National Energy Services, Inc. - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - National Energy Services, Inc.	Financial_Report.xls
EX-32.2 - EXHIBIT 32.2 - National Energy Services, Inc.	ex32_2.htm
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

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, 2011

£	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 November 14, 2011
Common Stock, $.001 par value	198,635,672

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 4. Controls and Procedures	19
PART II – OTHER INFORMATION	20
Item 1. Legal Proceedings.	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3. Defaults Upon Senior Securities	21
Item 4. [REMOVED AND RESERVED]	21
Item 5. Other Information	21
Item 6. Exhibits	21
SIGNATURES	22

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PART I – FINANCIAL INFORMATION

Item 1: Financial Statements

NATIONAL AUTOMATION SERVICES, INC., CONDENSED CONSOLIDATED BALANCE SHEETS
	SEP 30, 2011			DEC 31, 2010
	(unaudited)
ASSETS
CURRENT ASSETS
Cash	$	2,526		$	11,404
Accounts receivable, net of allowance of doubtful accounts of $50,676 at September 30, 2011 and $12,378 at December 31, 2010.		20,738			307,622
Inventory, net of allowance of inventory of $317,771 at September 30, 2011 and $0 at December 31, 2010.		5,760			340,519
Prepaid fees		60,338			22,667
Total current assets		89,362			682,212
PROPERTY, PLANT & EQUIPMENT, net of accumulated depreciation of $22,789 at September 30, 2011 and $136,065 at December 31, 2010		14,358			46,932
OTHER ASSETS, NON-CURRENT
Security deposit		--			5,535
Deferred financing fees		--			125,000
Total other assets, non-current		--			130,535
TOTAL ASSETS	$	103,720		$	859,679

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payables	$	892,675		$	1,216,635
Accrued liabilities		1,501,501			2,192,726
Current portion of loans, capital leases and line of credit		232,407			27,367
Current portion of secured redeemable debentures		--			2,347,001
ABL line of credit		--			758,398
Convertible debt, net of beneficial conversion feature of $27,549 at September 30, 2011 and $34,212 at December 31, 2010		193,951			220,788
Related party payable		183,173			198,173
Total current liabilities		3,003,707			6,961,088
Loans and capital leases		7,109			12,654
Total liabilities		3,010,816			6,973,742
STOCKHOLDERS’ DEFICIT
Stock held in escrow		(19,876	)		(70,000	)
Common stock $0.001 par value, 200,000,000 authorized, 198,635,672 issued and outstanding at September 30, 2011 and 112,376,315 shares issued outstanding at December 31, 2010		198,636			182,376
Additional paid in capital		11,849,837			9,671,931
Stock receivable		(10,000	)		(49,843	)
Accumulated deficit		(14,925,693	)		(15,848,527	)
Total stockholders’ deficit		(2,907,096	)		(6,114,063	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	103,720		$	859,679

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

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NATIONAL AUTOMATION SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

	THREE MONTHS ENDED SEPTEMBER 30, 2011			THREE MONTHS ENDED SEPTEMBER 30, 2010			NINE MONTHS ENDED SEPTEMBER 30, 2011			NINE MONTHS ENDED SEPTEMBER 30, 2010
REVENUE	$	75,481		$	336,430		$	364,831		$	1,647,920
COST OF REVENUE		60,281			266,103			308,540			1,518,458
Allowance for inventory		317,771			--			317,771			--
GROSS PROFIT (LOSS)		(302,571	)		70,327			(261,480	)		129,462

OPERATING EXPENSES
Selling, general and administrative expenses		189,011			424,934			717,495			1,137,457
Consulting fees		68,501			7,630			103,667			19,075
Professional fees and related expenses		89,390			78,055			568,176			596,035
TOTAL OPERATING EXPENSES		346,902			510,619			1,389,338			1,752,567

OPERATING LOSS		(649,473	)		(440,292	)		(1,650,818	)		(1,623,105	)

OTHER EXPENSE, non-operating
Allowance for stock receivable		--			--			7,343			--
Loss of disposal of fixed assets		15,020			--			15,020			--
Interest expense, net		144,434			100,032			405,282			401,122
TOTAL OTHER EXPENSE, non-operating		159,454			100,032			427,645			401,122

OTHER INCOME - nonrecurring
Gain on debt extinguishment and accounts payable		--			--			(3,001,297	)		--

INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES		(808,927	)		(540,324	)		922,834			(2,024,227	)

PROVISION FOR INCOME TAXES		--			--			--			--

NET INCOME (LOSS)	$	(808,927	)	$	(540,324	)	$	922,834		$	(2,024,227	)

BASIC INCOME (LOSS) PER SHARE	$	(0.01	)	$	(0.01	)	$	0.01		$	(0.02	)

DILUTED LOSS PER SHARE	$	(0.01	)	$	(0.01	)	$	0.01		$	(0.02	)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC		173,459,807			106,476,315			148,998,436			100,798,047

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING DILUTED		173,459,807			106,476,315			159,157,845			100,798,047

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

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NATIONAL AUTOMATION SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
	NINE MONTHS ENDED SEPTEMBER 30, 2011			NINE MONTHS ENDED SEPTEMBER 31, 2010
Operating Activities
Net income (loss)	$	922,834		$	(2,024,227	)
Cash used by operating activities
Allowance for doubtful accounts		67,842			(447	)
Allowance for inventory		317,771			--
Depreciation and amortization		17,555			84,348
Stock for services		231,150			199,807
Gain on extinguishment of debt and accounts payable		(3,001,297	)		--
Accretion of convertible notes beneficial conversion feature		210,404			90,192
Decrease in deferred financing fees		125,000			--
Decrease in stock receivable		7,343			--
Loss on disposal of fixed assets		15,020			--
Changes in current assets
Decrease in receivables		219,042			162,952
Decrease in inventories		16,988			37,443
Decrease in prepaid expenses		257,829			11,333
Decrease in other assets		5,535			--
Changes in current liabilities
Decrease in deferred revenue		--			(50,777	)
Increase in accounts payable and accrued liabilities		348,611			1,091,268
Cash used by operating activities		(238,373	)		(398,108	)

Financing activities
Proceeds from sale of stock		132,500			449,000
Proceeds from convertible notes		97,500			55,000
Payment for line of credit		--			(1,672	)
Payments for loans and capital leases		(505	)		(11,130	)
Cash provided by financing activities		229,495			491,198

(Decrease) increase in cash		(8,878	)		93,090
Cash at beginning of year		11,404			42,384

Cash at end of period	$	2,526		$	135,474

Supplemental Cash Flows
Cash paid for interest	$	--		$	6,500
Cash paid for income taxes	$	--		$	--

SUPPLEMENTAL NON CASH INVESTING AND FINANCING TRANSACTIONS
Stock issued for settlement of debt	$	805,820		$	--
Issuance of prepaid stock	$	60,338		$	68,000
Debt and interest converted to stock	$	155,000		$	126,000
Stock issued for accrued expenses	$	435,878		$	--
Stock in escrow	$	(50,125	)	$	70,000
Deferred financing fees	$	--		$	125,000
Accounts payable paid with stock	$	--		$	224,550
Disposal of fixed asset	$	130,852		$	26,429
Beneficial conversion feature	$	203,741		$	--
Assignment of related party debt	$	15,000		$	--
Accrued interest added to note	$	24,000		$	--
Stock receivable allocated to service expenses prepaid	$	25,000		$	--

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

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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 (“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 interim 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. Although management believes the disclosures and information presented are adequate to make the information not misleading, these interim condensed consolidated financial statements should be read in conjunction with the Company’s most recent audited financial statements and notes thereto included in its December 31, 2010 Annual Report on Form 10-K. Operating results for the period ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011. 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. Significant accounting policies disclosed therein have not changed except as noted below.

These financial statements have been presented in accordance with the rules governing a smaller reporting company for the periods ended September 30, 2011 and 2010.

Business Overview

National Automation Services, Inc. serves a diverse set of industries which utilize automation systems and controls, including water valley waste and treatment facilities, entertainment, hospitality, mining, medical, and manufacturing.

The Company has strived to position itself as a leading system integrator and certified Underwriters Laboratories panel fabrication facility. The Company currently focuses on two distinct lines of business: (1) industrial automation and control and (2) automation manufacturing, which comprises the bulk of contracts that the Company currently maintains under its building contracts. The Company has subsidiaries which perform the services; one is located in Arizona named Intecon, Inc. and the other is located in Nevada named Intuitive System Solutions, Inc. The Company’s subsidiary in Nevada is currently dormant with no production, and we had a down turn in production and eventual closing of the Company’s subsidiary in Arizona. The effect of both subsidiaries is primarily due to the downturn in the market. The Company’s main focus is in acquiring additional subsidiaries in order to gain additional production. The Company’s management runs the company as one unit and does not have any business segments.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation.

Fair Value Accounting

As required by the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board Accounting Standards Codification (“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;

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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).

See Note 7 Fair value, for additional information.

Debt Modification

If at any time the Company is not able to pay back outstanding debt upon the maturity date, the Company actively works with the note holder to modify the terms of the agreement. All modifications to debt are evaluated for debt extinguishment as required by the Debt Topic of the FASB ASC.

NOTE 2: Recently adopted and recently issued accounting guidance

Issued

In May 2011, the FASB 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 will 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. The adoption of this accounting standard update will become effective for the reporting period beginning January 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.

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 will not have a material impact on the Company's financial position, result of operations or cash flows.

In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for the Company with the reporting period beginning July 1, 2011. The adoption of this guidance will not have a material impact on the Company's condensed consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future consolidated financial statements.

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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. Our operating revenues are insufficient to fund our operations. Although the Company has experienced recurring net losses, we had a net income of $922,834 for the nine months ended September 30, 2011, which is attributable to our write-off of Trafalgar debt per our settlement agreement with Trafalgar Capital on March 25, 2011 (for additional information see Note 5, Legal). We had an accumulated deficit of $(14,925,693) for the nine months ended September 30, 2011, and a working capital deficiency of $(2,914,345) at September 30, 2011.

Based on the above facts, and even though we have written-off our outstanding debt, management determined that there was substantial doubt about the Company’s ability to continue as a going concern.

We continue to seek sources of additional capital. The Company is aware of its instability, and has noted on several occasions the ability to continue as a going concern. We are in the process of correcting such instability and are actively pursuing acquisitions, which will help cure the Company’s current status. The purchases of new acquisitions will provide a new customer base and increase our regional presence in new areas of production. In acquiring new businesses we will also 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 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.

NOTE 4: Inventory

As of September 30, 2011, our lease with our warehouse in Arizona has been suspended until such time as we can remit the outstanding balance in full. Per the terms of the leasing agreement all of our assets at our Arizona subsidiary, including inventory, have been held by the lessor. We have allowed for the inventory value in the amount of $317,771 as of September 30, 2011 and recognized the allowance in our cost of goods sold (see note 8, Operating agreements).

NOTE 5: Property and equipment, net

Property and equipment consists of the following:

	Period Ended September 30,			Year Ending December 31,
	2011			2010
Vehicles	$	--		$	44,169
Computer and office equipment		30,850			114,121
Furniture and fixtures		6,297			6,297
UL Machinery and equipment		--			18,410
Total property and equipment		37,147			182,997
Less: accumulated depreciation		(22,789	)		(136,065	)
Property and equipment, net	$	14,358		$	46,932

The Company wrote of the remaining fixed assets from our Arizona subsidiary due to the downturn of our operations and inability to remain current on our warehouse lease. Per the terms of the ware house leasing agreement all fixed assets are to be acquired by the lessor if tenant is unable to remain in the leasing agreement and is evicted due to non-payment (see note 8, Operating agreement).

NOTE 6: Convertible notes

During the year ended December 31, 2010, we issued to three individuals convertible notes for $255,000. Two notes bear interest at the rate of 20% per year and one note bears an interest rate of 40%, and all matured in six (6) months on varying dates starting with March 1, 2011. The notes were convertible into the Company’s common stock at a fixed values based upon the terms of the convertible note agreement. As of September 30, 2011, the Company has converted five and a half notes; noted above, totaling $170,000 in principle and $33,500 in interest of the convertible notes and issued to these three individuals collectively 13,389,679 shares of the Company’s common stock (see Note 10, Stockholders’ deficit). In conjunction with the half note that the Company converted, the remaining half of the note’s principle and interest was renewed and the interest was capitalized into the principle balance as of April 15, 2011, the Company entered into the renewed portion of the note in the amount of $124,000.

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During the period ended September 30, 2011, we issued to four individuals convertible notes for $112,500. The four notes bear interest at variable rates starting at 6% to 20%, and all mature in six (6) months on varying dates starting with October 15, 2011. The notes are convertible into the Company’s common stock at various fixed values based upon the terms of the convertible note agreement. As of September 30, 2011, the Company converted the April 29, 2011, note in convertible draws per the terms of the agreement. The remaining notes have not been converted. The Company and the individual holders of the notes are working towards conversion of notes.

Description	Note value		Calc’d BCF Value		Amortized BCF Value		Interest Accrued as of September 30, 2011
Convertible note issued on April 15, 2011, at a 20% interest rate for six months, convertible to shares of stock at $0.02 per share	$	124,000	$	124,000	$	113,836	$	22,767
Convertible note issued on June 3, 2011 at a 8% interest rate for six months, convertible to shares of stock at a variable rate upon date of conversion	$	32,500	$	23,534	$	15,690	$	1,733
Convertible note issued on April 18, 2011 at a 8% interest rate for six months, convertible to shares of stock at a variable rate upon date of conversion	$	50,000	$	36,207	$	32,447	$	3,585
Convertible note issued on April 29, 2011, at a 6% interest rate for six months, convertible to shares of stock at a variable rate upon date of conversion	$	15,000	$	10,000	$	4,219	$	380
Total	$	221,500	$	193,741	$	166,192	$	28,465

NOTE 7: Legal

On March 25, 2011, the Company signed a settlement agreement with Trafalgar whereby the pending litigation between both parties was settled out of court. The terms of the agreement dismissed all litigation against Trafalgar, to settle all debt owed to Trafalgar, the dismissal of all litigation against NAS and its subsidiaries and certain directors as well as the release of all liens and encumbrances on NAS assets in the UCC-1 filings held by Trafalgar. The following is the terms of settlement with Trafalgar: (i) a payment of $300,000 was paid on March 25, 2011 per the terms of the agreement; (ii) an executed promissory note in the principal amount of $200,000 payable within 6 months from the settlement date of March 25, 2011, and accruing interest at the rate of seven percent (7%) simple interest per annum; (iii) a total of 7,645,821 shares of NAS common stock shares issued to the Trafalgar on April 6, 2011; (iv) NAS shall provide to Trafalgar a Rule 144 opinion letter in the form acceptable to the both parties, if necessary and/or applicable; and (v) an exchange of mutual unconditional and irrevocable general releases and dismissals of all claims, disputes, liens, encumbrances, defenses between the parties through the settlement agreement date of March 25, 2011. Trafalgar is to deliver to the NAS appropriate releases of all liens and encumbrances including, without limitation, all UCC liens within 91 days of the settlement date of March 25, 2011, providing that NAS does not enter into bankruptcy within the 91 days. The amount owed to Trafalgar with interest was $3,800,000. The settlement agreement with Trafalgar allowed for the Company to write off the principle and interest of the debt balance for a gain in extinguishment of debt in the amount of $2,881,000, after the settlement terms noted above. Noted above the promissory note, in the event of a default with the promissory note the $200,000, including any and all interest accrued will become due on demand pursuant to the terms of the promissory note. As of September 21, 2011, the Company has defaulted on its promissory note to Trafalgar. As the note was contracted for 6 months we have indicated all principle balance as current and due.

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. To date we still have an outstanding balance with Summit Electric and are working towards payment to this vendor.

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On October 2, 2010, a writ of garnishment was filed against our subsidiary Intecon’s bank account for our outstanding balanced owed to one of our vendors, Border States. 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 $90,000 which was sent to Border States under the writ on October 15, 2010. As of March 31, 2011, our outstanding balance owed to Border State was $100,000. Noting that our outstanding balance was $100,000, we negotiated a payment to Border States in the amount of $70,000 to pay off our outstanding balance. The Company recognized a gain in extinguishment of the debt in the amount of $30,000. As of April 4, 2011, the Company has repaid this vendor in full.

NOTE 8: Operating lease agreements

On May 25, 2011, the Company renegotiated the terms of its leasing agreement with the facility located in Tempe Arizona. Per the terms of the agreement, the cost per square foot was reassessed which reduced our lease payments. Additionally, the landlord forgave our current outstanding balance owed to them for the past nine months totaling $90,000. As of September 30, 2011, the Company owed rent for the facility in the amount of $18,300; the Company is in the process of closing operations in Arizona, until such time as we can assess the validity of the market in the area. Our lease with our warehouse has been suspended until such time as we can remit the outstanding balance in full. Per the terms of the leasing agreement all of our assets, including inventory, have been held by the lessor. We have disposed of the remaining fixed assets for Arizona as of September 30, 2011 and have allowed for the inventory value to be recognized in our cost of goods sold as of September 30, 2011.

NOTE 9: 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, 2011(unaudited)
	Total		Level 1		Level 2		Level 3
Assets:
Total	$	--	$	--	$	--	$	--

Liabilities:
Convertible debt, net of beneficial conversion feature	$	193,951	$	193,951		--		--
Total	$	193,951	$	193,951	$	--	$	--

	Fair value at December 31, 2010
	Total		Level 1		Level 2		Level 3
Assets:
Total	$	--	$	--	$	--	$	--

Liabilities:
Convertible debt, net of beneficial conversion feature	$	220,788	$	220,788		--		--
Total	$	220,788	$	220,788	$	--	$	--

NOTE 10: Stockholders’ deficit

The authorized common stock of the Company consists of 200,000,000 shares of common stock with par value of $0.001; as of September 30, 2011 the Company has 198,635,672 shares outstanding. 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. No preferred shares were issued as of September 30, 2011.

On November 19, 2010, the Company issued to one individual the sum of 3,250,000 shares of common stock in consideration $85,000 in cash, or $0.026 per share, of which we have received on November 9, 2010, $12,500, on November 23, 2010, $10,000, on December 3, 2010, $20,000, on January 10, 2011, $2,500 and on January 18, 2011, $5,000. As of September 30, 2011 we have reclassified the balance of $25,000 as a prepayment to a new service agreement which we entered into as of July 1, 2011.

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On February 20, 2011, the Company terminated its service agreement with X-Clearing Corporation, the Company’s stock transfer agent (services for X-Clearing were completed as of December 31, 2010), and entered into a service agreement with its new stock transfer agent Worldwide Stock.

On March 8, 2011, the Company issued to one individual the sum of 3,500,000 shares of common stock in consideration for services rendered and to be rendered at a value of $164,500 or $0.047 per share.

On March 18, 2011, the Company terminated its agreement with Ascendiant Capital. The Company has since removed the 70,000,000 shares from escrow and the shares back into treasury.

On March 25, 2011, the Company issued to one individual the sum of 10,000,000 shares of common stock in consideration for cash at a value of $300,000 or $0.03 per share; paid directly to Trafalgar as a part of the Trafalgar settlement agreement (see Note 7, Legal).

On March 25, 2011, the Company issued to one individual the sum of 7,500,000 shares of common stock in consideration for cash at a value of $75,000 or $0.01 per share.

On March 25, 2011, the Company settled negotiations with Trafalgar, the settlement and associated press release were filed in 8-K dated March 29, 2011.

On March 28, 2011, the Company issued to one individual the sum of 1,000,000 shares of common stock in consideration for employment retention at a value of $30,000 or $0.03 per share, based upon the agreement date.

On March 28, 2011, the Company issued to one individual the sum of 1,000,000 shares of common stock in consideration for employment retention at a value of $48,000 or $0.048 per share, based upon the agreement date.

On March 28, 2011, the Company issued to one individual the sum of 750,000 shares of common stock in consideration for employment retention at a value of $36,000 or $0.048 per share, based upon the agreement date.

On March 28, 2011, the Company issued to two individuals the sum of 696,666 shares of common stock in consideration for services rendered and finder’s fee agreement at a value of $20,900 or $0.03 per share.

On March 31, 2011, the Company issued to two individuals the sum of 4,250,000 shares of common stock in consideration for cash valued at $85,000 or $0.02 per share; the Company negotiated a settlement of all outstanding obligations with Border States in the amount of $70,000. Noted that our outstanding balance was $100,000, the Company recognized a gain in extinguishment of the debt in the amount of $30,000. Paid directly to Border States, the cash was used in repayment of Border States agreement and legal fees and settled on April 4, 2011 (see Note 7, Legal).

On March 31, 2011, the Company issued to 24 employees the sum of 4,256,279 shares of common stock in consideration for repayment of salary cuts made in May, 2009. The shares were issued at a value of $425,628 or $0.10 per share based upon the agreement stipulated for the salary reimbursement. The Company issued 310,000 shares valued at $31,000 in error the shares were returned on April 4, 2011.

On March 31, 2011, the Company issued to one employee the sum of 205,000 shares of common stock in consideration for repayment of salary cuts made in May, 2009. The shares were issued at a value of $10,250 or $0.05 per share based upon the agreement stipulated for the salary reimbursement.

On March 31, 2011, the Company had a stock payable in the amount of $420,520 in consideration for the settlement of litigation with Trafalgar Capital on March 25, 2011.

On April 6, 2011, the Company issued to Trafalgar Capital the sum of 7,645,821 shares of common stock in consideration for settlement agreement dated March 25, 2011. The shares were issued at a value of $420,520 or $0.055 per share.

On April 30, 2011, the Company issued to one individual the sum of 2,000,000 shares of common stock in consideration for services rendered. The shares had a value of $0.049 per share for a total of $98,000.

On May 11, 2011, the Company issued to one individual the sum of 2,500,000 shares of common stock for cash consideration at a value of $0.02 per share for a total of $50,000.

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On May 20, 2011, the Company issued to one individual the sum of 2,000,000 shares of its common stock as part of a collateral agreement. The shares were issued in an equity draw down agreement. The shares were issued in an equity draw down agreement. The shares had a value of $11,513

On May 23, 2011, the Company issued to one individual the sum of 6,200,000 shares of its common stock as part of a convertible note agreement. The agreement was partially converted into common stock at a value of $0.02 or $124,000.

On June 2, 2011, the Company entered into a convertible note agreement whereby we authorized to reserve a specific number of shares for collateral to cover the convertible notes. The total shares issued into escrow for holding is approximately 19,876,000. As of August 15, 2011 the shares have not been issued only held in escrow with the Company’s transfer agent.

On July 6, 2011, the Company issued to one individual the sum of 130,000 shares of its common stock as a part of a convertible note agreement. The shares were converted at $0.05 per share for a total value of $6,500.

On July 6, 2011, the Company issued to one individual the sum of 3,866,667 shares of its common stock as a part of a convertible note agreement. The shares were converted at $0.015 per share for a total value of $58,000.

On July 7, 2011, the Company issued to one individual the sum of 2,000,000 shares of its common stock as a part of a service agreement. The shares were valued at $0.02 per share or $40,000.

On August 24, 2011, the Company issued to one individual the sum 1,193,012 shares of its common stock as part of the May 20, 2011 collateral agreement. The shares were valued at $3,486. The shares were issued in an equity draw down agreement. As of September 30, 2011 the collateral agreement has been fully converted, no additional shares will be issued.

On September 2, 2011, the Company issued to one individual the sum of 6,000,000 shares of its common stock as a part of a service agreement. The shares were valued at fair market on September 2, 2011 at $0.011 or $66,000.

NOTE 11: Subsequent events

On October 31, 2011, the Company entered into a Letter Of Intent to purchase a company. The undisclosed Cincinnati, Ohio based systems integration and controls company (until final documents are signed upon completion of due diligence and audit within 120 days) agreed to be purchased for a total of $2.25 million. This acquisition will add $3.5 to 4 million to gross revenue and approximately $500,000 in net profits to the Company.

The Company has evaluated subsequent and, other than noted above, there are no such events that would have a material impact on the financial statements.

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

Safe Harbor for Forward-Looking Statements

When used in this Quarterly 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 Quarterly 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.

Overview:

On March 25, 2011, NAS, together with Intecon, Inc., and Intuitive Systems Solutions, Inc., have settled all pending litigation and mutually agreed to end and drop all claims between NAS and Trafalgar Capital Specialized Investment Fund, Luxembourg, Trafalgar Capital Sarl, Trafalgar Capital Advisors (collectively, "Trafalgar") regarding all debt, equity and financing agreements and any and all existing liens, covenants, conditions and encumbrances between National Automation Services, Inc. and Trafalgar Capital. Under the terms of the settlement, NAS removed all Trafalgar debt from its books and all liens on its assets shall be released in consideration a payment of $300,000 in cash, a promissory note $200,000 and approximately seven million shares of restricted NAS stock to Trafalgar Capital. Per the terms of the agreement, the UCC-1 filings against the Company’s asset’s will be lifted in ninety one (91) days after settlement, so long as NAS does not declare bankruptcy during such ninety one day period. For further information see Part II Item 1, Legal Proceedings. Accordingly, we are seeking additional financing. As of September 21, 2011, the Company has defaulted on its promissory note to Trafalgar. As the note was contracted for 6 months we have indicated all principle balance as current and due.

On June 27, 2011, pursuant to the terms noted above in the litigation settlement with Trafalgar, the Company was able to file terminations of all UCC-1 encumbrances from Trafalgar. The Company cleared the ninety one (91) day requirement and did not declare bankruptcy. During the period of our litigation with Trafalgar, since our initial filing in April of 2009, the Company had spent considerable time and resources in these proceedings. Such resources placed a strain on the Company’s resources and its business plans to seek acquisitions. In the months subsequent to the settlement agreement, the Company has been in the process of re-engaging customers for business, re-tooling dormant subsidiaries, and pursuing opportunities to increasing our depleted backlog.

With the ninety one (91) days clear, the Company has engaged accounts receivables funding, and actively pursuing the acquisition of purchase order/contract financing. These financing resources will help our cash flow process and can be used to increase our organic growth (for additional information on capital see below Liquidity and Capital Resources/ Plan of Operation for the Next Twelve Months). Additionally, we are actively seeking acquisitions which will help us in our overall inorganic growth of the Company. We are using our existing criterion for seeking out acquisitions, this existing criteria is summarized below:

·	Established businesses with a proven track record: We seek established businesses with a proven operating track record strong financial performance, positive operating results, established or growing contract backlogs, and/or the potential for positive operating cash flow.

·	Opportunity for growth of our industrial business.

·	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.

Any additional information concerning our acquisition strategy (see Effect Strategic Acquisitions) can be found in our Audited Form 10-K filing for the year ending December 31, 2010.

The Company is aware of its instability, and has noted on several occasions the ability to continue as a going concern. We are in the process of correcting such instability and as noted above and within the Liquidity and Capital Resources (noted below) and are actively pursuing acquisitions, which will help cure the Company’s current status. As of September 30, 2011, as a part of the Company’s pursuit to correct instability and due to the downturn and eventual closing of the Company’s remaining facility in Arizona, we have performed an allowance for the value on the remainder of our inventory in the amount of $317,771, and have expensed the total value to our cost of goods sold.

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Financial Information

The following tables set forth for the periods indicated selected historical statements of operations data. The information contained in the tables below should be read in conjunction with the “Liquidity and Capital Resources,” “Financial Commitments” and “Critical Accounting Policies and Estimates” sections included in this management’s discussion and analysis, as well as the consolidated financial statements and notes thereto included in Item 1 of this Quarterly Report.

Results of Operations

A: Three Months Ended September 30, 2011 compared to Three Months Ended September 30, 2010

	Three Months Ended September 30,
	(unaudited)
	2011			2010			% Change
Revenue	$	75,481		$	336,430			(78	) %
Cost of revenue		60,281			266,103			(77	) %
Allowance for inventory		317,771			--			100	%
Total gross profit (loss)		(302,571	)		70,327			(530	)%

Operating expenses
Selling, general and administrative expenses		189,011			424,934			(56	) %
Consulting fees		68,501			7,630			798	%
Professional fees and related expenses		89,390			78,055			15	%
Total operating expenses		346,902			510,619			(32	) %
Operating loss		(649,473	)		(440,292	)		48	%
Loss on disposal of fixed asset		15,020			--			100	%
Interest expense, net		144,434			100,032			44	%
Total other expense		159,454			100,032			59	%
Net loss	$	(808,927	)	$	(540,324	)		50	%

Operating Loss; Net Income. For the three months ended September 30, 2011, compared to the three months ended September 30, 2010, we had an decrease in revenues of $(260,949) or (78) %, and a increase in our cost of revenue $111,949, or 42% which resulted in an decrease in our gross profit by $(372,898) or (530)% to $(302,571). Additionally, our operating loss increased by $209,181 or 48%, to $(649,472). We had our net loss increase by $(268,603), or 50%, to $(808,927). We attributed the increase in our net loss primarily to the allowance of our inventory which was expensed to our cost of goods sold.

Revenue. For the three months ended September 30, 2011, our consolidated revenue decreased by $(260,949), or (78)%, to $75,481. This decrease principally was due to a decrease in (1) the number of new jobs we received and commenced, and (2) work delays on existing jobs included in our December 31, 2010 backlog of $400,000. Due to the downturn of the economy, our customers have delayed projects which decrease revenues for the Company. The Company is currently seeking other projects to increase its revenues. The decrease is also due to our closing of our subsidiary in Nevada and the downturn of our operations in Arizona.

Cost of Revenue; Gross Profit. Our cost of revenues increased by $111,949, or 42% to $378,052; our cost of revenue is comprised of direct materials, direct labor, manufacturing overhead and other job related costs. Our cost of revenues decreased by $205,822 or (77)% to 60,281 in relation to our decrease in revenue. However, we showed an increase in our cost of revenue due to the offset of $317,771 which was due to our allowance for inventory based upon the downturn of operations and the eventual closing of our facility in Arizona.

Operating Expenses. Although consolidated operating expenses for the three months ended September 30, 2011 decreased by $(163,717), or (32) %, to $346,902, we had an operating loss of $(649,473), compared to the three months ended September 30, 2010 operating expenses of $510,619 and operating loss of $(440,292).

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased by $235,923, or (56)% to $189,011. Decrease is due to a reduction of staff.

Consulting fees. Our consulting fees, which are attributable to investor relations services, increased by $60,871 or 798%, to $68,501, as we enter into agreements for the three months ended September 30, 2011.

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Professional Fees and Related Expenses. Professional fees principally represent costs accounting fees, these costs increased by $11,335, or 15%, to $89,390, the increased amount of professional fees was attributed to an increase in legal and accounting fees over the comparative period in 2010.

Interest Expense, Net. Interest expense, net increased by $44,402, or (44)%, to $144,434, which represents the convertible note interest incurred for the current three month period ending September 30, 2011.

B: Nine Months Ended September 30, 2011 compared to Nine Months Ended September 30, 2010

	Nine Months Ended September 30,
	(unaudited)
	2011			2010			% Change
Revenue	$	364,831		$	1,647,920			(78	) %
Cost of revenue		308,540			1,518,458			(80	) %
Allowance for inventory		317,771			--			100	%
Total gross profit (loss)		(261,480	)		129,462			(302	) %

Operating expenses
Selling, general and administrative expenses		717,495			1,137,457			(37	) %
Consulting fees		103,667			19,075			443	%
Professional fees and related expenses		568,176			569,035			(5	) %
Total operating expenses		1,389,338			1,752,567			(21	) %
Operating loss		(1,650,818	)		(1,623,105	)		2	%

Other expense		7,343			--			100	%
Loss on disposal of fixed assets		15,020			--			100	%
Interest expense, net		405,282			401,122			1	%
Gain on payable and debt extinguishment		(3,001,297	)		--			(100	) %
Total other expense		(2,573,652	)		401,122			(742	) %
Net income (loss)	$	922,834		$	(2,024,227	)		146	%

Operating Loss; Net Income. For the nine months ended September 30, 2011, compared to the nine months ended September 30, 2010, we had a decrease in revenues of $(1,283,089), or (78)%, and a decrease in our cost of revenue $(892,147), or (59)% which resulted in an decrease in our gross profit by $(390,942) or (302)% to $(261,480). Additionally, our operating loss decreased by $(27,713), or 2%, to $(1,650,818). We had our net income increase by $2,947,061, or 146%, to $922,834. We attribute this significant increase to one major event which was the write-off of our debt obligation to Trafalgar per our settlement on March 25, 2011 and Border States; in the amount of $2,911,820 (see Part II Item 1- Legal proceedings.)

Revenue. For the nine months ended September 30, 2011, our consolidated revenue decreased by $(1,283,089), or (78)%, to $364,831. This decrease principally was due to a decrease in (1) the number of new jobs we received and commenced, and (2) work delays on existing jobs included in our December 31, 2010 backlog of $400,000. Due to the downturn of the economy, our customers have delayed projects which decrease revenues for the Company. The Company is currently seeking other projects to increase its revenues. The decrease is also due to our closing of our subsidiary in Nevada and a downturn of our operations in Arizona.

Cost of Revenue; Gross Profit. Our cost of revenues decreased by $(892,147), or (59)% to $626,311. Our cost of revenue is comprised of direct materials, direct labor, manufacturing overhead and other job related costs. Our cost of revenues decreased by $1,209,918 or (80)% to 308,540 in relation to our decrease in revenue. However, we showed an smaller decrease in our cost of revenue due to the offset of $317,771 which was due to our allowance for inventory based upon the downturn of operations and the eventual closing of our facility in Arizona.

Operating Expenses. Although consolidated operating expenses for the nine months ending September 30, 2011 decreased by $363,229, or (21) %, to $1,389,338, we had an operating loss of $(1,650,818), compared to the nine months ended 2010 operating expenses of $1,752,567 and operating loss of $(1,623,105).

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased by $419,962, or (37) % to $717,495.

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Consulting fees. Our consulting fees, which are attributable to investor relations services, increased by $84,592, or 443%, to $103,667 as we entered into a consulting agreement, and did not enter into any significant agreements in the comparative period of 2010.

Professional Fees and Related Expenses. Professional fees principally represent costs for legal and accounting fees, these costs slightly decreased by $27,859, or 5%, to $568,176, the decreased amount of professional fees was incurred in conjunction with legal fees with Trafalgar and our write off of financing fees with the cancellation of our agreement with Ascendiant.

Interest Expense, Net. Interest expense, net increased by $4,160, or 1%, to $405,282, which represents the convertible note(s) interest incurred for the nine month period ending September 30, 2011.

Gain / loss on extinguishment of debt and payables. The write-off of Trafalgar debt and a write-off of rent payable increased our net income to $922,834 for the period ending September 30, 2011. This is a non-recurring, non-cash economic event.

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

As stated above in our business overview, the Company has experienced a downturn in production. We noted that due to the litigation with Trafalgar and the downturn of the economy we have seen an impact in our revenues and cash flows. For the nine month period ended September 30, 2011, our accounts receivable were $20,738, a decrease of $286,884, or 93%. At November 14, 2011 our cash on hand was approximately $100. In addition, we have experienced insufficient cash flow resulting from much slower payments from the contractors and others for whom we work. The Company expects that receipt of payments from our customers will likely continue until such time as the Company can improve its cash flow from operations. As such we indicated in Note 3 of our reviewed financial statements management’s assessment about the Company’s ability to continue as a going concern. As of September 30, 2011, as a part of the Company’s pursuit to correct instability and due to the downturn of the Company’s remaining facility in Arizona, we have performed an allowance for the value on the remainder of our inventory in the amount of $317,771, and have expensed the total value to our cost of goods sold. The allowance is primarily due to our inability to pay our rent on our warehouse facility in Arizona. Per the terms of the leasing contract all assets will be turned over if the Company was forced to vacate the premises. We are currently in contact with the lessor and plan to resolve the collection or write off of our inventory.

As of March 18, 2011, the Company cancelled its agreement with Ascendiant. The Company has returned to Treasury the 70,000,000 shares of stock held in escrow and expensed the deferred financing fees in the amount of $125,000.

As of April 8, 2011, the Company has signed an agreement with Versant Capital to help in our accounts receivable factoring. Under the terms of the agreement, the Company will be able to fund its working capital requirements through the sale of its outstanding accounts receivable invoices to Versant. The Company intends to use the funding proceeds to execute and perform on contracts with existing and new clients.

As of June 30, 2011, the Company entered into 2 convertible note agreements whereby the holder of the 2 notes, Asher Capital, has requested to be placed into escrow approximately 19,876,000 shares of our common stock. The escrow shares are to be held until such time as Asher converts the notes into stock. At which time the remaining balance of escrow shares will be returned to the Company.

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Summary of Cash Flow for the Nine Months Ended September 30, 2011 and 2010 (rounded)

Our total cash decreased by approximately $133,000, or 98%, to $2,500 for the nine months ended September 30, 2011, compared to $135,500 for the nine months ended September 30, 2010. Our cash flows for the nine months ended September 30, 2011 and 2010 were as follows:

	Nine Months Ended September 30,
	2011				2010
Net cash used by operating activities		$	(238,300	)		$	(398,100	)
Net cash used by investing activities			--				--
Net cash provided by financing activities			229,500				491,200

Operating Activities

Our total cash used by operating activities decreased by $159,800, or 40% to $(238,300) for the nine months ended September 30, 2011, compared to $(398,100) for the nine months ended September 30, 2010. The changes are due to the increase in our net income due to a write-off of the debt obligation owed to Trafalgar; we issued additional stock for services; we expensed the remaining deferred fees for the Ascendiant agreement which we cancelled in March, 2011. We have also made an allowance for our inventory in the nine months ended September 30, 2011.

Investing Activities

The Company had no investing activities for the nine months ended September 30, 2011 and September 30, 2010 respectively.

Financing Activities

Our total cash provided for financing activities decreased by $261,700, or (53) %, to $229,500 for the nine months ended September 30, 2011, compared to $491,200 for the nine months ended September 30, 2010. We saw a decrease in our sale of stock to investors for capital as compared to the period ending September 30, 2010.

Current Commitments for Expenditures

Our current cash commitments for expenditures are mainly operational and SEC compliance in nature. We seek to use current revenue to pay vendors for materials for contracts, for payroll, and related employment expenditures (i.e. benefits). The remaining cash is used for debt service and to remain current with any SEC filings that are required.

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.

CRITICAL ACCOUNTING POLICIES AND 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 and which we discussed above in this Item 2. 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.

Allowance for Doubtful Accounts

As required by the Receivables Topic of Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”), the Company is required to use a predetermined method in calculating the current value for its bad debt on overall accounts receivable.

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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.

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.

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.

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.

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;

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).

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Debt Modification

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-Schoels 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.

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 disclosure controls and 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.

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a- 15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:

·	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions of our financial statements;

·	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with applicable GAAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of Directors; and

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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.

Under the supervision and with the participation of our management, our Chief Executive Officer, and Principal Financial Officer, we have evaluated the effectiveness of our internal control over financial reporting and as of the end of the period ending September 30, 2011, the Company feels that it is working towards clear disclosures and implementing proper internal controls over financial reporting. Our controls have since been updated in order to prevent the issues surrounding our material weakness and management feels that, moving forward, our controls over financial reporting will reduce the potential impact of material misstatements.

This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting.

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 period ending September 30, 2011, 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 October 2, 2010, a writ of garnishment was filed against our subsidiary Intecon’s bank account for our outstanding balanced owed to one of our vendors, Border States. 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 $90,000 which was sent to Border States under the writ on October 15, 2010. As of March 31, 2011, our outstanding balance owed to Border State was $100,000. Noted that our outstanding balance was $100,000, we negotiated a payment to Border States in the amount of $70,000 to pay off our outstanding balance. The Company recognized a gain in extinguishment of the debt in the amount of $30,000. As of April 4, 2011, the Company has repaid this vendor in full.

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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 7, 2011, the Company issued to one individual the sum of 2,000,000 shares of its common stock as a part of a service agreement. The shares were valued at $0.02 per share or $40,000.

On August 24, 2011, the Company issued to TriPod Group the sum 1,193,012 shares of its common stock as part of the May 20, 2011 collateral agreement. The shares were issued in an equity draw down agreement. As of September 30, 2011 the collateral agreement has been fully converted, no additional shares will be issued.

On September 2, 2011, the Company issued to National Financial Communications Corporation the sum of 6,000,000 shares of its common stock as a part of a service agreement. The shares were valued at fair market on September 2, 2011 at $0.011 or $66,000.

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

None

Item 4. [REMOVED AND RESERVED]

Item 5. Other Information

None

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 Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

* 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.

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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: November 14, 2011

	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

National Energy Services, Inc. - FORM 10-Q - November 14, 2011

Attached files

National Energy Services, Inc. Reports