ITEM 1. BUSINESS
Present Business
Smart-tek Solutions Inc. (the “Company”) has employee related business lines. Through our wholly owned subsidiary Smart-tek Automated Services Inc. (“STASI”) we provide professional employer organization (“PEO”) services. 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 the Company charges a service fee for providing services.
On October 1, 2011 Smart-tek Solutions, Inc. purchased the assets and trade name of Solvis Medical Group from AMERICAN MARINE, LLC dba AMS OUTSCOURCING, a Montana Limited Liability Corporation. This asset purchase has three distinct business’ lines: Solvis Medical Staffing and Solvis Medical provide medical staffing services to hospitals, medical clinics, surgical centers, and skilled nursing facilities; and, in certain cases, nursing care to patients in their homes. Solvis Physical Therapy, Inc. is a licensed provider of physical therapy services, but is currently inactive. This business is included in Smart-tek Automated Services, Inc.
Corporate History
Smart-tek was incorporated in the State of Nevada on March 22, 1995 under the name “Royce Biomedical Inc.”. In July, 2005, we changed our name from “Royce Biomedical Inc.” to “Smart-tek Solutions Inc.” On March 31, 2009 we affected a 250 to 1 reverse stock split of our issued and outstanding common stock. Effective March 31, 2009, our stock symbol changed to “STTN” on the Financial Industry Regulatory Authority’s Over-the-Counter Bulletin Board.
The Company incorporated Smart-tek Automated Services Inc. on February 11, 2009 in the anticipation of starting a to-be determined new business line.
On June 17, 2009, the board of Smart-tek 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. The Company’s new business line officially started with the signing of the June 17, 2009 marketing agreement with Brian Bonar.
Products and Services
Business sold: From July 2005 through June 30, 2010, Smart-tek Solutions Inc. (“STTN”) through its subsidiary Smart-tek Communication Inc. (“SCI”) specialized in the design, sale, installation and service of sophisticated security technology in the Greater Vancouver Area. Customers for SCI’s products and services included land developers, general and electrical contractors, hospitals, corporations, law enforcement agencies and retail facilities. Affected by the slow-down of the economy, SCI’s shrinking revenue and continuing losses management felt it was in the best interest of STTN to discontinue its operations. Mr. Law, SCI’s founder expressed a desire to acquire SCI in exchange for certain debt owed to him by the Company. On July 1, 2010, the Company completed the disposition of the Company’s wholly owned subsidiary Smart-tek Communications Inc. to its president and founder Perry Law.
Smart-tek Automated Systems Inc.
In connection with the expansion of business operations, the Company incorporated a subsidiary, Smart-tek Automated Services, Inc. through which we operate our new line of business. Through Smart-tek Automated we provide staffing and business processing services to small and medium sized businesses principally located in major business centers in the Unites States. We also provide a variety of financial services including: benefits and payroll administration, health and workers' compensation insurance programs, personnel records management, employer liability management, and full time and temporary staffing services. The services feature advising in coaching in recruitment, training and discipline and payment of employee wages, payroll taxes, state and federal unemployment insurance, claims, and workers compensation premiums. As part of our staffing services, Smart-tek Automated can also provide recruitment, reference checks, initial interviews, pre-employment random drug testing, and criminal background investigations
Our services allow our customers to outsource many human resource tasks, including payroll processing, workers' compensation insurance, health insurance, employee benefits, 401k investment services, personal financial management, and income tax consultation. These services also relieve existing and potential customers of the burdens associated with personnel management and control.
On October 1, 2011 Smart-tek Solutions, Inc. purchased the assets and trade name of Solvis Medical Group which will allow the Company to provide medical staffing services to hospitals, medical clinics, surgical centers, and skilled nursing facilities; and, in certain cases, nursing care to patients in their homes.
Product Liability Insurance
Smart-tek Automated Services, Inc. does not carry product liability insurance.
Competition
The financial and human resources services business is highly competitive, with over 800 firms operating in the U.S. There are several staffing services firms that operate on a nationwide basis with revenues and resources far greater than ours, such as Manpower, Inc and Kelly Services, Inc; in addition, we compete with local and regional staffing firms for customers and employees. The competitive factors that dominate the industry include price and quality placements of employees in a timely manner. We price our services competitively, provide premier customer service and manage the placement process.
Some large PEO companies are owned by insurance carriers and some are public companies whose shares trade on Nasdaq, including Insperity, Inc., Team Staff, Inc., Barrett Business Services, Gevity HR, Inc. and Staff Leasing, Inc. Competition includes staffing firms, payroll processors and financial services firms.
Patents, Licenses and Trademarks
Not Applicable.
Royalty Agreements
Not Applicable.
Government Regulations
We are licensed to do business in every state that we have clients.
Research and Development Plan
Not Applicable.
Employees
Smart-tek Automated Services, Inc. has 11 full time employees.
ITEM 1A.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. PROPERTIES.
Executive Offices
Smart-tek Automated Services Inc. maintains an executive office of approximately 1,200 square feet at 11838 Bernardo Plaza Ct Suite 240 San Diego, CA 92128. The Company does not have a lease and pays $3,000 a month on a month to month basis.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS.
On February 24, 2012 the Company entered into a Joint Settlement Agreement with AmeriFactors relating to a lawsuit between the two companies whereby Smart-tek would pay AmeriFactors the sum of $180,000, to be paid in the following manner:
1) One payment of $25,000 upon execution of the Settlement Agreement
2) Fifteen monthly payments of $10,000 due on the first day of each respective month with the first such payment due March 1, 2012
3) The final payment of $5,000.
The Company has reflected this Settlement Agreement in the accompanying Statement of Operations and Balance Sheet as of and for the year ended December 31, 2011.
ITEM 4.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market for Securities
Our common shares are currently quoted on the Pink Sheets under the trading symbol “STTN”. The following quotations obtained from the NASDAQ quotation system reflect the high and low bids for our common stock based on inter-dealer prices, without retail mark-up, mark-down or commission an may not represent actual transactions.
The high and low bid prices of our common stock for the periods indicated below are as follows:
Our transfer agent is Corporate Stock Transfer Inc., 3200 Cherry Creek Drive South, Suite 4300, Denver, CO 80209.
Holders of our Common Stock
As of December 31, 2011, there were approximately 385 total registered shareholders holding 49,212,123 shares of our issued and outstanding common stock.
Dividend Policy
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
1.
We would not be able to pay our debts as they become due in the usual course of business; or
2.
Our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.
Recent Sales of Unregistered Securities
In June 2011 Smart-tek issued 24,897,999 restricted shares of common stock valued at an aggregate of $443,979. 21,897,999 of those shares were pursuant to a July 2009 marketing agreement, and 3,000,000 of those shares were issued pursuant to a stock compensation plan.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
Not Applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Certain statements in this annual report on Form 10-K 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-K 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.
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.
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.
RESULTS OF OPERATIONS
Year Ended December 31, 2011 versus December 31, 2010
The following summary of our results of operations should be read in conjunction with our audited financial statements for the year ended December 31, 2011 which are included herein.
Revenue
Our principal source of revenue is from professional employer organization fees. Additionally, the Company charges fees for benefits and payroll administration, workers’ compensation insurance programs, and personnel records management. Management will continue to pursue new opportunities for providing services under these programs.
Revenue of $21,748,488 for year ended December 31, 2011 as compared to the same period prior year of $17,226,416 increased by $4,522,072 (26.2%) . The increase was attributable to a net increase in our payroll and staffing business through Smart-tek Automated Services. The Solvis Medical Group nurse staffing business line contributed $930,595 in 2011.
Gross Profit
For the year ended December 31, 2011 we had a gross profit of $943,014 as compared to a gross profit of $3,904,879 during the same period prior year for a decrease of $2,961,865 or 75.9% . The decrease in gross profit was directly as result of increased workers compensation expense. The Solvis Medical Group nurse staffing business line contributed $219,025 of gross profit in 2011.
Expenses
Our expenses for the years ended December 31, 2011 and December 31, 2010 are outlined in the table below:
Cost of revenue
Cost of revenue of $20,805,474 for the year ended December 31, 2011 increased by $7,483,937 or 56.2% over the same period prior year amount of $13,321,537. The $7,483,937 increase was attributable to the net increase in the payroll business plus an increase in worker’s compensation claims and premium expense. The Solvis Medical Group assets contributed Cost of Revenue was $711,571.
Selling, General and Administrative
Selling, general and administrative expenses of $6,953,960 for the year ended December 31, 2011 increased by $3,792,083 or 119.9% over the same period prior year amount of $3,161,877. The increase was mainly attributable to the following: 1) increase professional fees of $2,263,466 (1,102.2%), 2) increase in wages of $756,668 (51.4%) which is mainly attributable to an increase in executive compensation, 3) increase in travel of $119,111 (178.8%), 4) bad debt expense of $152,025 (100.0%), 5) miscellaneous expense items amounting to $317,247 (68.7%) and 6) $187,616 increase due to the addition of the Solvis business line.
Other Income (Expenses):
Interest expense for the year ended December 31, 2011 was $192,304 as compared to $21,914 for the year December 31, 2010 for an increase of $170,390 or 777.5% . The expense represents increased bank interest expense charges due to the increased volume of transactions and interest charges as a result of late payments of Form 941 taxes.
Tax penalties of $1,744,050 are a direct result of late payments of Form 941 taxes.
The legal settlement of $180,000 is a result of a Settlement Agreement with AmeriFactors whereby the Company will pay $180,000 through early 2013.
The other income of $3,747 mainly consists of Solvis miscellaneous income.
Net Income (Loss):
Net Income (loss) from continuing operations for the year ending December 31, 2011 is $(8,123,553) compared to net income of $721,088 or a decrease of $8,844,641 (1226.6%) compared to the prior year.
Related party transactions
During the year ended December 31, 2011, Smart-tek Communications Inc. (a wholly-owned subsidiary) paid $1,485,097 in management salaries to its President and Vice President which included commissions of $434,312 and benefits of $348,297. 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 year ended December 31, 2011, Smart-tek Automated Services Inc. (a wholly-owned subsidiary) paid consulting fees of $515,693 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.
Smart-tek additionally pays certain fees to other related parties for the sharing to office space and utilities. These expenses, which are relatively small, are included in the accompanying statement of operations and were based upon actual usage or allocations agreed to by management personnel.
Following is a summary of the balances both Due To and From these related parties as of December 31, 2011 which in some cases is an accumulation over several years of activity:
Liquidity and Financial Condition
Working Capital
The following table sets forth our working capital position for the years ending December 31, 2011 and 2010.
On December 31, 2011 the Company had total assets of $8,521,810 compared to $4,934,178 on December 31, 2010, an increase of $3,587,632 or 72.7% . The Company had total Stockholders’ equity (deficit) of $(6,904,582) on December 31, 2011, compared to stockholders’ equity of $774,992 on December 31, 2010, a decrease of $(7,679,574) or (991.0%) . As of December 31, 2011 the Company's working capital position decreased by $(9,222,559) or (569.9%) from working capital deficit of $(1,618,386) at December 31, 2010 to working capital deficit of ($10,840,945) at December 31, 2011. The decrease in working capital is mainly as result of an increase in tax liabilities as result of shortfalls and late payments on the quarterly Form 941’s.
Cash Flows
The following table sets for a summary of our cash flows for the years ended December 31, 2011 and 2010.
Cash Used In Operating Activities
Cash flow used in operations for the year ended December 31, 2011 amounted to $656,508, which mainly consisted the net loss of $(8,123,553) and the following: increases in 1) prepaid workers compensation of $1,094,123, 2) increase in account receivable of $86,597, 3) accounts payable and accrued liabilities of $950,361, 4) increase in due to related party of $2,739,220, and 5) miscellaneous items of $11,356 offset by 1) increase in accrued payroll taxes payable of $10,440,980, 2) depreciation of $20,214, 3) common stock issued of $443,979, 3) increase in provision for doubtful accounts of $150,000, 4) increase in prepaid expenses and deposits of $16,942, 5) increase in process for related party of $220,607 and 6) increase in accrued workers compensation of $1,055,980.
Cash Used In Investing Activities
Cash flow used by investing activities was $7,280 for the year ended December 31, 2011 which consisted of the purchase of equipment of $(27,720) offset by cash paid for the purchase of Solvis Medical Group assets of $35,000.
Going Concern
The Company incurred a net operating loss of approximately $8.1 million for the year ended December 31, 2011, and has incurred losses totalling approximately $14.2 million through December 31, 2011. 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.
Future Financings
The Company does not have any significant available credit, bank financing or other external sources of liquidity. Due to historical operating losses and other issues as described in the Company’s going concern footnote included in its consolidated financial statements as at and for the period ended December 31, 2011, the Company’s operations have not been a source of liquidity and the Company had satisfied its cash requirements through shareholder loans and deferral of its Form 941 taxes. In order to obtain necessary capital, the Company may need to sell additional shares of its common stock or borrow funds from private lenders. There is no assurance that the Company will be able to secure additional financing or that it can be secured at rates acceptable to the Company. In addition, should the Company be required to either issue stock for services or to secure equity funding, due to the lack of liquidity in the market for the Company’s stock such financing would result in significant dilution to its existing shareholders.
The Company’s short term plan is to continue to ask its officers to defer payment of salaries, utilize its common stock where possible to pay for services and to seek further shareholder loans. In the longer term, the Company is actively seeking additional merger, acquisition or venture relationships with operating enterprises in order to generate long-term growth opportunities for the Company, permit the Company to meet its financial obligations and to provide increased value to the Company’s shareholders. In the past we have obtained our required cash resources principally through loans from shareholders and our sole executive officer. While the operations of our wholly-owned subsidiary are profitable, we still do not operate profitably as a consolidated entity.
Management’s plans to improve our financial condition are as follows:
Growth in is new nurse staffing business line;
We will continue to look for opportunities to grow organically where feasible as well as evaluate potential acquisition opportunities that may present themselves in the next 12 months.
There can be no assurance that our planned activities will be successful or that we will ultimately attain profitability. We intend to use our common stock as payment for services of various consultants in order to help advance our business plan.
Off-Balance Sheet Arrangements
We have no 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.
Subsequent Event
On February 24, 2012 the Company entered into a Joint Settlement Agreement with AmeriFactors relating to a lawsuit between the two companies whereby Smart-tek would pay AmeriFactors the sum of $180,000, to be paid in the following manner:
1) One payment of $25,000 upon execution of the Settlement Agreement
2) Fifteen monthly payments of $10,000 due on the first day of each respective month with the first such payment due March 1, 2012
3) The final payment of $5,000.
The Company has reflected this Settlement Agreement in the accompanying Statement of Operations and Balance Sheet as of and for the year ended December 31, 2011.
Critical Accounting Policies
The preparation of financial statements in conformity with Generally Accepted Accounting Principles requires our management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain.
We have identified certain accounting policies, described below, that are most important to the portrayal of our current financial condition and results of operations.
Revenue Recognition - PEO business
The Company recognizes professional employment organizations (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 staffing 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.
Insurance Reserves
The Company maintains reserves in the form of 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. Accordingly, the Company accrues workers’ compensation losses, as provided by the insurance Carrier’s Third Party Administrator and charges expense. As such, the claim reserve will not be recoverable in the near term and accordingly, they are classified as a long term asset. The Company as well as the Insurance Carrier evaluate the reserves regularly throughout the year and make adjustments accordingly. If the actual cost of such claims and related expenses exceeds the amounts estimated, additional reserves may be required. Beginning in 2011, the Company provides case reserves for claims incurred but not reported (IBNR). This is an estimated liability based upon evaluation of information provided by our internal claims adjusters and our third-party administrators`. Included in these liabilities are case reserve estimates for the costs of the claim, 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.
Goodwill and Intangible Assets
The Company accounts for goodwill and intangible assets pursuant to SFAS No. 142, “Goodwill and Other Intangible Assets”. Under SFAS 142, intangibles with definite lives continue to be amortized on a straight-line basis over the lesser of their estimated useful lives or contractual terms. Goodwill and intangibles with indefinite lives are evaluated at least annually for impairment by comparing the asset’s estimated fair values with its carrying value, based on cash flow methodology.
Stock-based Compensation
Through December 31, 2005, the Company accounted for stock-based employee compensation in accordance with the provisions of Accounting Principles Board (“APB”) Opinion No. 25 and FASB Interpretation No. 44 “Accounting for Certain Transactions Involving Stock Compensation” and complied with the disclosure requirements of SFAS No. 123 (as modified by SFAS No.48), “Accounting for Stock-Based Compensation”, Under APB No. 25 compensation expense was recorded based on difference, if any, between the fair value of the Company’s stock and the exercise price on the measurement date. The Company accounted for stock issued to non-employees in accordance with SFAS No. 123, which required entities to recognize as expense over the service period, the fair value of all stock based awards on the date of grant, and EITF No. 96-18 “Accounting for Equity Investments that are issued to Other Than Employees for Acquiring, or in conjunction with Selling, Goods or Services”, which addressed the measurement date and recognition approach for such transactions.
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-based Payment (“SFAS No. 123R”) a revision of SFAS No. 123, “Accounting for Stock Based Compensation”, SFAS No. 123R superseded APB Opinion No. 25 “Accounting for Stock Issued to Employees” and amended SFAS 95 “Statement of Cash Flows” SFAS No. 123R requires that the Company measure the cost of employee services received in exchange for equity awards based on the grant date fair-value of the awards. The cost will be recognized as compensation expense over the vesting period of the awards.
Under this method, the Company began recognizing compensation cost for equity-based compensation for all new or modified grants after the date of adoption. The pro-forma disclosures previously permitted under SFAS No. 123 are no longer an alternative to financial statement recognition. In addition, the Company now recognizes the unvested portion of the grant date fair value of awards issued prior to adoption based on the fair values previously calculated for disclosure purposes over the remaining vesting period of the outstanding options and warrants. Accordingly, the Company recognizes compensation cost for equity-based compensation for all new or modified grants issued after December 31, 2005.
The Company presently has no outstanding stock options.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Included at the end of this document.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
Item 9A(T).
Item 9A(T). Controls and Procedures.
Disclosure Controls and Procedures
As of December 31, 2011, under the supervision and with the participation of the Company's Chief Executive Officer and the Chief Financial Officer, management has evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2011.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting that occurred during the last fiscal quarter covered by this report that have materially affected, or are reasonably likely to affect, the Company's internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in the Securities Exchange Act of 1934 Rule 13a-15(f). Our Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO Framework").
Based on this evaluation, management has concluded that our internal control over financial reporting was not as effective as of December 31, 2011 due to the relatively small staff size of its financial group. As such, our principal Chief Executive Officer and Chief Financial Officer concluded that we could have a material weakness due to lack of segregation of duties and staffing levels needed to timely file with the Securities and Exchange Commission our annual report on Form 10-K. The volume of administrative work peaks at the end of each quarter requiring additional resources to process the workload. We have hired an additional administrative person to assist in that additional workload
This annual report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management's report on internal control in this annual report.
ITEM 9B.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers, Promoters and Control Persons
As at December 31, 2011, our directors and executive officers, their ages, positions held, and duration of such, are as follows:
Business Experience
The following is a brief account of the education and business experience of each director and executive officer during at least the past five years, indicating each person’s principal occupation during the period, and the name and principal business of the organization by which he was employed.
Brian Bonar on March 12, 2010, was appointed as Chief Executive Officer, Chief Financial Officer, Secretary, Treasurer of the issuer and Chairman of the Board. Prior to this, Mr. Bonar was appointed to the STTN Board on May 29, 2009 and named President of STTN on September 17, 2009. Mr. Bonar has over 18 years of experience with IBM in Europe, Asia and the USA and an additional 20 years in high growth companies both private and public in various locations in the USA and the United Kingdom. From 2003 until 2006, Mr. Bonar was the Chairman and CEO of The Solvis Group, which provides staffing, PEO and ASO services to mainly the medical and call center market segments. From 2004 until 2009, Mr. Bonar was the Chairman and CEO of Dalrada Financial Corporation, a California based financial service corporation providing workers compensation, health insurance and various other insurance products directly to the end consumer and marketed via various PEO and staffing companies. From September 2007 until 2009, Mr. Bonar was the President and a member of the board of directors of Allegiant Professional, a publicly traded company. Also from September 2007 until 2009, Mr. Bonar founded AMS Outsourcing, a PEO focusing mainly in the transport market place and also established an international presence in the Czech Republic and Mexico. From 2004 to 2009, he was a member of the board of directors of the following companies and organizations: The Solvis Group, Warning Management Corporation, Dalrada Financial Corporation, American Marine LLC, Alliance National Insurance Company and The Boys and Girls Club of Greater San Diego. Mr. Bonar holds the honorary title, Lord Bonar of Wilcrick, Cardiff, Wales United Kingdom. He received a BSC in Mechanical Engineering from the Strathclyde University, Glasgow Scotland and a MBA and a PHD in the field of International Business Development Studies from the Stafford University, England UK. Mr. Bonar’s specific experience and contacts in the PEO industry was a key element in appointing Mr. Bonar CEO and subsequently as a director.
Owen Naccarato Esq., was appointed as a Director on September 29, 2009. Mr. Naccarato has for the last fourteen years been a sole practitioner specializing in corporate and securities law. Prior to practicing law, Mr. Naccarato was CFO and Director of Kaire Holdings, Inc., a publicly traded corporation. Additionally Mr. Naccarato held various high level financial and operating positions with fortune 500 firms including Baxter Edwards, Baxter International Corp. and Tiger Leasing. Mr. Naccarato is a member of the California State Bar Association, the Orange County and the Los Angeles County Bar Associations. Mr. Naccarato has a J.D. from Western State University, an MBA from DePaul University and an undergraduate degree in accounting from Northern Illinois University. Mr. Naccarato also matriculated as a CPA in the State of Illinois in 1977. Smart-tek Solutions, Inc. felt Mr. Naccarato’s broad experience would be a benefit to assist in the future growth of the Company.
Term of Office
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board. Our next annual shareholder meeting is tentatively planned for July 20, 2012.
Committees of the Board of Directors
At present, we do not have an audit committee, compensation committee, nominating committee, an executive committee of our board of directors, stock plan committee or any other committee.
Family Relationships
There are no family relationships among our directors or officers.
Involvement in Certain Legal Proceedings
Our directors, executive officers and control persons have not been involved in any of the following events during the past five years:
1.
any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2.
any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.
being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
4.
being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Audit Committee and Audit Committee Financial Expert
We have no audit committee financial expert. We believe that the cost related to retaining a financial expert at this time is prohibitive. Further, because of our stage of development, we believe the services of a financial expert are not warranted.
Code of Ethics
On October 14, 2008 we adopted an amended and restated code of ethics applicable to all of our directors, officers, employees and consultants, which is a “code of ethics” as defined by applicable rules of the SEC. Our Code of Ethics is attached as an exhibit to this annual report. If we make any amendments to our Code of Ethics other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics to our chief executive officer, chief financial officer, or certain other finance executives, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies in a Current Report on Form 8-K filed with the SEC.
Compensation of Directors
Directors do not receive compensation for their duties as a director.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with the exception that Brian Bonar failed to file a Form 3.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth all compensation paid for services rendered during the year ended December 31, 2011 and 2010 by our Chief Executive Officer, Chief Financial Officer and each of the other most highly compensated executive officers whose total compensation exceeded $100,000 in such fiscal year. These officers are referred to as the Named Executive Officers in this Report.
(1)
Mr. Bonar has been the President and CEO of Smart-tek Automated Services, Inc, since May, 29, 2009 its inception. Smart-tek Automated Services, Inc. is a wholly-owned subsidiary of Smart-tek Solutions. Mr. Bonar became CEO of Smart-tek Solutions on March 5, 2010 effective March 5, 2010.
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive stock options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of our board of directors from time to time. We have no plans or arrangements in respect of remuneration received or that may be received by our executive officers to compensate such officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
Securities Authorized for Issuance under Equity Compensation Plans
EQUITY COMPENSATION PLANS
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS STOCK AWARDS
Name
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Equity
Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)
Market
Value of
Shares
or Units
of
Stock
That
Have
Not
Vested
($)
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#) Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#)
Brian
Bonar
o
o
o
o
o
o
o
o
o
Owen
Naccarato
o
o
o
o
o
o
o
o
o
Compensation of Directors
Options/SAR Grants in the Last Fiscal Year:
None
Employment Contracts
Other than as described below, we presently do not have any employment or compensation arrangements with our officers and directors.
On December 9, 2010, the board of Smart-tek Solutions Inc. (“Smart-tek”) amended the marketing agreement entered into on June 17, 2009 in order to clarify basis for calculating the shares to be issued for compensation pursuant to the marketing agreement. The agreement was 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, an individual (hereinafter referred to as the “Marketing Partner”)
Pursuant to the terms of the 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
HEALTH INSURANCE FOR EMPLOYEES
Smart-tek Automated Services - yes
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
As of December 31, 2011, there were 49,212,123 shares of our common stock outstanding. The following table sets forth certain information known to us with respect to the beneficial ownership of our common stock as of that date by (i) each of our directors, (ii) each of our executive officers, and (iii) all of our directors and executive officers as a group. Except as set forth in the table below, there is no person known to us who beneficially owns more than 5% of our common stock.
Notes
(1) Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. The percentage of class is based on 49,212,123 shares of common stock issued and outstanding as of December 31, 2011.
Changes in Control
On December 9, 2010, the board of Smart-tek Solutions Inc. (“Smart-tek”) amended the marketing agreement entered into on June 17, 2009 in order to clarify basis for calculating the shares to be issued for compensation pursuant to the marketing agreement. The agreement was 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, an individual (hereinafter referred to as the “Marketing Partner”)
Pursuant to the terms of the 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. Therefore, this agreement upon reaching the performance goals laid out will result in a change of ownership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Except as set forth below, none of the following parties has, since commencement of our fiscal year ended December, 2011, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us, in which our company is a participant and the amount involved exceeds the lesser of $120,000 or 1% of the average of our company’s total assets for the last three completed financial years:
(i)
Any of our directors or officers;
(ii)
Any person proposed as a nominee for election as a director;
(iii)
Any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;
(iv)
Any of our promoters; and
(v)
Any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the foregoing persons.
1.
On December 9, 2010, the board of Smart-tek Solutions Inc. (“Smart-tek”) amended the marketing agreement entered into on June 17, 2009 in order to clarify basis for calculating the shares to be issued for compensation pursuant to the marketing agreement. The agreement was between Smart-tek Solutions Inc., its wholly owned subsidiary Smart-tek Automated Services, Inc., and its affiliated businesses (hereinafter collectively referred to as the “Company”) and, Brian Bonar, an individual (hereinafter referred to as the “Marketing Partner”)
Pursuant to the terms of the 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.
2.
During the year ended December 31, 2011, the Company’s wholly owned subsidiary, Smart-tek Automated Services, Inc. paid $357,728 in management salaries plus $602,264 in performance commissions to its President which included bonuses of $Nil, consulting fees of $Nil.
Brian Bonar is a controlling party of Dalrada Financial Corp. who has a consulting arrangement with Smart-tek Automated Services, Inc. During the fiscal year ended December 31, 2011 Dalrada invoiced Smart-tek Automated Services Inc., $515,693 for services rendered.
Corporate Governance
We do not have a standing audit committee at the present time. Our board of directors has determined that we do not have a board member that qualifies as an “audit committee financial expert” as defined in Item 401(e) of Regulation S-B. We have determined that Mr. Perry Law is not an independent director and that Brian Bonar is an independent director as defined in Nasdaq Marketplace Rule 4200(a)(15).
We believe that our members of our board of directors are capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the board of directors. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any revenues from operations to date.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
The aggregate fees billed or accrued for the twelve months ended December 31, 2011 and for the 12 month period ended December 31, 2010, for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Twelve months ended Twelve months ended
December 31, 2011 December 31, 2010
Audit Fees $95,000 $75,000
Audit Related Fees - -
Tax Fees 15,000 -
All Other Fees - 10,650
Total $110,000 $85,650
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
The board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.
The board of directors has considered the nature and amount of fees billed by PMB Helin Donovan, LLP and believes that the provision of services for activities unrelated to the audit is compatible with maintaining PMB Helin Donovan, LLP as our independent auditor.
PART IV
ITEM 15.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SMART-TEK SOLUTIONS INC.
By /s/ Brian Bonar
Brian Bonar
Chief Executive Officer, Chief Financial Officer
and Director
(Principal Executive Officer, Principal Accounting Officer
and Principal Financial Officer)
Date: May 11, 2012
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.
/s/ Brian Bonar
Brian Bonar
Chief Executive Officer, Chief Financial Officer
and Director
(Principal Executive Officer, Principal Accounting Officer
and Principal Financial Officer)
Date: May 11, 2012
/s/ Owen Naccarato
Owen Naccarato
Director
Date: May 11, 2012
Smart-tek Solutions Inc.
Period Ended December 31, 2011 and 2010
AUDITOR’S REPORT
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Smart-Tek Solutions, Inc.
We have audited the accompanying consolidated balance sheet of Smart-Tek Solutions, Inc. as of December 31, 2011 and the related statements of operations and comprehensive income, stockholders’ equity (deficit), and cash flows for the year ended December 31, 2011. Smart-Tek Solutions, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Smart-Tek Solutions, Inc. as of December 31, 2010 were audited by other auditors whose report dated April 16, 2011 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Smart-Tek Solutions, Inc. as of December 31, 2011 and the results of its operations and its cash flows for the year ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has sustained recurring losses from operations and has an accumulated deficit of approximately $13 million at December 31, 2011. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ PMB Helin Donovan, LLP
PMB Helin Donovan, LLP
Dallas, Texas
May 11, 2012
Smart-tek Solutions Inc.
Consolidated Balance Sheets
As of December 31, 2011 and 2010
See accompanying notes to the consolidated financial statements.
Smart-tek Solutions Inc.
Consolidated Statements of Operations and Comprehensive Income
For the years ended December 31, 2011 and 2010
See accompanying notes to the consolidated financial statements.
Smart-tek Solutions Inc.
Consolidated Statement of Changes in Stockholders’ Equity (Deficit)
See accompanying notes to the consolidated financial statements.
Smart-tek Solutions Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2011 and 2010
See accompanying notes to the consolidated financial statements.
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.
In August 2005, the Company changed its name from Royce Biomedical Inc. to Smart-tek Solutions Inc. (“STS” or the “Company”) to better reflect its new business activities.
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 for the purpose of adding a yet to be determined new business line. On June 17, 2009, 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 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 Group from American Marine LLC dba AMS Outsourcing a Montana limited liability corporation. The asset has three distinct business lines: Solvis Medical Staffing and Solvis Medical provide medical staffing services to hospitals, medical clinics, surgical centers, and skilled nursing facilities; and, in certain cases, nursing care to patients in their homes. Solvis Physical Therapy, Inc. is a licensed provider of physical therapy services, but is currently inactive.
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 December 31, 2011, the Company had cash and cash equivalents of approximately $132,492, a working capital deficit of approximately $10.8 million and an accumulated deficit of $14.2 million. 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.
Going Concern
The Company incurred a net operating loss of approximately $8.13 million for the year ended December 31, 2011, and has incurred accumulated losses totalling approximately $14.2 million through December 31, 2011. 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.
Going Concern - continued
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.
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 credit worthiness 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.
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, 2011 and 2010, the Company did not have any deposits in excess of federally insured limits.
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 $ 150,000 and zero as of December 31, 2011 and 2010, 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 on its Balance Sheet for the uncollected amounts that remain uncollected until the factored invoices have been paid in full.
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 claims incurred but not reported (IBNR). This is an estimated liability based upon evaluation of information provided by our internal claims adjusters and our third-party administrators`. Included in these liabilities are case reserve estimates for the costs of the claim, 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. It is management’s opinion that the Company is not exposed to significant credit risk associated with its accounts receivable.
Equipment
Equipment 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.
Income taxes
The Company recognizes consolidated 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 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.
Revenue recognition
The Company recognizes professional employment organizations (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 staffing business are recognized when the services are invoiced to the client.
Revenue recognition - continued
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.
Goodwill
The Company’s goodwill was derived from the acquisition of Solvis 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. 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.
Earnings (loss) per share
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.
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.
Fair Value of Financial Instruments - continued
At December 31, 2011 and 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 December 2010, the Financial Accounting Standards Board (“FASB”) issued FASB Accounting Standards Update No. 2010-28 “Intangibles- Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts” (“ASU 2010-28”). Under ASU 2010- 28, if the carrying amount of a reporting unit is zero or negative, an entity must assess whether it is more likely than not that goodwill impairment exists. To make that determination, an entity should consider whether there are adverse qualitative factors that could impact the amount of goodwill, including those listed in ASC 350-20-35-30. As a result of the new guidance, an entity can no longer assert that a reporting unit is not required to perform the second step of the goodwill impairment test because the carrying amount of the reporting unit is zero or negative, despite the existence of qualitative factors that indicate goodwill is more likely than not impaired. ASU 2010-28 is effective for fiscal years, and for interim periods within those years, beginning after December 15, 2010, with early adoption prohibited. Adoption of this guidance did not have any impact on its consolidated financial position, results of operations, or cash flows.
In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Comprehensive Income: Presentation of Comprehensive Income.” This new guidance requires the components of net income and other comprehensive income to be presented in one continuous statement, referred to as the statement of comprehensive income, or in two separate consecutive statements. The new guidance also eliminates the current option to report other comprehensive income and its components in the statement of stockholders’ equity. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. ASU 2011-05 is effective for periods beginning after December 15, 2011; however, the Company has adopted this guidance as of the end of its 2011 reporting period as permitted by the guidance.
In September 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-08 Intangibles - Goodwill and Other (Topic 350) Testing Goodwill for Impairment. The ASU simplifies how entities, both public and non-public, test goodwill for impairment. The revised standard allows an entity to first assess qualitatively whether it is necessary to perform step one of the two-step annual goodwill impairment test. An entity is required to perform step one only if the entity concludes that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, a likelihood of more than 50 percent. An entity can choose to perform the qualitative assessment on none, some, or all of its reporting units. Moreover, an entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one of the impairment test, and then perform the qualitative assessment in any subsequent period. The revised standard is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company does not believe this guidance will have any impact on its consolidated financial position, results of operations, or cash flows.
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.
2.
Discontinued operations
On July 1, 2010, the Company completed 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:
3.
Discontinued operations - continued
(a)
$821,756 of the purchase price shall be paid and satisfied by setting-off the Company’s indebtedness to Perry Law; and
(b)
$1.00 of the purchase price shall be paid by Perry Law for transferring 32,817 shares owned by him to the Company.
Results of operations and cash flows are classified as pertaining to “discontinued operations” if those operations and cash flows are attributable to a distinguishable component of the Company that will be eliminated from the ongoing operations of the Company as a result of the disposition.
The results of discontinued operations are classified separately in both the current period and prior years. The results of discontinued operations are presented net of applicable income taxes.
If certain long-term assets and liabilities of the Company can be distinguished as being directly related to the discontinued operations, and if those assets and liabilities are disposed of pursuant to the disposition of the discontinued business component, then those assets and liabilities are classified on the consolidated balance sheet in both the current and prior periods as current or non-current assets of discontinued operations and liabilities of discontinued operations, respectively.
Current and non-current assets and liabilities of discontinued operations are re-measured at the time of discontinuation at the lower of their carrying amount or their fair value less cost to sell. Any resultant unrealized gains or losses are recognized in net income in the period when the Company disposes the related operations.
The following table presents the effect of the discontinued operations in the Consolidated Statements of Operations and Comprehensive Income:
The effect on the stockholders’ deficit was $0 and $339,641 for the years ending December 31, 2011 and December 31, 2010 respectively.
3.
Equipment
Depreciation and amortization of property and equipment was $20,214 and $22,363 for the years ended December 31, 2011 and 2010 respectively.
4.
Income taxes
The Company regularly assesses uncertain tax positions in each of the tax jurisdictions in which it has operations and accounts for the related financial statement implications. Unrecognized tax benefits are reported using the two-step approach under which tax effects of a position are recognized only if it is “more-likely-than-not” to be sustained and the amount of the tax benefit recognized is equal to the largest tax benefit that is greater than fifty percent likely of being realized upon ultimate settlement of the tax position. Determining the appropriate level of unrecognized tax
4.
Income taxes - continued
benefits requires the Company to exercise judgment regarding the uncertain application of tax law. The amount of unrecognized tax benefits is adjusted when information becomes available or when an event occurs indicating a change is appropriate. Future changes in unrecognized tax benefits requirements could have a material impact on the results of operations. The Company files U.S. federal and U.S. state tax returns.
The Company generated a deferred tax credit through net operating loss carry forwards. As of December 31, 2011 the company had federal and state net operating loss carry forwards of $14,161,666 that can be used to offset future federal and state 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, 2011, STTN had available federal net operating loss (NOL) carry forwards of $8,375,878. 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, 2011 and 2010 as follows:
As of December 31, 2011 the Company had accrued Federal and State withholding taxes of $11,958,012 versus $1,414,032 as of December 31, 2010. Of the $11,958,012 at December 31, 2011, $6,667,132 is related to Federal and State Withholding Taxes Q4, 2011, $1,744,050 in penalties, and $3,516,689 relates to the first three quarters of 2011.
The Company has paid the various State tax obligations in early 2012, and is developing a payment plan with the IRS for past due federal withholding tax obligations. The Company is current will all its federal tax liabilities for the first quarter ended March 31, 2012.
5.
Equity
At December 31, 2011, the Company is authorized to issue:
1.
5,000,000 shares of preferred stock, par value $0.001 per share.
2.
500,000,000 shares of common stock, par value $0.001 per share.
Common Stock
At December 31, 2011, 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. No stock options were issued during 2011. During 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 share and/or options of the Company’s common stock are available for issuance under the 2011 Plan as of December 31, 2011.
Preferred Shares
There are no preferred shares issued or outstanding.
6.
Earnings (loss) per share
7.
Acquisitions
On October 1, 2011, Smart-tek Solutions, Inc. acquired the assets and the brand name of Solvis Medical Group 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 31, 2012 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.
7.
Acquisitions - continued
• 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
Management does not believe that the calculation of 4 times earnings will exceed the purchase price of $535,000.
8.
Short Term Note Payable
At December 31, 2011, 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 Group assets. The loan is unsecured, bears a simple 6% interest and matures at September 30, 2012.
9.
Related Party Transactions
During the year ended December 31, 2011, Smart-tek Communications Inc. (a wholly-owned subsidiary) paid $1,485,097 in management salaries to its President and Vice President which included commissions of $434,312 and benefits of $348,297. 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 year ended December 31, 2011, Smart-tek Automated Services Inc. (a wholly-owned subsidiary) paid consulting fees of $515,693 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.
Smart-tek additionally pays certain fees to another related party for the sharing to office space and utilities. These expenses, which are relatively small, are included in the accompanying statement of operations and were based upon actual usage or allocations agreed to by management personnel.
Following is a summary of the balances both Due To and From these related parties as of December 31, 2011 which in some cases is an accumulation over several years of activity:
9.
Related Party Transactions - continued
Amounts due to officers and directors were $0 and $388,415 as of December 31, 2011 and 2010 respectively.
10.
Commitments
Operating leases
The Company’s wholly owned subsidiary Smart-tek Automated Services Inc. entered into non-cancellable operating leases for office space on March 1, 2008 for its China Mart sales office in July of 2009 and Solvis medical staffing office in Michigan in June, 2011. Both leases expire in 2012. The minimum payments required under these operating leases for the remaining term of the lease subsequent to December 31, 2011 are approximately as follows:
Rental expenses were $61,708 and $38,560 for the years ended December 31, 2011 and 2010 respectively.
Marketing partner agreement
On December 9, 2010, the board of Smart-tek Solutions Inc. (“Smart-tek”) amended the marketing agreement entered into on June 17, 2009 in order to clarify basis for calculating the shares to be issued for compensation pursuant to the marketing agreement. The agreement was 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, an individual (hereinafter referred to as the “Marketing Partner”)
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.
On June 13, 2011, pursuant to the above agreement 21, 897 999 shares of restricted common stock were issued to Mr. Bonar
The agreement is for an indefinite term and may be terminated by either party without cause on 30 days written notice.
10.
Commitments - continued
Settlement agreement
In July, 2009 Smart-tek negotiated a settlement with Richardson & Patel LLP pursuant to the terms of which the Company 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 the Company with respect to certain outstanding accounts owed by the Company 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 the Company issued and outstanding common stock as security for repayment of the amounts owed to Richardson & Patel. As of the date of this Annual Report: there has been no settlement of all amounts owed to Richardson & Patel, Richardson & Patel received and continues to hold the pledged shares and the Company has not made any payments to Richardson & Patel. The Company has not recorded any liability related to this settlement at either December 31, 2011 or 2010 respectively.
12.
Subsequent events
On February 24, 2012 the Company entered into a Joint Settlement Agreement with AmeriFactors relating to a lawsuit between the two companies whereby Smart-tek would pay AmeriFactors the sum of $180,000, to be paid in the following manner:
1) One payment of $25,000 upon execution of the Settlement Agreement
2) Fifteen monthly payments of $10,000 due on the first day of each respective month with the first such payment due March 1, 2012
3) The final payment of $5,000.
The Company has recorded the full $180,000 obligation as of December 31, 2011 of which $145,000 is a current liability and $35,000 is non-current.