10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q/A

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2012

or

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934

For the transition period from ___________ to ______________

Commission File No. 000-30185

PRECISION AEROSPACE COMPONENTS, INC.

(Exact Name of Small Business Issuer as Specified in Its Charter)

Delaware	20-4763096
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

2200 Arthur Kill Road

Staten Island, New York 10309-1202

(Address of Principal Executive Offices)

(718)-356-1500

(Issuer’s Telephone Number, including Area Code)

(Former Name or Former Address, if Changed Since Last Report)

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 Regulations S-T (§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, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 Exchange Act). Yes [  ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   NA

Number of shares outstanding of the registrant’s common stock, as of November 2, 2012: 4,009,349

1

AMENDMENT NO. 1 TO THE QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2012

EXPLANATORY NOTE

The purpose of this Amendment No. 1 to our Quarterly Report on Form 10-Q for the period ended September 30, 2012 as filed with the Securities and Exchange Commission on November 14, 2012 is to furnish Exhibits 101 to the Form 10-Q as required by Rule 405 of Regulation S-T within the grace period provided by “SECURITIES EXCHANGE ACT OF 1934 Release No. 68224 / November 14, 2012”, releasing “ORDER UNDER SECTION 17A AND SECTION 36 OF THE SECURITIES EXCHANGE ACT OF 1934 GRANTING EXEMPTIONS FROM SPECIFIED PROVISIONS OF THE EXCHANGE ACT AND CERTAIN RULES THEREUNDER”.

The Company was not able to have its XBRL financials prepared in time to meet the 10-Q filing deadline of November 14, 2012 due to Hurricane Sandy and its aftermath which caused power outages and disrupted the operations of the Company and its advisors. The Company was able to file the previously total requirements of the form 10-Q but could not provide the financial information to its resource for the XBRL preparation with enough lead time to enable that portion of the filing to be included with the Company’s 10-Q.

No changes have been made to the Quarterly Report other than the furnishing of the XBRL Exhibits 101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB and 101.PRE. This Amendment No. 1 to Form 10-Q does not reflect subsequent events occurring after the original filing date of the Form 10-Q or modify or update in any way disclosures made in the Form 10-Q, as amended.

In addition, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as a result of this Amended Report, the certifications pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, filed and furnished, respectively as exhibits to the Original Report have been re-executed and re-filed as of the date of this Amended Report and are included as exhibits hereto.

2

The following exhibits are included herein:

Exhibit No.		Exhibit
31.1	Certification of Chief Executive Officer of the Company required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
31.2	Certification of Chief Financial Officer of the Company required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended
32.1	Certification of Chief Executive Officer and Chief Financial Officer of the Company required by Rule 13a-14(b) under the Securities Exchange Act of 1934, as amended
101. INS	XBRL Instance Document (1)
101.SCH	XBRL Taxonomy Extension Schema (1)
101.CAL	XBRL Taxonomy Extension Calculation (1)
101.DEF	XBRL Extension Definition (1)
101.LAB	XBRL Taxonomy Extension Label (1)
101.PRE	XBRL Taxonomy Extension Presentation (1)

(1) Attached as Exhibit 101 to this Quarterly Report on Form 10-QA for the quarterly period ended September 30, 2012 are the following materials formatted in XBRL (Extensible Business Reporting Language) (i) the Condensed Consolidated Statements of Income, (ii) the Condensed Consolidated Balance Sheets, (iii) the Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated:  November 19, 2012	PRECISION AEROSPACE COMPONENTS, INC.
	/s/ Andrew S. Prince
	Andrew S. Prince
	President and Chief Executive Officer

3

EX-31.1

Exhibit 31.1

Certification

I, Andrew S. Prince, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q/A of Precision Aerospace Components, Inc. (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. As the Company’s sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
2. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
3. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
4. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. As the Company’s sole certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Andrew S. Prince

Andrew S. Prince

President and Chief Executive Officer

Date: November 19, 2012

EX-31.2

Exhibit 31.2

Certification

I, Andrew S. Prince, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q/A of Precision Aerospace Components, Inc. (the “Company”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. As the Company’s sole certifying officer, I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have:

1. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
2. Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
3. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
4. Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

5. As the Company’s sole certifying officer, I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

1. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
2. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

/s/ Andrew S. Prince

Andrew S. Prince

Chief Financial Officer

Date: November 19, 2012

EX-32.1

Exhibit 32.1

Certifications Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. Section 1350)

In connection with the Quarterly Report (the “Report”) of Precision Aerospace Components, Inc. (the “Company”) on Form 10-Q/A for the period ended September 30 2012, as filed with the Securities and Exchange Commission, Andrew S. Prince, Chief Executive Officer and Chief Financial Officer of the Company, does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:

(1)	the report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company.
		/s/ Andrew S. Prince
		Andrew S. Prince
		President and Chief Executive Officer and Chief and Principal Financial Officer

Date: November 19, 2012

XML

4. ACQUISITION

9 Months Ended

Sep. 30, 2012

Business Combinations [Abstract]

4. ACQUISITION

4. ACQUISITION

On May 25, 2012, the Company acquired the assets of Fastener Distribution and Marketing Company, Inc., which included Aero-Missile and Creative Assembly (collectively the “FDMC Acquisition”) with a fair value of approximately $8.8 million which included a cash payment of approximately $7.1 million and bargain purchase gain of approximately $1.7 million (pretax or approximately $1.0 million after tax). The Company paid for the acquisition and repaid the existing outstanding credit facility of approximately $1.575 million with a new credit facility consisting of a $2.5 million term loan and a $10 million revolving loan with Newstar Business Credit, LLC (the “NewStar Loans”). The operating results of the FDMC Acquisition businesses are included in the financial results from the date of acquisition.

The NewStar Loans are secured by substantially all of accounts receivable and inventory of the consolidated company. In addition, the Loan Agreement for the NewStar Loans contains usual and customary covenants for financings of this type, including, among other things: (i) requirements to deliver financial statements, other reports and notices; (ii) restrictions on additional indebtedness; (iii) restrictions on dividends, distributions and redemptions of equity and repayment of subordinated indebtedness; (iv) restrictions on liens; (v) restrictions on making certain payments; (vi) restrictions on investments; (vii) restrictions on asset dispositions and other fundamental changes; and (viii) restrictions on transactions with affiliates. In addition, the Credit Agreement contains certain financial covenants, including, among other things: (i) a maximum leverage ratio; (ii) a minimum fixed charge coverage ratio; (iii) a minimum tangible net worth. Without the permission of the Lenders, our ability to complete material acquisitions will be restricted.  A default on any of these restrictions and covenants will cause, in certain circumstances, the amounts due under such agreements to become due and payable upon demand.

In order to complete the acquisition, we spent approximately $160,000, of which approximately $85,000 was expensed as occurred and approximately $75,000 was recorded as a deferred financing cost and will be amortized over the same period as the term loan.

The following table provides the estimated fair value of assets acquired and liabilities assumed in the Acquisition.  The preliminary purchase price allocation is based on the estimated fair value of assets acquired and liabilities assumed:

Accounts receivable	$	2,298,400
Inventory		8,427,000
Property and equipment		44,200
Prepaid and other assets		222,800
Intangible assets — customer relationships		304,000
Intangible asset – website		7,000
Goodwill		188,000
Deferred tax liability		(690,000	)
Accounts payable and Accrued Expenses		(2,701,400	)
Fair value of net assets acquired	$	8,100,000
Cash paid for acquisition	$	7,117,700
Bargain purchase recorded		982,300
Total purchase price	$	8,100,000

Estimates of acquired intangible assets are as follows:

Acquired Intangible Assets	Estimated  Fair Value		Weighted Average Estimated  Useful Life (yrs)
Customer Relationships	$	304,000		10
Website		7,000		3
Goodwill		188,000	Indefinite

As part of the allocation of the purchase price, using an independent valuation expert’s preliminary results, the Company has recorded certain tangible assets, intangible assets, goodwill and deferred taxes. The preliminary results are subject to adjustment upon finalization of the valuation. The final allocation price could differ materially from the preliminary allocation. Any subsequent changes to the purchase price allocation that result in material changes to our consolidated financial results will be adjusted retrospectively.

Pro Forma Financial Information

The pro forma information below is for the combined entities and demonstrate the results of operations as if the acquisition of the FDMC had occurred beginning on January 1, 2011.

	September 30, 2012		September 30, 2011
Revenues	$	23,647,000	$	21,529,000
Gross profit		6,753,000		5,581,000
Net Income/(loss)		427,000		28,000
Earnings/(loss) per share – basic and diluted (assuming 4,009,349 shares)	$	0.11	$	0.01

The pro forma adjustments used to prepare the information above include an increase for the amortization expense associated with the fair value adjustment at May 25, 2012 of definite lived intangible assets, for a net adjustment of $0.030 million in the nine months ended September 30, 2012 and 2011. In addition, interest expense has been adjusted to reflect the 2012 NewStar Loans (totaling approximately $9.5 million at September 30, 2012 and estimating an 8% interest rate) for a net increase of $0.570 million in the nine months ended September 30, 2012 and 2011. Pro forma adjustments to other income/(expenses) resulting in a decrease of $0.34 million is included for the nine months ended September 30, 2012 to eliminate the bargain purchase gain relating the purchase of the historical FDMC business offset for the restructuring expenses of approximately $0.64and an increase of $7.957 million is included for the nine months ending September 30, 2011 related to the write-down of goodwill totaling approximately $5.399 million related to the historical FDMC business and $2.558 million related to the historical Precision business. Pro forma adjustments to tax expenses to increase approximately $2.089 million for the nine months ending September 30, 2011

XML

3. RESTRUCTURING

9 Months Ended

Sep. 30, 2012

Restructuring and Related Activities [Abstract]

RESTRUCTURING

3. RESTRUCTURING

The Company committed to certain cost reduction initiatives during the third quarter of 2012, which include planned workforce reductions and restructuring of certain functions. The Company has taken these specific actions in order to more strategically align the Company’s operating costs and selling, general and administrative expenses relative to revenues.

2012 Cost Reduction Initiative

On or around September 25 of 2012, the Company announced its plans to relocate and consolidate the activities of its headquarters operations, as well as the operations of its Freundlich Supply Company Inc. and Tiger-Tight Inc. subsidiaries (the “2012 Cost Reduction Initiative”) from Staten Island New York to Bensalem, Pennsylvania, at the present location of its Aero-Missile Components Inc. subsidiary, prior to the end of the calendar year 2012. This relocation will allow the Company to better serve its customers through the co-location of its broadened inventory and will enable the Company to realize additional efficiencies from its recent acquisition. The operations and service provided by the Company will continue unabated. As a result of this relocation, the Company anticipates significant and continuing savings from the elimination of the facilities costs associated with its Staten Island location. Additionally, the lower overall tax environment outside of New York City and State will be beneficial to the Company. The Company has included its anticipated expenses associated with this announced, impending, relocation, as “Restructuring expenses” within its present condensed consolidated statements of operations. The Company estimates the total costs to be incurred in connection with this initiative to be approximately $0.64 million, which primarily relate to one-time termination benefits, moving costs and other costs associated with closing the plant and all of which will result in future cash expenditures. As of September 30, 2012, the Company did not incur any costs related to this initiative.

For the three and nine months ended September 30, 2012, estimated restructuring costs of $0.64 million are included as other costs.

Estimated and actual expenses including severance, lease cancellations, and other restructuring costs, in connection with these initiatives, have been recognized in accordance with ASC 420-10, Exit or Disposal Cost Obligations, and ASC 712-10, Nonretirement Postemployment Benefits.

 Restructuring costs associated with the 2012 Cost Reduction Initiative consist of the following (in thousands):

Severance and related benefits	$	358,200
Lease termination		143,000
Moving costs		110,000
Other restructuring costs		34,000
	$	645,200

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $)	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 673,807	$ 269,956
Accounts receivable	3,310,855	667,949
Inventory, net	13,613,515	4,083,015
Restricted cash - escrow	500,052	0
Prepaid expenses	207,148	19,669
Prepaid income taxes and income taxes receivable	113,197	70,100
Total Current Assets	18,418,574	5,110,689
PROPERTY AND EQUIPMENT - Net	45,216	27,611
OTHER ASSETS
Deposits	24,700	24,700
Intangible assets	300,089	0
Goodwill	188,000	0
Deferred financing costs	62,425	0
Other assets	88,997	80,503
TOTAL OTHER ASSETS	664,211	105,203
TOTAL ASSETS	19,128,001	5,243,503
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses	2,695,829	274,139
Accrued restructuring expenses	645,200	0
Escrow payable	500,052	0
Current portion of long term debt	416,800	0
Deferred tax liability	552,500	0
Line of credit	7,688,137	1,515,000
Current Liabililties, Total	12,498,518	1,789,139
LONG -TERM LIABILITIES
Term Loan	2,083,200	0
TOTAL LIABILITIES	14,581,718	1,789,139
STOCKHOLDERS' EQUITY
Preferred Stock A $.001 par value; 7,100,000 shares authorized at September 30, 2012 and December 31, 2011; 5,945,378 shares issued and outstanding	5,945	5,945
Preferred Stock B $.001 par value; 2,900,000 shares authorized 0 shares issued and outstanding	0	0
Common stock, $.001 par value; 100,000,000 shares authorized at September 30, 2012 and December 31, 2011; 4,009,349 and 3,688,497 shares issued and outstanding, respectively	4,009	3,688
Additional paid-in capital	11,450,862	11,191,205
Accumulated deficit	(6,914,533)	(7,746,474)
TOTAL STOCKHOLDERS' EQUITY	4,546,283	3,454,364
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 19,128,001	$ 5,243,503

XML

1. SUMMARY OF BUSINESS AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

1. SUMMARY OF BUSINESS AND BASIS OF PRESENTATION

1. SUMMARY OF BUSINESS

Precision Aerospace Components, Inc. and Subsidiaries (the “Company”) distributes high-quality, predominantly domestically-manufactured, technically complex, nut and bolt products and a proprietary locking washer product that are used primarily for aerospace and military applications and for industrial/commercial applications that require a high level of certified and assured quality.

The Company's operations are carried out through its wholly-owned distribution subsidiaries Aero-Missile Components, Inc. (“Aero-Missile”) and Freundlich Supply Company, Inc. (“Freundlich”), both of whom have Stocking Distributor relationships with a number of United States fastener manufacturers and who sell high technology, specially engineered fasteners - nuts and bolts - predominantly to all levels of the aviation industries (original equipment manufacturers, maintenance and repair organizations, and other distributors as well as to the United States Department of Defense (“Department of Defense”). Creative Assembly Systems, Inc. (“Creative Assembly”) is a value added distributor of proprietary and specialty fasteners for production, primarily serving the heavy truck, automotive, appliance, and material handling industries and Tiger-Tight Corp. (“Tiger-Tight”) the exclusive North American master distributor of the Tiger-Tight locking washer. Tiger-Tight washers are used in demanding vibration applications and the Company believes they have significant advantages in comparison to competitive products. Tiger-Tight products are now available and under evaluation by several major US corporations, is being used aboard the SpaceX Dragon – the first civilian space craft to dock and return from the International Space Station.

The Company’s products are manufactured, by others, to exacting specifications and are made from materials that provide the strength and reliability required for their aerospace and industrial applications.

On May 25, 2012, the Company acquired the assets of Fastener Distribution and Marketing Company, Inc., which included Aero-Missile and Creative Assembly. The Company paid for the acquisition with a new credit facility consisting of a $2.5 million term loan and a $10 million revolving loan with Newstar Business Credit, LLC. The operating results of the Aero-Missile and Creative Assembly businesses are included in the financial results from the date of acquisition.

XML

3. ACQUISITION (Details Narrative) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Business Acquisition, Pro Forma Information, Nonrecurring Adjustment [Line Items]
Bargain purchase gain	$ 0	$ 0	$ 982,315	$ 0

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2012

Accounting Policies [Abstract]

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the instructions to Form 10-Q and Article 8 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in the Company’s opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that the Company will have for any subsequent period.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K.  

Restructuring Expenses

The Company had formalized a restructuring initiative and announced this plan to all of the employees affected by the restructuring, as of late September 2012. The Company estimated all restructuring costs associated with closing its Staten Island plant including severance, lease cancellations, and other restructuring costs, in connection with this initiative, have been recognized in accordance with FASB ASC 420-10, Exit or Disposal Cost Obligations, and FASB ASC 712-10, Nonretirement Postemployment Benefits.

Acquisition

The Company accounts for business combinations by applying the acquisition method, which requires the determination of the acquirer, the acquisition date, the fair value of the purchase consideration to be transferred, the fair value of assets and liabilities of the acquirees and the measurement of goodwill. ASC Topic 805-10, “Business Combinations – Overall” (“ASC 805-10”) provides that in identifying the acquiring entity in a combination effected through a transfer of additional assets and exchange of equity interest, all pertinent facts and circumstances must be considered, including the relative voting rights of the shareholders of the constituent companies in the combined entity, the composition of the board of directors and senior management of the combined company, the relative size of each company and the terms of the exchange of additional assets and equity securities in the business combination, including payment of any premium. The acquiring company is required to determine the fair value of the assets and liabilities acquired, which includes the fair value of all intangible assets acquired. The Company has determined the fair value of all assets and liabilities acquired exceed the purchase price paid and therefore have recorded a bargain purchase gain.

Inventory

Inventory is stated at the lower of cost or market, utilizing the specific lot identification method. The Company is a distributor of goods that retain their value and may be purchased by its customers for an extended period of time. Therefore any inventory item for which the Company has not had any transactions within the past five years is reduced to a zero value. Inventory consists of finished goods for resale at September 30, 2012. The Company has recorded a reserve of approximately $309,000 and approximately $328,000 at September 30, 2012 and December 31, 2011.

Goodwill and Other Intangible Assets

Financial Accounting Standards Board (“FASB”) Codification Topic 360 (ASC Topic 360) “Accounting for Goodwill and Other Intangible Assets and Accounting for Impairment or Disposal of Long-Lived Assets” addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. The Company tests for impairment on an annual basis or based upon facts that may occur.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The Company considers the significant estimates to be the useful lives of its tangible and intangible assets, reserves for inventory and the valuation of intangible assets.

Concentration of Credit Risk

Sales to two customers totaled greater than 10% during 2012. The United States Department of Defense (“DOD”) represented approximately 21% and 26% of the Company’s total sales for the three month and nine months ended September 30, 2012 and approximately 33% and 33% of the Company’s total sales for the three and nine month ended September 30, 2011. PACCAR Inc represented approximately 14% and 10% of the Company’s total sales for the three and nine month quarter ended September 30, 2012. No sales to this client during 2011 represented greater than 10%. No other customer accounted for greater than 10% of the Company’s total sales and the Company has no substantial concentrations of credit risk in its trade receivables.

Earnings (Loss) per Common Share

Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. Basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share.

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Stockholders Equity
Preferred Stock A Par Value	$ 0.001	$ 0.001
Preferred Stock A Shares Authorized	7,100,000	7,100,000
Preferred Stock A Shares Issued	5,945,378	5,945,378
Preferred Stock A Shares Outstanding	5,945,378	5,945,378
Preferred Stock B Par Value	$ 0.001	$ 0.001
Preferred Stock B Shares Authorized	2,900,000	2,900,000
Preferred Stock B Shares Issued	$ 0	$ 0
Preferred Stock B Shares Outstanding	0	0
Common Stock Par Value	$ 0.001	$ 0.001
Common Stock Authorized	100,000,000	100,000,000
Common Stock Issued	4,009,349	3,688,497
Common Stock Outstanding	4,009,349	3,688,497

XML

4. ACQUISITION (Details 1) (USD $)	Sep. 30, 2012
CustomerRelationshipsMember
Acquired Intangible Assets
Estimated fair value	$ 304,000
Weighted Average Estimated Useful Life (yrs)	10 years
WebsiteMember
Acquired Intangible Assets
Estimated fair value	7,000
Weighted Average Estimated Useful Life (yrs)	3 years
GoodwillMember
Acquired Intangible Assets
Estimated fair value	$ 188,000
Weighted Average Estimated Useful Life	Indefinite

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 02, 2012
Document And Entity Information
Entity Registrant Name	Precision Aerospace Components, Inc.
Entity Central Index Key	0000936446
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,009,349
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2012

XML

4. ACQUISITION (Details 2) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Pro Forma Financial Information
Revenues	$ 23,647,000	$ 21,529,000
Gross profit	6,753,000	5,581,000
Net Income/(loss)	$ 427,000	$ 28,000
Earnings/(loss) per share - basic and diluted (assuming 4,009,349 shares)	$ 0.11	$ 0.01

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Statement [Abstract]
NET REVENUE	$ 7,151,363	$ 1,944,195	$ 13,481,069	$ 5,922,781
COST OF GOODS SOLD	4,968,818	1,301,772	9,497,031	4,068,869
GROSS PROFIT	2,182,545	642,423	3,984,038	1,853,912
OPERATING EXPENSES
General and administrative expenses	1,572,416	443,676	3,039,447	1,373,782
Professional and consulting fees	118,310	58,433	420,026	198,448
Depreciation and amortization	23,596	15,816	37,101	47,511
Total Operating Expenses	1,714,322	517,925	3,496,574	1,619,741
INCOME BEFORE OTHER INCOME (EXPENSE)	468,223	124,498	487,464	234,171
OTHER INCOME (EXPENSE)
Interest expense	(150,349)	(20,720)	(199,297)	(66,234)
Gain on bargain purchase of assets	0	0	982,315	0
Restructuring expenses	(645,200)	0	(645,200)	0
Impairment of assets	0	0	0	(2,558,180)
Total Other Income (Expense)	(795,549)	(20,720)	137,818	(2,624,414)
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES	(327,326)	103,778	625,282	(2,390,243)
Provision (benefit) for income taxes	(137,500)	24,380	(206,658)	7,592
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES	$ (189,826)	$ 79,398	$ 831,940	$ (2,397,835)
NET INCOME (LOSS) PER SHARE APPLICABLE TO COMMON SHARES
Basic	$ (0.05)	$ 0.03	$ 0.22	$ (0.84)
Diluted	$ (0.05)	$ 0.01	$ 0.06	$ (0.84)
Weighted average shares outstanding - basic	4,009,349	2,865,079	3,839,555	2,865,079
Weighted average shares outstanding - diluted	4,009,349	12,907,617	13,078,693	2,865,079

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2012

Summary Of Significant Accounting Policies Policies

Interim Consolidated Financial Statements

Interim Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in conformity with the instructions to Form 10-Q and Article 8 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”).  Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, we believe that the disclosures included in these financial statements are adequate to make the information presented not misleading. The unaudited condensed consolidated financial statements included in this document have been prepared on the same basis as the annual consolidated financial statements, and in the Company’s opinion reflect all adjustments, which include normal recurring adjustments necessary for a fair presentation in accordance with GAAP and SEC regulations for interim financial statements. The results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that the Company will have for any subsequent period.  These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2011 included in the Company’s Annual Report on Form 10-K.  

Restructuring Expenses

Restructuring Expenses

The Company had formalized a restructuring initiative and announced this plan to all of the employees affected by the restructuring, as of late September 2012. The Company estimated all restructuring costs associated with closing its Staten Island plant including severance, lease cancellations, and other restructuring costs, in connection with this initiative, have been recognized in accordance with FASB ASC 420-10, Exit or Disposal Cost Obligations, and FASB ASC 712-10, Nonretirement Postemployment Benefits.

Acquisition

Acquisition

The Company accounts for business combinations by applying the acquisition method, which requires the determination of the acquirer, the acquisition date, the fair value of the purchase consideration to be transferred, the fair value of assets and liabilities of the acquirees and the measurement of goodwill. ASC Topic 805-10, “Business Combinations – Overall” (“ASC 805-10”) provides that in identifying the acquiring entity in a combination effected through a transfer of additional assets and exchange of equity interest, all pertinent facts and circumstances must be considered, including the relative voting rights of the shareholders of the constituent companies in the combined entity, the composition of the board of directors and senior management of the combined company, the relative size of each company and the terms of the exchange of additional assets and equity securities in the business combination, including payment of any premium. The acquiring company is required to determine the fair value of the assets and liabilities acquired, which includes the fair value of all intangible assets acquired. The Company has determined the fair value of all assets and liabilities acquired exceed the purchase price paid and therefore have recorded a bargain purchase gain.

Inventory

Inventory

Inventory is stated at the lower of cost or market, utilizing the specific lot identification method. The Company is a distributor of goods that retain their value and may be purchased by its customers for an extended period of time. Therefore any inventory item for which the Company has not had any transactions within the past five years is reduced to a zero value. Inventory consists of finished goods for resale at September 30, 2012. The Company has recorded a reserve of approximately $309,000 and approximately $328,000 at September 30, 2012 and December 31, 2011.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Financial Accounting Standards Board (“FASB”) Codification Topic 360 (ASC Topic 360) “Accounting for Goodwill and Other Intangible Assets and Accounting for Impairment or Disposal of Long-Lived Assets” addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in financial statements upon their acquisition. This Statement also addresses how goodwill and other intangible assets should be accounted for after they have been initially recognized in the financial statements. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. The Company tests for impairment on an annual basis or based upon facts that may occur.

Estimates

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The Company considers the significant estimates to be the useful lives of its tangible and intangible assets, reserves for inventory and the valuation of intangible assets.

Concentration of Credit Risk

Concentration of Credit Risk

Sales to two customers totaled greater than 10% during 2012. The United States Department of Defense (“DOD”) represented approximately 21% and 26% of the Company’s total sales for the three month and nine months ended September 30, 2012 and approximately 33% and 33% of the Company’s total sales for the three and nine month ended September 30, 2011. PACCAR Inc represented approximately 14% and 10% of the Company’s total sales for the three and nine month quarter ended September 30, 2012. No sales to this client during 2011 represented greater than 10%. No other customer accounted for greater than 10% of the Company’s total sales and the Company has no substantial concentrations of credit risk in its trade receivables.

Earnings (Loss) per Common Share

Earnings (Loss) per Common Share

Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. Basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share.

XML

6. COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

6. COMMITMENTS AND CONTINGENCIES

6. COMMITMENTS AND CONTINGENCIES

The Company leases office space in Staten Island, NY for its Freundlich operations under a triple net lease which expires July 20, 2013. The lease has an option for renewal for five years at the Company's option. The rental rate is $14,038 per month. The lease has a yearly 4% escalation clause. The Company can terminate the lease upon six months’ notice. The Company delivered the notice on or around September 30, 2012

As part of the FDMC Acquisition, the Company has assumed four operating leases for office and warehouse space with original terms ranging from three to five years. Three of the leases have expired and have converted to month to month. The remaining warehouse lease, with a monthly lease cost of approximately $5,000 will expire in June 2013. Substantially all leases contain renewal provisions at the Company’s option. The Company is responsible for real estate taxes, utilities, and repairs under the terms of certain of the operating leases.

Future minimum lease payments under these leases are as follows (approximately):

2012 $ 57,000

2013 $ 128,000

The Company is subject to the possibility of claims and lawsuits arising in the normal course of business. In the opinion of management, the Company liability, if any, under existing claims, asserted or unasserted, would not have a material adverse effect on the Company’s consolidated financial position or results of operations.

During 2010, the Company entered into an employment agreement with its President and Chief Executive Officer. In the event of the termination of the agreement under certain circumstances the Company could be liable for up to twelve months’ salary.

XML

5. LONG-TERM DEBT AND LINE OF CREDIT (Details Narrative) (USD $)	9 Months Ended
	Sep. 30, 2012
Long-Term Debt And Line Of Credit Details Narrative
Revolving funding facility	$ 2,500,000
Interest Rate Description	9.10%
Revolving Credit Facility outstanding	$ 7,700,000
Interest Rate Description	5.00%

XML

6. COMMITMENTS AND CONTINGENCIES (Details 1) (USD $)	Sep. 30, 2012
Future minimum lease payments under these leases are as follows (approximately):
2012	$ 57,000
2013	$ 128,000

XML

6. COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2012

Commitments And Contingencies Tables

Lease payments

Future minimum lease payments under these leases are as follows (approximately):

2012	$	57,000
2013	$	128,000

XML

3. RESTRUCTURING (Tables)

9 Months Ended

Sep. 30, 2012

Restructuring Tables

Restructuring costs

Restructuring costs associated with the 2012 Cost Reduction Initiative consist of the following (in thousands):

Severance and related benefits	$	358,200
Lease termination		143,000
Moving costs		110,000
Other restructuring costs		34,000
	$	645,200

XML

4. ACQUISITION (Tables)

9 Months Ended

Sep. 30, 2012

Acquisition Tables

Acquisition

  The preliminary purchase price allocation is based on the estimated fair value of assets acquired and liabilities assumed:

Accounts receivable	$	2,298,400
Inventory		8,427,000
Property and equipment		44,200
Prepaid and other assets		222,800
Intangible assets — customer relationships		304,000
Intangible asset – website		7,000
Goodwill		188,000
Deferred tax liability		(690,000	)
Accounts payable and Accrued Expenses		(2,701,400	)
Fair value of net assets acquired	$	8,100,000
Cash paid for acquisition	$	7,117,700
Bargain purchase recorded		982,300
Total purchase price	$	8,100,000

Estimates of acquired intangible assets

Estimates of acquired intangible assets are as follows:

Acquired Intangible Assets	Estimated  Fair Value		Weighted Average Estimated  Useful Life (yrs)
Customer Relationships	$	304,000		10
Website		7,000		3
Goodwill		188,000	Indefinite

Pro Forma Financial Information

The pro forma information below is for the combined entities and demonstrate the results of operations as if the acquisition of the FDMC had occurred beginning on January 1, 2011.

	September 30, 2012		September 30, 2011
Revenues	$	23,647,000	$	21,529,000
Gross profit		6,753,000		5,581,000
Net Income/(loss)		427,000		28,000
Earnings/(loss) per share – basic and diluted (assuming 4,009,349 shares)	$	0.11	$	0.01

XML

4. ACQUISITION (Details) (USD $)	Sep. 30, 2012
ACQUISITION
Accounts receivable	$ 2,298,400
Inventory	8,427,000
Property and equipment	44,200
Prepaid and other assets	222,800
Intangible assets - customer relationships	304,000
Intangible asset - website	7,000
Goodwill	188,000
Deferred tax liability	(690,000)
Accounts payable and Accrued Expenses	(2,701,400)
Fair value of net assets acquired	8,100,000
Cash paid for acquisition	7,117,700
Bargain purchase recorded	982,300
Total purchase price	$ 8,100,000

XML

3. RESTRUCTURING (Details Narratives) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Restructuring Details Narratives
Restructuring costs	$ 645,200	$ 0	$ 645,200	$ 0

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$ 831,940	$ (2,397,835)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	40,194	47,511
Amortization of deffered financing costs	12,485	0
Stock based compensation	9,978	0
Inventory writedown	129,720	96,178
Deferred income taxes	(137,500)	0
Bargain purchase gain	(982,315)	0
Impairment of intangible assets	0	2,558,180
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable	(344,515)	66,954
(Increase) Decrease in inventory	(977,570)	602,491
Decrease in prepaid expenses	(9,575)	(22,362)
(Increase) in prepaid income taxes and income taxes receivable	(43,097)	3,260
Decrease (Increase) in deferred closing costs	(19,210)	0
(Increase) in other assets	(3,625)	0
Increase (decrease) in liabilities
(Decrease) Increase in accounts payable and accrued expenses	(434,594)	(99,799)
(Decrease) Increase in accrued restructing expenses	645,200	0
(Decrease) Increase in income tax liability	0	(13,668)
Net cash provided by (used in) operating activities	(1,282,484)	840,910
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in restricted cash	(500,052)	0
Increase in escrow payable	500,052	0
Acquisition of business	(7,174,529)	0
Purchase of property and equipment	(2,654)	(1,680)
Net cash provided by (used in) investing activities	(7,177,183)	(1,680)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from line of credit - Newstar	7,688,137	0
Payment of line of credit - IDB	(1,574,619)	(687,000)
Proceeds from issuance of stock	250,000	0
Proceeds from term loan payable Newstar Bank	2,500,000	0
Net cash provided by (used in) financing activities	8,863,518	(687,000)
INCREASE IN CASH AND CASH EQUIVALENTS	403,851	152,230
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD	269,956	328,717
CASH AND CASH EQUIVALENTS - END OF PERIOD	$ 673,807	$ 480,947

XML

5. LONG-TERM DEBT AND LINE OF CREDIT

9 Months Ended

Sep. 30, 2012

Debt Disclosure [Abstract]

5. LONG-TERM DEBT AND LINE OF CREDIT

5. LONG-TERM DEBT AND LINE OF CREDIT

Long-term debt

On May 25, 2012, in conjunction with the closing of the FDMC Acquisition, the Company entered into a three year $2.5 million term loan (the “Term Loan”), with payments of interest only during the first year. The principal amount of the Term Loan will be due and payable in 24 monthly installments of approximately $104,200, beginning on June 1, 2013. The Term Loan bears interest, at the Company’s election, at a rate tied to one of the following rates, in each case plus a specified margin: (i) the prime lending rate, but not less than 3.25%, plus a margin of 5.60% to 6.10% or (ii) adjusted one-month LIBOR, but not less than 1.5%, plus a margin of 7.10% to 7.60%. The interest margin for each such type of borrowing varies depending on the Company’s Fixed Charge Coverage Ratio.

As of September 30, 2012, $2,500,000 was outstanding at an interest rate of 9.10%.

At December 31, 2011 the Company had no long term debt.

Revolving funding facility

The Company has a revolving funding facility pursuant to which it can draw up to $10,000,000 against eligible assets. The facility allows for draws of up to eighty-five (85) percent of eligible accounts receivable or to eighty-five (85) percent of eligible inventory up to a maximum inventory advance amount of six million five hundred thousand dollars ($6,500,000); however the outstanding amount against eligible inventory is further limited to, an amount equal to 2.015 times the amount which can be drawn against the eligible accounts receivable. Eligible accounts receivable are, generally, those domestic accounts not outstanding for more than ninety (90) days or, for government accounts one hundred twenty (120) days and eligible inventory is inventory as determined by the bank, presently the net orderly liquidation value as determined by the bank. The loan balance is secured by a first lien position on all of the Company’s assets. The loan balance bears interest, at the Company’s election, at a rate tied to one of the following rates, in each case plus a specified margin: (i) the prime lending rate, but not less than 3.25%, plus a margin of 1.50% to 2.00%, or (ii) adjusted one-month LIBOR but not less than 1.5%, plus a margin of 3.00% to 3.50%. The interest margin for each such type of borrowing varies depending on the Company’s Fixed Charge Coverage Ratio. The facility is due May 25, 2015.

As of September 30, 2012, approximately $7,700,000 was outstanding at an interest rate of 5.00%.

XML

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)			3 Months Ended		9 Months Ended		3 Months Ended	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2012 DODMember	Sep. 30, 2011 DODMember	Sep. 30, 2012 DODMember	Sep. 30, 2011 DODMember	Sep. 30, 2011 PACCARMember	Sep. 30, 2011 PACCARMember
Concentration Risk [Line Items]
Inventory Reserve	$ 309,000	$ 328,000
Contribution in sales			21.00%	33.00%	26.00%	33.00%	14.00%	10.00%