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no operations, and our sole objective was to identify, evaluate, and acquire an operating business which wanted to become a publicly held entity.  On June 25, 2007, we reincorporated as a Colorado corporation under the name Timeshare Rescue, Inc. On October 2, 2007, we changed our name to National Automation Services, Inc. in connection with our reverse merger with an operating entity named Intuitive System Solutions, Inc., as described below.  On December 28, 2007, we reincorporated as a Nevada corporation under the name National Automation Services, Inc.

Plan of Operation

For the next 12 months we intend to focus our efforts on implementing the following business strategy:

Resolve Default on Outstanding Secured Indebtedness to Trafalgar.  

We have incurred approximately $3,500,000 (including interest) in indebtedness to Trafalgar Capital Specialized Investment Fund, Luxembourg (“Trafalgar”), the repayment of which is secured by the first priority security interest and lien we granted to Trafalgar in all of our existing and after acquired personal property, including the stock of our two operating subsidiaries.  Our obligations are guaranteed by our CEO, Robert W. Chance but he does not have the resources to fulfill such guaranty in the event his is required to do so.  On July 7, 2009 Trafalgar sent us a notice of default stating we have violated the terms of our debt agreements by failing to make certain payments when due and breaching certain covenants, and it accelerated the due date of all of our outstanding indebtedness.  We do not have the cash or other resources to repay Trafalgar.  Therefore, Trafalgar could seek to enforce its security interest and execute upon our assets, which if successful could cause us to curtail or cease our operations.  We have had and expect to continue to have discussions with Trafalgar to amicably resolve our default as well as our pending litigation against Trafalgar seeking (1) a declaratory judgment that Trafalgar’s debt agreements are null and void because the effective interest rates charged to us violate the criminal usury provisions of the State of Florida, whose laws govern, and (2) damages.  Nonetheless, if Trafalgar were to initiate judicial foreclosure on the collateral we intend to seek a restraining order preventing Trafalgar from exercising any rights it has as a secured creditor until after the conclusion of our pending litigation.  We cannot give any assurance that our attempts to obtain judicial relief will be successful, in default of which there would be a material adverse effect on us and our business, prospects and viability if Trafalgar were to foreclose (for more information, see Item 1A, Risk Factors – Notice of Default on and Acceleration of our Outstanding Secured Indebtedness; All Assets Pledged as Collateral Security; Possibility of Foreclosure and Item 3, Legal Proceedings).  

Raise Substantial Additional Capital.  

We currently have a severe cash shortage, and our operating revenues are insufficient to fund our operations.  Consequently, our audited financial statements contain, in footnote 3, an explanatory paragraph to the effect that our ability to continue as a going concern is dependent on our ability to increase our revenue, eliminate our recurring net losses, eliminate our working capital deficit, and realize additional capital; and we can give no assurance that our plans and efforts to do so will be successful (see Item 8, Financial Statements and Supplementary Data).  Therefore, we require substantial additional funds to finance our business activities on an ongoing basis and to implement our acquisition strategy portraying our company as one able to provide a target company not only with cost savings resulting from centralized estimating, accounting and other corporate functions but also with additional working capital to finance and grow its business.  Accordingly, we intend to seek additional financing.  However, our assets already are pledged to Trafalgar as collateral for our outstanding (including interest) indebtedness and Trafalgar has issued a notice of default and accelerated our indebtedness, so we cannot expect to obtain any asset-based financing or unsecured debt financing.  Therefore, we would be seeking additional equity financing.  We have recently entered into an agreement to obtain equity financing (see Item 7, Liquidity and Capital Resources/ Plan of Operation for the Next Twelve Months for additional information), however there can be no assurance that the additional financing we sought under the agreement would be available without certain objectives to be performed by the Company. If the Company cannot fulfill the requirements set forth in the agreement, the Company cannot guarantee its success to provide adequate funding.  Any additional funding sought would likely result in a material and substantial dilution of the equity interests of our current shareholders and could potentially, scale back or terminate our acquisition efforts as well as our own business activities, which would have a material adverse effect on the company and its viability and prospects.  (See also Item 1A, Risk Factors – Continuation as Going Concern; We Need Substantial Additional Capital; and Operating Losses, Layoffs and Cutbacks.)

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Improve Existing Operations.

Our operating results have been unsatisfactory.  We had a working capital deficit of $(4,798,238) at December 31, 2009. We also have experienced recurring losses.  Although in each of the following periods our revenues have increased over the corresponding period in the prior year, for the fiscal year end December 31, 2009, we had an operating loss of $(3,125,188), and a net loss of $(4,887,646); and for the year ended December 31, 2008, we had an operating loss of $(5,742,018) and a net loss of $(6,181,424).  In addition, as a result of insufficient cash flow (our receivables are now being paid within 60 to 90 days, compared to payments within 45 days during 2008), we were forced to lay-off 50% of our operations staff and impose a temporary 20% salary reduction on our employees and a temporary 50% salary reduction on our senior management, and at April 12, 2010 our cash on hand, most of which was obtained from recent private placements of our common stock, was negligible $14,700.

We intend to try to improve cash flow from operations.  We hope to increase our revenue by increasing our visibility and the awareness of our company, and our products and services, by engaging in more aggressive sales, marketing and advertising activity.  We intend to develop and implement strategies to market ongoing maintenance and service contracts to our current as well as our past customers, and we plan to package these continuing services as part of our industrial automation design and manufacturing services.  We also intend to implement cost reduction synergies such as centralizing procurement and estimating activities at our corporate hub using dedicated teams of trained employees, rather than having these tasks performed at our branch offices. Such centralization in a single location also would provide greater corporate control of pricing while relieving local office engineers and other personnel of those responsibilities and enabling them to devote all of their time to operational activities.  

Effect Strategic Acquisitions.

We intend to expand our operations into other markets in the continental United States and to reduce our concentration in municipal water management/waste water treatment by acquiring select small to medium sized privately-held automation companies which principally perform work for industrial applications.

We use the following principal criteria to evaluate acquisition opportunities:

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Established business with a proven operating track record. We seek established businesses with strong financial performance, positive operating results, established or growing contract backlogs, and/or the potential for positive operating cash flow. We consider the experience and skill of management and whether other talented personnel exist within the company or the local market.

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Opportunity for growth of our industrial business: We look for businesses with an established base of industrial end users, to provide us an opportunity to increase our diversification outside of the water treatment/wastewater jobs which we have had such a large concentration of our business in the past.

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Opportunity to expand into new geographical markets: We seek businesses that have an established presence in local metropolitan markets in which we have no presence and which preferably are near our existing regional footprint.  We also examine the likelihood of the target being able to obtain water treatment/wastewater jobs based on our existing expertise, as well as our ability to obtain new business in our pre-existing markets by promoting the target company’s industry-specific experience and expertise.

The criteria identified above are not intended to be exhaustive. Any evaluation relating to the merits of a particular business combination will be based, to the extent relevant, on the above factors as well as other considerations deemed relevant by our management in effecting a business combination consistent with our business objectives. Accordingly, we may enter into a business combination that does not meet any or all of these criteria if we believe that it has the potential to create significant stockholder value.

We intend to effect our acquisitions by structuring the transaction to require us to pay the purchase price principally by issuing shares of our common stock to the owners of the target company.  If cash is required, we intend to use cash on hand and, if our cash resources are insufficient, either to draw down on our existing, or to seek

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to obtain new, credit facilities or to raise cash in private offerings of debt or equity securities.  However, as a result of the notice of default and acceleration we received on July 7, 2009 from Trafalgar, currently we are unable to draw down any additional money from our revolving credit facility with Trafalgar, and we cannot obtain any new asset-based financing unless and until we resolve such default.   In addition, in our December 2008 Credit Agreement with Trafalgar, among other things we agreed that we would not issue additional common stock without Trafalgar’s prior written consent, and that we would not incur additional indebtedness or acquire all or any substantial part of the assets, business or stock of any business while we owed money to Trafalgar.  We have advised Trafalgar that we believe such Agreement is not enforceable by Trafalgar, and we have filed a lawsuit against Trafalgar, as described below in Item 8, Legal Proceedings.  We have had and expect to continue discussions with Trafalgar seeking to amicably resolve our default as well as our pending litigation against Trafalgar seeking (1) to declare its credit agreements null and void because the effective interest rates charged to us violate the criminal usury provisions of the State of Florida, whose laws govern, and (2) damages.  However, if Trafalgar does initiate judicial foreclosure on our assets we intend to seek a restraining order against it preventing it from exercising any rights it has as a secured creditor until after the conclusion of our pending litigation.  We cannot give any assurance that our attempts to obtain judicial relief will be successful, in default of which there would be a material adverse effect on us and our business, prospects and viability if Trafalgar were to foreclose on our assets.  For more information about this pending litigation, (see Item 3, Legal Proceedings and also Item 1A, Risk Factors - Notice of Default on and Acceleration of our Outstanding Secured Indebtedness; All Assets Pledged as Collateral Security; Possibility of Foreclosure; and We Need Substantial Additional Capital.)  

Director Qualifications and Board of Directors Role

Our Company’s Board of Director qualifications, to date, have been members of the ownership of our Company. As owners of the Company who now sit on the board, their fundamental role has been to guide the Company’s success in its current operations, to oversee the management and executive levels of the Company and to ensure that the Company complies with the rules and regulations of a public or traded company. Management has traditionally had a broad discretion to adjust the application and allocation of our cash and other resources as they are also a part of the ownership and Board of Directors team. With the effective status of our registration statement, the Company has started implementing “key” business concepts and fundamental strategies in order to further “separate” the Board functions from those of management. Our primary goal is to have our Corporate Governance rules and regulations implemented to start these strategies. The Board of Directors role in the next six to twelve months will move from its existing blend of management and direct dependence on ownership to one of independence set forth in our Governance as noted on our website and other disclosed documentation. These principals will also adhere to the Company’s code of conduct (ethics) which is also noted on the Company’s website and exhibited hereto on this annual filing.

Acquisitions Effected

Intuitive System Solutions, Inc.

To implement our desire to discontinue our status as a public “shell”, on October 2, 2007, we acquired 100% of the outstanding capital stock of Intuitive System Solutions, Inc. (“ISS”), a Nevada corporation headquartered in Henderson, Nevada, which was formed on April 30, 2001 and engages in the business of designing, producing, installing specialized mechanical and electric automation systems built to operate and control machinery and processes with a minimum of human interaction.  To acquire ISS we issued an aggregate of 39,999,999 shares of our common stock, which shares represented approximately 99.6% of our outstanding common stock on a fully diluted basis.  (For accounting purposes this acquisition has been treated as a reverse merger, with ISS as the acquirer; and therefore our historical financial statements prior to October 2, 2007 are those of ISS.)  Accordingly, pursuant to the Stock Purchase and Plan of Reorganization Agreement among us, ISS, Messrs. Jody R. Hanley (“Hanley”), Robert W. Chance (“Chance”) and Manuel Ruiz (“Ruiz”) (collectively, the “ISS Owners”), TBeck Capital, Inc. (“TBeck”), a Florida corporation, and 3 JP Inc., a California corporation, we issued to the ISS Owners an aggregate of 21,999,999 “restricted” shares of our common stock as follows:  Hanley: 7,333,333 shares; Chance: 7,333,333 shares; and Ruiz: 7,333,333 shares.  Messrs. Chance, Ruiz and Hanley, who now control our Board of Directors and are our senior Management, also executed a lockup agreement in which each agreed not to sell any of the 7,333,333 shares he received in that transaction for two years, other than in a private sales transaction

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approved in advance by Ronald Williams (the President of T-Beck, who died in March 2009) or Joseph Pardo, the President of 3 JP.  After the closing, we relocated our executive offices to the offices of ISS in Henderson, Nevada.  

In addition, we issued to T-Beck and its designees an aggregate 18,000,000 shares because T-Beck (1) was the owner, in escrow, of 1,126,745 shares of ISS common stock issued in consideration for T-Beck having paid to ISS an aggregate of $506,000 in cash and agreeing verbally to pay to ISS after the closing an additional $244,000 in cash to be used for working capital, and (2) allegedly paid the $250,000 required to effectuate the transaction.  (T-Beck never executed a promissory note to memorialize this future funding obligation, and it never paid us or ISS the promised $244,000.)  In addition, T-Beck and its President Ronald Williams had advised ISS and Messrs. Chance, Hanley and Ruiz that being acquired by NAS, despite its deregistration of its securities under the Securities Exchange Act of 1934, as amended (“Exchange Act”), would be the best route to take ISS public while also providing financing to ISS. Of these 18,000,000 shares, 4,000,000 were “restricted” shares and were issued as follows:  3 JP Inc. – 1,975,000 shares; Stingray Investments, Inc. – 1,975,000 shares; and Hoss Capital – 50,000 shares; and 14,000,000 were “free trading” shares issued pursuant to an opinion of counsel relying upon the exemptions from registration available under Rule 504 under the Securities Act of 1933, as amended, and under the securities laws of the State of Texas, as follows: T-Beck – 2,000,000 shares; Victoria Financial Consultants, LLC – 2,000,000 shares; Warren Street Investments, Inc. – 1,000,000 shares; BGW Enterprises, Inc. – 1,898,147 shares; Blake Williams – 1,101,853 shares; South Bay Capital, Inc. – 3,000,000 shares; and Michelle Rice – 3,000,000 shares.  We now believe that Stingray Investments, T-Beck and Warren Street Investments were affiliates of Ronald Williams (Ronald Williams was the President of T-Beck, and he died in March 2009); BGW Enterprises and Victoria Financial Consultants were affiliates of Blake Williams, the adult son of Ronald Williams; and South Bay Capital was an affiliate of 3 JP, and that both were affiliates of Joseph Pardo.  Accordingly, Ronald Williams, Blake Williams and Joseph Pardo all may be deemed to have become promoters as of the closing of the ISS reverse merger (see Item 13, Certain Relationships and Related Transactions, and Director Independence – Promoters and Certain Control Persons).  

After giving effect to the ISS transaction, we had issued and outstanding 40,125,181 shares of common stock, which were owned as follows:  Messrs. Hanley, Chance and Ruiz owned 21,999,999 shares, representing approximately 54.8%, or 7,333,333 shares each, representing approximately 18.3% each; T-Beck and its designees owned 18,000,000 shares, representing approximately 44.9% (including (a) 4,975,000 shares, representing approximately 12.4%, owned by persons we now believe were affiliates of Joseph Pardo, (b) 4,975,000 shares, representing approximately 12.4%, owned by T-Beck and other persons we now believe were affiliates of Ronald Williams and (c) 4,000,000 shares, representing approximately 10%, owned by Blake Williams and persons we now believe were his affiliates); and the public owned 125,082 shares, representing approximately 0.3%.  

Intecon, Inc.

On December 26, 2007, we acquired 100% of the outstanding capital stock of Intecon, Inc. (“Intecon”), an Arizona corporation headquartered in Tempe, Arizona, which conducts an automation control systems business similar to ours except that Intecon specializes in water management/wastewater treatment projects awarded by municipalities.  Pursuant to a Stock Purchase Agreement among us, Brandon A. Spiker (“Spiker”), David Marlow (“Marlow”) and Frank Brown (“Brown”), we issued an aggregate of 300,000 “restricted” shares of our common stock (valued at $42,000), and paid an aggregate of $300,000 in cash when we paid the unsecured 60-day, 5% Promissory Notes we issued at the closing to the sellers, as follows: Spiker: 120,000 shares and a $120,000 Note; Marlow: 90,000 shares and a $90,000 Note; and Brown: 90,000 shares and a $90,000 Note.  In addition, we agreed to pay up to $150,000 (we actually paid $250,000) of Intecon’s outstanding indebtedness the repayment of which had been guaranteed by Spiker and Marlow.  On March 25, 2008, as part of the overall Intecon acquisition, we issued an additional 1,500,000 “restricted” shares of common stock, valued as of the December 26, 2007 acquisition date at $210,000, to each of Messrs. Spiker and Marlow as a retention bonus in consideration for him entering into an employment agreement with Intecon expiring on December 31, 2010.  (For more information about such employment agreements, see Item 11, Executive Compensation.)

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8

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The Remote Terminal Unit (“RTU”), which is a computer-controlled electronic device that can send digital data to a PLC or supervisory system and also manipulate physical processes based on either HMI input or data provided by sensors or a PLC. RTUs can be designed to wirelessly transfer data using a system of radio telemetry or when a hard-wired RTU is impractical.

In our Underwriters Laboratories (“UL”) certified control panel fabrication facility in Henderson, Nevada, we design and produce, according to electrical and other specifications issued by UL, the control panels that connect and operate the SCADA interface network.  We are equipped to manufacture a variety of control panels, including UL-508 standard control panels, which can be built either to the specifications of our end user or based on an application-specific design created by our engineers. Virtually every panel we produce is custom-designed for the field functions it is to control, and it is rare to have two identical panels from project to project and end user to end user. These panels may be incorporated into system design projects for which our services have been retained, or on occasion we may sell them to original equipment manufacturer (“OEM”) clients who then will incorporate our panels into the manufacture of their own systems and products.

A Typical Project – From Concept to Operational Control Panels

We are working on a project for the Clark County Water Reclamation District (“CCWRD”), Nevada area of Las Vegas, which has reclamation facilities to be used for water treatment in Las Vegas, Nevada.  The facilities were implemented to reclaim used water and clean it in such cases as to not only satisfy the EPA standards but also remove the impurities or the reclaimed water for other uses.  The CCWRD project hired a consulting engineering firm to manage the project, and that firm, through a general contractor, awarded a subcontract to us for the design and installation of the control panels and field instrumentation to be used to manage these water treatment systems.

Our first task in implementing the project was to assemble a project team.  The team consisted of a project manager, project engineer, field installation manager, and technicians.  The project team first developed field instrument specifications, control panel specifications, electrical loop drawings, and operations and maintenance manuals for the consulting engineering firm to review. Once approved, our procurement department sourced all the components required for the job.  Once the components were located and ordered, we began fabrication of the PLCs and control panels according to project drawings.  When the components are delivered and installed, we ship the completed control panels to the field. Our field installation manager coordinates the control panel installation with the other contractors working on the project: the field technicians install all components devices; the electrical contractor wires all PLCs, HMIs, and other components; and the technicians and project engineer conducts field calibrations and start-up.  

Our project manager has overseen all phases of the project and attended project coordination meetings with the client and its contractors. Once the project is finished, these facilities can run 24 hours per day, seven days per week, with minimal human intervention.

Customers; Contracts; Concentration; Seasonality

Our customer base consists primarily of contractors and electrical subcontractors who have been awarded projects requiring the installation of automation controls systems. Our business depends principally on our being awarded projects by those contractors or subcontractors through a competitive bidding process, although a relatively small number of jobs are obtained through negotiation.  As for 2009 and 2008 approximately 65% and 81% respectively, of our projects have involved water reservoir management and waste water treatment facilities operated by municipalities, although we also have been retained by contractors and subcontractors to provide automated control systems or components for use in industrial applications.

Typically, the material terms of our fixed-price contracts are: (1) percentage of completion method, (2) invoicing terms, (3) deadlines for submittals, (4) wage rates and (5) start time.  For time and material contracts, our material terms involve:  (a) the start/end date and (b) price quotes for materials and percentage of labor allocated for the job.  

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Our business does not experience seasonal fluctuations.

Our Market

The automation/control industry in the United States has been approximated to exceed over $500 billion in revenues per year. The automation industry is segmented, consisting of automation control and system divisions in companies that expand over various markets (Aerospace, Robotics, Transportation, Process, Security, Automotive, etc.). We estimate, based on various external sources, the total automation/control market consists of over 21,000 publically and privately held companies operating both domestically and internationally.

Historically we have viewed and confined our marketplace, for the most part, to the Southwestern United States; specifically in Arizona and Nevada. The main industries served have been water/wastewater, mining, and light manufacturing.

We are also looking to provide automation into new vertical markets such as security, machine building, on Original Equipment Manufacturers (“OEM’s”), and Heating, Ventilating, and Air Conditioning (“HVAC”) industries. Since August of 2009 we have looked to California for organic growth in our current markets of water/wastewater, mining, and light manufacturing but also expanding into new markets available in California such as food processing, oil and gas, and automation of shipping ports. California has an abundant amount of OEM’s that can use our contract manufacturing skills and engineering know-how at the competitive rates of Arizona and Nevada. Additionally since 2001, the Security Industry Market has also been growing at our sea ports, airports, and on our borders, making this another market that is highly profitable allowing us to capitalize on industry demands.

Our focus in 2010 and beyond, will be to expand our market via inorganic growth mainly through Mergers and Acquisitions into other regions of the United States, solidifying our position as a leading System Integrator and becoming the provider of choice for a wider range of industries and territories served, allowing for the growth and sustainability in unpredictable market trends.

Competitive Business Conditions; Competitive Position; Methods of Competition

 Competition

The automation control industry is intensely competitive.  A few large automation control companies, such as Emerson Electric Company, Rockwell Automation, Inc. and Honeywell International, Inc., dominate the industry as they offer national as well as worldwide support for the corporate and government clients they serve. Many of our competitors have longer operating histories, and virtually all have greater name recognition, larger customer and end user bases and significantly greater financial, technical and sales and marketing resources than we do.  As noted above, 81% of our revenue is derived from water management/waste water treatment jobs awarded by municipalities in the Southwestern United States.  Our most significant competitor for this market niche is Fluid IQs Inc. (formerly known as Control Manufacturing Company), which is based in Napa, California, with regional offices in Arizona, Nevada, New York, Southern California and Utah, and is a subsidiary of Glenmore Global Solutions.  Fluid IQs, which has been in business for 28 years, states on its website that it is one of a very select number of certified system integrators listed by Control System Integrators (“CSIA”); certified member status with the CSIA is achieved by meeting stringent performance standards, as measured in an intensive audit process conducted by an independent third-party consulting firm, in general management, financial management, project management, quality management, technical management, human resources, and business development; and certified members are re-audited every three years to the current performance standards.  

As discussed above, our contracts typically are awarded on a competitive bid basis. Unlike Fluid IQs, our company is not a certified systems integrator listed by CSIA, and we do not consider this to be a material competitive disadvantage. While our competitive position varies, we believe we are progressing to be a significant competitor in the markets we serve principally as a result of our design capabilities and the total equipment life cycle we provide, our ability to meet the delivery schedule, and also because of our reputation, experience and safety record.

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Backlog

Our backlog represents contracts that we have started or have been awarded, but which have not been completed or signed, respectively, and it excludes the portion of orders already included in revenue on the basis of percentage of completion.  Our backlog as of December 31, 2009 and December 31, 2008 was $2,486,992 and $2,338,193, respectively. Our backlog generally runs off within 12 months from the date of contract signing.

Since projects take several months to complete, we generally show a large backlog of work as new projects begin. As the projects are completed, backlog is realized.  During fiscal 2009, we had realized $1,753,645 (75%) of the backlog existing at December 31, 2008; and at fiscal 2008, we realized $2,058,208 (80%) of the backlog existing at December 31, 2007. A small portion of unrealized backlog reflects project contracts that involve extended or ongoing service that will be realized when the service is provided or completed.

Raw Materials and Components

We do not purchase any raw materials. We do purchase components used to manufacture our control panels, on an as-needed basis after we are retained for a project and after we assess the components that will be needed for that particular project.  

We order components from third-party distributors and manufacturers, including General Electric, Rockwell Automation’s Allen-Bradley division, Siemens Energy & Automation, Schneider Electric’s Modicon division, Wonderware, Intellution and Walters Electric. These components are off-the-shelf items and are available from multiple sources, and our need for particular components depends on the requirements of a particular project; however, where we can do so we order components from those manufacturers and distributors who we believe will give us notice of new projects on which we would have an opportunity to a bid or otherwise obtain work.  We integrate these components into our control panels, using the software that is provided with these components or, where applicable, we program the software to operate within the specific SCADA interface we designed. We have a high concentration of purchases from a single supplier or limited numbers of suppliers in the automation industry; however, even if one of these suppliers was to go out of business we would be able to obtain supplies and materials from other vendors in such a manner as to be minimally affected.

Environmental Matters

We are subject to environmental regulation by federal, state and local authorities in the United States. Although we believe we are in substantial compliance with all applicable environmental laws, rules and regulations (“laws”), the field of environmental regulation can change rapidly with the enactment or enhancement of laws and stepped up enforcement of these laws, either of which could require us to change or discontinue our control panel manufacturing activities.  At present, we are not involved in any material environmental matters and are not aware of any material environmental matters threatened against us.

Proprietary Rights

We do not own or license any patents or trademarks, and we have no immediate plans to do so. We have not filed, and do not intend to file, any application with any government agency for protection or registration of these rights. We rely upon a combination of nondisclosure and other contractual arrangements to protect our proprietary rights.

Distribution Methods of our Service

Sales, Marketing and Advertising

We typically get business by biding for projects, and in order to learn of the existence of contracts for which we might be interested in bidding we monitor the public forums where municipalities post the water management/waste water treatment projects for which they are seeking bids and where industrial projects are listed.

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repay Trafalgar. Therefore, Trafalgar could seek to execute upon our assets, which if successful could cause us to curtail or cease our operations.  We have had and expect to continue discussions with Trafalgar seeking to amicably resolve our default as well as our pending litigation against Trafalgar seeking (1) to declare its credit agreements null and void because the effective interest rates charged to us violate the criminal usury provisions of the State of Florida, whose laws govern, and (2) damages.  However, if Trafalgar does initiate judicial foreclosure we intend to seek a restraining order against it preventing it from exercising any rights it has as a secured creditor until after the conclusion of our pending litigation.  We cannot give any assurance that our attempts to obtain judicial relief will be successful, in default of which there would be a material adverse effect on us and our business, prospects and viability if Trafalgar were to foreclose on our assets.  (For further information, see Item 3, Legal Proceedings.)  

Continuation as a Going Concern

Our auditors' report on our audited December 31, 2009 financial statements, and footnote 3 to such financial statements, reflect the fact that with the current economic environment extending collections of our receivables and our inability to obtain additional financing, it would be unlikely for us to continue as a going concern. Our operating revenues are insufficient to fund our operations and our assets already are pledged to Trafalgar as collateral for our estimated current outstanding $3,500,000 (including interest) of indebtedness and in our December 18, 2008 Credit Agreement with Trafalgar (which we believe is unenforceable-see Item 3, Legal Proceedings) we agreed, among other things, not to sell additional common stock without Trafalgar’s prior written consent and not to incur additional indebtedness.  The unavailability of additional financing could require us to delay, scale back or terminate our acquisition efforts as well as our own business activities, which would have a material adverse effect on the company and its viability and prospects.  As noted above, we plan to increase our revenue by increasing our visibility and the awareness of our company, and our products and services, by engaging in more aggressive sales, marketing and advertising activity.  We intend to develop and implement strategies to market ongoing maintenance and service contracts to our current as well as our past customers, and we plan to package these continuing services as part of our industrial automation design and manufacturing services.  We also intend to implement cost reduction synergies such as centralizing procurement and estimating activities at our corporate hub using dedicated teams of trained employees, rather than having these tasks performed at our branch offices.  However, we can give no assurance that these plans and efforts will be successful.

We Need Substantial Additional Capital  

We have experienced recurring net losses, including net losses of $(4,887,646) for the fiscal year ended December 31, 2009 and $(6,181,424) for the fiscal year ended December 31, 2008, and we had an accumulated deficit of $(12,959,894) at December 31, 2009.  Although at December 31, 2009, we had accounts receivable of $368,098, our receivables are being paid slower (60 to 90 days after invoice compared to 45 days in 2008) and currently we have a severe cash shortage, with approximately ($14,700) of cash on hand at April 12, 2010. Our operating revenues are insufficient to fund our operations.  Therefore, we require substantial additional funds to finance our business activities on an ongoing basis and to implement our acquisition strategy portraying our company as one able to provide a target company not only with cost savings resulting from centralized estimating, accounting and other corporate functions but also with additional working capital to finance and grow its business.  Accordingly, we intend to seek additional financing following the filing of this registration statement.  However, our assets already are pledged to Trafalgar as collateral for our estimated current outstanding $3,500,000 (including interest) indebtedness and Trafalgar has issued a notice of default and accelerated our indebtedness, so we cannot expect to obtain any asset-based financing or unsecured debt financing, and in our December 18, 2008 Credit Agreement with Trafalgar which we believe is unenforceable (see Item 3, Legal Proceedings). We agreed, among other things, not to sell additional common stock without Trafalgar’s prior written consent and not to incur additional indebtedness.  Nonetheless, because we believe such Agreement is not enforceable, therefore we would be seeking additional equity financing.  We have recently entered into an agreement to obtain equity financing (see Item 7, Liquidity and Capital Resources/ Plan of Operation for the Next Twelve Months for additional information), however there can be no assurance that the additional financing we sought under the agreement would be available without certain objectives to be performed by the Company. If the Company cannot fulfill the requirements set forth in the agreement, the Company cannot guarantee its success to provide adequate funding.  Any additional funding sought would likely result in a material and substantial dilution of the equity interests of our current shareholders and could potentially, scale back or terminate our acquisition efforts as well as our own business activities, which

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would have a material adverse effect on the company and its viability and prospects. (see also Item 8, Financial Statements and Supplementary Data).  

Operating Losses, Layoffs and Cutbacks

There can be no assurance that we will achieve profitability in the near term, over the long term, or ever.  Although in each of the following periods our revenues have increased over the corresponding period in the prior year we cannot give any assurance that our revenues will continue to do so. For the fiscal year ended December 31, 2009, we had an operating loss of $(3,125,188) and a net loss of $(4,887,646); for the year ended December 31, 2008, we had an operating loss of $(5,742,018) and a net loss of $(6,181,424).  In addition, as a result of insufficient cash flow (our receivables are now being paid within 60 to 90 days, compared to payments within 45 days during 2008), we were forced to lay-off 50% of our operations staff and impose a temporary 20% salary reduction on our employees and a temporary 50% salary reduction on our senior management, although we have paid such cash reductions in shares of our common stock through July 3, 2009, we still owe from July 3, 2009 through the date of this filing. As of April 12, 2010 our cash on hand was only approximately $14,700.  Our business and growth strategies may never be successful, and we may never be profitable.  

Fluctuations in Operating Results

We expect quarterly and annual operating results to fluctuate, depending primarily on the following factors:

·

Timely payment of our accounts receivable;

·

Our ability to obtain new business;

·

Our ability to generate significantly greater revenues than we have been able to generate to date, and to have revenues in such amount as to be able to satisfy our  operational overhead, which now is not being met;

·

Our ability to reduce selling, general and administrative cash expenses,

particularly payroll compensation, by issuing stock to alleviate cash constraints, especially considering that our planned expansion by acquisition of other companies will result in increases in operating expenses, including, without limitation, as a result of the employment contracts we seek to enter into with the former owners of these companies;

·

The cost of components used for the production of control panels; and

·

The cost of attracting and hiring qualified employees.

Risks of Expansion by Acquisition

Our business strategy depends in large part on our ability to identify and acquire suitable companies, to expand our current expertise into the markets of our acquired companies, and to capitalize on the expertise of these companies to obtain new business in our current markets.  Delays or failures in acquiring new companies would materially and adversely affect our planned growth.

The success of this proposed strategy will depend on numerous factors, some of which are beyond our control, including the following:

·

securing any required approvals from our lender(s) and others;

·

our ability to effectively integrate an acquired company, including its information systems and personnel;

·

our ability to retain the services of the key employees of the acquired company;

·

availability of additional qualified operating personnel;

·

necessary or unavoidable increases in wages, or unanticipated operating costs;

·

the possibility of unforeseen events affecting the region particularly in which an acquired company operates;

·

adverse effects on existing business relationships resulting from the performance of an acquired company; and

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·

diversion of management’s attention from operating our business.

The acquisition transactions may also result in the following:

·

issuance of additional stock that would further dilute our current stockholders’ percentage ownership;

·

incurring debt;

·

assumption of unknown or contingent liabilities; or

·

negative effects on reported operating results from acquisition-related charges and

·

amortization of acquired technology, goodwill and other intangibles.

Therefore, our business strategy may not have the desired result, and notwithstanding effecting numerous acquisitions we still may be unable to achieve profitability or, if profitability should be achieved, to sustain it.

Impairment of Goodwill and/or Intangible Assets May Occur

Goodwill resulting from our acquisitions of other companies and other intangible assets represent a significant portion of our assets. As of December 31, 2009 and December 31, 2008, we had goodwill and other identifiable intangible assets of $36,034 and $367,530, respectively. We review these assets for impairment at least annually or whenever events or circumstances indicate the carrying amount of an asset may not be recoverable. If we were to determine that a significant impairment in value of our goodwill or unamortized intangible assets had occurred, we would be required to write off a substantial portion of such assets, which would negatively affect our results of operations and financial condition, and it could adversely impact our stock price.

Management of Growth

Our strategy anticipates significant growth in the diversity of our operations and in our business, which would place demands on our management and our limited financial and other resources.  To manage any such growth, we would be required to attract and train additional qualified managerial, engineering, technical, marketing and financial personnel. If we are unable to effectively manage any such growth, our business, operating results and financial condition could be materially adversely affected.

Dependence on Qualified Professionals

Our business depends on our ability to hire and retain engineers and technicians with highly specialized skills and experience. Many engineers and technicians obtain post-graduate or professional degrees, and the increased educational time required at the post-graduate level further restricts the pool of engineers and technicians available for employment.  Our success also depends in large part upon our ability to attract and retain qualified management, marketing and sales personnel.  We compete for all such personnel with other automation companies.  There can be no assurance that we will be successful in hiring or retaining such qualified personnel. If we are not able to hire and retain qualified people to fill these positions, our competitive position would be adversely affected, which would have a material adverse effect on our business, financial condition and results of operations.

Backlog Not Indicative of Future Results

Our backlog consists of contracts that we have received but not yet signed or started, and projects we have started but which have not been completed. We cannot guarantee the revenue projected in our backlog will be realized, or if realized, that it will generate profits.

Contractors, subcontractors or end users may cancel or delay a project for reasons beyond our control. The majority of our contracts allow for a cancellation under certain terms and conditions. In the event of a project cancellation, we generally would be reimbursed for our costs, but typically we would have no contractual right to the total revenue expected from any such project as reflected in our backlog. In addition, projects may remain in our backlog for extended periods of time. The current credit and economic environment could significantly impact the

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financial condition of some end users, resulting in greater risk of delay or cancellation of projects. If we were to experience significant cancellations or delays of projects in our backlog, our results of operations and financial condition would be adversely affected.

Collection Uncertainties on Accounts Receivable

We are paid as the work we perform on a project progresses toward completion. The current credit and economic environment has significantly impacted the ability of our contractors to pay amounts due to us, or the ability of end users to pay our contractors, in a timely manner. Although we have had nominal increases in our reserve for doubtful accounts, payments of our accounts receivable have slowed, and our collections currently are averaging 60 to 90 days after billing, compared to 45 days in fiscal 2008. Additionally, on a majority of our jobs we are required to advance the funds to purchase components or other materials prior to our receipt of an interim progress payment. If we do so, and the project is terminated or our contract is cancelled, we may have difficulty recovering those expenditures from our contractor, subcontractor, or end user. If a contractor, subcontractor or end user becomes insolvent or files for bankruptcy protection, the amount recoverable may be less than the amount owed to us, in which case the project could generate a loss instead of a gross profit for us.  To try to minimize these collection risks, when we receive a contract we place a lien against the project in order to obtain collateral security for the payments of our receivables; however, we might not have a first priority position, and the value of the collateral could be insufficient to satisfy all lien creditors, which would limit the amount of our recovery.  Although on most of the jobs we receive our contractors or subcontractors are required to post a bond to secure the payments to which we become entitled as a result of the services we perform, there can be no assurance that we will be able to collect from the bonding company.  

Fixed-Price Contracts

Approximately 95% of our revenues, including larger engineered systems projects, are performed under fixed-price contracts.  We are responsible for all cost overruns, other than those resulting from customer-approved change orders and certain force majeure (natural disaster) situations. Our actual costs may exceed, and gross profit realized may be less than, the estimates derived from our contract prices, for various reasons, including, for example, errors in estimates or bidding; changes in availability and cost of labor and component parts; and reduced productivity. These variations and the risks inherent in engineered systems projects may result in reduced profitability or losses. Depending on the size of a project, variations from estimated contract performance could have a significant negative impact on our operating results and our financial condition.

The following table represents the amounts of our revenues which are generated by each of fixed-price and time and materials contacts, and the percentage of our revenues attributable to these contract types:  

Typically, the material terms of our fixed-price contracts are: (1) percentage of completion method, (2) invoicing terms, (3) deadlines for submittals, (4) wage rates and (5) start time.  For time and material contracts, our material terms involve:  (a) the start/end date and (b) price quotes for materials and percentage of labor allocated for the job.  

Revenue from Contracts Realized over Several Months

Our revenues are substantially derived from significant contracts that typically are performed over periods of two to four quarters. As a result, our revenue and cash flow may fluctuate significantly from quarter to quarter, depending upon our ability to replace existing contracts with new orders and the extent of the delays, if any, which we may encounter in performing our contacts.

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Liability for Product Warranties

We typically warrant the workmanship and materials used in the equipment and systems we manufacture and install. Failure of the system or equipment to operate properly or to meet specifications may increase our costs by requiring additional engineering resources, replacement of parts or equipment, or service or monetary reimbursement to the end user. To the extent we are unable to make a corresponding warranty claim against the manufacturer of the subject component or software we purchased and installed.

Competition

We face a variety of competitive challenges from other automation companies, many of whom have greater financial and marketing resources than we do and may be able to adapt to changes in consumer preferences or retail requirements more quickly, devote greater resources to the marketing and sale of their products or adopt more aggressive pricing policies than we can.

Contracts for our products and services are generally awarded on a competitive basis. Historically, our markets have been very competitive in terms of the number of suppliers providing alternative products and technologies. The most important factors considered by our customers in awarding contracts include price, the availability and capabilities of our equipment, our ability to meet the project schedule, our reputation and name recognition, our experience and our safety record. If our competitors can overshadow us in these respects, or possess industry certifications (such as a “control system integrator” as awarded by the CSIA, a certification we do not have) we may be at a disadvantage when bidding on a project, and our operating results could suffer.

Control by Management; Anti-Takeover Considerations

Our company is effectively controlled by Management, specifically Messrs. Robert W. Chance, Jody R. Hanley, Manuel Ruiz, Brandon Spiker, David Marlow, and Jeremy Briggs (“Management”), who collectively own approximately 38% (as of December 31, 2009) of our outstanding common stock.  While we intend to pursue our business strategy as set forth herein, Management has broad discretion to adjust the application and allocation of our cash and other resources, whether in order to address changed circumstances and opportunities or otherwise.  As a result of such discretion, our success is substantially dependent upon their judgment.  In addition, Management is able to elect our board of directors and to cause the directors to declare or refrain from declaring dividends, to increase our authorized capital, to authorize one or more series of preferred stock with dividend, liquidation, conversion, voting or other rights which could adversely affect the voting power or other rights holders of our common stock, issue additional shares of capital stock and generally to direct our affairs and the use of all funds available to us.  Any such preferred stock also could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.  Any issuance of common or preferred stock could substantially dilute the percentage ownership of the company held by our current stockholders.  Such concentration of ownership may have the additional effect of delaying, deferring or preventing a change of control of the company. Also, this controlling interest may have a negative impact on the market price of our common stock by discouraging third-party investors.

Dependence on Management

Our success is dependent upon the active participation of our Management.  We have entered into employment agreements (i) with Messrs. Chance, Hanley and Ruiz, for an initial two-year term which expired February 14, 2009, and such agreements now are in their successive automatic one-year renewal periods, and each employee may elect not to renew his contract on notice given to us at least 30 days before the renewal date, and (ii) with Messrs. Spiker and Marlow which expire on December 31, 2010.  In addition, we do not maintain any "key man" insurance on any of their lives.  In the event we should lose the services of any of their people, our business would suffer materially.  There can be no assurance that we would be able to employ qualified person(s) on acceptable terms to replace them.

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Dependence on Leases of Space and Manufacturing Equipment and Space

We lease from Jody Hanley, one of our executive officers and the owner of approximately 10% (as of April 12, 2010) of our common stock, on a month-to-month basis a substantial amount of the equipment we use and require to manufacture our control panels.  Under our lease with Mr. Hanley, as the lessee we are obligated to maintain the leased equipment and repair it in the event of a malfunction. As a result of these lease terms, we could decide it would be more cost-effective to purchase comparable equipment or to lease newer or different equipment from another lessor, possibly at a higher price, which might result in a substantial cash investment, or increased ongoing obligations which would increase our operating expenses.  Also, it is possible that companies acquired in the future will lease a portion of the equipment used in their operations, which leases may be month-to-month, or may contain limited or no renewal options or escalating or fair market renewal clauses.  If we do not have sufficient cash on hand to maintain, repair and/or purchase the manufacturing equipment we need, our operations and prospects could suffer a materially and adversely.  

All of our offices and other facilities now are, and hereafter likely will be, leased from third parties. These leases are for fixed terms or month-to-month, and the fixed term leases contain limited renewal options with escalating or fair market renewal clauses. There can be no assurance that these leases can be continued or renewed or, if they are renewed, that the renewals can be obtained at lease rates that permit our facilities to be operated at a profit. Relocation of these facilities would likely be costly, and such expenses could limit our profitability.

Dependence on Third-Party Suppliers

Our manufacturing processes require that we buy a high volume of components from third party suppliers. Our reliance on these suppliers involves certain risks, including:

·

The cost of these items might increase, for reasons such as inflation and increases in the price of the precious metals, if any, or other internal parts used to make   such items, which could cause our costs to complete a job to exceed the estimate we used to create our bid;

·

Poor quality could adversely affect the reliability and reputation of our control panels; and

·

A shortage of components could adversely affect our manufacturing efficiencies and delivery capabilities, which could prevent us from obtaining, or hinder our ability to obtain, new business, which could jeopardize our ability to comply with the requirements of our contracts.

Any of these uncertainties also could adversely affect our business reputation and otherwise impair our profitability and ability to compete.

Sensitivity to Economic and Other Trends in the Southwestern United States

Our operations will be limited by the conditions and trends in the areas in which we operate, and currently we only conduct business in the southwestern United Sates, particularly in Nevada, Arizona, and Utah.  As a result, we are particularly susceptible to adverse trends and economic conditions in this area, including its economic and labor markets. In addition, because we purchase components from suppliers located throughout the United States, other regional occurrences such as local strikes, energy shortages or increases in energy prices, droughts, hurricanes, fires or other natural disasters, as well as general economic trends and credit conditions, could have a material adverse effect on our business and operations.

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These bid quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

Sales of Unregistered Securities

The following is a summary of all transactions within the year involving our sales of our securities that were not disclosed under our registration statement Form 10 and our reviewed financials for the 3^rd quarter as of November 16, 2009, for the Securities Act.  Shares issued for cash consideration paid to us are valued at the purchase price per share; all other shares are valued as stated.  All shares issued were issued as “restricted” shares of our common stock except as otherwise expressly stated.

2010

On January 6, 2010, the Company issued 220,000 shares of common stock to Eugene Ingles III valued at $0.045 per share based upon the conversion price under our convertible note dated November 10, 2009.

On January 6, 2010, the Company issued 880,000 shares of common stock to Eugene Ingles IV valued at $0.045 per share based upon the conversion price under our convertible note dated December 22, 2009.

On January 27, 2010, the Company issued 1,000,000 shares of common stock to Quality Stocks valued at $60,000 or $0.06 per share based on the fair market value on January 27, 2010, for services rendered per the consulting agreement dated January 27, 2010.

On February 9, 2010, the Company issued 700,000 shares of common stock to Harbour Capital valued at $42,000 or $0.06 per share based on the fair market value on February 9, 2010, for services rendered per our consulting agreement dated February 1, 2010.

On February 11, 2010, the Company issued to one individual 40,000 shares of common stock in consideration for $2,000 in cash, or $0.05 per share.

On February 15, 2010, the Company issued to one individual 690,000 shares of common stock in consideration for $30,000 in cash, or $0.043 per share.

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July 21, 2008:  $750,000 Debenture.  On July 25, 2008, pursuant to another securities purchase agreement, we issued to Trafalgar our secured redeemable debenture in the principal amount of $750,000 due on January 25, 2010.  Due to a 15% principal redemption premium, the effective principal amount of the debt is $862,500.  This debenture bears interest at an annual rate of 10%, payable monthly, and is subject to mandatory monthly redemption payments, consisting of principal and interest, commencing after one month.  We paid Trafalgar the following cash fees: (i) a Legal and Documentation Review fee of $17,500, (ii) a Due Diligence fee of $15,000, (iii) a Commitment Fee of $45,000, being 6% of the debenture’s principal amount, and (iv) a Loan Commitment Fee of $15,000, being 2% of the debenture’s principal amount.  As an Equity Fee, we issued to Trafalgar 2,000,000 shares of our common stock and also issued to Trafalgar 150,000 shares of our restricted common stock in exchange for the Trafalgar Warrant.  We also paid a $45,000 finder’s fee.  Accordingly, we received net cash proceeds of $614,831.  

October 2008 Loans.  On October 8, 2008, we borrowed from Trafalgar $75,000; there was no written agreement.  On October 28, 2008, we repaid $28,000 of this loan. On October 15, 2008, we borrowed of $100,000, which we repaid in full on November 18, 2008.

December 2008: Senior Secured Revolving Credit Facility and Consolidated $2,000,000 Debenture Debt.  On December 18, 2008, we entered into a credit agreement with Trafalgar (which closed and funded on December 19, 2008) whereby Trafalgar provided us with a senior secured revolving credit facility of up to $5,000,000 with an initial, and current, revolving loan commitment of $1,000,000.  We are permitted to draw, repay and re-borrow against the facility in an aggregate amount at any one time not exceeding the lesser of (i) up to 80% of eligible accounts receivable less any applicable reserves and (ii) $1,000,000.  We established a lockbox under the sole control of Trafalgar; and all payments made to the lockbox account are to be swept to us for payroll and agreed-upon payables in the ordinary course of business, and then to Trafalgar on a bi-monthly or monthly basis at its discretion for application to our outstanding indebtedness to Trafalgar.  The revolving loan matures on December 19, 2009, and on the maturity date we have the option to renew the facility for an additional one year if we pay a fee equal to 10% of the then-outstanding revolving loan commitment.  In the event that we terminate the facility and repay the debt we also must pay a prepayment penalty of 10% of the then-outstanding revolving loan commitment. All loans accrue simple interest at a fixed interest rate of 12% per annum, except that upon the occurrence of an event of default the interest rate automatically increases to 18% or the maximum interest rate allowable by law. We paid Trafalgar the following cash fees:  Legal and Documentation Review Fee of $25,000; a Due Diligence Fee of $15,000; a Commitment Fee of $40,000, being 4% of the initial $1,000,000 revolving loan commitment; and an Asset Monitoring Fee of $4,000.  We also agreed to pay an Unused Line Fee of 1% per annum payable monthly in arrears on the difference between the existing loan commitment amount and the actual average daily amount outstanding for the calendar month, and an Equity Fee by granting to Trafalgar that number of shares of our common stock as equaled 9.99% of our outstanding shares of common stock on December 19, 2008; and we have never issued such shares to Trafalgar.

Decision to “Go Public”

National Automation Services, Inc. desire to become a publically traded Company was to provide to the industry in which we do business, an opportunity to enter into a market which has traditionally been (1) a privatized industry and (2) a segregated industry. By going public NAS has the potential to raise capital, more than would be readily available through bond financing (multiple restrictions) and the private financing markets. These private markets have higher rates and are a greater risk to the Company’s overall growth. In the “public arena”, financing can provide opportunities to “glue” together the privatized and segregated industry through acquisitions, joint partnerships, and other working relationships. Essentially, going public will allow NAS to “unlock” relatively illiquid value in our equity and more accessible debt financing (available to publicly traded companies), to turn it into a mechanism for purchasing power. Much of the money raised by going public allows NAS to pursue its business plan, financing business operations and ultimately achieving the growth by acquisition strategy and the overall improvement of the Company’s net worth.

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Critical Accounting Estimates

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements and which we discussed below in Item 8. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe our critical accounting policies are those described below.

Concentrations of Credit and Business Risk

Financial instruments that are potentially subject to a concentration of business risk consist of accounts receivable. The majority of accounts receivable and all contract work in progress are from clients in various industries and locations. Most contracts require milestone payments as the projects progress. We generally do not require collateral, but in most cases can place liens against the property, plant or equipment constructed or terminate the contract if a material default occurs.

Allowance for Doubtful Accounts

As required by the Receivables Topic of FASB ASC, the Company is required to use a predetermined method in calculating the current value for its bad debt on overall accounts receivable.

We estimate our accounts receivable risks to provide allowances for doubtful accounts accordingly. We believe that our credit risk for accounts receivable is limited because of the way in which we conduct business largely in the areas of contracts. Accounts receivable includes the accrual of work in process for project contracts and field service revenue. We recognize that there is a potential of not being paid in a 12 month period. Our evaluation includes the length of time receivables are past due, adverse situations that may affect a contract’s scope to be paid, and prevailing economic conditions. We assess each and every customer to conclude whether or not remaining balances outstanding need to be placed into allowance and then re-evaluated for write-off. We review all accounts to ensure that all efforts have been exhausted before noting that a customer will not pay for services rendered. The evaluation is inherently subjective and estimates may be revised as more information becomes available.

Potential Derivative Instruments

We periodically assess our financial and equity instruments to determine if they require derivative accounting. Instruments which may potentially require derivative accounting are conversion features of debt and common stock equivalents in excess of available authorized common shares.

We have determined that the conversion features of our debt instruments are not derivative instruments because they are conventional convertible debt.

Revenue Recognition

As required by the Revenue Recognition Topic of FASB ASC, the Company is required to use predetermined contract methods in determining the current value for revenue.

Project Contracts Project revenue is recognized on a progress-basis - the Company invoices the client when it has completed the specified portion of the agreement, thereby, ensuring the client is legally liable to the Company for payment of the invoice. On progress-basis contracts, revenue is not recognized until this criteria is met. The Company generally seeks progress-based agreements when a job project takes longer than 30 days to complete.

Service Contracts Service revenue is recognized on a completed project basis - the Company invoices the client when it has completed the services, thereby, ensuring the client is legally liable to the Company for payment of the invoice. On service contracts, revenue is not recognized until the services have been performed. The Company generally seeks service based agreements when project based contracts have been completed.

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In all cases, revenue is recognized as earned by the Company. Though contracts may vary between a progress-basis and completed project basis, as the client becomes liable to the Company for services provided, as defined in the agreement, the client is then invoiced and revenue is accordingly recognized and recorded.  The Company does not recognize or record any revenues for which it does not have a legal basis for invoicing or legally collecting.

Stock-Based Compensation

As required by the Stock-based Compensation Topic of FASB ASC, transactions in which the Company exchanges its equity instruments for goods or services is accounted for using authoritative guidance for stock based compensation. This guidance also addresses transactions in which the Company incurs liabilities in exchange for goods or services that are based on the fair value of the Company’s equity instruments or that may be settled by the issuance of those equity instruments.

If the Company issues stock for services which are performed over a period of time, the Company capitalizes the value paid in the equity section of the Company’s financial statements as it’s a non-cash equity transaction. The Company accretes the expense to stock based compensation expense on a monthly basis for services rendered within the period.

We use the fair value method for equity instruments granted to non-employees and will use the Black-Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

If shares are issued for services to be performed over a period by a vendor, we capitalize the value paid and amortize the expense in association with services actually rendered.

Shares issued to employees are expensed upon issuance.

Income Taxes

As required by the Income Tax Topic of FASB ASC, income taxes are provided for using the liability method of accounting in accordance with the new codification standards. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to the realizing of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, we continually assess the carrying value of our net deferred tax assets.

Fair Value Accounting

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The three levels of the fair value hierarchy are described below:

Level 1

     Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2

     Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

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Level 3

     Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Results of Operations for the Fiscal Years Ended December 31, 2009 and 2008

Summary of Consolidated Results of Operations

Operating Loss; Net Loss

Our increase in revenue to $3,737,725 or 20%, over the prior year is a result of our continued work on existing projects and newly acquired contracts within our industry. We were able to increase our contracts and services due to our continued sales efforts and national branding marketing standards for the Company. Our increase in cost of revenue (goods sold) increased to $3,569,289 or 17% over the prior year due to the increase in our production and labor costs for the existing and newly acquired contracts for 2009. However, our operating loss decreased by $(2,616,830), or (46)%, to $(3,125,188) and our net loss decreased by $(1,293,778), or (21)%, to $(4,887,646).  As discussed below, we attribute these losses to the following: the $525,062 or 17% increase in our cost of revenue, i.e. direct costs; the 44% increase $529,884 in our selling, general administrative expenses resulting from our increase in salaries for our employees incurred prior to our cutbacks in June 2009.   

Revenue.  Our consolidated 2009 revenue increased by $632,506, or 20%, to $3,737,725 compared to $3,105,219 for the year ended December 31, 2008, due to increased business, which is attributable to an increase in (1) the number of new jobs we received and commenced, (2) higher contract prices, and (3) work performed on existing jobs included in our December 31, 2008 backlog of $2,338,193.  

Cost of Revenues; Gross Profit.  Our cost of revenue is comprised of direct materials, direct labor, manufacturing overhead and other job related costs.  Our consolidated 2009 cost of revenue increased by $525,062, or 17%, to $3,569,289, due to the increase costs associated with our contracts for parts, materials and labor (prior to our cutbacks in June 2009).  Our 2009 consolidated gross profit increased by $107,444, or 176%, to $168,436, primarily due to our reduction in costs and an increase in our revenue on new jobs as well as work performed on our existing backlog.

Operating Expenses

Our consolidated operating expenses for 2009 decreased by $(2,509,386), or (43)%, to $3,293,624, which resulted in an operating loss of $(3,125,188), compared to 2008 operating expenses of $(5,803,010) and an operating loss of $(5,742,018).  The $(2,616,830) decrease (46)% in our operating loss is due to the following factors:  the $529,884 increase or 44% in selling, general and administrative expenses; $389,077 increase or 91% in consulting

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fees; and $(3,428,347) or (82)% decrease in professional fees, primarily in stock based compensation.  Stock based compensation, which relates to the value of the shares of common stock we issue to our officers, employees and the consultant to our board of directors for services rendered for which we did not pay compensation in cash, is paid in order to alleviate our cash constraints and maximize our cash, decreased in 2009 by $(3,787,958), or (100)%, because we reduced the amount of stock based compensation issued to management for services in the fiscal year of 2009.

Selling, General and Administrative Expenses.  Consolidated selling, general and administrative expenses increased by $529,884, or 44%, to $1,723,295 for the year ended December 31, 2009, due to the additional expenses in payroll $355,888 (prior to our cut backs in labor in June 2009), fixed costs including travel, rent and advertising ($173,996), attributable to our late 2008 hiring of two employees in our corporate staff in the areas of accounting, human resources and marketing, principally in an attempt at centralization and to support our public company status.

Consulting fees.  Our consulting fees, which are attributable to investor relations services, increased by $389,077, or 91%, to $815,456 for the fiscal year ended December 31, 2009, relating to a full year of efforts to promote the awareness of our company and its business, products and services since we ceased being a public “shell” company and became an operating company upon the closing of our October 2, 2007, acquisition of ISS.  

Professional Fees and Related Expenses.  Professional fees, which principally represent costs for legal and accounting fees and expenses, and corporate, operations and acquisitions advisory services rendered and stock-based compensation to Management, decreased by $(3,428,347), or (82)%, to $754,873, principally because we paid less stock-based compensation to Management in 2009 as opposed to 2008.  We did incur increased expenses for the legal and accounting work needed to respond to the comments of the SEC and to prepare amendment number one (filed in May 2009) to our registration statement on Form S-1 which we filed in December 2008, the filing of our registration statement Form 10, the amended Form 10, as well as the monthly amortization ($50,788 through July 31, 2009 and $20,000 thereafter through December 31, 2009) of the costs associated with services as incurred in January 2009.

Interest Expense; Net.  Interest expense, net increased by 1,164,901, or 256%, to $1,619,257, and is primarily attributable to the interest expense on our secured debt to Trafalgar; including the non-cash accretion of all debt discounts $787,216 under our loan and credit agreements with Trafalgar due to the default notice we received from Trafalgar in July 2009.  At December 31, 2009 we owed Trafalgar an aggregate of $3,105,399, including $758,398, net outstanding under our December 2008 secured revolving note all of our secured indebtedness to Trafalgar now is in default. (See Item 1A, Risk Factors and Item 3, Legal Proceedings - Notice of Default on and Acceleration of our Outstanding Secured Indebtedness; All Assets Pledged as Collateral Security; Possibility of Foreclosure.)

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Financial Condition

Summary of Consolidated Balance Sheets

Assets.  At December 31, 2008, our consolidated total assets decreased by $(1,273,484), or (55)%, to $1,041,318, is due to the following; (1) amortization of our prepaid expenses (2) to our total amortization of deferred financing fees in connection with the indebtedness to Trafalgar which we incurred in 2008 and received a default letter in July 2009 and (3) our impairment of goodwill. We had an increase in our inventory of 99%, principally due to our work in progress for fiscal year end of December 31, 2009.  

Liabilities.  At December 31, 2009, our consolidated total liabilities increased by $2,197,184, or 63%, to $5,677,412, attributable principally to our Trafalgar indebtedness: the increase in our current maturities of Trafalgar debt and reduction of long-term debt as a result of our notice from Trafalgar indicating our default of the loan. All debt was made current.

Stockholders’ Deficit.  Our consolidated stockholders’ deficit increased by $3,460,668, or 294%, to $4,636,094 primarily due to the Company’s stock issuance in efforts to raise capital and also noted the net loss for our fiscal year ending December 31, 2009.

Revenue by Service Type

Project Contracts Project revenue is recognized on a progress-basis - the Company invoices the client when it has completed the specified portion of the agreement, thereby, ensuring the client is legally liable to the Company for payment of the invoice. On progress-basis contracts, revenue is not recognized until this criteria is met. The Company generally seeks progress-based agreements when a job project takes longer than 30 days to complete.

Service Contracts Service revenue is recognized on a completed project basis - the Company invoices the client when it has completed the services, thereby, ensuring the client is legally liable to the Company for payment of the invoice. On service contracts, revenue is not recognized until the services have been performed. The Company generally seeks service based agreements when project based contracts have been completed.

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In all cases, revenue is recognized as earned by the Company. Though contracts may vary between a progress-basis and completed project basis, as the client becomes liable to the Company for services provided, as defined in the agreement, the client is then invoiced and revenue is accordingly recognized and recorded.  The Company does not recognize or record any revenues for which it does not have a legal basis for invoicing or legally collecting.

Our revenue mix between the year of 2009 and the year of 2008 is consistent. Our revenue mix between the years of 2008 compared to year of 2007 shows a decrease in service specific revenue which is attributable to our inclusion of Intecon in 2008 that focuses more on “fixed priced” based projects.  As we have stated previously, we expect to increase service related revenue by our sales efforts and through our acquisition strategy, whereby we can increase our regional footprint and thus provide additional local service related contracts.

Commitment and Contingencies

At December 31, 2009, the Company has indicated its outstanding debt owed to Trafalgar Capital and the notice from Trafalgar concerning default status with the debt balance. Currently, the Company has a lawsuit pending against Trafalgar Capital (see Item 3, Legal Proceedings) which is scheduled with a trial docket starting August 30, 2010, with calendar call on August 26, 2010. A discovery cutoff date is currently set for June 4, 2010. We have therefore indicated the balance of the Trafalgar note allocated in our financials and disclosures to indicate a default event and have placed all outstanding debt balances under current maturities, written off the debt premium/discount and have amortized the remaining deferred financing fees (see also Item 3, Legal Proceedings and Item 8, Financial Statements and Supplementary Data). The outcome of the proceedings is still unknown at this time.

Off-Balance Sheet Arrangements

At December 31, 2009, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our condensed consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Liquidity and Capital Resources/ Plan of Operation for the Next Twelve Months

The economic downturn has had a severe effect on us.  Although for the year ended December 31, 2009, our accounts receivable were $367,098, a decrease of $143,754, or 28%, due to a decrease in invoiced revenue, compared to December 31, 2008, at April 12, 2010 our cash on hand was $14,700.  In addition, we have experienced insufficient cash flow resulting from much slower payments from the contractors and others for whom we work (our receivables are now being paid within 60 to 90 days, compared to payments within 45 days during 2008).  Accordingly, we imposed a temporary 20% salary reduction on our employees and a 50% salary reduction on our senior management (we have paid such cash reductions in shares of our common stock up to June 30, 2009 and have accrued for the remainder of the salary on our financial statements).

We intend to try to improve our cash and cash flow from operations by encouraging faster payments, and if necessary granting discounts for prompt payment, of our receivables while simultaneously delaying payments to our vendors.  We also hope to increase our revenue by engaging in more aggressive sales, marketing and advertising activity designed to increase our visibility and the awareness of our company, and our products and services.  We intend to develop and implement strategies to market ongoing maintenance and service contracts to our current as well as our past customers, and we plan to package these continuing services as part of our industrial automation design and manufacturing services.  We also intend to implement cost reduction synergies such as centralizing procurement and estimating activities at our corporate hub using dedicated teams of trained employees, rather than having these tasks performed at our branch offices. Such centralization in a single location also would provide greater corporate control of pricing while relieving local office engineers and other personnel of those responsibilities and enabling them to devote all of their time to operational activities.  

During 2008 we obtained our liquidity principally from approximately $3,000,000 amount of borrowings from Trafalgar, including a $1,000,000 revolving credit facility we obtained on December 19, 2008.  Thereafter, however, we still needed substantial additional capital to finance our business activities on an ongoing basis, as our revenue was insufficient to fund our operations.  As all of our assets already are pledged to Trafalgar as collateral for our outstanding indebtedness, and Trafalgar recently issued a notice of default and acceleration, we cannot obtain

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any asset-based financing or unsecured debt financing.  Therefore, since January 1, 2009 we have sought additional equity private placement financing from non-institutional investors, and at December 31, 2009, we had raised approximately $925,000 in cash, notwithstanding that in the December 2008 Credit Agreement we agreed, among other things, not to sell any common stock without the prior written consent of Trafalgar.  As indicated above, we believe such Credit Agreement and our agreements made therein are unenforceable.

Also during 2008, we borrowed funds from three directors, two of whom we have yet to pay back.  We originally entered into these agreements with the anticipation of paying them back in a very short term.  As of April 1, 2009, the Company amended the two outstanding related party loan agreements to reduce the high interest rates (estimated at 12.3% per month) to a 10% annual interest rate. On September 11, 2009, the Company borrowed from an executive officer of the Company $10,000 with 10% annual interest as of September 30, 2009 the debt was repaid on November 12, 2009.

In October 2009 a market-maker filed an application to have our common stock listed on the OTC Bulletin Board.  We are currently in the application stage of our process with FINRA in gaining acceptance to the OTC Bulletin Board. We believe an OTC Bulletin Board listing would make it easier for us to raise capital from institutional investors and others. However, we cannot give any assurance if or when such application will be approved.  

On April 7, 2010, the Company entered into a Securities Purchase Agreement with Ascendiant Capital Group, LLC (“Ascendiant”), pursuant to which Ascendiant agreed to purchase up to $5,000,000 worth of shares of our common stock from time to time over a 24-month period. In this equity purchase agreement, the Company has established a new relationship with a funding group. The relationship between the Company and this new lending group provides the Company with additional cash financing for operational and acquisition funding. With the funding available, the Company will be able to satisfy the debt outstanding of its operational requirements (i.e. vendors), will be able to use the funding for securing additional jobs (i.e. bonds, contractor license fees and software programming), and potentially provide the Company with the funding to return both the staff and executive management to their regular salary rates, from the March 2009 implementation of the 20% and 50% respective reductions in salary to help with the cash constraints of the Company.

Summary of Consolidated Cash Flow for the year ended December 31, 2009 and 2008 (rounded)

Our total cash and cash equivalents decreased approximately by $66,100, or 61%, to $42,400 for the year ended December 31, 2009, compared to $108,500 for the year ended December 31, 2008. Our consolidated cash flows for the years ended December 31, 2009 and 2008 were as follows:

Operating Activities

Our total cash (used) by operating activities increased by $238,900, or 19%, to $(1,500,300) for the year ended December 31, 2009, compared to $(1,261,400) for the year ended December 31, 2008.

For the fiscal year ended December 31, 2009, we had less stock issued for services compared to December 31, 2008. We expect future cash (used) provided by operating activities to fluctuate, primarily as a result of fluctuations in our operating results, receivables collections, inventory management and timing of vendor payments. We noted the impairment of our goodwill due to our reoccurring net losses from our Arizona subsidiary, and deferred revenue from our Nevada subsidiary at fiscal year ended December 31, 2009. We still continue to issue stock for services rendered by employees and consultants. Large fluctuations in our operating cash position will continue until we can stabilize our cash funding for operations and future acquisitions. We had no significant unusual cash outlays related to our operating activities during fiscal 2009.

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10% or more of NAS common stock.  However, it is possible that in October 2007, one or more of these three individuals each could have beneficially owned a sufficient number of shares of our outstanding common stock so as to have required us, if we had had knowledge of such ownership, to have (a) placed on their shares the customary restrictive legend for securities held by a person deemed to be an “affiliate” of our company as the issuer of such shares, and (b) instructed our transfer agent to place the customary “stop transfer” instructions against such shares; and any such legend and “stop transfer” would have made it impossible for them to sell their free-trading shares to the public without either (i) an effective registration statement under the Securities Act or (ii) an opinion of counsel that there was available an exemption from applicable registration requirements.  However, beneficial ownership, affiliate status and knowledge each is a question of fact, and in determining that we were not required to place a restrictive legend and “stop transfer” on any of these 14,000,000 shares we do not know what investigation or inquiry, if any, was made by such counsel or by Mr. Talarico.  If in connection with the issuance of these free-trading shares it is believed that either (a) the issuance of such shares did not comply with or satisfy the terms of the exemptions from registration relied upon and that therefore such shares were issued in violation of federal and/or state securities laws or (b) we failed to impose any required restrictive legend, the purchasers of these free-trading shares from the initial recipients thereof, as well as the Securities and Exchange Commission (“SEC”), could commence an action against us.  For example, the SEC could allege that we violated Sections 5(a) and 5(c) of the Securities Act by offering and selling securities when no registration statement had been filed or was in effect as to such securities, and for which there was no exemption from registration available under the Securities Act.  State regulatory authorities also might commence similar enforcement actions.  Any such regulatory enforcement action brought against us might be civil or criminal in nature.  If an enforcement action was to be commenced against us, the defenses we would assert might be unsuccessful.  If such purchasers and/or the SEC or other federal or state regulatory authorities were successful, we would face severe financial demands that would have a material adverse effect on us and our shareholders.  (See also, Item 1, Business - Acquisitions Effected - Intuitive System Solutions, Inc.)

Limitations upon Broker-Dealers Effecting Transactions in "Penny Stocks"

Trading in our common stock is subject to material limitations as a consequence of regulations which limits the activities of broker-dealers effecting transactions in "penny stocks."

Pursuant to Rule 3a51-1 under the Exchange Act, our common stock is a "penny stock" because it (i) is not listed on any national securities exchange or The NASDAQ Stock Market™, (ii) has a market price of less than $5.00 per share, and (iii) its issuer (the Company) has net tangible assets less than $2,000,000 (if the issuer has been in business for at least three (3) years) or $5,000,000 (if the issuer has been in business for less than three (3) years).

Rule 15g-9 promulgated under the Exchange Act imposes limitations upon trading activities on "penny stocks", which makes selling our common stock more difficult compared to selling securities which are not "penny stocks."  Rule 15a-9 restricts the solicitation of sales of "penny stocks" by broker-dealers unless the broker first (i) obtains from the purchaser information concerning his financial situation, investment experience and investment objectives, (ii) reasonably determines that the purchaser has sufficient knowledge and experience in financial matters that the person is capable of evaluating the risks of investing in "penny stocks", and (iii) delivers and receives back from the purchaser a manually signed written statement acknowledging the purchaser's investment experience and financial sophistication.

Rules 15g-2 through 15g-6 promulgated under the Exchange Act require broker-dealers who engage in transactions in "penny stocks" first to provide their customers with a series of disclosures and documents, including (i) a standardized risk disclosure document identifying the risks inherent in investing in "penny stocks", (ii) all compensation received by the broker-dealer in connection with the transaction, (iii) current quotation prices and other relevant market data, and (iv) monthly account statements reflecting the fair market value of the securities.

There can be no assurance that any broker-dealer which initiates quotations for the Common Stock will continue to do so, and the loss of any such broker-dealer likely would have a material adverse effect on the market price of our common stock.

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Fluctuations in Stock Price

Our common stock has been quoted on the Pink Sheets since October 12, 2007. Since that date, our common shares have traded on the Pink Sheets between a low of $0.06 per share and a high of $0.56 per share. The market price of our common stock may change significantly in response to various factors and events beyond our control, including but not limited to the following: (i) the risk factors described herein; (ii) a shortfall in operating revenue or net income from that expected by securities analysts and investors; (iii) changes in securities analysts’ estimates of our financial performance or the financial performance of our competitors or companies in our industry generally; (iv) general conditions in the economy as a whole; (v) general conditions in the securities markets; (vi) our announcements of significant contracts, milestones, acquisitions; (vii) our relationship with other companies; (viii) our investors’ view of the sectors and markets in which we operate; or (ix) additions or departures of key personnel. Some companies that have volatile market prices for their securities have been subject to security class action suits filed against them. If a suit were to be filed against us, regardless of the outcome, it could result in substantial costs and a diversion of our management’s attention and resources. This could have a material adverse effect on our business, results of operations and financial condition.

Limited Public Trading Market

Our common stock is currently quoted for trading on the Pink Sheets. Trading in stocks quoted on the Pink Sheets is often thin and characterized by wide fluctuations in trading prices. With the registration of our Form 10, we seek to increase our trading volume in our current market, however, there can be no assurance that a more active trading market will commence in our securities on the Pink Sheets. Further, in the event that an active trading market commences on the Pink Sheets, there can be no assurance as to the level of any market price of our shares of common stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained.

As we are still currently in the application phase of with FINRA for our move towards the OTC Bulletin Board we will have to seek market-makers to provide quotations for the common stock and it is possible that no market-maker will want to provide such quotations. Even if our common stock is quoted on the Over-The-Counter Bulletin Board, the Over-The-Counter Bulletin Board also provides a limited trading market similar to the Pink Sheets. The Over-The-Counter Bulletin Board and the Pink Sheets are not stock exchanges, and trading of securities on the Over-The-Counter Bulletin Board or the Pink Sheets is often more sporadic than the trading of securities listed on a quotation system such as the NASDAQ Stock Market or a stock exchange such as the American Stock Exchange.

Companies quoted for trading on the Over-The-Counter Bulletin Board must be reporting issuers under Section 12 of the Exchange Act and must be current in their reports under Section 13 of the Exchange Act, in order to maintain price quotation privileges on the Over-The-Counter Bulletin Board. If our common stock is quoted on the Over-The-Counter Bulletin Board, and we fail to remain current on our reporting requirements, we could be removed from the Over-The-Counter Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market. In addition, we may be unable to regain our quotation privileges on the Over-The-Counter Bulletin Board, which may have an adverse material effect on our business.

Accordingly, there can be no assurance as to the liquidity of any present or future markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.

Shares Eligible for Future Sale

The sale of a substantial number of shares of our common stock, or the perception that such sales could occur, could adversely affect prevailing market prices for our common stock.  In addition, any such sale or perception could make it more difficult for us to sell equity, or equity related, securities in the future at a time and price that we deem appropriate.  With the effectiveness of our registration statement, we might elect to adopt a stock

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Report of Independent Registered Public Accounting Firm

To the Board of Directors of

National Automation Services, Inc.:

We have audited the accompanying consolidated balance sheets of National Automation Services, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the two years ended December 31, 2009 and 2008.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluation the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Automation Services, Inc. as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the two years ended December 31, 2009 and 2008, in conformity with generally accepted accounting principles in the United States.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 3 to the financial statements, the Company has working capital deficiencies and continued net losses.  This raises substantial doubt about its ability to continue as a going concern.  Management’s plan in regard to these matters is also described in Note 3.   The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Lynda R. Keeton CPA, LLC

Lynda R. Keeton CPA, LLC

Henderson, NV

April 14, 2010

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The accompanying notes are an integral part of these consolidated financial statements.

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NATIONAL AUTOMATION SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements.

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NATIONAL AUTOMATION SERVICES, INC.

 STATEMENT OF STOCKHOLDERS’ DEFICIT

(…Continued)

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NATIONAL AUTOMATION SERVICES, INC.

 STATEMENT OF STOCKHOLDERS’ DEFICIT (Continued)