---

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 December 31,
2009

[ ] 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 has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes[ ] No[ ]

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

---

2

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[ ]

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 February
19, 2010, there were 69,314,124 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. 
  December 31, 2009 and 2008

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|PART I -- FINANCIAL INFORMATION                                      |           
|-------------------------------------------------------------------- | ----------
|CONTENTS                                                             | PAGES     
|UNAUDITED 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-17

F-1

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Smart-tek Solutions Inc. 
  Consolidated Balance Sheets 
  As at December 31, 2009 (Unaudited) and June 30, 2009

|                                                                                                                                                                                          |   | December 31, |   |   | June 30,   |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ---------- | -
|                                                                                                                                                                                          |   | 2009         |   |   | 2009       |  
|                                                                                                                                                                                          |   | (unaudited)  |   |   |            |  
|                                                                                                                                                                                          |   |              |   |   |            |  
|Assets                                                                                                                                                                                    |   |              |   |   |            |  
|Current assets                                                                                                                                                                            |   |              |   |   |            |  
|Cash and
        cash equivalents                                                                                                                                                         | $ | 511,996      |   | $ | 73,272     |  
|Accounts receivable                                                                                                                                                                       |   | 978,029      |   |   | 639,284    |  
|Contract
        retention receivable                                                                                                                                                     |   | 344,256      |   |   | 235,196    |  
|Cost of uncompleted contracts
        in excess of billings                                                                                                                               |   | 210,207      |   |   | 37,097     |  
|Prepaid
        expenses and deposits                                                                                                                                                     |   | 1,631,261    |   |   | 1,376      |  
|Total current assets                                                                                                                                                                      |   | 3,675,749    |   |   | 986,225    |  
|                                                                                                                                                                                          |   |              |   |   |            |  
|Equipment, net of accumulated depreciation                                                                                                                                                |   | 84,437       |   |   | 15,122     |  
|                                                                                                                                                                                          |   |              |   |   |            |  
|Goodwill                                                                                                                                                                                  |   | 451,311      |   |   | 451,311    |  
|                                                                                                                                                                                          |   |              |   |   |            |  
|                                                                                                                                                                                          | $ | 4,211,497    |   | $ | 1,452,658  |  
|                                                                                                                                                                                          |   |              |   |   |            |  
|                                                                                                                                                                                          |   |              |   |   |            |  
|Liabilities                                                                                                                                                                               |   |              |   |   |            |  
|Current liabilities                                                                                                                                                                       |   |              |   |   |            |  
|Accounts
        payable and accrued liabilities                                                                                                                                          | $ | 2,251,785    |   | $ | 408,365    |  
|Bonus payable                                                                                                                                                                             |   | 456,720      |   |   | 240,744    |  
|Billings on uncompleted
        contracts in excess of costs and estimated revenues                                                                                                       |   | 88,166       |   |   | 297,600    |  
|Deferred revenue                                                                                                                                                                          |   | 12,042       |   |   | 12,389     |  
|Loans
        payable                                                                                                                                                                     |   | -            |   |   | 310,265    |  
|Shareholder loans                                                                                                                                                                         |   | 821,756      |   |   | 625,392    |  
|Amounts
        due to officers and directors                                                                                                                                             |   | 712,620      |   |   | 400,172    |  
|                                                                                                                                                                                          |   |              |   |   |            |  
|Total current liabilities                                                                                                                                                                 |   | 4,343,089    |   |   | 2,294,927  |  
|                                                                                                                                                                                          |   |              |   |   |            |  
|                                                                                                                                                                                          |   |              |   |   |            |  
|Stockholders Deficiency                                                                                                                                                                  |   |              |   |   |            |  
|Preferred
        stock, $0.001 par value, 5,000,000 shares authorized, one (1) shares of
        Class A preferred issued and outstanding at December 31, 2009 and June
        30, 2009 |   | -            |   |   | -          |  
|Common stock:
        $0.001 par value, 500,000,000, shares authorized,                                                                                                                   |   |              |   |   |            |  
|69,314,124
        issued and outstanding at December 31, 2009 and 447,589 issued and outstanding
        at June 30, 2009 respectively                                                   |   | 69,314       |   |   | 448        |  
|Additional
        paid in capital                                                                                                                                                        |   | 6,852,863    |   |   | 6,566,464  |  
|Accumulated
        other comprehensive loss                                                                                                                                              |   | (96,396      | ) |   | (67,722    | )
|Accumulated
        deficit                                                                                                                                                               |   | (6,957,373   | ) |   | (7,341,459 | )
|Total
        stockholders deficiency                                                                                                                                                    |   | (131,592     | ) |   | (842,269   | )
|                                                                                                                                                                                          |   |              |   |   |            |  
|                                                                                                                                                                                          | $ | 4,211,497    |   | $ | 1,452,658  |  
|                                                                                                                                                                                          |   |              |   |   |            |  

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 
  (Unaudited)

|                                                             |   | Three
      Months |   |   | Three
      Months |   |   | Six
      Months |   |   | Six
      Months |  
|------------------------------------------------------------ | - | ------------------ | - | - | ------------------ | - | - | ---------------- | - | - | ---------------- | -
|                                                             |   | Ended              |   |   | Ended              |   |   | Ended            |   |   | Ended            |  
|                                                             |   | December 31,       |   |   | December 31,       |   |   | December 31,     |   |   | December 31,     |  
|                                                             |   | 2009               |   |   | 2008               |   |   | 2009             |   |   | 2008             |  
|Revenue                                                      |   |                    |   |   |                    |   |   |                  |   |   |                  |  
|Contract revenue                                             | $ | 3,184,189          |   | $ | 832,816            |   | $ | 4,994,782        |   | $ | 1,710,850        |  
|Services
      revenue                                       |   | -                  |   |   | 15,075             |   |   | 11,706           |   |   | 33,191           |  
|Other revenue                                                |   | -                  |   |   | 239                |   |   | 341              |   |   | 510              |  
|Total revenue                                                |   | 3,184,189          |   |   | 848,130            |   |   | 5,006,829        |   |   | 1,744,551        |  
|Cost of revenue and service delivery                         |   | 2,320,051          |   |   | 465,392            |   |   | 3,517,331        |   |   | 1,241,907        |  
|Gross profit                                                 |   | 864,138            |   |   | 382,738            |   |   | 1,489,498        |   |   | 502,644          |  
|Selling, general and administrative expenses                 |   | 313,721            |   |   | 386,700            |   |   | 1,101,744        |   |   | 540,420          |  
|Operating income (loss)                                      |   | 550,417            |   |   | (3,962             | ) |   | 387,754          |   |   | (37,776          | )
|Other expense     Interest                                   |   | (1,731             | ) |   | (1,146             | ) |   | (3,668           | ) |   | (2,835           | )
|Net income (loss)                                            |   | 548,686            |   |   | (5,108             | ) |   | 384,086          |   |   | (40,611          | )
|Currency translation adjustment                              |   | 2,283              |   |   | 60,441             |   |   | (28,674          | ) |   | 70,891           |  
|Comprehensive income                                         | $ | 550,969            |   | $ | 55,333             |   |   | 355,412          |   |   | 30,280           |  
|Earnings per share, basic and diluted                        | $ | 0.03               |   | $ | 0.01               |   |   | 0.02             |   |   | 0.01             |  
|Weighted average shares outstanding, basic
      and diluted |   | 19,712,944         |   |   | 111,812,971        |   |   | 19,712,944       |   |   | 111,812,971      |  

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 
  Six months ended December 31, 2009 
  (Unaudited)

|                                              |  | Common Stock |  |   |        |  |   |            |  |   |               |   |   |             |  
|--------------------------------------------- |  | ------------ |  | - | ------ |  | - | ---------- |  | - | ------------- | - | - | ----------- | -
|                                              |  |              |  |   |        |  |   |            |  |   | Accumulated   |   |   |             |  
|                                              |  |              |  |   |        |  |   | Additional |  |   | Other         |   |   |             |  
|                                              |  |              |  |   |        |  |   | Paid in    |  |   | Comprehensive |   |   | Accumulated |  
|                                              |  | Shares       |  |   | Amount |  |   | Capital    |  |   | Income        |   |   | Deficit     |  
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|Balance  June 30, 2008                       |  | 447,589      |  | $ | 448    |  | $ | 6,533,964  |  | $ | (121,568      | ) | $ | (7,205,092  | )
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|Fair Value Options issued to employees        |  | -            |  |   | -      |  |   | 32,500     |  |   | -             |   |   | -           |  
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|Net Loss                                      |  | -            |  |   | -      |  |   | -          |  |   | -             |   |   | (136,367    | )
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|Currency translation adjustment               |  | -            |  |   | -      |  |   | -          |  |   | 53,846        |   |   | -           |  
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|Balance  June 30, 2009                       |  | 447,589      |  | $ | 448    |  | $ | 6,566,464  |  | $ | (67,722       | ) | $ | (7,341,459  | )
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|Shares issued for Marketing Partner Agreement |  | 45,000,000   |  |   | 45,000 |  |   | -          |  |   | -             |   |   | -           |  
|Shares issued for debt                        |  | 23,866,535   |  |   | 23,866 |  |   | 286,399    |  |   | -             |   |   | -           |  
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|Net Income                                    |  | -            |  |   | -      |  |   | -          |  |   | -             |   |   | 384,086     |  
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|Currency translation adjustment               |  | -            |  |   | -      |  |   | -          |  |   | (28,674       | ) |   | -           |  
|                                              |  |              |  |   |        |  |   |            |  |   |               |   |   |             |  
|Balance  December 31, 2009                   |  | 69,314,124   |  |   | 69,314 |  |   | 6,852,863  |  |   | (96,396       | ) |   | (6,957,373  | )

See accompanying notes to the consolidated financial statements.

F-4

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Smart-tek Solutions Inc. 
  Consolidated Statements of Cash Flows 
  (Unaudited)

|                                                                                        |   | Three Months      |   |   | Three Months   |   |   | Six Months     |   |   | Six Months Ended |  
|--------------------------------------------------------------------------------------- | - | ----------------- | - | - | -------------- | - | - | -------------- | - | - | ---------------- | -
|                                                                                        |   | Ended             |   |   | Ended December |   |   | Ended December |   |   | December 31,     |  
|                                                                                        |   | December 31, 2009 |   |   | 31, 2008       |   |   | 31, 2009       |   |   | 2008             |  
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Operating Activities                                                                    |   |                   |   |   |                |   |   |                |   |   |                  |  
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Net income (loss)                                                                       | $ | 548,686           |   | $ | (5,108         | ) | $ | 384,086        |   | $ | (40,611          | )
|Adjustments
        to reconcile net income (loss) to cash used in operating activities |   |                   |   |   |                |   |   |                |   |   |                  |  
|Depreciation
        and amortization                                                   |   | 4,671             |   |   | 338            |   |   | 7,942          |   |   | 737              |  
|Amortization
        of deferred compensation                                           |   | -                 |   |   | 16,250         |   |   | -              |   |   | 32,500           |  
|Marketing
        Partner Agreement                                                     |   | -                 |   |   | -              |   |   | 45,000         |   |   | -                |  
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Changes in operating assets and liabilities                                             |   |                   |   |   |                |   |   |                |   |   |                  |  
|Accounts
        receivable                                                             |   | (256,970          | ) |   | (9,668         | ) |   | (338,745       | ) |   | 175,239          |  
|Contract
        retention receivable                                                   |   | 14,093            |   |   | 29,744         |   |   | (109,060       | ) |   | 33,947           |  
|Costs of
        uncompleted contracts in excess of billings                            |   | (159,950          | ) |   | (267,762       | ) |   | (173,110       | ) |   | (252,297         | )
|Prepaid
        expenses and deposits                                                   |   | (1,629,673        | ) |   | 196            |   |   | (1,629,885     | ) |   | 255              |  
|Accounts
        payable and accrued liabilities                                        |   | 1,747,883         |   |   | (64,157        | ) |   | 1,843,420      |   |   | (127,094         | )
|Bonus
        payable                                                                   |   | (253,120          | ) |   | (31,605        | ) |   | 215,976        |   |   | (41,203          | )
|Billings
        on uncompleted contracts in excess of costs and estimated revenues     |   | (36,502           | ) |   | 77,228         |   |   | (209,434       | ) |   | 28,628           |  
|Deferred
        revenue                                                                |   | (953              | ) |   | (555           | ) |   | (347           | ) |   | (351             | )
|Net
        cash used in operating activities                                           |   | (21,835           | ) |   | (255,099       | ) |   | 35,843         |   |   | (190,250         | )
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Investing activities                                                                    |   |                   |   |   |                |   |   |                |   |   |                  |  
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Purchase of equipment                                                                   |   | (14,751           | ) |   | -              |   |   | (77,257        | ) |   | (6,158           | )
|Net cash used in investing activities                                                   |   | (14,751           | ) |   | -              |   |   | (77,257        | ) |   | (6,158           | )
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Financing activities                                                                    |   |                   |   |   |                |   |   |                |   |   |                  |  
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|(Decrease) Increase in bank overdraft                                                   |   | -                 |   |   | 28,706         |   |   | -              |   |   | (33,471          | )
|Proceeds from shareholder loan                                                          |   | -                 |   |   | -              |   |   | 196,364        |   |   | 5,837            |  
|Proceeds from officers and directors                                                    |   | 276,830           |   |   | 159,551        |   |   | 312,448        |   |   | 144,806          |  
|Net cash provided by financing activities                                               |   | 276,830           |   |   | 188,257        |   |   | 508,812        |   |   | 117,172          |  
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Effects of exchange rates on cash                                                       |   | 2,283             |   |   | 60,441         |   |   | (28,674        | ) |   | 70,891           |  
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Net increase (decrease) in cash                                                         |   | 242,527           |   |   | (6,401         | ) |   | 438,724        |   |   | (8,345           | )
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Cash and cash equivalents, beginning of period                                          |   | 269,469           |   |   | 49,301         |   |   | 73,272         |   |   | 51,245           |  
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Cash and cash equivalents, end of period                                                | $ | 511,996           |   | $ | 42,900         |   | $ | 511,996        |   |   | 42,900           |  
|                                                                                        |   |                   |   |   |                |   |   |                |   |   |                  |  
|Supplemental cash flow information                                                      |   |                   |   |   |                |   |   |                |   |   |                  |  
|Interest paid                                                                           | $ | 1,731             |   | $ | 2,835          |   | $ | 3,668          |   | $ | 2,835            |  

See accompanying notes to the consolidated financial statements.

F-5

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Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

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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.

On February 11, 2009, Smart-tek Automated Services Inc., a wholly
  owned subsidiary of the Company was incorporated in the State of Nevada. Smart-tek
  Automated Services Inc. will provide integrated and cost-effective management
  solutions in the area of human resources for public and private companies.

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 subsidiaries Smart-tek Communications
  Inc. and Smart-tek Automated Services 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 December 31, 2009 of $4,283 (2008  $8,270).

F-6

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Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

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, accounts
  payable and accrued liabilities, bonus payable, shareholder loans and amounts
  due to officers and directors. 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 debts. 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 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 (see
  Note 8).

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

---

Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

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 abased 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.

The Company recognizes professional employment organizations
  (PEO) revenues when each periodic payroll is delivered to the client. Revenues
  are reported in accordance with the requirements of Financial Accounting Standards
  Board (FASB) Emerging Issues Task Force Issue No. 99-19, Reporting
  Revenues Gross as a Principal Versus Net as an Agent. (EITF 99-19).
  Consistent with its revenue recognition policy, the Companys net PEO revenues
  and cost of PEO revenues do not include the payroll cost of its worksite employees.
  Instead, PEO revenues and cost of PEO revenues are comprised of all other costs
  related to its worksite employees, such as payroll taxes, employee benefit plan
  premiums and workers compensation insurance. PEO revenues also include
  professional service fees, which are primarily computed as a percentage of client
  payroll or on a per check basis.

In determining the pricing of the markup component of its billings,
  the Company takes into consideration its estimates of the costs directly associated
  with its worksite employees, including payroll taxes, benefits and workers
  compensation costs, plus an acceptable gross profit margin. As a result, the
  Companys operating results are significantly impacted by the Companys
  ability to accurately estimate, control and manage its direct costs relative
  to the revenues derived from the markup component of the Companys gross
  billings.

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.

F-8

---

Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

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.

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 which was recognized as expense
  prior to the quarter ended December 31, 2009.

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 December 31, 2009, the value of the unvested
  options was $Nil.

F-9

---

Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

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
  $65 for the period ended December 31, 2009.

Earnings 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 February 2008, the FASB issued FSP FAS 157-2, Effective Date
  of FASB Statement No. 157, which delays the effective date of SFAS No. 157 to
  July 1, 2009, for all nonfinancial assets and nonfinancial liabilities, except
  for items that are recognized or disclosed at fair value in the financial statements
  on a recurring basis (at least annually). The Company believes the adoption
  of the delayed items of SFAS No. 157 will not have a material impact on our
  financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events,
  which established general accounting standards and disclosure for subsequent
  events. In accordance with SFAS No. 165, the Company has evaluated subsequent
  events through the date the financial statements were filed.

In June 2009, the FASB issued SFAS No. 168 -- The FASB Accounting
  Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a
  replacement of FASB Statement No. 162. SFAS 168 establishes the FASB Accounting
  Standards Codification as the single source of authoritative US generally accepted
  accounting principles recognized by the FASB to be applied to nongovernmental
  entities. SFAS 168 is effective for financial statements issued for interim
  and annual periods ending after September 15, 2009. The adoption of SFAS 168
  will not have an impact on the Company's financial position, results of operations
  or cash flows.

Going Concern

The accompanying consolidated financial statements have been
  prepared assuming that the Company will continue as a going concern. The Company
  has net income of $384,086 and cash flow from operations of $35,843 during the
  period ended December 31, 2009, and had a working capital deficiency of $667,340
  and a stockholders deficiency of $131,592. These matters raise substantial
  doubt about its ability to continue as a going concern. Management believes
  that actions are presently being taken to revise the Companys operating
  results. Management believes that the Company will have adequate cash to fund
  anticipated needs through June 30, 2010 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-10

---

Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

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 December 31, 2009 and June 30 2009, contract retention
  receivables were $344,256 and $235,196 respectively.

F-11

---

Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

4. Equipment

|                                       |   |         |  |   |              |  |   | December 31 |  |   |        |  |   |              |  |   | June 30  | 
|-------------------------------------- | - | ------- |  | - | ------------ |  | - | ----------- |  | - | ------ |  | - | ------------ |  | - | -------- | 
|                                       |   |         |  |   | Accumulated  |  |   | 2009        |  |   |        |  |   | Accumulated  |  |   | 2009     | 
|                                       |   | Cost    |  |   | Depreciation |  |   | Net Book    |  |   | Cost   |  |   | Depreciation |  |   | Net Book | 
|                                       |   |         |  |   |              |  |   | Value       |  |   |        |  |   |              |  |   | Value    | 
|                                       |   |         |  |   |              |  |   |             |  |   |        |  |   |              |  |   |          | 
|Computer equipment & software          | $ | 22,020  |  | $ | 3,293        |  | $ | 18,727      |  | $ | 899    |  | $ | 762          |  | $ | 137      | 
|Office furniture & equipment           |   | 26,270  |  |   | 5,228        |  |   | 21,042      |  |   | 13,202 |  |   | 3,885        |  |   | 9,317    | 
|Leasehold improvements                 |   | 15,617  |  |   | 15,617       |  |   | -           |  |   | 15,617 |  |   | 15,617       |  |   | -        | 
|Computer equipment under capital lease |   | 2,140   |  |   | 1,843        |  |   | 297         |  |   | 2,140  |  |   | 1,791        |  |   | 349      | 
|Automobile                             |   | 49,226  |  |   | 4,855        |  |   | 44,371      |  |   | 6,158  |  |   | 839          |  |   | 5,319    | 
|                                       |   |         |  |   |              |  |   |             |  |   |        |  |   |              |  |   |          | 
|                                       | $ | 115,273 |  | $ | 30,836       |  | $ | 84,437      |  | $ | 38,016 |  | $ | 22,894       |  | $ | 15,122   | 

5. Bank Overdraft

At December 31, 2009, bank overdrafts covered by a revolving
  line of credit were $Nil. 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 $118,938 ($125,000 CDN)
  and is secured by a shareholder guarantee and $50,195 ($52,754 CDN) in the form
  of a term deposit. As of December 31, 2009, the Company had written checks of
  $Nil in excess of the operating line of credit.

Pursuant to the banking facility, the Companys wholly owned
  subsidiary is required to maintain minimum equity of $95,150 (CDN$100,000).
  The Companys wholly owned subsidiary is not in compliance with this condition
  at December 31, 2009.

6. Shareholder loans

At December 31, 2009 the Company is indebted to a company controlled
  by the Companys president in the amount of $821,756. The loan is unsecured,
  bears 7.5% interest and has no fixed terms of repayment.

7. Loans payable

At December 31, 2009, the Company has outstanding loans payable
  in the amount of $Nil (June 30, 2009  $310,265).

8. Income taxes

The Company utilizes SFAS No. 109, Accounting for Income
  Taxes, which requires the recognition of deferred tax assets and liabilities
  for the expected future tax consequences of events that have been included in
  the financial statements or tax returns. Under this method, deferred tax assets
  and liabilities are determined based on the difference between the tax basis
  of assets and liabilities and their financial reporting amounts based on enacted
  tax laws and statutory tax rates applicable to the periods in which the differences
  are expected to affect taxable income. Deferred income taxes are reported using
  the liabilities method.

Deferred tax assets are recognized for deductible temporary differences
  and for carry forwards. Deferred tax liabilities are recognized for taxable
  temporary differences. Temporary differences are the differences between the
  reported amounts of assets and liabilities and their tax bases. Deferred tax
  assets are reduced by a valuation allowance when, in the opinion of management,
  it is more likely than not that some portion or all of the deferred tax assets
  will not be realized.

F-12

---

Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

8. Income taxes, continued

The Company generated a deferred tax credit through net operating
  loss carry forwards. As of June 30, 2009 the company had federal and state net
  operating loss carry forwards of approximately $6,981,146 that can be used to
  offset future federal income tax. The federal and state net operating losses
  are reduced by a valuation allowance, when, in the opinion of management, utilization
  is not reasonably assured. A valuation allowance of 100% has been established;
  based on it is more likely than not that some portion or all of the deferred
  tax credit will not be realized.

At June 30, 2009, STS had available federal net operating loss
  (NOL)carry forwards of approximately $6,992,146. Under Section 382 of
  the internal Revenue Code of 1986, as amended, the use of prior losses including
  NOLs is subject to rules 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 a limitation on the use of NOLs 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 December 31, 2009 and June 30, 2009 as follows:

|                                                                                |   | December 31, |   |   | June 30,   |  
|------------------------------------------------------------------------------- | - | ------------ | - | - | ---------- | -
|                                                                                |   | 2009         |   |   | 2009       |  
|                                                                                |   |              |   |   |            |  
|Deferred tax asset, beginning                                                   | $ | 2,402,420    |   | $ | 2,409,732  |  
|Benefit (provision )of current years operating loss carry
      forward (gain) |   | (134,430     | ) |   | (7,312     | )
|Deferred tax asset, ending                                                      | $ | 2,267,990    |   | $ | 2,402,420  |  
|                                                                                |   |              |   |   |            |  
|Valuation allowance, beginning                                                  | $ | (2,402,420   | ) | $ | (2,409,732 | )
|Current years loss carry forward (provision)                                   |   | 134,430      |   |   | (7,312     | )
|Valuation allowance, ending                                                     | $ | (2,267,990   | ) | $ | (2,402,420 | )
|                                                                                |   |              |   |   |            |  
|Deferred tax asset, net                                                         | $ | -            |   | $ | -          |  
|                                                                                |   |              |   |   |            |  
|Tax at blended U.S./Canadian statutory
      rates                              |   | (35%         | ) |   | (35%       | )
|Loss carryover                                                                  |   | 35%          |   |   | 35%        |  
|                                                                                |   |              |   |   |            |  
|Tax expense                                                                     | $ | -            |   | $ | -          |  

9. Common Stock

At December 31, 2009, 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 December 31, 2009, there are 69,314,124 shares of common stock
  outstanding.

During the period, the Company issued 45,000,000 common stock
  of the Company to Brian Bonar, a director of the Company based on the achievement
  certain milestone targets for annualized sales as set out in the Marketing Partner
  Agreement dated June 17, 2009.

During the period, the Company issued 23,866,535 common stock
  of the Company for the settlement of debt.

F-13

---

Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

9. Common Stockcontinued

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.

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.

F-14

---

Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

9. Common Stock, continued

2005 Stock Incentive Plan,continued

At December 31, 2009, options outstanding are as follows:

|                             |  |           |  |  | Average        | 
|---------------------------- |  | --------- |  |  | -------------- | 
|                             |  | Shares    |  |  | Exercise Price | 
|Balance at July 1, 2009      |  | 1,300,000 |  |  | $ 0.15         | 
|Granted                      |  | -         |  |  | -              | 
|Exercised                    |  | -         |  |  | -              | 
|Cancelled                    |  | -         |  |  | -              | 
|Balance at December 31, 2009 |  | 1,300,000 |  |  | $ 0.15         | 

Additional information regarding options outstanding as of June
  30, 2009 is as follows:

|         |  |             |  |  | Options outstanding |  |   | Options exercisable | 
|-------- |  | ----------- |  |  | ------------------- |  | - | ------------------- | 
|         |  |             |  |  | Weighted average    |  |   | Weighted            | 
|         |  |             |  |  | remaining           |  |   | average             | 
|Exercise |  | Number      |  |  | contractual life    |  |   | exercise            | 
|price    |  | outstanding |  |  | (years)             |  |   | price               | 
|         |  |             |  |  |                     |  |   |                     | 
|$ 0.15   |  | 1,300,000   |  |  | 8.00                |  | $ | 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. The Company calculated the fair value of the options
  to be $195,000 using an option pricing model, of which $32,500 was recognized
  as expense during the year ended June 30, 2009.

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 December 31, 2009, the value of the unvested
  options was $Nil.

10. Costs and Estimated Earnings on Uncompleted Contracts

|                                                                                  |   | December 31, |   |   | June 30,   |  
|--------------------------------------------------------------------------------- | - | ------------ | - | - | ---------- | -
|                                                                                  |   | 2009         |   |   | 2009       |  
|                                                                                  |   |              |   |   |            |  
|Costs incurred on uncompleted contracts                                           | $ | 2,293,591    |   | $ | 1,225,215  |  
|Estimated earnings                                                                |   | 2,009,284    |   |   | 746,096    |  
|                                                                                  |   | 4,302,875    |   |   | 1,971,311  |  
|                                                                                  |   |              |   |   |            |  
|Less: Billings to Date                                                            |   | (4,180,834   | ) |   | (2,231,814 | )
|                                                                                  |   |              |   |   |            |  
|                                                                                  | $ | 122,041      |   | $ | (260,503   | )
|                                                                                  |   |              |   |   |            |  
|Included in accompanying balance
      sheets under the following captions:       |   |              |   |  
|Costs of uncompleted contracts in excess of billings                              | $ | 210207       |   | $ | 37,097     |  
|Billings on uncompleted contracts in excess
      of costs and estimated revenues |   | (88,166      | ) |   | (297,600   | )
|                                                                                  | $ | (122,040     | ) | $ | (260,503   | )

F-15

---

Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

11. Related Party Transactions

During the period ended December 31, 2009, the Companys
  wholly owned subsidiary paid $507,866 in management salaries to its President
  and Vice president which included bonuses of $445,536. Consulting fees of $46,982
  were also incurred during the period. Such costs have been reflected in the
  accompanying statement of operations.

Amounts due to officers and directors were $821,756 as of December
  31, 2009.

12. Commitments

Operating leases

The Companys wholly owned subsidiary Smart-tek Communications
  Inc. entered into a non-cancellable operating lease for office space on March
  1, 2008. Furthermore, the Companys wholly-owned subsidiary is committed
  to operating leases for four company vehicles up to April 2014. The minimum
  payments required under these operating leases for each of the five years subsequent
  to December 31, 2009 are approximately as follows:

|     | Year ending
|---- | -----------
|     | June 30    
|2010 | 15,445     
|2011 | 24,208     
|2012 | 19,064     
|2013 | 9,108      
|2014 | 7,211      

Employment agreements

The Companys wholly owned subsidiary Smart-tek Communications
  Inc. has annual employment agreements with the president and vice-president
  and is committed to pay each of them annual salaries of $139,230 (CDN$150,000)
  along with annual car allowances of $13,923 (CDN$15,000).

Marketing partner agreement

By agreement dated June 30, 2009, the Company entered into a
  Marketing Partner Agreement with its wholly owned subsidiary, Smart-tek Automated
  Services, Inc. (SASI), and Brian Bonar (Bonar), a director
  of the Company.

Pursuant to the terms of the marketing agreement, Bonar agreed
  to provide certain services to SASI to promote and market the business of SASI
  to prospective clients, in consideration of which SASI agreed to pay Bonar a
  commission consisting of the following: (i) for every US$1,000,000 in annualized
  gross sales of SASI up to the first US$25,000,000 in annualized sales introduced
  by Bonar, Bonar will receive 1,800,000 shares of common stock of the Company
  up to a maximum of 45,000,000 shares of Companys common stock; and (ii)
  after an aggregated US$25,000,000 in annualized gross sales by SASI resulting
  from sales introduced by Bonar, Bonar will receive one percent of annualized
  gross revenues of SASI for the amounts in excess of US$5,000,000 of annualized
  gross sales in any given fiscal year payable in cash. The agreement is for an
  indefinite term and may be terminated by either party without cause on 30 days
  written notice.

F-16

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Smart-tek Solutions Inc.
  Notes to the Consolidated Financial Statements 
  December 31, 2009

---

13. Concentrations of risk

At December 31, 2009, two customers accounted for 40% (2008 
  three significant customers accounted for 43%) of trade accounts receivable.

For the period ended December 31, 2009, two significant customers
  accounted for 21% (2008  one significant customer accounted for 10%) of
  revenue and one of the customers individually accounted for more than 10% of
  revenue.

For the period ended December 31, 2009, three significant suppliers
  accounted for 26% (2008  three significant suppliers accounted for 35%)
  of purchases.

For the period ended December 31, 2009, 100% of the Companys
  sales and accounts receivable arose from sales to Canadian customers.

F-17

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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

We currently operate two distinct lines of business. 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.

On June 17, 2009, we determined to add a new line of business
providing integrated and cost-effective management solutions in the area of
human resources for public and private companies. In connection with the
expansion of business operations, we incorporated a subsidiary, Smart-Tek
Automated Services, Inc. (Smart-Tek Automated), a private Nevada corporation
through which we operate our new line of business. Since its inception,
Smart-Tek Automated Services Inc. has provided services to small and medium-size
businesses, relieving its clients from many of the day-to-day tasks that
negatively impact their core business operations, such as payroll processing,
human resources support, workers' compensation insurance, safety programs,
employee benefits, and other administrative and aftermarket services
predominantly related to staffing - staff leasing, temporary staffing and
co-employment. We intend to continue to expand this new business in the next
twelve 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.

Recent Corporate Developments

Since the commencement of our second quarter ended December 31,
2009, we experienced the following significant corporate developments:

| | 1. | During the quarter, the Companys wholly owned
      subsidiary, Smart-Tek Automated Services Inc., opened offices in Los
      Angeles, Marlton, New Jersey and Colorado. The Colorado office is intended
      to provide sales and client service support for customers in Colorado, New
      Mexico, Kansas, Oklahoma and Missouri. The decision to open a new sales
      office was due to the sales growth Smart-Tek Automated experienced in
      these geographical areas.                                                                                                                                                                                                                                            
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 2. | During the quarter Smart-Tek Automated experienced an
      increase in the number of clients engaging the Company for staffing and
      payroll services, bringing the total number of clients to 38.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 3. | In January, 2010 Smart-Tek Automated signed a leasing
      agreement with F.W. Davison to use a high performance PEO software that
      integrates payroll, human resources, benefits administration, billing and
      accounts receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 4. | In January, 2010 Smart-Tek Automated appointed Kelly
      Mowrey as COO. Kelly Mowrey, received BA from Stephens College, Magna Cum
      Laude and has over nine years experience in the PEO and Staffing Industry.
      Mowrey, most recently served as the Vice President of Corporate Sales for
      Allegiant Professional Business Services, Inc. In this role, Mowrey
      significantly increased by targeting large staffing firms and developing
      relationships with large brokers within the PEO industry. Mowrey has had
      over nine years of executive sales experience with public companies in our
      industry and provides a track record of developing a sales strategy to
      increase sales.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | 5. | In May, 2009 Brian Bonar was appointed as Chief Executive
      Officer of Smart-Tek Automated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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- 6 -

Marketing Partner Agreements

In August, 2009 Smart-Tek Automated entered into a strategic
  marketing partner agreement with ACEO Inc. Pursuant to the terms of the marketing
  agreement ACEO agreed to promote the business and services of the Company through
  various means including, among other things, providing for the assignment of
  payroll processing contracts of its existing clients to Smart-Tek Automated,
  developing qualified client leads for Smart-Tek Automated, collecting information
  concerning workers compensation from prospect to facilitate price quotations
  and perform such other marketing and support services for Smart-Tek Automated
  as it may from time to time require.

In consideration of these services Smart-Tek Automated agreed
to: (i) pay for all employee wages, payroll taxes, state and federal
unemployment insurance, claims and workers compensation premiums of all clients
referred; and (ii) provide recruitment, reference checks, initial interviews,
pre-employment and random drug testing services. Under the terms of the
agreement ACEO agreed to wire monies to the Company on a weekly basis in an
amount equal to the gross wages plus applicable taxes, workers compensation and
the administrative fees set out in the schedules to the agreement, which fees
include a fee of 1% of gross payroll, deductible workers compensation expenses
of $1,000 per occurrence and workers compensation fees at a rate of 75% of GIC
manual rate for the clients listed in the schedules to the agreement. The
agreement may be terminated by either party without cause. If the agreement is
terminated without cause the parties agree to enter into a client transition
agreement to allow for the transition of clients back to ACEO.

Since the Companys entry into ACEO Inc. agreement, the Company
has entered into agreements with 28 of the companies listed in the schedules to
the marketing agreement. ACEO is a sales brokerage and payroll outsourcing firm
that brokers submissions to numerous professional employment organizations
(PEO). Smart-Tek Automated is in the process of having each client sign a new
contract directly with Smart-Tek Automated. We hope to have this completed by
the end of our next quarter.

RESULTS OF OPERATIONS

Six Month Summary

|                                             |   |                  |   |   |            |   |  | Percentage | 
|-------------------------------------------- | - | ---------------- | - | - | ---------- | - |  | ---------- | 
|                                             |   | Six Months Ended |   |   | Increase/  |  
|                                             |   | December 31,     |   |   | (Decrease) |  
|                                             |   | 2009             |   |   | 2008       |   |  |            | 
|Revenue                                      | $ | 5,006,829        |   | $ | 1,744,551  |   |  | 187%       | 
|Selling, General and Administrative Expenses |   | 1,101,744        |   |   | 540,420    |   |  | 104%       | 
|Interest expense                             |   | (3,668           | ) |   | (2,835     | ) |  | 29%        | 
|Net Income (Loss)                            | $ | 384,086          |   |   | ($40,611   | ) |  | 1,046%     | 

Revenue

The 187% increase in revenues for the six months ended December
31, 2009 as compared to the comparative period in 2008 is primarily attributable
to: (i) the continued development of our payroll and staffing business through
Smart-Tek Automated; and (ii) an increase in business during the period for our
security business through Smart-Tek Communications Inc. During the period ended
December 31, 2009 we had a gross profit of 1,489,498 as compared to a gross
profit of $502,644 during the comparative period in 2008. The business of our
subsidiary Smart-Tek Automated accounted for 27.8% of our gross profit and 39.4%
of our total revenues during the period.

At December 31, 2009, two customers accounted for 40% of trade
accounts receivable. For the six months ended December 31, 2009: two significant
customers accounted for 21% of revenue, 100% of the Companys sales and accounts
receivable arose from sales to Canadian customers and three significant
suppliers accounted for 26% of purchases.

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- 7 -

Expenses

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

|                                                   |   |                  |  |   |            |  |  | Percentage |  
|-------------------------------------------------- | - | ---------------- |  | - | ---------- |  |  | ---------- | -
|                                                   |   | Six Months Ended |  |   | Increase/  | 
|                                                   |   | December 31,     |  |   | (Decrease) | 
|                                                   |   | 2009             |  |   | 2008       |  |  |            |  
|Selling, General and Administrative
      Expenses | $ | 1,101,744        |  | $ | 540,420    |  |  | 104%       |  
|Cost of revenue and service delivery               |   | 3,517,331        |  |   | 1,241,907  |  |  | 183.2%     |  
|Interest expense                                   |   | 3,668            |  |   | 2,835      |  |  | (29.4%     | )
|Total Expenses                                     | $ | 4,622,743        |  | $ | 1,785,162  |  |  | 159%       |  

Selling, General and Administrative

The 104% increase in our selling, general and administrative
expenses and the overall increase in our total expenses of 4,177,113 for the six
month period ended December 31, 2009 from the comparative period in 2008 was
primarily due to: (i) increased professional fees associated with preparing and
filing our periodic reports under the Securities Exchange Act of 1934 and
litigation costs; (ii) increased expenses associated with the development of the
business of our subsidiary Smart-Tek Automated; and (iii) increased expenses
associated with the cost of revenue and service delivery during the period.

During the period ended December 31, 2009, the Companys wholly
owned subsidiary paid $507,866 in management salaries to its President and Vice
president which included bonuses of $445,536. Consulting fees of $46,982 were
also incurred during the period. Amounts due to officers and directors were
$821,756 as of December 31, 2009.

Liquidity and Capital Resources

|Working Capital            |   |              |   |   |               |   |  |            |  
|-------------------------- | - | ------------ | - | - | ------------- | - |  | ---------- | -
|                           |   | Six Months   |   |   |               |   |  |            |  
|                           |   | Ended        |   |   |               |   |  | Percentage |  
|                           |   | December 31, |   |   | Year Ended    |   |  | Increase/  |  
|                           |   | 2009         |   |   | June 30, 2009 |   |  | (Decrease) |  
|Current Assets             | $ | 3,675,749    |   | $ | 986,225       |   |  | 272.7%     |  
|Current Liabilities        |   | 4,343,089    |   |   | 2,294,927     |   |  | 89.2%      |  
|Working Capital Deficiency |   | ($667,340    | ) |   | ($1,308,702   | ) |  | (49%       | )

|Cash Flows                               |   |              |   |   |              |   |  |            | 
|---------------------------------------- | - | ------------ | - | - | ------------ | - |  | ---------- | 
|                                         |   | Six Months   |   |   | Six Months   |   |  |            | 
|                                         |   | Ended        |   |   | Ended        |   |  | Percentage | 
|                                         |   | December 31, |   |   | December 31, |   |  | Increase/  | 
|                                         |   | 2009         |   |   | 2008         |   |  | (Decrease) | 
|Cash from (used in) Operating Activities | $ | 35,843       |   |   | ($190,250    | ) |  | 188.8%     | 
|Cash (used in) Investing Activities      |   | ($77,257     | ) |   | ($6,158      | ) |  | 1,254.6%   | 
|Cash provided by Financing Activities    | $ | 508,812      |   | $ | 117,172      |   |  | 334.2%     | 
|Net Increase (Decrease) in Cash          | $ | 438,724      |   |   | ($8,345      | ) |  | 5,357.3%   | 

We had cash on hand of $511,996 and a working capital deficit
  of $(667,340) as of December 31, 2009 compared to cash on hand of $73,272 and
  working capital deficit of $(1,308,702) for the year ended June 30, 2009. We
  anticipate that we will incur approximately $300,000 for operating expenses,
  including professional, legal and accounting expenses associated with our reporting
  requirements under the Exchange Act during the next twelve months.

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- 8 -

Cash Used In Operating Activities

We had cash from operating activities in the amount of $304,582
during the six months ended December 31, 2009 as compared to cash used in
operating activities of $190,250 in the comparative period in 2008. Cash from
operating activities resulted from the increased revenues from the business of
our subsidiaries.

Cash Used In Investing Activities

We used cash in investing activities in the amount of $77,257
during the six months ended December 31, 2009. Cash used in investing activities
was funded by cash from financing activities. At December 31, 2009 the Company
is indebted to a company controlled by the Companys president in the amount of
$821,756. The loan is unsecured, bears 7.5% interest and has no fixed terms of
repayment.

Cash from Financing Activities

We had cash of $508,812 from financing activities during the
six months ended December 31, 2009, an increase of 334.2% from the comparative
period in 2008. Cash provided by financing activities during the period
increased primarily due to an increase in loans from shareholders.

Current Capitalization

As at the date of this quarterly report, there are 69,314,124
shares of common stock and 1 share of Class A preferred stock issued and
outstanding.

As at February 19, 2010, options outstanding are as
follows:

|                                |  | Shares    |  |   | Average        | 
|------------------------------- |  | --------- |  | - | -------------- | 
|                                |  |           |  |   | Exercise Price | 
|Balance as at February 19, 2010 |  | 1,300,000 |  | $ | 0.15           | 
|Granted                         |  | -         |  |   | -              | 
|Exercised                       |  | -         |  |   | -              | 
|Cancelled                       |  | -         |  |   | -              | 
|Balance as at February 19, 2010 |  | 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. During
  the six months ended December 31, 2009, the Company had net income of $384,086,
  had cash flow from operations of $35,843, had a working capital deficiency of
  $667,340 and a shareholders deficiency of $131,592. 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 December 31, 2010 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.

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- 9 -

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.

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 December 31, 2009, 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.

Off-Balance Sheet Arrangements

We have no 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.

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;

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- 10 -

- 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.

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.

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- 11 -

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 $195,000 was recognized as
expense during the six months ended December 31, 2009. 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
December 31, 2009, the value of the unvested options was $Nil.

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
December 31, 2009, our accumulated deficit was $6,957,373. 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 as well as expanding our payroll and staffing business.
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.

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 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 December 31, 2009, 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:

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- 12 -

- 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 particularly for our new subsidiary
  Smart-Tek Automated;
- 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; and
- Real estate development market in the Greater Vancouver Area.

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 for our security business, we do not
have the ability to predict future backlog with any certainty. Because of the
above factors, you should not rely on period to period comparisons of results of
operation as an indication of future performances.

Because our security and surveillance technology business
only operates in the Greater Vancouver 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.

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- 13 -

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 December 31, 2009, we had available federal net operating
loss (NOL) carry-forwards of approximately $6,992,146. 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, the Company 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 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.

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- 14 -

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 December 31, 2009, 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 December 31, 2009 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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- 15 -

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On July 10, 2009 Smart-Tek entered into a settlement agreement
with Richardson Patel pursuant to which it agreed to pay Richardson Patel
$200,000 in full and final settlement of all claims that the firm had or may
have had against Smart-Tek with respect to certain outstanding accounts owed by
Smart-Tek to the firm. In connection with our entry into the settlement
agreement with Richardson Patel, we entered into a stock pledge agreement among
Richardson Patel, Perry Law, and four of our stockholders pursuant to which the
stockholders pledged an aggregate of 29,152,127 shares of our common stock as
security for repayment of the amounts owed to Richardson Patel.

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 | Description                                                                                                                                                                               
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |                                                                                                                                                                                           
|3.1     | Articles of Incorporation as amended(1)                                                                                                                                                   
|3.2     | Bylaws(1)                                                                                                                                                                                 
|3.3     | Certificate of Amendment to Articles (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 Solutions Inc. dated March 8, 2005 (3)                                                                              
|10.2    | Share Exchange Agreement between Royce Biomedical Inc.
      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)                                                                                                                        
|10.7    | Form of Debt Settlement and Subscription Agreement dated
      June 23, 2008 among Smart-Tek Solutions Inc., Perry Law, P5 Holdings Ltd.,
      Joe Law, Denis Gallant and Gev 2000 KFT(7)
|10.8    | Lease Agreement between Smart-Tek Communications, Inc.
      and Protec Installations Group dated March 1, 2008(8)                                                                        

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- 16 -

|Exhibit | Description                                                                                                                                         
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |                                                                                                                                                     
|10.9    | Marketing Partner
        Agreement dated June 17, 2009 among Smart-Tek Solutions Inc., Smart-Tek
        Automated Systems Inc. and Brian Bonar.(9)
|10.10   | Settlement Agreement and General
        Release made as of July 10, 2009 between Smart-Tek Solutions Inc. and
        Richardson Patel LLP (11)    
|10.11   | Amendment to
        Employment Agreement between Smart-Tek Communications Inc. and Perry Law
        dated July 31, 2009 (11)                      
|10.12   | Strategic Marketing Partner Agreement
        between Smart-Tek Automated Services Inc. and ACEO Inc. dated August 1,
        2009 (11)             
|10.13   | Form of Debt
        Settlement and Subscription Agreement dated September 30, 2009 (11)                                                            
|14.1    | Amended and Restated Code of
        Ethics(10)                                                                                                     
|21.1    | Subsidiaries(11)                                                                                                                                    
|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

|(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 Current Report on Form
      8-K, filed on June 27, 2008.                          
|(8)  | Incorporated by reference to our Form 10-Q for the period
      ended December 31, 2008, filed on February 23, 2009.
|(9)  | Incorporated by reference to our Current Report on Form
      8-K, filed on June 24, 2009.                          
|(10) | Incorporated by reference to our Annual Report on Form
      10-K, filed October 15, 2008.                          
|(11) | Incorporated by reference to our Annual Report on Form
      10-K, filed October 13, 2009.                          

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- 17 -

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                                                        | 
|      | Chief Executive Officer, Chief Financial
      Officer           | 
|      | and director                                                     | 
|      | (Principal Executive Officer, Principal
      Accounting Officer | 
|      | and Principal Financial Officer)                                 | 
|      |                                                                  | 
|Date: | February 19, 2010                                                | 

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