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 September 30, 2012

[   ] 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]

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 October 31, 2012, there were 49,212,123 shares of common stock, par value $0.001, outstanding.

PART I -- FINANCIAL INFORMATION

Smart-Tek Solutions Inc.
Condensed Consolidated Balance Sheets
As of September 30, 2012 and December 31, 2011
(Unaudited)

See accompanying notes to the consolidated financial statements.
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Smart-Tek Solutions Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Three and Nine Months Ended September 30, 2012 and 2011
(Unaudited)

See accompanying notes to the consolidated financial statements.
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Smart-Tek Solutions Inc.
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2012 and 2011
(Unaudited)

See accompanying notes to the consolidated financial statements.
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1.           INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

Basis of Presentation

These interim condensed consolidated financial statements are unaudited but reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly the financial position of Smart-Tek Solutions, Inc. and its subsidiaries (“STS” or the “Company”) as of September 30, 2012, its consolidated results of operations for the three and nine months ended September 30, 2012 and September 30, 2011, and the consolidated cash flows for the nine months ended September 30, 2012 and September 30, 2011. The Company owns 100% of the outstanding stock in its subsidiaries. Certain information and footnote disclosures normally included in the audited consolidated financial statements have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Because all the disclosures required by accounting principles generally accepted in the United States are not included, these interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2011. The results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results to be expected for the entire fiscal year ending December 31, 2012, or any other period. The year-end condensed consolidated balance sheet data as of December 31, 2011 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States.

Going Concern – The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has generated insufficient revenues from operations and has incurred substantial and recurring losses to date. Additionally, the Company has minimal to no cash, negative working capital, and a stockholders’ deficit as of September 30, 2012. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company incurred a net operating loss of $1.8 million and $5.0 million respectively for the three and nine months ended September 30, 2012 and a net operating loss of approximately $8.1 million for the year ended December 31, 2011, and has incurred accumulated losses totaling approximately $19.7 million through September 30, 2012. Because of these conditions, the Company will require additional working capital to continue operations and develop its business. The Company intends to raise additional working capital either through private placements, public offerings and/or bank financing, and continues to strive to increase its revenues each year.

There are no assurances that the Company will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain additional financing through private placements, public offerings and/or bank financing necessary to support the Company’s working capital requirements. To the extent that funds generated from any private placements, public offerings and/or bank financing are insufficient the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not continue its operations or execute its business plan.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Nature of operations

Smart-Tek Solutions Inc. was incorporated in the State of Nevada on March 22, 1995.

In July 2005, the Company changed its name from Royce Biomedical Inc. to Smart-Tek Solutions Inc. to better reflect its new business activities.

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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 July 1, 2010, the Company completed the disposition of the Company’s wholly-owned subsidiary SCI to its president and founder Perry Law.

On February 11, 2009, Smart-Tek Automated Services Inc., a wholly-owned subsidiary of the Company, was incorporated in the State of Nevada. On June 17, 2009, Brian Bonar was contracted to use his expertise and contacts in the professional employer organization (“PEO”) area for the benefit of Smart-Tek Automated Services, Inc. Smart-Tek Automated Services Inc. provides integrated and cost- effective management solutions for human resource functions for public and private companies. Though Smart-Tek Automated Services Inc., provides 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 charges a service fee for providing services. 100% of Smart-Tek Automated Services Inc.’s operations are in the United States.

On October 1, 2011 Smart-Tek Solutions, Inc. purchased the assets and brand name of Solvis Medical from American Marine LLC dba AMS Outsourcing a Montana limited liability corporation. Solvis Medical provides medical staffing services to hospitals, medical clinics, surgical centers, skilled nursing facilities, and nursing care to patients in their homes.

2.           Summary of significant accounting policies

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:

Liquidity and Management Plans

At September 30, 2012, the Company had cash and cash equivalents of $0, a working capital deficit of approximately $17.57 million and an accumulated deficit of $19.7 million. The Company also has substantial unpaid tax liabilities as of September 30, 2012. Due to these circumstances, the Company’s management monitors and attempts to minimize, to the extent possible, all cash expenditures. The Company plans to seek additional funds, equity or debt, to support its operations. The Company’s management believes it will generate sufficient additional revenues to meet its working capital needs in future periods.

Principles of consolidation

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

Use of estimates

The preparation of these consolidated 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 creditworthiness of customers, 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.

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2.           Summary of significant accounting policies, continued 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. The allowance for doubtful accounts was $232,823 and zero as of September 30, 2012 and 2011, respectively.

The Company regularly discounts selected trade accounts receivable from clients to a commercial factoring company. Under the terms of the factoring agreement, the factor remits the invoiced amounts to the Company less a portion for reserves. When paid in full, the factor remits the reserve amount less a portion for processing fees and interest. Accounts are factored with recourse as to credit losses. The Company reflects a liability to the factoring company in its Balance Sheet for the amounts that remain uncollected until the factored invoices have been paid in full. At September 30, 2012 the company had $719,285 in assigned accounts receivable.

Workers compensation insurance

The Company maintains reserves in the form of prepaid cash deposits for known workers' compensation claims which are made up of estimated collateral required to pay claims and estimated expenses to settle the claims. The collateral amounts are determined by the insurance carrier and are not recoverable by the Company until all claims related to a policy period are settled.

The prepaid cash deposits will not be recoverable in the near term and accordingly, they are classified as a long term asset. The Company reserves prepaid cash deposits for case reserves at a rate of 150%. Case reserves, included in accrued workers compensation, are an estimate for the costs of claims, administrative costs as well as legal costs. These estimates are continually reviewed and adjustments to liabilities are reflected in current operating results as they become known.

Concentration of credit risk

Credit risk arises from the potential that a counterpart will fail to perform its obligations. The Company is exposed to credit risk related to its accounts receivable. The Company’s receivables are comprised of a number of debtors which minimizes the concentration of credit risk.

Revenue recognition

The Company recognizes PEO revenues when each periodic payroll is delivered. 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. Revenues related to the Solvis Medical business are recognized when the services are invoiced to the client.

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.

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2.           Summary of significant accounting policies, continued Goodwill

The Company’s goodwill was derived from the acquisition of Solvis Medical assets. Goodwill is the excess of cost over the fair market value of net tangible assets acquired. Goodwill is not amortized but tested for impairment on an annual basis or if certain circumstances indicate a possible impairment may exist.

Share-based compensation

The Company measures the cost of employee services received in exchange for equity awards based on the grant date fair-value of the awards. Fair value is typically the market price of the shares on the date of issuance. Costs are recognized as compensation expense over the vesting period of the awards.

Loss per share

The Basic net loss per common share is computed by dividing the net loss available to common stock outstanding during the period. Net loss per share on a diluted basis is computed by dividing the net loss for the period by the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Due to the Company incurring a loss for the three and nine months ending September 30, 2012 and 2011, all potential dilutive securities were considered to be anti-dilutive.

Fair Value of Financial Instruments

Fair value is determined to be 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. The Company follows a fair value hierarchy that 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 observable market data if such data is available without undue cost and effort.

At September 30, 2012 and 2011, 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.

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2.           Summary of significant accounting policies, continued Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

The Company has reviewed accounting pronouncements and interpretations thereof that have effective dates during the periods reported and in future periods. The Company believes that the following impending standards may have an impact on its future filings. The applicability of any standard will be evaluated by the Company and is still subject to review by the Company.

The Company has adopted FASB ASC 220 “Comprehensive Income”, which establishes standards for reporting and display of comprehensive income (loss), its components and accumulated balances. The Company had no components of comprehensive income (loss) for the periods presented.

In July 2012, the FASB issued ASU No. 2012-02, Intangibles—Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment (“ASU 2012-02”). ASU 2012-02 is intended to reduce the cost and complexity of the annual indefinite-lived intangible assets impairment testing by providing entities an option to perform a “qualitative” assessment to determine whether further impairment testing is necessary. As such, there is the possibility that quantitative assessments would not need to be performed if it is more likely than not that no impairment exists. This new update is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. The Company will adopt ASU 2012-02 as of December 31, 2012 for its annual impairment testing. The Company does not expect it to significantly affect its testing.

We do not believe any other recent accounting pronouncements issued by the FASB, the AICPA, or the SEC have a material impact on the Company's present or future consolidated financial statements.

3.           Equipment

Depreciation and amortization of property and equipment was $5,578 and $4,702 for the three months ended September 30, 2012 and 2011 respectively and $16,734 and $17,010 for the nine months ended September 30, 2012 and 2011, respectively.

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4.           Equity

At September 30, 2012, the Company is authorized to issue shares as follows:

Common Stock

At September 30, 2012, there are 49,212,123 shares of common stock outstanding.

On June 16, 2011 the Board of Directors approved the Smart-Tek Solutions 2011 Stock Compensation Plan (“2011 Plan”) authorizing the sale or award of up to an additional 10,000,000 shares and/or options of the Company's Common Stock. The Stock Option Plan expires in August 20, 2013. On June 13, 2011, the company issued 21,897,999 shares to the Company’s CEO pursuant to a Strategic Marketing Agreement. The cost of these shares was measured at the market value of $.01 per share or $218,980 and expensed at the time of issuance. On June 16, 2011 3,000,000 shares were issued to a consultant as compensation for services rendered. The cost of these shares was measured at the market value of $.075 per share or $225,000 and expensed at the time of issuance. The value in excess of Par Value was recognized as Additional Paid in Capital. 7,000,000 shares and/or options of the Company’s common stock are available for issuance under the 2011 Plan as of September 30, 2012.

Preferred Shares

There are no preferred shares issued or outstanding.

5.           Loss per share

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6.           Acquisitions

On October 1, 2011, Smart-Tek Solutions, Inc. acquired the assets and the brand name of Solvis Medical from American Marine LLC dba AMS Outsourcing, a Montana limited liability corporation.

The purchase price was $535,000 consisting of a $35,000 cash payment at closing plus a $500,000 promissory note that matures on September 30, 2013 and bears a 6% simple interest rate. The purchase price will be revalued at the one and two year time periods based on performance as follows:

• Year 2012 – At December 31, 2012, the acquired net assets will be revalued at four (4) times pretax earnings. A one year promissory note at 6% interest will be issued for the net change between the original value and the 2012 revalue.

• Year 2013 – At December 31, 2013, the acquired net assets will be revalued at four (4) times pretax earnings. A one year promissory note at 6% interest will be issued for the net change between the revalue as of December 31, 2012 and the revalue at December 31, 2013

The Company recorded the purchase price as follows:

Management does not believe that the calculation of 4 times earnings will exceed the purchase price of $535,000.

7.           Note Payable to Related Party

At September 30, 2012, the Company has an outstanding note payable in the amount of $500,000 payable to an affiliated company relating to the acquisition of Solvis Medical assets. The loan is unsecured, bears a simple 6% interest and matures at September 30, 2013.

8.           Related Party Transactions

During the three month period ended September 30, 2012, Smart-Tek Automated Services Inc. (a wholly-owned subsidiary) paid $358,943 in management salaries to its Chief Executive Officer and Chief Operating Officer which included commissions of $70,000 and benefits of $100,481. Such costs have been reflected in the accompanying statement of operations.

During the nine months ended September 30, 2012, Smart-Tek Automated Services Inc. (a wholly-owned subsidiary) paid $1,017,032 in management salaries to its Chief Executive Officer and Chief Operating Officer which included commissions of $279,078 and benefits of $179,878. Such costs have been reflected in the accompanying statement of operations.

From time to time, Smart-Tek Automated Services Inc. purchases additional services from related parties to take advantage of economies of scale as opposed to maintaining full time staff and resources within its own operations. Likewise, Smart-Tek Automated services shares its own resources with these same related parties again to leverage economies of scale.

During the three and nine months ended September 30, 2012, Smart-Tek Automated Services Inc. (a wholly-owned subsidiary) paid consulting fees of $61,000 and $383,500, respectively, to a company controlled by an officer of the Company for Financial, HR and Legal Services. Such costs have been reflected in the accompanying statement of operations.

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8.           Related Party Transactions, continued

Smart-Tek additionally pays certain fees to another related party for the sharing of office space and utilities. These expenses are included in the accompanying statement of operations and were based upon actual usage or allocations agreed to by management personnel.

Amounts due from/to related companies

Mr. Brian Bonar, the Company’s Chief Executive Officer and Chairman, has a 40% direct and a 50% indirect ownership interest in American Marine LLC (“AMS”), American Transportation Administrative Services, Corp is owned by AMS. Mr. Bonar is the CEO and director of Dalrada Management, and is a minority shareholder. The amounts due from or to related companies are interest-free, unsecured and payable on demand.

Following is a summary of the balances both due to and from these related parties as of September 30, 2012 which in some cases is an accumulation over several years of activity:

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

OPERATIONS

Certain statements in this quarterly report on Form 10-Q that are not historical in fact constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (PSLRA). The PSLRA provides certain “safe harbor” provisions for forward-looking statements. All forward-looking statements made in this annual report on Form 10-Q are made pursuant to the PSLRA. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” and similar expressions are intended to identify forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors based on the Company’s estimates and expectations concerning future events that may cause the actual results of the Company to be materially different from historical results or from any results expressed or implied by such forward-looking statements. These risks and uncertainties, as well as the Company’s critical accounting policies, are discussed in more detail under “Management’s Discussion and Analysis—Critical Accounting Policies” and in periodic filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

You should read the following discussion of our financial condition and results of operations together with the audited financial statements and the notes to the audited financial statements included in this annual report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

Overview

Through our wholly owned subsidiary Smart-Tek Automated Services, Inc. (“Smart-Tek Automated”), we provide integrated and cost-effective management solutions in the area of human resources services to small and medium-size businesses, relieving our 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.

Through our Solvis Medical business line we provides medical staffing services to hospitals, medical clinics, surgical centers, skilled nursing facilities, and nursing care to patients in their homes.

Plan of Operation

Short Term

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

Long Term

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

PLAN OF OPERATION AND FUNDING

Our cash reserves are not sufficient to meet our obligations for the next twelve month period. As a result, we will need to seek additional funding in the near future. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of shares of our common stock or issuance of convertible debentures. We may also seek to obtain short-term loans from our directors or unrelated parties, although no such arrangements have been made. We do not have any arrangements in place for any future equity financing.

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 main business, a co-employment or PEO contract arrangement, we become a co-employer of the client's existing workforce and assume some or all of the client's human resource management responsibilities.

Our business continues to experience some liquidity problems. Accordingly, year-to-year comparisons may be of limited usefulness as our business continues to seek growth.

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.

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.

Medical Staffing

Provides medical staffing services to hospitals, medical clinics, surgical centers, skilled nursing facilities, and nursing care to patients in their homes.

RESULTS OF OPERATIONS

Three and nine months ending September 30, 2012 and 2011

Revenue

For the three months ending September 30, 2012 and 2011, revenues were $6,104,919 and $4,628,141 respectively, for an increase of $1,476,778 (32%) over the same period in 2011. The increase was attributable to a net increase in our payroll and staffing business through Smart-Tek Automated Services. The Solvis Medical nurse staffing business line contributed $1,038,217 during the quarter.

For the nine months ending September 30, 2012 and 2011, revenues were $18,719,513 and $15,251,133 respectively, for an increase of $3,468,380 (23%) over the same period in 2011. The increase was attributable to a net increase in our payroll and staffing business through Smart-Tek Automated Services. The Solvis Medical nurse staffing business line contributed $3,113,042 in 2012.

Gross Profit

Gross profit (loss) for the three months ending September 30, 2012 and 2011 were $(207,773) and $(155,177) respectively, for an increase loss of $52,596 (34%) over the same period in 2011. The increase in loss was attributed to increased workers compensation expense.

Gross profit for the nine months ending September 30, 2012 and 2011 were $1,099,936 and $2,802,521 respectively, for a decrease of $1,702,585 (64%) over the same period in 2011. The decrease in gross profit was directly a result of increased workers compensation expense. Solvis Medical nurse staffing business line contributed $415,341 to the decrease in 2012.

Expenses

Our expenses for the nine months ended September 30, 2012 and 2011 are outlined in the table below:

Cost of revenue

Cost of revenue of $6,312,692 for the three months ended September 30, 2012 increased by $1,529374 or 32% over the same period prior year amount of $4,783,318. The increase was attributable to an increase in worker’s compensation claims and premium expense. Solvis Medical contributed $855,469 to the cost of revenue during the quarter.

Cost of revenue of $17,619,577 for the nine months ended September 30, 2012 increased by $5,170,965 or 41.5% over the same period prior year amount of $12,448,612. The increase was attributable to an increase in worker’s compensation claims and premium expense. Solvis Medical contributed $2,697,701 to the cost of revenue in 2012.

Administrative

Selling, general and administrative expenses of $1,591,920 for the three months ended September 30, 2012 decreased by $405,519 or 20.3% over the same period prior year amount of $1,997,439. The decrease was mainly attributable to reduced legal fees in the second quarter.

Selling, general and administrative expenses of $6,051,656 for the nine months ended September 30, 2012 increased by $884,594 or 17.1% over the same period prior year amount of $5,167,062. The increase was mainly attributable to legal fees in 2012.

Interest and tax penalties

Interest expense and tax penalties for the three months ended September 30, 2012 was $85,644, a decrease of $725,592or 847.2% over the same period prior year amount of $811,236.

Interest expense and tax penalties for the nine months ended September 30, 2012 was $543,670, a decrease of $291,448 or 34.9% over the same period prior year amount of $835,118.

Liquidity and Capital Resources

We had cash on hand of $(316,308) and working capital deficit of $17,570,954 as of September 30, 2012 compared to cash on hand of $132,492 and working capital deficit of $10,840,945 for the year ended December 31, 2011. We anticipate that we will incur approximately $730,000 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.

Cash Used In Operating Activities

Cash flow used in operations for the nine months ending September 30, 2012 amounted to $243,927 which mainly consisted of the following: 1) the net loss for the period of $5,495,078 and 2) increase in prepaid workers compensation of $1,216,666, 3) payroll taxes payable of $4,530,587 and 4) workers compensation expense of $262,513 offset by 1) depreciation expense of $16,734, 2) due from related party of $1,053,935; 3) accounts receivable of 283,336; 4) prepaid expenses of $45,097 and 5) accounts payable of $275,615.

Cash Used In Financing Activities

We used cash in financing activities that amounted to $111,435 consisting of 1) assigned accounts receivable of $107,658, 2) decrease in proceeds from related party of $254,093, and 3) payment of long-term payable of $35,000.

Future Cash Flows

STTN’s future capital requirements will depend on numerous factors, including the control of workers compensation claims, the establishment of reasonable workers compensation premiums, and growing the business with business that employee more favorable worker compensation class types. We cannot for certain claim that our current operations along with financing from outside will be sufficient to meet our ongoing operating needs. We will need to seek outside capital in order to continue as a going concern. In addition, we cannot predict when and if any additional capital contributions may be needed and we may need to seek one or more substantial new investors. New investors could cause substantial dilution to existing stockholders.

Going Concern

As shown in the accompanying financial statements, the Company has incurred a large loss from operations, and as of September 30, 2012, its total liabilities exceeded its total assets by $12,399,660. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management has hired a consultant to put controls in the cash management area and will institute more efficient management techniques in the finance department. All areas of operations will be reviewed to look for savings. However, the Company has a need for additional capital investment. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, under the supervision and with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports, such as this report, that it files or submits 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 a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on that evaluation, our principal executive officer and our principal financial officer concluded that as of September 30, 2012, our disclosure controls and procedures were not effective due to a material weakness related to a lack of accounting personnel with sufficient experience in maintaining books and records and preparing financial statements in accordance with U.S. GAAP. We identified and disclosed this material weakness in our 2011annual report filed on Form 10-K with the SEC.

IDENTIFIED MATERIAL WEAKNESS

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

Management identified the following material weakness in internal control during its assessment of internal controls over financial reporting as of September 30, 2012:

• Our organization structure is not properly set up to manage the flow of cash and the efficient payment of taxes.

• We lack the expertise to properly manage the finance and treasury function.

MANAGEMENT'S REMEDIATION INITIATIVES

We are undertaking the remedial measures to establish an effective disclosure controls and procedures and internal control over the cash management / treasury functions, including consolidating finance and treasury into one department reporting to one manager and improving the supervision and training of our accounting staff to understand and implement accounting requirements, policies and procedures for the Treasury department. We have hired a qualified consultant who can work with the Company’s Chief Financial Officer to identify cash issues and help evaluate and address such issues to prevent and fix any present problems in managing cash as well as establishing a procedure to prevent future failures to manage cash properly.

In light of the identified material weaknesses, management, performed (1) significant additional substantive review of those areas described above, and (2) performed additional analyses, including but not limited to a detailed balance sheet and statement of operations analytical review that compared changes from the prior period's financial statements and analyzed all significant differences. These procedures were completed so management could gain assurance that the financial statements and schedules included in this Form 10-Q fairly present in all material respects the Company's financial position, results of operations and cash flows for the periods presented.

Changes in Internal Controls

There has been no additional change except for what is discussed above in our internal control over financial reporting during this fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None

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.

*Filed herewith

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.