketplace to be secure. The Company's infrastructure may be
vulnerable to physical break-ins, computer viruses, attacks by hackers or
nefarious actors or similar disruptive problems. Any physical or electronic
break-in or other security breach or compromise of the information handled by
the Company or its service providers may jeopardize the security or integrity of
information in the Company's computer systems and networks or those of its
customers and cause significant interruptions and/or errors in the Company's
products and solutions.
Any systems and processes that the Company has developed that are designed to
protect customer information and prevent data loss and other security breaches
cannot provide absolute security. In addition, the Company may not successfully
implement remediation plans to address all potential exposures. It is possible
that the Company may have to expend additional financial and other resources to
address such problems. Failure to prevent or mitigate data loss or other
security breaches could expose the Company or its customers to a risk of loss or
misuse of such information, cause customers to lose confidence in the Company's
data protection measures, damage the Company's reputation, adversely affect the
Company's operating results or result in litigation or potential liability for
the Company. While the Company maintains insurance coverage that may, subject to
policy terms and conditions, cover certain aspects of cyber risks, such
insurance coverage may be insufficient to cover all of its losses.
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.
Page 13 of 59
The Company currently owns twenty-three issued patents, four of which were
issued this year, and has an additional eleven 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 for
use with both the PASSUR hardware system installation, and the software products
which use the data derived from the PASSUR Network and other sources; and
allowed federal trademark applications for the marks NextGen2 and NextGen3,for
use with PASSUR Integrated Traffic Management modules and capabilities. The
Company believes that the PASSUR 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
The Company's headquarters are located at One Landmark Square, Suite 1900,
Stamford, Connecticut. 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 $232,000.
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, 2017, leases 12,000
square feet at an average annual rental rate of $132,000.
The Company has a sales office in Bloomington, Minnesota and a software
development office in 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
facilities 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.
Page 14 or 59
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.:
PERIOD PRICES*
------ -------
FISCAL YEAR ENDED OCTOBER 31, 2015 HIGH LOW
------ ---
FIRST QUARTER $ 4.05 $ 2.51
SECOND QUARTER $ 3.55 $ 2.80
THIRD QUARTER $ 3.73 $ 2.70
FOURTH QUARTER $ 3.45 $ 2.60
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
* The quotations represent prices on the over-the-counter bulletin board
between dealers in securities and do not include retail markup, markdown,
or commission. Further, the quotations do not necessarily represent actual
transactions.
(B) HOLDERS
The number of registered equity security holders of record as of January 12,
2016 was 199, 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.
(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, 2015 is as follows:
Page 15 of 59
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 1,186,000 $3.27 438,000
approved by security holders -- -- --
-------------------------------------------------------------------------------------------
Total 1,186,000 $3.27 438,000
===========================================================================================
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
The Company provides data aggregation and consolidation, information, decision
support, predictive analytics, collaborative solutions, and professional
services to airlines, airports, governments, and business aviation companies. To
enable this unique offering, PASSUR owns and operates the largest commercial
passive radar network in the world that updates flight tracks every 1 to 4.6
seconds, powering a proprietary database that is accessible in real-time and
delivers timely, accurate information and solutions via PASSUR's
industry-leading algorithms and business logic included in its products.
PASSUR's information solutions are used by the largest five North American
airlines, over 60 airport customers, including 22 of the top 30 North American
airports, more than 200 corporate aviation customers, as well as the U.S.
government.
Our core business addresses some of aviation's most intractable and costly
operational and financial challenges, including under utilization of airspace
and airport capacity, delays, cancellations, and diversions. Several studies
have estimated the annual direct costs to the system of such inefficiencies at
over $30 billion.
Solutions offered by PASSUR help to ensure flight completion. They cover the
entire flight life cycle, from gate to gate, and result in reductions in overall
costs and emissions, while maximizing revenue opportunities, improving
operational efficiency, and enhancing the passenger experience.
In fiscal year 2015, total revenue increased $1,048,000, or 9%, to $12,538,000,
from $11,490,000 in fiscal year 2014, primarily as a result of higher revenues
from the Company's airline customers, which was partially offset by a decrease
in airport and business aviation revenue. The profit impact of this revenue
increase was offset by increases in operating costs and expenses of $1,250,000
or 12%, resulting in an overall decrease in income from operations of $202,000
to $902,000 in fiscal year 2015, from $1,104,000 in the prior year.
The Company's revenues are generated by selling: (1) subscription-based
real-time decision and solutions information and (2) professional services.
Page 16 or 59
The Company's major achievements during fiscal year 2015 are summarized below.
The Company:
1) Generated year over year overall revenue growth of $1,048,000, or 9%.
2) Strengthened and expanded its team by nine new employees, or 20%,
adding the following new subject matter capabilities and skills in the
areas of:
a) Technology platforms and integration, with emphasis on huge
volume of real-time data integration:
b) Data aggregation, integration, and architecture;
c) Application distribution platforms;
d) Aviation operational analysis and research;
e) System, strategic, and tactical air traffic management for U.S.
and international operations; and
f) Financial planning, operations, and corporate growth strategy.
3) Launched PITM at another major U.S. airline, system-wide. This
installation includes modules for diversion management, traffic flow
management, and surface management.
4) Launched and deployed PASSUR's newest Extended Estimated Time of
Arrival ("XETA") at one of North America's largest airlines for its
entire North American system. a) PASSUR XETA provides precise arrival
times to enable better turn times, decisions about connections, gate
allocations, schedule adjustments, crew allocations, and many other
arrival time-dependent decisions.
5) Was awarded two major airport contracts after competitive bids to:
a) Provide a surface management solution for deicing operations
-optimizing airport-wide flow of departures during complex,
constrained winter operations at a Canadian airport.
b) Provide a collaborative decision making system to streamline and
optimize management of the airfield by linking all key
stakeholders onto the PASSUR connectivity and collaboration
network at a U.S. airport.
6) Was selected by the Radio Technical Commission for Aeronautics("RTCA")
an organization that develops technical guidance for use by government
regulatory authorities and the aviation industry, to create the first
industry dashboard for reporting on and analyzing air transportation
system performance improvements attributable to the deployment of key
NextGen capabilities.
a) The dashboard capability will support the FAA-Industry Joint
Analysis Team of the NextGen Advisory Committee ("NAC") a
32-member federal advisory committee established in 2010 to
provide advice on policy level issues facing the aviation
community in implementing NextGen and includes a cross section of
executives from the airlines, airports, general aviation, pilots,
air traffic controllers, the Department of Defense, environmental
interests, international interests, and providers of air traffic
control technology.
b) The goal of the performance tracking and analysis dashboard is
for RTCA to be a venue to establish a transparent mechanism to
collect data, develop reports in a dashboard, and provide the
ability to analyze the results, in order to determine the success
of the recent NAS improvements and in cases where the benefits
are not as expected, to discover and mitigate the underlying
issues.
c) The overall goal is for the FAA and industry to arrive
at a common statement of performance.
7) Sold PASSUR's new surface management technology to two large airline
customers at several key airports.
a) These deployments support more efficient and cost effective
operations of aircraft on the airport surface.
Benefits include:
i) De-conflicting congested taxiways and ramps to enable
aircraft to depart or arrive in the correct sequence
and on time;
ii) Reduce the problem of arriving aircraft waiting for a
gate; and
iii) Making it easier for passengers to make their flight
connections.
b) The new technology - PASSUR Surface Multilateration ("SMLAT") -
is an 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 range, or to introduce surface surveillance capabilities
to an airport. The extended, gate-to-gate surveillance creates
total flight tracking which manages and optimizes constraints
across the entire flight, including some of the most complex,
expensive, and disruptive operations such as tarmac delays, gate
holds, taxi queues, turn times, return-to-gate, diversions, and
deicing.
Page 17 of 59
8) Launched major new releases to core PASSUR Integrated Traffic
Management solutions, including:
a) PASSUR Flight Status Monitor ("PFSM"): Airlines using PASSUR
Traffic Flow Management solution already receive advance
notification about predicted imbalances between demand and
capacity. PASSUR customers can now add a new layer of predictive
visibility to see inbound demand in more detail (airport wide,
their own airline, or specific flights) to help determine the
exact adjustments needed to preserve schedule integrity,
prioritize high value flights, proactively manage connections,
and reduce congestion, disruptions, delay minutes, cancellations,
and diversions.
b) PASSUR Airport Communicator: The newest release of the most
widely distributed collaborative information exchange platform in
the industry created to optimize airspace efficiency during large
events, major disruptions, and daily operations by linking all
key stakeholders in real time with airport updates and other
critical information in one place. The new release further
enhances seamless communication and coordination by communicating
the most timely information in way that reflects the way aviation
professionals work through mobile device compatibility, greater
user-configurability, and new airport-directed content
management.
9) Expanded PASSUR's Aviation Fees and Charges Program, which creates
complete, accurate, and transparent reporting and billing of aviation
usage fees to ensure all operators are paying only their fair share.
a) The program now includes Gate Utilization Reports, which adds
another area of airport charges traditionally managed manually
through self-reporting. These reports are now integrated into the
program's independent and standardized process to ensure fairness
and transparency.
10) Was awarded four new patents. The total number of patents awarded to
the Company is now twenty-three, with eleven additional patents
pending. Three of the new patents are in the following areas:
a) Predicted airport arrival and departure rates (for a total of
three patents in this area);
b) Departure Metering/Slot Allocation (for a total of four patents
in this area); and
c) Surface Management (for a total of six patents in this area).
The Company's business plan is to continue to focus on increasing
subscription-based revenues from its suite of software applications, and to
develop new applications and professional services designed to address the needs
of the aviation industry and the U.S. government. The Company's goal is to help
solve problems faced by its customers and is built on the following product
development objectives: (1) continue developing decision support solutions built
on business intelligence, predictive analytics, and web-dashboard technology;
(2) continue integrating multiple additional industry data sets into its
integrated aviation database, including data from a variety of additional
aircraft, airspace, and ground surveillance technologies, in order to ensure
that PASSUR is the primary choice for data integration and management for large
aviation organizations; (3) continue extending the reach of the PASSUR Network,
which provides the proprietary backbone for many of the Company's solutions;
and(4) continue developing the Company's professional service capabilities, in
order to ensure that its solutions can be fully implemented in its customers'
work environments, with minimal demand on customers' internal resources.
The Company shipped fifty-five Company-owned SMLAT Systems and installed five
PASSUR Systems during fiscal year 2015 (installations include systems shipped in
the current and previous fiscal year). The shipped and installed PASSUR and
SMLAT Systems are capitalized as part of the Company-owned PASSUR Network. The
Company will continue to expand the PASSUR Network by shipping and installing
additional PASSUR and SMLAT Systems throughout fiscal year 2016. Management
anticipates that future PASSUR sites will provide increased coverage for the
PASSUR 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 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 Systems located at airports
worldwide at the end of fiscal year 2015. Redundant PASSUR 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 Network. Such efforts include the continued
development of new products, professional services, and existing product
enhancements.
In fiscal year 2015, total revenues increased $1,048,000, or 9%, to $12,538,000,
from $11,490,000 in fiscal year 2014, primarily as a result of higher revenues
from selling more products to the Company's existing customers in the airline
market, which was partially offset by a decrease in airport and business
aviation revenue.
Page 18 of 59
COST OF REVENUES
Costs associated with subscription and maintenance revenues consist primarily of
direct labor, depreciation of PASSUR and SMLAT Network Systems, amortization of
capitalized software development costs, communication costs, data feeds,
allocated overhead costs, travel and entertainment, and consulting fees. Also,
included in cost of revenues are costs associated with upgrades to PASSUR and
SMLAT Systems necessary to make such systems compatible with new software
applications, as well as the ordinary repair and maintenance of existing PASSUR
and SMLAT Systems. Additionally, cost of revenues in each reporting period is
impacted by: (1) the number of PASSUR and SMLAT System units added to the PASSUR
Network, which include the production, shipment, and installation of these
assets, which are capitalized to the PASSUR 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 breakdown its costs by product.
Cost of revenues increased $346,000, or 7%, in fiscal year 2015, as compared to
fiscal year 2014, due to an increase in compensation costs of $463,000,
primarily as a result of increased headcount, an increase in amortization of
software development projects of $301,000, an increase in license fees of
$39,000, as well as lower capitalized labor and overhead of $99,000 at the
Company's Orlando data center. These increases in cost of revenues were
partially offset by additional capitalization of software development projects
of $424,000 and an increase in capitalized manufacturing costs of $158,000.
When the Company uses its employees to manufacture PASSUR and SMLAT Systems,
build capital assets, and ship and install PASSUR and SMLAT Systems in the
field, 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.
Costs of revenues as a percentage of revenues decreased from 44% to 43% in
fiscal year 2015.
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 $52,000, or 8%, in fiscal year 2015, as compared
to fiscal year 2014, 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 2015 or 2014. Research and
development expenses are funded by current operations.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenses increased $852,000, or 18%, in
fiscal year 2015, as compared to fiscal year 2014, due to an increase in payroll
and related costs of $766,000, primarily as a result of an increase in
headcount, as well as increases in travel and entertainment expenses of $68,000.
INCOME FROM OPERATIONS
Revenues increased $1,048,000, or 9%, to $12,538,000, total costs and expenses
increased $1,250,000, or 12%, to $11,636,000, and income from operations
decreased $202,000, or 19%, to $902,000 in fiscal year 2015 as compared to
fiscal year 2014.
INTEREST EXPENSE - RELATED PARTY
Interest expense - related party decreased $17,000, or 7%, in fiscal year 2015,
as compared to fiscal year 2014, due to a reduction in note payable of $365,000
during fiscal year 2015.
INCOME BEFORE INCOME TAXES
Income before income taxes decreased $185,000, or 21%, to $677,000 in fiscal
year 2015, as compared to fiscal year 2014.
Page 19 or 59
INCOME TAXES
The effective tax rate for fiscal year 2015 was 58.8%, as compared to 59.6% in
fiscal year 2014. The statutory income tax expense at 34% for fiscal year 2015
was $230,000. This varies from actual income tax expense of $398,000 primarily
due to permanent differences of meals and entertainment and ISO stock
compensation of $98,000, state income of taxes of $24,000 (net of federal
benefit), and a change to the state deferred tax rate of $46,000.
The Company's provision for income taxes in each year consists of current
federal, state, and local minimum taxes.
At October 31, 2015, the Company had available a federal net operating loss
carry-forward of $7,847,000 for income tax purposes, which will expire in
various tax years from fiscal year 2022 through fiscal year 2035. 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, 2015 and 2014,
the Company did not have any uncertain tax positions or a valuation allowance.
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 $279,000, or $0.04 per diluted share, in fiscal
year 2015 as compared to net income of $348,000, or $0.04 per diluted share, in
fiscal year 2014.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liabilities exceeded current assets by $1,669,000 at
October 31, 2015. The note payable to a related party, G.S. Beckwith Gilbert,
the Company's significant shareholder and Chairman, was $3,500,000 at October
31, 2015, with a maturity of November 1, 2018. The Company's stockholders'
equity was $11,473,000 at October 31, 2015. The Company had net income of
$279,000 for fiscal year 2015.
Management is addressing the Company's working capital deficiency by
aggressively marketing the Company's PASSUR Network Systems information
capabilities in its existing product and professional service lines, as well as
in new products and professional services, which are continually being developed
and deployed. Management believes that the continued development of its existing
suite of software products and professional services, which address the wide
array of needs of the aviation industry,will continue to lead to increased
growth in the Company's customer-base and subscription-based revenues.
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 2015, the Company paid interest to G.S. Beckwith Gilbert of
$225,000, representing the entire fiscal year 2015 interest due, thereby meeting
the payment requirements of the loan agreement. During fiscal year 2015, the
Company made $365,000 in principal payments, bringing the principal amount of
the note payable due to G.S. Beckwith Gilbert to $3,500,000 on October 31, 2015.
During fiscal year 2014, the Company paid 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.
Page 20 of 59
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.
On January 20, 2016, the Company entered into a Second Debt Extension Agreement
with G.S. Beckwith Gilbert, effective January 20, 2016, pursuant to which the
Company and Mr. Gilbert agreed to modify certain terms and conditions of the New
Gilbert Note. The maturity date of the New Gilbert Note was due on November 1,
2016, and the total amount of principal and interest due and owing as of January
20, 2016 was $3,511,667. Pursuant to the Second Debt Extension Agreement, the
Company issued a new note to Mr. Gilbert in the principal amount of $3,500,000
(the "Second Replacement Note") in exchange for the New Gilbert Note and the
Company agreed to pay the accrued interest under the New Gilbert Note as of
January 20, 2016, in an amount equal to $11,667 (the Company paid Mr. Gilbert
$36,000 in December 2015 for two months interest), at the time and on the terms
set forth in the New Gilbert Note. Under the terms of the Second Replacement
Note, the maturity date was extended to November 1, 2017 and the annual interest
rate remained at 6%. Interest payments under the Second Replacement 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 21, 2017. During such period the Company
does not anticipate borrowing additional funds.
Net cash provided by operating activities was $5,209,000 for fiscal year 2015,
and consisted of net income of $279,000, depreciation and amortization of
$3,002,000, stock-based compensation expense of $341,000, and the provision for
deferred taxes of $362,000, with the balance consisting of an increase in
operating assets and liabilities. Net cash used in investing activities was
$4,346,000 for fiscal year 2015, expended primarily for capitalized software
development costs, additions to the PASSUR Network, and a second data center at
an off-site location. Net cash used in financing activities was $586,000 for
fiscal year 2015, and primarily consisted of a $365,000 repayment on the note
payable - related party and $272,000for the purchase treasury stock, offset by
$51,000 for employees' exercise of stock options. Net cash provided by operating
activities increased by $776,000 in fiscal year 2015 primarily due to an
increase in deferred revenue which was driven by new contracts from airline
customers.
The Company actively monitors the costs associated with supporting the business,
and continually seeks to identify and reduce any unnecessary costs as part of
its cost reduction initiatives. Additionally, the aviation market has been
impacted by budgetary constraints, airline bankruptcies and consolidations,
current economic conditions, the continued war on terrorism, and fluctuations in
fuel costs. The aviation market is extensively regulated by government agencies,
particularly the FAA and the National Transportation Safety Board, and
management anticipates that new regulations relating to air travel may continue
to be issued. Substantially all of the Company's revenues are derived from
airlines, airports, and organizations that serve, or are served by, the aviation
industry. Any new regulations or changes in the economic situation of the
aviation industry could have an impact on the future operations of the Company,
either positively or negatively.
Interest by potential customers in the information and decision support software
products obtained from PASSUR Network Systems and its professional services
remains strong. As a result, the Company anticipates an increase in future
revenues. However, the Company cannot predict if such revenues will materialize.
If revenues 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.
Page 21 of 59
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 or determinable; and (4) collectability is reasonably
assured. The Company's revenues are generated by selling: (1)
subscription-based, real-time decision and solution information and (2)
professional services.
Revenues generated from subscription 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, the Company recognizes 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 or 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 revenues invoiced for which services have yet
to be rendered, in accordance with ASC 605-15. Revenues generated by
professional services are recognized when services are provided.
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. The Company's
BESP 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.
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.
Page 22 of 59
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 Network and Property
and equipment, totaled $7,256,000, and accounted for 37% of the Company's total
assets as of October 31, 2015.
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, 2015, 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 PASSUR Network, net, Capitalized software development costs, net, and
Property and equipment, net totaled $5,903,000, $7,685,000, and $1,354,000,
respectively, as of October 31, 2015. 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 Network 5 to 7 years
Capitalized software development costs 5 years
Property and equipment 3 to 10 years
The PASSUR Network is comprised of PASSUR and SMLAT Systems, which include the
direct and indirect production, shipping, and installation costs incurred for
each PASSUR and SMLAT System, which are recorded at cost, net of accumulated
depreciation. Depreciation is charged to cost of revenues and is calculated
using the straight-line method over the estimated useful life of the asset,
which is estimated at five years for SMLAT Systems and seven years for PASSUR
Systems. PASSUR and SMLAT Systems which are not installed, raw materials,
work-in-process, and finished goods components are carried at cost and no
depreciation is recorded.
Total depreciation and amortization expense was $3,002,000 in fiscal year 2015,
and consisted of $1,015,000, $1,562,000, and $425,000 for the PASSUR Network,
Capitalized software development costs, and Property and equipment,
respectively.
Page 23 of 59
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 $341,000 and
$310,000 in fiscal years 2015 and 2014, 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 2015 and 2014: risk-free interest rate of 1.18% 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 5.4 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, 2015.
Page 24 of 59
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, 2015. Based on this evaluation, management concluded that the
Company's internal control over financial reporting was effective as of October
31, 2015.
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, 2015, that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
Page 25 of 59
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 THE COMPANY
---------------------------------------------------------------------------------------------
G.S. Beckwith Gilbert 73 1997 Chairman of the Board, Chairman of the Executive
Committee, and Director
John R. Keller 75 1997 Executive Vice President and Director
Paul L. Graziani 58 1997 Chairman of the Audit Committee and Director
James T. Barry 54 2000 President, Chief Executive Officer, and Director
Kurt J. Ekert 45 2009 Chairman of the Compensation Committee and Director
Peter L. Bloom 58 2009 Chairman of the Technology Committee and Director
Richard L. Haver 69 2010 Director
Robert M. Stafford 73 2013 Director
Ronald V. Rose 64 2014 Director
Each director is elected to serve until the succeeding Annual Meeting of
Stockholders and until his successor is duly elected and qualified.
(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 THE COMPANY
-----------------------------------------------------------------------------------------
James T. Barry 54 1998 President, Chief Executive Officer,
and Director
David M. Henderson 45 2015 Chief Financial Officer, Treasurer, and
Secretary
John R. Keller 75 1967 Executive Vice President and Director
Dr. James A. Cole 75 1988 Senior Vice President of Research and
Development
Matthew H. Marcella 58 2003 Vice President of Software Development
Ron A. Dunsky 53 2003 Senior Vice President of Marketing and
Business Development
Jeffrey P. Devaney 56 2004 Vice President of Financial Operations
Thomas S. White 60 2011 Executive Vice President of Operations
William S. Leber, Jr. 56 2012 Senior Vice President, Strategic Alliances
and Government Affairs
Keith D. Wichman 51 2012 Senior Vice President, Airlines and Airports
David Brukman 50 2015 Chief Technology Officer
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.
Page 27 or 59
(E) BUSINESS EXPERIENCE
The following sets forth the business experience of the Company's directors and
executive officers:
G.S. Beckwith Mr. Gilbert has continued to serve as the
Gilbert Company's Chairman of the Board since his election in 1997.
Mr. Gilbert also serves as the Chairman of the Executive
Committee. 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 Chairman
of the Executive Committee 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.
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 former 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.
Kurt J. Ekert Mr. Ekert has been a Director of the Company since September
10, 2009 and currently serves as Chairman of the
Compensation Committee. Most recently, he served as
Executive Vice President & Chief Commercial Officer of
Travelport Worldwide Ltd, from 2010 to 2016, where he held
global responsibility for sales, customer engagement,
product, marketing, pricing, supplier services/content, and
operations. Mr. Ekert led the operational turnaround of
Travelport to enable evolution from distressed private
equity and hedge fund ownership to a successful IPO. 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 Orbitz Worldwide and Galileo. At Travelport, he
also held the positions of Group Vice President, Strategy
and Business Development, and Chief Operating Officer,
Travelport/Orbitz for Business. Prior to Travelport, Mr.
Ekert held a number of senior finance roles at Continental
Airlines, and also 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 serves as an advisor
to Freebird and previously served on the board of eNett
International. 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 both travel
and technology allow him to bring valuable insight and
knowledge to the Board.
Page 28 of 59
Peter L. Bloom Mr. Bloom has been a Director of the Company since December
10, 2009 and currently serves as Chairman of the Technology
Committee. 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 was a member of the FCC Technical
Advisory Council from 2010-2015. He is currently the
Chairman of Donors Choose, 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 & 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.
Page 29 or 59
Ronald V. Rose Mr. Rose has been a Director of the Company since December
17, 2014. Mr. Rose now serves as CEO of Value Creation
Strategies Holdings, LLC an investment company focused on
value creation through data analytics technologies. Formerly
Mr. Rose was the Vice Chairman, and CEO, of Decisyon, Inc.,
a company which accelerates business process improvement
through the combination of collaborative business
intelligence technologies and IoT analytics. 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 Chief Executive Officer of the Company
in February 2003 and President in April 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.
David M. Henderson Mr. Henderson joined the Company as Chief Financial Officer
in June 2015. Previously Mr. Henderson spent four years as
Chief Financial Officer at HealthPlanOne, a
technology-enabled marketing and member acquisition company
serving the healthcare industry. Prior to that he was Vice
President of Finance and Corporate Development at Open
Solutions, an enterprise software company that sells into
the financial institution market. He was previously the
Director of Product Management at Palm and AnyDay and began
his professional career in the financial services industry
at The Carlyle Group and Dillon Read. He holds a BA from
Yale University in History and Economics.
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.
Matthew H. Marcella Mr. Marcella was named Vice President - Software Development
in January 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.
Page 30 of 50
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. 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.
Jeffrey P. Devaney Mr. Devaney joined the Company as Chief Financial Officer,
Treasurer, and Secretary in June 2004 and transitioned to
Vice President of Financial Operations in June 2015. 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.
Thomas S. White Mr. White was named Executive Vice President of Operations
in May 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, Mr. Leber joined the Company as Vice President, Air Traffic
Jr 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 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 1990s.
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 in December 2012 and serves
as Senior Vice President, Airline and Airports. Previously,
he worked for 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.
David Brukman Mr. Brukman joined the Company as the Chief Technology
Officer in April 2015. Mr. Brukman has worked at Bloomberg
LP's R&D Division. Mr. Brukman served as head of technology
for Interactive Data Real-Time Services, Standard & Poor's
ComStock, and ADC NewNet. Previously he was at Bedford
Associates (a division of British Airways). Mr. Brukman has
specialized in high-volume, resilient, low-latency systems
in telecommunications and capital market industries. He
holds a BA and MS in Computer Science, as well as several
patents in mobile messaging.
Page 31 of 59
(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 four
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. Ekert, Mr. Haver, and Mr. Stafford.
(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,
2015, 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 25, 2015 by the Company with the Securities and Exchange Commission
in connection with the Company's 2015 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, 2015 (the "2016 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 2016 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 2016 Proxy Statement.
For information regarding securities authorized for issuance under the Company's
equity compensation plans, see Item 5(d) above.
Page 32 of 59
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(A) TRANSACTIONS WITH RELATED PERSONS
During fiscal year 2015, the Company paid interest to G.S. Beckwith Gilbert of
$225,000, representing the entire fiscal year 2015 interest due, thereby meeting
the payment requirements of the loan agreement. During fiscal year 2015, the
Company made $365,000 in principal payments, bringing the principal amount of
the note payable due to G.S. Beckwith Gilbert to $3,500,000 on October 31, 2015.
During fiscal year 2014, the Company paid 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.
On January 20, 2016, the Company entered into a Second Debt Extension Agreement
with G.S. Beckwith Gilbert, effective January 20, 2016, pursuant to which the
Company and Mr. Gilbert agreed to modify certain terms and conditions of the New
Gilbert Note. The maturity date of the New Gilbert Note was due on November 1,
2016, and the total amount of principal and interest due and owing as of January
20, 2016 was $3,511,667. Pursuant to the Second Debt Extension Agreement, the
Company issued a new note to Mr. Gilbert in the principal amount of $3,500,000
(the "Second Replacement Note") in exchange for the New Gilbert Note and the
Company agreed to pay the accrued interest under the New Gilbert Note as of
January 20, 2016, in an amount equal to $11,667(the Company paid Mr. Gilbert
$36,000 in December 2015 for two months interest), at the time and on the terms
set forth in the New Gilbert Note. Under the terms of the Second Replacement
Note, the maturity date was extended to November 1, 2017 and the annual interest
rate remained at 6%. Interest payments under the Second Replacement Note shall
be made annually at October 31 of each year. The note payable is secured by the
Company's assets.
(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 2016
Proxy Statement.
Page 33 of 59
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, 2015 and 2014
Consolidated Statements of F-3
Income for the years ended
October 31, 2015 and 2014
Consolidated Statements of Stockholders' F-4
Equity for the years ended
October 31, 2015 and 2014
Consolidated Statements of F-5
Cash Flows for the years ended
October 31, 2015 and 2014
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.
Page 34 of 59
(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 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.
10.2 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.
10.3 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.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 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
10.9 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.
10.10 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.
10.11 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.
10.12 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.
10.13 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.
Page 35 of 59
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.
Page 36 of 59
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 21, 2016 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 21, 2016 /s/ James T. Barry
------------------
James T. Barry
President and Chief Executive Officer
(Principal Executive Officer)
DATED: JANUARY 21, 2016 /s/ David M. Henderson
----------------------
David M. Henderson
Chief Financial Officer, Treasurer,
and Secretary
(Principal Financial and Accounting
Officer)
Page 37 of 59
SIGNATURES (CONTINUED)
DATED: JANUARY 21, 2016 /s/ G.S. Beckwith Gilbert
-------------------------
G.S. Beckwith Gilbert
Chairman of the Board and Director
DATED: JANUARY 21, 2016 /s/ John R. Keller
------------------
John R. Keller
Executive Vice President and Director
DATED: JANUARY 21, 2016 /s/ Paul L. Graziani
---------------------
Paul L. Graziani
Chairman of the Audit Committee and
Director
DATED: JANUARY 21, 2016 /s/ Kurt J. Ekert
-----------------
Kurt J. Ekert
Director
DATED: JANUARY 21, 2016 /s/ Peter L. Bloom
------------------
Peter L. Bloom
Director
DATED: JANUARY 21, 2016 /s/ Richard L. Haver
--------------------
Richard L. Haver
Director
DATED: JANUARY 21, 2016 /s/ Robert M. Strafford
-----------------------
Robert M. Stafford
Director
DATED: JANUARY 21, 2016 /s/ Ronald V. Rose
------------------
Ronald V. Rose
Director
Page 38 of 59
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, 2015 and 2014 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, 2015 and 2014, 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 21, 2016
F-1
Page 39 of 59
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Balance Sheets
October 31, 2015 and 2014
2015 2014
-------------- --------------
ASSETS
Current assets:
Cash $ 925,508 $ 648,727
Accounts receivable, net 1,234,986 1,368,758
Deferred tax asset, current 551,671 537,283
Prepaid expenses and other current assets 157,930 164,179
-------------- --------------
Total current assets 2,870,095 2,718,947
PASSUR Network, net 5,902,751 5,428,490
Capitalized software development costs, net 7,684,603 6,844,509
Property and equipment, net 1,353,532 1,323,349
Deferred tax asset, non-current 1,658,557 2,035,088
Other assets 239,861 142,482
-------------- --------------
TOTAL ASSETS $ 19,709,399 $ 18,492,865
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 880,819 $ 650,653
Accrued expenses and other current liabilities 977,900 833,292
Deferred revenue, current portion 2,680,244 1,979,873
-------------- --------------
Total current liabilities 4,538,963 3,463,818
Deferred revenue, less current portion 197,336 90,679
Notes payable - related party 3,500,000 3,864,880
-------------- --------------
8,236,299 7,419,377
COMMITMENT AND CONTINGENCIES
Stockholders' equity:
Preferred shares - authorized 5,000,000 shares,
par value $0.01 per share; none issued or outstanding -- --
Common shares - authorized 10,000,000 shares,
par value $0.01 per share;
issued 8,428,526 and outstanding 7,653,199
in fiscal year 2015; issued 8,225,526 and outstanding
7,529,026 in fiscal year 2014 84,284 82,255
Additional paid-in capital 15,663,796 15,273,524
Accumulated deficit (2,379,552) (2,658,816)
-------------- --------------
13,368,528 12,696,963
Treasury stock, at cost, 775,327 and 696,500 shares
in fiscal years 2015 and 2014 (1,895,428) (1,623,475)
-------------- --------------
Total stockholders' equity 11,473,100 11,073,488
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,709,399 $ 18,492,865
============== ==============
See accompanying notes to consolidated financial statements.
F - 2
Page 40 of 59
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Income
Years Ended October 31, 2015 and 2014
2015 2014
------------- --------------
REVENUES $ 12,538,059 $ 11,489,667
COST AND EXPENSES:
Cost of revenues 5,433,122 5,087,017
Research and development 724,683 673,016
Selling,general, and administrative expenses 5,478,454 4,626,071
------------- --------------
11,636,259 10,386,104
------------- --------------
INCOME FROM OPERATIONS 901,800 1,103,563
Interest expense - related party 224,542 240,572
------------- --------------
Income before income taxes 677,258 862,991
Income tax expense, net 397,994 514,649
------------- --------------
NET INCOME $ 279,264 $ 348,342
============= ==============
Net income per common share - basic $ 0.04 $ 0.05
============= ==============
Net income per common share - diluted $ 0.04 $ 0.04
============= ==============
Weighted average number of common shares outstanding - basic 7,648,612 7,457,915
============= ==============
Weighted average number of common shares outstanding - diluted 7,775,474 7,743,893
============= ==============
See accompanying notes to consolidated financial statements.
F - 3
Page 42 of 59
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Years Ended October 31, 2015 and 2014
ADDITIONAL TOTAL
COMMON PAID-IN ACCUMULATED TREASURY STOCKHOLDERS'
SHARES STOCK CAPITAL DEFICIT STOCK EQUITY
----------- ----------- ------------- ------------- ------------ -------------
Balance at November 1, 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
Exercise of common stock options 203,000 2,029 49,091 51,120
Purchase of treasury stock (78,827) (271,953) (271,953)
Stock-based compensation expense 341,181 341,181
Net income 279,264 279,264
----------- ----------- ------------- ------------- ------------ -------------
Balance at October 31, 2015 7,653,199 $ 84,284 $ 15,663,796 $ (2,379,552) $ (1,895,428) $ 11,473,100
=========== =========== ============= ============= ============ =============
See accompanying notes to consolidated financial statements.
F - 4
Page 42 of 59
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended October 31, 2015 and 2014
2015 2014
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 279,264 $ 348,342
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,001,875 2,805,249
Provision for deferred taxes 362,143 475,536
Provision (recovery) of doubtful accounts receivable 16,950 1,456
Stock-based compensation expense 341,181 310,401
Changes in operating assets and liabilities:
Accounts receivable 116,822 267,630
Prepaid expenses and other current assets 6,249 10,781
Other assets (97,380) 10,386
Accounts payable 230,165 89,094
Accrued expenses and other current liabilities 144,609 110,394
Deferred revenue 807,029 3,456
------------- --------------
Total adjustments 4,929,643 4,084,383
------------- --------------
Net cash provided by operating activities 5,208,907 4,432,725
CASH FLOWS FROM INVESTING ACTIVITIES
PASSUR Network (1,489,117) (1,263,193)
Capitalized software development costs (2,401,994) (1,978,356)
Property and equipment (455,302) (348,572)
------------- --------------
Net cash used in investing activities (4,346,413) (3,590,121)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of notes payable - related party (364,880) (500,000)
Purchase of treasury stock (271,953) --
Surrender of shares to pay withholding taxes -- (180,027)
Proceeds from exercise of stock options 51,120 31,500
------------- --------------
Net cash used in financing activities (585,713) (648,527)
------------- --------------
Increase in cash 276,781 194,077
Cash - beginning of year 648,727 454,650
------------- --------------
Cash - end of year $ 925,508 $ 648,727
============= ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Interest - related party $ 225,000 $ 241,000
Income taxes $ 35,000 $ 9,000
See accompanying notes to consolidated financial statements.
F - 5
Page 43 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements
October 31, 2015
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is a business intelligence company, providing predictive analytics
and decision support technology for the aviation industry primarily to improve
the operational performance and cash flow of airlines and the airports where
they operate.
The Company's mission is to improve global air traffic efficiencies by
connecting the world's aviation professionals onto a single aviation
intelligence platform. 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 or determinable; and (4) collectability is reasonably
assured.
The Company's revenues are generated by selling: (1) subscription-based,
real-time decision and solution information and (2) professional services.
Revenues generated from subscription 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, the Company recognizes 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 revenues invoiced for which services have yet
to be rendered, in accordance with ASC 605-15. Revenues generated by
professional services are recognized when services are provided.
F - 6
Page 44 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION POLICY (CONTINUED)
The individual offerings that are included in arrangements with the Company's
customers are identified and priced separately to the customer based upon the
relative fair value 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. 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. The Company uses either VSOE or BESP.
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.
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
that reflects the Company's best estimate of the amounts that will not be
collected. Net accounts receivable is comprised of the monthly, quarterly, or
annual committed amounts due from customers pursuant to the terms of each
respective customer's agreement. Account receivable balances include amounts
attributable to deferred revenues.
The provision for doubtful accounts was $47,000 and $30,000 as of October 31,
2015 and 2014, respectively. In addition to reviewing delinquent accounts
receivable, the Company considers many factors in estimating its reserve,
including historical data, experience, customer types, credit worthiness, and
economic trends. The Company monitors its outstanding accounts receivable
balances and believes the provision is reasonable.
F - 7
Page 45 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated on a
straight-line basis over the estimated useful lives of the related assets.
Amortization of leasehold improvements is calculated on a straight-line basis
over the estimated useful life of the improvements or the term of the lease,
including renewal options expected to be exercised, whichever is shorter.
PASSUR NETWORK
The PASSUR Network is comprised of PASSUR and SMLAT Systems, which include the
direct and indirect production, shipping, and installation costs incurred for
each PASSUR and SMLAT System, which are recorded at cost, net of accumulated
depreciation. Depreciation is charged to cost of revenues and is recorded using
the straight-line method over the estimated useful life of the asset, which is
estimated at five years for SMLAT Systems and seven years for PASSUR Systems.
PASSUR and SMLAT Systems which are not installed, raw materials,
work-in-process, and finished goods components are carried at cost and no
depreciation is recorded.
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 $2,402,000 for the year ended October 31, 2015 and
$1,978,000 for the year ended October 31, 2014. 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.
As of October 31, 2015 and 2014, based upon management's evaluation of the above
asset groups, no impairment of these asset groups exist.
COST OF REVENUES
Costs associated with subscription and maintenance revenues consist primarily of
direct labor, depreciation of PASSUR and SMLAT Network Systems, amortization of
capitalized software development costs, communication costs, data feeds,
allocated overhead costs, travel and entertainment, and consulting fees. Also
included in cost of revenues are costs associated with upgrades to PASSUR and
SMLAT Systems necessary to make such systems compatible with new software
applications, as well as the ordinary repair and maintenance of existing PASSUR
and SMLAT Systems. Additionally, cost of revenues in each reporting period is
impacted by: (1) the number of PASSUR and SMLAT Systems added to the Network,
which includes the cost of production, shipment, and installation of these
assets, which are capitalized to the PASSUR Network; and (2) new capitalized
costs associated with software development projects. Both of these are referred
to as "Capitalized Assets" and are depreciated and/or amortized over their
respective useful lives and charged to cost of revenues.
F - 8
Page 46 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2015 and 2014,
the Company did not have any uncertain tax positions or valuation allowance. 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.
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 earnings per share is computed similarly to basic
earnings per share, except that it reflects the effect of common shares issuable
upon exercise of stock options, using the treasury stock method in periods in
which they have a dilutive effect. Shares used to calculate net income per share
for fiscal years 2015 and 2014 are as follows:
2015 2014
-------------- --------------
Basic weighted average shares outstanding 7,648,612 7,457,915
Effect of dilutive stock options 126,862 285,978
-------------- --------------
Diluted weighted average shares outstanding 7,775,474 7,743,893
============== ==============
Weighted average shares which are not
included in the calculation of diluted net
income per share because their impact is
anti-dilutive
Stock options 900,000 499,500
============== ==============
Weighted average options to purchase 900,000 and 499,500 shares of common stock
at prices ranging from $2.73 to $5.00 per share that were outstanding during
fiscal years 2015 and 2014 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 or invoices
sent on customer agreements, which are contractually required and are
non-refundable, and may be prepaid either annually, quarterly, or monthly.
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.
F - 9
Page 47 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
1.DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 $341,000 and $310,000 in fiscal years 2015
and 2014, respectively, and was primarily included in selling, general, and
administrative expenses.
COMPREHENSIVE INCOME
The Company's comprehensive income is equivalent to that of the Company's total
net income for fiscal years 2015 and 2014.
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. The Company is currently evaluating the impact
of its pending adoption of ASC 2014-09 on its consolidated financial statements.
ASU 2015-17 eliminates the guidance in Topic 740, Income Taxes, that required an
entity to separate deferred tax liabilities and assets between current and
noncurrent amounts in a classified balance sheet. The amendments require that
all deferred tax liabilities and assets of the same tax jurisdiction or a tax
filing group, as well as any related valuation allowance, be offset and
presented as a single noncurrent amount in a classified balance sheet. The
amendments are effective for public business entities for fiscal years, and for
interim periods within those fiscal years, beginning after December 15, 2016.
F - 10
Page 48 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of October 31, 2015 and 2014:
ESTIMATED USEFUL LIVES 2015 2014
---------------------- -------------- -------------
Leasehold improvements 3-5 years $ 207,000 $ 207,000
Equipment 5-10 years 5,431,000 4,976,000
Furniture and fixtures 5-10 years 538,000 538,000
------------- --------------
6,176,000 5,721,000
Less accumulated depreciation 4,822,000 4,397,000
------------- --------------
Total $ 1,354,000 $ 1,324,000
============= ==============
The Company recorded depreciation expense on the assets included in Property and
equipment of $425,000 and $372,000 for fiscal years 2015 and 2014, respectively.
3. PASSUR NETWORK
As of October 31, 2015 and 2014, the Company had $18,360,000 and $16,871,000 of
Company-owned PASSUR and SMLAT Systems capitalized, and $12,457,000 and
$11,442,000 of accumulated depreciation related to such costs, resulting in a
net asset of $5,903,000 and $5,429,000, 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 five and seven years.
PASSUR and SMLAT Systems which are not installed in the PASSUR Network are
carried at cost and no depreciation is recorded. The cost of uninstalled and/or
unshipped PASSUR Systems amounted to $1,188,000 and $586,000 as of October 31,
2015 and 2014, respectively. The Company capitalized $1,489,000 and $1,263,000
of costs to the PASSUR Network during fiscal years 2015 and 2014, respectively.
Included in the PASSUR Network as of October 31, 2015 and 2014, are $1,625,000
and $1,369,000 of costs pertaining to raw material, work-in-process, and
finished goods components. Depreciation expense related to the Company-owned
PASSUR Network was $1,015,000 and $1,172,000 in fiscal years 2015 and 2014,
respectively. The Company did not dispose of any PASSUR Network assets in fiscal
years 2015 or 2014.
4. CAPITALIZED SOFTWARE DEVELOPMENT COSTS
As of October 31, 2015 and 2014, the Company had $15,415,000 and $13,012,000 of
capitalized software development costs, and $7,730,000 and $6,168,000 of
accumulated amortization related to such costs, resulting in a net asset of
$7,685,000 and $6,845,000, respectively. The Company's capitalization of
software development projects was $2,402,000 and $1,978,000 in fiscal years 2015
and 2014. Amortization related to capitalized software development projects was
$1,562,000 and $1,261,000 in fiscal years 2015 and 2014, respectively. For the
next five years, beginning in fiscal year 2016, future amortization expense for
capitalized software development costs where amortization has commenced is
estimated to approximate $1,742,000, $1,616,000, $1,360,000, $884,000, and
$484,000. As of October 31, 2015, the Company had $1,595,000 of capitalized
software development costs relating to projects in development which are not yet
subject to amortization.
F - 11
Page 49 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following as of
October 31, 2015 and 2014:
2015 2014
----------- -------------
Payroll, payroll taxes, and benefits $ 628,000 $ 523,000
Professional fees 152,000 136,000
Marketing expenses -- 21,000
Travel expenses 94,000 76,000
Other liabilities 104,000 77,000
----------- -------------
Total $ 978,000 $ 833,000
=========== =============
6. NOTES PAYABLE
During fiscal year 2015, the Company paid interest to G.S. Beckwith Gilbert of
$225,000, representing the entire fiscal year 2015 interest due, thereby meeting
the payment requirements of the loan agreement. During fiscal year 2015, the
Company made $365,000 in principal payments, bringing the principal amount of
the note payable due to G.S. Beckwith Gilbert to $3,500,000 on October 31, 2015.
During fiscal year 2014, the Company paid 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.
On January 20, 2016, the Company entered into a Second Debt Extension Agreement
with G.S. Beckwith Gilbert, effective January 20, 2016, pursuant to which the
Company and Mr. Gilbert agreed to modify certain terms and conditions of the New
Gilbert Note. The maturity date of the New Gilbert Note was due on November 1,
2016, and the total amount of principal and interest due and owing as of January
20, 2016 was $3,511,667. Pursuant to the Second Debt Extension Agreement, the
Company issued a new note to Mr. Gilbert in the principal amount of $3,500,000
(the "Second Replacement Note") in exchange for the New Gilbert Note and the
Company agreed to pay the accrued interest under the New Gilbert Note as of
January 20, 2016, in an amount equal to $11,667(the Company paid Mr. Gilbert
$36,000 in December 2015 for two months interest), at the time and on the terms
set forth in the New Gilbert Note. Under the terms of the Second Replacement
Note, the maturity date was extended to November 1, 2017 and the annual interest
rate remained at 6%. Interest payments under the Second Replacement Note shall
be made annually at October 31 of each year. The note payable is secured by the
Company's assets.
F - 12
Page 50 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
7. LEASES
The Company's headquarters, located in Stamford, Connecticut, are subject to a
lease through January 31, 2018, at an average annual rental rate of $232,000.
The Company's software development and manufacturing facility, located in
Bohemia, New York, is subject to a lease through October 31, 2017, at an average
annual rental rate of $132,000. 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
$439,000 and $445,000 for fiscal years 2015 and 2014, respectively.
CONTRACTUAL OBLIGATIONS
FISCAL YEAR ENDED OCTOBER 31: UNDER OPERATING LEASES
--------------------------------------------------------------------------------
2016 $ 412,000
2017 429,000
2018 122,000
2019 65,000
Thereafter 115,000
-----------
Total minimum contractual obligations $ 1,143,000
===========
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 2015 and 2014 is as follows:
2015 2014
AMOUNT PERCENT Amount Percent
----------- ------- ----------- -------
U.S. statutory tax $ 230,000 34.0% $ 294,000 34.0%
Stock compensation 82,000 11.9 54,000 14.5
Meals and entertainment 16,000 2.5 14,000 (6.7)
State tax, net of federal benefit 70,000 10.4 87,000 10.1
Change in deferred tax rate -- -- 66,000 7.7
----------- ------- ----------- -------
Income tax expense (benefit), net $ 398,000 58.8% $ 515,000 59.6%
=========== ======= =========== =======
The effective tax rate for fiscal year 2015 was 58.8%, as compared to 59.6% in
fiscal year 2014. The statutory income tax expense at 34% for fiscal year 2015
was $230,000. This varies from actual income tax expense of $398,000 primarily
due to permanent differences of meals and entertainment and ISO stock
compensation of $98,000, state income of taxes of $24,000 (net of federal
benefit), and a change to the state deferred tax rate of $46,000.
F -13
Page 51 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
The tax effect of temporary differences that give rise to deferred tax assets
and liabilities as of October 31, 2015 and 2014 is as follows:
2015 2014
--------------- ----------------
Deferred tax assets and liabilities:
Net operating loss carry-forward $ 2,481,000 $ 3,007,000
Accrued vacation 133,000 126,000
Allowance for doubtful accounts receivable 18,000 12,000
Stock compensation-nonqualified 186,000 148,000
Depreciation (608,000) (721,000)
--------------- ----------------
Deferred tax assets and liabilities $ 2,210,000 $ 2,572,000
=============== ================
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, 2015 was approximately $1,485,000, and if the Company is
able to utilize this benefit in the future, it would result in a credit to
additional paid-in capital.
The income tax expense (benefit) for fiscal years ended October 31, 2015 and
2014 is as follows:
2015 2014
------------- -------------
Current:
Federal $ -- $ --
State 36,000 39,000
------------- -------------
Income tax provision-current $ 36,000 $ 39,000
Deferred:
Federal $ 316,000 $ 415,000
State 46,000 61,000
------------- -------------
Total income tax expense (benefit), net $ 398,000 $ 515,000
============= =============
At October 31, 2015, the Company had available a federal net operating loss
carry-forward of $7,847,000 for income tax purposes, which will expire in
various tax years from fiscal year 2022 through fiscal year 2030. 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, 2014, the Company had available a federal net operating loss carry-forward
of $9,149,000 for income tax purposes. The Company does not have a valuation
allowance for its deferred tax asset.
At October 31, 2015 and 2014, 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
1998 through 2005, fiscal year 2010, and fiscal years 2012 through 2015.
F-14
Page 52 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
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, 2015 and 2014.
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.
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 year 2015: risk-free interest rate of 1.18% to 2.10% which is based on an
average of the 5 and 7 year treasury notes, volatility factor of the expected
market price of the Company's common stock of 117% (term of 6.5 years), no
dividend yield (the Company has not paid dividends), and a weighted average
expected life of the stock options of 5.4 to 6.5 years. The weighted average
assumptions for fiscal year 2014 are as follows: risk-free interest rate of
1.62% to 3.54% which is based on the 5 and 7 year treasury notes, volatility
factor of the expected market price of the Company's common stock of 117% (term
of 6.5 years), no dividend yield (the Company has not paid dividends), and a
weighted average expected life of the stock options of 5.4 to 6.5 years.
There were 438,000 shares of common stock reserved for future issuance under the
Company's 2009 stock option plan as of October 31, 2015. For fiscal years 2015
and 2014,stock-based compensation expenses of $341,000 and $310,000 was
primarily charged to selling, general, and administrative expense. There was
$1,689,000 of unrecognized stock-based compensation costs expected to be
recognized over a weighted average period of 4.2 years as of October 31, 2015.
The Company had 625,000 shares in unvested stock-based options as of October 31,
2015.
Information with respect to the Company's stock options for fiscal years 2015
and 2014 is as follows:
WEIGHTED WEIGHTED AVERAGE
NUMBER OF AVERAGE REMAINING CONTRACTUAL AGGREGATE
STOCK EXERCISE TERM INTRINSIC
OPTIONS PRICE (IN YEARS) VALUE
---------------------------------------------------------------
Stock options outstanding at November 1, 2013 1,101,000 $ 2.07
Stock options granted 72,500 $ 3.39
Stock options exercised (252,000) $ 0.42
Stock options forfeited and expired (5,000) $ 1.09
-----------
Outstanding at October 31, 2014 916,500 $ 2.64
Stock options granted 472,500 $ 3.22
Stock options exercised (203,000) $ 0.25
-----------
Stock options outstanding at October 31, 2015 1,186,000 $ 3.27 6.7 $ 293,000
=========== ============ ===================== ==============
Stock options exercisable at October 31, 2015 561,000 $ 3.21 4.8 $ 273,000
=========== ============ ===================== ==============
The weighted average grant date fair value of the Company's stock options
granted during fiscal years 2015 and 2014 was $3.22 and $2.97, respectively. The
total intrinsic value of stock options exercised was $558,000 and $694,000
during fiscal years 2015 and 2014, respectively.
F - 15
Page 53 of 59
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements (continued)
10. MAJOR CUSTOMERS
The Company's principal business is to provide predictive analytics and decision
support technology for the aviation industry to primarily improve the
operational performance and cash flow of airlines. The Company believes it
operates in one operating segment. The Company performs ongoing credit
evaluations of its customers and generally does not require collateral. Credit
losses historically have been immaterial.
Three customers accounted for 41%, or $5,094,000, of total revenues in fiscal
year 2015. One customer accounted for 14% or $1,740,000, a second customer
accounted for 13% or $1,692,000, and a third customer accounted for 13% or
$1,662,000 of total revenues in fiscal year 2015. Two customers accounted for
24%, or $2,707,000, of total revenues in fiscal year 2014. One customer
accounted for 14% or $1,613,000, and a second customer accounted for 10% or
$1,094,000 of total revenues in fiscal year 2014. There were no significant past
due accounts receivable balances for any customers as of the fiscal year ended
October 31, 2015.
The Company had foreign sales of $162,000 and $213,000 in fiscal years 2015 and
2014, respectively. All sales, including foreign sales, are denominated in U.S.
dollars.
F - 16
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