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
Moreover, investors are cautioned to interpret many of the risks identified and
discussed in this Quarterly Report on Form 10-Q, as well as the risks set forth
above, as being heightened as a result of the ongoing and numerous adverse
impacts of COVID-19. The spread of COVID-19 has severely impacted many
economies throughout the world, with businesses being forced to cease or limit
operations for long or indefinite periods of time. Measures taken to contain
the spread of the virus, including travel bans, quarantines and closures of
non-essential services, have triggered significant disruptions to businesses
worldwide, with particular concentration on the aviation industry that the
Company serves. The federal government has responded with monetary and fiscal
interventions to aid in stabilizing the economy, and the Company has received
assistance under the
The aviation and travel industries, which are served by the Company and its products, have been severely affected by the COVID-19 outbreak, initially as a result of travel restrictions and other measures imposed by most jurisdictions.
As a result of the pandemic, the Company faces increased economic pressures and
has experienced a significant loss of revenue from the start of the pandemic
through the three-month period ended
Description of Business
PASSUR®
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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, variability, and inflexibility in operations. The Company addresses these
significant industry problems by using our technology platform, combined with
professional services, to provide solutions that predict, prioritize, prevent
and help the industry recover from unexpected disruptions. These disruptions
have long been seen as the cost of doing business in the industry and are even
more pronounced today and create greater uncertainty to the industry. The
Company provides actionable intelligence to enable the industry to manage their
operations more efficiently and increase profits. Our core business addresses
some of the aviation industry's most intractable and costly challenges,
including, but not limited to, underutilization of airspace and airport
capacity, delays, cancellations, and diversions. Several independent studies
have estimated the annual direct costs of such inefficiencies to airlines in
Solutions offered by PASSUR help to ensure flight completion. They cover the entire flight life cycle, from gate to gate, and result in reductions in overall costs and carbon emissions, while maximizing revenue opportunities, improving operational efficiency, and enhancing the passenger experience.
The Company provides its solutions to airlines and airports in
The 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
·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
Results of Operations Revenues
Management concentrates its efforts on the sale of business intelligence, predictive analytics, and decision support product applications. Such efforts include the continued development of existing products, new product offerings and to a lesser extent, professional services.
The Company is a supplier and partner to the air transportation industry. Many of the Company's customers continue to be severely impacted by the ongoing COVID-19 outbreak and the corresponding decline in air travel. As a result, the Company has experienced downturns in its revenues from the start of the global pandemic and continuing into fiscal 2022.
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For the three months ended
The decreases in subscription revenues for the three months ended
Expenses
In response to the uncertainty surrounding the prospects of airlines and
airports and the travel industry as a result of the continuing global COVID-19
pandemic and the declines in revenue that the Company has experienced from the
start of the global pandemic and continuing into the first quarter of fiscal
2022, the Company reviewed its operating costs to more closely align those costs
with its outlook for the foreseeable future. The Company has taken steps, prior
to receiving CARES Act funds, 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, reducing
the use of outside consultants where possible, rationalizing the PASSUR Network,
and reducing and/or eliminating other operating expenses that were not critical
to the short-term outlook of the Company. During the three months ended
Cost of Revenues
For the three months ended
For the reasons explained in "Capitalized Software Development Costs" above, going forward, the Company anticipates lower levels of capitalized software costs, including amortization expenses associated with these assets.
Research and Development
For the three months ended
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The Company's research and development efforts include activities associated with new product development, as well as the enhancement and improvement of the Company's existing software and information products. The Company anticipates that it will continue to invest in its software portfolio to develop, maintain, and support existing and newly developed applications for its customers.
Selling, General, and Administrative
For the three months ended
(Loss)/Income from Operations
For the three months ended
Interest Expense -
Interest expense - related party was
Net (Loss)/Income
The net loss was (
Liquidity and Capital Resources
The Company's current liabilities exceeded its current assets, excluding
deferred revenues, by
The note payable to a related party,
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funds. The Company's stockholders' equity had a deficit of
On
On
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
The CARES Act, enacted in
1.The Company has been granted government funds of approximately
Pursuant to the Payroll Support Program Agreement entered into by the Company
with the
2.On
3.On
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continuation of payment of certain employee wages, salaries, and benefits. The
Company has used such relief payments for such purpose. The Payroll Support
Program Extension Agreement provides that 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
4.On
The Company expended the remaining balance of funds received under the various
Payroll Support Programs during the three months ended
The Company believes that it has operated in compliance with all the provisions
and requirements under the CARES Act and the Rescue Act up through and including
the period ended
During the three months ended
Net cash used in operating activities was
The Company actively monitors the costs associated with supporting the business,
and continually seeks to identify and reduce any unnecessary costs as part of
its cost reduction initiatives, while strategically reinvesting back into the
business as part of its long-term plans. As described above, the Company 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 and
Rescue 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 ongoing 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, these 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
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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, subject to the factors described under "Risk Factors", future revenues will increase on an annualized basis. However, there are no guarantees that such annualized future revenue increases will occur in the absence of funding under the CARES Act and Rescue Act. If revenues do not increase and the Company's cost-structure is not adjusted accordingly, losses may occur. The extent of such profits or losses will be dependent on sales volume achieved and the Company's ability to optimize its cost structures. See "Risk Factors".
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
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.
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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 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.
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Other policies and judgments
The commissions that the Company pays for obtaining a contract with a customer are conditional on future service provided by the employee. Therefore, since these costs are not incremental solely based on obtaining a contract, the Company does not defer any commission costs.
Some of the Company's contracts with its customers contain multiple performance obligations subject to allocation of transaction prices. Some contracts contain material rights, in the form of non-refundable up-front fees. Such fees are amortized to income over an estimated average customer life. Differences in actual average customer life compared with estimates may result in changes to amounts amortized to income. In the case of professional services, revenue recognition may be dependent on estimating the amount of time needed to complete various tasks within a contract and estimating the actual amount of completion at any point in time. Revisions to such estimates at any time may result in adjustments to the amounts of revenue recognized.
Leases
The Company accounts for leases under the guidance of Topic 842, requiring the recognition of ROU assets and associated lease liabilities related to operating leases. The accounting for finance leases under Topic 842 is consistent with the prior accounting for capital leases. The Company elected not to apply the measurement and recognition requirements of Topic 842 to short-term leases (i.e., leases with a term of 12 months or less). Accordingly, short-term leases will not be recorded as ROU assets or lease liabilities on the Company's consolidated balance sheets, and the related lease payments will be recognized in net earnings on a straight-line basis over the lease term.
The Company recognizes a lease liability and a related ROU asset at the commencement date for leases on its consolidated balance sheet, excluding short-term leases as noted 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.
Certain of the Company's leases provide for variable lease payments for the right to use an underlying asset that vary due to changes in facts and circumstances occurring after the commencement date, other than the passage of time. Variable lease payments that are dependent on an index or rate (e.g., Consumer Price Index) are included in the initial measurement of the lease liability, the initial measurement of the ROU asset, and the lease classification test based on the index or rate as of the commencement date. Any changes from the commencement date estimation of the index- and rate-based variable payments are expensed as incurred in the period of the change. Variable lease payments that are not known at the commencement date and are determinable based on the performance or use of the underlying asset, are not included in the initial measurement of the lease liability or the ROU asset, but instead are expensed as incurred. The Company's variable lease payments primarily include common area maintenance and real estate taxes.
As of
Effective as of
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Accounting for Federal Payroll Support Program ("PSP") Funds
The PSP funds received under the CARES Act and the Rescue Act during fiscal years 2020 and 2021 are accounted for as grants not requiring repayment. The Company recognizes such amounts received in income as qualifying salaries, wages and benefits are incurred. As described above, the PSP funds advanced are conditioned upon the Company complying with certain provisions and requirements included in the agreements. If the Company does not comply with the provisions and requirements therein, the PSP funds advanced would be subject to repayment.
The Company believes that it is in compliance with all provisions and requirements under the agreements for the fiscal years 2022, 2021 and 2020.
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