PASSUR AEROSPACE, IN

PSSR
Delayed Quote. Delayed  - 11/26 10:30:36 am
0.55USD -15.38%

PASSUR AEROSPACE : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

03/09/2021 | 04:10pm

Forward Looking Statements



The information provided in this Quarterly Report on Form 10-Q (including,
without limitation, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Liquidity and Capital Resources" below) contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 regarding the Company's future plans, objectives,
and expected performance. The words "believe," "may," "will," "could," "should,"
"would," "anticipate," "estimate," "expect," "project," "intend," "objective,"
"seek," "strive," "might," "likely result," "build," "grow," "plan," "goal,"
"expand," "position," or similar words, or the negatives of these words, or
similar terminology, identify forward-looking statements. These statements are
based on assumptions that the Company believes are reasonable, but are subject
to a wide range of risks and uncertainties, and a number of factors could cause
the Company's actual results to differ materially from those expressed in the
forward-looking statements referred to above. These factors include, without
limitation, the risks and uncertainties discussed under "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 its new products and
professional services (due to potential competitive pressure from other
companies or other products), as well as the potential for terrorist attacks,
changes in fuel costs, airline bankruptcies and consolidations, economic
conditions, and other risks detailed in the Company's periodic report filings
with the SEC. Other uncertainties which could impact the Company include,
without limitation, uncertainties with respect to future changes in governmental
regulation and the impact that such changes in regulation will have on the
Company's business. Additional uncertainties include, without limitation,
uncertainties relating to: (1) the Company's ability to find and maintain the
personnel necessary to sell, manufacture, and service its products; (2) its
ability to adequately protect its intellectual property; and (3) its ability to
secure future financing. Readers are cautioned not to place undue



--------------------------------------------------------------------------------
Page 21 of 34




--------------------------------------------------------------------------------



reliance on these forward-looking statements, which relate only to events as of
the date on which the statements are made and which reflect management's
analysis, judgments, belief, or expectation only as of such date.



Moreover, investors are cautioned to interpret many of the risks identified in
the risk factors discussed in this Quarterly Report on Form 10-Q, as well as the
risks set forth above, as being heightened as a result of the ongoing and
numerous adverse impacts of COVID-19. The spread of COVID-19 has severely
impacted many economies throughout the world, with businesses being forced to
cease or limit operations for long or indefinite periods of time. Measures
taken to contain the spread of the virus, including travel bans, quarantines and
closures of non-essential services have triggered significant disruptions to
businesses worldwide, with particular concentration on the aviation industry
that the Company serves. The federal government has responded with monetary and
fiscal interventions to aid in stabilizing the economy and the Company has
received assistance under the Payroll Support Program for Air Carriers and
Contractors
, part of the Coronavirus Aid, Relief and Economic Security Act
("CARES Act").



The aviation and travel industries, which are served by the Company and its
products, were severely affected by the COVID-19 outbreak as a result of travel
restrictions imposed by most jurisdictions. As a result of the pandemic, the
Company faces increased economic pressures and has experienced a significant
loss of revenue during the three-month period ended January 31, 2021, which the
Company anticipates will continue to impact results through the first half of
fiscal 2021 and possibly longer. The severity of the downturn depends on many
factors, the outcomes of which are uncertain or unknown at this time, such as,
among other things, the scope, severity and duration of the pandemic, the
actions taken to contain the pandemic or to mitigate its impact, the public
distribution of treatments and vaccines for the disease (including its
variants), the length of time before the public feels safe to travel, and the
economic stimulus programs available to affected industries and consumers. All
of these variables will impact how quickly the industry can recover and may
affect the revenue and earnings levels of the Company.






Description of Business




PASSUR® Aerospace, Inc. ("PASSUR" or the "Company"), a New York corporation
founded in 1967, is a leading business intelligence company, providing
predictive analytics and decision support technology for the aviation industry
primarily to improve the operational performance and cash flow of airlines,
airports, fixed based operators (FBOs) and air navigation service providers
(ANSPs). The Company is recognized as a leader in providing a cloud-based
platform, ARiVA™, that manages and optimizes operations for our customers.



PASSUR delivers digital solutions that are essential to global aviation
operations, meeting the needs of global air travel as well as supporting the
recovery of the aviation industry from the COVID-19 crisis. The structure and
execution of operations within the aviation industry has fundamentally changed
as a result of this crisis due to the significant change in the economics
required to support current conditions, a return to normal operations and
profitability, and to assist in mitigating health risks.



PASSUR continues to be a pioneer applying artificial intelligence powered by
machine learning to aviation data, addressing the industry's most costly
challenges, including the management and optimization of airspace, airport
assets, aircraft, and day of flight operations.



Operational efficiency is more important now than ever to eliminate sources of
waste, variables, and inflexible operations for increased profits. The Company
addresses this significant industry problem by applying our technology platform,
combined with professional services, to provide solutions that predict,
prioritize, prevent and help the industry recover from unexpected disruptions.
These disruptions have long been seen as the cost of doing business in the
industry and are even more pronounced today, creating greater uncertainty to the
industry. The Company provides actionable intelligence to enable the industry to
manage their operations more efficiently. Our core business addresses some of
the aviation industry's most intractable and costly challenges, including, but
not limited to, underutilization of airspace and airport capacity, delays,
cancellations, and diversions. Several independent studies have estimated the
annual direct costs of such inefficiencies to airlines in the United States at
over $8 billion annually and worldwide direct cost at over $30 billion annually.



Solutions offered by PASSUR help to ensure flight completion. They cover the
entire flight life cycle, from gate to gate, and result in reductions in overall
costs and carbon emissions, while maximizing revenue opportunities, improving
operational efficiency, and enhancing the passenger experience.



--------------------------------------------------------------------------------
Page 22 of 34




--------------------------------------------------------------------------------



The Company provides its solutions to airlines and airports in the United
States
, as well as airlines and airports in Canada and Latin America. The global
market presents an opportunity to network more customers in a broader market.



The Company's business plan is to continue to focus on increasing
subscription-based revenues from its suite of software applications, and
professional services designed to address the needs of the aviation industry and
the U.S. government. The Company helps customers alleviate constraints without
the cost of expensive infrastructure upgrades and gets them fully operational
within months, to capture more revenue during peak travel periods. The
Company's goal is to help solve problems faced by its customers and increase
profits, by focusing on:



·Improving visibility across departments;



·Improving the quality of planning data; and



·Automating data driven decision support for capacity and demand to meet the
spikes in revenue opportunity.



For the three months ended January 31, 2021, total revenue decreased 60% to
$1,698,000, compared with $4,225,000 for the same period in fiscal year 2020.
Income from operations for the three months ended January 31, 2021 improved to
$402,000, compared to a loss from operations of $341,000 for the same period in
fiscal year 2020. For the three months ended January 31, 2021, net income was
$135,000, or $0.02 per diluted share, compared to a net loss of $583,000, or
$0.08 per diluted share, in the same period in fiscal year 2020.






Results of Operations



Revenues




Management concentrates its efforts on the sale of business intelligence,
predictive analytics, and decision support product applications. Such efforts
include the continued development of existing products, new product offerings
and to a lesser extent, professional services.



The Company is a supplier and partner to the air transportation industry. Many
of the Company's customers have been severely impacted by the COVID-19 outbreak
and the rapid decline in air travel. As a result, the Company experienced
downturns in its revenues in the latter part of fiscal year 2020 and continuing
into fiscal 2021.



Although the Company's revenue is primarily subscription based, during the
latter part of fiscal 2020, several customers requested, and the Company agreed
to, the suspension of certain services to those customers, or the provision of
services free of charge during a specific period of time. Additionally, one
customer requested extended terms of payment, which request the Company also
accepted. The Company believes that these decisions were in the best interests
of the Company as a partner to the aviation industry and will benefit the
Company in the longer term. The Company continues to believe that its products
and professional service engagements are critical to the efficient operation of
the air transportation market.



For the three months ended January 31, 2021, total revenues decreased by
$2,527,000, or 60%, to $1,698,000, as compared with $4,225,000 for the same
period in 2020. The decrease in total revenues was primarily due to a decrease
in subscription revenue of $2,312,000, or 58%, combined with a decrease in
consulting revenue of $215,000 to $54,000, as compared with the same period in
the prior year.



The decrease in subscription revenue for the three months ended January 31, 2021
was primarily due to several expiring airline contracts that were not renewed,
offset in part by new contracts for subscription services closed during fiscal
year 2021 and net incremental revenue recognized during both periods in fiscal
year 2021 related to new contracts closed during fiscal year 2020, mainly
related to airport business.



As previously disclosed, the Company had engaged in ongoing discussions with two
of its customers about the possible renewal of certain existing contracts which
had expired at various times from January 31, 2020 through May 31, 2020, but
certain parts of these contracts had been renewed on a short-term interim basis.
These contracts were not renewed in full or in part, which resulted in the loss
of potential revenue generated from these contracts of $1,615,000 for the three
months ended January 31, 2021, as compared to the same periods in fiscal 2020.



Expenses



--------------------------------------------------------------------------------



Page 23 of 34



--------------------------------------------------------------------------------



In response to the uncertainty surrounding the prospects of airlines and
airports and the travel industry as a result of the continuing global COVID-19
pandemic and the declines in revenue that the Company has experienced in fiscal
year 2020 and into the first quarter of fiscal 2021, partly as a result of the
pandemic, the Company reviewed its operating costs to more closely align those
costs with its outlook for the foreseeable future. The Company has taken steps
to reduce its operating costs going forward, which steps have included
terminating or furloughing certain positions and instituting a temporary pay
reduction plan beginning in the second quarter of 2020, suspending the use of
outside consultants where possible, rationalizing the PASSUR Network, and
reducing and/or eliminating other operating expenses that were not critical to
the short-term outlook of the Company. As a result, during the three months
ended January 31, 2021, the Company experienced a reduced level of cash
operating costs when compared to the same period for the prior year. The
Company anticipates that the continuation of these programs into the latter
quarters of fiscal year 2021 will result in additional savings as compared with
the annualized run rate of expenses at the end of the first quarter of 2020.



The Company anticipates that further reductions in cash operating costs will be
achieved as a result of eligible personnel expenses being funded using the grant
proceeds received by the Company under the CARES Act Payroll Support Program.



There can be no assurances, however, that the Company may not have to further
reduce operating costs in the future. If the recovery of the air transportation
industry accelerates and revenue levels quickly return to pre-COVID-19 levels,
these levels of cost savings may not be practicable or sustainable to support
the operations necessary for the increased level of revenue.






Cost of Revenues




For the three months ended January 31, 2021, cost of revenues decreased
$1,716,000, or 75%, to $570,000, as compared to $2,286,000 in the same period in
fiscal year 2020. The decrease in cost of revenues during the period was
primarily attributable to lower compensation, professional services, consulting,
data communications costs and depreciation and amortization expenses, offset in
part by a decrease in capitalized software development costs as a result of the
Company not incurring any capitalized software costs during the three months
ended January 31, 2021. In response to the uncertainty surrounding the
prospects of airlines and airports and the travel industry given the global
COVID-19 pandemic, during the second quarter of fiscal year 2020, the Company
undertook a review of its operating costs to more closely align those costs with
its forecast for revenue. The Company continued to realize cost savings and
benefits during the three months ended January 31, 2021 from the cost reduction
programs instituted prior to receiving CARES Act financing. For the three months
ended January 31, 2021, the Company was able to use CARES Act financing for
eligible payroll costs to offset a portion of its costs of revenues by $410,000.



Going forward, the Company anticipates lower levels of capitalized software
costs. In addition, as a result of the PASSUR Network decommissioning process
commenced during the second quarter of fiscal 2020 and the resulting write off
of certain PASSUR Network assets and capitalized software development costs, the
Company anticipates that depreciation and amortization expenses associated with
these assets will continue to decrease in the future.






Research and Development




For the three months ended January 31, 2021, research and development expenses
decreased $65,000, or 58%, to $48,000, as compared to $112,000 for the same
period in fiscal year 2020. The decrease in research and development expenses
during the period was primarily attributable to a decrease in personnel-related
costs, as compared to the same period during the prior year. This was a result
of the reductions in force, furloughs and temporary reductions in salaries
instituted during fiscal 2020, prior to receiving CARES Act financing. For the
three months ended January 31, 2021, the Company was able to use CARES Act
financing for eligible payroll costs to offset a portion of its research and
development expenses by $35,000.



The Company's research and development efforts include activities associated
with new product development, as well as the enhancement and improvement of the
Company's existing software and information products. The Company anticipates
that it will continue to invest in its software portfolio to develop, maintain,
and support existing and newly developed applications for its customers.



--------------------------------------------------------------------------------
Page 24 of 34



--------------------------------------------------------------------------------



Selling, General, and Administrative



For the three months ended January 31, 2021, selling, general, and
administrative expenses decreased $1,490,000, or 69%, to $679,000, as compared
to $2,168,000 for the same period in fiscal year 2020. The decrease in selling,
general, and administrative expense for the three months ended January 31, 2021
were primarily due to decreases in compensation costs, as a result of the
reductions in force, furloughs and salary reduction programs previously
instituted prior to receiving CARES Act financing, in response to the COVID-19
outbreak, coupled with lower travel and consulting expenses, as compared to the
same period in fiscal year 2020. Also, as part of the review of its operating
costs described above, during fiscal 2020, the Company exited three leased
facilities and terminated the related lease agreements, resulting in reductions
to its facilities costs of approximately $92,000. For the three months ended
January 31, 2021, the Company was able to use CARES Act financing for eligible
payroll costs to offset a portion of its selling, general and administrative
expenses by $571,000.






Income/(Loss) from Operations




For the three months ended January 31, 2021, income from operations increased
$743,000 to $402,000, as compared with a loss from operations of $341,000 during
the same period in fiscal year 2020. The improvement in operating income was
primarily due to a decrease in compensation expenses, development consultant
expenses, travel expenses, depreciation and amortization costs, and other
expenses as a result of the cost-saving initiatives described above, as compared
to the same period in fiscal year 2020. Partially offsetting these decreases
was a decrease in capitalized software development costs, resulting from the
Company not incurring any capitalized software costs during the quarter ended
January 31, 2021, coupled with the decrease in revenue noted above.



Interest Expense - Related Party



Interest expense - related party increased $56,000, or 27% for the three months
ended January 31, 2021 as compared to the same period in fiscal year 2020, due
to the higher principal balance outstanding on the note during fiscal year 2021.






Net Income/(Loss)




Net income was $135,000, or $0.02 per diluted share, for the three months ended
January 31, 2021, as compared to a net loss of $583,000, or $0.08 per diluted
share, for the same period in 2020. The improvement in net income in the first
quarter of fiscal 2021 was the result of the cost containment and cost reduction
programs put in place during fiscal 2020 as described above, offset in part by a
decline in revenue.



Liquidity and Capital Resources



The Company's current liabilities, excluding deferred revenue and certain CARES
Act grant proceeds accounted for as accrued liabilities, exceeded its current
assets by $338,000 as of January 31, 2021.



The note payable to a related party, G.S. Beckwith Gilbert, the Company's
Non-Executive Chairman of the Board and significant shareholder, with a maturity
of November 1, 2022, was $10,692,000 at January 31, 2021, which amount included
additional loans made by Mr. Gilbert in fiscal 2020 of $1,435,000, bringing the
principal balance owed to $9,585,000, plus capitalized accrued and unpaid
interest of $1,107,000. The capitalized interest included $200,000 incurred
during the fourth quarter of fiscal 2019 and all the fiscal 2020 interest of
$907,000. The Company has paid the interest due for the first quarter of 2021 in
the amount of $266,400. The Company's stockholders' equity had a deficit of
$11,175,000 at January 31, 2021. The Company achieved net income of $135,000 for
the three months ended January 31, 2021.



As of October 31, 2020, the total amount owed by the Company under a promissory
note issued by the Company to Mr. Gilbert on January 27, 2020 (the "Sixth
Gilbert Note") was $10,692,000, consisting of a principal of $9,585,000 and
unpaid interest of $1,107,000. The maturity date under the Sixth Gilbert Note
was November 1, 2021, and the annual interest rate was 9 ¾%, with annual
interest payments required to be made on October 31st of each year. The note
payable was secured by the Company's assets.



During the first quarter of fiscal 2021, the Company paid Mr. Gilbert interest
accrued on the Sixth Gilbert Note from October 31, 2020 through January 31, 2021
in a total amount equal to $266,400. During the three months ended January 31,
2021
, Mr. Gilbert did not loan the Company any additional funds.



--------------------------------------------------------------------------------
Page 25 of 34



--------------------------------------------------------------------------------



On January 29, 2021, the Company and Mr. Gilbert entered into a Seventh Debt
Extension Agreement effective January 29, 2021, pursuant to which the Company
cancelled the Sixth Gilbert Note and issued Mr. Gilbert a new promissory note
(the "Seventh Gilbert Note") in the amount of $10,692,000, consisting of a
principal of $9,585,000 and unpaid interest of $1,107,000 accrued under the
Sixth Gilbert Note through October 31, 2020. Under the terms of the Seventh
Gilbert Note, the Company agreed to pay the unpaid interest of $1,107,000
accrued under the Sixth Gilbert Note and included in the Seventh Gilbert Note
(as described above) at the time and on the terms set forth in the Seventh
Gilbert Note. Under the terms of the Seventh Gilbert Note, the maturity date of
the loan was extended to November 1, 2022, and the annual interest rate remained
at 9 ¾%, with annual interest payments required to be made on October 31st of
each year (although any accrued interest can be paid before such time without
penalty). The note payable is secured by the Company's assets. The amendments to
the Sixth Gilbert Note were determined to be a modification of the debt
instrument and no gain or loss was recorded as a result of the transactions.



Management is addressing the Company's working capital deficiency by
aggressively marketing the Company's capabilities in its existing product and
professional service lines, as well as in new products and professional services
which are continually being developed and deployed. Management believes that the
continued development of its existing suite of software products and
professional services, which address the wide array of needs of the aviation
industry, will continue to lead to increased growth in the Company's
customer-base and subscription-based revenues. However, there are no assurances
that such growth will be achieved.



The Company has evaluated its financial position as of January 31, 2021,
including operating income of $402,000 for the three months ended January 31,
2021
a working capital deficit of $338,000 (excluding deferred revenues and
certain CARES Act grant proceeds accounted for as accrued liabilities) and
shareholders deficit of $11,175,000 as of January 31, 2021, and has requested
and received a commitment from Mr. Gilbert, dated March 9, 2021, that if the
Company, at any time, is unable to meet its obligations through March 10, 2022,
Mr. Gilbert will provide the Company with the necessary continuing financial
support to meet such obligations. Such commitment for financial support may be
in the form of additional advances or loans to the Company, in addition to the
deferral of principal and/or interest payments due on the existing loans, if
deemed necessary.



The CARES Act was enacted in March 2020 and provides economic support for, among
others, businesses in the airline industry. The Company has received three
grants under the CARES Act, totaling approximately $5,188,000, as described in
more detail below.



1.The Company has been granted government funds of approximately $3.0 million
pursuant to the PSP1 for Air Carriers and Contractors under the CARES Act.



Pursuant to the Payroll Support Program Agreement entered into by the Company
with the U.S. Department of the Treasury, the Company was required to, among
other things, refrain from conducting involuntary employee layoffs or furloughs
and reducing employee rates of pay or benefits through September 30, 2020, and
is required to refrain from paying dividends or engaging in share repurchases
through September 30, 2021. The Company is also required to limit certain
executive compensation through March 24, 2022, maintain certain internal
controls and records relating to the CARES Act funds and comply with certain
reporting requirements. The Company believes that it has operated in compliance
with all the provisions and requirements under the CARES Act up through and
including the period ended January 31, 2021 and fully intends to continue to
comply with all such provisions and requirements. Consequently, the Company has
accounted for the advanced funds as grants not requiring repayment and
recognized such amounts in income as qualifying salaries, wages and benefits
have been incurred. During the three months ended January 31, 2021, the Company
reduced its compensation expense by $1,016,000, as a portion of the CARES Act
grant proceeds received by the Company was used to fund eligible payroll costs.



If the Company does not comply with the provisions of the CARES Act and the
Payroll Support Program Agreement, the Company may be required to repay the
government funds and also be subject to other remedies.



2.On February 12, 2021, the Company received an additional "top off"
disbursement of $875,000 under PSP1, subject to the terms and conditions
described above.



3.On March 5, 2021, the Company entered into a Payroll Support Program Extension
Agreement (PSP2) with the U.S. Department of the Treasury for an award the
Company will receive under the CARES Act Payroll Support Program. The total
amount expected to be awarded to the Company under PSP2 is approximately
$1,310,000.



--------------------------------------------------------------------------------
Page 26 of 34




--------------------------------------------------------------------------------



On March 8, 2021, the Company received approximately $655,000 of the funds
expected under PSP2. As with the original grant under the Payroll Support
Program, PSP2 proceeds are to be used exclusively for the continuation of
payment of certain employee wages, salaries, and benefits. The relief payments
are conditioned on the Company's agreement to, among other things, refrain from
conducting involuntary employee layoffs or furloughs through the later of March
31, 2021
, or the date on which the Company has expended all of the payroll
support. Other conditions include prohibitions on share repurchases and
dividends through March 31, 2022, and certain limitations on executive
compensation.



Net cash used in operating activities was $833,000 for the three months ended
January 31, 2021, and consisted of net income of $135,000, which includes the
use of federal stimulus credits of ($1,016,000), depreciation and amortization
expense of $187,000, stock-based compensation expense of $47,000, adjustments to
operating lease assets and liabilities, net, of ($46,000), an increase in
deferred revenue of $46,000, a decrease in accounts receivable of $60,000, and a
decrease in accounts payable of ($243,000). The balance consisted of changes to
other assets and liabilities and accrued expenses of ($3,000). There was no cash
used in or provided by investing or financing activities for the three months
ended January 31, 2021.



The Company actively monitors the costs associated with supporting the business,
and continually seeks to identify and reduce any unnecessary costs as part of
its cost reduction initiatives, while strategically reinvesting back into the
business as part of its long-term plans. As described above, during fiscal 2020,
the Company took aggressive steps to reduce its cost structure, including, but
not limited to, reductions in force, furloughs and salary reduction plans. The
Company will continue to monitor costs in relation to its revenue and will take
further actions as necessary consistent with the requirements of the CARES Act
financing. The Company believes that it has the ability to reduce operating
costs further if, at any time, such adjustments would be necessary to align the
Company's financial condition, liquidity, and capital resources with the
uncertain outlook of the COVID-19 pandemic. However, if the recovery of the air
transportation industry accelerates and revenue levels quickly return to
pre-COVID-19 levels, the levels of cost savings already taken or which may be
taken by the Company may not be practical or sustainable to support the
operations necessary for the increased level of revenue. Additionally, the
aviation market has been impacted by budgetary constraints, airline bankruptcies
and consolidations, current economic conditions, the continued war on terrorism,
and fluctuations in fuel costs. The aviation market is extensively regulated by
government agencies, particularly the FAA and the National Transportation Safety
Board
, and management anticipates that new regulations relating to air travel
may continue to be issued. Substantially all of the Company's revenues are
derived from customers that serve, or are served by, the aviation industry. Any
new regulations or changes in the economic situation of the aviation industry
could have an impact on the future operations of the Company, either positively
or negatively.



Despite the continuing downturn in the air transportation industry due to the
COVID-19 pandemic, interest by potential customers in the Company's information
and decision support software products and its professional services remains
strong. As a result, the Company believes that future revenues will increase on
an annualized basis. However, there are no guarantees that such annualized
future revenue increases will occur. If revenues do not increase and the
Company's cost-structure is not adjusted accordingly, losses may occur. The
extent of such profits or losses will be dependent on sales volume achieved and
the Company's ability to optimize its cost structures.



Off-Balance Sheet Arrangements






None.




Critical Accounting Policies and Estimates



The Company's discussion and analysis of its financial condition and results of
operations are based upon its consolidated financial statements, which have been
prepared in accordance with GAAP. The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, expenses, and related disclosures of
contingent assets and liabilities based upon accounting policies management has
implemented. These significant accounting policies are disclosed in Note 1 to
the Company's Annual Report on Form 10-K for the fiscal year ended October 31,
2020
. These policies and estimates are critical to the Company's 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, included in our Annual Report on
Form 10-K for the fiscal year ended October 31, 2020, as such



--------------------------------------------------------------------------------
Page 27 of 34




--------------------------------------------------------------------------------



policies affect its reported financial results. The actual impact of these
factors may differ under different assumptions or conditions.






Revenue Recognition




The Company recognizes revenue in accordance with Topic 606. The Company
accounts for a customer contract when both parties have approved the contract
and are committed to perform their respective obligations, each party's rights
can be identified, payment terms can be identified, the contract has commercial
substance, and it is probable the Company will collect substantially all of the
consideration to which it is entitled.



The Company derives revenue primarily from subscription-based, real-time
decision and solution information and professional services. Revenues are
recognized when control of these services is transferred to the customer, in an
amount that reflects the consideration the Company expects to be entitled to in
exchange for those services.



The Company determines revenue recognition through the following steps:



·Identification of the contract, or contracts, with a customer;



·Identification of the performance obligations in the contract;



·Determination of transaction price;



·Allocation of transaction price to performance obligations in the contract;
and



·Recognition of revenue when, or as, the Company satisfies a performance
obligation.



Subscription services revenue



Subscription services revenue is comprised of cloud-based subscription fees that
provide the customer the right to access the Company's software and receive
support and updates, if any, for a period of time. The Company has determined
such access represents a stand-ready service provided continually throughout the
contract term. As such, control and satisfaction of this stand-ready performance
obligation is deemed to occur over time. The Company's subscription contracts
include a fixed amount of consideration that is recognized ratably over the
non-cancellable contract term, beginning on the date that access is made
available to the customer. The passage of time is deemed to be the most faithful
depiction of the transfer of control of the services as the customer
simultaneously receives and consumes the benefit provided by the Company's
performance. Subscription contracts are generally one to three years in length,
billed either, monthly, quarterly or annually, typically in advance, which
coincides with the terms of the agreement. The Company's subscription contracts
do not have a significant financing component and customer invoices are
typically due within 30 days. There is no significant variable consideration
related to these arrangements. Amounts that have been invoiced are recorded in
accounts receivable and in deferred revenue or revenue, depending on whether
transfer of control to customers has occurred.






Professional services revenue




Professional services primarily consist of value assessments and customer
training services. Payment for professional services is generally a fixed fee or
a fee based on time and materials. The obligation to provide professional
services is generally satisfied over time, with the customer simultaneously
receiving and consuming the benefits as the Company satisfies its performance
obligations. For professional services, revenue is recognized by measuring
progress toward the complete satisfaction of the Company's obligation. Progress
for services that are contracted for a fixed price is generally measured based
on hours incurred as a portion of total estimated hours, and as a practical
expedient, progress for services that are contracted for time and materials is
generally based on the amount the Company has the right to invoice. Professional
services contracts are generally one year or less in length, billed either in
advance, upon pre-defined milestones or as services are rendered, in accordance
with the terms of agreement. The Company's professional service contracts do not
have a significant financing component and customer invoices are typically due
within 30 days.






Material rights




Contracts with customers may include material rights which are also performance
obligations. Material rights primarily arise when the contract gives the
customer the right to renew subscription services at a discounted price in the
future. This may occur from time to time when the Company's contracts provide an
implicit discount as the customer pays a nonrefundable up-front fee in
connection with the initial services contract that it does not have to pay again
in order to renew



--------------------------------------------------------------------------------
Page 28 of 34




--------------------------------------------------------------------------------



the service. These non-refundable up-front fees are not related to any promised
service that the customer benefits other than providing access to the
subscription service. Revenue allocated to material rights is recognized when
the customer exercises the right over the estimated renewal period of five years
or when the right expires. If exercised by the customer, the amount previously
deferred for the material right is included in the transaction price of the
renewal contract and allocated to the services included in that contract. If
expired, revenue is recognized as subscription services revenue in the period
the right expired. If the up-front fees do not provide the customer with a
material right, then the amount is included in the transaction price of the
initial services contract and allocated to the performance obligations in that
contract.



Contracts with multiple performance obligations



Some of the Company's contracts with customers contain multiple distinct
performance obligations. For these contracts, the transaction price is allocated
to the separate performance obligations on a relative standalone selling price
basis. The standalone selling price reflects the price the Company would charge
for a specific service if it was sold separately in similar circumstances and to
similar customers. The Company maximizes the use of directly observable
transactions to determine the standalone selling prices for its performance
obligations. For subscription services, the Company separately determines the
standalone selling prices by type of solution and customer demographics. For
professional services, the Company separately determines standalone selling
price by type of service.






Other policies and judgments




The commissions that the Company pays for obtaining a contract with a customer
are conditional on future service provided by the employee. Therefore, since
these costs are not incremental solely based on obtaining a contract, the
Company does not defer any commission costs.






Leases




During the first quarter of fiscal year 2020, the Company adopted Topic 842
using the modified retrospective transition approach permitted under the new
standard for leases that existed at November 1, 2019 and, accordingly, the prior
comparative periods were not restated. Under this method, the Company was
required to assess the remaining future payments of existing leases as of
November 1, 2019. Additionally, as of the date of adoption, the Company elected
the package of practical expedients that did not require the Company to assess
whether expired or existing contracts contain leases as defined in Topic 842,
did not require reassessment of the lease classification (i.e., operating lease
vs. finance lease) for expired or existing leases, and did not require a change
to the accounting for previously capitalized initial direct costs.



The adoption of this standard impacted the Company's consolidated balance sheet
due to the recognition of ROU assets and associated lease liabilities related to
operating leases as compared to the previous accounting. The accounting for
finance leases under Topic 842 is consistent with the prior accounting for
capital leases. The impact of the adoption of this standard on the Company's
consolidated statement of earnings and consolidated statement of cash flows was
not material.



Per the guidance of Topic 842, a contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset. The
Company recognizes a lease liability and a related ROU asset at the commencement
date for leases on its consolidated balance sheet, excluding short-term leases
as noted below. The lease liability is equal to the present value of unpaid
lease payments over the remaining lease term. The Company's lease term at the
commencement date may reflect options to extend or terminate the lease when it
is reasonably certain that such options will be exercised. To determine the
present value of the lease liability, the Company uses an incremental borrowing
rate, which is defined as the rate of interest that the Company would have to
pay to borrow (on a collateralized basis over a similar term) an amount equal to
the lease payments in similar economic environments. The ROU asset is based on
the corresponding lease liability adjusted for certain costs such as initial
direct costs, prepaid lease payments and lease incentives received. Both
operating and finance lease ROU assets are reviewed for impairment, consistent
with other long-lived assets, whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. After a ROU asset is
impaired, any remaining balance of the ROU asset is amortized on a straight-line
basis over the shorter of the remaining lease term or the estimated useful life.



After the lease commencement date, the Company evaluates lease modifications, if
any, that could result in a change in the accounting for leases. For a lease
modification, an evaluation is performed to determine if it should be treated as
either a separate lease or a change in the accounting of an existing lease. In
addition, significant changes in events or circumstances within the Company's
control are assessed to determine whether a change in the accounting for leases
is required.



--------------------------------------------------------------------------------
Page 29 of 34



--------------------------------------------------------------------------------



Certain of the Company's leases provide for variable lease payments for the
right to use an underlying asset that vary due to changes in facts and
circumstances occurring after the commencement date, other than the passage of
time. Variable lease payments that are dependent on an index or rate (e.g.,
Consumer Price Index) are included in the initial measurement of the lease
liability, the initial measurement of the ROU asset, and the lease
classification test based on the index or rate as of the commencement date. Any
changes from the commencement date estimation of the index- and rate-based
variable payments are expensed as incurred in the period of the change. Variable
lease payments that are not known at the commencement date and are determinable
based on the performance or use of the underlying asset, are not included in the
initial measurement of the lease liability or the ROU asset, but instead are
expensed as incurred. The Company's variable lease payments primarily include
common area maintenance and real estate taxes.



Upon the adoption of Topic 842, the Company made the following accounting policy
elections:



·Certain of the Company's contracts contain lease components as well as
non-lease components. Unless an accounting policy is elected to the contrary,
the contract consideration must be allocated to the separate lease and non-lease
components in accordance with Topic 842. For purposes of allocating contract
consideration, the Company elected not to separate the lease components from
non-lease components for all asset classes. This was applied to all existing
leases as of November 1, 2019 and will be applied to new leases on an on-going
basis.



·The Company elected not to apply the measurement and recognition requirements
of Topic 842 to short-term leases (i.e., leases with a term of 12 months or
less). Accordingly, short-term leases will not be recorded as ROU assets or
lease liabilities on the Company's consolidated balance sheets, and the related
lease payments will be recognized in net earnings on a straight-line basis over
the lease term.



As a result of the adoption of Topic 842, the Company recognized operating lease
ROU assets and liabilities of $1,497,000 and $1,620,000, respectively, as of
November 1, 2019. The Company does not have any finance lease ROU assets and
liabilities.



The Company has operating leases primarily for offices and PASSUR and SMLAT
systems, with remaining terms of approximately 2 months to 4.5 years. Some of
the Company's lease contracts include options to extend the leases for up to
five years, while others include options to terminate the leases within 1 year.



The Company does not have any finance leases or leases that have not yet
commenced as of January 31, 2021.






Other Matters




Effective as of November 13, 2020, Louis J. Petrucelly resigned his positions as
Senior Vice President, Chief Financial Officer of the Company. On December 18,
2020
, the Board of Directors approved the appointment of Sean Doherty as
Executive Vice President of Finance and Administration of the Company. In this
role, Mr. Doherty will succeed Mr. Petrucelly.

© Edgar Online, source Glimpses

© Acquiremedia 2021
Copier lien
All news about PASSUR AEROSPACE, INC.
10/04
10/01
09/22
09/22
09/14