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EX-31.2 - EXHIBIT 31.2 - National Energy Services, Inc.ex31_2.htm
EX-32.1 - EXHIBIT 32.1 - National Energy Services, Inc.ex32_1.htm
EX-31.1 - EXHIBIT 31.1 - National Energy Services, Inc.ex31_1.htm
EX-32.2 - EXHIBIT 32.2 - National Energy Services, Inc.ex32_2.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

R
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended:  SEPTEMBER 30, 2012

£
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

NATIONAL AUTOMATION SERVICES, INC.
(Exact name of registrant as specified in its charter)

Nevada
 
000-53755
 
26-1639141
(State or jurisdiction of incorporation or
organization)
 
(Commission File No.)
 
(I.R.S. Employer
Identification No.)

P.O. Box 531744 Henderson, Nevada 89053
 (Address of principal executive offices) (Zip Code)

877-871-6400
(Registrant’s telephone number, including area code)

The registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes R     No £

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes R   No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company: See definitions of  “large accelerated filer,”  “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act

Large accelerated filer £
Accelerated filed £
   
Non-accelerated filer   £
Smaller reporting company R

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes £   No R

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:
 
Class
Outstanding as of April 16, 2013
Common Stock, $.001  par value
336,424,923, net of reserved shares
 


 
1

 



PART I – FINANCIAL INFORMATION
3
Item 1: Financial Statements
3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
Item 4.  Controls and Procedures
18
PART II – OTHER INFORMATION
20
Item 1.  Legal Proceedings
20
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
20
Item 3.  Defaults Upon Senior Securities
21
Item 4.  Mine Safety Disclosures
21
Item 5.  Other Information
21
Item 6.  Exhibits
22
SIGNATURES
23
 
 
 
 
 
 
 
2

 
 
PART I – FINANCIAL INFORMATION


NATIONAL AUTOMATION SERVICES, INC.,
CONDENSED CONSOLIDATED BALANCE SHEETS
 
           
   
SEPT 30, 2012
   
DEC 31, 2011
 
   
(unaudited)
       
ASSETS
           
CURRENT ASSETS
           
     Cash
  $ 103     $ 1,371  
     Accounts receivable
    --       3,252  
     Prepaid fees
    --       22,000  
          Total current assets
    103       26,623  
PROPERTY, PLANT & EQUIPMENT, net of accumulated depreciation of $29,697 and $24,403
    7,429       12,723  
TOTAL ASSETS
  $ 7,532     $ 39,346  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT
               
CURRENT LIABILITIES
               
     Accounts payables
  $ 888,407     $ 945,417  
     Accrued liabilities
    1,837,867       1,624,157  
     Current portion of loans, capital leases and line of credit
    252,637       232,407  
     Convertible debt, net of beneficial conversion feature of $19,763 and $12,092
    196,738       193,408  
     Related party payable
    172,173       183,173  
          Total current liabilities
    3,347,822       3,178,562  
Loans and capital leases
    1,879       7,109  
Derivative liability
    --       113,026  
     Total liabilities
    3,349,701       3,298,697  
STOCKHOLDERS’ DEFICIT
               
     Stock held in reserve
    (647,727 )     (573,276 )
     Common stock $0.001 par value, 1,000,000,000 authorized, 336,424,923, net of reserved
          shares and 191,380,081, net of reserved shares issued and outstanding, respectively
    984,152       200,000  
     Additional paid in capital
    11,907,701       11,853,215  
     Stock payable
    --       564,656  
     Accumulated deficit
    (15,586,295 )     (15,303,946 )
          Total stockholders’ deficit
    (3,342,169 )     (3,259,351 )
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
  $ 7,532     $ 39,346  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3

 
 
NATIONAL AUTOMATION SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
                       
                         
   
THREE
MONTHS
ENDED SEPT
30, 2012
   
THREE
MONTHS
ENDED SEPT
30, 2011
   
NINE MONTHS
ENDED SEPT
30, 2012
   
NINE MONTHS
ENDED SEPT
30, 2011
 
REVENUE
  $ --     $ 75,481     $ --     $ 364,831  
COST OF REVENUE
    --       60,281       --       308,540  
     Allowance for inventory
    --       317,771       --       317,771  
GROSS PROFIT (LOSS)
    --       (302,571 )     --       (261,480 )
                                 
OPERATING EXPENSES
                               
     Selling, general and administrative expenses
    30,148       189,011       171,802       717,495  
     Consulting fees
    --       68,501       --       103,667  
     Professional fees and related expenses
    17,476       89,390       105,694       568,176  
     Gain on settlement of accounts payable
    --       --       (51,273 )     --  
     TOTAL OPERATING EXPENSES
    47,624       346,902       226,223       1,389,338  
                                 
OPERATING LOSS
    (47,624 )     (649,473 )     (226,223 )     (1,650,818 )
                                 
OTHER EXPENSE, non-operating
                               
     Other expense
    --       --       --       7,343  
     Interest expense, net
    59,842       144,434       169,152       405,282  
     Fair value of derivative liability
    --       --       (113,026 )     --  
     Loss on disposal of fixed assets
    --       15,020       --       15,020  
     TOTAL OTHER EXPENSE, non-operating
    59,842       159,454       56,126       427,645  
                                 
OTHER INCOME - nonrecurring
                               
     Gain on debt extinguishment
    --       --       --       (3,001,297 )
                                 
(LOSS) INCOME BEFORE PROVISION FOR
INCOME TAXES
    (107,466 )     (808,927 )     (282,349 )     922,834  
                                 
PROVISION FOR INCOME TAXES
    --       --       --       --  
                                 
NET (LOSS) INCOME
  $ (107,466 )   $ (808,927 )   $ (282,349 )   $ 922,834  
                                 
BASIC (LOSS) INCOME PER SHARE
  $ (0.00 )   $ (0.01 )   $ (0.00 )   $ 0.01  
                                 
DILUTED (LOSS) INCOME PER SHARE
  $ (0.00 )   $ (0.01 )   $ (0.00 )   $ 0.01  
                                 
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING  BASIC
    330,732,454       173,459,807       243,181,885       149,998,436  
                                 
 WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING DILUTED
    330,732,454       173,459,807       243,181,885       159,157,845  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
4

 
            
NATIONAL AUTOMATION SERVICES, INC. CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
   
NINE MONTHS
ENDED SEPT 30,
2012
   
NINE MONTHS
ENDED SEPT 30,
2011
 
             
Operating Activities
           
     Net (loss) income
  $ (282,349 )   $ 922,834  
     Cash used by operating activities
               
          Allowance for doubtful accounts
    --       67,482  
          Allowance for inventory
    --       317,771  
          Depreciation
    5,294       17,555  
          Stock for services
    --       231,150  
          Gain on extinguishment of accounts payable
    (51,273 )     --  
          Gain on extinguishment of debt
    --       (3,001,297 )
          Accretion of convertible notes beneficial conversion feature
    58,655       210,404  
          Decrease in deferred financing fees
    --       125,000  
          Decrease in stock receivable
    --       7,343  
          Fair value of derivative
    (113,026 )     --  
          Expenses paid by related party
    15,000       --  
          Loss on disposal of fixed asset
    --       15,020  
     Changes in assets
               
          Decrease in receivables
    3,251       219,042  
          Decrease in inventories
    --       16,988  
          Decrease in prepaid expenses
    22,000       257,829  
          Decrease in other assets
    --       5,535  
     Changes in liabilities
               
          Increase in accounts payable and accrued liabilities
    211,873       348,611  
     Cash used by operating activities
    (130,575 )     (238,373 )
                 
Investing Activities
               
          Cash used by investing activities
    --       --  
      --       --  
                 
Financing Activities
               
     Proceeds from sale of stock, net of offering costs
    37,807       132,500  
     Proceeds from convertible notes
    87,500       97,500  
     Proceeds from loans
    15,000       --  
     Payments for loans and capital leases
    (11,000 )     (505 )
     Cash provided by financing activities
    129,307       229,495  
                 
(Decrease) increase in cash
    (1,268 )     (8,878 )
Cash at beginning of year
    1,371       11,404  
                 
Cash at end of period
  $ 103     $ 2,526  
                 
Supplemental Cash Flows 
               
     Cash paid for interest
  $ --     $ --  
     Cash paid for income taxes
  $ --     $ --  
                 
SUPPLEMENTAL NON CASH INVESTING AND FINANCING TRANSACTIONS
               
     Stock issued for settlement of debt
  $ --     $ 805,520  
     Issuance of stock for prepaid stock
  $ --     $ 60,338  
     Debt converted to stock
  $ 91,500     $ 155,000  
     Stock issued for accrued expenses
  $ --     $ 435,878  
     Change of stock in reserve
  $ (74,451 )   $ (50,125 )
     Disposal of fixed asset
  $ --     $ 130,852  
     Beneficial conversion feature
  $ (66,321 )   $ 203,741  
     Accrued interest added to note
  $ --     $ 24,000  
     Assignment of related party debt
  $ --     $ 15,000  
      Stock receivable allocated to service expenses prepaid
  $ --     $ 25,000  
     Convertible note for expenses paid by related party
  $ 15,000     $ --  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
5

 
 
NATIONAL AUTOMATION SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

NOTE 1: Organization and basis of presentation

Basis of Financial Statement Presentation

The accompanying unaudited condensed consolidated financial statements of National Automation Services, a Nevada corporation (referred to herein as “NAS” or the “Company”), have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the condensed consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. As used in these Notes to the Condensed Consolidated Financial Statements, the terms the "Company,” "we,” "us,” "our," and similar terms refer to National Automation Services and, unless the context indicates otherwise its consolidated subsidiaries.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. These financial statements have been presented in accordance with the rules governing a smaller reporting company for the nine months ended September 30, 2012 and September 30, 2011, respectively.

These condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto included in the Company’s annual Report on Form 10-K filed with the SEC on April 15, 2012, from which the balance sheet information as of December 31, 2011 was derived.

Business Overview

NAS is a public holding company that serves the Industrial Automation market place. Our offerings are needed by a wide variety of companies across varied market segments, from food processing to nuclear power, both private and public sectors.

Our business plan is to acquire companies with track records of long term, stable, and profitable operations.  Each subsidiary operates as its own entity with current management retained. This will allow the Company’s management to focus on maintaining or increasing current levels of revenues and profitability.  Each subsidiary provides their financials to NAS and the Company will make site visits to ensure companies are in compliance for reporting and monitoring purposes.  As of September 30, 2012, the Company has two (2) subsidiaries which are dormant with no production. One is located in Nevada and the other is located in Arizona.

The Company has evaluated the scope of its business plan and has modified it to reduce corporate overhead functions leaving all operating activities at the subsidiary level. The benefits of this new direction will begin to be realized in 2013.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year period presentation. These changes had no impact on previously reported results of operations.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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.
 
 
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We have determined that the conversion features of our debt instruments are not derivative instruments because they are conventional convertible debt. Additionally, our common stock equivalents are no longer a derivative as we have increased our authorized shares.
 
Earnings (loss) per share basic and diluted

Earnings per share are calculated in accordance with the Earnings per Share Topic of the Financial Accounting Standards Board Accounting Standard Codification ("FASB ASC"). The weighted-average number of common shares outstanding during each period is used to compute basic earnings (loss) per share. Diluted earnings per share are computed using the weighted average number of shares plus dilutive potential common shares outstanding.

Potentially dilutive common shares consist of employee stock options, warrants, and other convertible securities, are excluded from the diluted earnings per share computation in periods where the Company has incurred net loss. For the nine months ended September 30, 2012, the Company had incurred a net loss.

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 (for additional information see Note 8: Fair value).
 
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;

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).

NOTE 2: Recently adopted and recently issued accounting guidance

Adopted

In May 2011, the FASB (“Financial Accounting Standards Board”) issued an accounting standard update that amends the accounting standard on fair value measurements. The accounting standard update provides for a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. generally accepted accounting principles and International Financial Reporting Standards. The accounting standard update changes certain fair value measurement principles, clarifies the application of existing fair value measurement, and expands the fair value measurement disclosure requirements, particularly for Level 3 fair value measurements. The amendments in this accounting standard update are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows

In June 2011, the FASB issued an accounting standard update which requires the presentation of components of other comprehensive income with the components of net income in either (1) a continuous statement of comprehensive income that contains two sections, net income and other comprehensive income, or (2) two separate but consecutive statements. This accounting standard update eliminates the option to present components of other comprehensive income as part of the statement of shareholders’ equity, and is effective for interim and annual periods beginning after December 15, 2011. In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05,” to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. All other provisions of this update, which are to be applied retrospectively, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or cash flows.
 
 
7

 

In September 2011, the FASB issued an accounting standard update that amends the accounting guidance on goodwill impairment testing. The amendments in this accounting standard update are intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments in this accounting standard update are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning January 1, 2012. The adoption of this guidance did not have a material impact on the Company’s financial position, result of operations or cash flows.

In December 2011, the FASB issued Accounting Standard Update 2011-10, “Derecognition of in Substance Real Estate—a Scope Clarification” to clarify that when a parent (reporting entity) ceases to have a controlling financial interest (as described in ASC subtopic 810-10, Consolidation) in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt, the reporting entity should apply the guidance in subtopic 360-20, Property, Plant and Equipment, to determine whether it should derecognize the in substance real estate. Generally, a reporting entity would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse indebtedness. Under this new guidance, even if the reporting entity ceases to have a controlling financial interest under subtopic 810-10, the reporting entity would continue to include the real estate, debt, and the results of the subsidiary’s operations in its consolidated financial statements until legal title to the real estate is transferred to legally satisfy the debt. This amendment is applicable to us prospectively for deconsolidation events occurring after June 15, 2012.  The adoption of this accounting standard update will become effective for the reporting period beginning July 1, 2012.  The adoption of this guidance will not have a material impact on the Company’s financial position, results of operations, or cash flows.

Issued

In December 2011, the FASB issued Accounting Standards Update 2011-11, "Disclosures about Offsetting Assets and Liabilities." This update requires entities to disclose both gross information and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The scope of this update includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and lending arrangements. The Company is required to adopt this update retrospectively for periods beginning after January 1, 2013. The adoption of this accounting standard update will become effective for the reporting period beginning January 1, 2013.  Management does not anticipate that adoption will have a material impact on the Company's consolidated financial position, results of operations or cash flows.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.

NOTE 3: Going concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company had no operating revenues for the nine months ended September 30, 2012.  We had recurring net losses of $(282,349) for the nine months ended September 30, 2012, compared to the net income of $922,834 for the nine months ended September 30, 2011, and a working capital deficiency of $(3,347,719) at September 30, 2012.

Based on the above facts, management determined that there is substantial doubt about the Company’s ability to continue as a going concern.
 
We intend to expand our operations through acquisition in 2013. We will be carefully managing our overhead to maximize the effects of profitable acquisitions.  Our business plan is to acquire companies with track records of long term, stable, and profitable operations.  Each subsidiary will operate as its own entity with current management retained. This will allow the Company’s management to focus on maintaining or increasing current levels of revenues and profitability. The subsidiaries will use the Company for financial reporting purposes and other financial projections. However, we can give no assurance that our business plan will be successful.
 
 
8

 

NOTE 4: Property and equipment, net
 
Property and equipment consists of the following:
   
SEPT 30,
   
DEC 31,
 
   
2012
   
2011
 
Vehicles
  $ --     $ --  
Computer and office equipment
    30,829       30,829  
Furniture and fixtures
    6,297       6,297  
UL Machinery and equipment
    --       --  
Total property and equipment
    37,126       37,126  
Less: accumulated depreciation
    (29,697 )     (24,403 )
Property and equipment, net
  $ 7,429     $ 12,723  

Depreciation expense for the nine months ended September 30, 2012, was $5,294 and for the year ended December 31, 2011, was $19,189.

NOTE 5: Loans, Capital lease

The following tables represent the outstanding balance of loans for the Company as of September 30, 2012, and December 31, 2011.
   
SEPT 30, 2012
   
DEC 31, 2011
 
South Bay Capital loan at an interest rate 12%
  $ 10,925     $ 10,925  
Trafalgar promissory note
    200,000       200,000  
Capital lease, line of credit
    28,591       28,591  
Krochak promissory note
    15,000       --  
Loans and capital lease sub total
    254,516       239,516  
Less: current portion loans and capital leases
    (252,637 )     (232,407 )
Total
  $ 1,879     $ 7,109  

On January 4, 2012, the Company entered into a promissory note agreement. The note bears an interest of 7% annum, payable on demand.  As of September 30, 2012, we owed $15,000 plus accrued interest in the amount of $780.

On March 25, 2011, the Company entered into a promissory note agreement which was a part of the Trafalgar Capital settlement agreement. The note bears an interest of 7% annum, and is now due on demand. As of September 30, 2012, we owed $200,000 plus accrued interest in the amount of $21,432. As of September 30, 2012, the promissory note with Trafalgar Capital is in default due to nonpayment. The default accelerates the principal and interest payments to be due on demand.

On July 25, 2008, the Company entered into a loan agreement with South Bay Capital in the amount of $75,926. Per the terms of the verbal agreement no interest was to be accumulated. On December 19, 2008, the Company repaid South Bay in the amount of $65,000.  On September 15, 2009, the Company secured the remaining balance of the loan with a written promissory note. The note bears an interest rate of 12% for the remaining balance of $10,925, and was applied retrospectively to the note as of January 1, 2009.   As of September 30, 2012, $10,925 of the debt still remains outstanding with total interest of $43,981, and the note is due on demand.

On January 15, 2009, the Company entered into a capital lease for office equipment. The lease is over a 60 month period, with present lease payments exceeding 90% of fair market value of the property. The capital lease is a five (5) year lease at $481 per month. The Company is currently in default with this lease.

On April 1, 2009, the Company entered into a revolving line of credit with Dell Financial in the amount of $25,000. The Company’s outstanding balance on the line of credit as of September 30, 2012 was $12,508. The Company is currently in default with this lease.

 
9

 
NOTE 6: Related party transactions

On December 31, 2010, the Company entered into a promissory note with a former officer of the Company, for $13,000. The terms of the loan were to repay the loan in the amount of $13,000 with a 10% annual interest to start as of December 31, 2010, the Company is not in default. As of September 30, 2012, we owed $2,000 plus accrued interest in the amount of $2,000, and the note is due on demand.

On December 31, 2010, the Company entered into a promissory note with a former officer of the Company, for $9,760. The terms of the loan were to repay the loan in the amount of $9,760 with a 10% annual interest to start as of December 31, 2010, the Company is not in default. As of September 30, 2012, we owed $9,760 plus accrued interest in the amount of $1,708, and the note is due on demand.

On December 31, 2010, the Company entered into a promissory note with a former employee of the Company, for $9,500. The terms of the loan were to repay the loan in the amount of $9,500 with a 10% annual interest to start as of December 31, 2010, the Company is not in default. As of September 30, 2012, we owed $9,500 plus accrued interest in the amount of $1,633, and the note is due on demand.

On April 1, 2009, we modified the verbal loan agreement entered into on June 30, 2008 with a former director of the Company, which had a balance of $50,000 as of December 31, 2008, by making it a formal promissory note, capitalizing accrued interest into the principal ($36,000) and including an annual interest rate of 10%.  On August 15, 2011, we repaid a portion of the note obligation in the amount of $15,000 which reduced our principle obligation from $86,000 to $71,000. As of September 30, 2012, we owed $71,000 plus accrued interest in the amount of $28,286, and the note is due on demand.

On November 5, 2008, the Company entered into agreement promissory note with a former director of the Board, for $77,000. The terms of the loan were to repay of the loan in the amount of $72,000 with the addition of a $5,000 fee for interest or incur a $250 a day late fee if paid after December 5, 2008. On April 1, 2009, the loan agreement was modified to remove the $250 a day late fees and add an annual interest rate of 10%.  As of September 30, 2012, we owed $79,913 plus accrued interest in the amount of $56,825, and the note is due on demand.

NOTE 7: Convertible notes

During the nine months ended September 30, 2012, we issued to three individuals convertible debenture notes in the total amount of $102,500. As of September 30, 2012, four (4) notes issued in fiscal year 2011 and one (1) issued in 2012 have matured; both the investors and the Company are working towards conversion of these notes. The notes are convertible into the Company’s common stock at a various values. During 2012, the Company fully converted three notes (see Note 10: Stockholder’s deficit). The following table represents the Beneficial Conversion Feature (“BCF”) on the various notes:

Description
 
Note
Value
   
 
BCF
Value
   
Amortized
BCF
value
   
Interest
accrued as of
September
30, 2012
 
Convertible note issued on April 15, 2011, at a 20%
interest rate for six months, convertible to shares of
stock at fixed rate of $0.02 per share
  $ 124,000     $ 124,000     $ 124,000     $ 72,367  
Convertible note issued on April 29, 2011, at a 6%
interest rate for one year, convertible to shares of
stock at a variable rate upon date of conversion
    5,000       10,000       10,000       1,146  
Convertible note issued on March 14, 2012, at a 10%
interest rate for six months, convertible to shares of
stock at a fixed rate of $0.004 per share
    40,000       10,000       10,000       1,087  
Convertible note issued on May 9, 2012, at a 8%
interest rate for nine months, convertible to shares of
stock at a variable rate upon date of conversion
    47,500       41,321       21,559       1,499  
Total
  $ 216,500     $ 185,321     $ 165,559     $ 76,099  
 
 
10

 

           As of September 30, 2012, the Company has converted the convertible noted date April 29, 2011. We have converted $10,000 of the note for shares of the Company’s restricted stock held per the agreement. We have issued stock in the amount of 16,666,666 shares towards the total note value of $15,000, and as of September 30, 2012, the note holds a value of $5,000 plus accrued interest.

On May 9, 2012, the Company entered into an additional note with Asher Enterprises in the amount of $47,500. Per the Note agreement, the Company is required to hold 5 “times” the amount of shares it would take to convert the note in reserve.  When those shares are added to the Common Stock Equivalent (“CSE”), there are insufficient common shares authorized to issue stock to Asher in an excess amount of 8,685,489. However, calculation of the CSE without the reserved shares does not exceed the authorized common stock. The 5 “times” of reserved shares are not included in the CSE, as the Company would only convert 1 “time” the amount of shares.  The remaining 4 “times” would not be converted and are in reserve for debt compliance reasons. Therefore, the Company has assessed that the current note from Asher in the amount of $47,500 does not trigger a derivative.

On January 4, 2012, the Company entered into a convertible note agreement in the amount of $15,000, with an interest rate of 8% for a nine month period. The funds from the note were sent directly to the Company’s counsel to initiate the submission of our DEF 14A in order to increase our authorized shares of common stock (see Note 10: Stockholder’s deficit). As of September 30, 2012, the Company has converted the convertible noted date January 4, 2012. We have converted $15,000 of the note for shares of the Company’s restricted stock held per the agreement. We have issued stock in the amount of 50,208,374 shares towards the total note value of $15,000 plus interest in the amount of $600.

On June 2, 2011, the Company entered into a convertible note agreement in the amount of $32,500, with an interest rate of 8% for a nine month period. As of September 30, 2012 the Company has fully converted this note.

On April 21, 2011, the Company entered into a convertible note agreement in the amount of $50,000, with an interest rate of 8% for a nine month period. As of September 30, 2012 the Company has fully converted this note.

For the year ended December 31, 2011, due to the insufficient authorized but unissued shares of common stock to meet the required amount of shares for convertible instruments, the Company accounted for the excess in common stock equivalents as a derivative liability in accordance with FASB ASC 815 Derivatives and Hedging.  Accordingly, the derivative was marketed to market through earnings at the end of each reporting period.  As a result, as of December 31, 2011, the Company recorded an expense of $113,026.  As of September 30, 2012, the Company reversed the derivative due to the increase in common stock shares there by relieving the need of derivative liability expense.

NOTE 8: Fair Value

In accordance with authoritative guidance, the table below sets forth the Company's financial assets and liabilities measured at fair value by level within the fair value hierarchy. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

   
Fair value at September 30, 2012
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                       
Total
  $ --     $ --     $ --     $ --  
                                 
Liabilities:
                               
Convertible debt, net of beneficial conversion feature
  $ 196,738     $ 196,738     $ --     $ --  
Total
  $ 196,738     $ 196,738     $ --     $ --  

   
Fair value at December 31, 2011
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Assets:
                       
Total
  $ --     $ --     $ --     $ --  
                                 
Liabilities:
                               
Convertible debt, net of beneficial conversion feature
  $ 193,408     $ 193,408     $ --     $ --  
Total
  $ 193,408     $ 193,408     $ --     $ --  

 
11

 
 
NOTE 9: Commitments

Operating leases

On September 1, 2008, the Company leased office space for sales in Tuscon, Arizona on a month-to-month basis in the amount of $500 per month under operating lease agreements with original lease periods of up to five (5) years. On June 1, 2011, the Company moved office space under the existing agreement and reduced its rental fees to $305 per month on a month-to-month basis.  Total rental expense under the above operating leases for the three months ended September 30, 2012, was $930. As of October 1, 2012, the Company cancelled the month to month lease obligation in Tuscon.

Legal

On June 9, 2010, a writ of garnishment was filed against our subsidiary Intecon’s bank account for our outstanding balanced owed to one of our vendors, Summit Electric. Our outstanding balance owed to Summit Electric was $61,000. This writ was established to collect funds from us by garnishing money in our subsidiaries bank accounts. At the time of the court ordered garnishment the accounts held a balance of $1,200 and have been sent to Summit Electric under the writ.  As of June 30, 2012, the Company had paid this vendor in full and noted a gain on extinguishment of an outstanding payable in the amount of $51,273.

NOTE 10: Stockholders’ deficit

Increased in authorized

On March 23, 2012, the Company filed a form DEF 14A whereby, the authorized common stock of the Company was increased to 1,000,000,000 shares with a par value of $0.001 per share. As of April 27, 2012, per our 8-K, form DEF 14A was approved by majority shareholder vote.

Preferred Stock

Our wholly owned subsidiary, ISS, has 125,000 shares of preferred stock authorized with a par value of $1.00; these shares have no voting rights and no dividend preferences.

Common Stock

On January 5, 2012, the Company issued the sum of 7,758,621 shares valued at $4,500 or $0.00058 of its common stock from reserve as a part of the convertible note agreement on April 18, 2011.

On April 30, 2012, the Company issued the sum of 4,347,826 shares valued at $10,000 or $0.0023 of its common stock from reserve as a part of the convertible note agreement on April 18, 2011.

On May 7, 2012, the Company issued the sum of 4,347,826 shares valued at $10,000 or $0.0023 of its common stock from reserve as a part of the convertible note agreement on April 18, 2011.

On May 9, 2012, the Company issued the sum of 5,000,000 shares valued at $11,500 or $0.0023 of its common stock from reserve as a part of the convertible note agreement on April 18, 2011.

On May 17, 2012, the Company issued the sum of 8,571,429 shares valued at $12,000 or $0.0014 of its common stock from reserve as a part of the convertible note agreement on June 2, 2011.

On May 23, 2012, the Company issued the sum of 9,230,769 shares valued at $12,000 or $0.0013 of its common stock from reserve as a part of the convertible note agreement on June 2, 2011.

On May 31, 2012, the Company issued to three investors the sum of 23,888,887 shares valued at $43,000 or an average of $0.0016 of its restricted common stock for cash received.

On May 31, 2012, the Company issued to one investor the sum of 5,224,444 shares valued at $20,014 or $0.004 of its restricted common stock as finder’s fee and recorded as a reduction of equity.
 
 
12

 
 
On June 5, 2012, the Company issued the sum of 8,333,333 shares valued at $5,000 or $0.0006 of its common stock as a part of the convertible note agreement on April 29, 2011.

On June 7, 2012, the Company issued the sum of 9,800,000 shares valued at $9,800 or $0.001 of its common stock from reserve as a part of the convertible note agreement on June 2, 2011.

On July 26, 2012, the Company issued the sum of 10,000,000 shares valued at $5,000 or $0.0005 of its common stock from reserve as a part of the convertible note agreement on January 8, 2012.

On August 21, 2012, the Company issued the sum of 8,333,333 shares valued at $5,000 or $0.0006 of its common stock as a part of the convertible note agreement on April 29, 2011.

On August 30, 2012, the Company issued the sum of 14,166,667 shares valued at $3,400 or $0.00024 of its common stock from reserve as a part of the convertible note agreement on January 8, 2012.

On August 31, 2012, the Company issued the sum of 14,166,667 shares valued at $3,400 or $0.00024 of its common stock from reserve as a part of the convertible note agreement on January 8, 2012.

On September 11, 2012, the Company issued the sum of 11,875,000 shares valued at $3,800 including interest in the amount of $600 or $0.00032 of its common stock from reserve as a part of the convertible note agreement on January 8, 2012.

Reserve shares

As noted on the balance sheet for the nine months ended September 30, 2012, the Company must keep in reserve an amount of shares equal to five times the amount held in convertible notes, based on our convertible note agreements entered into. As of September 30, 2012, the Company has placed 647,727,273 shares of its common stock held in reserve.
 
Warrants

As of December 31, 2010, the Company granted 150,000 warrants to twenty individuals for 1:1 ratio of common stock at $0.05 per share in connection with the sale of common stock under the Company’s private offering.  Since these warrants were issued in connection with a cash sale of common stock and were not compensatory in any way, the value of the warrants have been accounted for as part of the proceeds received from the sale of the common stock.  Nineteen warrants vested over a period of six months and expired in November 2010; one warrant vested over a period of two years and expired in February 2012.

Warrants
 
Shares
   
Weighted-
Average
Exercise
Price
   
Weighted-
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic
Value
 
Outstanding at December 31, 2011
    150,000                    
Exercised, granted, forfeited or expired
    (150,000 )   $ 0.05       1.0        
Outstanding at September 30, 2012
    --     $ --       --     $ --  
Exercisable at September 30, 2012
    --     $ --       --     $ --  

NOTE 11: Subsequent events

On November 15, 2012, the Company issued a stock payable in consideration for cash in the amount of $5,000.

As of November 21, 2012, the Company has defaulted on its convertible note with Asher Enterprises which it entered into on May 9, 2012. Per the terms of the agreement, the Company was still in compliance with the maturity date of the note, however, due to the conversion pricing of the Company’s restricted common stock and the conversion feature within the terms of the agreement the Company prevented Asher from further conversions of the debt. Asher Enterprises triggered the default as the Company was not in compliance with its filing requirements per Securities and Exchange Commission 1934 Exchange Act. As such the Company, as of the date of the default, will accrue for the interest rate of 22% in relation to the terms set within the convertible note agreement, and repayment of 150% the amount of principal.
 
 
13

 
 
As of December 31, 2012, the Company was unable to retain storage services for its fixed assets. As a result the facility where the fixed assets were held, repossessed all the Company’s fixed assets. As of December 31, 2012, all fixed assets in the Company have been written off as a loss on disposal of fixed assets.

On January 15, 2013, the Company issued a stock payable in consideration for cash in the amount of $5,000.

On March 18, 2013, the Company issued a stock payable in consideration for cash in the amount of $10,000.

On March 25, 2013, the Company issued a stock payable in consideration for cash in the amount of $5,000.
 
 

 
 
 
 
14

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Safe Harbor for Forward-Looking Statements

When used in this Annual Report, the words “may,” “will,” “expect,” “anticipate,”  “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, operating results, and financial position.  Persons reviewing this Annual Report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual result may differ materially from those included within the forward-looking statements as a result of various factors.  Such factors include, but are not limited to, general economic factors and conditions that may directly or indirectly impact our financial condition or results of operations.

Executive Overview

National Automation Services, Inc. (referred to herein as “NAS” or the “Company”) is a public holding company that serves the Industrial Automation market place. Our offerings are needed by a wide variety of companies across varied market segments, from food processing to nuclear power, both private and public sectors.

Central to an understanding of our financial condition and results of operations is our current cash shortage.  At April 15, 2013, our cash on hand was approximately $2,500, and our operating revenues, which are zero, are insufficient to fund our operations.  Consequently our September 30, 2012 financial statements contain, in Note 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.  Therefore, we require 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 acquisition not only with cost savings but also with additional working capital to finance and grow the business.

Critical Accounting Policies

Use of 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. 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.

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.

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.
 
 
15

 
 
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.

Summary of Consolidated Results of Operations

A:           Three Months Ended September 30, 2012 compared to the Three Months Ended September 30, 2011

   
Three Months Ended
September 30,
       
   
(unaudited)
       
   
2012
   
2011
   
% Change
 
Revenue
  $ --     $ 75,481       (100 ) %
Cost of revenue
    --       378,052       (100 ) %
Total gross profit (loss)
    --       (302,571 )     100 %
                         
Operating expenses
                       
Selling, general and administrative expenses
    30,148       189,011       (84 ) %
Consulting fees
    --       68,501       (100 ) %
Professional fees and related expenses
    17,476       89,390       (80 ) %
Total operating expenses
    47,624       346,902       (86 ) %
Operating loss
    (47,624 )     (649,473 )     93 %
                         
Interest expense, net
    59,842       144,434       (59 ) %
Loss on disposal of fixed asset
    --       15,020       (100 ) %
Total other expense
    59,842       159,454       (62 ) %
Net (loss)
  $ (107,466 )   $ (808,927 )     87 %

Operating loss; Net loss. For the three months ended September 30, 2012, compared to the three months ended September 30, 2011, we had a decrease in revenues of $(75,481), or (100)%, and a decrease in our cost of revenue $(378,052), or (100)% (which resulted in an decrease in our gross profit by $302,571 or 100% to $0). Additionally, our operating loss decreased by $601,849, or 93%, to $(47,624). We had our net loss decrease by $701,461, or 87%, to $(107,466).  We attributed our decrease in operating expenses due to the downturn of our staff, a dormant status of our subsidiaries, and additionally the decrease in our interest expense due to the write-off of Trafalgar.

Interest expense, net.  Interest expense, net decreased by $84,592, or (59)%, to $59,842, which represents the convertible note interest incurred for the current three month period ending September 30, 2012.

 
16

 
 
B:           Nine Months Ended September 30, 2012 compared to Nine Months Ended September 30, 2011

   
Nine Months Ended
September 30,
       
   
(unaudited)
       
   
2012
   
2011
   
% Change
 
Revenue
  $ --     $ 364,831       (100 ) %
Cost of revenue
    --       626,311       (100 ) %
Total gross profit
    --       (261,480 )     (100 ) %
                         
Operating expenses
                       
Selling, general and administrative expenses
    171,802       717,495       (76 ) %
Consulting fees
    --       103,667       (100 ) %
Professional fees and related expenses
    105,694       568,176       (81 ) %
Gain on extinguishment of accounts payable
    (51,273 )     --       100 %
Total operating expenses
    226,223       1,389,338       (84 ) %
Operating loss
    (226,223 )     (1,650,818 )     86 %
                         
Other expense
    --       7,343       (100 ) %
Interest expense, net
    169,152       405,282       (58 ) %
Fair value of derivative liability
    (113,026 )     --       100 %
Loss on disposal of fixed asset
    --       15,020       (100 ) %
Gain on extinguishment of payable and debt
    --       (3,001,297 )     (100 ) %
Total other expense
    56,126       (2,573,652 )     (102 ) %
Net (loss) income
  $ (282,349 )   $ 922,834       (131 )%

Operating loss; Net income (loss). For the nine months ended September 30, 2012, compared to the nine months ended September 30, 2011, we had a decrease in revenues of $(364,831), or (100)%, and a decrease in our cost of revenue $(626,311), or (100)% (Additionally, our operating loss decreased by $1,424,595, or 86%, to $(226,223). We had our net income decrease by $(1,205,183), or (131)%, to $(282,349).  We attributed our decrease in operating expenses due to the downturn of our staff, closing of our subsidiaries, and the decrease in our interest expense and gain on extinguishment of debt.) We also attribute a gain on extinguishment of debt to our write-off of accounts payable as of September 30, 2012, in the amount of $51,273. This was in repayment to one of our vendors (see Part 2 Legal Proceedings for additional information)
 
Interest Expense, net.  Interest expense, net decreased by $236,130, or 58%, to $169,152, which represents the note interest incurred for the nine month period ending September 30, 2012.

Gain / loss on extinguishment of debt.  This is a non-recurring, non-cash economic event, of our write-off of Trafalgar debt in the comparative period of September 30, 2011, which increased our net income to $922,836. In the current nine month period ending September 30, 2012, we incurred an adjustment to our noted derivative in the amount of $113,026.

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

For the nine months ended September 30, 2012, our accounts receivable were $0, a decrease of $3,252, or 100%, due to a decrease in invoiced revenue and initiating a dormant status of our remaining facilities in Arizona.

Our business plan is to acquire companies with track records of long term, stable, and profitable operations.  Each subsidiary operates as its own entity with current management retained. This will allow the Company’s management to focus on maintaining or increasing current levels of revenues and profitability.  Each subsidiary provides their financials to NAS and the Company will make site visits to ensure companies are in compliance for reporting and monitoring purposes.

The Company has evaluated the scope of its business plan and has modified the plan to reduce corporate overhead functions leaving all operating activities at the subsidiary level. The benefits of this new direction will begin to be realized in 2013.
 
We feel this new focus will offer each subsidiary an opportunity for growth through synergies created by becoming a part of the Company.
 
 
17

 
 
Summary of Consolidated Cash Flow for the nine months ended September 30, 2012 and 2011(rounded)

Our total cash decreased approximately by $2,400, or (96)%, to approximately $100 for the nine months ended September 30, 2012, compared to approximately $2,500 for the nine months ended September 30, 2011. Our consolidated cash flows for the six months ended September 30, 2012, and 2011 were as follows:
 
   
Nine Months Ended
September 30, 2012
   
Nine Months Ended
September 30, 2011
 
Net cash used by operating activities
  $ (130,600 )   $ (238,300 )
Net cash used by investing activities
  $ --     $ --  
Net cash  provided by financing activities
  $ 129,300     $ 229,500  

Operating Activities: Our total cash used by operating activities decreased by $107,700, or 45%, to $(130,600) for the nine months ended September 30, 2012, compared to $(238,300) for the nine months ended September 30, 2011.  The change is due to accrual of liabilities in our operating activities and accretion of our beneficial conversion features on our convertible debt, and a decrease due to our gain in extinguishment of accounts payable.

Investing Activities: We had no investing activities for the nine months ended September 30, 2012 and the nine months ended September 30, 2011, respectively.

Financing Activities: Our total cash provided by financing activities decreased by $100,200, or (44)%, to $129,300 for the nine months ended September 30, 2012, compared to $229,500 for the nine months ended September 30, 2011. The decrease is due in part to our limited funding through our sale of restricted stock and debt facilities.
 
Current Commitments for Expenditures

Our current cash commitments for expenditures are mainly operational and SEC compliance in nature.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in rules and forms adopted by the Securities and Exchange Commission, and that such information is accumulated and communicated to management, including the President/Secretary, to allow timely decisions regarding required disclosures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act).  Based upon that evaluation, our officers concluded that, as of the end of the period covered by this report, the Company has been implementing control procedures to mitigate our internal control issues which could have a material impact on our financial reporting procedures. As of the end of the period covered by this report, the Company has ineffective controls over financial reporting. Our control activities in financial closing procedures were ineffective to ensure that information required to be disclosed by us in our periodic reports is recorded, processed, summarized, and reported appropriately. The Company has been working towards clearing ineffective financial reporting controls and disclosures to implement proper internal controls over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:
 
 
18

 
 
·  
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any disposition of our assets;
·  
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
·  
Provide reasonable assurance that transactions pertaining to stock issuances are recorded as necessary to permit preparation of financial statements in accordance with applicable GAAP, and that the stock issuances are being made only in accordance with authorizations of management and the Board of Directors.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.  Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2012.  In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on this assessment, Management identified the following three material weaknesses that have caused management to conclude that, as of September 30, 2012, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level.

We have had non-timely filing issues in regards to our recent Securities and Exchange Commission (SEC) filings. Non timely filing is a disclosure control which we have had little success in correcting over the past three months ending September 30, 2012. Management evaluated the impact of our failure to have timely filing requirements of our financial statements on our assessment of our disclosure controls and procedures and has concluded that the control deficiency represents a material weakness.

We do not have written documentation of our internal control policies and procedures.  Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act for the period ending September 30, 2012.  Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

We do not have sufficient segregation of duties within accounting functions, which is a basic internal control.  Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible.  However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals.  Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.

Effective controls over the control environment were not maintained.  Specifically, a formally adopted written code of business conduct and ethics that governs our employees, officers, and directors was not in place. Further, our Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K.  Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.  Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
  
 
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Remediation of Material Weaknesses
 
To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.

We also intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.

We also intend to remedy our non-timely filing requirements by hiring additional employees in order to ensure that disclosure control is reviewed and monitored on a timely basis for the submission of our required flings to the SEC.
 
We intend to remedy our material weakness with respect to our lack of control environment by adopting a written code of business conduct and ethics.

Change in internal control over financial reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended September 30, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

On June 9, 2010, a writ of garnishment was filed against our subsidiary Intecon’s bank account for our outstanding balanced owed to one of our vendors, Summit Electric. Our current outstanding balance owed to Summit Electric is $61,000. This writ was established to collect funds from us by garnishing money in our subsidiaries bank accounts. At the time of the court ordered garnishment the accounts held a balance of $1,200 and have been sent to Summit Electric under the writ.  As of September 30, 2012, the Company has settled its balance with this vendor.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following is a summary of all transactions involving our current sales of our unregistered equity securities.  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.

On July 26, 2012, the Company issued the sum of 10,000,000 shares valued at $5,000 or $0.0005 of its common stock from escrow as a part of the convertible note agreement on January 8, 2012.

On August 21, 2012, the Company issued the sum of 8,333,333 shares valued at $5,000 or $0.0006 of its common stock as a part of the convertible note agreement on April 29, 2011.

On August 30, 2012, the Company issued the sum of 14,166,667 shares valued at $3,400 or $0.00024 of its common stock from escrow as a part of the convertible note agreement on January 8, 2012.

On August 31, 2012, the Company issued the sum of 14,166,667 shares valued at $3,400 or $0.00024 of its common stock from escrow as a part of the convertible note agreement on January 8, 2012.

On September 11, 2012, the Company issued the sum of 11,875,000 shares valued at $3,800 including interest in the amount of $600 or $0.00032 of its common stock from escrow as a part of the convertible note agreement on January 8, 2012.
 
 
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Except as stated above, and noted in our registration statement Form 10, Form 10-K, and Form 10-Q, we have had no recent sales of unregistered securities within the past three fiscal years. There were no underwritten offerings employed in connection with any of the transactions described above. Except as stated above, the above issuances were deemed to be exempt under Rule 504 or 506 of Regulation D and/or Section 4(2) or 4(6) of the Securities Act of 1933, as amended, since, among other things, the transactions did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers, the investors had access to information about our company and their investment, the investors took the securities for investment and not resale, and we took appropriate measures to restrict the transfer of the securities.

Item 3.  Defaults Upon Senior Securities

As of November 21, 2012, the Company has defaulted on its convertible note with Asher Enterprises which it entered into on May 9, 2012. Per the terms of the agreement, the Company was still in compliance with the maturity date of the note, however, due to the conversion pricing of the Company’s restricted common stock and the conversion feature within the terms of the agreement the Company prevented Asher from further conversions of the debt. Asher Enterprises triggered the default as the Company was not in compliance with its filing requirements per Securities and Exchange Commission 1934 Exchange Act. As such the Company, as of the date of the default, will accrue for the interest rate of 22% in relation to the terms set within the convertible note agreement, and repayment of 150% the amount of principal

As of September 30, 2012, the promissory note with Trafalgar Capital is in default due to nonpayment. The default accelerates the principal and interest payments to be due on demand.

Item 4.  Mine Safety Disclosures

None

Item 5.  Other Information

                None
 

 
 
 
 
 
21

 
 
Item 6.  Exhibits

Exhibit No.
 
Description of Exhibit
     
31.1
 
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2
 
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1
 
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
32.2
 
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS*
 
XBRL Instance Document
     
101.SCH*
 
XBRL Taxonomy Extension Schema Document
     
101.CAL*
 
XBRL Taxonomy Extension Calculation Link base Document
     
101.LAB*
 
XBRL Taxonomy Extension Label Link base Document
     
101.PRE*
 
XBRL Taxonomy Extension Presentation Link base Document
  * To be filed by amendment (Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability).
 
 
 
 
 
 
 
22

 
 
SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
NATIONAL AUTOMATION SERVICES, INC.
 
 
(Registrant)
 
       
       
Date:   April 16, 2013
By:
/s/ Robert W. Chance
 
   
Name:  Robert W. Chance
 
   
Title: President and Chief Executive Officer
 
    (Principal Executive Officer)  
 
 
       
 
By:
/s/ Jeremy W. Briggs
 
   
Name:  Jeremy W. Briggs
 
   
Title: V.P. / Principal Financial Officer
 
 
 
 
 
 
 
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