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PSSR > SEC Filings for PSSR > Form 10-Q on 14-Mar-2013All Recent SEC Filings

Show all filings for PASSUR AEROSPACE, INC. | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for PASSUR AEROSPACE, INC.


14-Mar-2013

Quarterly Report


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.

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.

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.

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.

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