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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30,
2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
EXCHANGE ACT

For the transition period from _________to ________

Commission File No. 000-29895

SMART-TEK SOLUTIONS
INC.(Exact name of registrant as specified in its
charter)

|Nevada                                                               | 98-0206542                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)

3702 South Virginia Street, Suite G12-401, Reno, NV
89502(Address of principal executive offices) (zip code)

604.270.2084(Registrants telephone number,
including area code)

Not Applicable(Former name, former address and
former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed 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) has been subject to such
filing requirements for the past 90 days.

Yes [X]      No [ ]

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of large accelerated filer," "accelerated
filer, and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):

|Large accelerated filer                       | [ ] | Accelerated filer         | [ ]
|--------------------------------------------- | --- | ------------------------- | ---
|Non-accelerated filer                         | [ ] | Smaller reporting company | [X]
|(Do not check if a smaller reporting company) |     |                           |    

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).

Yes [ ]      No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after
distribution of securities under a plan confirmed by a court. Yes [ ]      No [ ]

---

2

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuers
classes of common equity as of the latest practicable date: As of November
18, 2008, there were 111,812,971 shares of common stock, par value $0.001,
outstanding.

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- 3 -

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

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|Smart-tek Solutions Inc.                            
|----------------------------------------------------
|Three Months
      Ended September 30, 2008 and 2007

PART I -- FINANCIAL INFORMATION

|CONTENTS                                                             | PAGES     
|-------------------------------------------------------------------- | ----------
|                                                                     |           
|UNAUDIATED FINANCIAL STATEMENTS                                      |           
|                                                                     |           
|Consolidated Balance Sheets                                          | F-2       
|                                                                     |           
|Consolidated Statements
      of Operations and Comprehensive Loss   | F-3       
|                                                                     |           
|Consolidated Statements
      of Changes in Stockholders Deficiency | F-4       
|                                                                     |           
|Consolidated Statements
      of Cash Flows                          | F-5       
|                                                                     |           
|Notes to the Consolidated
      Financial Statements                 | F-6 - F-19

F-1

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|Smart-tek Solutions Inc.                              
|------------------------------------------------------
|Consolidated Balance Sheets                           
|As at September 30, 2008 (Unaudited) and June 30, 2008

|                                                                       |   | September 30, |   |   | June 30,   |  
|---------------------------------------------------------------------- | - | ------------- | - | - | ---------- | -
|                                                                       |   | 2008          |   |   | 2008       |  
|                                                                       |   | (unaudited)   |   |   |            |  
|                                                                       |   |               |   |   |            |  
|Assets                                                                 |   |               |   |   |            |  
|Current assets                                                         |   |               |   |   |            |  
|Cash and cash equivalents                                              | $ | 49,301        |   | $ | 51,245     |  
|Accounts receivable                                                    |   | 412,632       |   |   | 597,539    |  
|Contract retention receivable                                          |   | 222,519       |   |   | 226,722    |  
|Cost of uncompleted contracts in excess
      of billings              |   | 36,123        |   |   | 51,587     |  
|Prepaid expenses and deposits                                          |   | 1,510         |   |   | 1,569      |  
|Total current assets                                                   |   | 722,085       |   |   | 928,662    |  
|                                                                       |   |               |   |   |            |  
|Equipment, net of accumulated depreciation                             |   | 8,506         |   |   | 2,747      |  
|                                                                       |   |               |   |   |            |  
|Goodwill                                                               |   | 451,311       |   |   | 451,311    |  
|                                                                       |   |               |   |   |            |  
|                                                                       | $ | 1,181,902     |   | $ | 1,382,720  |  
|                                                                       |   |               |   |   |            |  
|                                                                       |   |               |   |   |            |  
|                                                                       |   |               |   |   |            |  
|Liabilities                                                            |   |               |   |   |            |  
|Current liabilities                                                    |   |               |   |   |            |  
|Bank overdraft                                                         | $ | 25,808        |   | $ | 87,984     |  
|Accounts payable and accrued
      liabilities                         |   | 916,757       |   |   | 979,694    |  
|Bonus payable                                                          |   | 243,423       |   |   | 253,021    |  
|Billings on uncompleted
      contracts                                |   |               |   |   |            |  
|in excess of costs and estimated revenues                              |   | 205,654       |   |   | 254,254    |  
|Deferred revenue                                                       |   | 13,871        |   |   | 13,667     |  
|Shareholder loans                                                      |   | 87,314        |   |   | 81,477     |  
|Amounts due to officers
      and directors                            |   | 490,126       |   |   | 504,871    |  
|                                                                       |   |               |   |   |            |  
|Total current liabilities                                              |   | 1,982,953     |   |   | 2,174,968  |  
|                                                                       |   |               |   |   |            |  
|                                                                       |   |               |   |   |            |  
|Stockholders Deficiency                                               |   |               |   |   |            |  
|Preferred stock, $0.001 par value, 5,000,000
      shares              |   |               |   |   |            |  
|authorized, one (1) shares of Class A preferred                        |   |               |   |   |            |  
|issued and outstanding
      at September 30, 2008 and June 30, 2008   |   | -             |   |   | -          |  
|Common stock: $0.001 par value, 500,000,000, shares                    |   |               |   |   |            |  
|authorized,                                                            |   |               |   |   |            |  
|111,812,971 issued and outstanding at September
      30, 2008 and     |   |               |   |   |            |  
|111,812,971 issued and
      outstanding at June 30, 2008 respectively |   | 111,813       |   |   | 111,813    |  
|Additional paid in capital                                             |   | 6,438,849     |   |   | 6,422,599  |  
|Accumulated other comprehensive loss                                   |   | (111,118      | ) |   | (121,568   | )
|Accumulated deficit                                                    |   | (7,240,595    | ) |   | (7,205,092 | )
|Total shareholders deficiency                                         |   | (801,051      | ) |   | (792,248   | )
|                                                                       |   |               |   |   |            |  
|                                                                       | $ | 1,181,902     |   | $ | 1,382,720  |  
|                                                                       |   |               |   |   |            |  

See accompanying notes to the consolidated financial statements.

F-2

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|Smart-tek Solutions Inc.                                          
|------------------------------------------------------------------
|Consolidated Statements of Operations and Comprehensive
      Loss
|Three months ended September 30, 2008 and 2007                    
|(Unaudited)                                                       

|                                             |   | 2008        |   |   | 2007       |  
|-------------------------------------------- | - | ----------- | - | - | ---------- | -
|                                             |   |             |   |   |            |  
|Revenue                                      |   |             |   |   |            |  
|Contract revenue                             | $ | 878,034     |   | $ | 783,046    |  
|Services revenue                             |   | 18,116      |   |   | 21,695     |  
|Other revenue                                |   | 271         |   |   | 1,949      |  
|Total revenue                                |   | 898,421     |   |   | 806,690    |  
|Cost of revenue and service delivery         |   | 776,515     |   |   | 715,420    |  
|Gross profit                                 |   | 119,906     |   |   | 91,270     |  
|Selling, general and administrative expenses |   | 153,720     |   |   | 2,965,546  |  
|Operating loss                               |   | (33,814     | ) |   | (2,874,276 | )
|Other expense                                |   |             |   |   |            |  
|Interest                                     |   | (1,689      | ) |   | (2,359     | )
|Net loss                                     |   | (35,503     | ) |   | (2,876,635 | )
|Currency translation adjustment              |   | 10,450      |   |   | (23,065    | )
|Comprehensive loss                           | $ | (25,053     | ) | $ | (2,899,700 | )
|Loss per share, basic and diluted            | $ | (0.01       | ) | $ | (0.04      | )
|Weighted average shares outstanding,         |   |             |   |   |            |  
|basic and diluted                            |   | 111,812,971 |   |   | 73,253,016 |  

See accompanying notes to the consolidated financial statements.

F-3

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|Smart-tek Solutions Inc.                                           
|-------------------------------------------------------------------
|Consolidated Statement of Changes in Stockholders
      Deficiency
|Three months ended September 30, 2008                              
|(Unaudited)                                                        

|                             |  | Common Stock |  |   |         |  |   |            |  |   |               |   |   |             |  
|---------------------------- |  | ------------ |  | - | ------- |  | - | ---------- |  | - | ------------- | - | - | ----------- | -
|                             |  |              |  |   |         |  |   |            |  |   | Accumulated   |   |   |             |  
|                             |  |              |  |   |         |  |   | Additional |  |   | Other         |   |   |             |  
|                             |  |              |  |   |         |  |   | Paid in    |  |   | Comprehensive |   |   | Accumulated |  
|                             |  | Shares       |  |   | Amount  |  |   | Capital    |  |   | Income        |   |   | Deficit     |  
|Balance  June 30, 2007      |  | 73,253,016   |  | $ | 73,253  |  | $ | 2,861,561  |  | $ | (103,709      | ) | $ | (4,145,464  | )
|Fair Value Options issued to |  | -            |  |   | -       |  |   | 65,000     |  |   | -             |   |   | -           |  
|employees                    |  |              |  |   |         |  |   |            |  |   |               |   |   |             |  
|Shares issued for consulting |  | 19,000,000   |  |   | 19,000  |  |   | 2,831,000  |  |   | -             |   |   | -           |  
|Shares issued for settlement |  | 19,559,955   |  |   | 19,560  |  |   | 665,038    |  |   | -             |   |   | -           |  
|of debt                      |  |              |  |   |         |  |   |            |  |   |               |   |   |             |  
|Net Loss                     |  | -            |  |   | -       |  |   | -          |  |   | -             |   |   | (3,059,628  | )
|Currency translation         |  | -            |  |   | -       |  |   | -          |  |   | (17,859       | ) |   | -           |  
|adjustment                   |  |              |  |   |         |  |   |            |  |   |               |   |   |             |  
|Balance  June 30, 2008      |  | 111,812,971  |  | $ | 111,813 |  | $ | 6,422,599  |  | $ | (121,568      | ) | $ | (7,205,092  | )
|Fair Value Options issued to |  | -            |  |   | -       |  |   | 16,250     |  |   | -             |   |   | -           |  
|employees                    |  |              |  |   |         |  |   |            |  |   |               |   |   |             |  
|Net Loss                     |  | -            |  |   | -       |  |   | -          |  |   | -             |   |   | (35,503     | )
|Currency translation         |  | -            |  |   | -       |  |   | -          |  |   | 10,450        |   |   | -           |  
|adjustment                   |  |              |  |   |         |  |   |            |  |   |               |   |   |             |  
|Balance  September 30,      |  |              |  |   |         |  |   |            |  |   |               |   |   |             |  
|2008                         |  | 111,812,971  |  | $ | 111,813 |  | $ | 6,438,849  |  | $ | (111,118      | ) | $ | (7,240,595  | )

See accompanying notes to the consolidated financial statements.

F-4

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|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Consolidated Statements of Cash Flows         
|Three months ended September 30, 2008 and 2007
|(Unaudited)                                   

|                                                         |   | 2008    |   |   | 2007       |  
|-------------------------------------------------------- | - | ------- | - | - | ---------- | -
|                                                         |   |         |   |   |            |  
|                                                         |   |         |   |   |            |  
|Operating activities                                     |   |         |   |   |            |  
|                                                         |   |         |   |   |            |  
|Net loss                                                 | $ | (35,503 | ) | $ | (2,876,635 | )
|Adjustments to reconcile net loss to net cash used in    |   |         |   |   |            |  
|operating
      activities                               |   |         |   |   |            |  
|Depreciation and amortization                            |   | 399     |   |   | 1,344      |  
|Amortization of deferred compensation                    |   | 16,250  |   |   | 16,250     |  
|                                                         |   |         |   |   |            |  
|Changes
      in operating assets and liabilities        |   |         |   |   |            |  
|Accounts receivable                                      |   | 184,907 |   |   | (39,392    | )
|Contract retention receivable                            |   | 4,203   |   |   | (19,630    | )
|Costs of uncompleted contracts in excess of billings     |   | 15,464  |   |   | 20,375     |  
|Prepaid expenses and deposits                            |   | 59      |   |   | (2,909     | )
|Accounts payable and accrued liabilities                 |   | (62,937 | ) |   | 2,707,025  |  
|Bonus payable                                            |   | (9,598  | ) |   | 10,066     |  
|Billings on uncompleted contracts in excess of costs     |   |         |   |   |            |  
|and estimated revenues                                   |   | (48,600 | ) |   | (91,201    | )
|Deferred revenue                                         |   | 204     |   |   | 3,810      |  
|Net cash used in operating activities                    |   | 64,848  |   |   | (270,897   | )
|                                                         |   |         |   |   |            |  
|Investing activity                                       |   |         |   |   |            |  
|Purchase of
      equipment                              |   | (6,158  | ) |   | -          |  
|Net cash used in investing activity                      |   | (6,158  | ) |   | -          |  
|                                                         |   |         |   |   |            |  
|Financing activities                                     |   |         |   |   |            |  
|Increase (decrease)
      in bank overdraft              |   | (62,176 | ) |   | 127,396    |  
|Proceeds
      from shareholders loan                    |   | 5,837   |   |   | 135,295    |  
|Proceeds from
      (repayment to) officer and directors |   | (14,745 | ) |   | 40,303     |  
|Repayment
      of related party debt                    |   | -       |   |   | (6,235     | )
|Net cash provided by financing activities                |   | (71,084 | ) |   | 296,759    |  
|                                                         |   |         |   |   |            |  
|                                                         |   |         |   |   |            |  
|Effects of exchange rates on cash                        |   | 10,450  |   |   | (23,065    | )
|                                                         |   |         |   |   |            |  
|                                                         |   |         |   |   |            |  
|Net increase (decrease) in cash                          |   | (1,944  | ) |   | 2,797      |  
|                                                         |   |         |   |   |            |  
|Cash (bank overdraft), beginning of period               |   | 51,245  |   |   | 47,018     |  
|                                                         |   |         |   |   |            |  
|Cash (bank overdraft), end of period                     | $ | 49,301  |   | $ | 49,815     |  
|                                                         |   |         |   |   |            |  
|                                                         |   |         |   |   |            |  
|Supplemental cash flow information                       |   |         |   |   |            |  
|                                                         |   |         |   |   |            |  
|Interest
      paid                                      | $ | 1,638   |   | $ | 2,359      |  
|                                                         |   |         |   |   |            |  

See accompanying notes to the consolidated financial statements.

F-5

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|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

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, 1995.

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 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 December 31,
  2007, 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. (SCI) 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. Significant inter-company transactions have been eliminated in consolidation.

Accounts Receivable

The Company reports accounts receivable at net realizable value.
  The Companys term 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 an allowance for doubtful
  accounts as of September 30, 2008 of $9,504 (June 30, 2008 - $8,890).

F-6

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|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

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, bonus payable, amounts
  due to officers and directors, and shareholder 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.

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 judgment 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.

F-7

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|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

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 revenues, 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 of completion 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 AICPA Statement of Position 81-1 (SOP 81-1) Accounting for Performance
  of Construction Type and Certain Production Type Contracts. 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. 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 account 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.

F-8

---

|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

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 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 SFAS No. 123 (revised
  2004), Share-based Payment (SFAS No.123R) a revision of 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 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 our option pricing model, of which $16,250 was recognized
  as expense during the three months ended September 30, 2008.

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 September 30, 2008, the value of the unvested
  options was $16,250 which will be amortized in future periods as the options
  vest.

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 than the assets carrying amounts.

Advertising expenses

The Company expenses advertising costs as incurred which was
  $96 for the three months ended September 30, 2008.

F-9

---

|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

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, the basic net earnings (loss) per common share is computed by dividing the
  net earnings (loss) available to 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 December 2007, the FASB issued SFAS No. 160 Non-controlling
  Interests in Consolidated Financial Statements-an amendment of ARB No. 51.
  SFAS 160 establishes accounting and reporting standards for the non-controlling
  interest in a subsidiary and for the deconsolidation of a subsidiary. The guidance
  will become effective for the fiscal year beginning after December 15, 2008.
  The adoption of this statement is not expected to have a material effect on
  the Companys consolidated financial statements.

In January 2008, Staff Accounting Bulletin (SAB)
  110, Share-Based Payment was issued. Registrants may continue, under
  certain circumstances, to use the simplified method in developing estimates
  of the expected term of share options as initially allowed by SAB 107, Share-Based
  Payment. The adoption of SAB 110 should have no effect on the financial
  position and results of operations of the Company.

In May 2008, the Financial Accounting Standards Board (FASB)
  issued SFAS No. 163, Accounting for Financial Guarantee Insurance Contracts
   An interpretation of FASB Statement No. 60. SFAS No. 163 requires
  that an insurance enterprise recognize a claim liability prior to an event of
  default when there is evidence that credit deterioration has occurred in an
  insured financial obligation. It also clarifies how Statement 60 applies to
  financial guarantee insurance contracts, including the recognition and measurement
  to be used to account for premium revenue and claim liabilities, and requires
  expanded disclosures about financial guarantee insurance contracts. It is effective
  for financial statements issued for fiscal years beginning after December 15,
  2008, except for some disclosures about the insurance enterprises risk-management
  activities. SFAS No. 163 requires that disclosures about the risk-management
  activities of the insurance enterprise be effective for the first period beginning
  after issuance. Except for those disclosures, earlier application is not permitted.
  The adoption of this statement is not expected to have a material effect on
  the Companys financial statements.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy
  of Generally Accepted Accounting Principles. SFAS No. 162 identifies the
  sources of accounting principles and the framework for selecting the principles
  to be used in the preparation of financial statements of nongovernmental entities
  that are presented in conformity with generally accepted accounting principles
  in the United States. It is effective 60 days following the SECs approval
  of the Public Company Accounting Oversight Board amendments to AU Section 411,
  The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
  Principles. The adoption of this statement is not expected to have a material
  effect on the Companys financial statements.

In March 2008, the FASB issued SFAS No. 161, Disclosures
  about Derivative Instruments and Hedging Activities  an amendment to FASB
  Statement No. 133. SFAS No. 161 is intended to improve financial standards
  for derivative instruments and hedging activities by requiring enhanced disclosures
  to enable investors to better understand their effects on an entity's financial
  position, financial performance, and cash flows. Entities are required to provide
  enhanced disclosures about: (a) how and why an entity uses derivative instruments;
  (b) how derivative instruments and related hedged items are accounted for under
  SFAS No. 133 and its related interpretations; and (c) how derivative instruments
  and related hedged items affect an entitys financial position, financial
  performance, and cash flows. SFAS No. 161 is effective for financial statements
  issued for fiscal years beginning after November 15, 2008, with early adoption
  encouraged. The adoption of this statement is not expected to have a material
  effect on the Company's financial statements

F-10

---

|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

Recent accounting pronouncementscontinued

In December 2007, the FASB issued SFAS No. 141 (revised 2007),
  Business Combinations. SFAS No. 141 (revised 2007) establishes principles
  and requirements for how the acquirer of a business recognizes and measures
  in its financial statements the identifiable assets acquired, the liabilities
  assumed, and any non-controlling interest in the acquiree. The statement also
  provides guidance for recognizing and measuring the goodwill acquired in the
  business combination and determines what information to disclose to enable users
  of the financial statements to evaluate the nature and financial effects of
  the business combination. SFAS No. 141 (revised 2007) applies prospectively
  to business combinations for which the acquisition date is on or after the beginning
  of the first annual reporting period beginning on or after December 15, 2008.
  The adoption of this statement is not expected to have a material effect on
  the Company's financial statements.

In February 2007, the Financial Accounting Standards Board (FASB)
  issued SFAS Statement No. 159, The Fair Value Option for Financial Assets
  and Financial Liabilities - Including an amendment of FASB Statement No. 115
  (SFAS 159). SFAS 159, which becomes effective for the Company on January 1,
  2008, permits companies to choose to measure many financial instruments and
  certain other items at fair value and report unrealized gains and losses in
  earnings. Such accounting is optional and is generally to be applied instrument
  by instrument.

FASB Statement of Financial Accounting Standards (SFAS) No. 157
  Fair Value Measurements establishes a formal framework for measuring
  fair value under GAAP. It defines and codifies the many definitions of fair
  value included among various other authoritative literature, clarifies and,
  in some instances, expands on the guidance for implementing fair value measurements,
  and increases the level of disclosure required for fair value measurements.
  Although SFAS No. 157 applies to and amends the provisions of existing FASB
  and AICPA pronouncements, it does not, of itself, require any new fair value
  measurements, nor does it establish valuation standards. SFAS No. 157 applies
  to all other accounting pronouncements requiring or permitting fair value measurements,
  except for SFAS 123(r)Share-Based payment and related pronouncements,
  the practicability exceptions to fair value determination allowed by various
  other authoritative pronouncements, and AICPA Statements of Position 97-2 and
  98.9 that deal with software revenue recognition. This statement is effective
  for financial statements issued for fiscal years beginning after November 15,
  2007, and interim periods within those fiscal years.

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 $35,503 during the three months ended September 30, 2008,
  and had a working capital deficiency of $1,260,868 and a shareholders
  deficiency of $801,051. 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 September
  30, 2008 and beyond primarily as a result of our contract backlog. 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 has 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.

F-11

---

|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

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 over
  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 a
  two year period so as to have 20% voting control 12 months after issuance, 10%
  voting control over 18 months after issuance and zero voting control 24 months
  after issuance at which time the preferred shares will be redeemed for no consideration.

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 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 | $ | 1        |  
|------------------------------------------------------------- | - | -------- | -
|                                                              |   |          |  
|Assets acquired                                               |   | 276,012  |  
|Liabilities assumed                                           |   | (727,324 | )
|                                                              |   | 451,312  |  
|                                                              |   |          |  
|Goodwill                                                      | $ | 451,311  |  

3. Contract Retention Receivable

Under the Builders Lien Act (British Columbia), under which
  the subsidiary SCI operates, 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 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 September 30, 2008 and June 30 2008, contract retention
  receivables were $222,519 and $226,722 respectively.

F-12

---

|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

4. Equipment

|                              |   |        |  |   |              |  |   | September 30 |  |   |        |  |   |              |  |   | June 30  | 
|----------------------------- | - | ------ |  | - | ------------ |  | - | ------------ |  | - | ------ |  | - | ------------ |  | - | -------- | 
|                              |   |        |  |   | Accumulated  |  |   | 2008         |  |   |        |  |   | Accumulated  |  |   | 2008     | 
|                              |   | Cost   |  |   | Depreciation |  |   | Net Book     |  |   | Cost   |  |   | Depreciation |  |   | Net Book | 
|                              |   |        |  |   |              |  |   | Value        |  |   |        |  |   |              |  |   | Value    | 
|                              |   |        |  |   |              |  |   |              |  |   |        |  |   |              |  |   |          | 
|Computer equipment & software | $ | 899    |  | $ | 722          |  | $ | 177          |  | $ | 899    |  | $ | 706          |  | $ | 193      | 
|Office furniture & equipment  |   | 4,727  |  |   | 2,765        |  |   | 1,962        |  |   | 4,727  |  |   | 2,657        |  |   | 2,070    | 
|Leasehold improvements        |   | 15,617 |  |   | 15,617       |  |   | -            |  |   | 15,617 |  |   | 15,617       |  |   | -        | 
|Computer equipment under      |   |        |  |   |              |  |   |              |  |   |        |  |   |              |  |   |          | 
|capital lease                 |   | 2,140  |  |   | 1,694        |  |   | 446          |  |   | 2,140  |  |   | 1,656        |  |   | 484      | 
|Automobile                    |   | 6,158  |  |   | 237          |  |   | 5,921        |  |   | -      |  |   | -            |  |   | -        | 
|                              |   |        |  |   |              |  |   |              |  |   |        |  |   |              |  |   |          | 
|                              | $ | 29,541 |  | $ | 21,035       |  | $ | 8,506        |  | $ | 23,383 |  | $ | 20,636       |  | $ | 2,747    | 

5. Bank Overdraft

At September 30, 2008, bank overdrafts covered by a revolving
  line of credit were $117,938. The revolving line of credit agreement is between
  SCI, the Companys wholly owned subsidiary, and HSBC Bank of 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 $117,938 ($125,000 CDN)
  and is secured by a shareholder guarantee and $49,301 ($52,253 CDN) in the form
  of a term deposit.

6. 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 to Xili USA under these borrowings
  aggregated $81,076 as at September 30, 2008 and June 30, 2008.

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 borrowed $150,000 from the same shareholder, also
  on an unsecured basis as well as non-interest bearing with no fixed repayment
  terms. During the year ended June 30, 2008, the Company issued stock in a shares
  for debt transaction (Note 9). At September 30, 2008 and June 30, 2008 there
  is $Nil outstanding to this shareholder.

At June 23, 2008, the Company had borrowed $271,512 from a company
  controlled by the Companys president. The loan is unsecured and bears
  7.5% interest commencing in January 2008. The loan has no fixed terms of repayment.
  During the year ended June 30, 2008, the Company issued an aggregate of 7,746,032
  shares to this creditor in consideration of the settlement of unsecured loans
  in the amount of $271,111. At June 30, 2008 the balance of the unsecured loan
  was $6,238.

At September 30, 2008, the above shareholder loans aggregated
  to $87,314.

F-13

---

|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

7.Income taxes

As of September 30, 2008, for Federal income tax purposes, the
  Company has approximately $6,931,606 in net operating loss carry forwards expiring
  through 2021. The Company has provided a 100% valuation as it cannot determine
  that it is more likely than not that will realize the deferred tax assets.

At September 30, 2008, STS had available federal net operating
  loss (NOL) carry forwards of approximately $6,930,648. 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 September 30, 2008 and June 30, 2008 as follows:

|                                                       |   | September 30, |   |   | June 30,   |  
|------------------------------------------------------ | - | ------------- | - | - | ---------- | -
|                                                       |   | 2008          |   |   | 2008       |  
|                                                       |   |               |   |   |            |  
|Deferred tax asset, beginning                          | $ | 2,409,732     |   | $ | 1,338,862  |  
|Benefit of current years operating loss carry forward |   | 12,246        |   |   | 1,070,870  |  
|Deferred tax asset, ending                             | $ | 2,421,978     |   | $ | 2,409,732  |  
|                                                       |   |               |   |   |            |  
|Valuation allowance, beginning                         | $ | (2,409,732    | ) | $ | (1,338,862 | )
|Current years provision                               |   | (12,246       | ) |   | (1,070,870 | )
|Valuation allowance, ending                            | $ | (2,421,978    | ) | $ | (2,409,732 | )
|                                                       |   |               |   |   |            |  
|Deferred tax asset, net                                | $ | -             |   | $ | -          |  
|                                                       |   |               |   |   |            |  
|Tax at blended U.S./Canadian statutory rates           |   | (35%          | ) |   | (35%       | )
|Loss carryover                                         |   | 35%           |   |   | 35%        |  
|                                                       |   |               |   |   |            |  
|Tax expense                                            | $ | -             |   | $ | -          |  

F-14

---

|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

8. Common Stock

At September 30, 2008, 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 September 30, 2008, there are 111,812,971 shares of common
  stock outstanding.

Preferred Stock

Pursuant to the share exchange agreement dated 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, at which time the preferred share will be
  redeemed by the Company for no consideration.

2005 Stock Incentive Plan

During fiscal 2005, pursuant to provisions 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 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.

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.

F-15

---

|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

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.

At September 30, 2008, options outstanding are as follows:

|                              |  |           |  |   | Average        | 
|----------------------------- |  | --------- |  | - | -------------- | 
|                              |  | Shares    |  |   | Exercise Price | 
|Balance at July 1, 2008       |  | 1,300,000 |  | $ | 0.15           | 
|Granted                       |  | -         |  |   | -              | 
|Exercised                     |  | -         |  |   | -              | 
|Cancelled                     |  | -         |  |   | -              | 
|Balance at September 30, 2008 |  | 1,300,000 |  | $ | 0.15           | 

Additional information regarding options outstanding as of September
  30, 2008 is as follows:

|  |          |  |  |             |  |  | Options outstanding |  |   |          |  |  | Options exercisable | 
|- | -------- |  |  | ----------- |  |  | ------------------- |  | - | -------- |  |  | ------------------- | 
|  |          |  |  |             |  |  | Weighted average    |  |   | Weighted |  |  |                     | 
|  |          |  |  |             |  |  | remaining           |  |   | average  |  |  |                     | 
|  | Exercise |  |  | Number      |  |  | contractual life    |  |   | exercise |  |  |                     | 
|  | price    |  |  | outstanding |  |  | (years)             |  |   | price    |  |  | Number              | 
|  |          |  |  |             |  |  |                     |  |   |          |  |  |                     | 
|$ | 0.15     |  |  | 1,300,000   |  |  | 8.75                |  | $ | 0.15     |  |  | 523,611             | 

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 $16,250 was recognized
  as expense during the three months ended September 30, 2008.

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 September 30, 2008, the value of the unvested
  options was $16,250 which will be amortized in future periods as the options
  vest.

F-16

---

|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

9. Costs and Estimated Earnings on Uncompleted Contracts

|                                                                            |   | September 30, |   |   | June 30,  |  
|--------------------------------------------------------------------------- | - | ------------- | - | - | --------- | -
|                                                                            |   | 2008          |   |   | 2008      |  
|                                                                            |   |               |   |   |           |  
|Costs incurred on uncompleted contracts                                     | $ | 2,572,414     |   | $ | 1,520,914 |  
|                                                                            |   |               |   |   |           |  
|Estimated earnings                                                          |   | 1,511,970     |   |   | 1,013,756 |  
|                                                                            |   | 4,084,384     |   |   | 2,534,670 |  
|                                                                            |   |               |   |   |           |  
|                                                                            |   |               |   |   |           |  
|Less: Billings to Date                                                      |   | 4,253,915     |   |   | 2,737,337 |  
|                                                                            |   |               |   |   |           |  
|                                                                            | $ | (169,531      | ) | $ | (202,667  | )
|                                                                            |   |               |   |   |           |  
|Included in accompanying balance
      sheets under the following captions: |   |               |   |  
|Costs of uncompleted contracts in excess of billings                        |   | 36,123        |   |   | 51,587    |  
|Billings on uncompleted contracts in excess
      of costs and              | $ | (205,654      | ) | $ | (254,254  | )
|estimated revenues                                                          |   |               |   |   |           |  
|                                                                            | $ | (169,531      | ) | $ | (202,667  | )

10. Related Party Transactions

During the three months ended September 30, 2008, the Companys
  wholly owned subsidiary paid $34,558 in management salaries to its president
  and vice president. Such costs have been reflected in the accompanying statement
  of operations.

Amounts due to officers and directors were $490,126 as of September
  30, 2008.

11. 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 five company vehicles.
  The minimum payments required under these operating leases for each of the five
  years subsequent to September 30, 2008 are approximately as follows:

|     |   | Year ending | 
|---- | - | ----------- | 
|     |   | June 30     | 
|2009 | $ | 18,663      | 
|2010 |   | 8,343       | 
|2011 |   | 5,924       | 
|2012 |   | 1,481       | 

F-17

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|Smart-tek Solutions Inc.                      
|----------------------------------------------
|Notes to the Consolidated Financial Statements
|September 30, 2008                            
|(unaudited)                                   

12. 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. While the Company remains adamant that it was wronged and damaged
  by the Stocklemon report, the Company was not able to continue to afford the
  cost of legal actions and has temporarily suspended their legal efforts and
  its attorneys have filed a petition to be removed as legal representatives
  of the Company in this complaint.

13. Concentrations of risk

At September 30, 2008, two customers accounted for 37% of trade
  accounts receivable.

For the three months ended September 30, 2008, two significant
  customers accounted for 28% of revenue and the customers individually accounted
  for more than 10% of revenue.

For the three months ended September 30, 2008, 100% of the Companys
  sales and accounts receivable arose from sales to Canadian customers.

For the three months ended September 30, 2008, three significant
  suppliers accounted for 38% of purchases.

F-18

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- 4 -

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

This quarterly report contains forward-looking statements.
Forward-looking statements are projections in respect of future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as may, should, expects, plans,
anticipates, believes, estimates, predicts, potential or continue or
the negative of these terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties and
other factors, including the risks in the section entitled Risks and
Uncertainties and the risks set out below, any of which may cause our or our
industrys actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. These
risks include:

- risks related to the potential of delays in customer orders or the failure
  to retain customers;
- the uncertainty of profitability based upon our history of losses;
- risks related to failure to obtain adequate financing on a timely basis and
  on acceptable terms for our planned exploration and development projects;
- risks related to competition;
- risks related to tax attributes; and
- other risks and uncertainties related to our business strategy.

This list is not an exhaustive list of the factors that may
affect any of our forward-looking statements. These and other factors should be
considered carefully and readers should not place undue reliance on our
forward-looking statements.

Forward looking statements are made based on managements
beliefs, estimates and opinions on the date the statements are made and we
undertake no obligation to update forward-looking statements if these beliefs,
estimates and opinions or other circumstances should change. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.

Our financial statements are stated in United States dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles.

In this quarterly report, unless otherwise specified, all
dollar amounts are expressed in United States dollars.

As used in this quarterly report, the terms we, us, our,
the Company and Smart-Tek mean Smart-tek Solutions Inc. and its
subsidiaries, unless the context clearly requires otherwise.

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- 5 -

Our Current Business

Smart-tek Solutions Inc. specializes in the design and
development of Radio Frequency Identification (RFID) integration, monitoring and
tracking solutions to meet industry demands. Through our wholly owned subsidiary
Smart-Tek Communications Inc. we operate in the business of design, sale,
installation and service of security technology with electronic hardware and
software products. Our 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. We have a sales and technical
installation team with over 50 years of experience specializing in the design,
sales, installation and service of CCTV, access control, intercom, security,
structured cabling and wireless communication systems. While the operations of
our wholly-owned subsidiary are profitable, we still do not operate profitably
as a consolidated entity. Managements plans to improve our financial condition
are as follows:

- Continued growth of Smart-tek Communications Inc. business activities in
  the security technology industry in the Greater Vancouver Area;
- We believe that our RFID tracking and monitoring software developed for the
  agriculture industry will be rolled out into the United States during the next
  12 months;
- We believe the beta test for the software and hardware will be successful
  on a start-up cattle farm in New Mexico; and
- We will continue to look for opportunities to grow organically where
  feasible as well as evaluate potential acquisition opportunities that may
  present themselves in the next 12 months.

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 our subsidiarys business to fund the
continuation of our consolidated business operations. We intend to use our
common stock as payment for services of various consultants in order to help
advance our business plan.

RESULTS OF OPERATIONS

Three Month Summary

|                                             |   |                    |   |   |            |   |  | Percentage |   
|-------------------------------------------- | - | ------------------ | - | - | ---------- | - |  | ---------- | --
|                                             |   | Three Months Ended |   |   | Increase/  |  
|                                             |   | September 30,      |   |   | (Decrease) |  
|                                             |   | 2008               |   |   | 2007       |   |  |            |   
|Revenue                                      | $ | 898,421            |   | $ | 806,690    |   |  | 11.37%     |   
|Selling, General and Administrative Expenses |   | 153,720            |   |   | 2,965,546  |   |  | (94.82     | )%
|Interest expense                             |   | (1,689             | ) |   | (2,359     | ) |  | (28.40     | )%
|Net Loss                                     | $ | (35,503            | ) | $ | (2,876,635 | ) |  | (98.77     | )%

Revenue

The 11.37% increase in revenues for the three months ended
September 30, 2008 is primarily attributable to an increase in our subsidiaries'
security and technology business during the quarter.

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- 6 -

Expenses

The major components of our expenses for the quarter are
outlined in the table below:

|                                                   |   |                    |   |   |            |   |  | Percentage |   
|-------------------------------------------------- | - | ------------------ | - | - | ---------- | - |  | ---------- | --
|                                                   |   | Three Months Ended |   |   | Increase/  |  
|                                                   |   | September 30,      |   |   | (Decrease) |  
|                                                   |   | 2008               |   |   | 2007       |   |  |            |   
|Selling, general and administrative
      expenses | $ | 153,720            |   | $ | 2,965,546  |   |  | (94.82     | )%
|Cost of revenue and service delivery               |   | 776,515            |   |   | 715,420    |   |  | 8.54%      |   
|Interest expense                                   |   | (1,689             | ) |   | (2,359     | ) |  | (28.40     | )%
|Total Expenses                                     | $ | 928,546            |   | $ | 3,678,607  |   |  | (74.76     | )%

General and Administrative

The 94.82% decrease in our general and administrative expenses
for the three month period ended September 30, 2008 from the comparative period
in 2007 was primarily due to: (i) decreased software development expenses and
associated consulting costs relating to the development of RFID software; (ii)
decreased professional fees associated with preparing and filing our periodic
reports under the Securities Exchange Act of 1934 and litigation costs; and
(iii) decreased stock compensation expenses due to vesting of stock options
issued to employees and consultants.

Liquidity and Capital Resources

Working Capital

|                           |   | Three Months Ended
      September 30, 2008 |   | Year Ended June 30,
      2008 | Percentage
      Increase/ (Decrease)
|-------------------------- | - | ------------------------------------------- | - | ------------------------------ | -------------------------------------
|Current Assets             | $ | 722,085                                     | $ | 928,662                        | (22.24 )%                            
|Current Liabilities        |   | 1,982,953                                   |   | 2,174,968                      | (8.83 )%                             
|Working Capital Deficiency | $ | (1,260,868 )                                | $ | (1,246,306 )                   | 1.17%                                

Cash Flows

|                                                |   | Three Months Ended
      September 30, 2008 |   | Three Months Ended
      September 30, 2007 | Percentage
      Increase/ (Decrease)
|----------------------------------------------- | - | ------------------------------------------- | - | ------------------------------------------- | -------------------------------------
|Cash used in Operating Activities               | $ | 64,848                                      | $ | (270,897 )                                  | (123.94 )%                           
|Cash used by Investing Activities               |   | (6,158 )                                    |   | -                                           | -                                    
|Cash provided by (used in) Financing Activities |   | (71,084 )                                   |   | 296,759                                     | (123.95 )%                           
|Net Decrease in Cash                            | $ | (1,944 )                                    | $ | 2,797                                       | (169.50 )%                           

We had cash on hand of $49,301 and a working capital deficit of
$(1,260,868) as of September 30, 2008 compared to cash on hand of $51,245 and
working capital of $(1,246,306) for the year ended June 30, 2008. We anticipate
that we will incur approximately $250,000 for operating expenses, including
professional, legal and accounting expenses associated with our reporting
requirements under the Exchange Act during the next twelve months. Accordingly,
we will need to obtain additional financing in order to complete our full
business plan.

Cash Used In Operating Activities

We used cash in operating activities in the amount of $64,848
during the three months ended September 30, 2008. Cash used in operating
activities was funded by cash from financing activities.

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- 7 -

Cash From Investing Activities

No cash was used or provided by investing activities during the
three months ended September 30, 2008.

Cash from Financing Activities

We
  used cash of $71,084 from financing activities during the three months ended
  September 30, 2008.

Current Capitalization

As at the date of this quarterly report, there are 111,812,971
shares of common stock and 5,000,000 shares of Class A preferred stock issued
and outstanding.

As at November 18, 2008, options outstanding are as
follows:

|                                | Shares    | Average       
|------------------------------- | --------- | --------------
|                                |           | Exercise Price
|Balance as at July 1, 2008      | 1,300,000 | $0.15         
|Granted                         | -         | -             
|Exercised                       | -         | -             
|Cancelled                       | -         | -             
|Balance as at November 18, 2008 | 1,300,000 | $0.15         

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.

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 $35,503 during the three months ended September 30, 2008,
and had a working capital deficiency of $1,260,868 and a shareholders
deficiency of $801,051. 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 September
30, 2009 and beyond primarily as a result of our contract backlog. 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 has 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.

There are no assurances that we will be able to obtain further
funds required for our continued operations. We are pursuing various financing
alternatives to meet our immediate and long-term financial requirements. There
can be no assurance that additional financing will be available to us when
needed or, if available, that it can be obtained on commercially reasonable
terms. If we are not able to obtain the additional financing on a timely basis,
we will be forced to scale down or perhaps even cease the operation of our
business.

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- 8 -

Future Financings

The Company does not have any significant available credit,
bank financing or other external sources of liquidity. Due to historical
operating losses and other issues as described in the Companys going concern
footnote included in its unaudited condensed consolidated financial statements
as at and for the period ended September 30, 2008, 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.

The Companys short term plan is to continue to ask its
officers to defer payment of salaries, utilize its common stock where possible
to pay for services and to seek further shareholder loans. In the longer term,
the Company is actively seeking additional merger, acquisition or venture
relationships with operating enterprises 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. We
have obtained our required cash resources principally through loans from
shareholders and our sole executive officer. While the operations of our
wholly-owned subsidiary are profitable, we still do not operate profitably as a
consolidated entity.

Managements plans to improve our financial condition are as
follows:

- Continued growth of Smart-tek Communications business activities in the
  security technology industry in the Greater Vancouver Area;
- We believe that our RFID tracking and monitoring software developed for the
  agriculture industry will be rolled out into the United States during the next
  12 months;
- We believe the beta test for the software and hardware will be successful
  on a start-up cattle farm in New Mexico; and
- We will continue to look for opportunities to grow organically where
  feasible as well as evaluate potential acquisition opportunities that may
  present themselves in the next 12 months.

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. We intend to use our
common stock as payment for services of various consultants in order to help
advance our business plan.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that are
material to stockholders.

Critical Accounting Policies

The preparation of financial statements in conformity with
generally accepted accounting principles requires our management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Our management routinely makes judgments and estimates about the effects of
matters that are inherently uncertain.

We have identified certain accounting policies, described
below, that are most important to the portrayal of our current financial
condition and results of operations.

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- 9 -

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
revenues, 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 of completion 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 AICPA Statement of Position 81-1 (SOP 81-1) Accounting for
Performance of Construction Type and Certain Production Type Contracts. 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. 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.

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 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 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.

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- 10 -

On January 1, 2006, the Company adopted SFAS No. 123 (revised
2004), Share-based Payment (SFAS No. 123R) a revision of 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 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 our option pricing model, of which $16,250 was recognized as
expense during the three months ended September 30, 2008. 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 September 30, 2008, the value of the unvested options was $16,250
which will be amortized in future periods as the options vest.

Risks and Uncertainties

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

We have incurred losses for the last four fiscal years. Our net
losses and negative cash flow may continue for the foreseeable future. As of
September 30, 2008, our accumulated deficit was $2,876,635. 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 RFID based system developed for the
Agriculture Industry. We believe that at the conclusion of the beta site testing
phase of development, that we will be able to successfully obtain customers for
the system. However, there is no guarantee that the system will be able to
successfully exit from its beta stage.

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

We believe the security landscape and the animal agricultural
tracking and monitoring market 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

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- 11 -

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.

The Company does not have any significant available credit,
bank financing or other external sources of liquidity. Due to historical
operating losses and other issues as described in the Companys going concern
footnote included in its unaudited condensed consolidated financial statements
as at and for the period ended September 30, 2008, 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. 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 amounts which are
uncertain, especially under the current capital market conditions. Under these
circumstances, if we are unable to obtain 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 rights to products, technologies or market; or
- Explore other strategic alternatives, including a merger or sale.

Our operating results are subject to fluctuations caused by
many factors that could cause us to fail to achieve our revenue or profitably
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 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
  customers;
- Our ability to build brand recognition;
- Timing of customer sales;
- 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;
- Real estate development market in the Greater Vancouver Area; and
- The market for RFID tracking systems within the animal agriculture
  industry.

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 shortfalls, which could harm our operating results. Because we
only compete in the Greater Vancouver Area, 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.

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Because our security and surveillance technology business
only operates in the Greater Vancouver Area, those customers who 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.

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 September 30, 2008, we had available federal net operating
loss (NOL) carry-forwards of approximately $6,930,948 Under Section 382 of the
Internal Revenue Code of 1986, as amended, the use of prior losses, including
NOLs 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.

Our stock is a penny stock. Trading of our stock may be
restricted by the SECs penny stock regulations and the FINRAs sales practice
requirements, which may limit a stockholders ability to buy and sell our stock.

Our stock is a penny stock. The Securities and Exchange
Commission has adopted Rule 15g-9 which generally defines penny stock to be
any equity security that has a market price (as defined) less than $5.00 per
share or an exercise price of less than $5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules, which impose
additional sales practice requirements on broker-dealers who sell to persons
other than established customers and accredited investors. The term
accredited investor refers generally to institutions with assets in excess of
$5,000,000 or individuals with a net worth in excess of $1,000,000 or annual
income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny

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stock market. The broker-dealer also must provide the customer
with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customers
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customers confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in, and limit the marketability of, our common stock.

In addition to the penny stock rules promulgated by the
Securities and Exchange Commission, the Financial Industry Regulatory Authority
has adopted rules that require that in recommending an investment to a customer,
a broker-dealer must have reasonable grounds for believing that the investment
is suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customers financial status,
tax status, investment objectives and other information. Under interpretations
of these rules, the Financial Industry Regulatory Authority believes that there
is a high probability that speculative low-priced securities will not be
suitable for at least some customers. The National Association of Securities
Dealers requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your ability to buy
and sell our stock.

Item 3. Quantitative and Qualitative Disclosures About
Market Risk.

Not Applicable.

Item 4T. Controls and Procedures.

As required by Rule 13a-15 under the Exchange Act, we have
evaluated the effectiveness of the design and operation of our disclosure
controls and procedures at September 30, 2008, which is the end of the period
covered by this report. This evaluation was carried out by our principal
executive officer and our principal financial officer. Based on this evaluation,
our principal executive officer and our principal financial officer have
concluded that the design and operation of our disclosure controls and
procedures are effective as at the end of the period covered by this report.

There were no changes in our internal control over financial
reporting during the fiscal quarter ended September 30, 2008 that have
materially affected or are reasonably likely to materially affect, our internal
control over financial reporting.

Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required to be disclosed
by our company in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the SECs rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by our company in the reports that we file or submit
under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate, to allow timely decisions regarding required disclosure.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is presently in arbitration with its former legal
counsel with respect to an outstanding legal bill in the amount of approximately
$263,000 respecting certain small claims matters handled by the former
counsel.

ITEM 1A. RISK FACTORS.

Not Applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS

|Exhibit Number | Description                                                                                                
|-------------- | -----------------------------------------------------------------------------------------------------------
|3.1            | Articles of Incorporation as amended(1)                                                                    
|3.2            | Bylaws(1)                                                                                                  
|3.3            | Certificate of Amendment to Certificate of Incorporation
      (2)                                         
|4.1            | Incentive Stock Option Plan (1)                                                                            
|4.2            | Non-Qualified Incentive Stock Option Plan (1)                                                              
|4.3            | Stock Bonus Plan (1)                                                                                       
|4.4            | 2005 Incentive Stock Plan (2)                                                                              
|10.1           | Letter of Intent between Smart-Tek Communications
      and Smart-Tek (3)                                  
|10.2           | Share Exchange Agreement between Registrant and
      Smart-Tek Communication, Inc dated April 15, 2005 (4)
|10.3           | Employment Agreement with Perry Law dated April
      23, 2005 (5)                                         
|10.4           | Employment Agreement with Stephen Platt dated April
      23, 2005 (5)                                     
|10.5           | Stock Option Grant to Perry Law dated April 23,
      2005 (6)                                             
|10.6           | Stock Option Grant to Stephen Platt dated April
      23, 2005 (6)                                         
|14.1           | Amended and Restated Code of Ethics (7)                                                                    
|31.1*          | CEO and CFO Section 302
      Certification under Sarbanes-Oxley Act of 2002                               
|32.1*          | CEO and CFO Section 906
      Certifications under Sarbanes-Oxley Act of 2002                              

*Filed herewith

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- 15 -

|(1) | Incorporated by reference to our Registration Statement
      on Form 10-SB, filed September 28, 1995.
|--- | ------------------------------------------------------------------------------------------------------
|(2) | Incorporated by reference to our Annual Report on Form
      10-KSB, filed October 26, 1995.          
|(3) | Incorporated by reference to our Current Report on Form
      8-K, filed March 8, 2005.               
|(4) | Incorporated by reference to our Current Report on Form
      8-K, filed April 19, 2005.              
|(5) | Incorporated by reference to our Current Report on
      Form8-K, filed April 27, 2005.               
|(6) | Incorporated by reference to our Current Report on Form
      8-K, filed on August 22, 2005.          
|(7) | Incorporated by reference to our Annual Report on Form
      10-KSB, filed October 15, 2008.          

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SIGNATURES

Pursuant to the requirements 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.

|By    |                                                                   | 
|----- | ----------------------------------------------------------------- | 
|      | /s/ Perry Law                                                     | 
|      | Perry Law                                                        
|      | President, Chief Executive Officer, Chief Financial
      Officer
|      | and sole director                                                
|      | (Principal Executive Officer, Principal Accounting
      Officer 
|      | and Principal Financial Officer)                                 
|      |                                                                  
|Date: | November 19, 2008                                                

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