UNITED STATES

Securities and Exchange Commission

Washington, D.C. 20549



Form 10-KSB

(Mark One)



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



For the fiscal year ended June 30, 2006



OR



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





Commission File Number 000-29895



SMART-TEK SOLUTIONS, INC.



Nevada                                           98-0206542

--------------------------                     ------------------------

State or other jurisdiction                 (I.R.S.) Employer Identification No.



of incorporation



Smart-tek Solutions, Inc.

433 Towne Center Suite 316

Corte Madera, CA 94925

Address of principal executive offices



(604) 628-8161

-----------------------

Registrant's telephone number, including area code



1100-1200 West 73rd Avenue

Vancouver, British Columbia V6P 6G5

Former address of principal executive offices



Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value
(Title of Class)













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Indicate by check mark whether the Registrant (1) has files all reports required to be filed  by  Section  13 or 15 (d) of the  Securities  Exchange  Act of 1934 during the preceding 12 months (or for such shorter  period that the  Registrant was  required  to file such  reports)  and (2) had been  subject to such  filing requirements for the past 90 days.                 Yes   X                  No    _____



Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ]

The issuer's revenues for its most recent fiscal year ended June 30, 2006: $2,219,489.

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and ask price, as of June 30, 2006 was $11,850,603 based on a share value of $0.20.

The number of shares of Common Stock, $0.001 par value, outstanding on June 30, 2006 was 73,253,016 shares.

Transitional Small Business Disclosure Format (Check one)    Yes ____   No  X











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SMART-TEK SOLUTIONS, INC

FOR THE FISCAL YEAR ENDED
June 30, 2006

Index to Report
on Form 10-KSB

PART I

Page



Item 1.

Description of Business

4

Item 2.

Description of Property

6

Item 3.

Legal Proceedings

6

Item 4.

Submission of Matters to a Vote of Security Holders

6



PART II



Item 5.

Market for Common Equity and Related Stockholder Matters

7

Item 6.

Managements Discussion and Analysis or Plan of Operation

13

Item 7.

Financial Statements

22

Item 8.

Changes in and Disagreements
with Accountants on Accounting and

Financial Disclosure

45

Item 8A.Controls and Procedures

45

Item 8B.Other Information

46



PART III



Item 9.

Directors, Executive Officers, Promoters and Control Persons, Compliance

With Section 16(a) of the Exchange Act

46

Item 10.Executive Compensation

51

Item 11.Security Ownership of Certain Beneficial Owners and Management and

Related Stockholder Matters

53

Item 12.Certain Relationships and Related Transactions

54

Item 13.Exhibits

55

Item 14.Principal Accountants Fees and Services

56



























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FORWARD-LOOKING STATEMENTS

This document contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.

Forward-looking statements may include the words "may," "could," "estimate," "intend," "continue," "believe," "expect" or "anticipate" or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. We do not intend, and undertake no obligation, to update any forward-looking statement.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The factors impacting these risks and uncertainties include, but are not limited to:

·

increased competitive pressures from existing competitors and new entrants;

·

increases in interest rates or our cost of borrowing or a default under any material debt agreements;

·

deterioration in general or regional economic conditions;

·

adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;

·

loss of customers or sales weakness;

·

inability to achieve future sales levels or other operating results; and

·

the unavailability of funds for capital expenditures

For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see "Factors That May Affect Our Results of Operation" in this document.



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In this form 10-KSB references to "Smart-tek Solutions", "the Company", "we," "us," and "our" refer to SMART-TEK SOLUTIONS, INC.















PART I



Item I.  Description of Business

Smart-tek Solutions, Inc. (STS or the "Company"), formerly known as Royce Biomedical, Inc., was incorporated in Nevada on March 22, l995.

Between August 1995 and June 1998, the Company manufactured and sold diagnostic test kits used to detect pregnancy, thyroid disorders and other medical conditions. The Company assembled its diagnostic testing kits at its laboratory in Irvine, California. The Company closed this facility in April 1998. In order to penetrate the Chinese immunodiagnostic market quickly, the Company signed an agreement in April 1999 with Xili Pharmaceutical Group, Inc. ("Xili") of the People's Republic of China to market and distribute H. Pylori diagnostic test kits supplied by the Company. In addition to supplying H. Pylori test kits to Xili, the Company had provided clinical data and training to Xili personnel.

Commencing in December 2004, the Company replaced all of its Officers and Directors and embarked on an aggressive transition of the Company from biomedical to the security services sector.  The Company engaged various consultants to identify potential acquisitions in this market.

In April 2005, pursuant to a Share Exchange Agreement, Smart-tek Communications, Inc, a British Columbia, Canada based security contractor (SCI) became a wholly-owned subsidiary of the Company.  As a result of this acquisition, the Company ceased all ongoing business relationships with Xili and commenced efforts to effectively operate and expand in the security sector.



In July 2005, the Company filed with the State of Nevada to change its corporate name to Smart-tek Solutions, Inc. pursuant to the Schedule 14c the Company filed on June 13, 2005.



The Company believes that there are significant opportunities for organic expansion and acquisitions in the security sector both in the near and far terms. The Greater Vancouver security sector, according to industry publications, is estimated to be one hundred million dollars ($100,000,000).





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In late 2005 and all of 2006, the Company has marketed a new product called RTAC-PM (RFID Tracking Alert Containment and Poultry Monitoring) system.



Products and Services



Through our wholly-owned subsidiary Smart-tek Communications (SCI) we specialize in the design, sale, installation and service of the latest in security technology with proven electronic hardware and software products. SCI has positioned itself as a security systems leader in the Greater Vancouver area, supplying over 45% of new downtown core construction projects. Valued customers include major developers, general and electrical contractors, hospitals, Crown Corporations, law enforcement agencies and retail facilities. Projects range from high-end residential and commercial developments to system upgrades and monitoring contracts. SCI's continued growth and success is a direct result of providing a consistently superior product at competitive pricing to both new and existing clients. SCI's stellar client retention is in itself a testimonial to the overall excellence of the product designed and installed.



Furthermore in late 2005 we began marketing a new surveillance technology solutions for the monitoring and containment of the H5N1 virus with the recent introduction of its RTAC-PM system in an effort to develop another revenue stream for the company.  This scaleable system has been designed to help countries contain the deadly avian flu virus currently threatening the world.  As the RTAC-PM system was designed based on RFID technology that the Company has considerate experience in working with as part of its security technology services, the Company is well versed in the technology required as part of a comprehensive containment solution for countries that have been affected by the deadly H5N1 (Bird Flu, Avian Flu, Avian Influenza) virus.  To date, the Company has visited many countries around the world including China, Vietnam, Hong Kong, Singapore and Romania in our effort to market this innovative product.



Marketing Strategy



The Company relies on current relationships as their primary means of marketing their security technology products and services to developers in the Greater Vancouver Area. Since 1997, the Company has been successful in developing its security business in this market.  Real Estate development in the Greater Vancouver Area has been very active and with the upcoming 2010 Winter Olympic Games to be hosted by Vancouver, this trend is expected to continue.  We have 2 employees that concentrate their efforts on obtaining new contracts.



The Company uses a different approach to market its RTAC-PM product.  Due to vastness of the Bird Flu outbreaks over the past 24 months, the Company believes that the best way to market its products to local government officials, is to engage local agents to begin dialogue with local officials.  This strategy has been successful thus far.  It has allowed us to demonstrate our product to Chinese officials in Beijing, our agent in Romania has been successful in opening up the dialogue with the Department of Veterinary Medicine for the country and our agents in Hong Kong and Vietnam, have



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been working on making the proper contacts with the proper officials located in these regions.  Because the target market for the RTAC-PM system is the Government level, the sales cycle for the product is expected to be quite long.  The Company plans to continue to work with its agents to further promote the system.



Market



The commercial and residential security systems industry has experience tremendous growth since the tragic terrorist events of September 11, 2001.  Furthermore, construction growth in the Greater Vancouver area has also experience substantial growth over the past decade, and there are no signs of things slowing down.  The local industry is poised to grow even further due to the upcoming Winter Olympic Games which are to be stage in the Greater Vancouver Area.  Smart-tek Communications has worked very hard since its inception to develop and nurture relationships with its customers.  The strength of these relationships has brought Smart-tek a lot of successes over the past decade and will help to further grow its security and surveillance technology business.



With its corporate headquarters located in Vancouver, British Columbia Canada, SCI has targeted the local market to focus their sales efforts.  We estimate that SCI is supplying close to 50% of new downtown core construction projects.  With the continued aggressive growth of the downtown residential and commercial real estate market in the Greater Vancouver area, we feel the current market situation will only continue to grow, thereby providing SCI an opportunity to grow its business and client base.



Furthermore, the Company has marketed over the past year, a monitoring system that has been focused on helping with the containment and monitoring of the deadly H5N1 virus, commonly called the Avian Influenza or Bird Flu. There are currently no vaccines available to help eradicate this deadly disease and world health officials continually press for containment solutions as the only means to currently control the spread of the bird flu.  Smart-teks RTAC-PM system has been designed to be a part of a comprehensive containment and monitoring solution.  Thus far, the Company has focused its marketing initiatives in the South-East Asian region in the world along with Romania, regions that have suffered the largest number of outbreaks.   The Company or its agent have introduced the RTAC-PM to various organizations in Vietnam, Romania, China, Singapore and Hong-Kong.



Backlog



The following schedule shows a reconciliation of backlog representing the amount of revenue the Company expects to realize from work to be performed on uncompleted contracts in progress at June 30, 2006 and from contractual agreements on which work has not yet begun.









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Balance at June 30, 2005
      $  2,100,000New contracts, July 1, 2005 to June 30, 2006
      5,994,033Less: Contract revenue earned from July 1, 2005
        to June 30, 2006
      (2,186,000)Balance, June 30, 2006
      $  5,908,333




In addition, between July 1, 2006 and September 30, 2006, the Company entered into additional contracts with anticipated revenues of approximately $225,935.



Competition

We face significant competition from four or five competitors in our target market in the security and surveillance technology industry.  In general, we believe that our current primary competitive advantages include product and service quality at competitive pricing and our long-standing relationships with our customers as evidenced by its stellar customer retention.

We face competition in our bird flu containment solutions market from various sources.  While we are not aware of any companies that have a containment solution such as ours, we do have competition from the various pharmaceutical companies who are aggressively working at developing a vaccine to help eradicate the disease.

Personnel

We currently have a total of 26 employees; 2 at STS and 24 at SCI. STS is primarily dependent upon our Officers and Directors. We intend to use the services of consultants to perform various professional services where cost-beneficial. We believe that this use of third-party service providers may enhance our ability to contain general and administrative expenses.

Registrant Information

We file annual, quarterly and special reports and other information with the Securities and Exchange Commission (SEC) that can be inspected and copied at the public reference facility maintained by the SEC at 100 F Street N.E., Room 1580, Washington, D.C. 20549-0405. Information regarding the public reference facilities may be obtained from the SEC by telephoning 1-800-SEC-0330. The Company's filings are also available through the SEC's Electronic Data Gathering Analysis and Retrieval System which is publicly available through the SEC's website (www.sec.gov). Copies of such materials may also be obtained by mail from the public reference section of the SEC at 100 F Street N.E., Room 1580, Washington, D.C. 20549-0405 at prescribed rates.  In addition, all of our SEC filings and press releases can
be accessed though our website (www.smart-teksolutions.com).



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ITEM 2. Description of Property

We do not maintain an executive office but rather utilize the facilities, when required, of our operating subsidiary, SCI, located at: #10-11720 Voyageur Way, Richmond, BC, Canada, V6X 3G9 . The property is approximately 2,000 square feet and is a 36 month lease with a payment of approximately $1,250 per month.  We utilize a mail service for our corporate correspondence at 433 Town Center Suite 316, Corte Madera, CA 94925



ITEM 3. Legal Proceedings

On April 28, 2006, the Company has filed a complaint in the Superior Court for the State of California, against RFID, Ltd., a publicly traded company on the Pink Sheets.  The Complaint alleges causes of action against RFID, Ltd., for 1) Defamation Per Se; 2) Intentional Interference with Contractual Relations; 3) Intentional Interference with Prospective Economic Advantage and 4) Unfair Competition (Violation of the California Business & Professions Code section 17200).  The Complaint alleges that RFID, Ltd., who described itself as a competitor of Smart-tek Solutions, Inc., made a series of false and misleading representations about Smart-tek Solutions, Inc. and its development of its RTAC-PM system.  The Complaint filed by Smart-tek Solutions, Inc. seeks monetary damages in excess of $10 million and equitable relief as a result of RFID, Ltd.s conduct.



On May 9, 2006, the Company filed a Complaint in the District Court of Clark County, Nevada against the owners and operators of Stocklemon.com (Stocklemon).  The Complaint alleges causes of action for (1) Defamation; (2) Intentional Interference with Contractual Relations; (3) Intentional Interference with Prospective Economic Advantage and (4) Violation of State Securities Laws.  The Complaint alleges that Stocklemon made a series of provably false assertions of fact and other misleading statements concerning Smart-tek Solutions, Inc.s financial affairs and business activities.  The Complaint further alleges that Stocklemon intentionally sought to damage Plaintiffs value, contractual relationships and expectancies via the misrepresentations and misleading statements contained in a Stocklemon report issued on or about April 4, 2006.  The Complaint further alleges that Stocklemon utilized the Report and the untrue statements of material fact contained therein to deliberately manipulate the market for personal gain.  The Complaint filed by Smart-tek Solutions, Inc. seeks compensatory and punitive damages in excess of $100 million and equitable relief against Stocklemon.





ITEM 4. Submission of Matters to a Vote of Security Holders

None



PART II

ITEM 5. Market for Common Equity and Related Shareholder Matters



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(a) Market Information

The Company is eligible to participate in the over-the-counter securities market through the National Association of Securities Dealers Automated Quotation Bulletin Board System, under the trading symbol "STTK". The following table sets forth the quarterly high and low bid prices for our Common Stock during our last two fiscal years, as reported by a Quarterly Trade and Quote Summary Report of the OTC Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.

|            |       |             |             |       |      |       |    
|----------- | ----- | ----------- | ----------- | ----- | ---- | ----- | ---
|            |       | Fiscal 2005 | Fiscal 2006
|            |       | High        |             | Low   | High |       | Low
|1st Quarter | $0.12 |             | $0.04       | $0.45 |      | $0.14
|2nd Quarter | $0.05 |             | $0.04       | $0.85 |      | $0.08
|3rd Quarter | $0.30 |             | $0.05       | $1.11 |      | $0.15
|4th Quarter | $0.48 |             | $0.10       | $1.78 |      | $0.17



(b) Holders of Common Stock

As of September 30, 2006, we had approximately 4,500 shareholders of record of the 73,253,016 shares outstanding. As of June 30, 2006, the closing price of our shares of common stock was $0.20 per share.

(c) Dividends

We intend to follow a policy of retaining earnings, if any, to finance the growth of the business and do not anticipate paying any cash dividends in the foreseeable future. The declaration and payment of future dividends on the Common Stock will be the sole discretion of the Board of Directors and will depend on our profitability and financial condition, capital requirements, statutory and contractual restrictions, future prospects and other factors deemed relevant.

(d) Securities Authorized for Issuance under Equity Compensation Plans

2005 Stock Incentive Plan

The following description applies to the stock incentive plan that was adopted on May 27, 2005; 1,300,000 options have been granted under this plan as of the date of this filing.

We have reserved for issuance an aggregate of 25,000,000 shares of common stock under the 2005 Stock Incentive Plan. This plan is intended to encourage directors, officers, employees and consultants to acquire ownership of common stock. The opportunity so provided is intended to foster in participants a strong incentive to put forth maximum effort for our continued success and growth, to aid in retaining individuals who put forth such efforts, and to assist in attracting the best available individuals to the Company in the future.



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Officers (including officers who are members of the board of directors), directors and other employees and consultants of STS and its subsidiaries will be eligible to receive options under the stock incentive plan. The committee will administer the stock incentive plan and will determine those persons to whom options will be granted, the number of options to be granted, the provisions applicable to each grant and the time periods during which the options may be exercised. No options may be granted more than ten years after the date of the adoption of the stock incentive plan.

Non-qualified stock options will be granted by the committee with an option price equal to the fair market value of the shares of common stock to which the non-qualified stock option relates on the date of grant. The committee may, in its discretion, determine to price the non-qualified option at a different price. In no event may the option price with respect to an incentive stock option granted under the stock option plan be less than the fair market value of such common stock to which the incentive stock option relates on the date the incentive stock option is granted.

Each option granted under the stock incentive plan will be exercisable for a term of not more than ten years after the date of grant. Certain other restrictions will apply in connection with this plan when some awards may be exercised. In the event of a change of control (as defined in the stock incentive plan), the date on which all options outstanding under the stock incentive plan may first be exercised will be accelerated. Generally, all options terminate 90 days after a change of control.

Recent Sales of Unregistered Securities



On August 12, 2005, the Company accepted a settlement agreement with  Mr. Richard Short (Short), a former Shareholder, whereby the Company would issue to Short 33,333 shares of the Companys common stock in lieu of a cash payment to Short of CDN $16,000(USD$13,333) for the 8,000 shares rescinded by Short in 1997. This settlement was inclusive of Short and the Company and did not include any of the former officers, directors or employees of the Company, as individuals.  On August 16, 2005 the Company issued Short 33,333 shares of its common stock, in full settlement of the CDN$16,000 (USD$13,333) owed Short as a former Shareholder.  These securities were issued pursuant to an exemption from registration provided under Section 4(2) and 4(6) of the Securities Act of 1933. The parties to whom the shares were issued received information concerning the Company. The shares were appropriately restricted. No underwriters were involved in the transactions and no commissions were paid.



ITEM 6. Managements Discussion and Analysis or Plan of Operation

With the exception of historical matters, the matters discussed herein are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning anticipated trends in revenues and net income, the date of award or completion of our projects, projections concerning operations and available cash flow. Actual results and events could differ



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materially from those projected, anticipated, or implicit, in the forward-looking statements as a result of the risk factors set forth below and elsewhere in this report. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto appearing elsewhere herein.

The following discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate these estimates, including those related to revenue recognition and concentration of credit risk. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.



Critical Accounting Policies



We believe that of the significant accounting policies used in the preparation of our financial statements (see Note 1 to the Financial Statements), the following are critical accounting policies, which may involve a higher degree of judgment, complexity and estimates,



Revenue Recognition



The Company accounts for its construction projects using the percentage of completion method, measured using the cost-to-cost method.  This method of accounting requires a calculation of job profit to be recognized in each reporting period for each contract based upon predictions of future outcomes, which include:



·

Estimates of total cost to complete the contract;

·

Estimates of contract schedule and completion date;

·

Estimates of the percentage the contract is complete; and

·

Amounts of any probable unapproved claims and change orders included in revenue



At the outset of each contract a detailed analysis of estimated cost to complete the contract is prepared.  Periodically evaluation of the estimated cost, claims, change orders and percentage of completion at the project level will be performed.  The recording of profits and losses on long-term contracts requires an estimate of the total profit and loss over the life of each contract.  This estimate requires consideration of contract revenue, change orders and claims, less cost incurred and estimated costs to



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complete.  Anticipated losses on contracts are recorded in full in the period in which they become evident.  Profits are recorded based upon the total estimated contract profit times the current percentage complete for the contract.



When calculating the amount of total profit or loss on a long-term contract, unapproved claims are recorded as revenue when collection is deemed probable based upon the four criteria for recognizing unapproved claims under the American Institute of Certified Public Accountants Statement of Position 81-1 (SOP 81-1), Accounting for Performance of Construction Type and Certain Production Type Contracts.  Including probable unapproved claims in this calculation increases operating income (or reduces the operating loss) that would otherwise be recorded without consideration of the probable unapproved claims.  Probable unapproved claims are recorded to the extent of costs incurred and include no profit element.  In all cases, the probable unapproved claims included in determining contract profit or loss are less than the actual claim that will be or has been presented to the customer.  The Company is actively engaged in claims negotiations with customers and the success of the claims negotiations have a direct impact on the profit or loss recorded for any long-term contract.  Unsuccessful claims negotiations could result in decreases in estimated contract profits or additional contact losses, and successful claims negotiations could result in increases in estimated contract profits or recovery of previously recorded contract losses.  On a quarterly basis, significant contracts are reviewed.  However, there are many factors that impact future costs, including but not limited to weather, inflation, labor and community disruptions, timely availability of materials, productivity and other factors.  These factors can affect the accuracy of our estimates and materially impact our future earnings.



The Company also provides various other services to customers not covered under construction contracts such as equipment repairs.  The revenue from the provision of these types of services is recorded once the specific job is complete.



The consolidated financial statements include the accounts of Smart-tek Solutions Inc. and its wholly-owned subsidiary, Smart-tek Communications Inc.  Significant inter-company transactions have been eliminated in consolidation.



Goodwill and intangible assets



The Company accounts for goodwill and intangible assets pursuant to SFAS No. 142 ,Goodwill and Other Intangible Assets.  Under SFAS 142, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms.  Goodwill and intangibles with indefinite lives are evaluated at least annually for impairment by comparing the assets estimated fair values with its carrying value, based on cash flow methodology.



Stock-based compensation



Through December 31, 2005, the Company accounted for stock-based employee compensation in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25 and FASB Interpretation No. 44, "Accounting for Certain



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Transactions Involving Stock Compensation", and complied with the disclosure requirements of SFAS No. 123 (as modified by SFAS No. 48), "Accounting for Stock-Based Compensation". Under APB No. 25, compensation expense was recorded based on the difference, if any, between the fair value of the Company's stock and the exercise price on the measurement date. The Company accounted for stock issued to non-employees in accordance with SFAS No. 123, which required entities to recognize as expense over the service period the fair value of all stock-based awards on the date of grant and EITF No. 96-18, "Accounting for Equity Investments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services", which addressed the measurement date and recognition approach for such transactions.



On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), a revision to SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123R superseded APB Opinion No.

25, "Accounting for Stock Issued to Employees", and amended SFAS No. 95, "Statement of Cash Flows". SFAS No. 123R requires that the Company measure the cost of employee services received in exchange for equity awards based on the grant date fair value of the awards. The cost will be recognized as compensation expense over the vesting period of the awards.



Under this method, the Company began recognizing compensation cost for equity-based compensation for all new or modified grants after the date of adoption. The pro forma disclosures previously permitted under SFAS No. 123 are no longer an alternative to financial statement recognition.



In addition, the Company now recognizes the unvested portion of the grant date fair value of awards issued prior to adoption based on the fair values previously calculated for disclosure purposes over the remaining vesting period of the outstanding options and warrants.

Accordingly, the Company recognizes compensation cost for equity-based compensation for all new or modified grants issued after December 31, 2005.



The Company had two partially vested stock options outstanding at December 31, 2005 pursuant to employment agreements entered into between the Company's and its president and vice-president. Under these agreements, the Company issued options to purchase up to
1,300,000 shares of its common stock at a purchase price of $0.15 per share that vest in equal quarterly installments over a three (3) year period.  The Company calculated the fair value of the options to be $195,000 using an option pricing model, of which $65,000 was recognized as expense during the year ended June 30, 2006.





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In addition, commencing January 1, 2006, the Company is required to recognize the unvested portion of the grant date fair value of awards issued prior to the adoption of SFAS No. 123R based on the fair values previously calculated for disclosure purposes over the remaining vesting period of the outstanding stock options and warrants. At June 30, 2006, the value of the unvested options was $115,000 which will be amortized in future periods as the options vest.

Significant Customers

For the twelve months ended June 30, 2006, we received 36% of our revenues from three customers: Blue Tree Management, Chambers Electric and Concord Pacific.  All three customers respectively represented more than 10% of revenues.  We believe we have a good relationship with these customers.



Principal Suppliers



The principal suppliers for the security equipment installed by SCI is Burtek Systems Inc., a Canada wide distributor and importer specializing in audio, video, security, access control and structured wiring products and Chamberlain Group.  These suppliers represent 44% of all purchases and each of these suppliers represents more than 10% of total purchases.



Results of Operations

The results of operations reflected in this discussion include the operations of Smart-tek Communications, Inc.

Year ended June 30, 2006 vs. Year ended June 30, 2005

Revenue

Revenues increased by $1,898,490, from $320,999 in fiscal 2005 to $2,219,489 in fiscal 2006. The substantial increase is the result of the revenues in fiscal 2005 being recognized from the acquisition of SCI, April 15, 2005 to June 30, 2005, whereas in fiscal 2006, the revenues were for a full twelve months of operations.

Cost of Services

Cost of services increased by $1,674,163, from $261,790 in fiscal 2005 as compared to $1,935,953 in fiscal 2006.  The substantial increase is the result of the costs in fiscal 2005 being recognized from the acquisition of SCI, April 15, 2005 to June 30, 2005, whereas in fiscal 2006, the costs were for a full twelve months of operations.

Operating Expenses

Total operating expenses increased by $568,585 or 168% from $337,968 in fiscal 2005 to $906,553 in fiscal 2006. The increase in operating expenses was principally attributable to an $189,442 increase in management fee related costs primarily due to



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an increase in our headcount to due to the acquisition of SCI and running a full fiscal year of operations with SCI.   Additionally, professional fees increased by $170,850 due the costs associated with legal proceedings initiated by the Company and the increase in accounting costs related to increased activities since the acquisition of SCI.  Travel and transportation expenses increased by $69,313 in the current year due to sales and marketing activities involving the Companys wholly owned subsidiary along with a $47,041 increase in facilities expenses.

Other Expenses

Total other expenses, including interest expense and financing costs, increased $9,760 from $7,337 in fiscal 2005 to $17,097 in fiscal 2006. The increase was primarily due to the debt assumed in the acquisition of SCI.

Net Loss

Net loss increased by $354,018 or 124% from a net loss of $286,096 in fiscal 2005 to a net loss of $640,114 in fiscal 2006.



Liquidity and Capital Resources



We have incurred significant losses and negative cash flows form operations for the last two years.  We have obtained our required cash resources principally through loans from shareholders.  We may not operate profitably in the near future or until such time as the operations of SCI become profitable.



Management has specific plans to address the Companys financial situation as follows:

·

We believe that we will continue to grow the security and surveillance technology business of SCI

·

We believe we can be successful in the sales and implementation of our RTAC-PM poultry monitoring system to generate further revenues

·

We believe that the officers of the Company will continue to defer payment of salaries until such time that cash flows improve.  Additionally, we will continue to pay for outside services with common shares where we deem appropriate

·

We believe that the quality of the SCI acquisition will lead to further organic growth and we intend to accelerate that growth where feasible

There can be no assurance that our planned activities will be successful or that we will ultimately attain profitability.  Our long term viability depends on our ability to grow the SCI business to fund the continuation of our consolidated business operations and to acquire additional operating entities that fit our strategic model.





16



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Cash used for operating activities was $214,950 in fiscal 2006 as compared with $58,496 in fiscal 2005.  In Fiscal 2006, cash used in operating activities include the net loss, increases in accounts and contract retention receivable, increase in costs on uncompleted contracts in excess of billings, decrease in prepaid expenses, increase in accounts payable and accrued liabilities and an increase in billings on uncompleted contracts in excess of costs and estimated revenues.  Furthermore, the net loss in fiscal 2006 was partially offset by the following non-cash operating activities: depreciation and amortization of stock options.  In Fiscal 2005, cash used in operating activities include the net loss, increases in accounts and contract retention receivable, decrease in costs on uncompleted contracts in excess of billings, increase in prepaid expenses, increase in accounts payable and accrued liabilities and an increase in billings on uncompleted contracts in excess of costs and estimated revenues.  Furthermore, the net loss in fiscal 2005 was partially offset by the following non-cash operating activities: depreciation, amortization of deferred compensation and issuance of common shares for
services.



Cash provided by financing activities for fiscal 2006 was $266,350 and included funds provided from an increase in bank overdraft of $84,454, proceeds from shareholders loan of $199,985 offset by a repayment of $18,089 to a related party.  Cash provided by financing activities was $57,635 in fiscal 2005 and included funds provided from an increase of bank overdraft and proceeds from loans received from shareholders.



The Companys wholly owned subsidiary, Smart-tek Communications Inc. currently has a backlog schedule of $5,908,333 which represents revenues that will be derived from signed contracts that work has not been completed or work is yet to be commenced as at June 30, 2006.  Of the $5,908,333 in backlog, $2,854,923 represents the value of contracts signed but work has not yet begun as at June 30, 2006.



The Company does not have any significant available credit, bank financing or other external sources of liquidity. Due to historical operating losses, the Companys operations have not been a source of liquidity and the Company had satisfied its cash requirements through shareholder loans and deferral of salary payments to its officers.  In order to obtain necessary capital, the Company may need to sell additional shares of its common stock or borrow funds from private lenders.  There is no assurance that the Company will be able to secure additional financing or that it can be secured at rates acceptable to the Company.  In addition, should the Company be required to either issue stock for services or to secure equity funding, due to the lack of liquidity in the market for the Companys stock such financing would result in significant dilution to its existing shareholders.



We believe we currently have adequate capital resources to fund our anticipated cash needs through June 30, 2007 and beyond. However, an adverse business or legal development could require us to raise additional financing sooner than anticipated.



17



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In the longer term, the Company is actively seeking additional merger, acquisition or venture relationships, along with continuing to grow our security and surveillance technology business and continue to market our RTAC-PM system in order to generate long-term growth opportunities for the Company, permit the Company to meet its financial obligations and to provide increased value to the Companys shareholders.

The following summarizes our contractual obligations at June 30, 2006 and the effects such obligations are expected to have on liquidity and cash:



Total
      2007
      2008
      2009
      2010
      2011Employment agreements
      $ 482,350
      263,100
      219,250
      -
      -
      -Lease obligations - Office
      $  27,527
      16,516
      11,011
      -
      -
      -Lease obligations - vehicles
      $
        101,644
      44,748
      40,760
      16,136
      -
      -Total Contractual obligations
      $
        611,521
      324,364
      271,021
      16,136
      -
      -




The Companys wholly-owned subsidiary entered into new employment agreements in April 2005 for a term from April 23, 2005 to April 23, 2008.  Under the terms of the agreements, the Company is committed to pay each of the president and vice-president annual salaries of $120,027 each along with annual car allowances of $11,523.



The Companys wholly-owned subsidiary entered into a non-cancellable operating lease for office space on March 1, 2005.



The Companys wholly-owned subsidiary is committed to operating leases for six company vehicles.



Recently Issued Accounting Pronouncements



In June 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position FSP FAS No. 143-1, Accounting for Electronic Equipment Waste Obligations, to address the accounting for obligations associated with the Directive on Waste Electrical and Electronic Equipment (the Directive) issued by the European Union (EU). The Directive was enacted on February 13, 2003, and directs EU-member countries to adopt legislation to regulate the collection, treatment, recovery, and environmentally sound disposal of electrical and electronic waste equipment. The Directive concludes that commercial users are obligated to retire, in an environmentally sound manner, specific assets that qualify as historical waste. FSP FAS No. 143-1 is effective for reporting periods ending after June 8, 2005, which is June 30, 2005 for us, or the date of adoption of the Directive by the applicable EU-member countries, if later. As we do not currently have any EU operations, the adoption of  FSP
FAS No. 143-1 does not have any impact on our financial statements at June 30, 2006.

In May 2005, the FASB issued SFAS No. 154 that establishes new standards on accounting for changes in accounting principles.  Pursuant to the new rules, all such



18



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changes must be accounted for by retrospective application to the financial statements of prior periods unless it is impracticable to do so.  SFAS No. 154 completely replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS 3, though it carries forward the guidance in those pronouncements with respect to accounting for changes in estimates, changes in the reporting entity, and the correction of errors.  This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In March 2005, the FASB issued FASB Interpretation (FIN) 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143, Accounting for Asset Retirement Obligations. FIN 47 clarifies that the term conditional asset retirement obligation, as used in SFAS No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 requires an entity to recognize a liability for the fair value of the conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005, which is June 30, 2006 for us; however, earlier application is permitted. We are currently evaluating the impact of FIN 47 on our results of operations, financial position and cash flows.



In March 2005, the SEC published Staff Accounting Bulletin No. 107 (SAB 107) which provides the Staffs views on a variety of matters relating to stock-based payments.  SAB107 requires stock-based compensation be classified in the same expense lines as cash compensation is reported for the same employees.  Accordingly, the financials statements of the Company were prepared in conformity with this presentation requirement.



Factors That May Affect Our Results

We have a general history of losses and may not operate profitably in the future.



We have incurred losses for the last three fiscal years. Our net losses and negative cash flow may continue for the foreseeable future. As of June 30, 2006, our accumulated deficit was $(3,764,055). We believe that our planned growth and profitability will depend in large part on our ability to market our businesses and gain clients and to expand our relationships with existing clients. Accordingly, we intend to invest heavily in marketing, strategic partnerships and development of our client base. If we are not successful in expanding our client base, it will have a material adverse effect on our financial condition and our ability to continue to operate our business.  Furthermore, we will continue to market our poultry monitoring system on a global scale.  We believe that the signing of one customer for this new system along with continued successes in the security and surveillance industry will have positive impact on our operating results.







19



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We may make acquisitions, which if proven unsuccessful, could negatively affect our future profitability and growth.



We believe the security landscape has created opportunities for us to invest in, or acquire boutique businesses in this industry. We may not be able to identify, acquire or profitably manage additional businesses that we may invest in or acquire without substantial costs, delays or other problems. In addition, acquisitions may involve a number of special risks, including:



·

Diversion of managements attention;

·

Failure to retain key acquired personnel; and

·

Risks associated with unanticipated events, circumstances or legal liabilities.



In addition, if the acquired businesses have operating losses or negative operating cash flow, our ability to achieve positive cash flow and profitability, as well as our liquidity, could be adversely affected. Some or all of these risks could adversely affect our operations and financial performance. For example, client satisfaction or performance problems at a single acquired business could adversely affect our reputation and financial results. Further, any businesses acquired in the future may not achieve anticipated revenues and earnings and therefore negatively impact our consolidated financial position, results of operations and cash flows.





If we are unsuccessful in raising additional capital in the future, we may be unable to continue to operate.



We believe we currently have adequate cash to fund anticipated cash needs through June 30, 2007 and beyond primarily as a result of our contract backlog at June 30, 2006 of $5,908,333.  However, we may need to raise additional capital in the future. Any equity financing may be dilutive to shareholders, and debt financing, if available, will increase expenses and may involve restrictive covenants. We may be required to raise additional capital, at times and in amounts, which are uncertain, especially under the current capital market conditions. Under these circumstances, if we are unable to obtain additional capital or are required to raise it on undesirable terms, it may have a material adverse effect on our financial condition, which could require us to:

- curtail our operations significantly;
- sell significant assets;
- seek arrangements with strategic partners or other parties that may require us to
    relinquish significant rights to products, technologies or markets; or
- explore other strategic alternatives, including a merger or sale





20



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Our operating results are subject to fluctuations caused by many factors that could cause us to fail to achieve our revenue or profitability expectations, which in turn could cause our stock price to decline.



Our operating results can vary significantly depending upon a number of factors, many of which are outside our control. Factors that may affect our quarterly operating results include:



 market acceptance of and changes in demand for our products and

services;



 gain or loss of clients or strategic relationships;



 announcement or introduction of new services and products by

us or by our competitors;



 our ability to build brand recognition;



 timing of sales to customers;



 price competition;



 our ability to upgrade and develop systems and infrastructure to

accommodate growth;



 our ability to attract and integrate new personnel in a timely and

effective manner;



 general economic conditions, including economic conditions specific to

the construction security services industries.





Most of our operating expenses are relatively fixed in the short-term. We may be unable to adjust spending rapidly to compensate for any unexpected sales shortfall, which could harm our quarterly operating results. Because we only compete in the greater Vancouver BC market, we do not have the ability to predict future backlog with any certainty. Because of the above factors, you should not rely on period-to-period comparisons of results of operation as an indication of future performances.



Because our security and surveillance technology business only operates in the greater Vancouver BC market, those customers have historically accounted for and may in future periods account for substantial portions of our revenue, our revenue could decline because of delays of customer orders or the failure to retain customers.





21



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We have a limited geographic area where our customers account for a significant portion of our revenue. Our revenue could decline because of a delay in signing agreements with a single customer or the failure to retain an existing customer. We may not obtain additional customers. The failure to obtain additional customers and the failure to retain existing customers will harm our operating results.

If general economic and business conditions do not continue to expand, we may experience decreased revenue or lower growth rates.



We may face intense competition that could adversely affect our ability to generate revenues and profitability.



The demand for our services is expected to reflect dynamic growth over the next several years. We expect the demand will result in intense competition to provide these services. If we are not able to successfully execute our strategy, our business may be materially and adversely affected.



We may have difficulty managing growth.



Our development has required and is expected to continue to require, the full utilization of our management, financial and other resources, which to date has had limited working capital. Managing our growth will depend upon our ability to improve and expand our operations, including our financial and management information systems, and to recruit, train and manage executive staff and employees. We may not be able to efficiently scale our operations, and this failure to effectively manage growth may have a materially adverse effect on our operating results and financial condition.



We may not be able to attract, retain or integrate key personnel, which may prevent us from successfully operating our business.



We may not be able to retain our key personnel or attract other qualified personnel in the future. Our success will depend upon the continued service of key management personnel. The loss of services of any of the key members of our management team or our failure to attract and retain other key personnel could disrupt operations and have a negative effect on employee productivity and morale and harm our financial results. We operate in a market that is intensely and increasingly competitive, and if we are unable to compete successfully, our revenue could decline and we may be unable to gain market share.



We may lose certain tax attributes as a result of our acquisition program.



At June 30, 2006, STS had available federal net operating loss (NOL) carry-forwards of approximately $3,451,107. Under Section 382 of the Internal Revenue Code of 1986, as amended, the use of prior losses, including NOLs, is limited if a corporation undergoes an ownership change. Future issuances of equity interests by us for acquisitions or the exercise of outstanding options to purchase our capital stock, may



22



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result in an ownership change that is large enough for this limitation to apply. If the limitation applies, we may be unable to use a material portion of its available NOL carry-forwards to reduce future taxable income.









ITEM 7. Financial Statements





Contents



Page



Report of Independent Registered Public Accounting Firm

24



Balance Sheets

25



Statements of Operations and Comprehensive Loss

26



Statements of Changes in Shareholders Deficiency

27



Statements of Cash Flows

28



Notes to the Consolidated Financial Statements

29 - 44









23



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Report of Independent Registered Public Accounting Firm



To the Board of Directors of

Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)



We have audited the accompanying consolidated balance sheets of Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.) (the Company) and its subsidiary as of June 30, 2006 and 2005, and the related consolidated statements of operations and comprehensive loss, changes in shareholders deficiency and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with 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.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes 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.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2006 and  2005 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.



The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company incurred a net loss of $640,114 and a negative cash flow from operations of $214,950 during the year ended June 30, 2006, and had a working capital deficiency of $1,426,592 and a shareholders deficiency of $959,671 at June 30, 2006.  These matters raise substantial doubt about its ability to continue as a going concern.  Managements plans in regard to these matters are also described in Note 1.  The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.







Weinberg & Company, P.A.



Los
Angeles, California

October 5, 2006











24



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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Consolidated Balance Sheets

As of June 30, 2006 and 2005



|                                                                 |   | 2006       |   |   | 2005       |  
|---------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|Assets                                                           |   |            |   |   |            |  
|Current assets                                                   |   |            |   |   |            |  
|Cash and cash equivalents                                        | $ | 49,469     |   | $ | 468        |  
|Accounts receivable                                              |   | 662,132    |   |   | 351,656    |  
|Contract retention receivable                                    |   | 100,988    |   |   | 68,803     |  
|Cost of uncompleted contracts in excess of billings              |   | 6,906      |   |   | 2,202      |  
|Prepaid expenses and deposits                                    |   | 4,964      |   |   | 15,673     |  
|Total current assets                                             |   | 824,459    |   |   | 438,802    |  
|Equipment, net of accumulated depreciation of $ 7,773            |   |            |   |   |            |  
|at June 30, 2006 and $1,492 at June 30, 2005                     |   | 15,610     |   |   | 21,891     |  
|Other                                                            |   |            |   |   |            |  
|Goodwill                                                         |   | 451,311    |   |   | 451,311    |  
|                                                                 | $ | 1,291,380  |   | $ | 912,004    |  
|Liabilities                                                      |   |            |   |   |            |  
|Current liabilities                                              |   |            |   |   |            |  
|Bank overdraft                                                   | $ | 206,091    |   | $ | 110,779    |  
|Accounts payable and accrued liabilities                         |   | 452,122    |   |   | 218,237    |  
|Bonus payable                                                    |   | 251,060    |   |   | 195,580    |  
|Billings on uncompleted contracts                                |   |            |   |   |            |  
|in excess of costs and estimated revenues                        |   | 432,558    |   |   | 255,605    |  
|Deferred revenue                                                 |   | 16,401     |   |   | 9,340      |  
|Shareholder loans                                                |   | 281,061    |   |   | 81,076     |  
|Amounts due to officers and directors                            |   | 401,834    |   |   | 176,077    |  
|Obligations under capital leases                                 |   | -          |   |   | 1,165      |  
|Current portion of related party debt                            |   | 209,924    |   |   | 30,096     |  
|Total current liabilities                                        |   | 2,251,051  |   |   | 1,077,955  |  
|Related party debt, net of current portion                       |   | -          |   |   | 175,005    |  
|Total liabilities                                                |   | 2,251,051  |   |   | 1,252,960  |  
|Commitments and contingencies                                    |   |            |   |   |            |  
|Shareholders Deficiency                                         |   |            |   |   |            |  
|Common stock: $0.001 par value, 500,000,000, shares              |   |            |   |   |            |  
|Authorized, 73,253,016 and 106,219,683 issued and outstanding at |   |            |   |  
|June 30, 2006 and June 30, 2005 respectively                     |   | 73,253     |   |   | 106,220    |  
|Preferred stock, $0.001 par value, 5,000,000 shares              |   |            |   |   |            |  
|Authorized, one (1) share of Class A preferred                   |   |            |   |   |            |  
|issued and outstanding at June 30, 2006 and June 30, 2005        |   | -          |   |   | -          |  
|Additional paid in capital                                       |   | 2,796,561  |   |   | 2,865,261  |  
|Deferred compensation                                            |   | -          |   |   | (180,000   | )
|Accumulated other comprehensive loss                             |   | (65,430    | ) |   | (8,496     | )
|Accumulated deficit                                              |   | (3,764,055 | ) |   | (3,123,941 | )
|                                                                 |   | (959,671   | ) |   | (340,956   | )
|                                                                 | $ | 1,291,380  |   | $ | 912,004    |  



See accompanying notes to the consolidated financial statements.



25



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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Consolidated Statements of Operations and Comprehensive Loss

For the years ended June 30, 2006 and 2005



|                                                          |   | 2006       |   |   | 2005       |  
|--------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|Revenue                                                   |   |            |   |   |            |  
|Contract revenue                                          | $ | 2,122,636  |   | $ | 294,679    |  
|Services revenue                                          |   | 92,398     |   |   | 25,320     |  
|Other revenue                                             |   | 4,455      |   |   | 1,000      |  
|Total revenue                                             |   | 2,219,489  |   |   | 320,999    |  
|                                                          |   |            |   |   |            |  
|Cost of revenue and service delivery                      |   | 1,935,953  |   |   | 261,790    |  
|                                                          |   |            |   |   |            |  
|Gross profit                                              |   | 283,536    |   |   | 59,209     |  
|                                                          |   |            |   |   |            |  
|Selling, general and administrative expenses              |   | 906,553    |   |   | 337,968    |  
|                                                          |   |            |   |   |            |  
|Operating loss                                            |   | (623,017   | ) |   | (278,759   | )
|Other expense                                             |   |            |   |   |            |  
|Interest                                                  |   | (17,097    | ) |   | (7,337     | )
|                                                          |   |            |   |   |            |  
|Net loss                                                  |   | (640,114   | ) |   | (286,096   | )
|                                                          |   |            |   |   |            |  
|Currency translation adjustment                           |   | (56,934    | ) |   | (8,496     | )
|                                                          |   |            |   |   |            |  
|Comprehensive loss                                        | $ | (697,048   | ) | $ | (294,592   | )
|Weighted average number of common shares and equivalents, |   |            |   |   |           
|basic and diluted                                         |   | 85,183,792 |   |   | 45,402,193 |  
|Loss per share, basic and diluted                         | $ | (0.01      | ) | $ | (0.01      | )



See accompanying notes to the consolidated financial statements.





26



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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Consolidated Statements of Changes in Shareholders Deficiency

For the years ended June 30, 2006 and 2005





|                                |             |             |                          |         |         |    |                 |        |              |        |   | Accumulated other |        |        |             |   |   |            |          |        |          |         
|------------------------------- | ----------- | ----------- | ------------------------ | ------- | ------- | -- | --------------- | ------ | ------------ | ------ | - | ----------------- | ------ | ------ | ----------- | - | - | ---------- | -------- | ------ | -------- | --------
|                                |             |             | Common Stock             |         |         |    | Additional      |        | Deferred     |        |   | Comprehensive     |        |        | Accumulated |   |   |            |         
|                                |             |             | Shares           
Amount |         |         |    | Paid in capital |        | Compensation |        |   | loss              |        |        | Deficit     |   |   | Total      |         
|Balance  June 30, 2004         |             | 5,051,683   |                          | $       | 5,052   |    |                 | $      | 2,668,758    |        | $ | -                 |        | $      | -           |   | $ | (2,837,845 | )        | $      | (164,035 | )       
|Issuance of common stock        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|for services                    |             | 18,000,000  |                          |         | 18,000  |    |                 |        | -            |        |   | -                 |        |        | -           |   |   | -          |          |        | 18,000   |         
|Issuance of common stock        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|for debt settlement             |             | 25,000,000  |                          |         | 25,000  |    |                 |        | -            |        |   | -                 |        |        | -           |   |   | -          |          |        | 25,000   |         
|Issuance of common stock        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|for payment of interest         |             | 1,000,000   |                          |         | 1,000   |    |                 |        | -            |        |   | -                 |        |        | -           |   |   | -          |          |        | 1,000    |         
|Issuance of common stock        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|for forbearance agreement       | 1,000,000   |             |                          | 1,000   |         |    |                 | -      |              |        | - |                   |        | -      |             |   | - |            |          | 1,000  |         
|Issuance of common stock        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|for directors and officers      |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|compensation                    |             | 32,000,000  |                          |         | 32,000  |    |                 |        | -            |        |   | -                 |        |        | -           |   |   | -          |          |        | 32,000   |         
|Issuance of common stock        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|for consulting fees             |             | 24,167,000  |                          |         | 24,167  |    |                 |        | 1,503        |        |   | -                 |        |        | -           |   |   | -          |          |        | 25,670   |         
|Issuance of common stock        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|for acquisition of subsidiary   |             | 1,000       |                          |         | 1       |    |                 |        | -            |        |   | -                 |        |        | -           |   |   | -          |          |        | 1        |         
|Issuance of stock options       |             | -           |                          |         | -       |    |                 |        | 195,000      |        |   | (195,000          | )      |        | -           |   |   | -          |          |        | -        |         
|Amortization of deferred        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|compensation                    |             |             | -                        |         |         | -  |                 |        |              | -      |   |                   | 15,000 |        |             | - |   |            | -        |        |          | 15,000  
|Net loss                        |             |             | -                        |         |         | -  |                 |        |              | -      |   |                   | -      |        |             | - |   |            | (286,096 | )      |          | (286,096
|Currency translation adjustment | -           |             |                          | -       |         |    |                 | -      |              |        | - |                   |        | (8,496 | )           |   | - |            |          | (8,496 | )       
|Balance  June 30, 2005         |             | 106,219,683 |                          |         | 106,220 |    |                 |        | 2,865,261    |        |   | (180,000          | )      |        | (8,496      | ) |   | (3,123,941 | )        |        | (340,956 | )       
|Issuance of common stock        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|for settlement of accrued       |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|liability                       |             |             | 33,333                   |         |         | 33 |                 |        |              | 13,300 |   |                   | -      |        |             | - |   |            | -        |        |          | 13,333  
|Reversal of previously recorded |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|deferred compensation in        |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|accordance with FAS 123R        |             | -           |                          |         | -       |    |                 |        | (180,000     | )      |   | 180,000           |        |        | -           |   |   | -          |          |        | -        |         
|Fair value of options           |             |             |                          |         |         |    |                 |        |              |        |   |                   |        |        |             |   |   |            |          |        |          |         
|issued to employees             |             |             | -                        |         |         | -  |                 |        |              | 65,000 |   |                   | -      |        |             | - |   |            | -        |        |          | 65,000  
|Share cancellation              | (33,000,000 | )           |                          | (33,000 | )       |    |                 | 33,000 |              |        | - |                   |        | -      |             |   | - |            |          | -      |         
|Net loss                        |             |             | -                        |         |         | -  |                 |        |              | -      |   |                   | -      |        |             | - |   |            | (640,114 | )      |          | (640,114
|Currency translation adjustment |             | -           |                          |         | -       |    |                 |        | -            |        |   | -                 |        |        | (56,934     | ) |   | -          |          |        | (56,934  | )       
|Balance  June 30, 2006         |             | 73,253,016  | $                        |         | 73,253  |    | $               |        | 2,796,561    |        | $ | -                 |        | $      | (65,430     | ) | $ | (3,764,055 | ) $      |        | (959,671 | )       





See accompanying notes to the consolidated financial statements.



27



---





Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Consolidated Statements of Cash Flows

For the Years Ended June 30, 2006 and 2005



|                                                                                                                |         | 2006     |   |         | 2005     |  
|--------------------------------------------------------------------------------------------------------------- | ------- | -------- | - | ------- | -------- | -
|Cash flows from operating activities                                                                            |         |          |   |         |          |  
|Net loss from operations                                                                                        | $       | (640,114 | ) | $       | (286,096 | )
|Adjustments to reconcile net loss to net cash provided                                                          |         |          |   |         |         
|by operations                                                                                                   |         |          |   |         |          |  
|Depreciation and amortization                                                                                   |         | 8.089    |   |         | 1,492    |  
|Fair value of options issued for services                                                                       | 65,000  |          |   | 15,000  |         
|Issuance of common shares for services                                                                          | -       |          |   | 43,670  |         
|Issuance of common shares for compensation                                                                      | -       |          |   | 32,000  |         
|Issuance of common shares for payment of interest                                                               | -       |          |   | 1,000   |         
|Issuance of common shares for forbearance agreement                                                             | -       |          |   | 1,000   |         
|Changes in operating assets and liabilities                                                                     |         |          |   |         |         
|Accounts receivable                                                                                             |         | (276,009 | ) |         | (162,118 | )
|Contract retention receivable                                                                                   |         | (25,442  | ) |         | (9,992   | )
|Costs of uncompleted contracts in excess of billings                                                            | (4,488  | )        |   | 5,070   |         
|Prepaid expenses and deposits                                                                                   |         | 10,836   |   |         | (13,714  | )
|Accounts payable and accrued liabilities                                                                        | 187,535 |          |   | 108,144 |         
|Amounts due to officers and directors                                                                           | 225,756 |          |   | 25,045  |         
|Bonus payable                                                                                                   |         | 75,840   |   |         | (8,160   | )
|Billings on uncompleted contracts in excess of costs and estimated revenues                                     | 151,901 |          |   | 188,430 |         
|Deferred revenue                                                                                                |         | 6,146    |   |         | 733      |  
|Net cash used in operating activities                                                                           |         | (214,950 | ) |         | (58,496  | )
|Cash flows from financing activities                                                                            |         |          |   |         |          |  
|Increase in bank overdraft, net                                                                                 |         | 84,454   |   |         | 16,006   |  
|Net proceeds from shareholders loan                                                                             |         | 199,985  |   |         | 46,131   |  
|Repayment of related party loan                                                                                 |         | (18,089  | ) |         | (4,034   | )
|Net cash provided by financing activities                                                                       |         | 266,350  |   |         | 58,103   |  
|Effects of exchange rates on cash                                                                               |         | (2,399   | ) |         | (1,165   | )
|Net increase (decrease) in cash and cash equivalents                                                            | 49,001  |          |   | (1,558  | )       
|Cash and cash equivalents, beginning of year                                                                    |         | 468      |   |         | 2,026    |  
|Cash and cash equivalents, end of year                                                                          | $       | 49,469   |   | $       | 468      |  
|Supplemental cash flow information                                                                              |         |          |   |         |          |  
|Interest paid                                                                                                   | $       | 17,097   |   | $       | -        |  
|Taxes paid                                                                                                      | $       | -        |   | $       | -        |  
|Non-cash investing and financing activities                                                                     |         |          |   |         |         
|During the year ended June 30, 2006, the Company issued 33,333 restricted shares of its common stock in full    |         |         
|settlement of a $13,333 amount owed to a shareholder.                                                           |         |          |   |         |          |  
|During the year ended June 30, 2006, the Company cancelled 33,000,000 shares of common stock that were returned |        
|by the holders. The shares were returned without cost to the Company.                                           |         |          |   |         |         
|On April 15, 2005, the Company acquired Smart-tek Communications Inc.                                           |         |          |   |         |         
|for non-cash consideration of 1,000 shares of common stock and 1 share                                          |         |          |   |         |         
|of Series A preferred stock                                                                                     | $       | -        |   | $       | 1        |  





See accompanying notes to the consolidated financial statements



28





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006





1.

Summary of significant accounting policies



Nature of operations, basis of financial statement presentation



In August 2005, the Company changed its name from Royce Biomedical Inc. to Smart-tek Solutions Inc. (STS or the "Company") to better reflect its new business activities.

STS was incorporated in Nevada on March 22, l995.

Between August 1995 and June 1998, the Company manufactured and sold diagnostic test kits used to detect pregnancy, thyroid disorders and other medical conditions. The Company assembled its diagnostic testing kits at its laboratory in Irvine, California. The Company closed this facility in April 1998. In order to penetrate the Chinese immunodiagnostic market quickly, the Company signed an agreement in April 1999 with Xili Pharmaceutical Group, Inc. ("Xili") of the People's Republic of China to market and distribute H. Pylori diagnostic test kits supplied by the Company. In addition to supplying H. Pylori test kits to Xili, the Company had provided clinical data and training to Xili personnel.

Xili Pharmaceutical Group, Inc., through its subsidiary Xili USA, Inc., owned approximately 44% of the outstanding common shares of the Company through December 5, 2004 and is controlled by Dr. Yan Xiao Wen, who is also the former Chairman of the Company's Board of Directors. At June 30, 2005, Xili USA, Inc. owns approximately 2.1% of the outstanding common shares of the Company.

In March 2005, the Company entered into a Letter of Intent to acquire Smart-tek Communications, Inc. (SCI), a British Columbia based security design and installation contractor.  Pursuant to a Share Exchange Agreement executed in April 2005, SCI became a wholly-owned subsidiary of the Company.  As a result of this acquisition, the Company has ceased all ongoing business relationships with Xili and will direct its efforts to effectively operate and expand in the security sector.



Pursuant to the share exchange agreement, the Company issued 1,000 shares of its common stock and 1 share of Class A preferred stock in return for all outstanding shares of SCI.  The acquisition has been accounted for as a purchase (see Note 2).



Smart-tek Communications Inc. was incorporated on October 29, 1996 in the Province of British Columbia, Canada.  The Company specializes in the design, sale, installation and service of security technology with electronic hardware and software products.  Projects range from residential and commercial developments to system upgrades and monitoring contracts.  Customers include major developers, general and electrical contractors, hospitals, Crown Corporations, law enforcement agencies and retail facilities.  Currently, 100% of the Companys operations are in Canada.



The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include the following significant accounting policies:



Principles of consolidation



The consolidated financial statements include the accounts of Smart-tek Solutions Inc. and its wholly-owned subsidiary, Smart-tek Communications Inc.. 
Inter-company transactions have been eliminated in consolidation.





29





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006





Accounts Receivable



The Company reports accounts receivable at net realizable value.  The Companys terms of sale provide the basis for when accounts become delinquent or past due.  The Company provides an allowance for doubtful accounts, when necessary, equal to the estimated uncollectible amounts. There is no allowance for doubtful accounts as of June 30, 2006 and 2005.



Equipment



Equipment, including computer equipment under capital lease agreements, is recorded at cost and depreciated using accelerated methods over the estimated useful lives of the related assets ranging from 3 to 5 years.  The Company reviews the carrying value of long-term assets to be held and used when events and circumstances warrant such a review.  If the carrying value of a long-lived asset is considered impaired, a loss is recognized based on the amount by which the carrying value exceeds the fair market value.  Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved.  The cost of normal maintenance and repairs is charged to operations as incurred.  Major overhaul that extends the useful life of existing assets is capitalized.  When equipment is retired or disposed, the costs and related accumulated depreciation are eliminated and the resulting profit or loss is recognized in income.



Financial Instruments



The Companys financial instruments consist of cash and cash equivalents, accounts receivables, contract retention receivable, bank overdraft, accounts payable and accrued liabilities, amounts due to officers and directors, shareholder loans and related party loans. The fair value of these financial instruments approximate their carrying value due to the short maturities of these instruments, unless otherwise noted.



Interest rate risk arises on the various rates at which the Company has obtained certain long-term debt and related party loans.  However, the Company expects to repay these obligations in full either at maturity or at terms set out in the specific agreements. Consequently, risk related to fluctuations on the bank prime is minimal.  The remaining balance of long-term debt, obligations under capital lease and amount due to related parties are based on fixed terms of interest.  The Company expects to repay these amounts in full, thereby minimizing interest rate risk.



Cash and equivalents



Cash and equivalents include investments with initial maturities of three months or less.



Income taxes



In accordance with SFAS No. 109, Accounting for Income Taxes, the Company uses the asset and liability method to account for income taxes, including recognition of deferred tax assets for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases.  The Company reviews its deferred tax asset for recovery and a valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax asset will not be realized.  Changes in valuation allowances from period to period are included in the Companys tax provision in the period of change.





30





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006





Goodwill and intangible assets



The Company accounts for goodwill and intangible assets pursuant to SFAS No. 142 ,Goodwill and Other Intangible Assets.  Under SFAS 142, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms.  Goodwill and intangibles with indefinite lives are evaluated at least annually for impairment by comparing the assets estimated fair values with its carrying value, based on cash flow methodology.



Use of estimates



The preparation of these financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures.  Specific areas, among others, requiring the application of managements estimates and judgement includes assumptions pertaining to credit worthiness of customers, percentage of completion and related costs for contracts in progress, interest rates, useful lives of assets, future cost trends, tax strategies, and other external market and economic conditions.  Actual results could differ from estimates and assumptions made.



Revenue recognition



The Company accounts for its construction projects using the percentage of completion method, measured using the cost-to-cost method.  This method of accounting requires a calculation of job profit to be recognized in each reporting period for each contract based upon estimates of future outcomes, which include:



·

Estimates of total cost to complete the contract;

·

Estimates of contract schedule and completion date;

·

Estimates of the percentage the contract is complete; and

·

Amounts of any probable unapproved claims and change orders included in revenue



At the outset of each contract a detailed analysis of estimated cost to complete the contract is prepared.  Periodically evaluation of the estimated cost, claims, change orders and percentage of completion at the project level will be performed.  The recording of profits and losses on long-term contracts requires an estimate of the total profit and loss over the life of each contract.  This estimate requires consideration of contract revenue, change orders and claims, less cost incurred and estimated costs to complete.  Anticipated losses on contracts are recorded in full in the period in which they become evident.  Profits are recorded based upon the total estimated contract profit times the current percentage complete for the contract.



When calculating the amount of total profit or loss on a long-term contract, unapproved claims are recorded as revenue when collection is deemed probable based upon the four criteria for recognizing unapproved claims under the American Institute of Certified Public Accountants Statement of Position 81-1 (SOP 81-1), Accounting for Performance of Construction Type and Certain Production Type Contracts.  Including probable unapproved claims in this calculation increases operating income (or reduces the operating loss) that would otherwise be recorded without consideration of the probable unapproved claims.  Probable unapproved claims are recorded to the extent of costs incurred and include no profit element.  In all cases, the probable





31





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006





unapproved claims included in determining contract profit or loss are less than the actual claim that will be or has been presented to the customer.  The Company is actively engaged in claims negotiations with customers and the success of the claims negotiations have a direct impact on the profit or loss recorded for any long-term contract.  Unsuccessful claims negotiations could result in decreases in estimated contract profits or additional contact losses, and successful claims negotiations could result in increases in estimated contract profits or recovery of previously recorded contract losses.



On a quarterly basis, significant contracts are reviewed.  However, there are many factors that impact future costs, including but not limited to weather, inflation, labor and community disruptions, timely availability of materials, productivity and other factors.  These factors can affect the accuracy of our estimates and materially impact our future earnings.



The Company also provides various other services to customers not covered under construction contracts such as equipment repairs.  The revenue from the provision of these types of services is recorded once the specific job is complete.



Concentration of credit risk



Credit risk arises from the potential that a counterpart will fail to perform its obligations.  The Company is exposed to credit risk related to its accounts receivable and contract retention receivable.  The Companys receivables are comprised of a number of debtors which minimizes the concentration of credit risk.  It is managements opinion that the Company is not exposed to significant credit risk associated with its accounts receivable and contract retention receivable.



Foreign currency translation



The functional currency of the Company is the United States dollar.  The Companys Canadian subsidiarys financial statements are translated into United States dollars at the exchange rates in effect at the balance sheet date for assets and liabilities and at average rates for the period for revenues and expenses.  Resulting exchange differences are accumulated as a component of accumulated other comprehensive loss.



Comprehensive (loss) income



Comprehensive income or loss encompasses net income or loss and other comprehensive income or loss, which includes all other non-owner transactions and events that change shareholders deficiency.  The Companys other comprehensive loss reflects the effect of foreign currency translation adjustments on the translation of the financial statements from the functional currency of Canadian dollars into the reporting currency of U.S. dollars.







32





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006



Stock-based compensation



Through December 31, 2005, the Company accounted for stock-based employee compensation in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25 and FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation", and complied with the disclosure requirements of SFAS No. 123 (as modified by SFAS No. 48), "Accounting for Stock-Based Compensation". Under APB No. 25, compensation expense was recorded based on the difference, if any, between the fair value of the Company's stock and the exercise price on the measurement date. The Company accounted for stock issued to non-employees in accordance with SFAS No. 123, which required entities to recognize as expense over the service period the fair value of all stock-based awards on the date of grant and EITF No. 96-18, "Accounting for Equity Investments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services", which addressed the measurement date and recognition approach for such transactions.



On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), a revision to SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123R superseded APB Opinion No.
25, "Accounting for Stock Issued to Employees", and amended SFAS No. 95, "Statement of Cash Flows". SFAS No. 123R requires that the Company measure the cost of employee services received in exchange for equity awards based on the grant date fair value of the awards. The cost will be recognized as compensation expense over the vesting period of the awards.



Under this method, the Company began recognizing compensation cost for equity-based compensation for all new or modified grants after the date of adoption. The pro forma disclosures previously permitted under SFAS No. 123 are no longer an alternative to financial statement recognition.



In addition, the Company now recognizes the unvested portion of the grant date fair value of awards issued prior to adoption based on the fair values previously calculated for disclosure purposes over the remaining vesting period of the outstanding options and warrants. 
Accordingly, the Company recognizes compensation cost for equity-based compensation for all new or modified grants issued after December 31, 2005.



The Company had two partially vested stock options outstanding at December 31, 2005 pursuant to employment agreements entered into between the Company's and its president and vice-president. Under these agreements, the Company issued options to purchase up to 650,000 shares of its common stock at a purchase price of $0.15 per share that vest in equal quarterly installments over a three (3) year period.  The Company calculated the fair value of the options to be $195,000 using an option pricing model, of which $65,000 was recognized as expense during the year ended June 30, 2006.



In addition, commencing January 1, 2006, the Company is required to recognize the unvested portion of the grant date fair value of awards issued prior to the adoption of SFAS No. 123R based on the fair values previously calculated for disclosure purposes over the remaining vesting period of the outstanding stock options and warrants. At June 30, 2006, the value of the unvested options was $115,000 which will be amortized in future periods as the options vest.











33





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006





Recovery of long-lived assets



The Company adopted SFAS Statement 144, "Accounting for the Impairment and Disposal of Long-Lived Assets" ("SFAS 144").  SFAS 144 requires recognition of impairment losses on long- lived assets when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less then the assets' carrying amounts.



Loss per share



The Company computes net earnings (loss) per common share in accordance with SFAS No. 128 Earnings Per Share (SFAS 128) and SAB No. 98 (SAB 98).  Under the provisions of SFAS 128 and SAB 98, basic net earnings (loss) per common share is computed by dividing the net earnings (loss) available to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period.  Net earnings (loss) per share on a diluted basis is computed by dividing the net earnings (loss) for the period by the weighted average number of common and dilutive common stock equivalent shares outstanding during the period.



Recent accounting pronouncements



In June 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position FSP FAS No. 143-1, Accounting for Electronic Equipment Waste Obligations, to address the accounting for obligations associated with the Directive on Waste Electrical and Electronic Equipment (the Directive) issued by the European Union (EU). The Directive was enacted on February 13, 2003, and directs EU-member countries to adopt legislation to regulate the collection, treatment, recovery, and environmentally sound disposal of electrical and electronic waste equipment. The Directive concludes that commercial users are obligated to retire, in an environmentally sound manner, specific assets that qualify as historical waste. FSP FAS No. 143-1 is effective for reporting periods ending after June 8, 2005, which is June 30, 2005 for us, or the date of adoption of the Directive by the applicable EU-member countries, if later. As we do not currently have any EU operations, the adoption of  FSP
FAS No. 143-1 does not have any impact on our financial statements at June 30, 2006.



In May 2005, the FASB issued SFAS No. 154 that establishes new standards on accounting for changes in accounting principles.  Pursuant to the new rules, all such changes must be accounted for by retrospective application to the financial statements of prior periods unless it is impracticable to do so.  SFAS No. 154 completely replaces Accounting Principles Bulletin (APB) Opinion 20 and SFAS 3, though it carries forward the guidance in those pronouncements with respect to accounting for changes in estimates, changes in the reporting entity, and the correction of errors.  This statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.



In March 2005, the FASB issued FASB Interpretation (FIN) 47, Accounting for Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143, Accounting for Asset Retirement Obligations. FIN 47 clarifies that the term conditional asset retirement obligation, as used in SFAS No. 143, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and/or method of settlement. FIN 47 requires an entity to recognize a liability for the fair value of the conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005, which is June 30, 2006 for us;





34





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006





however, earlier application is permitted. We are currently evaluating the impact of FIN 47 on our results of operations, financial position and cash flows.



In March 2005, the SEC published Staff Accounting Bulletin No. 107 (SAB 107) which provides the Staffs views on a variety of matters relating to stock-based payments.  SAB107 requires stock-based compensation be classified in the same expense lines as cash compensation is reported for the same employees.  Accordingly, the financials statements of the Company were prepared in conformity with this presentation requirement.



Going Concern



The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  The Company incurred a net loss of $640,114 and a negative cash flow from operations of $214,950 during the year ended June 30, 2006, and had a working capital deficiency of $1,426,592 and a shareholders deficiency of $959,671 at June 30, 2006.  These matters raise substantial doubt about its ability to continue as a going concern.  Management believes that actions are presently being taken to revise the Companys operating results.  Management believes that the Company will have adequate cash to fund anticipated needs through June 30, 2007 and beyond primarily as a result of our contract backlog at June 30, 2006 of $5,908,333.The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.



The Company does not have any significant available credit, bank financing or other external sources of liquidity. Due to historical operating losses, the Companys operations have not been a source of liquidity and the Company had satisfied its cash requirements through shareholder loans and deferral of salary payments to its officers.  In order to obtain necessary capital, the Company may need to sell additional shares of its common stock or borrow funds from private lenders.  There is no assurance that the Company will be able to secure additional financing or that it can be secured at rates acceptable to the Company.  In addition, should the Company be required to either issue stock for services or to secure equity funding, due to the lack of liquidity in the market for the Companys stock such financing would result in significant dilution to its existing shareholders.





2.

Acquisitions



On April 15, 2005, the Company entered into a Share Exchange Agreement with Smart-tek Communications, Inc. (SCI) and with the sole shareholder of SCI to acquire all of the outstanding shares of SCI.



In exchange for the SCI shares, the Company issued to SCIs shareholder, 1,000 common shares and 1 Class A preferred share of the Company.  The preferred share will enable the holder to exercise the voting control of 40% of the Company upon issuance.  The remaining 60% voting control is to be assigned to the outstanding common shares of the Company.  Such preferred shares shall not be convertible, exchangeable, transferable or otherwise purchased, conveyed or redeemed at any time while outstanding during a two-year period.  In addition, the voting power of such preferred share shall decrease over such two-year period so as to have 20% voting control 12 months after issuance, 10% voting control 18 months after issuance and zero voting control 24 months after issuance a which time the preferred shares will be redeemed by the Company for no consideration.





35





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006



The acquisition was accounted for as a purchase and the results of SCIs operations beginning April 16, 2005 are included in the accompanying consolidated statement of
operations.  The acquisition of SCIs assets and liabilities has been recorded at their fair market value at the date of purchase.  The Company determined that the historical cost of the assets and liabilities acquired approximated their fair market values given the nature of the assets and liabilities acquired.  Purchase price allocation was as follows:

Valuation of shares of common stock and preferred stock
	
	
	
	$
	1Assets acquired
	276,012Liabilities assumed
	(727,324
	)

	

	

	451,312Goodwill
	
	

	

	$
	451,311




The following is the proforma unaudited operating results of the Company for the year ended June 30, 2005 had the acquisition occurred as of July 1, 2004:



Revenue
	$
	1,630,293Cost of sales

	

	1,250,787Gross margin
	
	379,506Selling, general & administrative expenses

	

	765,955Operating loss
	
	(386,449
	)Other expenseInterest

	

	(28,341
	)Net loss
	$
	( 414,790
	)






3.

Contract Retention Receivable



Under the Builders Lien Act (British Columbia), for each contract or subcontract a holdback amount is retained by the customer equal to 10% of the greater of:

(a)

the value of the work or materials as they are actually provided under the contract or subcontract, and

(b)

the amount of any payment made on account of the contract or subcontract price.



On the request of a contractor or subcontractor, the payment certifier must, within 10 days after the date of the request, determine whether the contract or subcontract has been completed and, if the payment certifier determines that it has been completed, the payment certifier must issue a certificate of completion.



If a certificate of completion is issued with respect to a contract or subcontract, the holdback period expires at the end of 55 days after the certificate of completion is issued.



As of June 30, 2006 and 2005, contract retention receivables were $100,988 and $68,803 respectively.







36





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006



4.

Equipment



|                               |       |        |       |              |       | 2006       |  |       |        |     |              |       | 2005      
|------------------------------ | ----- | ------ | ----- | ------------ | ----- | ---------- |  | ----- | ------ | --- | ------------ | ----- | ----------
|                               |       |        |       | Accumulated  |       | Net        |  |       |        |     | Accumulated  |       | Net       
|                               |       | Cost   |       | Depreciation |       | Book Value |  |       | Cost   |     | Depreciation |       | Book Value
|Computer equipment and         |       |        |       |              |       |            |  |       |        |     |              |       |           
|software                       | $     | 899    | $     | 298          | $     | 601        |  | $     | 899    | $   | 55           | $     | 844       
|Office furniture and equipment | 4,727 |        | 1,136 |              | 3,591 |            |  | 4,727 |        | 233 |              | 4,494
|Leasehold improvements         |       | 15,617 |       | 5,660        |       | 9,957      |  |       | 15,617 |     | 1,111        |       | 14,506    
|Computer equipment under       |       |        |       |              |       |            |  |       |        |     |              |       |           
|capital lease                  |       | 2,140  |       | 679          |       | 1,461      |  |       | 2,140  |     | 93           |       | 2,047     
|                               | $     | 23,383 | $     | 7,773        | $     | 15,610     |  | $     | 23,383 | $   | 1,492        | $     | 21,891    



5.

Bank Overdraft



At June 30, 2006, bank overdrafts were
$206,091 of which $111,987 covered by a revolving line of credit.  The revolving line of credit agreement is between SCI, the Companys wholly owned subsidiary, and HSBC Bank Canada.  The revolving line of credit facility bears interest at the rate of prime plus
4.50% per annum, allows authorized bank overdrafts of up to $111,987 ($125,000 CDN) and is secured by a shareholder guarantee and $42,808 ($50,000 CDN) in the form of a term deposit.  As of June 30, 2006, the Company had written checks in excess of the operating line of credit in the amount of $94,104.



6.

Related Party Debt



Related party consists of the
following at June 30,



|                                                      |   | 2006    |   | 2005   
|----------------------------------------------------- | - | ------- | - | -------
|Unsecured loan from related party, (father of Company |   |        
|President) Non-interest bearing, with no fixed        |   |         |   |        
|repayment terms.                                      | $ | 181,689 | $ | 175,005
|Various related party loans, unsecured, non-interest  |   |         |   |        
|Bearing advances with no fixed terms of repayment,    |   |         |   |        
|due on demand.                                        |   | 28,235  |   | 30,096 
|                                                      |   | 209,924 |   | 205,101
|less current portion                                  |   | -       |   | 30,096 
|                                                      | $ | 209,924 | $ | 175,005



7.

Shareholder loans



Commencing in the second quarter of 2003, the Company borrowed funds from Xili USA, a shareholder, on an unsecured basis.  The loans are non-interest bearing and are payable on demand.  The total due Xili USA under these borrowings aggregated $81,076 as at June 30, 2006 and June 30, 2005 respectively.



In December 2005, the company borrowed $49,985 from a shareholder on an unsecured basis.  The loan is non-interest bearing and payable on demand.  In January 2006, the Company







37





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006



borrowed $150,000 from the same shareholder, also on an unsecured basis as well as non-interest bearing with no fixed repayment terms.



At June 30, 2006, the above shareholder loans aggregated to $281,061.



8.

Income Taxes



As of June 30, 2006 for Federal income tax purposes, the Company has approximately $3,451,107 in net operating loss carryforwards expiring through 2020. The Company has provided a 100% valuation allowance as it cannot determine that it is more likely than not that it will realize the deferred tax assets.



At June 30, 2006, STS had available federal net operating loss (NOL) carry-forwards of approximately $3,451,107. Under Section 382 of the Internal Revenue Code of 1986, as amended, the use of prior losses, including NOLs, is limited if a corporation undergoes an ownership change. Future issuances of equity interests by us for acquisitions or the exercise of outstanding options to purchase our capital stock, may result in an ownership change that is large enough for this limitation to apply. If the limitation applies, we may be unable to use a material portion of its available NOL carry-forwards to reduce future taxable income.

The income tax effect of temporary differences between financial and tax reporting gives rise to the deferred tax asset at June 30, 2006 and June 30, 2005 as follows:



|                                                      |  |    | June 30   |    |  |    | June 30   |        
|----------------------------------------------------- |  | -- | --------- | -- |  | -- | --------- | -------
|                                                      |  |    | 2006      |    |  |    |           | 2005   
|Deferred tax asset, beginning                         |  | $  | 1,038,000 |    |  | $  |           | 978,000
|Benefit of current years operating loss carryforward |  |    | 167,369   |    |  |    |           | 60,000 
|Deferred tax asset, ending                            |  | $  | 1,205,369 |    |  | $  | 1,038,000 |        
|Valuation allowance, beginning                        |  | ($ | 1,038,000 | )  |  | ($ | 978,000   | )      
|Current years provision                              |  |    | (167,369  | )  |  |    | ( 60,000  | )      
|Valuation allowance, ending                           |  | ($ | 1,205,369 | )  |  | ($ | 1,038,000 | )      
|Deferred tax asset, net                               |  | $  | -         |    |  | $  |           | -      
|                                                      |  |    | June 30   |    |  |    |           | June 30
|                                                      |  |    | 2006      |    |  |    |           | 2005   
|Tax at blended U.S. / Canadian statutory rates        |  |    | (35       | %) |  |    |           | (35    
|Loss carryover                                        |  |    | 35        | %  |  |    |           | 35     
|Tax expense                                           |  |    | -         |    |  |    |           | -      



38





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006





9.

Common Stock

At June 30, 2006, the Company is authorized to issue:



1)

5,000,000 shares of preferred stock, par value $0.001 per share

2)

500,000,000 shares of common stock, par value $0.001 per share



At June 30, 2006, there are 73,253,016 shares of Common Stock outstanding.



Stock Issuance



On August 12, 2005, the Company accepted a settlement agreement with  Mr. Richard Short (Short), a former Shareholder, whereby the Company would issue to Short 33,333 shares of the Companys common stock in lieu of a cash payment to Short of CDN $16,000(USD$13,333)

for the 8,000 shares rescinded by Short in 1997. This settlement was inclusive of Short and the Company and did not include any of the former officers, directors or employees of the Company, as individuals.  On August 16, 2005 the Company issued Short 33,333 shares of its common stock, in full settlement of the CDN$16,000 (USD$13,333) owed Short as a former Shareholder.  These securities were issued pursuant to an exemption from registration provided under Section 4(2) and 4(6) of the Securities Act of 1933. The parties to whom the shares were issued received information concerning the Company. The shares were appropriately restricted. No underwriters were involved in the transactions and no commissions were paid.



Stock Cancellation



On November 10, 2005, the Company received notification from its former Chief Financial Officer that he was rescinding receipt of ten million (10,000,000) shares issued to him in February 2005 previously valued at $10,000.  The Company has accepted the rescinding of shares and has subsequently cancelled the shares.



On November 10, 2005, the Company received notification from Palm Coast Funding, LLP, that they were cancelling the professional services contract that they have with the Company and rescinding receipt of twenty-three million (23,000,000) shares issued to them in February 2005 previously valued at $23,000.  The Company has accepted the rescinding of shares and has subsequently cancelled the shares.



In connection with the rescinded agreements discussed above, the Company reversed the previously recorded value of the shares issued of $33,000.



Preferred Stock



Pursuant to the share exchange agreement date April 15, 2005, the Company agreed to issue one share of Class A preferred stock to the sole shareholder of SCI, Perry Law.  The preferred share will enable the holder to exercise the voting control of 40% of the Company upon issuance.  The remaining 60% voting control is to be assigned to the outstanding common shares of the Company.  Such preferred shares shall not be convertible, exchangeable, transferable or otherwise purchased, conveyed or redeemed at any time while outstanding during a two-year period.  In addition, the voting power of such preferred share shall decrease over such two-year period so as to have 20% voting control 12 months after issuance, 10% voting control 18 months after issuance and zero voting control 24 months after issuance a which time the preferred shares will be redeemed by the Company for no consideration.



39





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Consolidated Financial Statements

June 30, 2006





2005 Stock Incentive Plan

During fiscal 2005, pursuant to provision under the plans, the Companys Board of Directors cancelled all existing stock option and incentive plans.

The following description applies to the stock incentive plan that was subsequently adopted on May 27, 2005; 1,300,000 options have been granted under this plan as of the date of this filing.

We have reserved for issuance an aggregate of 25,000,000 shares of common stock under the 2005 Stock Incentive Plan. This plan is intended to encourage directors, officers, employees and consultants to acquire ownership of common stock. The opportunity so provided is intended to foster in participants a strong incentive to put forth maximum effort forour continued success and growth, to aid in retaining individuals who put forth such efforts, and to assist in attracting the best available individuals to the Company in the future.

Officers (including officers who are members of the board of directors), directors and other employees and consultants of STS and its subsidiaries will be eligible to receive options under the stock incentive plan. The committee will administer the stock incentive plan and will determine those persons to whom options will be granted, the number of options to be granted, the provisions applicable to each grant and the time periods during which the options may be exercised. No options may be granted more than ten years after the date of the adoption of the stock incentive plan.

Non-qualified stock options will be granted by the committee with an option price equal to the fair market value of the shares of common stock to which the non-qualified stock option relates on the date of grant. The committee may, in its discretion, determine to price the non-qualified option at a different price. In no event may the option price with respect to an incentive stock option granted under the stock option plan be less than the fair market value of such common stock to which the incentive stock option relates on the date the incentive stock option is granted.

Each option granted under the stock incentive plan will be exercisable for a term of not more than ten years after the date of grant. Certain other restrictions will apply in connection with this plan when some awards may be exercised. In the event of a change of control (as defined in the stock incentive plan), the date on which all options outstanding under the stock incentive plan may first be exercised will be accelerated. Generally, all options terminate 90 days after a change of control.



40





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Financial Statements

June 30, 2006



At June 30, 2006, options outstanding are as follows:

|                         |           |   | Average       
|------------------------ | --------- | - | --------------
|                         | Shares    |   | Exercise Price
|Balance at July 1, 2004  | -         |   | -             
|Granted                  | 1,300,000 | $ | 0.15          
|Exercised                | -         |   | -             
|Cancelled                | -         |   | -             
|Balance at June 30, 2005 | 1,300,000 | $ | 0.15          
|Granted                  | -         |   | -             
|Exercised                | -         |   | -             
|Cancelled                | -         |   | -             
|Balance at June 30, 2006 | 1,300,000 | $ | 0.15          



Additional information regarding options outstanding as of June 30, 2006 is as follows:



|  |          |             | Options outstanding | Options exercisable
|- | -------- | ----------- | ------------------- | -------------------
|  | Exercise | Number      | Weighted average    | Weighted           
|  | price    | outstanding | remaining           | average            
|  |          |             | contractual life    | exercise           
|  |          |             | (years)             | price              
|$ | 0.15     | 1,300,000   | 8.75                | $0.15              





10.

Costs and Estimated Earnings on Uncompleted Contracts



|                                        |   | 2006     |   |   | 2005     |  
|--------------------------------------- | - | -------- | - | - | -------- | -
|Costs incurred on uncompleted contracts | $ | 282,628  |   | $ | 235,933  |  
|Estimated earnings                      |   | 128,220  |   |   | 165,461  |  
|                                        |   | 410,848  |   |   | 401,394  |  
|Less: Billings to date                  |   | 836,500  |   |   | 654,797  |  
|                                        | $ | (425,652 | ) | $ | (253,403 | )



Included in accompanying balance sheets under the following captions:



|Costs of uncompleted contracts in excess of billings | $ | 6,906     |   | $ | 2,202    |  
|---------------------------------------------------- | - | --------- | - | - | -------- | -
|Billings on uncompleted contracts in excess of costs |   |           |   |   |          |  
|and estimated revenues                               |   | ( 432,558 | ) |   | (255,605 | )
|                                                     | $ | (425,652  | ) | $ | (253,403 | )



41





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Financial Statements

June 30, 2006



11.

Related Party Transactions



During the years ended June 30, 2006 and 2005, the Company declared bonuses of $143,200 and $200,000, respectively, payable to the Company's President and to the Vice President of its operating subsidiary. Such costs has been reflected in the accompanying statement of operations.  As of June 30, 2006 and 2005, $251,060 and $195,580 were payable to these officers and are reflected as such on the Company's balance sheet.
During the year ended June 30, 2005, the Company issued 650,000 options to purchase shares of its common stock to each of the Company's president and to its Vice-president of its operating subsidiary (1,300,000 options in total). These options were valued at $195,000 using an option pricing model, and are being amortized over their three year vesting period. During the years ended June 30, 2006 and 2005, $65,000 and $15,000 of the amortization of such costs has been reflected in the accompanying statement of operations.
Amounts due to officers and directors were $401,834 and $176,077 as of June 30, 2006 and 2005, respectively.  This amount includes $302,532 and $151,032 in 2006 and 2005, respectively, of accrued salaries owed to the Company's former chief executive and former chief financial officer. In addition, during the years ended June 30, 2006 and 2005, the Company's former Chief Executive Officer paid certain of the Company's expenses. The amount due him as of June 30, 2006 and 2005 was $99,301 and $25,045         of unsecured, short term, non interest bearing advances from relating to the payment of certain Company's expenses
Selling, general and administrative expenses for the years ended June 30, 2006 and 2005 includes management fees of $114,726 and $20,005, respectively, of management fees paid to the president of the Company.



12

Commitments



Operating leases



The Companys wholly-owned subsidiary entered into a non-cancellable operating lease for office space on March 1, 2005.   Furthermore, the Companys wholly-owned subsidiary is committed to operating leases for six company vehicles.  The minimum payments required under these operating leases for each of the five years subsequent to June 30, 2006 are approximately as follows:



Year endingJune 302007
	$
	61,2642008
	
	51,7712009
	
	16,1362010
	
	-2011
	
	-




Employment agreements



The Companys wholly-owned subsidiary entered into new employment agreements in April 2005 for a term from April 23, 2005 to April 23, 2008.  Under the terms of the agreements, the Company is committed to pay each of the president and vice president annual salaries of $120,027 along with annual car allowances of $11,523.





42





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Financial Statements

June 30, 2006







13.

Legal Proceedings



On April 28, 2006, the Company has filed a complaint in the Superior Court for the State of California, against RFID, Ltd., a publicly traded company on the Pink Sheets.  The Complaint alleges causes of action against RFID, Ltd., for 1) Defamation Per Se; 2) Intentional Interference with Contractual Relations; 3) Intentional Interference with Prospective Economic Advantage and 4) Unfair Competition (Violation of the California Business & Professions Code section 17200).  The Complaint alleges that RFID, Ltd., who described itself as a competitor of Smart-tek Solutions, Inc., made a series of false and misleading representations about Smart-tek Solutions, Inc. and its development of its RTAC-PM system.  The Complaint filed by Smart-tek Solutions, Inc. seeks monetary damages in excess of $10 million and equitable relief as a result of RFID, Ltd.s conduct.



On May 9, 2006, the Company filed a Complaint in the District Court of Clark County, Nevada against the owners and operators of Stocklemon.com (Stocklemon).  The Complaint alleges causes of action for (1) Defamation; (2) Intentional Interference with Contractual Relations; (3) Intentional Interference with Prospective Economic Advantage and (4) Violation of State Securities Laws.  The Complaint alleges that Stocklemon made a series of provably false assertions of fact and other misleading statements concerning Smart-tek Solutions, Inc.s financial affairs and business activities.  The Complaint further alleges that Stocklemon intentionally sought to damage Plaintiffs value, contractual relationships and expectancies via the misrepresentations and misleading statements contained in a Stocklemon report issued on or about April 4, 2006.  The Complaint further alleges that Stocklemon utilized the Report and the untrue statements of material fact contained therein to deliberately manipulate the market for personal gain.  The Complaint filed by Smart-tek Solutions, Inc. seeks compensatory and punitive damages in excess of $100 million and equitable relief against Stocklemon.





14.

Concentrations of risk



At June 30, 2006, two significant customers accounted for 52% of trade accounts receivable and each of these customers individually accounted for more than 10% of trade accounts receivable.

In 2006, three significant customers accounted for 35% of revenue and each of these customers individually accounted for more than 10% of revenue.



During 2006 100% of the Companys sales and accounts receivables arose from sales to Canadian customers.



In 2006, three significant suppliers accounted for 70% of purchases.



At June 30, 2005, two significant customers accounted for 42% of trade accounts receivable and each of these customers individually accounted for more than 10% of trade accounts receivable.

In 2005, two significant customers accounted for 33% of revenue and each of these customers individually accounted for more than 10% of revenue.



During 2005, 100% of the Companys sales and accounts receivables arose from sales to Canadian customers.



In 2005, two significant suppliers accounted for 69% of purchases.



43





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Smart-tek Solutions Inc. (formerly Royce Biomedical Inc.)

Notes to Financial Statements

June 30, 2006





15.

Subsequent Events



Effective July 1, 2006, Mr. Conrad Lacker and Mr. Robert Vivacqua resigned their positions as Directors of the Company in order to pursue other personal business ventures.  There were no disagreements between the Company and Messrs. Lacker and Vivacqua.



On September 14, 2006, the Company accepted the resignation of Mr. Donald Gee as President, CEO and Director of the Company.  Mr. Gee also resigned in order to pursue other personal business ventures.  There were no disagreements between Mr. Gee and the Company.

On September 14th, the Company appointed Mr. Perry Law as its new President and CEO effective September 30, 2006.  Previously, Mr. Law served as President and CEO of Smart-tek Communications Inc., the Companys wholly owned subsidiary.







44





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ITEM 8  Changes in and Disagreements with Accountants on Accounting and

Financial Disclosure





The independent registered public accountants for the Registrant is the firm of Weinberg & Company who were engaged on September 8, 2005. Prior to that, the accountants for the Registrant was the firm of DeVisser Gray Chartered Accountants. The decision to change accountants was necessitated by the resignation of DeVisser Gray Chartered Accountants on September 6, 2005 having elected not to provide services to clients with significant operations that are required to report to the Securities Exchange Commission. DeVisser Gray Chartered Accountants had been the Company's independent registered public accountants since the year 2004. The appointment of Weinberg & Company was recommended by the Audit Committee and approved by the Board of Directors.





ITEM 8A - Controls and Procedures



As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures are effective alerting them on a timely basis to material information relating to Smart-tek Solutions, Inc. that is required to be included in our periodic filings under the Exchange Act.



There has been no change in our internal control over financial reporting (as defined in Rules 13a-13(f) and 15d-15(f) under the Exchange Act) that occurred during our fourth fiscal quarter of the fiscal year ended June 30, 2006, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



ITEM 8B  Other Information



On November 10, 2005, the Company received and accepted the resignation of Joseph C. Sienkiewicz as the Companys Chief Financial Officer, Secretary, Treasurer and Director.  As requested by Mr. Sienkiewicz, the Company will proceed with the cancellation of 10,000,000 restricted shares of common stock issued to Mr. Sienkiewicz in February 2005.



On November 10, 2005, the Company received notification from Palm Coast Funding LLP that it was voiding the contract entered into in February 2005.  Consequently, Palm Coast has requested that the 23,000,000 restricted shares issued to Palm Coast Funding LLP be cancelled by the Company.



45





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In April 2006, the Company announced that it had received an purchase order to its RTAC-PM system from its agent in China.  As of September 30, 2006 the Company has not yet received the specifications required to complete the customization of its software.  As result, the Company is unsure the order will materialize as previously expected.  As the purchase order did not meet the Companys revenue recognition policy, no revenue has been recorded based on this purchase order.



On September 14th, 2006, the Company and its board of directors received and accepted the resignation of Donald Gee effective September 30, 2006, as the Companys President, CEO and Director.  Mr. Gee has resigned in order to pursue other business ventures.  There were no disagreements between the Company and Mr. Gee.  The Company and its board have appointed Mr. Perry Law as its new President and CEO.



ITEM 9  Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act



Organization of the Board of Directors



As of September 30, 2006, our directors were as follows:



PERRY LAW is the founder of Smart-tek Communications Inc. and has been its CEO since 1997.  Mr. Law has over fifteen years experience in the security/surveillance systems industry and has played a central role in introducing and implementing technological changes in the local/regional security industry.  Mr. Law has held numerous executive management positions in both private and public companies and is very active in charitable causes.



DENIS GALLANT was elected to our Board of Directors on December 5, 2004.  Mr. Gallant currently serves as Chairman of our Audit Committee and is member of the Boards Compensation Committee.  Mr. Gallant previously served as Chief Financial Officer of InteliSys Aviation Systems of America Inc., a public company specializing in aviation industry software development.  Mr. Gallant comes with over 10 years of experience in the finance and accounting field.  Denis has gained many years of valuable experience holding various senior positions in finance within companies reporting to the Securities and Exchange Commission of the United States such as InteliSys. Mr. Gallant speaks two languages and holds a Bachelor of Business Administration degree with a Major in Accounting.





Audit Committee



The Company does not currently have separately designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act by the Board of Directors for the purpose of overseeing our accounting and financial reporting processes and our audits and financial statements.







46





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Executive Officers



As of September 30, 2006, the following persons were our executive officers:



Perry Law

44

President, CEO and Director

Denis
 Gallant

33

Chief Financial Officer and Director



Information concerning Messrs. Law and Gallant is provided under the section captiond Organization of the Board of Directors.







Section 16(a) Beneficial Ownership Reporting Compliance



Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors and 10% shareholders to file reports regarding initial ownership and changes in ownership with the Securities and Exchange Commission. Executive officers, directors, and 10% shareholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Our information regarding compliance with Section 16 is based solely on a review of the copies of such reports furnished to us by our executive officers, directors and 10% shareholders. These forms include (i) Form 3, which is the Initial Statement of Beneficial Ownership of Securities, (ii) Form 4, which is a Statement of Changes in Beneficial Ownership, and (iii) Form 5, which is an Annual Statement of Changes in Beneficial Ownership.



Based solely upon our review of Forms 3, 4 and 5, we are not aware of any transactions that were not reported on a timely basis.





Code of Ethics



In June 2004, our Board of Directors adopted a Code of Business Conduct and Ethics governing its Chief Executive Officer, Chief Financial Officer, its other executive officers, the Board of Directors and employees. The Board is undertaking the task of updating this Code of Ethics during fiscal 2007. We intend to disclose on our website any waivers or amendments to our Code of Business Conduct and Ethics within five business days of such action.





47





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ITEM 10  Executive Compensation



Executive Compensation and Related Information



The following table sets forth compensation for services rendered in all capacities to Smart-tek Solutions, Inc. for the three fiscal years ended June 30, 2006 for our Chief Executive Officer and the four most highly compensated executive officers as of June 30, 2006 whose total annual salary and bonus for fiscal 2006 exceeded $100,000 (collectively, the Named Officers)



|                         |   |      |         |                     |           |                  |                        |            |                  |           | 
|------------------------ | - | ---- | ------- | ------------------- | --------- | ---------------- | ---------------------- | ---------- | ---------------- | --------- | 
|                         |   |      |         | Annual Compensation |           |                  | Long-term Compensation |            |                  |          
|                         |   |      |         |                     |           |                  |                        | Restricted |                  |           | 
|Name and Principal       |   |      |         |                     |           | All Other        |                        | Stock      | Options (#)      | All Other | 
|Position                 |   |      | Year    | Salary ($)          | Bonus ($) | Compensation ($) | Awards (#)             | Granted    | Compensation ($)
|                         |   |      |         |                     |           |                  |                        |            |                  |           | 
|Perry Law                |   | a    | 2006    | 114,726             | 77,418    | -                |                        | -          | -                | -         | 
|President and            |   | 2005 | 20,005  | -                   | -         |                  | -                      | 650,000    | -                |          
|Chief Executive Officer  |   |      |         |                     |           |                  |                        |            |                  |          
|Smart-tek Communications |   |      |         |                     |           |                  |                        |            |                  |          
|                         |   |      |         |                     |           |                  |                        |            |                  |           | 
|Stephen Platt            | b | 2006 | 114,726 | 60,214              | -         |                  | -                      | -          | -                |          
|Vice-President           |   | 2005 | 20,005  | -                   | -         |                  | -                      | 650,000    | -                |          
|Smart-tek Communications |   |      |         |                     |           |                  |                        |            |                  |          
|                         |   |      |         |                     |           |                  |                        |            |                  |           | 
|Donald Gee               | c | 2006 | 120,000 | -                   | -         |                  | -                      | -          | -                |          
|President and            |   | 2005 | 48,500  | -                   | -         |                  | 10,000,000             | -          | -                |          
|Chief Executive Officer  |   |      |         |                     |           |                  |                        |            |                  |          
|                         |   |      |         |                     |           |                  |                        |            |                  |           | 
|Kathy Jiang              | d | 2005 | 17,298  | -                   | -         | -                | -                      | -          | -                |          
|President and            |   | 2004 | 30,705  | -                   | -         | -                | -                      | -          | -                |          
|Chief Executive Officer  |   |      |         |                     |           |                  |                        |            |                  |          







(a)

Mr. Perry Law has been the President and Chief Executive Officer of Smart-tek Communications Inc. since its inception.  Smart-tek Communications is the



48





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wholly-owned subsidiary of Smart-tek Solutions.  Mr. Law was appointed as President and CEO of Smart-tek Solutions on September 14, 2006 effective September 30, 2006.

(b)

Stephen Platt is the Vice-President of Smart-tek Communications, the Registrants wholly owned subsidiary.

(c)

Mr. Gee was appointed President and Chief Executive Officer on December 2, 2004 upon the resignation of Kathy Jiang.  Mr. Gees 2005 and 2006 compensation was accrued but unpaid in 2006.  Mr. Gee resigned from his position as President and CEO of the Registrant on September 14, 2006, effective September 30, 2006.

(d)

Kathy Jiang served as President and Chief Executive Officer from April 1999 until December 2004; $71,032 of her salary has been accrued but remains unpaid in 2006.





Stock Options



Mr. Platt and Mr. Law were granted 650,000 options each to purchase shares of common stock of Smart-tek Solutions in April 2005.  These options vest over a three year period.





Compensation of Directors



Each non-employee director does not receive a fee for attendance at each meeting of the Board of Directors; these directors are reimbursed only for reasonable out-of-pocket expenses incurred in attending meetings of the Board of Directors of the committees thereof.







Employment Contracts, Termination of Employment and Change in Control Agreements



ITEM 11  Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters



Security Ownership of Certain Beneficial Owners and Management



The following table sets forth certain information as of June 30, 2006, as to shares of our common stock beneficially owned by: (i) each person who is known by us to own beneficially more than 5% of any class of our capital stock, (ii) each of our Named Officers, (iii) each of our directors and (iv) all of our current directors and executive officers as a group. Unless otherwise stated below, the address of each beneficial owner listed on the table is c/o Smart-tek Solutions Inc, 433 Town Center, Suite 316, Corte Madera, CA 94925.



49





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|                                             |           |           |           |                      |              |                     |                    |           |  |             
|-------------------------------------------- | --------- | --------- | --------- | -------------------- | ------------ | ------------------- | ------------------ | --------- |  | ------------
|                                             |           |           |           | Amount and Nature of |              |                     |                    |           | 
|                                             |           |           |           | Beneficial Ownership |              | Percentage of Class |                    |          
|                                             |           |           |           |                      | Shares of    |                     | Beneficially Owned |           | 
|                                             |           |           |           | Shares of            | Class A      |                     |                    |           |  | Percentage  
|                                             |           |           |           | Common               | Preferred    |                     |                    |           |  | of Voting   
|                                             |           |           |           | Stock                | Stock        |                     |                    | Class A   |  | Securities  
|                                             |           |           |           | Beneficially         | Beneficially |                     | Common             | Preferred |  | Beneficially
|                                             |           |           |           | Owned                | Owned        |                     | Stock              | Stock     |  | Owned       
|                                             |           |           |           |                      |              |                     |                    |           |  |             
|5% Shareholders                              |           |           |           |                      |              |                     |                    |           | 
|Essex Property Management                    |           | 9,000,000 |           |                      | 12.29%       |                     |                    | 9.83%    
|#1 Mapp St                                   |           |           |           |                      |              |                     |                    |           | 
|Belize City, Belize                          |           | (3)       |           |                      |              |                     |                    |           | 
|                                             |           |           |           |                      |              |                     |                    |           |  |             
|Dublin Asset Protection A.G.                 |           | 5,000,000 |           |                      | 6.83%        |                     |                    | 5.46%    
|800 Second Ave                               |           |           |           |                      |              |                     |                    |           | 
|New York, New York                           |           | (4)       |           |                      |              |                     |                    |           | 
|                                             |           |           |           |                      |              |                     |                    |           |  |             
|Farthingham Capital Corporation              |           | 4,000,000 |           |                      | 5.46%        |                     |                    | 4.37%    
|3465 Hutchinson, Suite 506                   |           |           |           |                      |              |                     |                    |          
|Montreal, Quebec                             |           | (5)       |           |                      |              |                     |                    |           | 
|                                             |           |           |           |                      |              |                     |                    |           |  |             
|Perry Law                                    |           |           |           | 217,667              | 1            |                     | -                  | 100%      |  | 20          
|Unit 10-11720 Voyageur Way                   |           |           |           |                      |              |                     |                    |          
|Richmond, BC                                 |           |           |           |                      |              |                     |                    |           | 
|V6X 3G9                                      |           |           |           |                      |              |                     |                    |           |  |             
|                                             |           |           |           |                      |              |                     |                    |           |  |             
|Named Officers and Directors                 |           |           |           |                      |              |                     |                    |          
|                                             |           |           |           |                      |              |                     |                    |           |  |             
|Perry Law                                    |           |           |           | 217,667              | 1            |                     | -                  | 100%      |  | 20          
|                                             |           |           |           |                      |              |                     |                    |           |  |             
|Denis Gallant                                |           |           | 4,000,000 | 0                    |              | 5.46%               |                    |           | 
|                                             |           |           |           |                      |              |                     |                    |           |  |             
|All current executive officers and directors | 4,217,667 | 1         |           | 5.76%                | 100%         |                     | 25.76             



(1)

To our knowledge, the persons named in the table have sole voting and investment power with respect to all shares of voting securities shown as beneficially owned by them, subject to community property law, where applicable.

(2)

Applicable percentage ownership of common stock is based on 73,253,016 shares of common stock issued and outstanding as of June 30, 2006.  Class A Preferred Stock, at June 30, 2006, had 20% of the voting power of all common and preferred shares issued.  Beneficial ownership is determined in accordance with the rules and regulations of the Securities and Exchange Commission.  In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock



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subject to options or convertible or exchangeable into such shares of common stock, held by that person, that are currently exercisable or exercisable within 60 days of June 30, 2006 are deemed outstanding.  These shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person.



(3)

On December 8, 2004, the Company entered into a consulting agreement with Essex Property Management, Ltd. ("Essex") to provide professional services to the Company, principally to identify, recruit and introduce two (2) acceptable candidates to the Board of Directors for service on the Company's Board. As Essex had satisfied the terms of the agreement effective December 5, 2004, the Company issued nine million (9,000,000) restricted shares of the common stock of the Company for these services.

(4)

On December 7, 2004, the Company entered into a consulting agreement with Dublin Asset Protection A.G. to provide corporate finance and merchant banking services to the Company, principally to arrange equity financing for the Company. The Company issued five million (5,000,000) restricted shares of the common stock of the Company for these services.

(5)

On December 6, 2004, the Company entered into a consulting agreement with Farthingham Capital Corporation to provide corporate finance and merchant banking services to the Company, principally to arrange debt financing for the Company. The Company issued four million (4,000,000) restricted shares of the common stock of the Company for these services.



Equity Compensation Plan Information

The following table sets forth certain information as to our equity compensation plan for fiscal 2006:



|                                                      |                            |   |                     | Number of securities     
|----------------------------------------------------- | -------------------------- | - | ------------------- | -------------------------
|                                                      | Number of securities to be |   | Weighted average    | remaining available for  
|                                                      | issued upon exercise of    |   | exercise price of   | future issuance under    
|                                                      | outstanding options,       |   | outstanding options | equity compensation plans
|                                                      | warrants and rights        |   | warrants and        | (excluding securities    
|Plan Category                                         | (a)                        |   | rights              | reflected in column (a)) 
|Equity compensation plan approved by the shareholders | 1,300,000                  | $ | 0.15                | 23,700,000               



The Companys 2005 Stock Incentive Plan is our only equity plan that has been approved by our shareholders and is our only plan in effect and with options outstanding.



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ITEM 12  Certain Relationships and Related Transactions

Management fees include $114,726 and $20,005 in 2006 and 2005, respectively, of management fees paid to the president of the Companys wholly owned subsidiary.



Officers salaries include $151,500 and $97,298 in 2006 and 2005, respectively, of accrued salaries owed to the Companys chief executive and chief financial officers.



The Company issued 650,000 options to purchase shares of its common stock to each of SCIs president and vice-president.  Under the terms of the stock option agreements, the Company recorded costs of stock options of $65,000 has been amortized during the year ended June 30, 2006.



During the year ended June 30, 2006, the Companys chief executive officer paid some expenses on behalf of the Company.  These advances are recognized as short term liabilities as there are no fixed repayment terms, but the funds are due on demand.



ITEM 13  Exhibits

The exhibits below are required by Item 601 of Regulation S-B.  Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-KSB has been identified.

|        |  |  |                                                          |  |  |  | 
|------- |  |  | -------------------------------------------------------- |  |  |  | 
|Exhibit |  |  |                                                          |  |  |  | 
|Number  |  |  | Description                                              |  |  |  | 
|        |  |  |                                                          |  |  |  | 
|31.1    |  |  | Section 302 Certification of our Chief Executive Officer
|31.2    |  |  | Section 302 Certification of our Chief financial Officer
|32.1    |  |  | Section 906 Certification of our Chief Executive Officer
|32.2    |  |  | Section 906 Certification of our Chief financial Officer



ITEM 14  Principal Accountant Fees and Services

Audit Fees



The aggregate fees billed for professional services rendered by Weinberg & Company for the audit of our financial statements for the fiscal year ended June 30, 2006  was $59,087.





Audit Related Fees



None.



Tax Fees



None





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All Other Fees



There were no other fees billed for services rendered by Weinberg & Company not reportable as Audit Fees, Audit Related Fees or Tax Fees for the fiscal year ended June 30, 2006.







SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) 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.



SMART-TEK SOLUTIONS, INC.

(Registrant)



Date: October
13, 2006

/s/ Perry Law



-----------------------------------



Perry Law



Chief Executive Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Date: October
13, 2006

/s/Perry Law



-----------------------------------



Perry Law



Chief Executive Officer, President

Chairman of the Board



(Principal Executive Officer)



Date:
October 13, 2006

/s/Denis Gallant



-----------------------------------



Denis Gallant



Chief Financial Officer & Director



(Principal Financial &



Accounting Officer)







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