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: June 30, 2009





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 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.   Yes [XX] No [  ]





TABLE OF
CONTENTS




PagePART
      I
              FINANCIAL
      INFORMATIONItem 1.
            Financial
      StatementsCondensed
      Consolidated Balance Sheets — (Unaudited)
            
            4Condensed
      Consolidated Statements of Income (Loss)—
(Unaudited)
            
            5Condensed
      Consolidated Statements of Cash Flows — (Unaudited)
            
            6Notes
      to Condensed Consolidated Financial Statements
            
            7Item 2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            12Item 3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            
            16Item
      4 and 4T
            Controls
      and Procedures
            
            16PART
      II
              OTHER
      INFORMATIONItem 6.
            Exhibits
            
            17Signatures
            
            
            17





2


PART I – FINANCIAL INFORMATION








ITEM
1.  FINANCIAL STATEMENTS








PRECISION
AEROSPACE COMPONENTS, INC.


CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009 AND 2008


(UNAUDITED)








INDEX





CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS – (UNAUDITED):
                PagesCondensed
      Consolidated Balance Sheets as of  June 30, 2009 (Unaudited)
      andDecember
      31, 2008 (Audited)
                4Condensed
      Consolidated Statements of Operations for the Six and Three
      MonthsEnded
      June 30, 2009 and 2008 (Unaudited)
                5Condensed
      Consolidated Statements of Cash Flows for the Six MonthsEnded
      June 30, 2009 and 2008 (Unaudited)
                6Notes
      to Condensed Consolidated Financial Statements
                7-11








3





PRECISION AEROSPACE COMPONENTS, INC.CONDENSED
      CONSOLIDATED BALANCE SHEETS(UNAUDITED)ASSETSJune
      30,
                              
                              
                              December
      31,2009
                              
                              
                              2008CURRENT
      ASSETSCash
      and cash equivalents
                              
                              $
                              170,219
                              
                              
                              $
                              176,483Accounts
      receivable, net
                              
                              
                              897,948
                              
                              
                              
                              874,124Inventory,
      net
                              
                              
                              5,040,622
                              
                              
                              
                              4,592,247Prepaid
      expenses
                              
                              
                              57,520
                              
                              
                              
                              39,693Prepaid
      income taxes
                              
                              
                              6,002
                              
                              
                              
                              98,6166,172,311
                              
                              
                              
                              5,781,163PROPERTY
      AND EQUIPMENT - Net
                              
                              
                              151,205
                              
                              
                              
                              184,634OTHER
      ASSETSDeposits
                              
                              
                              24,700
                              
                              
                              
                              24,700Goodwill
                              
                              
                              2,221,744
                              
                              
                              
                              2,221,7442,246,444
                              
                              
                              
                              2,246,444TOTAL
      ASSETS
                              
                              $
                              8,569,960
                              
                              
                              $
                              8,212,241LIABILITIES,
      TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY (DEFICIT)CURRENT
      LIABILITIESAccounts
      payable and accrued expenses
                              
                              $
                              331,540
                              
                              
                              $
                              252,530Subordinated
      note payable-current portion
                              
                              
                              -
                              
                              
                              
                              75,000Loan
      payable-current portion
                              
                              
                              2,797,506
                              
                              
                              
                              2,722,506Income
      taxes payable
                              
                              
                              15,757
                              
                              
                              
                              -3,144,803
                              
                              
                              
                              3,050,036TOTAL
      LIABILITIES
                              
                              
                              3,144,803
                              
                              
                              
                              3,050,036TEMPORARY
      EQUITYPreferred
      Stock A $.001 par value; 7,100,000 shares authorized5,274,152
      shares issued and outstanding
                              
                              
                              5,274
                              
                              
                              
                              5,274Preferred
      Stock B $.001 par value; 2,900,000 shares authorized2,811,000
      shares issued and outstanding
                              
                              
                              2,811
                              
                              
                              
                              2,811Additional
      paid-in capital - preferred stock
                              
                              
                              2,916,173
                              
                              
                              
                              2,916,173Additional
      paid-in capital -options
                              
                              
                              4,417,917
                              
                              
                              
                              4,417,917Additional
      paid-in capital -warrants
                              
                              
                              843,272
                              
                              
                              
                              843,2728,185,447
                              
                              
                              
                              8,185,447STOCKHOLDERS'
      EQUITY (DEFICIT)Preferred
      Stock A $.001 par value; 7,100,000 shares authorized
                              
                              
                              -
                              
                              
                              
                              -5,274,152
      shares issued and outstandingPreferred
      Stock B $.001 par value; 2,900,000 shares authorized
                              
                              
                              -
                              
                              
                              
                              -2,811,000
      shares issued and outstandingCommon
      stock, $.001 par value; 100,000,000 shares authorized33,324,691
      shares issued and outstanding
                              
                              
                              33,325
                              
                              
                              
                              33,325Additional
      paid-in capital
                              
                              
                              2,892,502
                              
                              
                              
                              2,892,502Retained
      earnings (deficit)
                              
                              
                              (5,686,117
                              )
                              
                              
                              (5,949,069
                              )TOTAL
      STOCKHOLDERS'  EQUITY (DEFICIT)
                              
                              
                              (2,760,290
                              )
                              
                              
                              (3,023,242
                              )TOTAL
      LIABILITIES, TEMPORARY EQUITY AND STOCKHOLDERS' EQUITY
      (DEFICIT)
                              
                              $
                              8,569,960
                              
                              
                              $
                              8,212,241










4





PRECISION
      AEROSPACE COMPONENTS, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF INCOME (LOSS)FOR
      THE SIX AND THREE MONTHS ENDED JUNE 30, 2009 AND 2008(UNAUDITED)Six Months ended June 30,
                        
                        
                        Three Months ended June 30,2009
                        
                        
                        2008
                        
                        
                        2009
                        
                        
                        2008REVENUE
      - SALES
                        
                        $
                        5,464,438
                        
                        
                        $
                        5,837,280
                        
                        
                        $
                        2,802,014
                        
                        
                        $
                        2,731,812TOTAL
      REVENUE
                        
                        
                        5,464,438
                        
                        
                        
                        5,837,280
                        
                        
                        
                        2,802,014
                        
                        
                        
                        2,731,812TOTAL
      COST OF GOODS SOLD
                        
                        
                        3,878,334
                        
                        
                        
                        3,942,917
                        
                        
                        
                        2,023,862
                        
                        
                        
                        1,823,663GROSS
      PROFIT
                        
                        
                        1,586,104
                        
                        
                        
                        1,894,363
                        
                        
                        
                        778,152
                        
                        
                        
                        908,149OPERATING
      EXPENSESGeneral
      and administrative expenses ($3,853,462 and $788,210  noncash
                          compensation
      for the six and three months ended June 30, 2008)
                        
                        
                        956,208
                        
                        
                        
                        4,791,149
                        
                        
                        
                        492,379
                        
                        
                        
                        1,256,581Professional
      Fees
                        
                        
                        151,033
                        
                        
                        
                        164,410
                        
                        
                        
                        65,085
                        
                        
                        
                        115,463Depreciation
                        
                        
                        40,310
                        
                        
                        
                        39,928
                        
                        
                        
                        20,242
                        
                        
                        
                        20,067Total
      Expenses
                        
                        
                        1,147,551
                        
                        
                        
                        4,995,487
                        
                        
                        
                        577,706
                        
                        
                        
                        1,392,111INCOME
      (LOSS) BEFORE OTHER (EXPENSE)
                        
                        
                        438,553
                        
                        
                        
                        (3,101,124
                        )
                        
                        
                        200,446
                        
                        
                        
                        (483,962
                        )OTHER
      INCOME (EXPENSE)Interest
      expense
                        
                        
                        (61,820
                        )
                        
                        
                        (125,644
                        )
                        
                        
                        (38,939
                        )
                        
                        
                        (30,082
                        )(61,820
                        )
                        
                        
                        (125,644
                        )
                        
                        
                        (38,939
                        )
                        
                        
                        (30,082
                        )NET
      INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
                        
                        
                        376,733
                        
                        
                        
                        (3,226,768
                        )
                        
                        
                        161,507
                        
                        
                        
                        (514,044
                        )Provision
      for income taxes
                        
                        
                        113,781
                        
                        
                        
                        273,317
                        
                        
                        
                        44,375
                        
                        
                        
                        118,635NET
      INCOME (LOSS) APPLICABLE TO COMMON SHARES
                        
                        $
                        262,952
                        
                        
                        $
                        (3,500,085
                        )
                        
                        $
                        117,132
                        
                        
                        $
                        (632,679
                        )NET
      INCOME (LOSS)  PER BASIC SHARES
                        
                        $
                        0.01
                        
                        
                        $
                        (0.11
                        )
                        
                        $
                        0.00
                        
                        
                        $
                        (0.02
                        )NET
      INCOME (LOSS)  PER DILUTED SHARES
                        
                        $
                        -
                        
                        
                        $
                        **
                        
                        
                        $
                        -
                        
                        
                        $
                        **WEIGHTED
      AVERAGE NUMBER OF BASIC COMMONSHARES
      OUTSTANDING
                        
                        
                        33,324,691
                        
                        
                        
                        33,324,691
                        
                        
                        
                        33,324,691
                        
                        
                        
                        33,324,691WEIGHTED
      AVERAGE NUMBER OF FULLY DILUTEDCOMMON
      SHARES OUTSTANDING
                        
                        
                        8,139,190,795
                        
                        
                        
                        8,999,978,902
                        
                        
                        
                        8,339,164,955
                        
                        
                        
                        8,772,556,464**
      - Outstanding instruments to purchase stock were not included in the
      computation of diluted EPS because inclusion would have been
      antidilutive.












5





PRECISION AEROSPACE COMPONENTS, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFOR
      THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008(UNAUDITED)2009
                  
                  
                  2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      (loss) income
                  
                  $
                  262,952
                  
                  
                  $
                  (3,500,085
                  )Adjustments
      to reconcile net income (loss) to net cashprovided
      by (used in) operating activities:Depreciation
      and amortization
                  
                  
                  40,310
                  
                  
                  
                  39,928Stock
      Based Compensation
                  
                  
                  -
                  
                  
                  
                  3,853,462Changes
      in assets and liabilities:Decrease
      (increase) in assetsDecrease
      (increase) in accounts receivable
                  
                  
                  (23,824
                  )
                  
                  
                  (147,547
                  )Decrease
      (increase) in inventory
                  
                  
                  (448,375
                  )
                  
                  
                  (507,995
                  )Decrease
      (increase) in prepaid expenses
                  
                  
                  (17,827
                  )
                  
                  
                  (57,519
                  )Decrease
      (increase) in prepaid income taxes
                  
                  
                  92,614
                  
                  
                  
                  -Increase
      (decrease) in liabilitiesIncrease
      (decrease)  in accounts payable and accrued
    expenses
                  
                  
                  79,009
                  
                  
                  
                  (99,310
                  )Increase
      (decrease) in income taxes payable
                  
                  
                  15,757
                  
                  
                  
                  (344,675
                  )Total
      adjustments
                  
                  
                  (262,336
                  )
                  
                  
                  2,736,344Net
      cash provided by (used in) operating activities
                  
                  
                  616
                  
                  
                  
                  (763,741
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES(Purchase)
      of property and equipment
                  
                  
                  (6,880
                  )
                  
                  
                  (4,116
                  )Net
      cash (used in) investing activities
                  
                  
                  (6,880
                  )
                  
                  
                  (4,116
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES(Payment)
      of convertible note payable
                  
                  
                  -
                  
                  
                  
                  (1,000,000
                  )(Payment)
      of S/T loan payable Greater Bay
                  
                  
                  -
                  
                  
                  
                  (387,466
                  )Proceeds
      from issuance of short term loan payable- IDB
                  
                  
                  100,000
                  
                  
                  
                  2,722,506(Payment)
      from issuance of short term loan payable - IDB
                  
                  
                  (25,000
                  )
                  
                  
                  -(Payment)
      of principle of subordinated note payable
                  
                  
                  (75,000
                  )
                  
                  
                  (225,000
                  )Net
      cash provided by financing activities
                  
                  
                  -
                  
                  
                  
                  1,110,040INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                  
                  
                  (6,264
                  )
                  
                  
                  342,183CASH
      AND CASH EQUIVALENTS - BEGINNING OF PERIOD
                  
                  
                  176,483
                  
                  
                  
                  154,709CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                  
                  $
                  170,219
                  
                  
                  $
                  496,892SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION:Cash
      paid during the period for:Interest
      paid
                  
                  $
                  61,820
                  
                  
                  $
                  125,644Income
      taxes paid
                  
                  $
                  20,397
                  
                  
                  $
                  651,753SUPPLEMENTAL
      SCHEDULE OF NONCASH ACTIVITY:Issuance
      of options for stock based compensation
                  
                  $
                  -
                  
                  
                  $
                  3,853,462







6











PRECISION
AEROSPACE COMPONENTS, INC.


CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009 AND 2008


(UNAUDITED)





1.  BASIS
OF PRESENTATION







The
accompanying condensed consolidated unaudited interim financial statements
included herein have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC").  The
condensed financial statements and notes are presented as permitted on Form 10-Q
and do not contain information included in the Company's annual 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.  It is suggested that these condensed financial statements
be read in conjunction with the December 31, 2008 audited financial statements
and the accompanying notes thereto.  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.




These
condensed consolidated unaudited financial statements reflect all adjustments,
including normal recurring adjustments, which, in the opinion of management, are
necessary to present fairly the operations and cash flows for the periods
presented.








2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Significant
accounting policies followed in the preparation of the consolidated financial
statements are as follows:





Inventory





Inventory
is stated at the lower of cost or market, utilizing the specific lot
identification method (except as noted subsequently).  The Company is
a distributor of goods that retain their value and may be purchased by its
customers for an extended period of time.  The Company has adopted the
convention that any Inventory item for which the Company has not had any
transactions within the past five years shall be reduced to a zero
value.  Inventory consists of finished goods for resale at June 30,
2009.  For the 6 months ended June 30, 2009, $108,996 was written
off.  For the similar period in 2008, $83,502 was written
off.








Property
and Equipment





Property
and equipment are stated at cost less accumulated depreciation and
amortization.  The Company computes depreciation and amortization
using the straight-line method over the estimated useful lives of the assets
acquired as follows:








Warehouse
      equipment
                5 yearsLeasehold
      improvements
                5 -
      39 years **Computers
                5 yearsFurniture
      and fixtures
                7 yearsEquipment
                5 years




**
Shorter of life or lease term.









7







PRECISION
AEROSPACE COMPONENTS, INC.


CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009 AND 2008


(UNAUDITED)








Goodwill
and Other Intangible Assets





In June
2001, the Financial Accounting Standards Board (“FASB”) issued Statement No. 142
“Goodwill and Other Intangible Assets”.  This statement addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB Opinion No. 17, “Intangible Assets”.  It
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. In conjunction with the purchase of Freundlich assets and
acquisition of DFAS in July 2006, goodwill was recognized at
$2,221,744.  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.




Concentration
of Credit Risk





Sales to
the United States Department of Defense (“DOD”) represented approximately 53.6
percent of the Company’s total sales for the quarter ended June 30, 2009 and
49.8 percent for the year to date.  No other customer accounted for
greater than 10 percent of the Company’s total sales and the Company has no
substantial concentrations of credit risk in its trade receivables.





Shipping and Handling Costs and
Fees





The
Company records freight cost on merchandise purchased to cost of goods sold and
freight and delivery charges on sales to selling, general and administrative
expenses.





Income
Taxes





The
Company accounts for income taxes in accordance with Statements of Financial
Accounting Standards No. 109, “Accounting for Income Taxes,” which requires an
asset and liability approach to financial accounting and reporting for income
taxes.  Deferred income taxes and liabilities are computed annually
for differences between the financial statement and the tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income.  Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized.





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.









8





PRECISION
AEROSPACE COMPONENTS, INC.


CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009 AND 2008


(UNAUDITED)





3.
PROPERTY AND EQUIPMENT-NET





Substantially
all of the Company's property and equipment are pledged as collateral for its
loans.





June
      30, 2009
                
                
                December
      31, 2008Furniture
      and fixtures
                
                $
                2,392
                
                
                $
                2,392Equipment
      and other
                
                
                365,181
                
                
                
                358,300Leasehold
      improvements
                
                
                6,487
                
                
                
                6,487374,060
                
                
                
                367,179Less
      accumated depreciation and amortization
                
                
                (222,855
                )
                
                
                (182,545
                )Property
      and equipment, net
                
                $
                151,205
                
                
                $
                184,634





Depreciation
expense for the six months ended June 30, 2009 was $ 40,310.








4.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES




Accounts
payable and accrued expenses as of June 30, 2009 and December 31, 2008 consist
of the following:





June
      30, 2009
                    
                    
                    December
      31, 2008Accounts
      payable
                    
                    $
                    305,267
                    
                    
                    $
                    237,390Accrued
      expenses
                    
                    
                    26,273
                    
                    
                    
                    15,140Total
                    
                    $
                    331,540
                    
                    
                    $
                    252,530





5.
COMMITMENTS AND CONTINGENCIES





The
Company leases office and warehouse space for its operations under a lease which
expires July 20, 2013.  The Company has an option to extend the
lease.  The present rental rate is $12,400 per month.





On March
6, 2008, the Company guaranteed the performance of Freundlich in connection with
the agreement, entered into on the same date, between Freundlich and Israel
Discount Bank of New York (the “Agreement”).  The Agreement has been
extended through August 31, 2009, and the Company has been informed by the Bank
that it will be renewed for a full term.  The Agreement establishes a
revolving funding facility which will allow Freundlich to receive up to three
(3) million dollars.  The funds will be made available to Freundlich
in accordance with an advance formula which allows for the payment of up to
eighty (80) per-cent of eligible accounts and fifty (50) per-cent of eligible
inventory, up to a maximum inventory advance amount of two million five hundred
thousand dollars ($2,500,000).  Eligible accounts 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, at the Company’s option, the prime rate plus
one (1) per cent, but not less than four and one quarter (4.25) per cent or
LIBOR plus three and three quarters (3.75) per cent.  The balance is
secured by a first lien position on all of Freundlich’s assets.  At
June 30, 2009, the Company had the availability to borrow an additional $202,494
under this facility.


9






PRECISION
AEROSPACE COMPONENTS, INC.


CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009 AND 2008


(UNAUDITED)





6.
SHORT-TERM DEBT AND LINE OF CREDIT








Short-term
      debt as of June 30, 2009 and December 31, 2008 consists of the
      following:2009
                    
                    
                    2008Revolving
      funding facility. Due 2009 (See note 5).
                    
                    $
                    2,797,506
                    
                    
                    $
                    2,722,506$750,000
      subordinated term loan due April 30, 2009secured
      by all assets equipment at a variable rate of Prime plus 1% (6.25 on March
       31, 2008).
                    
                    
                    -
                    
                    
                    
                    75,000$
                    2,797,506
                    
                    
                    $
                    2,797,506






7.
OPTIONS AND AGREEMENTS





On
February 27, 2008 the Board of Directors of the Company (the “Board”) approved
an employment agreement (the “Agreement”) with Andrew S. Prince, the Company’s
President and CEO, as well as the options awarded in conjunction with the
agreement.





The
Company used the Black Scholes Model to value the options.  The
Company recognized an expense of $3,853,462 noncash compensation for six months
ended June 30, 2008 and $0 for the 6 months ended June 30, 2009.






8.
FAIR VALUE MEASUREMENTS





On
October 1, 2008, the Company adopted SFAS No. 157 “Fair Value
Measurements” (“SFAS 157”). SFAS 157 defines fair value, provides a consistent
framework for measuring fair value under Generally Accepted Accounting
Principles and expands fair value financial statement disclosure requirements.
SFAS 157’s valuation techniques are based on observable and unobservable inputs.
Observable inputs reflect readily obtainable data from independent sources,
while unobservable inputs reflect our market assumptions. SFAS 157 classifies
these inputs into the following hierarchy:




Level 1
Inputs– Quoted prices for identical instruments in active markets.




Level 2
Inputs– Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value
drivers are observable.




Level 3
Inputs– Instruments with primarily unobservable value drivers.




The
following table represents the fair value hierarchy for those financial assets
and liabilities measured at fair value on a recurring basis as of June 30,
2009.





10





PRECISION
AEROSPACE COMPONENTS, INC.


CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS


JUNE
30, 2009 AND 2008


(UNAUDITED)








8.
FAIR VALUE MEASUREMENTS (CONTINUED)








Fair
Value Measurements on a Recurring Basis as of June 30, 2009:














9.   RESTATEMENT
OF CONSOLIDATED FINANCIAL STATEMENTS





The
Company has restated its yearend financial statements for the yearend 2006 to
reflect an effective date of July 20, 2006, for the acquisition of the assets to
Freundlich Supply Company.  The Company previously reported all
financial activity for the period of July 1, 2006 to July 19, 2006 in its
originally filed Form 10-KSB for the year ended December 31,
2006.   This error caused revenues for 2006 to be overstated by
$735,675, cost of sales to be overstated by $514,305 and goodwill to be
overstated by $221,370 with a tax liability overstatement of $66,527.
Additionally there were reclassifications between liabilities, temporary equity
and permanent equity. This restatement affected the Company’s financial
statements for the period ended June 30, 2008.















11








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 2008 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 disclosers 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 disclosers are adequate to make the information presented not
misleading.  The results for the six months ended June 2009 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.





The
Company is responding to a comment letter from the SEC which was occasioned by
the selection of the Company for a Sarbanes Oxley review of its
filings.  To incorporate the suggestions by the SEC and issues which
have come to the Company’s attention, the Company is filing the modified
financials from its 10-Q for the second quarter of 2008.  The issues
do not include any items regarding the day to day operations of the Company for
the period subsequent to acquisition of the Freundlich assets, even though they
affect the operating results.  In the comparable period in 2008, the
issues related to the accounting presentation of the options issued by the
Company, which was a non-cash event, although the Company has been required to
make this fact less obvious by not showing it as a separate line item, but
rather including it within its general and administrative expenses.








12





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.





Freundlich
and, through it, the Company is a stocking distributor of aerospace quality,
internally-threaded fasteners.  Freundlich distributes high-quality,
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 or 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 exclusively on the distribution of aerospace quality nut
products, serving as an authorized stocking distributor for seven of the premier
nut manufacturers in the United States.  Freundlich competes with
numerous distributors who serve as authorized stocking distributors for the
fastener manufacturers in its 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 more than 6,500 SKUs comprised of more than
22 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.  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 nearly 53.6%, of our total sales, for the year to date sales to the
Department of Defense represented nearly 49.8%, of our total
sales.  No other customer accounts for more than 10% of our
sales.





The
Company’s second quarter this year was below that achieved in the same period
last year; however our balance sheet position continued to
improve.  There has been no recovery in the slowdown in fastener
industry orders.  The reduction in orders has allowed the
manufacturers to reduce their lead times and to make continued progress reducing
their backlog.  Apparently, due to the fact that many of the
specialized fasteners the Company acquires are produced by duopolies or
triopolies, the Company has yet to see reductions in prices which should have
resulted from reductions in the cost of raw materials utilized to fabricate the
products.  Prices have substantially stabilized.  The
Company has continued to experience an increased flow of goods, both as a result
of delayed orders being finally received as well as more recent orders being
received earlier than anticipated.  This has increased inventory above
projected growth for the year to date.  Certain lead times are still
significantly longer than are required for product fabrication, as these times
are reduced increased deliveries are expected.  However, there has
been a reduction in the total value of shipments which fall in this
category.  Overall inventory growth for the quarter continued at the
pace expected, but starting from the higher level of the prior
quarter.  The Company believes that inventory growth will slow going
forward, because there has been substantial delivery of backorders as well as
because there has been a reduction in recent re-orders to accommodate market
conditions.  Until the inflation which the Company is anticipating
occurs, the inventory investment pressures which have afflicted the Company in
the recent past will abate, thereby improving the discretionary cash flow
available to the Company.  The Company has been able to substantially
improve communications with its vendors so that it now has much higher
confidence regarding its ability to provide good information concerning
deliveries; this enables the Company, on an improving basis, to provide the
level of customer service we would like to provide.





The
Company’s consolidated revenues increased nearly 3% in the quarter to $2,802,014
from $2,731,812 in the comparable period last year and decreased over 6% in the
year to date to $5,464,438 from $5,837,280 in the comparable period last
year.  This was the result of a combination of both a historically
strong first quarter last year combined with a particularly weak January and
early February this year.









13






The
Company’s gross profit of $778,152 is 14% less than the gross profit of $908,149
for the same 3 month period last year.  This gross profit is nearly
28% percent of revenues as opposed to approximately 33% for the same period last
year and the gross profit of $1,586,104 is about 16% less than the gross profit
of $1,894,363 for the year to date period last year.  This gross
profit is approximately 29% percent of revenues as opposed to nearly 33% for the
same period last year.  The reduction in margin was anticipated as the
prior higher margins were the result of both reduced margins on older government
contracts due to higher costs of goods which are not fully recouped through the
price increases allowed in the contracts and the use of older inventory which
was obtained at lower prices as well as present market conditions which are
resulting in more aggressive pricing.  We anticipate that margins will
trend slightly lower in coming quarters due more to competitive pressures in a
weaker market than to price of goods increases.





The
Company showed an improvement in both its net income before taxes and interest
expense and net income applicable to common shares (“profit”) numbers shown both
for the three month period $200,446 and $117,132 versus losses last year of
($483,962) and ($632,679), respectively, for the three month period and $438,553
and $262,952 respectively, for the year to date, versus losses of ($3,101,124)
and ($3,500,085), respectively, for the same period last year.  This
improvement is mainly due to the requirement imposed on the Company in
accordance with Generally Accepted Accounting Principles (“GAAP”) that the
Company not clearly differentiate between expenses and non cash option
expenses.  The Company is concerned that this required presentation
may be misleading.  The non cash option expenses included in the
expenses for last year were $788,120 for the three month period and $3,853,462
for the entire year to date period last year.  The Company utilized
the Black Scholes option pricing model which is commonly and widely used to
determine the non-cash option expense amount.  The recognition of this
expense did not have an impact on cash flows, although it does affect the income
statement and balance sheet for financial reporting purposes.  The
Internal Revenue Service does not allow any portion of this non-cash expense to
be utilized as a deduction to income for income tax purposes.  This
non-cash expense amount does not get reversed or taken into income now that the
options have expired unexercised.





Although
the Company incurred slightly higher interest expenses of $38, 939 for the three
months compared to $30,082 for the period last year, for the year to date
interest expenses have been reduced by over $60,000; $61,820 this year, compared
to $125,644 for the same period last year.  The decrease for the
period was mainly due to the Company having replaced Freundlich’s previously
existing $1,000,000 credit facility on March 6, 2008 with a $3,000,000 credit
facility, having a lower variable rate of interest (Prime plus 1% versus Prime
plus 4%) and utilizing $1,000,000 of the new facility to pay off the Company’s
previously existing convertible debt (without conversion or penalty) on March
31, 2008; the paid off debt had a substantially higher rate of interest (14%);
additionally, the prime rate which is the basis of measurement for the Company’s
variable rate debt, declined year over year.  The Company has also
paid off, in February 2009, its subordinated secured loan, which had an interest
rate of Prime plus 1% on the outstanding balance.





These
actions will decrease the future interest payments required to be made by the
Company.  Additionally they have caused the debt liabilities on the
Company’s balance sheet to all be short term, since the line of credit needs to
be renewed within the year, presently by August 31, 2009.  The Company
expects that the line will be renewed.





At the
close of the period, the Company had $202,494 available to draw under the credit
facility.  At the close of the same period last year, the Company had
$178,627 available to draw under the credit facility.





The
Company’s cash and equivalents at the end of the period, $170,219 were more than
$6,000 less than the $176,483 at the end of last year.  This cash has
been realigned as debt has been refinanced and substantial deliveries, requiring
payment prior to receipt of funds generated by their sale, were received during
the quarter.





The
Company’s inventory totaled $5,040,622 at the end of the
period.  Inventory had been $4,592,247 at year end 2008, bringing the
total investment in inventory for the period to nearly $450,000.  Part
of the increase is due to the price increases in goods, but a portion of the
increase is the increased deliveries resulting from an increased pace of
deliveries of overdue orders and reduced lead times.  The Company
anticipates that inventories will stabilize as some of the recent deliveries are
shipped, prices of new orders stabilize or are reduced and shorter lead times as
well as the potential for reductions in producer prices lead to reductions in
the size and timing of replacement orders.  There still may be some
acceleration in deliveries as lead times continue to decline and older orders
finally arrive.








14





The
Company’s accounts payable and accrued expenses totaled $331,540 at the end of
the period.  This is an increase of nearly $80,000 from the $252,530
at the end of last year.  The accounts payable portion, $305,267 was
increased by over $67,000 from the $237,390 at the end of last
year.  The, accrued expenses portion, $26,273, was increased by over
$10,000 from the $15,140 at the end of last year.  The Company has
used available cash above its desired safety level to take advantage of
discounts with certain of its suppliers, which, at present interest rates,
provides it a savings in preference to paying down the balance on its line of
credit.  The Company is usually in a position to take advantage of the
discounts offered.  The increased payables result directly from the
increased deliveries of supplies in the first quarter.  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, $5,425,157, were nearly $263,000 greater than the $5,162,205 at the end
of last year.  This continues the Company’s growth in net
assets.





The
Company does not presently anticipate any material additional capital
expenditures on plant and equipment for existing operations during 2009 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 until
acquisitions warrant additional personnel.  Freundlich may make an
additional hire to improve business operations.  Presently many
Company level activities are either outsourced or handled at the Freundlich
level.





The
Company has reached agreement with its investors in its financing of July 20,
2006, further extending the date by which the Company is required to file a
registration statement effecting a 150:1 reverse split through December 15,
2009.  The Company and the affected investors agree that it is in the
best interests of the Company that the deferral continues.





The
Company has restated its yearend financial statements for the yearend 2006 to
reflect an effective date of July 20, 2006, for the acquisition of the assets of
Freundlich Supply Company.  The Company previously reported all
financial activity for the period of July 1, 2006 to July 19, 2006 in its
originally filed Form 10-KSB for the year ended December 31,
2006.  This error caused revenues for 2006 to be overstated by
$735,675, cost of sales to be overstated by $514,305 and goodwill to be
overstated by $221,370 with a tax liability overstatement of $66,527.
Additionally there were reclassifications between liabilities, temporary equity
and permanent equity.  This restatement affected the Company’s
financial statements for the period ended June 30, 2008.


















15






Critical
Accounting Policies





The
Company considers the accounting policies related to revenue and related cost
recognition, the valuation of inventory, the valuation of goodwill, and
transactions related to our debt and equity financing activity, to be critical
to the understanding of our results of operations.  For a more
detailed discussion of the Company’s critical accounting policies, please see
the Company’s consolidated financial statements and accompanying
notes.  Critical accounting policies include the areas where the
Company has made what it considers to be particularly subjective or complex
judgments in making estimates and where these estimates can significantly impact
the Company’s financial results under different assumptions and
conditions.  The Company prepares its financial statements in
conformity with U.S. generally accepted accounting principles.  As
such, the Company is required to make certain estimates, judgments, and
assumptions that it believes are reasonable based upon the information
available.  These estimates, judgments and assumptions affect the
reported amounts of assets and liabilities at the date of the financial
statement and the reported amounts of revenue and expenses during the periods
presented.  Actual results could be different from these
estimates.





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.





ITEM
4 & 4T CONTROLS AND PROCEDURES





(A)
Evaluation of 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.  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.





In
addition, 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 evaluation, that have materially affected, or are reasonably likely
to materially affect, those internal controls over financial
reporting.








16





PART
II


OTHER INFORMATION





ITEM
6.  Exhibits.





The
following exhibits are included herein:


Exhibit
      No.
              
              Exhibit31.1
              
              Certification
      of Chief Executive Officer of the Company required by Rule 13a-14(a) under
      the Securities Exchange Act of 1934, as amended31.2
              
              Certification
      of Chief Financial Officer of the Company required by Rule 13a-14(a) under
      the Securities Exchange Act of 1934, as amended32.1
              
              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: 
      August 13, 2009
            
            PRECISION
      AEROSPACECOMPONENTS,
      INC./s/
      Andrew S. PrinceAndrew
      S. PrincePresident
      and Chief Executive Officer









17








EXHIBIT INDEX


Exhibit
      Number
              
              Description31.1
              
              Certification
      of Chief Executive Officer of the Company required by Rule 13a-14(a) under
      the Securities Exchange Act of 1934, as amended31.2
              
              Certification
      of Chief Financial Officer of the Company required by Rule 13a-14(a) under
      the Securities Exchange Act of 1934, as amended32.1
              
              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














18