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, 2013
| £ | 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 400775 Las Vegas, NV 89140 |
| (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 18, 2013 |
| Common Stock, $.001 par value | 561,248,044 |
1
TABLE OF CONTENTS
| PART I – FINANCIAL INFORMATION | 3 | |
| Item 1: Financial Statements | 3 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 | |
| Item 4. Controls and Procedures | 16 | |
| PART II – OTHER INFORMATION | 18 | |
| Item 1. Legal Proceedings | 18 | |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 18 | |
| Item 3. Defaults Upon Senior Securities | 19 | |
| Item 4. Mine Safety Disclosures | 19 | |
| Item 5. Other Information | 19 | |
| Item 6. Exhibits | 20 | |
| SIGNATURES | 21 | |
2
PART I – FINANCIAL INFORMATION
Item 1: Financial Statements
NATIONAL AUTOMATION SERVICES, INC., CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||||
| SEP 30, 2013 | DEC 31, 2012 | |||||||
(unaudited) | (audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 9,348 | $ | 652 | ||||
| Total current assets | 9,348 | 652 | ||||||
| TOTAL ASSETS | $ | 9,348 | $ | 652 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payables | $ | 894,016 | $ | 881,840 | ||||
| Accrued liabilities | 1,513,808 | 1,991,847 | ||||||
| Current portion of loans, capital leases and line of credit | 49,517 | 259,517 | ||||||
| Convertible debt, net of beneficial conversion feature of $149,344 and $5,989 | 233,906 | 234,261 | ||||||
| Related party payable | 172,173 | 172,173 | ||||||
| Total current liabilities | 2,863,420 | 3,539,638 | ||||||
| Total liabilities | 2,863,420 | 3,539,638 | ||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
Common stock $0.001 par value, 1,000,000,000 authorized, 529,119,872 shares issued and outstanding and 336,424,883 shares issued and outstanding | 529,119 | 336,425 | ||||||
| Additional paid in capital | 12,170,445 | 11,903,613 | ||||||
| Stock payable | 350,469 | 34,985 | ||||||
| Accumulated deficit | (15,904,105 | ) | (15,814,009 | ) | ||||
| Total stockholders’ deficit | (2,854,072 | ) | (3,538,986 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 9,348 | $ | 652 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
NATIONAL AUTOMATION SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) | ||||||||||||||||
THREE MONTHS ENDED SEP 30, 2013 | THREE MONTHS ENDED SEP 30, 2012 | NINE MONTHS ENDED SEP 30, 2013 | NINE MONTHS ENDED SEP 30, 2012 | |||||||||||||
| REVENUE | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||
| COST OF REVENUE | -- | -- | -- | -- | ||||||||||||
| GROSS PROFIT (LOSS) | -- | -- | -- | -- | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Selling, general and administrative expenses | 65,151 | 30,148 | 124,647 | 171,802 | ||||||||||||
| Professional fees and related expenses | 268,459 | 17,476 | 354,310 | 105,694 | ||||||||||||
| Gain on settlement of accounts payable | -- | -- | -- | (51,273 | ) | |||||||||||
| Forgiveness of accrued officer compensation | (395,820 | ) | -- | (395,820 | ) | -- | ||||||||||
| TOTAL OPERATING (GAIN) EXPENSES | (62,210 | ) | 47,624 | 83,137 | 226,223 | |||||||||||
| OPERATING INCOME (LOSS) | 62,210 | (47,624 | ) | (83,137 | ) | (226,223 | ) | |||||||||
| OTHER INCOME, non-reoccurring | ||||||||||||||||
| Gain on extinguishment of debt | (196,444 | ) | -- | (196,444 | ) | -- | ||||||||||
| TOTAL OTHER INCOME, non-reoccurring | (196,444 | ) | -- | (196,444 | ) | -- | ||||||||||
| OTHER EXPENSE, non-operating | ||||||||||||||||
| Interest expense, net | 67,521 | 59,842 | 203,403 | 169,152 | ||||||||||||
| Fair value of derivative liability | -- | -- | -- | (113,026 | ) | |||||||||||
| TOTAL OTHER EXPENSE, non-operating | 67,521 | 59,842 | 203,403 | 56,126 | ||||||||||||
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | 191,133 | (107,466 | ) | (90,096 | ) | (282,349 | ) | |||||||||
| PROVISION FOR INCOME TAXES | -- | -- | -- | -- | ||||||||||||
| NET INCOME (LOSS) | $ | 191,133 | $ | (107,466 | ) | $ | (90,096 | ) | $ | (282,349 | ) | |||||
| BASIC INCOME (LOSS) PER SHARE | $ | 0.00 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||||
| DILUTED INCOME (LOSS) PER SHARE | $ | 0.00 | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | |||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING BASIC | 132,253,342 | 330,732,454 | 380,993,776 | 243,181,885 | ||||||||||||
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING DILUTED | 608,344,400 | 330,732,454 | 380,993,776 | 243,181,885 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
NATIONAL AUTOMATION SERVICES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) | ||||||||
NINE MONTHS ENDED SEP, 2013 | NINE MONTHS ENDED SEP, 2012 | |||||||
| Operating Activities | ||||||||
| Net loss | $ | (90,096 | ) | $ | (282,349 | ) | ||
| Cash used by operating activities | ||||||||
| Depreciation and amortization | -- | 5,294 | ||||||
| Gain on extinguishment of accounts payable | -- | (51,273 | ) | |||||
| Stock issued for services | 140,437 | -- | ||||||
| Accretion of convertible notes beneficial conversion feature | 10,645 | 58,655 | ||||||
| Fair value of derivative | -- | (113,026 | ) | |||||
| Gain on extinguishment of debt | (196,444 | ) | -- | |||||
| Forgiveness of accrued officer compensation | (395,820 | ) | -- | |||||
| Expenses paid by related party | -- | 15,000 | ||||||
| Fair value of equity instrument | 12,879 | -- | ||||||
| Changes in assets | ||||||||
| Decrease in receivables | -- | 3,251 | ||||||
| Decrease in prepaid expenses | -- | 22,000 | ||||||
| Changes in liabilities | ||||||||
| Increase in accounts payable and accrued liabilities | 314,895 | 211,873 | ||||||
| Cash used by operating activities | (203,504 | ) | (130,575 | ) | ||||
| Investing Activities | ||||||||
| -- | -- | |||||||
Cash used by investing activities | -- | -- | ||||||
| Financing activities | ||||||||
| Proceeds from sale of stock, net of offering costs | 60,000 | 37,807 | ||||||
| Proceeds from convertible notes | 188,000 | 87,500 | ||||||
| Proceeds from loans | 5,000 | 15,000 | ||||||
| Payments for loans and capital leases | (40,800 | ) | (11,000 | ) | ||||
| Cash provided by financing activities | 212,200 | 129,307 | ||||||
| Increase (decrease) in cash | 8,696 | (1,268 | ) | |||||
| Cash at beginning of the year | 652 | 1,371 | ||||||
| Cash at end of the period | $ | 9,348 | $ | 103 | ||||
| SUPPLEMENTAL CASH FLOW | ||||||||
| Cash paid for interest | $ | -- | $ | -- | ||||
| Cash paid for income taxes | $ | -- | $ | -- | ||||
SUPPLEMENTAL DISCLOSURE OF NON CASH INVESTING AND FINANCING TRANSACTIONS | ||||||||
| Stock for conversion of debt and interest | $ | 62,912 | $ | 91,500 | ||||
| Beneficial conversion feature on convertible debt | $ | (154,000 | ) | $ | (66,321 | ) | ||
| Convertible note for expenses paid by related party | $ | -- | $ | 15,000 | ||||
| Stock for conversion of accrued salaries | $ | 344,172 | $ | -- | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
NATIONAL AUTOMATION SERVICES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1: Organization and basis of presentation
Basis of Financial Statement Presentation
The accompanying audited 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 consolidated financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. As used in these Notes to the Consolidated Financial Statements, the terms the "Company,” "we,” "us,” "our," and similar terms refer to National Automation Services and, unless the context indicates otherwise its consolidated subsidiaries.
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. These financial statements have been presented in accordance with the rules governing a smaller reporting company for both periods of September 30, 2013 and September 30, 2012.
These condensed consolidated financial statements should be read in conjunction with the consolidated audited financial statements and notes thereto included in the Company’s annual Report on Form 10-K filed with the SEC, from which the balance sheet information as of December 31, 2012 was derived.
Business Overview
NAS is a public holding company that serves the Industrial Automation market place. Our offerings are needed by a wide variety of companies across varied market segments, from food processing to nuclear power, both private and public sectors.
Our business plan is to acquire companies with track records of long term, stable, and profitable operations. Each subsidiary operates as its own entity with current management retained. This will allow the Company’s management to focus on maintaining or increasing current levels of revenues and profitability. Each subsidiary provides their financials to NAS and the Company will make site visits to ensure companies are in compliance for reporting and monitoring purposes.
The Company has evaluated the scope of its business plan and has modified it to reduce corporate overhead functions leaving all operating activities at the subsidiary level. The benefits of this new direction will begin to be realized in late 2013. As of September 30, 2013, the Company has two (2) subsidiaries which are dormant with no production. One is located in Nevada and the other is located in Arizona.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Potential Derivative Instruments
We periodically assess our financial and equity instruments to determine if they require derivative accounting. Instruments which may potentially require derivative accounting are conversion features of debt and common stock equivalents in excess of available authorized common shares.
We have determined that the conversion features of our debt instruments are not derivative instruments because they are conventional convertible debt.
6
Earnings (loss) per share basic and diluted
Earnings per share are calculated in accordance with the Earnings per Share Topic of the Financial Accounting Standards Board Accounting Standard Codification ("FASB ASC"). The weighted-average number of common shares outstanding during each period is used to compute basic earnings (loss) per share. Diluted earnings per share are computed using the weighted average number of shares plus dilutive potential common shares outstanding.
Potentially dilutive common shares consist of employee stock options, warrants, and other convertible securities, are excluded from the diluted earnings per share computation in periods where the Company has incurred net loss. For the nine months ended September 30, 2013, the Company had incurred a net loss.
Fair Value Accounting
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions (for additional information see Note 7: Fair value).
The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
NOTE 2: Recently adopted and recently issued accounting guidance
Adopted
In December 2011, the FASB issued Accounting Standards Update 2011-11, "Disclosures about Offsetting Assets and Liabilities." This update requires entities to disclose both gross information and net information about instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The scope of this update includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and lending arrangements. The Company adopted this update retrospectively for periods beginning after January 1, 2013. Management does not anticipate that adoption will have a material impact on the Company's consolidated financial position, results of operations or cash flows.
Issued
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.
NOTE 3: Going concern
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. Our operating revenues were insufficient to fund our operations. We had reoccurring net losses of $(90,096) for the nine months ended September 30, 2013, compared to the net loss of $(282,349) for the nine months ended September 30, 2012, and a working capital deficiency of $(2,854,072) at September 30, 2013.
Based on the above facts, management determined that there was substantial doubt about the Company’s ability to continue as a going concern.
7
We intend to expand our operations purely through acquisition beginning in fourth quarter 2013. Acquisitions are an important part of our growth strategy. We will be carefully managing our overhead to maximize the effects of profitable acquisitions. Our goal is to acquire companies with track records of long term, stable, and profitable operations. Each subsidiary will operate as its own entity with current management retained. This will allow the Company’s management to focus on maintaining or increasing current levels of revenues and profitability. The subsidiaries will use NAS for financial reporting purposes and other financial projections. However, we can give no assurance that these plans and efforts will be successful.
NOTE 4: Loans, Capital lease
The following tables represent the outstanding balance of loans for the Company as of September 30, 2013, and December 31, 2012.
| September 30, 2013 | Year Ending | |||||||
| South Bay Capital loan at an interest rate 12% | 10,926 | 10,926 | ||||||
| Trafalgar promissory note | -- | 200,000 | ||||||
| Capital lease, line of credit | 33,591 | 33,591 | ||||||
| Dougherty | 5,000 | -- | ||||||
| Krochak | -- | 15,000 | ||||||
| Loans and capital lease sub total | 49,517 | 259,517 | ||||||
| Less: current portion loans and capital leases | (49,517 | ) | (259,517 | ) | ||||
| Total | $ | -- | $ | -- |
On April 16, 2013, the Company entered into a thirty (30) day promissory note agreement in the amount of $5,000. As of September 30, 2013, the Company has not repaid back the note and issued 1,000,000 shares of restricted common stock as payment of default and interest.
On January 4, 2012, the Company entered into a promissory note agreement; the note had an interest of 7% annum, payable on demand. On July 1, 2013, the Company owed $15,000 and $1,625 in interest, the Company wished to pay off the debt in stock to conserve cash reserves. On July 25, 2013, the Company issued 3,325,000 shares of restricted common stock in consideration of the principle and interest of the note of $16,625.
On March 25, 2011, the Company entered into a promissory note agreement which was a part of the Trafalgar Capital settlement agreement; the note had an interest of 12% for 6 months. On September 4, 2013, the Company settled its obligation to Trafalgar Capital Group, SARL, of outstanding principle and interest in the amount of $234,537. The settlement in the amount of $40,800 has relieved all encumbrances of Trafalgar on the Company’s financials and noted a gain in the amount of $193,737.
On July 25, 2008, the Company entered into a loan agreement with South Bay Capital in the amount of $75,926. Per the terms of the verbal agreement no interest was to be accumulated. On December 19, 2008 the Company repaid South Bay in the amount of $65,000. On September 15, 2009, the Company secured the remaining balance of the loan with a written promissory note. The note bears an interest rate of 12% for the remaining balance of $10,926, and was applied retrospectively to the note as of January 1, 2009. As of September 30, 2013, $10,926 of the debt still remains outstanding with total interest of $45,282.
On January 15, 2009, the Company entered into a capital lease for office equipment. The lease is over a 60 month period, with present lease payments exceeding 90% of fair market value of the property. As of September 30, 2013, the lease is in default as we have not made any payments on the lease since 2011. All of our fixed assets have been disposed of in 2012. We still owe the outstanding lease even though the fixed assets were disposed.
On April 1, 2009, the Company entered into a revolving line of credit with Dell Financial in the amount of $25,000. The Company’s current outstanding balance on the line of credit as of September 30, 2013 was $7,287.
As of September 30, 2013, the Company has several vendor payables outstanding. For the nine months ended, we recognized cumulative interest accrued on their outstanding balances in the amount of $76,440, which has been included in accrued liabilities.
8
NOTE 5: Related party transactions
On December 31, 2010, the Company entered into a promissory note with a former officer of the Company, for $13,000. The terms of the loan were to repay of the loan in the amount of $13,000 with a 10% annual interest to start as of December 31, 2010. As of September 30, 2013; we owed $2,000 plus accrued interest in the amount of $2,200.
On December 31, 2010, the Company entered into a promissory note with a former officer of the Company, for $9,760. The terms of the loan were to repay of the loan in the amount of $9,760 with a 10% annual interest to start as of December 31, 2010. As of September 30, 2013; we owed $9,760 plus accrued interest in the amount of $2,684.
On December 31, 2010, the Company entered into a promissory note with a former employee of the Company, for $9,500. The terms of the loan were to repay of the loan in the amount of $9,500 with a 10% annual interest to start as of December 31, 2010. As of September 30, 2013; we owed $9,500 plus accrued interest in the amount of $2,613.
On April 1, 2009 we modified the verbal loan agreement entered into on June 30, 2008 with a former director of the Company, which had a balance of $50,000 as of December 31, 2008, by making it a formal promissory note, capitalizing accrued interest into the principal ($36,000) and including an annual interest rate of 10%. On August 15, 2011, we repaid a portion of the note obligation in the amount of $15,000 which reduced our principle obligation from $86,000 to $71,000. As of September 30, 2013; we owed $71,000 plus accrued interest in the amount of $35,386. As of September 30, 2013, the note holder has called the note.
On November 5, 2008, the Company entered into agreement promissory note with a former director of the Board, for $77,000. The terms of the loan were to repay of the loan in the amount of $72,000 with the addition of a $5,000 fee for interest or incur a $250 a day late fee if paid after December 5, 2008. On April 1, 2009 the loan agreement was modified to remove the $250 a day late fees and add an annual interest rate of 10%. As of September 30, 2013, we owed $79,913 plus accrued interest in the amount of $64,817.
NOTE 6: Convertible notes
Description | Note Value | BCF Value | Amortized BCF | Interest accrued | ||||||||||||
| 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 | 124,000 | 121,832 | ||||||||||||
Convertible note issued on May 9, 2012, at a 8% interest rate for nine months, convertible to shares of stock at a variable rate upon date of conversion | 71,250 | 41,321 | 41,321 | 15,515 | ||||||||||||
Convertible note issued on August 12, 2013, at a 12% interest rate for seventy two months, convertible to shares of stock at 50% discount to market price. | 149,500 | 149,500 | 3,343 | 2,408 | ||||||||||||
| Convertible note issued on September 16, 2013, at a 10% interest rate for six months, convertible to shares of stock at $0.005 per share | 2,500 | 500 | 39 | 19 | ||||||||||||
Convertible note issued on September 11, 2013, at a 10% interest rate for six months, convertible to shares of stock at $0.005 per share | 2,500 | 500 | 52 | 26 | ||||||||||||
Convertible note issued on July 10, 2013, at a 10% interest rate for six months, convertible to shares of stock at $0.001 per share | 25,000 | 2,500 | 1,114 | 1,123 | ||||||||||||
| Convertible note issued on September 11, 2013, at a 10% interest rate for six months, convertible to shares of stock at $0.005 per share | 2,500 | 500 | 52 | 56 | ||||||||||||
| Convertible note issued on September 10, 2013, at a 10% interest rate for six months, convertible to shares of stock at $0.005 per share | 5,000 | 500 | 56 | 55 | ||||||||||||
| Convertible note issued on September 18, 2013, at a 10% interest rate for six months, convertible to shares of stock at $0.005 per share | 1,000 | -- | -- | 7 | ||||||||||||
| Total | $ | 383,250 | $ | 319,321 | $ | 169,977 | $ | 141,041 | ||||||||
9
On May 9, 2012, the Company entered into a note with Asher Enterprises in the amount of $47,500. Per the Note agreement, the Company is required to hold 5 “times” the amount of shares it would take to convert the note in reserve. On November 21, 2012, the Company has defaulted on its convertible note with Asher Enterprises which it entered into on May 9, 2012. Per the terms of the agreement, Asher Enterprises triggered the default as the Company was not in compliance with its filing requirements per Securities and Exchange Commission 1934 Exchange Act. As such the Company, as of the date of the default, will accrue for the interest rate of 22% in relation to the terms set within the convertible note agreement, and repayment of 150% the amount of principal of $71,250. As of October 12, 2013, the Company has mediated the default on the note. The Company will still owe the balance of $71,250 which occurred during the period of default.
On April 29, 2012, the Company entered into a convertible note agreement in the amount of $15,000, with an interest rate of 6% for a one year period. The Company had two partial conversions of the note in the fiscal 2012 year. As of September 30, 2013, the Company has fully converted the remainder of the note for 7,496,036 shares of restricted common stock for the remaining principle and interest in the amount of $6,298.
On March 12, 2012, the Company entered into a convertible note agreement in the amount of $40,000, with an interest rate of 10% for a six month period. As of September 30, 2013, the Company has fully converted the note for 10,000,000 shares of restricted common stock and a gain on interest in the amount of $2,707.
NOTE 7: 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, 3013 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Total | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||
| Liabilities: | ||||||||||||||||
| Fair value of equity instrument | $ | -- | $ | -- | ||||||||||||
Convertible debt, net of beneficial conversion feature | 149,344 | 149,344 | -- | -- | ||||||||||||
Total | $ | 149,344 | $ | 149,344 | $ | -- | $ | -- | ||||||||
| Fair value at December 31, 2012 | ||||||||||||||||
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Assets: | ||||||||||||||||
| Total | $ | -- | $ | -- | $ | -- | $ | -- | ||||||||
| Liabilities: | ||||||||||||||||
| Fair value of equity instrument | $ | 29,985 | $ | 29,985 | ||||||||||||
Convertible debt, net of beneficial conversion feature | 5,989 | 5,989 | -- | -- | ||||||||||||
Total | $ | 35,974 | $ | 35,974 | $ | -- | $ | -- | ||||||||
For the year ended December 31, 2012, we noted additional expenses in the amount of $29,985 due to default terms in one of our investing agreements. It was noted that should our stock price fall below $0.04 per share the Company was to issue additional shares in order to compensate for the value of “twice” the amount of investment. As of September 30, 2013, the Company has issued common stock valued at $46,209 to pay for this default.
NOTE 8: Commitments
Legal
On May 9, 2012, the Company entered into a note with Asher Enterprises in the amount of $47,500. Per the Note agreement, the Company is required to hold 5 “times” the amount of shares it would take to convert the note in reserve. On November 21, 2012, the Company has defaulted on its convertible note with Asher Enterprises which it entered into on May 9, 2012. Per the terms of the agreement, Asher Enterprises triggered the default as the Company was not in compliance with its filing requirements per Securities and Exchange Commission 1934 Exchange Act. As such the Company, as of the date of the default, will accrue for the interest rate of 22% in relation to the terms set within the convertible note agreement, and repayment of 150% the amount of principal of $71,250. As of October 12, 2013, the Company has mediated the default on the note. The Company will still owe the balance of $71,250 which occurred during the period of default.
The promissory note with Trafalgar Capital was in default due to nonpayment. The default accelerated the principal and interest payments to be due on demand. On September 4, 2013, the Company settled its obligation to Trafalgar Capital Group, of outstanding principle and interest in the amount of $234,537. The settlement in the amount of $40,800 has relieved all encumbrances of Trafalgar on the Company’s financials and noted a gain in the amount of $193,737.
10
NOTE 9: Stockholders’ deficit
Preferred Stock
Our wholly owned subsidiary, ISS, has 125,000 shares of preferred stock authorized with a par value of $1.00; these shares have no voting rights and no dividend preferences.
Common Stock
On July 1, 2013, we amended our promissory note agreement in the amount of $15,000 dated January 4, 2012 to a convertible note which included accrued interest of $1,625. On July 9, 2013, the Company converted the noted and issued stock in the amount of 3,325,000 or $0.005 per share in consideration for the amount of $16,625.
On July 9, 2013, the Company issued 10,000,000 shares of restricted common stock in consideration for the convertible note dated March 14, 2012 in the amount of $40,000. The shares were converted at a price per share of $0.004 per share.
On July 22, 2013, the Company issued 6,924,476 shares of restricted common stock in consideration for stock payable noted on December 31, 2012. The stock was valued at $5,540 or $0.008 per share.
On July 22, 2013, the Company issued 102,000,000 shares of restricted common stock in consideration for services rendered by the Board of Directors of the Company. The services were valued at $81,600 or $0.0008 per share.
On July 22, 2013, the Company issued 9,000,000 shares of restricted common stock in consideration for cash valued at $0.005 or $45,000.
On July 23, 2013, the Company issued 10,092,748 shares of restricted common stock in consideration for service agreement dated July 5, 2013. The services were valued at the closing value of stock on July 5, 2013, in the amount of $11,102 or $0.0011 per share.
On July 23, 2013, the Company issued out the 1,000,000 shares of restricted common stock at a value of $600 or $0.006 per share to compensate for the interest and delay of repayment. On April 16, 2013, the Company entered into a promissory note agreement in the amount of $5,000. The Company was to repay this amount back in 30 days. The Company defaulted on this 30 day return of the promissory note and as such we had to issue stock in the amount of 1,000,000 shares.
On July 25, 2013, the Company issued 4,000,000 shares of restricted common stock in consideration for cash valued at $0.005 or $20,000.
On August 15, 2013, the Company issued 12,000,000 shares of restricted common stock in consideration for services rendered by the Board of Directors of the Company. The services were valued at $14,400 or $0.0012 per share.
On August 15, 2013, the Company issued 6,407,252 shares of restricted common stock in consideration for service agreement dated July 9, 2013. The services were valued at the closing value of stock on August 15, 2013, in the amount of $12,815 or $0.002 per share.
On August 15, 2013, the Company issued 100,000 shares of restricted common stock in consideration for services rendered by a former employee of the Company. The Company issued stock in inconsideration of employee agreement dated May 5, 2011, in the amount of $0.05 per share or $5,000.
On August 15, 2013, the Company issued 5,000,000 shares of restricted common stock in consideration for consulting services rendered for the Company. The stock is valued at $0.0012 per share or $6,000.
On August 15, 2013, the Company issued 10,000 shares of restricted common stock in consideration for legal services rendered for the Company. The stock is valued at $0.002 per share or $20.
On August 15, 2013, the Company issued 20,334,792 shares of restricted common stock in consideration for stock payable noted on December 31, 2012. The stock was valued at $40,669 or $0.002 per share
On September 9, 2013, the Company issued 2,500,000 of restricted common stock in consideration for services provided to the Board of Directors of the Company. The shares were valued at $0.0038 or $9,500.
11
Stock Payable
On August 15, 2013, the Company granted 3,441,720 shares of restricted common stock in consideration for services rendered by former employees of the Company. Based upon Board meeting minutes dated October 9, 2010, the Company issues stock in lieu of cash at a value of $0.10 per share or $344,712. As of September 30, 2013, the shares have not been issued.
On August 22, 2013, the Company granted 7,496,036 shares of restricted common stock in final consideration for the convertible note dated April 29, 2011 of $5,000 plus interest. The final conversion was valued at $0.00084 per share or $6,298 including principle and interest. As of September 30, 2013, the shares have not been issued.
NOTE 10: Subsequent events
On October 15, 2013, the Company converted a portion of a convertible noted dated May 9, 2012. The partial conversion value is $20,000. The Company issued 7,142,857 shares of restricted common stock based on terns of the convertible note at $0.0028 per share or $20,000.
On October 23, 2013, the Company issued 5,000,000 shares of restricted common stock for services rendered.
On November 5, 2013, the Company issued 10,000,000 shares of restricted common stock in consideration for services rendered by new members of the Board of Directors of the Company.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Safe Harbor for Forward-Looking Statements
When used in this Annual Report, the words “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27a of the Securities Act and Section 21e of the Exchange Act regarding events, conditions, and financial trends that may affect the Company’s future plans of operations, business strategy, operating results, and financial position. Persons reviewing this Annual Report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and that actual result may differ materially from those included within the forward-looking statements as a result of various factors. Such factors include, but are not limited to, general economic factors and conditions that may directly or indirectly impact our financial condition or results of operations.
Executive Overview
National Automation Services, Inc. (referred to herein as “NAS” or the “Company”) is a public holding company that serves the Industrial Automation market place. Our offerings are needed by a wide variety of companies across varied market segments, from food processing to nuclear power, both private and public sectors.
Central to an understanding of our financial condition and results of operations is our current cash shortage. At November 15, 2013, our cash on hand was approximately $10,000, and our operating revenues are insufficient to fund our operations. Consequently, our reviewed September 30, 2013 financial statements contain, in Note 3, an explanatory paragraph to the effect that our ability to continue as a going concern is dependent on our ability to increase our revenue, eliminate our recurring net losses, eliminate our working capital deficit, and realize additional capital; and we can give no assurance that our plans and efforts to do so will be successful. Therefore, we require additional funds to finance our business activities on an ongoing basis and to implement our acquisition strategy portraying our company as one able to provide a target acquisition not only with cost savings but also with additional working capital to finance and grow the business.
Critical Accounting Policies
Use of Estimates
The methods, estimates, and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. We believe our critical accounting policies are those described below.
Potential Derivative Instruments
We periodically assess our financial and equity instruments to determine if they require derivative accounting. Instruments which may potentially require derivative accounting are conversion features of debt and common stock equivalents in excess of available authorized common shares.
We have determined that the conversion features of our debt instruments are not derivative instruments because they are conventional convertible debt.
Stock-Based Compensation
As required by the Stock-based Compensation Topic of FASB ASC, transactions in which the Company exchanges its equity instruments for goods or services is accounted for using authoritative guidance for stock based compensation. This guidance also addresses transactions in which the Company incurs liabilities in exchange for goods or services that are based on the fair value of the Company’s equity instruments or that may be settled by the issuance of those equity instruments.
If the Company issues stock for services which are performed over a period of time, the Company capitalizes the value paid in the equity section of the Company’s financial statements as it’s a non-cash equity transaction. The Company accretes the expense to stock based compensation expense on a monthly basis for services rendered within the period.
13
We use the fair value method for equity instruments granted to non-employees and will use the Black-Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
If shares are issued for services to be performed over a period by a vendor, we capitalize the value paid and amortize the expense in association with services actually rendered.
Shares issued to employees are expensed upon issuance.
Summary of Consolidated Results of Operations
A: Three Months Ended September 30, 2013 compared to the Three Months Ended September 30, 2012
Three Months Ended September 30, | ||||||||||||
| (unaudited) | ||||||||||||
| 2013 | 2012 | % Change | ||||||||||
| Revenue | $ | -- | $ | -- | 0 | % | ||||||
| Cost of revenue | -- | -- | 0 | % | ||||||||
| Total gross profit (loss) | -- | -- | 0 | % | ||||||||
| Operating expenses | ||||||||||||
| Selling, general and administrative expenses | 65,151 | 30,148 | 116 | % | ||||||||
| Professional fees and related expenses | 268,459 | 17,476 | 1,436 | % | ||||||||
| Forgiveness of accrued officer compensation | (395,820 | ) | -- | 100 | % | |||||||
| Total operating expenses | (62,210 | ) | 47,624 | 231 | % | |||||||
| Operating income (loss) | 62,210 | (47,624 | ) | 231 | % | |||||||
| Gain on debt extinguishment, non-reoccurring | (196,444 | ) | -- | 100 | % | |||||||
| Interest expense, net | 67,521 | 59,842 | 13 | % | ||||||||
| Total other expense | (128,923 | ) | 59,842 | (315 | ) % | |||||||
| Net income (loss) | $ | 191,133 | $ | (107,466 | ) | 278 | % | |||||
Operating loss; Net loss. For the three months ended September 30, 2013, compared to the three months ended September 30, 2012, our operating loss decreased by $109,834, or 231%, to $62,210. Our net loss decrease by $289,599, or 278%, to $191,133; the decrease in our net loss in comparison to the same period last year was due to the forgiveness of accrued officer compensation and extinguishment of debt, offset by an increase in professional fees for investment relation services.
Interest expense, net. Interest expense, net increased by $7,679, or 13%, to $67,521, which represents the convertible note interest, and accounts payable interest incurred for the current three month period ending September 30, 2013.
14
B: Nine Months Ended September 30, 2013 compared to Nine Months Ended September 30, 2012
Nine Months Ended September 30, | ||||||||||||
| (unaudited) | ||||||||||||
| 2013 | 2012 | % Change | ||||||||||
| Revenue | $ | -- | $ | -- | 0 | % | ||||||
| Cost of revenue | -- | -- | 0 | % | ||||||||
| Total gross profit | -- | -- | 0 | % | ||||||||
| Operating expenses | ||||||||||||
| Selling, general and administrative expenses | 124,647 | 171,802 | (27 | ) % | ||||||||
| Professional fees and related expenses | 354,310 | 105,694 | 235 | % | ||||||||
| Gain on extinguishment of accounts payable | -- | (51,273 | ) | (100 | ) % | |||||||
| Forgiveness of accrued officer compensation | (395,820 | ) | -- | 100 | % | |||||||
| Total operating expenses | 83,137 | 226,223 | 63 | % | ||||||||
| Operating loss | (83,137 | ) | (226,223 | ) | 63 | % | ||||||
Gain on debt extinguishment, non- reoccurring | (196,444 | ) | -- | 100 | % | |||||||
| Interest expense, net | 203,403 | 169,152 | 20 | % | ||||||||
| Fair value of derivative liability | -- | (113,026 | ) | (100 | ) % | |||||||
| Total other expense | 6,959 | 56,126 | (88 | ) % | ||||||||
| Net (loss) | $ | (90,096 | ) | $ | (282,349 | ) | (68 | ) % | ||||
Operating loss; Net loss. For the nine months ended September 30, 2013, compared to the nine months ended September 30, 2012, our operating loss decreased by $143,086, or 63%, to $(83,137). Our net loss decreased by $192,253, or 68%, to $(90,096); the decrease in our net loss in comparison to the same period last year was due to the forgiveness of accrued officer compensation and extinguishment of debt, offset by an increase in professional fees which comprised investment relations.
Interest Expense, net. Interest expense, net increased by $34,251, or 20%, to $203,403, which represents the convertible note interest, and accounts payable interest incurred for the nine month period ending September 30, 2013.
Liquidity and Capital Resources/ Plan of Operation for the Next Twelve Months
Our business plan is to acquire companies with track records of long term, stable, and profitable operations. Each subsidiary operates as its own entity with current management retained. This will allow the Company’s management to focus on maintaining or increasing current levels of revenues and profitability. Each subsidiary provides their financials to NAS and the Company will make site visits to ensure companies are in compliance for reporting and monitoring purposes.
The Company has evaluated the scope of its business plan and has modified the plan to reduce corporate overhead functions leaving all operating activities at the subsidiary level. The benefits of this new direction will begin to be realized in late 2013.
We feel this new focus will offer each subsidiary an opportunity for growth through synergies created by becoming a part of the Company.
Summary of Consolidated Cash Flow for the nine months ended September 30, 2013 and 2012(rounded)
Our total cash increased approximately by $9,200, or over 89%, to approximately $9,200 for the nine months ended September 30, 2013, compared to approximately $100 for the nine months ended September 30, 2012. Our consolidated cash flows for the nine months ended September 30, 2013, and 2012 were as follows:
15
Nine Months Ended September 30, 2013 | Nine Months Ended September 30, 2012 | |||||||
| Net cash used by operating activities | $ | (203,500 | ) | $ | (130,600 | ) | ||
| Net cash used by investing activities | $ | -- | $ | -- | ||||
| Net cash provided by financing activities | $ | 212,200 | $ | 129,300 |
Operating Activities: Our total cash used by operating activities increased by $72,900, or 56%, to $(203,500) for the nine months ended September 30, 2013, compared to $(130,600) for the nine months ended September 30, 2012. The change is primarily due to our issuance of stock for services, and due to the forgiveness of accrued officer compensation and extinguishment of debt, offset by an increase in professional fees for auditing and investment relation services.
Investing Activities: We had no investing activities for the nine months ended September 30, 2013 and September 30, 2012, respectively.
Financing Activities: Our total cash provided by financing activities increased by $82,900, or 64%, to $212,200 for the nine months ended September 30, 2013, compared to $129,300 for the nine months ended September 30, 2012. The increase is due in part to our proceeds from sales of stock and convertible notes.
Current Commitments for Expenditures
Our current cash commitments for expenditures are mainly operational and SEC compliance in nature.
Off-Balance Sheet Arrangements
We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2013, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission's rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of September 30, 2013, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in Item 9A(b).
Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
16
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act, as amended, as a process designed by, or under the supervision of, our principal executive and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:
| · | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any disposition of our assets; |
| · | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; |
| · | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, Management identified the following three material weaknesses that have caused management to conclude that, as of September 30, 2013, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level.
We do not have sufficient control over our written agreements, and effective communication of such agreements with executive management. Management evaluated the impact of our failure to have sufficient control over our written agreements and communication and has concluded that the control deficiency that resulted represented a material weakness.
We have had non-timely filing issues in regards to our recent Securities and Exchange Commission (SEC) filings. Non timely filing is a disclosure control which we have had little success in correcting over the past three months ending September 30, 2013. Management evaluated the impact of our failure to have timely filing requirements of our financial statements on our assessment of our disclosure controls and procedures and has concluded that the control deficiency represents a material weakness.
We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act for the period ending September 30, 2013. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Remediation of Material Weaknesses
To remediate the material weakness in our documentation, evaluation and testing of internal controls we plan to engage a third-party firm to assist us in remedying this material weakness once resources become available.
17
As of September 30, 2013, the Company has implemented procedures to remedy this material weakness, that all written agreements will be maintained by the financial officer of the Company. This individual will ensure that all documents will be properly accounted for and that all compensation or remediation of agreements will be brought to the attention of the Board of Directors on an annual basis or as needed by the Board.
We also intend to remedy our material weakness with regard to insufficient segregation of duties by hiring additional employees in order to segregate duties in a manner that establishes effective internal controls once resources become available.
As of September 30, 2013, the Company has implemented procedures to remedy this material weakness, by hiring additional employees in order to ensure that disclosure control is reviewed and monitored on a timely basis for the submission of our required flings to the SEC.
Change in internal control over financial reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended September 30, 2013, 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 May 9, 2012, the Company entered into a note with Asher Enterprises in the amount of $47,500. Per the Note agreement, the Company is required to hold 5 “times” the amount of shares it would take to convert the note in reserve. On November 21, 2012, the Company has defaulted on its convertible note with Asher Enterprises which it entered into on May 9, 2012. Per the terms of the agreement, Asher Enterprises triggered the default as the Company was not in compliance with its filing requirements per Securities and Exchange Commission 1934 Exchange Act. As such the Company, as of the date of the default, will accrue for the interest rate of 22% in relation to the terms set within the convertible note agreement, and repayment of 150% the amount of principal of $71,250. As of October 12, 2013, the Company has mediated the default on the note. The Company will still owe the balance of $71,250 which occurred during the period of default.
The promissory note with Trafalgar Capital was in default due to nonpayment. The default accelerated the principal and interest payments to be due on demand. On September 4, 2013, the Company settled its obligation to Trafalgar Capital Group, of outstanding principle and interest in the amount of $234,537. The settlement in the amount of $40,800 has relieved all encumbrances of Trafalgar on the Company’s financials and noted a gain in the amount of $193,737.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On July 1, 2013, we amended our promissory note agreement in the amount of $15,000 dated January 4, 2012 to a convertible note which included accrued interest of $1,625. On July 9, 2013, the Company converted the noted and issued stock in the amount of 3,325,000 or $0.005 per share in consideration for the amount of $16,625.
On July 9, 2013, the Company issued 10,000,000 shares of restricted common stock in consideration for the convertible note dated March 14, 2012 in the amount of $40,000. The shares were converted at a price per share of $0.004 per share.
On July 22, 2013, the Company issued 6,924,476 shares of restricted common stock in consideration for stock payable noted on December 31, 2012. The stock was valued at $5,540 or $0.008 per share.
On July 22, 2013, the Company issued 102,000,000 shares of restricted common stock in consideration for services rendered by the Board of Directors of the Company. The services were valued at $81,600 or $0.0008 per share.
On July 22, 2013, the Company issued 9,000,000 shares of restricted common stock in consideration for cash valued at $0.005 or $45,000.
On July 23, 2013, the Company issued 10,092,748 shares of restricted common stock in consideration for service agreement dated July 5, 2013. The services were valued at the closing value of stock on July 5, 2013, in the amount of $11,102 or $0.0011 per share.
18
On July 23, 2013, the Company issued out the 1,000,000 shares of restricted common stock at a value of $600 or $0.006 per share to compensate for the interest and delay of repayment. On April 16, 2013, the Company entered into a promissory note agreement in the amount of $5,000. The Company was to repay this amount back in 30 days. The Company defaulted on this 30 day return of the promissory note and as such we had to issue stock in the amount of 1,000,000 shares.
On July 25, 2013, the Company issued 4,000,000 shares of restricted common stock in consideration for cash valued at $0.005 or $20,000.
On August 15, 2013, the Company issued 12,000,000 shares of restricted common stock in consideration for services rendered by the Board of Directors of the Company. The services were valued at $14,401 or $0.0012 per share.
On August 15, 2013, the Company issued 6,407,252 shares of restricted common stock in consideration for service agreement dated July 9, 2013. The services were valued at the closing value of stock on August 15, 2013, in the amount of $12,815 or $0.002 per share.
On August 15, 2013, the Company issued 100,000 shares of restricted common stock in consideration for services rendered by a former employee of the Company. The Company issued stock in inconsideration of employee agreement dated May 5, 2011, in the amount of $0.05 per share or $5,000.
On August 15, 2013, the Company issued 5,000,000 shares of restricted common stock in consideration for consulting services rendered for the Company. The stock is valued at $0.0012 per share or $6,000.
On August 15, 2013, the Company issued 10,000 shares of restricted common stock in consideration for legal services rendered for the Company. The stock is valued at $0.002 per share or $20.
On August 15, 2013, the Company issued 20,334,792 shares of restricted common stock in consideration for stock payable noted on December 31, 2012. The stock was valued at $40,669 or $0.002 per share
On September 9, 2013, the Company issued 2,500,000 of restricted common stock in consideration for services provided to the Board of Directors of the Company. The shares were valued at $0.0038 or $9,500.
Noted in our Form 10-K, and Form 10-Q, we have had the noted sales of unregistered securities within the past three months. There were no underwritten offerings employed in connection with any of the transactions described above. Except as stated above, the above issuances were deemed to be exempt under Rule 504 or 506 of Regulation D and/or Section 4(2) or 4(6) of the Securities Act of 1933, as amended, since, among other things, the transactions did not involve a public offering, the investors were accredited investors and/or qualified institutional buyers, the investors had access to information about our company and their investment, the investors took the securities for investment and not resale, and we took appropriate measures to restrict the transfer of the securities.
Item 3. Defaults Upon Senior Securities
As of November 21, 2012, the Company has defaulted on its convertible note with Asher Enterprises which it entered into on May 9, 2012. Per the terms of the agreement, the Company was still in compliance with the maturity date of the note, however, due to the conversion pricing of the Company’s restricted common stock and the conversion feature within the terms of the agreement the Company prevented Asher from further conversions of the debt. Asher Enterprises triggered the default as the Company was not in compliance with its filing requirements per Securities and Exchange Commission 1934 Exchange Act. As such the Company, as of the date of the default, will accrue for the interest rate of 22% in relation to the terms set within the convertible note agreement, and repayment of 150% the amount of principal As of October 12, 2013, the Company has mediated the default on the note. The Company will still owe the balance of $71,250 which occurred during the period of default.
Item 4. Mine Safety Disclosures
None
Item 5. Other Information
None
19
Item 6. Exhibits
| Exhibit No. | Description of Exhibit | |
| 31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 32.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.INS* | XBRL Instance Document | |
| 101.SCH* | XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | XBRL Taxonomy Extension Calculation Link base Document | |
| 101.LAB* | XBRL Taxonomy Extension Label Link base Document | |
| 101.DEF* | XBRL Taxonomy Extension Definition Link base Document | |
| 101.PRE* | XBRL Taxonomy Extension Presentation Link base 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.
20
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 18, 2013 | ||||
| By: | /s/ | Robert W. Chance | ||
| Name: Robert W. Chance | ||||
| Title: President and Chief Executive Officer | ||||
| (Principal Executive Officer) | ||||
| By: | /s/ | Jeremy W. Briggs | ||
| Name: Jeremy W. Briggs | ||||
| Title: Principal Financial Officer | ||||
21