UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, 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, 2010

[   ] 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)

1100 Quail Street, Newport Beach, CA 92660
(Address of principal executive offices) (zip code)

(858) 798-1644
(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):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [   ]     No [X]

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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 January 31, 2011, there were 24,314,124 shares of common stock, par value $0.001, outstanding.

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Smart-tek Solutions Inc.
Consolidated Balance Sheets
As at December 31, 2010 (Unaudited) and June 30, 2010

See accompanying notes to the consolidated financial statements.

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Smart-tek Solutions Inc.
Consolidated Statements of Operations and Comprehensive Income
(Unaudited)

See accompanying notes to the consolidated financial statements.

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See accompanying notes to the consolidated financial statements.

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

See accompanying notes to the consolidated financial statements.

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1.      Summary of significant accounting policies

Nature of operations, basis of financial statement presentation

Smart-tek Solutions Inc. (“the Company”) was incorporated in the State of Nevada on March 22, 1995.

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 have included major developers, general and electrical contractors, hospitals, Crown Corporations, law enforcement agencies and retail facilities. Currently, 100% of the SCI’s operations are in Canada.

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.

On February 11, 2009, Smart-tek Automated Services Inc., a wholly owned subsidiary of the Company was incorporated in the State of Nevada for the purpose of adding a yet to be determined new business line. On June 17, 2010, Brian Bonar was contracted to use his expertise and contacts in the PEO area for the benefit of Smart-tek Automated Services, Inc. Smart-tek Automated Services Inc. provides integrated and cost-effective management solutions in the area of human resources for public and private companies. Though Smart-tek Automated Services Inc., provides mainly professional employer organization (“PEO”) services, it is equipped to provide temporary staffing services as well. In a PEO co-employment contract, the Company becomes the employer of record for client company employees’ for tax and insurance purposes. The client company continues to direct the employees’ day-to-day activities, and Smart-tek Automated Services Inc. charges a service fee for providing services.

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.

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.

Cash and equivalents

Cash and cash equivalents consist of cash on hand and bank deposits. For financial reporting purposes, the Company considers all highly liquid debt instruments with original maturities of three months or less to be cash equivalents. The Company maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses related to this concentration of risk. At December 31, 2010 and June 30, 2010, the Company did not have any deposits in excess of federally insured limits.

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Accounts Receivable

Accounts receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible accounts, as needed. The Company uses the allowance method to account for uncollectible accounts receivable balances. Under the allowance method, if needed, an estimate of uncollectible customer balances is made based upon specific account balances that are considered uncollectible. Factors used to establish an allowance include the credit quality and payment history of the customer. There is an allowance for doubtful accounts as of December 31, 2010 of $12,446 (June 30, 2010 – $11,628).

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.

Equipment

Equipment, including computer equipment under capital lease agreements, is accounted for in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) topic 360: Property Plant and Equipment. It 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.

Goodwill and intangible assets

The Company accounts for goodwill and intangible assets pursuant to FASB ASC 350 (SFAS No.142), “Goodwill and Other Intangible Assets”. Under ASC 350, 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.

Income taxes

In accordance with FASB ASC 740 (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.

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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 FASB Topic 605-35: Construction Type 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 ASC 605-45: Principal Agent Consideration. 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.

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.

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Comprehensive (loss) income

Comprehensive income is presented in accordance with FASB ASC 220. 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 FASB ASC 718: Compensation-Stock Compensation (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” ASC 718 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.

Recovery of long-lived assets

The Company adopted FASB ASC Topic 360: Property Plant and Equipment, sub topic 360-10-35-15: Impairment or Disposal of Long Lived Assets (SFAs 144). ASC 360-10-35-15 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 $2,946 for the period ended December 31, 2010 (December 31, 2009 - $65).

Earnings (loss) per share

The Company computes net earnings (loss) per common share in accordance with FASB ASC 260 (SFAS No. 128 “Earnings per Share” and SAB No. 98). Under the provisions of ASC 260, 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.

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Fair Value of Financial Instruments

Effective January 1, 2008, fair value measurements are determined by the Company's adoption of authoritative guidance issued by the under FASB ASC 870-10: Fair Value Measurements and Disclosures (FASB 157), with the exception of the application of the statement to non-recurring, non-financial assets and liabilities as permitted. The adoption of the authoritative guidance did not have a material impact on the Company's fair value measurements. Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company's assumptions.

The Company is required to use of observable market data if such data is available without undue cost and effort.

At December 31, 2010 and June 30, 2010, the carrying amounts of financial instruments, including cash, accounts and other receivables, accounts payable and accrued liabilities, and accounts payable to related parties approximate fair value because of their short maturity.

Recent Accounting Pronouncements

In October 2009, the FASB issued authoritative guidance on revenue recognition that will become effective in fiscal years beginning on or after June 15, 2010, with earlier adoption permitted. Under the new guidance on arrangements that include software elements, tangible products that have software components that are essential to the functionality of the tangible product will no longer be within the scope of the software revenue recognition guidance, and software-enabled products will now be subject to other relevant revenue recognition guidance. Additionally, the FASB issued authoritative guidance on revenue arrangements with multiple deliverables that are outside the scope of the software revenue recognition guidance. Under the new guidance, when vendor specific objective evidence or third party evidence for deliverables in an arrangement cannot be determined, a best estimate of the selling price is required to separate deliverables and allocate arrangement consideration using the relative selling price method. The new guidance includes new disclosure requirements on how the application of the relative selling price method affects the timing and amount of revenue recognition. We believe the adoption of this new guidance will not have a material impact on our financial statements.

In January 2010, the FASB issued guidance under FASB ASU No. 2010-08, “Technical Corrections to various Topics’ related to ASC Topic 820-10 on improving disclosures about fair value measurements to add new disclosure requirements for significant transfers in and out of Level 1 and 2 measurements and to provide a gross presentation of the activities within the Level 3 rollforward. The guidance also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The disclosure requirements are effective for interim and annual reporting periods beginning after December 15, 2009, except for the requirement to present the Level 3 rollforward on a gross basis, which is effective for fiscal years beginning after December 15, 2010. The adoption of this guidance was limited to the form and content of disclosures, and will not have a material impact on our consolidated results of operations and financial condition.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future consolidated financial statements.

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Recent Accounting Pronouncements, continued

In May 2009, the FASB issued new guidance for accounting for subsequent events. The new guidance, which is now part of ASC 855-10, Subsequent Events (formerly, SFAS No. 165, Subsequent Events) is consistent with existing auditing standards in defining subsequent events as events or transactions that occur after the balance sheet date but before the financial statements are issued or are available to be issued, but it also requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date. The new guidance defines two types of subsequent events: “recognized subsequent events” and “non-recognized subsequent events.” Recognized subsequent events provide additional evidence about conditions that existed at the balance sheet date and must be reflected in the company’s financial statements. Non-recognized subsequent events provide evidence about conditions that arose after the balance sheet date and are not reflected in the financial statements of a company. Certain non-recognized subsequent events may require disclosure to prevent the financial statements from being misleading. The new guidance was effective on a prospective basis for interim or annual periods ending after June 15, 2009. The Company adopted the provisions of ASC 855-10 as required.

In June 2009, the FASB issued new guidance which is now part of ASC 105-10 (formerly Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles). ASC 105-10 replaces FASB Statement No. 162, "The Hierarchy of Generally Accepted Accounting Principles", and establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles. ASC 105-10 is effective for interim and annual periods ending after September 15, 2009. The adoption of ASC 105-10 did not have a material impact on the Company’s financial statements.

In January 2010, the FASB issued ASU No. 2010-01, amending SFAS No. 168, “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles.” This Standard codified in ASC 105 is being modified to include the authoritative and non-authoritative levels of GAAP. This amendment is effective for financial statements issued for interim and annual periods ending after September 15, 2009. ASU No. 2010-01 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

In February 2010, the FASB issued ASU No. 2010-09, “Subsequent Events (ASC Topic 855), Amendments to Certain Recognition and Disclosure Requirements.” This Standard update requires a SEC Filer to (1) evaluate subsequent events through the date that the financial statements are issued or available to be issued, (2) defines “SEC Filer” as an entity that is required to file or furnish its financial statements with either the SEC or, with respect to an entity subject to Section 12(i) of the Securities Exchange Act of 1934, as amended, the appropriate agency under that Section, (3) not be bound to disclosing the date through which subsequent events have been evaluated, (4) note the definition of public entity is not longer defined nor necessary for Topic 855, (5) note the scope of the reissuance disclosure requirements is refined to include revised financial statements only. These Updates are effective for interim or annual periods ending after June 15, 2010. ASU No. 2010-09 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

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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 Preferred certificate was redeemed by the Company on June 1, 2010.

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:

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:

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, 2010 and June 30 2010, contract retention receivables were $110,724 and $118,804 respectively.

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4.      Equipment

5.      Bank Overdraft

At December 31, 2010, 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 $125,675 ($125,000 CDN) and is secured by a shareholder guarantee and $53,125 ($52,840 CDN) in the form of a term deposit.

Pursuant to the banking facility, the Company’s wholly owned subsidiary is required to maintain minimum equity of $100,540 (CDN$100,000). The Company’s wholly owned subsidiary is not in compliance with this condition at December 31, 2010.

6.      Shareholder loans

At December 31, 2010 the Company is indebted to a company controlled by the Company’s president in the amount of $825,639. The loan is unsecured and has no fixed terms of repayment. The Company’s president has waived any interest earned in fiscal 2010.

7.      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.

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7.      Income taxes, continued

The Company generated a deferred tax credit through net operating loss carry forwards. As of December 31, 2010 the company had federal and state net operating loss carry forwards of approximately $5,687,402 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 December 31, 2010, STS had available federal net operating loss (NOL) carry forwards of approximately $5,687,402. 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, 2010 and June 30, 2010 as follows:

8.     Common Stock

At December 31, 2010, the Company is authorized to issue:

At December 31, 2010, there are 24,314,124 shares of common stock outstanding.

During the quarter a certificate for 45,000,000 shares was cancelled and returned to treasury pursuant to an Amended Marketing Agreement dated December 9, 2010, by and between Smart-Tek Solutions Inc., it’s wholly owned subsidiary Smart-Tek Automated Services, Inc., and its affiliated businesses (hereinafter collectively referred to as the “Company”) and, Brian Bonar.

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8.      Common Stock, continued

Preferred Stock

There are no preferred shares issued or outstanding.

9.      Costs and Estimated Earnings on Uncompleted Contracts

Included in accompanying balance sheets under the following captions:

10.    Related Party Transactions

During the period ended December 31, 2010, the Company’s wholly owned subsidiary paid $70,150 (CDN $72,000) in management salaries to its President and Vice president and consulting fees of $40,433 (CDN $41,500). Such costs have been reflected in the accompanying statement of operations.

Amounts due to officers and directors were $1,281,114 as of December 31, 2010.

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11.    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, 2010 are approximately as follows:

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 $146,145 (CDN$150,000) along with annual car allowances of $14,615 (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. This agreement was amended on December 9, 2010 as follows:

Pursuant to the terms of the Amended marketing agreement, Brian Bonar agreed to provide certain services to Smart-Tek Automated to promote and market the new business of Smart-Tek to prospective clients, in consideration of which Smart-Tek agreed to pay Mr. Bonar a commission consisting of the following: For each US$1,000,000 in actual net sales of the Company subsequent to the first aggregate of US $20,000,000 in actual net sales and up to the first aggregate of US $30,000,000 in actual net sales of the Company, introduced by Marketing Partner to the Company (the “Client Contacts”), Marketing Partner will receive 4,500,000 Shares without further compensation. The maximum aggregate Shares that may be issued to the Marketing Partner under the Agreement are 45,000,000 Shares.

After an aggregate of US$30,000,000 in actual net sales is reached by the Company resulting from Client contacts introduced by Marketing Partner to the Company, Marketing Partner will receive two percent (2%) of annual net revenues of the Company for the amounts in excess of US$5,000,000 of actual net revenues in any given fiscal year in cash.

The agreement is for an indefinite term and may be terminated by either party without cause on 30 days written notice.

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11.    Commitments, continued

Settlement agreement

In July, 2009 Smart-Tek negotiated a settlement with Richardson & Patel LLP pursuant to the terms of which Smart-Tek would be required to pay Richardson & Patel $10,000 per month, commencing August 1, 2009, until payments in the aggregate of $200,000 were made 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 totaling approximately $315,000 for legal services rendered. In connection with the settlement, Richardson & Patel requested that the parties enter into a stock pledge agreement pursuant to which Perry Law (1,829 shares pledged), P5 Holdings Ltd (30,984 shares pledged), Agri-Tech Marketing (22,000 shares pledged), Donald Gee (40,000 shares pledged) and Joe Law (21,795 shares pledged) would pledge an aggregate of 116,608 (post-split) shares of Smart-Tek’s issued and outstanding common stock as security for repayment of the amounts owed to Richardson & Patel. This agreement fell into default and on December 2, 2010, the Company entered into a General Release of Claims Agreement whereby for consideration of $45,000 plus the certain stock certificates pledged as collateral from the July 2009 settlement agreement, has released Smart-Tek Solutions, Inc. from all claims and demands of any kind arising out of or relating to certain outstanding accounts owed by Smart-Tek Solutions, Inc., to Richardson Patel LLC for legal services rendered. In addition, Richardson Patel LLC expressly stated that it understood that the original certificates pledged were issued pre-reverse split and that the number of shares collateralized were 116,610 post reverse-split shares.

Sale of Smart-Tek Communications Inc.

On August 20, 2010, the Company filed a preliminary 14A proxy to approve the sale of the Company’s wholly owned subsidiary Smart-Tek Communications Inc. to its president and founder Perry Law.

The aggregate purchase price of Smart-Tek Communications, Inc. is $821,757 allocated as follows:

The Company received a comment letter from the Securities and Exchange Commission on the above filing and is in the process of responding to such letter.

The Company will be filing a revised preliminary proxy ending these proposals. It is the Company’s intention to perform a transitional audit as of December 31, 2010 with an anticipated Board meeting on or around July 1, 2011.

12.    Subsequent Events

Events subsequent to December, 2010 have been evaluated through January 10, 2010, the date these statements were available to be issued, to determine whether they should be disclosed. Management found no subsequent events to be disclosed.

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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.

Overview

We currently operate two distinct lines of business. Our first and oldest line is through our wholly owned subsidiary Smart-Tek Communications Inc. which is in the business of design, sale, installation and service of security technology with electronic hardware and software products. 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 Our projects range from residential and commercial developments to system upgrades and monitoring contracts. Customers include developers, general and electrical contractors, hospitals, Crown Corporations, law enforcement agencies and retail facilities. Currently, 100% of Smart-Tek Communications Inc.’s operations are in Canada..

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Concerning the second line of business, 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. We run the new line of business through a previously incorporated subsidiary, Smart-Tek Automated Services, Inc. (“Smart-Tek Automated”), a private Nevada corporation which we had opened with business expansion in mind. 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. This business line is growing nicely and now has become the Company’s major product line..

Plan of Operation

Short Term

Smart-Tek Communications Inc.: This subsidiary has been underperforming quite some time due to the shrinkage of business opportunities coupled with falling margins resulting from several competitors quoting on the same job opportunities. With sales declining and losses increasing, the Company is anticipating either closing this business line or selling it to its founder Perry Law in exchange for the debt owed to Mr. Law by the Company. This will free up working capital and managements time to concentrate on the PEO business.

Smart-Tek Automated Services Inc.: Continue to concentrate of signing up new brokers who have a large book of business that we can service.

Long Term

Smart-Tek Automated Services Inc.: Our current strategy is to expand our service business, including staff leasing, PEO services, and value added products and services to small and medium-size businesses.

PEO Business Environment

We provide professional employer organization outsourcing (PEO) and human resources services to small and medium-size businesses. These services allow our customers to outsource many human resources tasks, including payroll processing, workers' compensation insurance, employee benefits administration, risk management and human resource administration. These services relieve existing and potential customers of the burdens associated with personnel management and control.

As a human resource department and strategic business partner for our clients, our service offerings allow our clients to:

• comply with ever evolving complex employment related regulatory and tax issues;
• increase productivity by improving employee satisfaction and retention;
• reduce payroll expenses with lower workers' compensation costs; and
• focus on core business activities instead of human resource matters.

Our current strategy is to expand our service business, including staff leasing, PEO services, and value added products and services to small and medium-size businesses.

PEO Market Overview

The burdens placed on small and medium-sized employers by the complex legal and regulatory issues related to human resources management caused our industry segment to grow beginning in the 1980's. While various service providers have been available to assist these businesses with specific tasks, companies like ours emerged as providers of a more comprehensive range of services relating to the employer/employee relationship. We assume broad aspects of the employer/employee relationship for our clients. Because we provide employee-related services to a large number of employees, we provide economies of scale that provide our clients employment-related functions more efficiently, provide a greater variety of employee benefits, and devote more attention to human resources management.

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We believe that the demand for our services is driven by (1) the trend by small and medium-sized businesses toward outsourcing management tasks outside of core competencies; (2) the difficulty of providing competitive health care and related benefits to attract and retain employees; (3) the increasing costs of health and workers' compensation insurance coverage and workplace safety programs; and (4) complex regulation of labor and employment issues and the related costs of compliance.

RESULTS OF OPERATIONS

Six Month Summary

Revenue

The 119% increase in revenues of $5,970,540 for the six months ended December 31, 2010 as compared to the comparative period in 2009 is primarily attributable to: (i) an increase in our payroll and staffing business through Smart-Tek Automated of $7,804,651 offset by (ii) a decrease in business during the period for our security business through Smart-Tek Communications Inc. of $(1,834,111). The increase in our payroll and staffing revenue through Smart-Tek Automated is a result of the continued integration of our current contracts. The decrease in our security revenue through Smart-Tek Communications Inc. is a result of shrinking business opportunities in the security field.

Gross Profit

During the period ended December 31, 2010 we had a gross profit of $2,703,395 as compared to a gross profit of $1,489,498 during the comparative period in 2009 for an increase of $1,210,897 or 81%. The business of our subsidiary Smart-Tek Automated accounted for $2,132,050 or 143% of the increase offset by Smart-Tek Communications Inc. who accounted for $(921,153) or (62%) of the increase in gross profit.

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.

Expenses

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

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Selling, General and Administrative

Selling, general and administrative expenses of $1,554,763for the six month period ended December 31, 2010 increased by $453,019 or 45% over the same six month period prior year. The increase was mainly attributable to the increase in the payroll business resulting in broker commissions of $652,688 (841%) and 2) increase in wages of $335,937 (387%) offset by a decrease in the security business in management fees of $525,743 (100%).

Cost of revenue and service delivery

Cost of revenue and service delivery expenses of $8,273,974 for the six month period ended December 31, 2010 increased by $4,756,643 or 135% over the same six month period prior year. The increase was mainly attributable to the increase in the payroll business resulting in increased payroll costs of $5,672,601 (364%) offset by a decrease in the security business cost of revenue of $915,958 (46%).

Liquidity and Capital Resources

We had cash on hand of $760,546 and working capital of $65,457 as of December 31, 2010 compared to cash on hand of $416,389 and a working capital deficit of $(994,278) for the year ended June 30, 2010. We anticipate that we will incur approximately $267,000 a month for operating expenses, including professional, legal and accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve months.

Subsequent Events:

Events subsequent to December, 2010 have been evaluated through January 10, 2010, the date these statements were available to be issued, to determine whether they should be disclosed. Management found no subsequent events to be disclosed.

Other Information:

On August 20, 2010, the Company filed a preliminary 14A proxy to approve the sale of the Company’s wholly owned subsidiary Smart-Tek Communications Inc. to its president and founder Perry Law.

The aggregate purchase price of Smart-Tek Communications, Inc. is $821,757 allocated as follows:

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The Company received a comment letter from the Securities and Exchange Commission on the above filing and is in the process of responding to such letter. The Company’s responses will be submitted shortly.

The Company will be filing a revised preliminary proxy ending these proposals. It is the Company’s intention to perform a transitional audit as of December 31, 2010 with an anticipated Board meeting on or around July 1, 2011.

Cash Used In Operating Activities

We had cash from operating activities in the amount of $60,863 during the six months ended December 31, 2010 as compared to cash used in operating activities of $35,843 in the comparative period in 2009. 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 $0 during the six months ended December 31, 2010 as opposed to $77,257 cash used in investing activities during the six months ended December 31, 2009.

Cash from Financing Activities

We had cash of $325,615 from financing activities during the six months ended December 31, 2010, a decrease of 22% from the comparative period in 2009. Cash provided by financing activities during the period decreased primarily due to a reduction of proceeds from officers and directors.

Financing

During the quarter ended March 31, 2010, Smart-tek Automated Services secured a line of credit for $1,000,000 USD from J.P. Chase Manhattan Bank to facilitate its automatic withdrawals from client accounts as well as for the provision of direct deposit services to its clients.

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.

buy our common stock, which may limit your ability to buy and sell our stock.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4T. Controls and Procedures.

As required by Rule 13a-15 under the Exchange Act, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures at December 31, 2010, 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.

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There were no changes in our internal control over financial reporting during the fiscal quarter ended December 31, 2010 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

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

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In July, 2009 Smart-Tek negotiated a settlement with Richardson & Patel LLP pursuant to the terms of which Smart-Tek would be required to pay Richardson & Patel $10,000 per month, commencing August 1, 2009, until payments in the aggregate of $200,000 were made 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 totaling approximately $315,000 for legal services rendered. In connection with the settlement, Richardson & Patel requested that the parties enter into a stock pledge agreement pursuant to which Perry Law (1,829 shares pledged), P5 Holdings Ltd (30,984 shares pledged), Agri-Tech Marketing (22,000 shares pledged), Donald Gee (40,000 shares pledged) and Joe Law (21,795 shares pledged) would pledge an aggregate of 116,608 (post-split) shares of Smart-Tek’s issued and outstanding common stock as security for repayment of the amounts owed to Richardson & Patel.

This agreement fell into default and on December 2, 2010, the Company entered into a General Release of Claims Agreement whereby for consideration of $45,000 plus the certain stock certificates pledged as collateral from the July 2009 settlement agreement, has released Smart-Tek Solutions, Inc. from all claims and demands of any kind arising out of or relating to certain outstanding accounts owed by Smart-Tek Solutions, Inc., to Richardson Patel LLC for legal services rendered. In addition, Richardson Patel LLC expressly stated that it understood that the original certificates pledged were issued pre-reverse split and that the number of shares collateralized were 116,610 post reverse-split shares.

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.

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*Filed herewith

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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.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Smart-Tek Solutions Inc. - Form 10-Q -