UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2013
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 000-7642
PASSUR AEROSPACE, INC.
---------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
NEW YORK 11-2208938
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
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
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 Web site, 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 check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
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]
================================================================================
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
There were 7,193,140 shares of the Registrant's common stock with a par value of
$0.01 per share outstanding as of March 6, 2013.
INDEX
PASSUR Aerospace, Inc. and Subsidiary
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of January 31, 2013 (unaudited)
and October 31, 2012. 3
Consolidated Statements of Income (unaudited)
Three months ended January 31, 2013 and 2012. 4
Consolidated Statements of Cash Flows (unaudited) 5
Three months ended January 31, 2013 and 2012.
Notes to Consolidated Financial Statements (unaudited) -
January 31, 2013. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk. 13
Item 4. Controls and Procedures. 13
PART II. OTHER INFORMATION 14
Item 5. Other Information. 14
Item 6. Exhibits. 14
Signatures. 15
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Balance Sheets
JANUARY 31, October 31,
2013 2012
------------------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash $ 371,848 $ 261,053
Accounts receivable, net 1,074,110 1,475,665
Deferred tax asset, current 584,562 584,562
Prepaid expenses and other current assets 226,559 130,830
------------------ -------------------
Total current assets 2,257,079 2,452,110
PASSUR(R) Network, net 5,846,615 6,065,222
Capitalized software development costs, net 5,677,590 5,543,402
Property, plant and equipment, net 1,144,006 1,044,463
Deferred tax asset, non-current 2,817,144 2,817,144
Other assets 188,249 193,426
------------------ -------------------
TOTAL ASSETS $17,930,683 $18,115,767
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 457,119 $ 668,238
Accrued expenses and other current liabilities 507,594 727,647
Deferred revenue, current portion 1,647,470 1,478,141
------------------ -------------------
Total current liabilities 2,612,183 2,874,026
Deferred revenue, less current portion 180,009 189,944
Notes payable - related party 4,764,880 4,764,880
------------------ -------------------
7,557,072 7,828,850
COMMITMENT AND CONTINGENCIES
Stockholders' equity:
Preferred shares - authorized 5,000,000 shares,
par value $.01 per share; none issued or
outstanding -- --
Common shares - authorized 10,000,000 shares,
par value $.01 per share; issued 7,889,640 in
fiscal years 2013 and 2012 78,896 78,896
Additional paid-in capital 15,194,932 15,120,556
Accumulated deficit (3,276,742) (3,289,060)
------------------ -------------------
11,997,086 11,910,392
Treasury stock, at cost, 696,500 shares
in fiscal years 2013 and 2012 (1,623,475) (1,623,475)
------------------ -------------------
Total stockholders' equity 10,373,611 10,286,917
------------------ -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $17,930,683 $18,115,767
================== ===================
See accompanying notes to consolidated financial statements.
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)
THREE MONTHS ENDED JANUARY 31,
2013 2012
------------------ -------------------
REVENUES $ 2,674,526 $ 3,463,784
COST AND EXPENSES:
Cost of revenues 1,515,556 1,675,778
Research and development 146,956 95,738
Selling, general, and administrative expenses 898,090 1,238,350
------------------ -------------------
2,560,602 3,009,866
------------------ -------------------
INCOME FROM OPERATIONS 113,924 453,918
Interest expense - related party 73,061 73,828
------------------ -------------------
Income before income taxes 40,863 380,090
Provision for Income taxes 28,545 -
------------------ -------------------
NET INCOME $ 12,318 $ 380,090
================== ===================
Net income per common share - basic $ .00 $ .05
================== ===================
Net income per common share - diluted $ .00 $ .05
================== ===================
Weighted average number of common shares outstanding - basic 7,193,140 7,175,140
================== ===================
Weighted average number of common shares outstanding - diluted 7,981,129 8,012,448
================== ===================
See accompanying notes to consolidated financial statements.
PASSUR Aerospace, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
THREE MONTHS ENDED JANUARY 31,
2013 2012
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 12,318 $ 380,090
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 644,254 600,200
Recovery of doubtful accounts receivable (4,125) (4,372)
Stock-based compensation expense 74,376 72,280
Changes in operating assets and liabilities:
Accounts receivable 405,680 140,370
Prepaid expenses and other current assets (95,729) (243,006)
Other assets 5,177 (15,280)
Accounts payable (211,119) (270,075)
Accrued expenses and other current liabilities (220,053) 20,979
Deferred revenue 159,394 265,940
-------------------------------------
Total adjustments 757,855 567,036
-------------------------------------
Net cash provided by operating activities 770,173 947,126
CASH FLOWS FROM INVESTING ACTIVITIES
PASSUR(R) Network, net (82,511) (194,419)
Software development costs, net (420,031) (529,420)
Property, plant and equipment, net (156,836) (70,868)
-------------------------------------
Net cash used in investing activities (659,378) (794,707)
-------------------------------------
Increase in cash 110,795 152,419
Cash - beginning of period 261,053 299,455
-------------------------------------
Cash - end of period $ 371,848 $ 451,874
=====================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest - related party $ 73,061 $ 73,828
Income taxes $ 59,731 $ 21,325
See accompanying notes to consolidated financial statements.
PASSUR Aerospace, Inc. and Subsidiary
Notes to Consolidated Financial Statements
January 31, 2013
(Unaudited)
1. NATURE OF BUSINESS
---------------------------
PASSUR Aerospace, Inc. ("PASSUR(R)" or the "Company") is a leading aviation
business intelligence company that provides predictive analytics and
decision-support technology for the aviation industry based on its unique,
proprietary technology and real-time accessible databases, supported by a number
of leading industry experts, and a proven management team.
PASSUR(R) serves all of the 8 largest North American airlines, all 5 of the
major hub carriers, more than 60 airport customers, including 22 of the top 30
North American airports, and approximately 200 corporate aviation customers, as
well as the U.S. government, using a recurring-revenue subscription model.
PASSUR(R)'s products include a suite of web-based solutions that address the
aviation industry's most intractable and costly challenges, including
underutilization of airspace and airport capacity, delays, cancellations, and
diversions, among other inefficiencies. Solutions offered by PASSUR(R) cover the
entire flight life cycle, from gate to gate, and result in reductions in overall
costs, fuel costs, and emissions, while maximizing revenue opportunities, as
well as improving operational efficiency, and enhancing the passenger
experience. The Company provides data consolidation, information, decision
support, predictive analytics, collaborative solutions, and professional
services.
PASSUR(R) owns and operates what the Company believes is the largest commercial
air traffic surveillance and passive radar network in the world, with one
hundred and fifty-six passive radar locations, powering a unique, proprietary
database that is accessible in real time, on demand, for critical and timely
decision-making with nationwide coverage to support network-wide systemic
deployments. The Company's database contains over 10 years of archived data
derived from the network. The Company's network has a unique flight tracking
data source available to the private sector, which is based on independent,
non-U.S. government data, while including all publicly available government
feeds as well. The Company's unique data supplements the government feeds and
offers faster updates, with flight tracks updated every 1 to 4.6 seconds,
enabling better flight tracking and more cost effective decision-making during
irregular operations.
Management is addressing the Company's working capital deficiency by
aggressively marketing the Company's PASSUR(R) Network Systems information
capabilities in its existing product and professional service lines, as well as
in new products and professional services, which are continually being developed
and deployed. Management believes that expanding its existing suite of software
products and professional services, which address the wide array of needs of the
aviation industry, through the continued development of new product and service
offerings, 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. However, the Company has received a
commitment from G.S. Beckwith Gilbert, dated March 6, 2013, that if the Company,
at any time, is unable to meet its obligations through March 6, 2014, G.S.
Beckwith Gilbert will provide the necessary continuing financial support to the
Company in order for the Company to meet such obligations.
6
2. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial information contained in this Form 10-Q represents
condensed financial data and, therefore, does not include all footnote
disclosures required to be included in financial statements prepared in
conformity with accounting principles generally accepted in the United States.
Such footnote information was included in the Company's annual report on Form
10-K for the year ended October 31, 2012, filed with the Securities and Exchange
Commission ("SEC"); the consolidated financial data included herein should be
read in conjunction with that report. In the opinion of management, the
accompanying unaudited consolidated financial statements contain all adjustments
(which include only normal recurring adjustments) necessary to present fairly
the Company's consolidated financial position at January 31, 2013, and its
consolidated results of operations and cash flows for the three months ended
January 31, 2013 and 2012.
The results of operations for the interim period stated above are not
necessarily indicative of the results of operations to be recorded for the full
fiscal year ending October 31, 2013.
Certain financial information in the footnotes has been rounded to the nearest
thousand for presentation purposes.
PRINCIPLES OF CONSOLIDATION
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.
REVENUE RECOGNITION POLICY
The Company recognizes revenue in accordance with FASB ASC 605-15, (SAB 104,
"Revenue Recognition in Financial Statements") which requires that four basic
criteria must be met before revenues can be recognized: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred or services have been
rendered; (3) the fee is fixed and determinable; and (4) collectability is
reasonably assured.
The Company's revenues are generated by selling: (1) subscription-based,
real-time decision and solution information; (2) professional services; and (3)
annual maintenance contracts for PASSUR(R) Radar Systems.
Revenues generated from subscription and maintenance agreements are recognized
over the term of such executed agreements and/or customer's receipt of such data
or services. In accordance with ASC 605-15, we recognize revenue when persuasive
evidence of an arrangement exists which is evidenced by a signed agreement, the
service has been deployed, as applicable, to the Company's hosted servers, the
fee is fixed and determinable, and collection of the resulting receivable is
reasonably assured. The Company records revenues pursuant to individual
contracts on a month-by-month basis, as outlined by the applicable agreement. In
many cases, the Company may invoice respective customers in advance of the
specified period, either quarterly or annually, which coincides with the terms
of the agreement. In such cases, the Company will defer at the close of each
month and/or reporting period, any subscription or maintenance revenues invoiced
for which services have yet to be rendered, in accordance with ASC 605-15.
Revenues generated by professional services are recognized over the term of such
executed agreements or as provided.
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.
COST OF REVENUES
Costs associated with subscription and maintenance revenues consist primarily of
direct labor, depreciation of PASSUR(R) Network Systems, amortization of
capitalized software development costs, communication costs, data feeds,
allocated overhead costs, travel and entertainment, and consulting fees. Also
included in cost of revenues are costs associated with upgrades to PASSUR(R)
Systems necessary to make such systems compatible with new software
applications, as well as the ordinary repair and maintenance of existing
PASSUR(R) Systems. Additionally, cost of revenues in each reporting period is
impacted by: (1) the number of PASSUR(R) Systems added to the Network, which
include the cost of production, shipment, and installation of these assets,
which are capitalized to the PASSUR(R) Network; and (2) 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.
7
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. 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 and/or unamortized revenues, as well as initial set-up
fees.
American Airlines parent corporation, AMR Corporation, filed voluntary petitions
for relief under Chapter 11 of the United States Bankruptcy Code on November 29,
2011. In December 2011, the Company was notified by American Airlines that it
will continue operating under the original contract between the Company and
American Airlines, with an immaterial revision. The provision for doubtful
accounts was $76,000 and $80,000 as of January 31, 2013 and October 31, 2012,
respectively. The Company monitors its outstanding accounts receivable balances
and believes the provision is reasonable. The pre-petition receivable from
American Airlines is less that the provision of doubtful accounts as of January
31, 2013.
PASSUR(R) NETWORK
The PASSUR(R) Network is comprised of PASSUR(R) Systems, which include the
direct and indirect production, shipping, and installation costs incurred for
each PASSUR(R) System, which are recorded at cost, net of accumulated
depreciation. Depreciation is charged to cost of revenues and is calculated
using the straight-line method over the estimated useful life of the asset,
which is estimated at seven years. PASSUR(R) Systems which are not installed,
raw materials, work-in-process, and finished goods components are carried at
cost and no depreciation is recorded.
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 records amortization of the software on a straight-line basis over
the estimated useful life of the software, typically five years. The Company had
$1,800,000 of software development projects in development as of January 31,
2013.
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.
DEFERRED TAX ASSET
The Company had available a federal net operating loss carry-forward of
$10,990,000 for income tax purposes as of January 31, 2013, which will expire in
various tax years from fiscal year 2020 through fiscal year 2029. 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.
8
DEFERRED REVENUE
Deferred revenue includes amounts attributable to advances received on customer
agreements, which may be prepaid either annually or quarterly. Revenues from
such customer agreements are recognized as income ratably over the period that
coincides with the respective agreement.
The Company recognizes initial set-up fee revenues and associated costs on a
straight-line basis over the estimated life of the customer relationship period,
typically five years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amounts of the Company's receivables and payables approximate their
fair values, principally because of the short-term nature of these items. The
fair value of related party debt is not practicable to determine due primarily
to the fact that the Company's related party debt is held by its Chairman and
significant shareholder, and the Company does not have any third-party debt with
which to compare.
Additionally, on a recurring basis, the Company uses fair value measures when
analyzing asset impairments. Long-lived assets and certain identifiable
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined such indicators are present, and the review
indicates that the assets will not be fully recoverable based on the
undiscounted estimated future cash flows expected to result from the use of the
asset, their carrying values are reduced to estimated fair value.
NET INCOME PER SHARE INFORMATION
Basic net income per share is computed based on the weighted average number of
shares outstanding. Diluted net income per share is based on the sum of the
weighted average number of common shares outstanding and common stock
equivalents. Shares used to calculate net income per share are as follows:
FOR THE THREE MONTHS ENDED
JANUARY 31,
2013 2012
------------- ----------
Basic weighted average shares outstanding 7,193,140 7,175,140
Effect of dilutive stock options 787,989 837,308
------------- ----------
Diluted weighted average shares outstanding 7,981,129 8,012,448
============= ==========
Weighted average shares which are not
included in the calculation of diluted net
income per share because their impact is anti-dilutive
Stock options 582,511 573,192
============= ==========
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 $74,000 and $72,000 for the three months
ended January 31, 2013 and 2012, respectively, and was primarily included in
selling, general, and administrative expenses.
3. NOTES PAYABLE - RELATED PARTY
The Company had a note payable to G.S. Beckwith Gilbert, the Company's
significant shareholder and Chairman, of $4,765,000 as of January 31, 2013 and
October 31, 2012. The note payable bears a maturity date of November 1, 2014,
with an annual interest rate of 6%. Interest payments are due by October 31 of
each fiscal year. The Company has paid all interest incurred on the note payable
through January 31, 2013.
The Company has received a commitment from G.S. Beckwith Gilbert, dated March 6,
2013, that if the Company, at any time, is unable to meet its obligations
through March 6, 2014, G.S. Beckwith Gilbert will provide the necessary
continuing financial support to the Company in order for the Company to meet
such obligations. Such commitment for financial support may be in the form of
additional advances or loans to the Company, in addition to the deferral of
principal and/or interest payments due on the existing loans, if deemed
necessary. 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 October 31, 2013. During such period the Company
does not anticipate borrowing additional funds from G.S. Beckwith Gilbert,
although it has received a commitment from G.S. Beckwith Gilbert to do so if the
Company requires additional funds.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
The information provided in this Quarterly Report on Form 10-Q (including,
without limitation, "Management's Discussion and Analysis of Financial Condition
and Results of Operations", and "Liquidity and Capital Resources", below)
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 regarding the Company's future plans,
objectives, and expected performance. The words "believe," "may," "will,"
"could," "should," "would," "anticipate," "estimate," "expect," "project,"
"intend," "objective," "seek," "strive," "might," "likely result," "build,"
"grow," "plan," "goal," "expand," "position," or similar words, or the negatives
of these words, or similar terminology, identify forward-looking statements.
These statements are based on assumptions that the Company believes are
reasonable, but are subject to a wide range of risks and uncertainties, and a
number of factors could cause the Company's actual results to differ materially
from those expressed in the forward-looking statements referred to above. These
factors include, without limitation, the risks and uncertainties related to the
ability of the Company to sell PASSUR(R) Network Systems information
capabilities in its existing product and professional service lines, as well as
in new products and professional services (due to potential competitive pressure
from other companies or other products), as well as the current uncertainty in
the aviation industry due to terrorist events, the continued war on terrorism,
changes in fuel costs, airline bankruptcies and consolidations, economic
conditions, and other risks detailed in the Company's periodic report filings
with the SEC. Other uncertainties which could impact the Company include,
without limitation, uncertainties with respect to future changes in governmental
regulation and the impact that such changes in regulation will have on the
Company's business. Additional uncertainties include, without limitation,
uncertainties relating to: (1) the Company's ability to find and maintain the
personnel necessary to sell, manufacture, and service its products; (2) its
ability to adequately protect its intellectual property; (3) its ability to
secure future financing; and (4) its ability to maintain the continued support
of its significant shareholder. 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.
DESCRIPTION OF BUSINESS
PASSUR Aerospace, Inc. ("PASSUR(R)" or the "Company") is a leading aviation
business intelligence company that provides predictive analytics and
decision-support technology for the aviation industry based on its unique,
proprietary technology and real-time accessible databases, supported by a number
of leading industry experts, and a proven management team.
PASSUR(R) serves all of the 8 largest North American airlines, all 5 of the
major hub carriers, more than 60 airport customers, including 22 of the top 30
North American airports, and approximately 200 corporate aviation customers, as
well as the U.S. government, using a recurring-revenue subscription model.
PASSUR(R)'s products include a suite of web-based solutions that address the
aviation industry's most intractable and costly challenges, including
underutilization of airspace and airport capacity, delays, cancellations, and
diversions, among other inefficiencies. Solutions offered by PASSUR(R) cover the
entire flight life cycle, from gate to gate, and result in reductions in overall
costs, fuel costs, and emissions, while maximizing revenue opportunities, as
well as improving operational efficiency, and enhancing the passenger
experience. The Company provides data consolidation, information, decision
support, predictive analytics, collaborative solutions, and professional
services.
PASSUR(R) owns and operates what the Company believes is the largest commercial
air traffic surveillance and passive radar network in the world, with one
hundred and fifty-six passive radar locations, powering a unique, proprietary
database that is accessible in real time, on demand, for critical and timely
decision-making with nationwide coverage to support network-wide systemic
deployments. The Company's database contains over 10 years of archived data
derived from the network. The Company's network has a unique flight tracking
data source available to the private sector, which is based on independent,
non-U.S. government data, while including all publicly available government
feeds as well. The Company's unique data supplements the government feeds and
offers faster updates, with flight tracks updated every 1 to 4.6 seconds,
enabling better flight tracking and more cost effective decision-making during
irregular operations.
10
RESULTS OF OPERATIONS
REVENUES
Management concentrates its efforts on the sale of business intelligence,
predictive analytics, and decision support product applications, utilizing data
primarily derived from the PASSUR(R) Network. Such efforts include the continued
development of new products, professional services, and existing product
enhancements.
The Company's North American airline, airport, and business aviation revenue
increased $188,000, or 8%, for the three months ended January 31, 2013, as
compared to the same period in fiscal year 2012. During the same period,
international, professional services, and government revenue decreased $977,000,
as compared to the same period in fiscal year 2012, primarily due to the
completion of a government contract and a professional services engagement in
fiscal year 2012. As a result, total revenue decreased $789,000, or 23%, to
$2,675,000 for the three months ended January 31, 2013, from $3,464,000 for the
same period in fiscal year 2012.
The Company continues to develop and deploy new software applications and
solutions, as well as a wide selection of products which address customers'
needs, easily delivered through web-based applications, as well as other new
products which include stand-alone professional services.
COST OF REVENUES
Costs associated with subscription and maintenance revenues consist primarily of
direct labor, depreciation of PASSUR(R) Network Systems, amortization of
capitalized software development costs, communication costs, data feeds,
allocated overhead costs, travel and entertainment, and consulting fees. Also
included in cost of revenues are costs associated with upgrades to PASSUR(R)
Systems necessary to make such systems compatible with new software
applications, as well as the ordinary repair and maintenance of existing
PASSUR(R) Systems. Additionally, cost of revenues in each reporting period is
impacted by: (1) the number of PASSUR(R) System units added to the Network,
which include the production, shipment, and installation of these assets, which
are capitalized to the PASSUR(R) Network; and (2) capitalized costs associated
with software development and data center projects. Both of these are referred
to as "Capitalized Assets", and are depreciated and/or amortized over their
respective useful lives and charged to cost of revenues. The Company does not
break down its costs by product.
Cost of revenues decreased $160,000, or 10%, for the three months ended January
31, 2013, as compared to the same period in fiscal year 2012, due in part to an
increase in the Company's capitalization of costs of $117,000, primarily due to
the use of software engineering resources to construct a second data center. In
addition, consulting expense decreased $127,000, due to the completion of a
professional services engagement in fiscal year 2012, and communication costs
decreased $80,000, due to the Company's adaptation of its new network
infrastructure in fiscal year 2012. This decrease in cost of revenues was
partially offset by a decrease in the capitalization of software development
costs of $109,000, primarily due to software engineer resources constructing a
second data center, as well as an increase in amortization expense, as compared
to the same period in fiscal year 2012.
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 $51,000, or 54%, for the three months ended
January 31, 2013, as compared to the same period in fiscal year 2012, primarily
due to an increase in payroll and related costs as a result of an increase in
headcount.
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 the three months ended January 31, 2013 or 2012.
Research and development expenses are funded by current operations.
SELLING, GENERAL, AND ADMINISTRATIVE
Selling, general, and administrative expenses decreased $340,000, or 27%, for
the three months ended January 31, 2013, as compared to the same period in
fiscal year 2012, due to a decrease in payroll and related costs of $204,000,
primarily as a result of a decrease in headcount, as well as decreases in travel
and entertainment expenses and commissions.
11
INCOME FROM OPERATIONS
Revenues decreased $789,000, or 23%, to $2,675,000, total costs and expenses
decreased $449,000, or 15%, to $2,561,000, and income from operations decreased
$340,000, or 75%, to $114,000, for the three months ended January 31, 2013, as
compared to the same period in fiscal year 2012.
INTEREST EXPENSE - RELATED PARTY
Interest expense - related party decreased $1,000, or 1%, for the three months
ended January 31, 2013, as compared to the same period in fiscal year 2012.
NET INCOME
The Company had net income of $12,000, or $.00 per diluted share, for the three
months ended January 31, 2013, as compared to net income of $380,000, or $.05
per diluted share, for the same period in fiscal year 2012.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current liabilities exceeded current assets by $355,000 as of
January 31, 2013. The note payable to a related party, G.S. Beckwith Gilbert,
the Company's significant shareholder and Chairman, was $4,765,000 as of January
31, 2013, with a maturity of November 1, 2014. The Company's stockholders'
equity was $10,374,000 as of January 31, 2013. The Company had net income of
$12,000 for the three months ended January 31, 2013.
Management is addressing the Company's working capital deficiency by
aggressively marketing the Company's PASSUR(R) Network Systems information
capabilities in its existing product and professional service lines, as well as
in new products and professional services, which are continually being developed
and deployed. Management believes that expanding its existing suite of software
products and professional services, which address the wide array of needs of the
aviation industry, through the continued development of new product and service
offerings, 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. However, the Company has received a
commitment from G.S. Beckwith Gilbert, dated March 6, 2013, that if the Company,
at any time, is unable to meet its obligations through March 6, 2014, G.S.
Beckwith Gilbert will provide the necessary continuing financial support to the
Company in order for the Company to meet such obligations. Such commitment for
financial support may be in the form of additional advances or loans to the
Company, in addition to the deferral of principal and/or interest payments due
on the existing loans, if deemed necessary. 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 October 31, 2013. During such period the Company
does not anticipate borrowing additional funds from G.S. Beckwith Gilbert,
although it has received a commitment from G.S. Beckwith Gilbert to do so if the
Company requires additional funds.
Net cash provided by operating activities was $770,000 for the three months
ended January 31, 2013, and consisted of $12,000 of net income, depreciation and
amortization of $644,000, and stock-based compensation expense of $74,000, with
the balance consisting of a reduction in operating assets, partially offset by a
decrease in operating liabilities. Net cash used in investing activities was
$659,000 for the three months ended January 31, 2013, expended for Capitalized
software development costs, additions to the PASSUR(R) Network, and a redundant
server center at an off-site location.
The Company is actively addressing the increasing costs associated with
supporting the business, and plans to identify and reduce any unnecessary costs
as part of its cost reduction initiatives. Additionally, the aviation market has
been impacted by budgetary constraints, airline bankruptcies and consolidations,
current economic conditions, the continued war on terrorism, and fluctuations in
fuel costs. The aviation market is extensively regulated by government agencies,
particularly the Federal Aviation Administration and the National Transportation
Safety Board, and management anticipates that new regulations relating to air
travel may continue to be issued. Substantially all of the Company's revenues
are derived from airports, airlines, and organizations that serve, or are served
by, the aviation industry. Any new regulations or changes in the economic
situation of the aviation industry could have an impact on the future operations
of the Company, either positively or negatively.
12
Interest by potential customers in the information and decision support software
products obtained from PASSUR(R) Network Systems and its professional services
remains strong. As a result, the Company anticipates an increase in future
revenues from its airline and airport business. However, the Company cannot
predict if such revenues will materialize. If sales do not increase, losses may
occur. The extent of such profits or losses will be dependent on sales volume
achieved and Company cost reduction initiatives.
OFF-BALANCE SHEET ARRANGEMENTS
None.
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 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,
2012 and there have been no material changes to such policies since the filing
of such Annual Report. 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, 2012, where
such policies affect its reported financial results. The actual impact of these
factors may differ under different assumptions or conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
DISCLOSURE CONTROLS AND PROCEDURES As of the end of the period covered by this
report, 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's disclosure controls and procedures are designed to ensure that
information required to be disclosed by the Company in reports filed or
submitted under the Exchange Act is recorded, processed, summarized, and
reported within the time periods specified in the Commission's rules. The
Company believes that a control system, no matter how well designed and
operated, can provide only reasonable assurance, not absolute assurance, that
the objectives of the control system are met. Based on their evaluation as of
the end of the period covered by this report, 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 January 31,
2013.
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 fiscal quarter to which this report relates, that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
13
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
On March 6, 2013, the Company's significant shareholder and Chairman confirmed
his commitment to provide the necessary continuing financial support to the
Company in order for the Company to meet its obligations through March 6, 2014.
A copy of the commitment is attached as Exhibit 10.1 to this Form 10-Q and
incorporated by reference into this Item 5.
ITEM 6. EXHIBITS.
10.1 Commitment of G.S. Beckwith Gilbert, dated March 6, 2013.
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or
15d-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or
15d-14(a) under the Securities Exchange Act of 1934, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
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.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PASSUR AEROSPACE, INC.
DATED: MARCH 14, 2013 By: /s/ James T. Barry
------------------
James T. Barry
President and Chief
Executive Officer
(Principal Executive Officer)
DATED: MARCH 14, 2013 By: /s/ Jeffrey P. Devaney
------------------------
Jeffrey P. Devaney
Chief Financial Officer, Treasurer,
and Secretary
(Principal Financial and
Accounting Officer)