Item 2.01. Completion of Acquisition or Disposition of Assets.
As reported in our 8-K filed on
February 28, 2014, National Automation Services, Inc.(referred to herein as "NAS" or the "Company") executed a purchase and sale agreement ("PSA") with JD Field Services, Inc.(including its subsidiary) located in Vernal, Utah(known here after as the "JD" or the "Seller"). The term of purchase of the seller is as follows: Step 1: Seller will have collectively transferred, assigned and delivered to NAS the following, one hundred percent (100%) of the Shareholder Interests owned by the Seller, free and clear of all Liens. The Shareholder Interests sold, transferred, assigned and delivered to NAS pursuant to the preceding sentence collectively constitutes all of the outstanding Equity Interests of the Seller. In satisfaction of applicable requirements under any Shareholder Agreement, Articles of Incorporation or Bylaws of the Seller, and the Seller hereby consents to the sale, transfer, and assignment of the Shareholder Interests contemplated by this PSA. Step 2: In consideration of Step 1, a Power of Attorney from the buyer in lieu of consideration at signing of the PSA. NAS shall provide to Seller a Power of Attorney representing voting rights and control over approximately thirty percent (30%) of the equity interests in NAS. NAS will hold in reserve, two hundred seventy million (270,000,000) shares of NAS Class A Common Stock to be representative of the Seller Interests outlined in Step 1. Step 3: In a reasonable time as outlined by the PSA, NAS as Parent Corporationwill pay off Seller debt. NAS shall not be required to pay any portion of the Seller debt until such time it has sufficient funds to pay the debt in full and a planned recapitalization of the NAS stock is completed (as described in the PSA). Step 4: Once NAS has repaid all Seller debt noted in the PSA, and upon completion of the remaining terms of the agreement, Seller agrees to relinquish the Power of Attorney (in Step 2) of approximately thirty percent (30%) back to NAS and the reserve of two hundred seventy million (270,000,000) shares of NAS Class A Common Stock will be returned to NAS stock treasury. In exchange for the relinquishment of the Power of Attorney and consideration noted in Step 1, both principles of the Seller will receive six percent (6%) of the outstanding common stock of NAS, for a total of 12% between the two (2) principles. As reported in our amendment 8-K filed on March 26, 2014, the Company signed an addendum to their Purchase and Sale Agreement with JD Field Services (dated on February 24, 2014), whereby the Company changed certain provisions within the PSA. The original PSA left a 6 month "unwinding" provision should NAS not be able to achieve its benchmarks in uplifting and repayment of JD debt in the course of 270 days. We have amended this position to the following: NAS shall pay or assume all outstanding debt of JD Field Services. Payment on debt held by JD Field Services where the Sellers have executed personal guarantees shall be given priority over other non-priority debts, and payments on such personally guaranteed debt will be accelerated if NAS or JD Field Services profits are sufficient to do so. Each Seller of JD Field Services shall receive six percent (6%) of the outstanding common stock of NAS, constituting approximately six percent (6%) each of the total equity of NAS, but not requiring any fractional shares, or approximately fifty-nine million (59,000,000) shares each. NAS shall provide to JD Field Services a Power of Attorney representing voting rights and control over approximately eighteen percent (18%) of the equity interests in NAS; holding in reserve, one hundred fifty eight million (158,000,000) shares of NAS Class A Common Stock to be representative of this Interest. NAS shall pay any broker's commission associated with the purchase of JD Field Services interests, up to five hundred thousand dollars ( $500,000). NAS shall pay any remaining broker's commissions. Please note that the information provided herein relates to the audited financials of the acquired company, JD Field Services, Inc.as required by the Security and Exchange Commission, to provide completion of the acquisition under S-X filing requirements. Item 9.01 Financial Statements and Exhibits
(a) Audited Financial Statements of Business Acquired for the Fiscal year ended
99.1 to this report and incorporated herein by this reference.
(b) Pro forma financial statements incorporated herein by this reference and
disclosed in our audited form 10-K for the year ending
(c) Purchase and Sale Agreement - Previously filed with 8-K dated on
March 26, 2014respectively. 2
-------------------------------------------------------------------------------- Report of Independent Registered Public Accounting Firm To the Board of Directors of
JD Field Services Inc.: We have audited the accompanying consolidated balance sheets of JD Field Services Inc., as of December 31, 2013and 2012, and the related consolidated statements of operations, stockholders' equity, and cash flows for the two years ended December 31, 2013and 2012. JD Field Services Inc.'smanagement is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits. Except as discussed in the following paragraph, we conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board( United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. We were unable to obtain documentation of property and equipment acquired through a purchase in 2011 in exchange for common stock, as documentation was not maintained. Property and equipment, accumulated depreciation and depreciation expense related to the property and equipment purchased are stated at $2,766,043, $827,108, and $136,021, respectively at December 31, 2013, and $2,766,043, $694,303, and $197,002, respectively at December 31, 2012. These values are reported with property and equipment, net and depreciation expense on the balance sheets and statements of operations. In November 2012, the common stock was returned for a promissory note and a loss of $936,837recognized as of December 31, 2012. We were unable to satisfy ourselves as to the valuation and depreciation of the property and equipment and related loss upon return of the common stock by means of other auditing procedures. In our opinion, except for the possible effects of such adjustments, if any, as might have been determined to be necessary had we been able to examine evidence regarding the purchased property and equipment, the financial statements referred to in the first paragraph above present fairly, in all material respects, the consolidated financial position of JD Field Services Inc., as of December 31, 2013and 2012, and its consolidated results of operations and cash flows for the two years ended December 31, 2013and 2012, in conformity with generally accepted accounting principles in the United States. /s/ Keeton CPA Keeton CPA Henderson, NV June 10, 20143
-------------------------------------------------------------------------------- JD FIELD SERVICES, INC. CONSOLIDATED BALANCE SHEETS (audited) DEC 31, 2013 DEC 31, 2012 ASSETS CURRENT ASSETS Cash
$ 4,182 $ 157,852Accounts receivable, net 2,771,567 3,002,796 Prepaid expenses 252,026 312,413 Total current assets 3,027,775 3,473,061 PROPERTY, PLANT AND EQUIPMENT, NET 15,219,702 19,513,683 DEFERRED FINANCING FEES, NET 29,402 41,238 TOTAL ASSETS $
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued liabilities $
Line of credit 181,163 499,805 Current portion of loans and capital leases
Current portion of related party 782,784 203,204 Total current liabilities 6,710,213 8,332,333 LONG TERM PORTION OF LOANS AND CAPITAL LEASES 8,349,001 10,560,349 LONG TERM PORTION OF RELATED PARTY 387,969 66,383 Total liabilities 15,447,183 18,959,065 STOCKHOLDERS' EQUITY Common stock
$1.00par value 50,000 authorized, 1,000 shares issued and outstanding 1,000 1,000 Disbursements (720,792 ) (720,792 ) Retained earnings 3,549,488 4,788,709 Total stockholders' equity 2,829,696 4,068,917 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $
The accompanying notes are an integral part of these consolidated financial statements. 4
-------------------------------------------------------------------------------- JD FIELD SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (audited) YEAR ENDED YEAR ENDED DEC 31, 2013 DEC 31, 2012 REVENUE
$ 19,554,394 $ 25,401,147Less: returns and allowances (140,000 ) (1,593,526 ) NET REVENUE 19,414,394 23,807,621 COST OF REVENUE 16,936,050 21,297,592 GROSS PROFIT 2,478,344 2,510,029 OPERATING EXPENSES Selling, general and administrative expenses 1,714,958 1,680,702 Professional fees 63,843 208,930 TOTAL OPERATING EXPENSES 1,778,801 1,889,632 OPERATING INCOME 699,543 620,397 OTHER EXPENSE, non-operating Interest expense, net 906,904 780,828 Loss on settlement of obligation --
Loss on sale/disposal of fixed assets 1,213,285
Exit costs --
Gain on debt extinguishment (181,425 )
Gain on settlement --
TOTAL OTHER EXPENSE, non-operating 1,938,764 1,671,580 NET LOSS
$ (1,239,221 ) $ (1,051,183 )The accompanying notes are an integral part of these consolidated financial statements. 5
-------------------------------------------------------------------------------- JD FIELD SERVICES, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (audited) Common Stock Shares Amount
Distributions Retained Earnings Total
0.001 par value Balance as of December 31, 2011 1,000 $ 1,000 $ -- $ 5,839,892
$ 5,840,892Distributions $ -- $ (720,792 )-- (720,792 ) Net loss (1,051,183 ) (1,051,183 ) Balance as of December 31, 2012 1,000 $ 1,000
$ (1,239,221 ) $ (1,239,221 )Balance as of December 31, 2013 1,000 $ 1,000
The accompanying notes are an integral part of these consolidated financial statements. 6
-------------------------------------------------------------------------------- JD FIELD SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (audited) YEAR ENDED YEAR ENDED
DEC 31, 2013 DEC 31, 2012Operating Activities Net loss $
Cash provided by operating activities
Depreciation and amortization
Returns and allowances
Loss on settlement of debt obligation -- 936,837 Loss on disposal/sale of assets 1,213,286 34,000 Gain on debt extinguishment (181,425 ) -- Gain on settlement
Changes in assets
Decrease (increase) in receivables
91,229 (1,002,963 )
Decrease in prepaid expenses 277,296 262,915
Changes in liabilities
(Decrease) increase in accounts payable and accrued liabilities
(1,133,304 ) 1,162,505
Cash provided by operating activities
Purchase of property, plant and equipment
(558,640 ) (4,753,513 )
Proceeds on sale of fixed assets 2,188,700 -- Cash provided (used) by investing activities 1,630,060 (4,753,513 ) Financing activities Distributions -- (210,500 ) Proceeds from note payable -- 2,756,677 Proceeds from related party 766,000 -- Proceeds from line of credit 5,123,519 499,805 Payments for note payable and capital leases
(3,394,762 ) (1,541,501 )
Payments to related party (70,000 ) -- Payments for line of credit (5,442,160 ) -- Cash (used) provided by financing activities (3,017,403 ) 1,504,481 Decrease in cash (153,670 ) (14,742 ) Cash at beginning of year 157,852 172,594 Cash at end of year
$ 4,182 $ 157,852SUPPLEMENTAL CASH FLOWCash paid for interest $ 498,617 $ 412,380Cash paid for income taxes $ -- $ --
SUPPLEMENTAL NON CASH INVESTING & FINANCING TRANSACTIONS
Settlement of debt obligation $ --
$ 1,958,163Prepaid insurance $ 216,909 $ 262,091Fixed assets paid with debt $ 329,618 $ 3,492,217Expenses paid with debt $ 221,711 $ -- Expenses paid with related party debt $ 205,166 $ 295,295Settlement of debt obligation $ -- $ 2,650,000The accompanying notes are an integral part of these consolidated financial statements. 7
-------------------------------------------------------------------------------- JD FIELD SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (audited)
NOTE 1: Organization and basis of presentation
Basis of Financial Statement Presentation
The accompanying audited consolidated financial statements include the accounts of
March 23, 2001, JD Field Services Inc.registered as an S-Corporation in the state of Utah. JD provides services to the oil and gas industry primarily focused around those activities that are related to oilfield services. They are licensed in all states west of the Mississippi River including Alaskato do trucking, but are focused primarily in the Rocky Mountain Region. Oilfield services provided include heavy haul, water haul, and rig moving services as well as equipment, supplies and specialty long hauling services. The Company also provides oil and gas equipment rental services, hot shot, roustabout services and construction site development services, as well as operates a fabrication division that builds special-order oil and gas equipment and trucks for customers. 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.
Concentrations of Credit and Business Risk
Financial instruments that are potentially subject to a concentration of business risk consist of accounts receivable. Revenues in 2012 were derived from two (2) customers who comprised 55% of revenues, and in 2013 one (1) customer which comprised 32% of revenues. We generally do not require collateral, but in most cases can place liens against the property, plant or equipment constructed or terminate the contract if a material default occurs. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high credit quality financial institutions and generally limits the amount of credit exposure to the amount in excess of the
Federal Deposit Insurance Corporationcoverage limit of $250,000. As of December 31, 2013and 2012, the Company did not have cash in any one banking institution that exceeded this limit.
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash. The Company has only cash for the periods presented. Prepaid Expenses
Amounts paid in advance for a benefit not yet received. This type of expense normally includes costs paid in one fiscal year (or period) that benefits a future year (or period).
Property, Plant and Equipment
Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which is generally ten/fifteen years for heavy machinery, 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 balance sheet with the resulting gain or loss reflected in the Company's results of operations. Maintenance costs are expensed as incurred. Due to the nature of the equipment, major repairs are capitalized as they reflect an adjustment to the overall value of the equipment and its useful life can be extended. 8 -------------------------------------------------------------------------------- In evaluating the salvage value service equipment we use a standard of, Machinery and Equipment - Worth approximately 10 - 30% of purchase price after 10-15 years depending on the asset. Vehicles - Worth approximately 20% of purchase price after 10-15 years depending on the asset. These salvage values are based on industry averages for the type of machinery and equipment used in oilfield services.
Allowance for Doubtful Accounts
As required by the Receivables Topic of the
Financial Accounting Standards BoardAccounting 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. The Company estimates its accounts receivable risks to provide allowances for doubtful accounts accordingly. We believe that our credit risk for accounts receivable is limited because of the way in which we conduct business largely in the areas of contracts. Accounts receivable includes the accrual of work in process for project contracts and field service revenue. We recognize that there is a potential of not being paid in a 12 month period. Our evaluation includes the length of time receivables are past due, adverse situations that may affect a contract's scope to be paid, and prevailing economic conditions. We assess each and every customer to conclude whether or not remaining balances outstanding need to be placed into allowance and then re-evaluated for write-off. We review all accounts to ensure that all efforts have been exhausted before noting that a customer will not pay for services rendered. The evaluation is inherently subjective and estimates may be revised as more information becomes available.
As required by the Revenue Recognition Topic of FASB ASC, the Company is required to use predetermined contract methods in determining the current value for revenue.
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. In all cases, revenue is recognized as earned by the Company. 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.
December 31, 2013, the Company, with consent of its shareholders elected under the Internal Revenue Code to be taxed as an S corporation. In lieu of corporation income taxes, the shareholders of an S corporation are taxed based on their proportionate share of the Company's taxable income. As such, we have not provided for any deferred tax analysis.
The Company collects sales tax. The amount received is credited to a liability account as payments are received or invoices are generated. At any point in time, this account represents the net amount owed to the taxing authority for amounts collected but not yet remitted. Sales taxes are then remitted to the appropriate taxing jurisdictions.
Fair Value Accounting
As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
9 -------------------------------------------------------------------------------- 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
May 2011, the FASB (" Financial Accounting Standards Board") issued an accounting standard update that amends the accounting standard on fair value measurements. The accounting standard update provides for a consistent definition and measurement of fair value, as well as similar disclosure requirements between U.S. generally accepted accounting principles and International Financial Reporting Standards. The accounting standard update changes certain fair value measurement principles, clarifies the application of existing fair value measurement, and expands the fair value measurement disclosure requirements, particularly for Level 3 fair value measurements. The amendments in this accounting standard update are to be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning January 1, 2012. The adoption of this guidance did not have a material impact on the Company's financial position, results of operations or cash flows. In September 2011, the FASB issued an accounting standard update that amends the accounting guidance on goodwill impairment testing. The amendments in this accounting standard update are intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments in this accounting standard update are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this accounting standard update will become effective for the reporting period beginning January 1, 2012. The adoption of this guidance did not have a material impact on the Company's financial position, result of operations or cash flows.
Other recent accounting pronouncements issued by the FASB (including its