UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 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 April 26, 2012: 3,688,497
| TABLE OF CONTENTS | ||||
| Page | ||||
PART I FINANCIAL INFORMATION | ||||
| Item 1. | Financial Statements | |||
| Condensed Consolidated Balance Sheets — (Unaudited) | 2 | |||
| Condensed Consolidated Statements of Operations — (Unaudited) | 3 | |||
| Condensed Consolidated Statements of Cash Flows — (Unaudited) | 4 | |||
| Notes to Condensed Consolidated Financial Statements | 5 | |||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 7 | ||
| Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 9 | ||
| Item 4 | Controls and Procedures | 10 | ||
PART II OTHER INFORMATION | ||||
| Item 6. | Exhibits | 11 | ||
| Signatures | 11 | |||
| 1 |
| PRECISION AEROSPACE COMPONENTS, INC. AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| (UNAUDITED) | ||||||||
| ASSETS | ||||||||
| March 31, | December 31, | |||||||
| 2012 | 2011 | |||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 220,151 | $ | 269,956 | ||||
| Accounts receivable | 767,944 | 667,949 | ||||||
| Inventory, net | 4,313,468 | 4,083,015 | ||||||
| Prepaid expenses | 49,479 | 19,669 | ||||||
| Prepaid income taxes and income taxes receivable | 113,317 | 70,100 | ||||||
| 5,464,359 | 5,110,689 | |||||||
| PROPERTY AND EQUIPMENT - Net | 22,026 | 27,611 | ||||||
| OTHER ASSETS | ||||||||
| Deposits | 26,073 | 24,700 | ||||||
| Other assets | 80,000 | 80,503 | ||||||
| 106,073 | 105,203 | |||||||
| TOTAL ASSETS | $ | 5,592,458 | $ | 5,243,503 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | 600,949 | $ | 274,139 | ||||
| Line of credit | 1,470,000 | 1,515,000 | ||||||
| 2,070,949 | 1,789,139 | |||||||
| LONG -TERM LIABILITIES | ||||||||
| TOTAL LIABILITIES | 2,070,949 | 1,789,139 | ||||||
| COMMITMENTS AND CONTINGENCIES | — | — | ||||||
| STOCKHOLDERS' EQUITY | ||||||||
| Preferred Stock A $.001 par value; 7,100,000 shares authorized | ||||||||
| at March 31, 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 | — | — | ||||||
| Common stock, $.001 par value; 100,000,000 shares authorized | ||||||||
| at March 31, 2012 and December 31, 2011; 3,688,497 shares issued and outstanding | 3,688 | 3,688 | ||||||
| Additional paid-in capital | 11,191,205 | 11,191,205 | ||||||
| Accumulated deficit | (7,679,329 | ) | (7,746,474 | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | 3,521,509 | 3,454,364 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 5,592,458 | $ | 5,243,503 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 2 |
| PRECISION AEROSPACE COMPONENTS, INC. AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||
| (UNAUDITED) | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, | ||||||||
| 2012 | 2011 | |||||||
| TOTAL NET REVENUE | $ | 2,106,021 | $ | 2,025,953 | ||||
| TOTAL COST OF GOODS SOLD | 1,508,076 | 1,366,660 | ||||||
| GROSS PROFIT | 597,945 | 659,293 | ||||||
| OPERATING EXPENSES | ||||||||
| General and administrative expenses | 466,558 | 466,660 | ||||||
| Professional and consulting fees | 85,498 | 74,083 | ||||||
| Depreciation | 5,585 | 15,847 | ||||||
| Total Operating Expenses | 557,641 | 556,590 | ||||||
| INCOME BEFORE OTHER INCOME (EXPENSE) | 40,304 | 102,703 | ||||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest expense | (15,873 | ) | (23,104 | ) | ||||
| (15,873 | ) | (23,104 | ) | |||||
| INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR INCOME TAXES | 24,431 | 79,599 | ||||||
| Provision (benefit) for income taxes | (42,714 | ) | 20,362 | |||||
| NET INCOME (LOSS) APPLICABLE TO COMMON SHARES | $ | 67,145 | $ | 59,237 | ||||
| NET INCOME (LOSS) PER BASIC SHARE | $ | 0.02 | $ | 0.02 | ||||
| NET INCOME (LOSS) PER DILUTED SHARE | $ | 0.01 | $ | 0.00 | ||||
| WEIGHTED AVERAGE NUMBER OF BASIC COMMON | ||||||||
| SHARES OUTSTANDING | 3,688,497 | 2,865,079 | ||||||
| WEIGHTED AVERAGE NUMBER OF FULLY DILUTED | ||||||||
| COMMON SHARES OUTSTANDING (When a company is in a loss situation, all outstanding dilutive shares are excluded from the calculation of diluted earnings because their inclusion would be antidilutive; and the basic and fully diluted common shares outstanding are stated to be the same.) | 12,927,617 | 12,907,617 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
| PRECISION AEROSPACE COMPONENTS, INC. AND SUBSIDIARIES | ||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| (UNAUDITED) | ||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, | ||||||||
| 2012 | 2011 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | 67,145 | $ | 59,237 | ||||
| Adjustments to reconcile net income to net cash | ||||||||
| provided by (used in) operating activities: | ||||||||
| Depreciation and amortization | 5,585 | 15,847 | ||||||
| Inventory writedown | 59,340 | 26,972 | ||||||
| Deferred income taxes | — | 1,153 | ||||||
| Changes in assets and liabilities: | ||||||||
| Decrease (increase) in assets | ||||||||
| Decrease (increase) in accounts receivable | (99,995 | ) | (59,025 | ) | ||||
| Decrease (increase) in inventory | (289,793 | ) | (22,691 | ) | ||||
| Decrease (increase) in prepaid expenses | (29,810 | ) | (26,032 | ) | ||||
| Decrease (increase) in prepaid income taxes and income taxes receivable | (43,217 | ) | 1,209 | |||||
| Decrease (increase) in security deposits | (1,373 | ) | — | |||||
| Decrease (increase) in other assets | 503 | — | ||||||
| Increase (decrease) in liabilities | ||||||||
| Increase (decrease) in accounts payable and accrued expenses | 326,810 | (127,752 | ) | |||||
| Net cash provided by (used in) operating activities | (4,805 | ) | (131,082 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| (Purchase) of property and equipment | — | — | ||||||
| Net cash provided by (used in) investing activities | — | — | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Net payments under line-of-credit agreement | (45,000 | ) | (75,000 | ) | ||||
| Net cash provided by (used in) financing activities | (45,000 | ) | (75,000 | ) | ||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (49,805 | ) | (206,082 | ) | ||||
| CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | 269,956 | 328,717 | ||||||
| CASH AND CASH EQUIVALENTS - END OF PERIOD | $ | 220,151 | $ | 122,635 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest paid | $ | 15,873 | $ | 23,405 | ||||
| Income taxes paid | $ | — | $ | 18,000 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
PRECISION AEROSPACE COMPONENTS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
(UNAUDITED)
1. SUMMARY OF BUSINESS AND BASIS OF PRESENTATION
Precision Aerospace Components, Inc. (the “Company”) is a stocking distributor of aerospace quality fasteners. It distributes high-quality, predominantly domestically-manufactured nut products 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 products are manufactured, by others, to exacting specifications.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and accounting principles generally accepted in the United States of America and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. Certain information in footnote disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results, although the Company believes the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the Company’s audited financial statements for the fiscal year ended December 31, 2011 and the notes thereto included in the Company’s Form 10-K for the year. While management believes the procedures followed in preparing these condensed financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year. These results are not necessarily indicative of the results to be expected for the full year.
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 10 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 our 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 months ended March 31, 2012 are not necessarily indicative of the results that we 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 to those statements for the year ended December 31, 2011 included in our Annual Report on Form 10-K.
There have been no material changes during 2012 in the Company’s significant accounting policies to those previously disclosed in the Company’s 2011 Form 10-K.
| 5 |
PRECISION AEROSPACE COMPONENTS, INC.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2012
(UNAUDITED)
2.Summary of Significant Accounting Policies (continued)
Prepaid taxes and income tax receivable
Subsequent to March 31, 2012, in preparation of filing the Company’s tax return, the Company determined that they would apply their net operating loss to the carry back period instead of carrying forward as originally anticipated. As a result, the Company recognized and income tax receivable of approximately $52K, which resulted in an income tax benefit at quarter end.
3. LONG-TERM DEBT AND LINE OF CREDIT
Long-term debt
The Company had no long term debt as of March 31, 2012 and December 31, 2011.
Revolving funding facility
The Company, through its Freundlich Supply Company (“Freundlich”), subsidiary has a revolving funding facility pursuant to which it can draw up to $2,800,000 against eligible assets. The facility allows for draws against up to eighty (80) percent of eligible accounts receivable and forty (40) per-cent of eligible inventory, up to a maximum inventory advance amount of two million five hundred thousand dollars ($2,500,000). Eligible accounts receivable are those domestic accounts not outstanding for more than one hundred twenty (120) days and eligible inventory is inventory as determined by the bank, presently that which has had sales within the preceding sixty (60) months. The daily rate on the outstanding balance will be the prime rate plus one (1.0) percent. The balance is secured by a first lien position on all of the Company’s assets. The facility is due April 30, 2012. The Company expects that the facility will be renewed. As of March 31, 2012, $1,470,000 was outstanding, the interest rate was 4.25%, and $679,608 was available to draw. As of December 31, 2011, $1,515,000 was outstanding, the interest rate was 4.25%, and $599,142 was available to draw.
4. COMMITMENTS AND CONTINGENCIES
The Company leases office space for its 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 has guaranteed the Freundlich revolving funding facility as more completely described in Note 3.
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.
| 6 |
ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains "forward-looking statements" relating to Precision Aerospace Components, Inc. (the "Company") which represent the Company's current expectations or beliefs including, but not limited to, statements concerning the Company's operations, performance, financial condition and growth. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact are forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "anticipate", "intend", "could", "estimate" or "continue" or the negative or other comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, such as credit losses, dependence on management and key personnel, variability of quarterly results, and the ability of the Company to continue its growth strategy and the Company’s competition, certain of which are beyond the Company's control. Should one or more of these risks or uncertainties materialize or should the underlying assumptions prove incorrect, or any of the other risks set out under the caption “Risk Factors” in our 10-K report for the year ended 2011 occur, actual outcomes and results could differ materially from those indicated in the forward-looking statements.
Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
General
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements, and the notes thereto, included herein. The information contained below includes statements of the Company's or management's beliefs, expectations, hopes, goals and plans that, if not historical, are forward-looking statements subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. For a discussion of forward-looking statements, see the information set forth in the Introductory Note to this Quarterly Report under the caption "Forward Looking Statements" which information is incorporated herein by reference.
The condensed consolidated interim financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements and notes are presented as permitted on Form 10-Q and do not contain information included in the Company’s annual consolidated statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. The results for the threemonths ended March 2012 may not be indicative of the results for the entire year.
These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained herein.
Plan of Operation and Discussion of Operations
The Company's operations are presently carried out through its wholly-owned Freundlich Supply Company, Inc. (“Freundlich”) subsidiary. The Company is also introducing a locking washer (“Tiger – Tight”), for which it has exclusive North American distribution rights. Tiger-Tight washers are used in demanding vibration applications and the Company believes they have significant advantages in comparison to competitive products. Tiger - Tight washers are now available and under evaluation by several major US corporations.
| 7 |
The Company, through its Freundlich subsidiary, is a stocking distributor of aerospace quality fasteners. Freundlich distributes high-quality, predominantly domestically-manufactured nut products 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 products are manufactured, by others, to exacting specifications and are made from raw material that provides strength and reliability required for aerospace applications.
Freundlich is a niche player in the North American aerospace fastener industry. The fastener distribution industry is highly fragmented with no single company holding a dominant position. Freundlich currently focuses on the distribution of aerospace quality nut products, serving as an authorized stocking distributor for the premier nut manufacturers in the United States. Freundlich competes with numerous distributors who serve as authorized stocking distributors for the fastener manufacturers in Freundlich’s supplier base.
Freundlich is a one-stop source for standard, self-locking, semi-special and special nuts manufactured to several military, aerospace and equivalent specifications. Freundlich maintains an inventory of approximately 6,000 SKUs comprised of approximately 20 million parts of premium quality, brand name nut products.
Freundlich sells its products to original equipment manufacturers, repair facilities, and other distributors in the aerospace industry and directly to the United States Department of Defense (“Department of Defense”). Freundlich sells its products pursuant to written purchase orders from its customers. All products are shipped from Freundlich’s warehouse in Staten Island, New York via common carrier.During this quarter, sales to the Department of Defense represented approximately 40%, of our total sales, compared to approximately 32% for the quarter ended March 31, 2011. No other customer accounts or accounted for more than 10% of our sales.
The Company’s sales to the Department of Defense, while increased from the same period of the prior year, are still below historical sales levels due to the Department having substantially reduced its acquisition of fasteners last year. The Department has still not returned to its prior purchasing levels and this has reduced the Company’s sales opportunities even though the Company’s sales to the Department have increased.
Though the Company’s sales this quarter were above the comparable period last year, gross profit for the quarter was below the comparable period last yeardue to the more challenging sales environment, which includes our non-government customers who do not appear to be increasing their operations. Total operating expenses have remained approximately constant. The result is reduced operating and income for the year to date. During the quarter the Company was able to reduce the balance outstanding on our line of credit while increasing our inventory.
The Company’s revenues increased approximately 4% for the quarter to $2.1 M from $2.0 M in the comparable period last year. This was due to an increase in purchases by the government from the Company during the period. Non-government saleswere down slightly. The Company believes that government demand for the products offered by the Company will return to near prior levels, since the products are consumables utilized for the maintenance and repair of military aircraft and ships. The present pace of operations of the military continues and these operations, along with prescribed maintenance schedules, are the driving forces behind the consumption of the parts supplied by the Company. While the Company is not privy to the inventory levels held within the Department of Defense, it believes, based upon comments from a Department employee that the Department was reducing its levels and may have been moving toward a “just in time” stocking. The Company believes that at some point the Department will recall the shortage of productive capacity which occurred when the aircraft industry and economy were healthy and recognize that conflict and the need for military deployment do not wait until our military is ready and will not only return to purchasing to meet demand but to restock inventories as well. Unfortunately the Company is not certain when this will occur.
The Company’s gross profit of $598K for the three months ended March 2012 was approximately 9% less than the gross profit of $659K for the same three month period last year, due to lower gross profit as a percentage of revenues, despite higher revenues.
The Company’s total operating expenses of $558K for the three months ended March 2012 were approximately the same as for the same period last year, $557K.
| 8 |
The Company recognized a benefit of approximately $43K for the three months ended March 2012 due to the Company being able to recognize a net operating loss that had a full valuation allowance as opposed to recognizing an expense for taxes of approximately $20K for the period last year.
The result of all of these elements is that Company’s net income of $67K for the three months ended March 2012 was approximately 13% more than the net income of $59K for the same three month period to last year.
The Company’s accounts receivable have increased by approximately $100K to $768K from $668K at the end of last year; this difference is due to increased sales and normal deviations in customer payments. The Company’s inventory at the end of the quarter, $4.31M, was increased from the $4.08M at the end of last year due to additional receipts in anticipation of future sales. The Company’s inventory does not have any life limitations and is all available for sale.
The Company has paid down its bank loan by $45K to 1.4M from $1.52M at the end of last year. Accounts payable increased by approximately $325K, to $591K from $268K at the end of last year; the Company's accounts payable are a function of both the receipts and the payment terms. The Company has used available cash above its desired safety level to take advantage of discounts where available from its suppliers. The Company is usually in a position to take advantage of the discounts offered. The Company continues to evaluate and apply its resources where it believes it will achieve the best overall benefit.
The Company’s net assets (total assets less total liabilities) at the end of the period, increased by approximately $67K; to $3.52M from $3.45M at the end of last year, continuing the Company’s growth in net assets which reflect the continued profitable operations of the Company during a period of difficult market conditions.
The Company does not presently anticipate any material additional capital expenditures on plant and equipment for existing operations during 2012 and the present cash flow from the activities of Freundlich and its financing facility is sufficient to meet the Company’s cash requirements, assuming it receives inventory in orderly fashion as has been the case; however, additional financing will be necessary to more rapidly increase operations and expand operations.
The Company believes it can expand its business with its present staff numbers until acquisitions warrant additional personnel. Freundlich does not presently anticipate making further hires; however, it is possible that it may make an additional hire to improve business operations. Presently, many Company level activities are either outsourced or handled at the Freundlich level.
Critical Accounting Policies
There have been no changes to our critical accounting policies in the three months ended March 31, 2012. Critical accounting policies and the significant estimates made in accordance with them are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2011.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not required for smaller reporting companies, and, if it were required, is not applicable to the Company’s present operations.
| 9 |
ITEM 4 CONTROLS AND PROCEDURES
(A) Disclosure Controls and Procedures
The Company carried out an evaluation, under the supervision and with the participation of the Company's Principal Executive Officer/Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2012 on or about April 16, 2012. The term "disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended the ("Exchange Act"). This term refers to the controls and procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized and reported within the required time periods. The Company's disclosure controls and procedures are designed to provide a reasonable level of assurance of achieving the Company's disclosure control objectives. The Company's Principal Executive Officer/Principal Financial Officer has concluded that the Company's disclosure controls and procedures are effective at this reasonable assurance level as of the period covered by this Form 10-Q. Due to the size of the Company and as a result of the implementation of the Company’s integrated financial reporting system, items of note are appropriately brought to the attention of the Company’s CEO for appropriate disclosure.
(B) Internal Controls Over Financial Reporting
The Company's Principal Executive Officer/Principal Financial Officer evaluated all changes in the Company’s internal controls over financial reporting that have occurred during the Company’s last fiscal quarter (which is the period covered by this Form 10-Q) and there have been no changes in its internal controls during the Company's last fiscal quarter, or from the date of their last prior evaluation, on or about February 3, 2012, that have materially affected, or are reasonably likely to materially affect, those internal controls over financial reporting. The term "internal control over financial reporting" is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. This term refers to the process designed by management and effected by the issuer’s board of directors, management and other personnel, 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 that (1) pertain to maintenance of records; (2) provide reasonable assurance that transactions are recorded as necessary, including that receipts and expenditures of the issuer are being made in accordance with authorizations of management and directors of the issuer; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the Company’s financial statements. The Company assessed its internal control system as of March 31, 2012 in relation to criteria for effective internal control over financial reporting described in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's internal control over financial reporting is designed to provide a reasonable level of assurance of achieving the Company's disclosure control objectives. The Company's Principal Executive Officer/Principal Financial Officer has concluded that the Company's internal control over financial reporting is effective at this reasonable level of assurance.
| 10 |
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS
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 | ||
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: April 27, 2012 | PRECISION AEROSPACE COMPONENTS, INC. | |
| /s/ Andrew S. Prince | ||
| Andrew S. Prince | ||
| President and Chief Executive Officer | ||
| 11 |
EXHIBIT INDEX
| Exhibit Number | Description | ||
| 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 | ||