National Automation Services 10Q 2010 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: June 30, 2010

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.)

2470 St. Rose Parkway, Suite 314 Henderson, Nevada 89074

(Address of principal executive offices) (Zip Code)

702-487-6274

(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 £ 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 f iled £
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 August 16, 2010
Common Stock, $.001 par value	176,476,315


NATIONAL AUTOMATION SERVICES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
		JUN 30, 2010		DEC 31, 2009
		(unaudited)		(audited)

ASSETS
CURRENT ASSETS
Cash	$	18,222	$	42,384
Accounts receivable, net of allowance of doubtful accounts of $15,282 at June 30, 2010, $25,780 at December 31, 2009		613,330		367,098
Inventory		223,712		450,110
Total current assets		855,264		859,592	;
PROPERTY AND EQUIPMENT, net of accumulated depreciation of $97,477 at June 30, 2010, $90,390 at December 31, 2009		106,640		140,157
OTHER ASSETS
Security deposit		5,535		5,535
Deferred financing fees		125,000		--
Intangible Asset - net of accumulated amortization of $125,111 at June 30, 2010, $107,095 at December 31, 2009		18,018		36,034
Total other assets		255,19 3		181,726
TOTAL ASSETS	$	1,110,457	$	1,041,318

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payables	$	1,208,625	$	1,301,316
Accrued liabilities		1,567,788		959,111
&n bsp; Deferred revenue		10,625		50,777
Current portion of loans and capital leases		29,405		37,473
Current portion of secured redeemable debentures		2,347,001		2,347,001
ABL line of credit		758,398		758,398
Convertible debt, net of beneficial conversion feature of $0 at June 30, 2010 and $87,159 at December 31, 2009		--		37,841
Related party payable		165,913		165,913
Total current liabilities		6,087,755		5,657,830
Loans and capital leases		18,340		19,582
Total liabilities		6,106,095		5,677,412
STOCKHOLDERS’ DEFICIT
Stock held in escrow		(70,000)		--
Common stock $0.001 par value, 200,000,000 authorized, 176,476,315 shares issued outstanding as of June 30, 2010, 90,081,416 shares issued outstanding at December 31, 2009		176,476		90,081
Additional paid in capital		9,359,026		8,251,062
Stock (receivable)		(17,343)		(17,343)
Accumulated deficit		(14,443,797)		(12,959,894)
Total stockholders’ deficit		(4,995,638)		(4,636,094)
&n bsp; TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,110,457	$	1,041,318

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


NATIONAL AUTOMATION SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
		THREE MONTHS ENDED JUN 30, 2010		THREE MONTHS ENDED JUN 30, 2009		SIX MONTHS ENDED JUN 30, 2010		SIX MONTHS ENDED JUN 30, 2009

REVENUE	$	948,127	$	751,574	$	1,311,490	$	2,238,636
COST OF REVENUE		844,438		908,118		1,252,355		2,029,073
GROSS PROFIT (LOSS)		103,689		(156,544)		59,135		209,563

OPERATING EXPENSES
Selling, general and administrative expenses		385,681		434,754		712,523		951,133
Consulting fees		11,445		165,864		11,445		298,228
Professional fees and related expenses		309,724		49,283		517,980		487,827
TOTAL OPERATING EXPENSES		706,850		649,901		1,241,948		1,737,188

OPERATING LOSS		(603,161)		(806,445)		(1,182,813)		(1,527,625)

OTHER EXPENSE
Interest expense, net		216,366		260,805		301,090		547,841

TOTAL OTHER EXPENSE		216,366		260,805		301,090		547,841
									& nbsp;
LOSS BEFORE PROVISION FOR INCOME TAXES		(819,527)		(1,067,250)		(1,483,903)		(2,075,466)

PROVISION FOR (BENEFIT FROM) INCOME TAXES		--		--		--		--

NET LOSS	$	(819,527)	$	(1,067,250)	$	(1,483,903)	$	(2,075,466)

BASIC AND DILUTED LOSS PER SHARE:	$	(0.01)	$	(0.01)	$	(0.02)	$	(0.03)

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - BASIC AND DILUTED		103,102,940		77,064,210		97,911,855		74,248,024

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


NATIONAL AUTOMATION SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
		SIX MONTHS ENDED JUN 30, 2010		SIX MONTHS ENDED JUN 30, 2009

Operating Activities:
Net loss	$	(1,483,903)	$	(2,075,466)
Cash (used) by operating activities:
Allowance for doubtful accounts		(10,498)		7,158
Depreciation and amortization		51,533		57,297
Stock for services		199,808		455,833
Accre tion of debt discount and premium		--		242,556
Accretion of convertible notes beneficial conversion feature		87,159		--
Changes in assets and liabilities:
Deferred revenue		(40,152)		--
Receivables		(235,735)		119,672
Other receivables		--		76,147
Inventories		226,399		(86,487)
Prepaid expenses		--		93,158
&nb sp; Accounts payable and accrued liabilities		741,537		349,687
Other assets		--		(4,490)

Cash (used) by operating activities		(463,852)		(764,935)

Investing Activities:
Purchase of property and equipment		--		(14,547)

Cash (used) by investing activities		--		(14,547)

Financing activities:
Proceeds from sale of stock		449,000		703,750
Deferred financing fees		--		144,794
Related party payable, net		--		16,000
Payment of line of credit		(820)		(1,478)
Payments for loans and capital leases		(8,490)		(10,195)
&nbs p; Payments on ABL line		--		(47,654)

Cash provided by financing activities		439,690		805,217

(Decrease) increase in cash		(24,162)		25,735
Cash and cash equivalents at beginning of year		42,384		108,498

Cash and cash equivalents at end of year	$	18,222	$	134,233


Cash paid for interest	$	2,500	$	6,039
Cash paid for income taxes	$	--	$	--

SUPPLEMENTAL NON CASH INVESTING AND FINANCING TRANSACTIONS					& nbsp;
Capital lease	$	--	$	31,246
Debt & interest converted to stock	$	126,000	$	--
Deferred financing fees	$	125,000	$	--
Accounts payable paid with stock	$	224,550	$	--
Common stock held in escrow	$	70,000	$	--

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

NATIONAL AUTOMATION SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 financ ial 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, 2009 Annual Report on Form 10-K. Operating results for the period ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010. 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 pr esented in accordance with the rules governing a smaller reporting company for the period ended June 30, 2010 and 2009.

Business Overview

National Automation Services, Inc. is a holding company formed to acquire and operate specialized automation control companies located in the Southwestern United States. Currently, the Company owns 100% of the capital stock of two operating subsidiaries: (1) ISS, a Nevada corporation, based in Henderson, Nevada and (2) Intecon, an Arizona corporation, based in Tempe, Arizona.

We conduct our business and operations through these two wholly-owned subsidiaries. Overall, the Company 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.

Since the acquisition of its current operating subsidiaries, 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’s management runs the company as one unit and does not have two distinct business segments.

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

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 c onvertible debt.

NATIONAL AUTOMATION SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

As required by the Revenue Recognition Topic of the Financial Accounting Standards Board Accounting Standards Codification (“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.

Stock Based Compensation

Stock based compensation is accounted for using the Equity-Based Payments to Non - -Employee Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

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 va lue 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).

See Note 8 Fair value, for additional information.

NATIONAL AUTOMATION SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2: Recently adopted and recently issued accounting guidance

Adopted

Subsequent events: In February 2010, the FASB issued amended guidance on subsequent events to alleviate potential conflicts between FASB guidance and SEC requirements. Under this amended gui dance, SEC filers are no longer required to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. This guidance was effective immediately and we adopted these new requirements for the period ended March 31, 2010. The adoption of this guidance did not have a material impact on our financial statements.

In June 2009, the FASB issued changes to the accounting for transfers of financial assets. These changes remove the concept of a qualifying special-purpose entity and remove the exception from the application of variable interest accounting to variable interest entities that are qualifying special-purpose entities; limits the circumstances in which a transferor derecognizes a portion or component of a financial asset; defines a participating interest; requires a transferor to recognize and initially measure at fair value all assets obtained a nd liabilities incurred as a result of a transfer accounted for as a sale; and requires enhanced disclosure; among others. We adopted these new requirements as of March 31, 2010, and did not have a material impact on our 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

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 revenu es are insufficient to fund our operations and our assets already are pledged to Trafalgar as collateral for our outstanding $3,570,000 (including interest) of indebtedness. The Company has experienced reoccurring net losses, had a net loss of $(1,483,903) for the six months ended June 30, 2010, an accumulated deficit of $(14,443,797) for the six months ended June 30, 2010, and a working capital deficiency of $(5,232,491) at June 30, 2010.

Based on the above facts, management determined that there is substantial doubt about the Company’s ability to continue as a going concern.

We continue to seek sources of additional capital. We intend to try to improve our cash and cash flow from operations by encouraging faster payments, and if nec essary granting discounts for prompt payment, of our receivables while simultaneously delaying payments to our vendors.

Also we plan to increase our revenue by increasing our visibility and the awareness of our Company, and our products and services, by engaging in more aggressive sales, marketing and advertising activity. We intend to develop and implement strategies to market ongoing maintenance and service contracts to our current as well as our past customers, and we plan to package these continuing services as part of our industrial automation design and manufacturing services. We also intend to implement cost reduction synergies such as centralizing procurement and estimating activities at our corporate hub using dedicated teams of trained employees, rather than having these tasks performed at our branch offices.

NATIONAL AUTOMATION SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4: Loans, capital lease

The following tables represent the outstanding balance of loans for the Company as of June 30, 2010, and December 31, 2009.


		Period Ended June 30, 2010 (unaudited)		Year Ended December 31, 2009 (audited)
Promissory note payable in monthly installments of $367 at an interest rate of 2.9%, collateralized by a vehicle due August 2010.	$	--	$	2,098
Key Bank loan payable in monthly installments of $2,620 due February 2010.		--		5,148
South Bay Capital loan at an interest rate 12%		10,926		10,926
Capital lease and loans		36,819		38,883
Loans and capital lease sub total		47,745		57,055
Less: current portion loans and capital leases		(29,405)		(37,473)
Total	$	18,340	$	19,582

Loans

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 o f $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 $10,926, and was applied retrospectively to the note as of January 1, 2009. As of June 30, 2010, $10,926 of the debt still remains outstanding with total interest of $40,711.

On January 28, 2009, the Company entered into a financing loan agreement with Key Bank in the amount of $32,300, for the purchase of CAD software to be used in operations at its subsidiaries. The loan is a 12 month loan in payments of $2,620. As of June 30, 2010, the outstanding balance on the loan was $2,620 in accounts payable.

NOTE 5: Convertible notes

Du ring the quarter ended December 31, 2009, we issued to 4 individuals convertible debentures for $125,000. The notes bear interest at the rate of 20% per year and mature in six (6) months on varying dates starting with May 7, 2010. The notes are convertible into the Company’s common stock at a fixed value of $0.05 per share.

As of June 30, 2010, the Company has converted all of the notes totaling $125,000 principal balance and $1,000 in interest of the convertible notes at a value of $0.05 per share and issued to these four individuals collectively 2,640,000 shares of the Company’s common stock (see Note 9, Stockholders’ deficit).

NOTE 6: Deferred financing fees

On April 7, 2010, the Company entered into a Sec urities Purchase Agreement with Ascendiant Capital Group, LLC (“Ascendiant”), pursuant to which Ascendiant agreed to purchase up to $5,000,000 worth of shares of our common stock from time to time over a 24-month period upon approval of the Company’s Form S-1 registration statement. The Company issued to Ascendiant Capital 1,470,589 share of common stock valued at $125,000 or $0.08 per share as a commitment fee based on the security agreement (see Note 7, Stockholders’ deficit). The commitment fees have been deferred until the terms of the agreement have been met which include the acceptance of the Company’s S1 registration statement filed on June 24, 2010, amended on June 30, 2010, and amended July 30, 2010. Once the acceptance of the Form S-1 is considered by the SEC the deferred financing fees will be amortized over the life of the agreement indicated at 24 months.

NATIONAL AUTOMATION SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7: Legal

On April 23, 2009, the Company entered into a lawsuit against Trafalgar Capital Specialized Investment Fund, FIS (“Trafalgar”). The Company is the Plaintiff, charging Trafalgar with usurious lending practices. We noted that the pending litigation is estimatable; however, as the litigation is still in the pre-discovery stages we are not able to indicate the outcome. On July 7, 2009 we received a notice of default from Trafalgar that we have violated the terms of our secured loan and credit facil ity agreements by failing to make certain payments when due and breaching certain covenants.

The lender has accelerated our outstanding indebtedness, and accordingly it has the right to execute and foreclose on all of our assets, including the stock in our subsidiaries, and/or the personal guarantee executed in favor of the lender by Robert Chance, our CEO.

We reclassified all Trafalgar related debt to current due to the default notice, and have amortized the remaining balance of the deferred financing fees and debt premiums/discounts as of December 31, 2009. The Company has not made any payments to Trafalgar as of March 31, 2010 due to the pending litigation against Trafalgar.

In November 2009 we were served with the complaint Trafalgar filed on October 30, 2009 in the Court against us, our two subsidiaries and Robert Chance, our CEO. Trafalgar’s complaint seeks repayment of the amounts we allegedly owe under the subject loan and other credit agreements we enter into, plus interest and attorneys fees, and foreclosure on all of our assets (we had pledged such assets as collateral pursuant to the terms of the Security Agreement we executed in connection with such agreements). The complaint also alleges that we fraudulently induced Trafalgar to extend to us the approximately $3 million in total financing we received.

As noted above, in April 2009 we had filed a complaint in the same Court against Trafalgar, alleging that the subject agreements under which Trafalgar had extended financing to us, and under which it now is suing us, were unenforceable. We believe Trafalgar’s allegati ons are without merit. We are mounting a vigorous defense and will move the Court to consolidate these two actions. The Court has entered a scheduling order setting the April 2009 action for a trial docket starting November 1, 2010, with calendar call on October 28, 2010. A discovery cutoff date is currently set for July 16, 2010 and July 23, 2010, respectively and dispositive motions in the cases are due August 27, 2010, the extension was a joint request to the Court to amend the discovery and trial schedule for the April 2009 case so that NAS’ claims and Trafalgar’s claims proceed on the same discovery track. In addition to the indicated cutoff for August 27, 2010, the Company also noted that the court has ordered the parties to mediate the case by September 17, 2010.

On June 9, 2010, a writ of garnishment was filed against our subsidiary Intecon’s bank account for ou r 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.

NATIONAL AUTOMATION SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8: Fair valu e

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 June 30, 2010
	Total	Level 1	Level 2	Level 3
Assets:
Total	$ --	$ --	$ --	$ --

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


	Fair value at December 31, 2009
	Total	Level 1	Level 2	Level 3
Assets:
Total	$ --	$ --	$ --	$ --

Liabilities:
Convertible debt, net of beneficial conversion feature	$ 37,841	$ 37,841
Total	$ 37,841	$ 37,841	$ --	$ --

NOTE 9: Stockholders’ deficit

Preferred Stock

&nb sp;

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

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

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

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

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

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

NATIONAL AUTOMATION SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On March 5, 2010, the Company issued to one individual 220,000 shares of common stock in consideration for $10,000 in cash, or $0.045 per share.

On March 8, 2010, the Company received $4,000 for the purchase of 88,000 shares of common stock in valued at $0.045 per share. The shares were is sued on April 5, 2010.

On March 15, 2010, the Company issued to two individuals an aggregate of 220,110 shares of common stock in consideration for $10,000 in cash, or $0.045 per share.

On March 17, 2010, the Company issued to one individual 28,600 shares of common stock in consideration for $1,300 in cash, or $0.045 per share.

On March 19, 2010, the Company received $5,000 for the purchase of 110,000 shares of common stock in valued at $0.045 per share. The shares were issued on April 27, 2010.

On March 29, 2010, the Company received $100,000 for the purchase of 2,100,000 shares of common stock valued at $0.047 per share. The shares were issued on April 20, 2010.

On March 29, 2010, the Company received $10,000 for the purchase of 200,000 shares of common stock valued at $0.05 per share. The shares were issued on April 20, 2010.

On March 30, 2010, the Company issued to one individual 28,600 shares of common stock in consideration for $1,300 in cash, or $0.045 per share.

On March 30, 2010, the Company received $10,000 for the purchase of 200,000 shares of common stock valued at $0.05 per share. The shares were issued on April 20, 2010.

On April 5, 2010, the Company issued to one individual 88,000 shares of common stock in consideration for $4,000 in cash, or $0.045 per share.

On April 7, 2010, the Company issued to Ascendiant Capital 1,470,589 share of common stock valued at $125,000 or $0.08 per share based on the commitment fee per our equity financing agreement dated April 7, 2010. Ascendiant, pursuant to which Ascendiant and the Company entered into a Securities Purchase Agreement with Ascendiant, pursuant to which Ascendiant agreed to purchase up to $5,000,000 worth of shares of our common stock from time to time over a 24-month period upon approval of a Form S-1 registration statement. The agreement also indicates that 70,000,000 shares will be held in escrow for the commitment period.

On April 19, 2010, the Company issued to one individual 500,000 shares of common stock in consideration for $25,000 in cash, or $0.05 per share.

On April 19, 2010, the Company issued 700,000 shares of common stock valued at $237,356 or $0.34 per share based on a settlement agreement dated April 16, 2010. The settlement agreement was to satisfy an outstanding vendor balance owed by the Company.

On April 20, 2010, the Company issued to fifteen individuals the sum of 3,660,000 shares of common stock in consideration $177,000 in cash, or $0.05 per share.

On April 22, 2010, the Company issued to five individuals the sum of 1,128,000 shares of common stock in consideration $55,500 in cash, or $0.05 per share.

On April 23, 2010, the Company issued to two individuals the sum of 380,000 shares of common stock in consideration $19,000 in cash, or $0.05 per share.

On April 23, 2010, the Company issued 600,000 shares of common stock valued at $30,000 or $0.05 per share based on an employment agreement dated November 10, 2009 and amended on April 1, 2010.

NATIONAL AUTOMATION SERVICES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On April 26, 2010, the Company issued to f our individuals the sum of 430,000 shares of common stock in consideration $21,500 in cash, or $0.05 per share.

On April 27, 2010, the Company issued to three individuals the sum of 353,000 shares of common stock in consideration $16,500 in cash, or $0.05 per share.

On May 7, 2010, the Company converted its convertible debt agreement dated November 7, 2009 upon the request of the note holder and consent of the Company. The debt value of $65,000 was converted to shares at a value of $0.05 per share, based upon the value in the convertible note agreement.

On May 14, 2010, the Company issued to eleven individuals the sum of 1,518,000 shares of common stock in consideration $75,900 in cash, or $0.05 per share.

On May 14, 2010, the Company converted its convertible debt agreement dated December 15, 2009 upon the request of the note holder and consent of the Company. The debt value of $11,000 including $1,000 of interest was converted to shares at a value of $0.05 per share, based upon the value in the convertible note agreement.

For the period ending June 30, 2010, the Company has issued 430,000 in warrants with a 1 to 1 ratio. The warrants are at a fixed price of $0.05 per share and have a vesting period of 6 months. To date no warrants have been exercised.

As noted, the above purchase shares of the Company’s restricted common stock were purchased under a private offering. Under the offering, the shares were require d to be placed on a registration statement Form S-1 which the Company filed to the SEC on June 24, 2010 amended on June 30, 2010, and amended July 30, 2010.

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:

Central to an understanding of our financial condition and results of operations is our current cash shortage and our relationship with Trafalgar Capital Specialized Investment Fund, FIS (“Trafalgar”). At August 13, 2010, although our accounts receivable were approximately $186,000, our cash on hand was approximately $10,000, and our operating revenues are insufficient to fund our operations. Consequently, our reviewed June 30, 2010 financial statements contain, in Footnote 3, an explanatory paragraph to the effect that our ability to continue as a going concern is dependent on our ability to increase our revenue, eliminate our recurring net losses, eliminate our working capital deficit, and realize additional capital; and we can give no assurance that our plans and efforts to do so will be su ccessful (See Item 1, Financial Statements and Supplementary Data). Therefore, we require substantial additional funds to finance our business activities on an ongoing basis and to implement our acquisition strategy portraying our company as one able to provide a target company not only with cost savings resulting from centralized estimating, accounting and other corporate functions but also with additional working capital to finance and grow its business. However, we owe Trafalgar an aggregate of approximately $3,570,000 (including interest), the repayment of which is secured by all our existing and after-acquired assets, and which indebtedness currently is in default and was accelerated by Trafalgar on July 7, 2009, and in our December 18, 2008 Credit Agreement with Trafalgar we agreed, among other things, not to issue any additional common stock without its prior written consent and not to incur any new indebtedness or to acquire the assets, business or stock of any company. In Apri l 2009 we commenced a legal action which seeks a declaratory judgment that the Trafalgar indebtedness violates the usury laws of the State of Florida, whose laws govern the documents, by calling for interest to be paid at a greater rate than is allowed by applicable law, and that due to their usurious nature Trafalgar may not enforce these negative covenants or any other terms of the loan documents. For further information about this pending litigation see Part II Item 1, Legal Proceedings. Accordingly, we are seeking additional financing.

Business Development:

We are a Nevada corporation which, through subsidiaries based in Nevada and Arizona, designs, produces, installs and, to a significantly lesser extent, services specialized mechanical and electronic automation systems built to operate and control machine ry and processes with a minimum of human intervention. Historically, we have performed our work on projects located in the Southwestern United States. Our business plan envisions internal growth combined with expansion through selected acquisitions designed to expand our footprint both geographically into additional states and commercially by increasing our work for industrial, as opposed to municipal, end-users.

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

Three Months Ended June 30, 2010 compared to Three Months Ended June 30, 2009


	Three Months Ended June 30,
	(unaudited)
	2010		2009		% Change
Revenue	$	948,127	$	751,574		26	%
Cost of revenue		844,438		908,118		(7)	%
Total gross profit		103,689		(156,544)		166	%

Operating expenses:
Selling, general and administrative expenses		385,681		434,754		(11)	%
Consulting fees		11,445		165,864		(93)	%
Professional fees and related expenses		309,724		49,283		528	%

Operating loss		(603,161)		(806,445)		(25)	%
Interest expense, net		216,366		260,805		(17)	%
Net loss	$	(819,527)	$	(1,067,250)		(23)	%

Operating Loss; Net Loss

For the three months ended June 30, 2010, compared to the three months ended June 30, 2009, we had an increase in revenues of $196,553 or 26%, and a decrease in our cost of revenue $(63,680), or (7)% (which increased our gross profit by $260,233, or 166%, to $103,689). Our operating loss decreased by $(203,284), or (25)%, to $(603,161) and our net loss decreased by $(247,723), or (23)%, to $(819,527). As discussed below, we attribute the decreases to the following: the $196,553 or 26% increase in our revenue, the $(63,680) or (7)% decrease in our cost of revenues, i.e. direct costs; the (11)% or $49,073 decrease in our selling, general administrative expenses resulting from our decrease in salaries for our employees. Also, our three month comparison was helped by the fact that in the three months ended June 30, 2010 we reduced consulting fees by $(154,419), or (93)%, and our interest expense by $(44,439) or (17)%. We expect our net loss to continue until such time as we are able to correct our cash flow from existing and new customers in our revenue cycle.

Revenue. For the three months ended June 30, 2010, our consolidated revenue increased by $196,553, or 26%, to $948,127. This increase principally was due to an increase in (1) the number of new jobs we received and commenced, and (2) invoices on existing jobs included in our December 31, 2009 backlog of $2,486,992. Due to the downturn of the economy, our customers have delayed projects which will decrease our revenues for the Company. The Company is currently seeking other projects to increase its revenues.

Cost of Revenue; Gross Profit. Our cost of revenues decreased by $(63,680) or (7)%. Our cost of revenue is comprised of direct materials, direct labor, manufacturing overhead and other job related costs. The decrease in our cost of revenue is due to our controls in labor costs, less employees and our control in manufacturing overhead.

Operating Expenses

Although consolidated operating expenses for the three months ended June 30, 2010 decreased by $(56,949), or (9)%, to $706,850, we had an operating loss of $(603,161), compared to the three months ended June 30, 2009 operating expenses of $649,901 and operating loss of $(806,445). The $(203,284) decrease in our operating loss is principally due to the $(49,073), or (11)% decrease in our selling, general and administrative expenses, and the decrease in our consulting fees by $(154,419) or (93)%, which was off-set by professional fees at $260,441 or 528% for expenses on our Form S-1 filing.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased by $(49,073), or (11)%, to $385,681 due to the reduction of rent, advertising/marketing and health insurance expenses.

Consulting fees. Our consulting fees, which are attributable to investor relations services, decreased by $(154,419), or (93)%, to $11,445 as we had a minimum amount of consulting fees for the three months ended June 30, 2010.

Professional Fees and Related Expenses. Professional fees principally represent costs for legal and accounting fees, these costs increased by $260,441, or 528%, to $309,724, principally because we incurred expenses for the legal and accounting work needed to respond to the comments of the SEC and to prepare our registration statement on Form S1 filed in June 2010.

Interest Expense, Net. Interest expense, net decreased by $(44,439), or (17)%, to $216,366, which a majority represents the interest expense on the Trafalgar debt for the current three months ended June 30, 2010. The decrease in interest expense, compared to the three months ended June 30, 2009 is attributable to the remaining debt premium/discount and deferred financing fees being fully amortized as of fiscal year end December 31, 2009.

Six Months Ended June 30, 2010 compared to Six Months Ended June 30, 2009


	Six Months Ended June 30,
	(unaudited)
	2010		2009		% Change
Revenue	$	1,311,490	$	2,238,636		(41)	%
Cost of revenue		1,252,355		2,029,073		(38)	%
Total gross profit (loss)		59,135		209,563		(72)	%

Operating expenses:
Selling, general and administrative expenses		712,523		951,133		(25)	%
Consulting fees		11,445		298,228		(96)	%
Professional fees and related expenses		517,980		487,827		6	%

Operating loss		(1,182,813)		(1,527,625)		(23)	%
Interest expense, net		301,090		547,841		(45)	%
Net loss	$	(1,483,903)	$	(2,075,466)		(29)	%

Operating Loss; Net Loss

For the six months ended June 30, 2010, compared to the six months ended in fiscal 2009, we had a decrease in revenues of $(927,146), or (41)%, and a decrease in our cost of revenue $(776,718), or (38)% (which decreased our gross profit by $(150,428), or (72)%, to $59,135). However, our operating loss decreased by $(344,812), or (23)%, to $(1,182,813) and our net loss decreased by $(591,563), or (29)%, to $(1,483,903). As discussed below, we attribute these losses to the following: the $776,718 or 38% decrease in our cost of reven ue, i.e. direct costs associated with our less employees and decreased production; the 25% or $238,610 decrease in our selling, general administrative expenses resulting from our cost savings for other expenditures. Also, our six month comparison was helped by the fact that we reduced our consulting fees by $(286,783) or (96)%, and our interest expense by $(246,751) or (45)%. Even with the decrease in overall expenditures we expect our net loss to continue until such time as we are able to correct our cash flow from existing and new customers in our revenue cycle.

Revenue. For the six months ended June 30, 2010, our consolidated revenue decreased by $(927,146), or (41)%, to $1,311,490. 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, 2009 backlog of $2,486,992. Due t o 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.

Cost of Revenue; Gross Profit. Our cost of revenues decreased by $(776,718) or (38)%. Our cost of revenue is comprised of direct materials, direct labor, manufacturing overhead and other job related costs. The decrease in our cost of revenue is due to our controls in labor costs, reduction of employees and manufacturing overhead, we also saw a down-turn in our cost of revenue due to a decrease in our contract revenue for the six months ended June 30, 2010.

Operating Expenses

Although consolidated operating expenses for the six months ended June 30, 2010, decreased by $(495,240), or (29)%, to $1,241,948, we had an operating loss of $(1,182,813), compared to the six months in 2009 operating expenses of $1,737,188 and operating loss of $(1,527,625). The $(344,812) decrease in our operating loss is principally due to the $(238,610), or 25% decrease in our selling, general and administrative costs and the $(286,783), or (96)% decrease in our consulting fees.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses decreased by $(238,610), or (25)%, to $712,523, due to the reduction of marketing and health insurance expenses and payroll expenses.

Consulting fees. Our consulting fees, which are attributable to investor relations services, decreased by $(286,783), or (96)%, to $11,445, due primarily to the reduction of consultant fees and consolidation of external expenses and consultants to internal cost synergies.

Professional Fees and Related Expenses. Professional fees principally represent costs for legal and accounting fees, these costs increased by $30,153, or 6%, to $517,980, principally because we incurred expenses for the legal and accounting work needed to respond to the comments of the SEC and to prepare our registration statement on Form S1 filed in June 24, 2010.

Interest Expense, Net. Interest expense, net decreased by $(246,751), or (45)%, to $301,090, which a majority represents the interest expense on the Trafalgar debt for the current six month period ending June 30, 2010. The decrease in interest expense, compared to the same period in 2009 is attributable to the remaining debt premium/discount and deferred financing fees being fully amortized as of fiscal year end December 31, 2009.

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

The economic downturn has had a severe effect on us. Although for the six month period ended June 30, 2010, our accounts receivable were $613,330, an increase of $246,232, or 67%, due to an increase in invoiced revenue, compared to December 31, 2009 and work in progress as of June 30, 2010 our cash on hand was approximately $10,000, due to the cash obli gations that the Company has had over the past 12 months. The Company’s plan of going public and the registration of the Form S-1 have created large expenses in legal and other professional fees. In addition, we have experienced insufficient cash flow resulting from much slower payments from the contractors and others for whom we work. The slower payments from our customers combined with the increased demand of payments to our vendors has contributed to the Company’s current cash position. 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.

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

On April 7, 2010, we entered into a Securities Purchase Agreement with Ascendiant Capital Group, LLC (“Ascendiant”), pursuant to which Ascendiant agreed to purchase up to $5,000,000 worth of shares of our common stock from time to time over a 24-month period commencing on the effectiveness of a Form S-1 (the Company filed its Form S-1 on June 24, 2010, amended on June 30, 2010 and amended on July 30, 2010). The relationship between us and this new funding group provides us with additional cash financing for operational and acquisition funding. With the funding available, we hope to satisfy the debt outstanding as a result of our operational requirements (i.e. vendors), to use the funding for securing additional jobs (i.e. bonds, contractor license fees and software programming), and potentially provide us with the funding to return both the staff and executive management to

their regular salary rates, from the March 2009 implementation of the 20% and 50% respective reductions in salary to help with our cash constraints.

Summary of Cash Flow for the six months ended June 30, 2010 and 2009 (rounded)

Our total cash and cash equivalents decreased by $116,000, or 86%, to $18,200 for the six months ended June 30, 2010, compared to $134,200 for the six months ended June 30, 2009. Our cash flows for the six months ended June 30, 2010 and 2009 were as follows:


	Six Months Ended June 30,
		2010		2009
Net cash (used) by operating activities	$	(463,900)	$	(764,900)
Net cash (used) by investing activities		--		(14,500)
Net cash provided by financing activities		439,700		805,200

Operating Activities

Our total cash used by operating activities decreased by $301,000, or 39% to $(463,900) for the six months ended June 30, 2010, compared to $(764,900) for the six months ended June 30, 2009. The decrease is due to accretions of our convertible notes, increases in accounts receivable and a reduction of our net loss in comparison to the same period in 2009. We also noted that in fourth quarter 2009 we accreted the remaining debt premium/discount on all Trafalgar debt, therefore there was no accretion in the six months as compared to the same period for 2009.

Investing Activities

Our total cash used by investing activities decreased by $14,500, or 100% to $0 for the six mo nths ended June 30, 2010, compared to $(14,500) for the six months ended June 30, 2009. The decrease is due to the purchase of fixed assets during the year of 2009, and no current expenditures for additional fixed assets in the current period.

Financing Activities

Our total cash provided for financing activities decreased by $(365,500), or 45%, to $439,700 for the six months ended June 30, 2010, compared to $805,200 for the six months ended June 30, 2009. The decrease is primarily due to the decrease in our proceeds from sale of our stock in the six month period ending June 30, 2010. We also noted that in fourth quarter 2009 we accreted the remaining deferred financing fees on all Trafalgar debt, therefore there was no accretion in the six months as compared to the same period for 2009.

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 exp enditures.

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.

Potential Derivative Instruments

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

Inventories

Inventory is stated at the lower cost or market, we use the weighted average cost method which consists of materials for contracted jobs, manufacturing supplies and equipment (small tools which are purchased for specific contracts and the related costs are associated with the contract). We constantly review inventory for obsolescence and write off obsolete items at the time of physical count.

Property & Equipment

Property and equipment are stated at historical cost less accumulated depreciation.

Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally five years for vehicles, two to three years for computer software/hardware and office equipment and three to seven years for furniture, fixtures and office equipment. Leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives. Upon the sale or retirement of property or equipment, the cost and related accumulated depreciation or amortization is removed from the Company’s financial statements with the resulting gain or loss reflected in the Company’s results of operations. Repairs and maintenance costs are expensed as incurred.

Intangible Assets – Customer lists

Based on our branding process, customer lists have a finite life of 3 years as we transition the subsidiary to NAS branding over that timeframe. Total amortization expense on the customer list for the six months ended June 30, 2010, was $125,111 and for the year ending December 31, 2009 was $90,390.

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.

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 est imates may be revised as more information becomes available.

Revenue Recognition

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

met. The Company generally seeks progress-based agreements when a job project takes longer than 30 days to complete.

Stock Based Compensation

Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

Earnings (loss) per share basic and diluted

Earnings per share is calculated in accordance with the Earnings per Share Topic of the 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 is compute d 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, and are excluded from the diluted earnings per share computation in periods where the Company has incurred net loss. During periods ended June 30, 2010 and 2009, respectively, the Company incurred a net loss, resulting in no potentially dilutive common shares.

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 issu es which could have a material impact on our financial reporting procedures. As of the current annual filing, the Company feels that it is working towards clear disclosures and implementing proper internal controls over financial reporting.

Changes in Internal Control 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 G AAP, and that receipts and expenditures are being made only in accordance with authorizations of management and the Board of 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.

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 preparatio n of our reviewed financial statements as of June 30, 2010 and believe that we had a material weakness in our financial reporting of internal controls specific to the “Control Activities” section of the COSO framework and specifically effecting a proper close. The Company has implemented controls as a result of the documentation surrounding the material weakness by analyzing our financials, reviewing disclosure requirements by the SEC and providing for management, detailed schedules and documentation which will mitigate our risk in the area of our 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 quarterly report does not include an attestation report of the Com pany's registered public accounting firm regarding internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We are a defendant in a legal proceeding with an adverse party which has a material interest adverse to us, as set forth below.

On April 23, 2009, we filed a complaint against Trafalgar Capital Specialized Investment Fund, FIS and Trafalgar Capital Sarl (collectively, “Trafalgar”) in the United States District Cou rt, Southern District of Florida (the “Court”). Our complaint seeks a declaratory judgment that the secured loans we entered into with Trafalgar in July 2008 and December 2008 violate the usury laws of the State of Florida, whose laws govern the loan documents, by calling for interest to be paid at a greater rate of interest than is allowed by applicable law, and that due to their usurious nature the loan documents are not enforceable by Trafalgar. We also are seeking compensation for the damages we have suffered, the return of all payments we made under those loan documents, the return of all pledged collateral and the release of the security interest we granted in our assets, double the interest we paid, attorneys’ fees and punitive damages. We are also asking the Court to order that Trafalgar be precluded from enforcing its rights under our March 2008 loan documents until it has made the payments described above regarding the usurious July and December 2008 loans. Fu rthermore, in the alternative, we have alleged that Trafalgar breached our December 2008 Credit Agreement by, among other things, conducting daily sweeps of the monies deposited into the lockbox, representing the proceeds of our accounts receivable, and we also are seeking compensatory damages and attorneys’ fee.

On July 7, 2009 Trafalgar sent us a notice of default stating we have violated the terms of our debt agreements by failing to make certain payments when due and breaching certain covenants, and it accelerated the due date of all of our outstanding indebtedness, and on October 30, 2009, filed a complaint against us. In November 2009 we were served with the complaint Trafalgar filed on October 30, 2009 in the Court against us, our two subsidiaries and Robert Chance, our CEO. Trafalgar’s Complaint seeks repayment of the amounts we allegedly owe under the subject loan and other cre dit agreements we enter into, plus interest and attorneys fees, and foreclosure on all of our assets (we had pledged such assets as collateral pursuant to the terms of the Security Agreement we executed in connection with such agreements). The Complaint also alleges that we fraudulently induced Trafalgar to extend to us the approximately $3 million in total financing we received.

As noted above, in April 2009 we had filed a complaint in the same Court against Trafalgar, alleging that the subject agreements under which Trafalgar had extended financing to us, and under which it now is suing us, were unenforceable. We believe Trafalgar’s all egations are without merit. We are mounting a vigorous defense and will move the Court to consolidate these two actions. The Court has entered a scheduling order setting the April 2009 action for a trial docket starting November 1, 2010, with calendar call on October 28, 2010. A discovery cutoff date is currently set for July 16, 2010 and July 23, 2010, respectively and dispositive motions in the cases are due August 27, 2010, the extension was a joint request to the Court to amend the discovery and trial schedule for the April 2009 case so that NAS’ claims and Trafalgar’s claims proceed on the same discovery track. In addition to the indicated cutoff for August 27, 2010, the Company also noted that the court has ordered the parties to mediate the case by September 17, 2010.

On June 9, 2010, a writ of garnishment was filed against our subsidiary Intecon’s bank account f or 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.

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

The following is a summary of all transactions within the year involving our sales of our unregistered equity securities. Shares issued for cash consideration paid to us are valued at th e 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 January 6, 2010, the Company issued 220,000 shares of common stock valued at $0.045 per share based upon the conversion price under our convertible note dated November 10, 2009.

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

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

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

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

On March 5, 20 10, the Company issued to one individual 220,000 shares of common stock in consideration for $10,000 in cash, or $0.045 per share.

On March 8, 2010, the Company received $4,000 for the purchase of 88,000 shares of common stock in valued at $0.045 per share. The shares were issued on April 5, 2010.