Shearson Financial Network (SHSN) 10QSB 2007 Q2 Quarterly report (small business)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

 (MARK ONE)

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal quarter ended June 30, 2007

000-32745

Commission File Number

SHEARSON FINANCIAL NETWORK, INC.

(Exact name of Registrant as Specified in its Charter)

Nevada	88-0471353
(State or Other Jurisdiction of Incorporation or Organization)	( I.R.S. Employer Identification Number)

2470 St. Rose Parkway, Suite 314

Henderson, Nevada 89052

(Address of Principal Executive Offices including Zip Code)

(702) 547-7300

(Registrant's Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

State the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date

765,942,337 shares of Common Stock outstanding as of June 30, 2007

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x   No  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form l0-QSB, or any amendment to this Form 10-QSB

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  o   No  x

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

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes  o   No  x

SHEARSON FINANCIAL NETWORK, INC.

FORM 10-QSB

June 30, 2007

TABLE OF CONTENTS

 

PART 1– FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheet -- As of June 30, 2007 (unaudited) and December 31, 2006 (audited)	3
	Consolidated Statements of Operations -- For the Three and Six Months Ended June 30, 2007 and 2006 (unaudited)
		4
	Consolidated Statements of Cash Flows -- For the Three and Six Months Ended June 30, 2007 and 2006 (unaudited)
		5
	Consolidated Statement of Stockholders’ Equity	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management Discussions and Analysis and Plan of Operations	12
Item 3.	Controls and Procedures	16
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	16
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Under Senior Securities	17
Item 4.	Submission of Matters to a vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	18
Signatures		19

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

SHEARSON FINANCIAL NETWORK, INC.

CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2007			2006
	(unaudited)			(audited)
Assets
Current assets:
Cash and cash equivalents	$	9,921		$	9,032
Loans available for sale		18,118,096			19,760,396
Loan sale receivable		364,066			--
Accounts receivable		1,436,042			1,587,419
Prepaid and other current assets		87,894			114,068
Total current assets		20,016,019			21,470,915
Property and equipment, net		1,138,798			1,417,227
Other assets:
Goodwill		6,709,937			6,709,937
Other assets, net		1,045,501			1,184,946
Total other assets		7,755,438			7,894,883
Total assets	$	28,910,255		$	30,783,025
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses	$	736,081		$	1,035,525
Bridge notes payable		1,200,000			1,200,000
Stock subscription payable		20,000			20,000
Interest payable		569,353			356,426
Notes payable		777,096			830,176
Notes payable – related party		102,010			227,009
Line of credit		17,608,450			19,426,568
Total current liabilities		21,012,990			23,095,704
Long-term liabilities:
Long term-debt, net of current portion		1,000,000			1,000,000
Total long-term liabilities		1,000,000			1,000,000
Total liabilities9921+		22,012,990			24,095,704
Minority shareholder interest		216,036			253,430
Stockholders' equity:
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 765,942,337 and 289,942,886 shares issued and outstanding at June 30, 2007 and December 31, 2006, respectively		765,942			289,943
Preferred Stock, $0.01 par value, 15,000,000 shares authorized10,500 shares issued and outstanding at June 30, 2007 and December 30, 2006, respectively		4,250,000			4,250,000
Additional paid-in capital		28,350,100			27,968,189
Accumulated deficit		(26,684,813	)		(26,074,241	)
Total stockholders' equity		6,681,229			6,433,891
Total liabilities and stockholders' equity	$	28,910,255		$	30,783,025

The accompanying notes are an integral part of these financial statements

3

SHEARSON FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

	Three Months			Three Months			Six Months			Six Months
	Ended			Ended			Ended			Ended
	June 30,			June 30,			June 30,			June 30,
	2007			2006			2007			2006
Revenues:
Loan origination and sale of  mortgage loans	$	1,679,763		$	1,527,581		$	2,804,036		$	1,718,800
Cost of sales		200,562			449,310			474,533			526,545
Gross profit		1,479,201			1,078,271			2,329,502			1,192,255
Expenses
Salary, wages and payroll taxes		521,517			411,832			1,139,105			1,567,189
Selling, general and administrative		384,015			340,281			707,263			479,730
Professional fees		122,281			367,858			518,537			1,729,850
Depreciation expense		129,079			153,676			278,430			307,352
Total expenses		1,156,892			1,273,647			2,643,335			4,084,122
Income (loss ) from operations		322,309			(195,376	)		(313,832	)		(2,891,866	)
Other (expense) income
Interest expense		(140,024	)		(68,313	)		(168,987	)		(88,933	)
Debt discount expense		(83,029	)		--			(165,146	)		--
Forgiveness of debt		--			5,150,000			--			5,150,000
Total other (expense) income		(223,053	)		5,081,687			(334,133	)		5,061,067
Income (loss) before minority shareholder interest		99,256			4,886,311			(647,965	)		2,169,200
Loss applicable to minority shareholder interest		77,497			--			37,395			--
Net income (loss) applicable to common shareholders	$	176,753		$	4,886,311		$	(610,571	)	$	2,169,200
Net income (loss) per share, basic and diluted	$	0.00		$	0.05		$	0.00		$	0.03
Net loss per common share, applicable to common shareholders, basic and diluted	$	0.00		$	0.05		$	0.00		$	0.03
Weighted average number of common shares outstanding, basic and diluted		335,354,544			97,954,694			277,670,485			62,012,424

The accompanying notes are an integral part of these financial statements

4

SHEARSON FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

	Six Months Ended			Six Months Ended
	June 30, 2007			June 30, 2006
Cash flows from operating activities:
Net (loss) income	$	(610,571	)	$	2,169,200
Adjustments to reconcile net loss from operations to net cash used in operations:
Depreciation		278,430			307,352
Stock based expenses		596,196			2,486,145
Forgiveness of debt		--			(5,150,000	)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(212,689	)		(189,832	)
(Increase) decrease in mortgage loans held for sale		1,642,300			(4,163,071	)
(Increase) decrease in unamortized debt discount					--
(Increase) decrease in prepaid expenses		26,174			164,686
(Increase) decrease in goodwill		--			(2,514,124	)
(Increase) decrease in other assets		139,445			(25,700	)
Increase (decrease) in accounts payable and accrued expenses		(198,905	)		(580,500	)
Increase (decrease) in interest payable		212,927			(68,784	)
(Increase) decrease in minority shareholder interest		(37,394	)		--
Net cash  provided by (used for) operating activities		1,835,913			(7,564,626	)
Cash flows from investing activities:
Purchase of fixed assets		--			(208,268	)
Net cash used in investing activities		--			(208,268	)
Cash flows from financing activities:
Net (payments) advances on lines of credit		(1,656,944	)		4,094,396
Proceeds  from related notes payable		--			40,550
Proceeds from notes payable		--			902,010
Payments of notes payable		(178,080	)		(175,000	)
Issuance of stock for settlement of accounts payable		100,540			--
Issuance of stock for settlement of debt		161,174			--
Issuance of preferred stock		--			3,000,000
Issuance of common stock		--			162
Net cash (used for) provided by  financing activities		(1,835,024	)		7,862,118
Net increase in cash and cash equivalents		889			89,224
Cash and cash equivalents, beginning of period		9,032			21,401
Cash and cash equivalents, end of period	$	9,921		$	110,625
Supplemental disclosure of cash flow information
Interest paid	$	114,061		$	--

The accompanying notes are an integral part of these financial statements

5

SHEARSON FINANCIAL NETWORK, INC.

STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEAR ENDED DECEMBER 31, 2006 AND THE SIX MONTHS ENDED JUNE 30, 2007

									Additional					Total
	Common Stock				Preferred Stock				Paid		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		in Capital		Deficit			Equity (Deficit)
Balance December 31, 2006 (1)		665,748,589	$	665,749		10,500	$	4,250,000	$	27,592,382	$	(26,074,241	)	$	6,433,890
Stock issued for services		72,552,592		72,553						496,003					568,556
Stock issued for debt		16,906,156		16,906						161,174					178,080
Stock issued for AP settlement		10,735,000		10,735						100,540					111,275
Net loss		--		--		--		--		--		(610,571	)		(610,571	)
Balance June 30, 2007		765,942,337	$	765,942		10,500	$	4,250,000	$	28,350,100	$	(26,684,812	)	$	6,681,231

(1)  On June 4, 2007, the Company’s Board of Directors approved a resolution to increase the number of shares authorized from 500,000,000 to 1,000,000,000, and to split each outstanding share of common stock into 2 shares of common stock.  This adjustment is retroactively reflected in the December 31, 2006 balance, for the additional  375,805,703 shares issued on June 15, 2007 and the effect on additional paid in capital.

The accompanying notes are an integral part of these financial statements

6

SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(1) Basis of Presentation:

In the opinion of management, the accompanying unaudited condensed consolidated interim financial statements reflect all adjustments (consisting of only normal and recurring adjustments) necessary to present fairly the financial position of Shearson Financial Network Inc. (the "Company"), as of June 30, 2007, and the results of its operations and cash flows for the six-month period ended June 30, 2007 and 2006. The results of operations for such interim periods are not necessarily indicative of the results for a full year. The accompanying unaudited condensed consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and with instructions to Form 10-QSB and, accordingly, do not include all disclosures required by accounting principles generally accepted in the United States of America. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes to the audited consolidated financial statements included in the Company's Form 10-KSB registration report for the period ending December 31, 2006 filed with the Securities and Exchange Commission.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. Although the Company has shown a profit for the year ended December 31, 2006 of $2.8 million and has posted a profit for the current quarter, the Company has suffered recurring losses from operations and has an accumulated deficit of $26,684,812 as of June 30, 2007, which raises substantial doubt about the Company's ability to continue as a going concern.

Management currently believes that cash flows from operations should be sufficient to meet the Company’s current liquidity and capital needs at least through fiscal 2007 however, if they are not, management will seek equity funding from the public capital markets , so long as there are no material adverse changes to the terms or availability of our warehouse lines of credit, we  believe we can meet our liquidity and capital needs at current production levels at least through fiscal 2007.  However we are currently exploring possible liquidity sources either through additional borrowings or potential capital partners to  enable us to increase our loan production and expansion.  Future offerings are probable in order to fund the acquisition growth by the Company.

(2) Principles of Consolidation:

The consolidated financial statements include the accounts of Shearson Financial Network, the accounts of Shearson Home Loans and Allstate Home Loans, Inc, of which the Company, on July 29, 2006, acquired 85% of the outstanding common stock through a stock exchange.  The minority shareholder interest of 15% of Allstate Home Loans amounts to $216,036 which is reflected on the accompanying consolidated balance sheet.  All significant inter-company accounts and transactions have been eliminated.

(3) Earnings per Share

Earnings per share have been calculated based upon the weighted average number of common shares outstanding during both reporting periods.

(4) Stock Issued for Services:

The Company accounts for equity instruments issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force (“EITF”) Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued whichever is more reliably measurable. The measurement date of the fair value of the equity instrument issued is the earlier of the date on which the counter party’s performance is complete or the date on which it is probable that performance will occur. For the six months ended June 30, 2007, the amounts that have been charged against income for those services were approximately $596,196.

7

SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

(5) Promissory Note Conversion Agreement

On January 29, 2007, the Company entered into a Promissory Note Conversion Agreement in the amount of $141,780 with La Jolla Cove Investors, Inc., (“LJCI”). The parties have no material relationship with the Company or its affiliates other than in respect to the material definitive agreement.  Each of LJCI and Shearson agree that each Promissory Note shall be converted or exchanged (each, a “Conversion”), in whole, up to the full principal balance thereof, into shares of the common stock of Shearson (the “Shearson Common Stock”) (calculated as to each such conversion to the nearest 1/100^th of a share), within 60 days from the date of LJCI’s purchase of the Promissory Note. The number of shares of Shearson Common Stock into which the Promissory Notes may be converted is equal to the dollar amount of the Promissory Note being converted divided by the Conversion Price. The Conversion Price shall be equal to 82% of the average of the volume weighted average price of the shares of the Shearson Common Stock during the five trading days prior to LJCI’s election to convert. The Conversion Notice shall constitute a contract between LJCI and Shearson, whereby LJCI shall be deemed to subscribe for the number of shares of Shearson Common Stock which it will be entitled to receive upon such Conversion and, in payment and satisfaction of such subscription, to surrender the Promissory Note and to release Shearson from all liability thereon (except if and to the extent that any principal amount of the Promissory Note remains unconverted).  As of June 30, 2007, 10,906,156 shares were converted for a value of $141,780, resulting in the note in question to an individual, as Exhibit A to the Promissory Note Conversion Agreement, being satisfied.

(6) Convertible Debenture:

On June 30, 2006, we entered into a Securities Purchase Agreement with AJW Partners, LLC ("Partners"), AJW Offshore, Ltd. ("Offshore"), AJW Qualified Partners, LLC ("Qualified") and New Millennium Capital Partners, II, LLC ("Millennium") for the sale of (i) $1,500,000 in secured convertible notes and (ii) warrants to purchase 30,000,000 shares of the Company's common stock. Partners, Offshore, Qualified and Millennium are collectively referred to as the "Purchasers".The Purchasers are obligated to provide the Company with the funds as follows:$500,000 was disbursed at closing; $500,000 was disbursed, within five days of filing a registration statement covering the number of shares of common stock underlying the secured convertible notes and the warrants; and $500,000 will be disbursed within five days of the effectiveness of the registration statement subject to the terms and conditions of the Securities Purchase Agreement.The proceeds of the offering have been and will be used for general corporate purposes and working capital.

The secured convertible notes bear interest at 6%, unless our common stock is greater than $0.025 per share for each trading day of a month, in which event no interest is payable during such month.  The Company begins to accrue interest on the notes on the date that the Company receives the proceeds for such note.  As of June 30, 2007, the Company has accrued interest of $115,068, accrued from the dates of the respective disbursements of June 30, 2006 and July 24, 2006.  As of June 30, 2007, the Company has not made any interest payments (either in stock or in cash, on the notes.   The secured convertible notes mature three years from the date of issuance, and are convertible into our common stock, at the Purchasers' option, at a 50% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion. Any amount of principal or interest, which is not paid when due shall bear interest at a rate of 15% per annum from the due date until it is paid ( the “Default Interest Rate”)

The full principal amounts of the secured convertible notes are due upon a default under the terms of secured convertible notes. In addition, we granted the Purchasers a security interest in substantially all of our assets. Pursuant to an amendment to the registration rights agreement, dated July 19, 2006, between us and the selling shareholders, we are required to file a registration statement with the Securities and Exchange Commission within 30 days of closing, which will include 100% of the common stock underlying the secured convertible notes. If the registration statement is not declared effective within 165 days from the date of closing, an event of default shall have occurred. On November 18, 2006, the registration statement had not become effective, which created an event of default.  The default interest rate charged on the outstanding balance is 15%.  The Company continues its efforts towards the registration becoming effective.

8

SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2007

The Company has determined the Notes contains a beneficial conversion feature and qualifies for treatment under Emerging Issue Task Force No. 00-27.  The estimated fair value of the detachable warrants of $421,166 has been determined using Black-Scholes option pricing model using the following assumptions: stock price volatility ranging from 340% to 343%, risk free interest rate of 5.15%; dividend yield of 0% and 3 year term.  The face amount of the Notes of $1,000,000 was proportionately allocated to the Notes and the warrants in the amount of $704,162 and $295,838, respectively.  The Notes’ proportionate allocated value of $704,162 was then further allocated between the Notes and the beneficial conversion feature, which the entire remaining value of $704,162 was allocated to the beneficial conversion feature.  The combined total value of the warrant and beneficial conversion feature of $1,000,000 has been accounted for as a debt discount which is being amortized and treated as interest expense over the term of the Notes.  For the six months ended June 30, 2007, the Company amortized a total of $165,146.

(7) Related-Party Transactions:

On January 21, 2005, the Company borrowed $125,000 from its Chief Financial Officer, Wayne Bailey.  On May 14, 2007, the Company elected to exchange 6,000,000 shares of its common stock at the closing market price of  $0.006, or $36,300 towards repayment of the loan.  Since Mr. Bailey is no longer an officer of the Company the Company has reclassed the note as it is no longer a related party transaction.

On January 11, 2006, Joseph Cosio-Barron, the Company’s President advanced the Company $75,000 and on January 31, 2006 advanced an additional $27,001, for a total of $102,010.  The advances are in the form of a demand note which incurs interest at a rate of 10% per annum.

9

(9) Business Consolidation:

SHEARSON FINANCIAL NETWORK
JUNE 30, 2007
	Shearson			Shearson
	Home Loans			Financial			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	4,918		$	5,003		$	9,921
Mortgage loans held for sale		18,118,096			-			18,118,096
Accounts receivable and receivables from loans sold, net		1,800,108			-			1,800,108
Due to from parent/subsidiary		2,156,939			(2,156,939	)		-
Prepaid and other current assets		31,981			81,614			113,595
Total current assets		22,112,041			(2,070,321	)		20,041,720
Property and equipment, net		672,241			466,556			1,138,798
Other assets:
Goodwill		-			6,709,937			6,709,937
Other assets		-			1,019,800			1,019,800
Total other assets		-			7,729,737			7,729,737
Total assets	$	22,784,282		$	6,125,973		$	28,910,255
Liabilities and Stockholders' Equity
Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	396,506		$	339,574		$	736,081
Due to from parent/subsidiary		(1,993,192	)		1,993,192			-
Stock subscription payable		-			20,000			20,000
Bridge notes payable		-			1,200,000			1,200,000
Accrued interest payable		266,135			303,218			569,353
Notes payable		-			777,096			777,096
Notes payable - related party		-			102,010			102,010
Line of credit		17,608,450			-			17,608,450
Total current liabilities		16,277,899			4,735,090			21,012,989
Long term liabilities
Long term debt, net of current portion		-			1,000,000			1,000,000
Total long term liabilities		-			1,000,000			1,000,000
Total liabilities		16,277,899			5,735,090			22,012,989
Minority shareholder interest		216,036			-			216,036
Stockholders' equity:
Common stock, $0.001 par, 1,000,000,000 authorized 765,942,337 issued and outstanding
		-			765,942			765,942
Preferred Stock, $0.01 par, 15,000,000 authorized10,500 issued and outstanding		-			4,250,000			4,250,000
Additional paid-in capital		-			28,350,100			28,350,100
Accumulated earnings (deficit)		6,290,347			(32,975,159	)		(26,684,813	)
Total stockholders' equity		6,290,347			390,883			6,681,230
Total liabiltiies and stockholders' equity	$	22,784,282		$	6,125,973		$	28,910,255

10

(9) Business Consolidation (Continued)

SHEARSON FINANCIAL NETWORK
FOR THE SIX MONTHS ENDED JUNE 30, 2007
	Shearson			Shearson
	Home Loans			Financial			Consolidated
Revenues:
Loan origination and sale of mortgage loans	$	2,804,036		$	-		$	2,804,036
Cost of Sales		474,533			-			474,533
Gross Profit		2,329,502			-			2,329,502
Expenses:
Salary & payroll taxes		726,419			412,686			1,139,105
Professional fees		80,568			437,969			518,537
Selling, general and administrative		466,187			241,076			707,263
Depreciation expense		160,854			117,576			278,430
Total expenses		1,434,028			1,209,307			2,643,335
Income (loss) from operations		895,474			(1,209,307	)		(313,832	)
Other (expense) income
Interest expense		(3,500	)		(165,487	)		(168,987	)
Debt discount expense		-			(165,146	)		(165,146	)
Total other (expense) income		(3,500	)		(330,633	)		(334,133	)
Income (loss) before minority shareholder interest		891,974			(1,539,940	)		(647,965	)
Loss applicable to minority shareholder interest		37,395			-			37,395
Net income (loss)	$	929,369		$	(1,539,940	)	$	(610,571	)

11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and the related notes thereto included elsewhere in this Quarterly Report on Form 10-QSB and the Annual Report on Form 10-KSB for the fiscal year ended December 31, 2006. Certain statements contained herein may constitute forward-looking statements within the meaning of the Private Litigation Reform Act of 1995.  These statements involve a number of risks, uncertainties and other factors that could cause actual results o differ materially, as discussed more fully herein.

THIS REPORT ON FORM 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS.

Statements contained in this Form 10-QSB that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  In addition, words such as “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements or events, or timing of events, to differ materially from any future results, performance or achievements or events, or timing of events, expressed or implied by such forward-looking statements.  We cannot assure that we will be able to anticipate or respond timely to the changes that could adversely affect our operating results in one or more fiscal quarters.  Results of operations in any past period should not be considered indicative of results to be expected in future periods.  Fluctuations in operating results may result in fluctuations in the price of our securities.

In the event we need to raise additional financing, there can be no assurance that any such financing will be available on acceptable terms.  If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected.  Debt financing will increase expenses and must be repaid regardless of operating results.  Equity financing could result in dilution to existing stockholders.

Some of the more prominent known risks and uncertainties of our business are set forth below.  However, this section does not discuss all possible risks and uncertainties to which we are is subject, nor can it be assumed that there are not other risks and uncertainties which may be more significant.

· Our losses from period to period;

· Our dependence on the warehouse lines of credit which has been reduced ;

· Our need for additional funding sources so that our ability to originate and fund loans is not impaired and

· Our ability to compete with banks and other mortgage lenders that are significantly larger.

Overview

Shearson Financial Network, Inc., (The "Company") is a direct-to-consumer mortgage broker and banker with revenues derived primarily from origination commissions earned on the closing of first and second mortgages on single-family residences ("mortgage loans" and "home equity loans"). The Company has acquired and intends to acquire other businesses in the direct-to consumer mortgage brokerage business and may acquire other businesses that are outside the direct-to-consumer mortgage brokerage business. The Company believes it has the infrastructure, systems, direct marketing call center support and operational management necessary to properly integrate more acquisitions in order to establish and support a national network.

Recently, the mortgage banking industry has undergone a severe restriction of its credit facilities available to mortgage bankers due to the collapse of the sub-prime loan market. Financial institutions, such as warehouse lenders, have responded by raising the capital costs necessary to bank a loan in their facility. These increases make the costs of banking a loan substantially more expensive and has an adverse affect on the Company’s liquidity. Additionally, many loan products carry an additional risk of not being purchased at a profit during the current market conditions as investors remain nervous. Loans which we may bank and which may subsequently not be sold at par plus a margin represent a substantial risk to our liquidity. The Company has therefore restricted its mortgage banking activities and only intends to bank loans for which it has firm purchase commitments. Further, we are only using warehouse credit lines which allow the Company to fund at 100% of the loan amount advanced. All other loans originated by the Company are brokered to our over 100 correspondents which reduces risk on sale, but also improves our liquidity.

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Results of Operations

Three Months Ended June 30, 2007 as Compared to the Three Months Ended June 30, 2006

Net revenues from origination and/or sale of loans increased 10% or $152,182 to $1,679,763 for the quarter ended June 30, 2007 from $1,527,581 for the quarter ended June 30, 2006.  The increase is due to the July 29, 2006 acquisition of  85% of Allstate Home Loans, Inc., which revenues were not realized until the third quarter of the previous year.

Total operating expenses decreased $116,755 or 9.2% to $1,156,892 for the quarter ended June 30, 2007, from $1,273,647 for the quarter ended June 30, 2006.  The decrease is related to a reduction in professional fees of $245,577 or 66.8%, increase in wages of $109,685 or 26.6%, and a decrease in depreciation of $24,597 or 16%, and an increase in SGA of $43,734 or 12.9%.  The decrease in expenses is attributable to the Company’s reduction in of its professional fees, while the increase in SGA and wages is related to the acquisition of  85% of Allstate Home Loans, Inc.

Income from operations increased $517,685 or 265%, to $322,309 for the quarter ended June 30, 2007 as compared to a loss from operations of  $195,376 for the quarter ended June 30, 2006.  The increase is attributable to the increase in revenues related to the 85% interest in Allstate Home Loans and a decrease in professional fees.

Interest expense increased $71,711 or 105% for the quarter ended June 30, 2007 as compared to the quarter ended June 30, 2006.  The increase is related to the increase in long-term convertible notes of $1,000,000.  Debt discount expense increased $83,029, related to the beneficial debt conversion of the long-term note.  The loss applicable to the minority shareholder interest of $77,497, represents the 15% of the loss not attributable to the Company from its 85% interest in Allstate Home Loans, Inc.

We had net income of $176,753 for the quarter ended June 30, 2007 as compared to net income of $4,886,311 for the same quarter of 2006.  For the quarter ended June 30, 2007, the Company generated income from operations of $322,309 offset by interest expense and debt discount expense of $223,053 adjusted by the loss attributable to Allstate Home Loans or minority shareholder interest of $77,497. For the quarter ended June 30, 2006, the Company recorded forgiveness of debt of $5,150,000 offset by a loss from operations of $195,376 and interest expense of $68,313.

Six Months Ended June 30, 2007 as Compared to the Six Months Ended June 30, 2006

Net revenues from origination and/or sale of loans increased 63.1% or $1,085,236 to $2,084,036 for the six months ended June 30, 2007 from $1,718,000 for the six months ended June 30, 2006.  The increase in revenues can be attributed to the July 29, 2006 acquisition of  85% of Allstate Home Loans, Inc.

Total operating expenses decreased $1,440,786 or 35.3% to $2,643,335 for the six months ended June 30, 2007 as compared to $4,084,121 for the six months ended June 30, 2006.  The decrease is related to a reduction in wages of $428,084  or 27.3%, a decrease in professional fees of $1,211,313 or 70% and a decrease in depreciation of $28,922 or 9.4%, offset by an increase in SGA of $227,533 or 47.4%.  The decrease is attributable to the reduction in work force and the stabilization of professional fees, offset by the increase in SGA which is related to the acquisition of  85% of Allstate Home Loans, Inc.

Income from operations increased $2,578,034 or 89%, to a loss of operations of $313,832 for the six months ended June 30, 2007 as compared to a loss from operations of  $2,891,866 for the six months ended June 30, 2006.  The increase is attributable to the increase in revenues related to the 85% interest in Allstate Home Loans and a decrease in professional fees.

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Interest expense increased 80,054 or 90% for the six months ended June 30, 2007 as compared to the six months ended June 30, 2006.  The increase is related to the increase in long-term convertible debt of $1,000,000.  Debt discount expense increased $165,146, related to the beneficial debt conversion of the long term debt.  The loss applicable to the minority shareholder interest of $37,395, represents the 15% of the loss not attributable to the Company from its 85% interest in Allstate Home Loans, Inc.

We had a net loss of $610,571 for the six months ended June 30, 2007 as compared to net income of $2,169,201 for the six months ended June 30, 2006.  For the six months ended June 30, 2007, the Company generated loss from operations of $313,832, interest expense and debt discount expense of $334,133 adjusted by the loss attributable to Allstate Home Loans or minority shareholder interest of $37,395. For the six months ended June 30, 2006, the Company recorded forgiveness of debt of $5,150,000 offset by a loss from operations of $2,891,866 and interest expense of $168,987.

Liquidity and Capital Resources

Liquidity is the ability of a company to generate funds to support asset growth, satisfy disbursement needs, maintain reserve requirements and otherwise operate on an ongoing basis.  Recently, the mortgage banking industry has undergone a severe restriction of its credit facilities available to mortgage bankers due to the collapse of the sub-prime loan market. Financial institutions, such as warehouse lenders, have responded by raising the capital costs necessary to bank a loan in their facility. These increases make the costs of banking a loan substantially more expensive and has an adverse affect on the Company’s liquidity. Additionally, many loan products carry an additional risk of not being purchased at a profit during the current market conditions as investors remain nervous. Loans which we may bank and which may subsequently not be sold at par plus a margin represent a substantial risk to our liquidity. The Company has therefore restricted its mortgage banking activities and only intends to bank loans for which it has firm purchase commitments. Further, we are only using warehouse credit lines which allow the Company to fund at 100% of the loan amount advanced. All other loans originated by the Company are brokered to our over 100 correspondents which reduces risk on sale, but also improves our liquidity.

Our ability to broker mortgage loans depends on maintaining approvals with the various lenders through whom we broker loans. If the Company were to lose these approvals, it would be unable to broker loans and therefore would suffer a substantial loss of revenue to the business. Further, lenders to whom we broker loans may at any time terminate our brokerage relationship for any reason and may do so without advance notice. Losing a substantial number of these lender relationships could result in a substantial negative impact to the Company.

Our ability to bank and purchase mortgage loans depends on our ability to secure warehouse lines of credit with acceptable terms. We currently have our primary warehouse line of $10 million with Warehouse One with a provision in the facility for an additional $10 million. This facility bears interest at 1.5 above LIBOR, or 11% at June 30, 2007.  The facilities are secured by the mortgage loans financed through the line, related mortgage servicing agreements, of which we repay the outstanding balance under the warehouse line with the proceeds from the sale of mortgage loans. The additional proceeds earned from loan sales also replenish working capital.

The loan agreement with the Warehouse One contains two restrictive covenants relating to tangible net worth of not less than $4,750,000 and a debt to equity ration no greater than 10:1.  Currently we are in compliance with the debt covenants as the loan is with the Company’s subsidiary, Shearson Home Loans, which equity is $6.2 million at June 30, 2007.  Should we not comply with the restrictive covenants, there is the possibility that we may lose the credit facility at any time, which would cause a negative impact on the way we do business and a material adverse effect on our results of operations and financial condition.  As of June 30, 2007, the balance on this facility was $887,872.

Allstate Home Loans, Inc., which the Company acquired 85% of the outstanding stock on July 29, 2006, has a line of credit with Residential Funding Corporation, (“RFC”).  The RFC line of credit is a $30 million facility, charges interest averaging between 6.5% and 8.5% and is personally guaranteed by Greg Shanberg, former President of Allstate Home Loans and Shearson Home Loans.  The facility contains restrictive covenants of which tangible net worth must be greater than $4,000,000, debt leverage ratio must not exceed 15:1 and which cash must not be less than $800,000.  Allstate Home Loans, Inc. currently does not meet cash requirements and was not current with its interest payments which resulted in an event of default.  The facilities are collateralized by the related mortgage loans receivable.  At June 30, 2007, the outstanding balance was $16,720,578.

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Historically we have funded operations through a combination of borrowings and issuance of stock. We currently intend to retain our earnings for the foreseeable future to help increase our liquidity.   Management continues to explore investment alternatives to aid in its liquidity, but there can be no reliance made on such.

Management currently believes that cash flows from operations should be sufficient to meet the Company’s current liquidity and capital needs at least through fiscal 2007 however, if they are not, management will seek equity funding from the public capital markets , so long as there are no material adverse changes to the terms or availability of our warehouse lines of credit, we  believe we can meet our liquidity and capital needs at current production levels at least through fiscal 2007.  However we are currently exploring possible liquidity sources either through additional borrowings or potential capital partners to enable us to increase our loan production and expansion.  Future offerings are probable in order to fund the acquisition growth by the Company.  The Company is seeking to raisie equity capital in order to fund the integration of this growth. If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Any equity financing could result in dilution to existing stockholders.

Cash Flows

During the first six months of fiscal 2007 and 2006 we had net cash provided by (used for) operating activities of $1,835,913 and ($7,564,626), respectively.  The primary sources of net cash provided by was a decrease in mortgage loans held for sale of $1.6 million, increase in receivables of $213,000, decrease in accounts payable of $198,905, stock based expenses of $596,196, decrease in prepaid expenses of $26,000, increase in interest payable of $213,000, increase in minority shareholder interest of $37,000, depreciation of $278,000, decrease in other assets of $139,000, offset by the net loss of $611,000 for the six month period ending June 30, 2007.  The primary sources of net cash used for was an increase in receivables from loan sold of $4.2 million, increase in accounts receivable of $190,000, decrease in other current assets of $165,000, increase of goodwill of $2.5 million, increase in other assets of $26,000, decrease in accounts payable of $581,000, increase in interest payable of $68,800, stock based expenses of $2.5 million and forgiveness of debt of $5.2 million for the six month period ending June 30, 2006.  As investors purchase loans, the amounts advanced for such loans through the warehouse lines of credit are paid.  At that time, the receivables are cleared and the cash deposited in our operating account.  These accounts vary significantly depending upon where the bulk of the loans are in the process of funding and selling.

Net cash used for investing activities during the first six months of fiscal 2007 and 2006 was $0 and $208,000, respectively.

Net cash used for financing activities for the six months ended June 30, 2007 was $1.8 million. This consisted primarily of net payments under the warehouse lines of credit of $1.7 million, and payments of notes payable of $178,000.  Net cash provided by financing activities for the six months ended June, 2006 was $7.9 million. This consisted primarily of net advances under the warehouse lines of credit of $4.1 million, proceeds of notes payable related party of $40,550, proceeds of notes payable of $902,000, payments of notes payable of $175,000, issuance of preferred stock of $3 million, as well as issuance of common stock of $162.

As of December 31, 2006, the Company has a net operating loss carry forward of approximately $22,608,821 for tax purposes, which will be available to offset future taxable income.  If not used, this carry forward will begin to expire in 2017.

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Regulatory Trends

The regulatory environments in which we operate have an impact on the activities in which we may engage, how the activities may be carried out and the profitability of those activities.  Therefore, changes to laws, regulations or regulatory policies can affect whether and to what extent we are able to operate profitably.  For example, proposed state and federal legislation targeted at predatory lending could have the unintended consequence of raising the cost or otherwise reducing the availability of mortgage credit for those potential borrowers with less than prime-quality credit histories, thereby resulting in a reduction of otherwise legitimate sub-prime lending opportunities.

Item 3A(T).   Controls and Procedures

As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer. Based on this evaluation, these officers have concluded that the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that our controls and procedures are adequate. There were no significant changes to our internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation.

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

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are party to claims from time to time, not required to be disclosed in accordance with Item 103 of Regulation S-B. While management currently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or results of operations, litigation is subject to inherent uncertainties.

On April 14, 2004, we commenced an action against Consulting Services LLC. On April 19, 2004, Consulting Services LLC instituted a counterclaim against us. Both claims are contended by the parties to be of a breach of contract nature from a certain Asset Acquisition Agreement.  Our position is that the agreement was never consummated therefore we are not liable for our performance obligations.  In their counterclaim, Consulting Services LLC is asking for the amount of stock agreed to be given for services per the acquisition agreement of approximately 2.7 million shares of our stock valued at the time to be approximately $1.8 million and $655,321 for certain liabilities we were to assume per the agreement upon closing. We are asserting our position of no liability and asking for approximately $712,859 which was advanced to Consulting Services prior to the knowledge that the transaction was not closing. As of June 30, 2007, there was $352,829 of the $712,859 in other assets.  Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on our results of operations of the period in which the ruling occurs. The estimate of the potential impact on our financial position or overall results of operations for the above legal proceedings could change in the future.

IndyMac v. Consumer Direct. This is an action by IndyMac Bank against Ocean West Enterprises, Inc., Ocean West Holding Corporation and Consumer Direct of America (“CDA”) asserting causes of action for Breach of Contract and Account Stated.  The action arises as a result of a purported agreement between IndyMac Bank and Ocean West whereby Ocean West sold and IndyMac would purchasd mortgages.  IndyMac claims that it later identified nine loans that it purchased from Ocean West which allegedly did not meet the required terms and conditions and as a result, it suffered losses in the amount of $779,700.  Thereafter it alleged that IndyMac and Ocean West entered into a number of different settlement agreements whereby Ocean West made periodic payments to IndyMac on a reduced claim of $289,033, however, if the payments were not received as scheduled, IndyMac would be entitled to the full amount due plus interest.  Ocean West failed to make timely and regular payments and this action was initiated.

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CDA was recently advised that a California Court had entered a default judgment against it in the amount of $604,391.27 in relation to the above matter.  CDA had not been served with a summons or complaint or any prior pleading in relation to this matter.  As such, counsel for CDA has prepared and filed Motions to Set Aside and Void the default Judgment as it pertains to CDA.

Christopher Fontenot vs. Ocean West Enterprises, Inc. and Consumer Direct of America. This is an action seeking damages due to failure to pay wages and wrongful termination.  The judgment in the amount of $707,923 and was served on August 7, 2007. The plaintiff was never employed by Consumer Direct of America the co-defendant. The primary defense contention of the co-defendant is that it never employed the plaintiff, it therefore cannot be liable as a successor in interest to Ocean West Enterprises, A Notice of Appeal, will be filed or by October 6, 2007.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

During the six months ended June 30, 2007, the Company issued shares of its common stock to the following:

Ÿ 72,552,592 shares issued to individuals for legal and consulting services with a  total value of $496,003.

Ÿ 16,906,156 shares issued an individual and an investment company for settlement of debt with a total value of $178,080.

Ÿ 10,735,000 shares issued to an various individuals as settlement of accounts payable with a total value of  $100,540.

Item 3. Defaults Under Senior Securities

On June 30, 2006, the Company entered into a convertible debt agreement with various investors. The Agreement provides for the sale by the Company to the investors of Secured Convertible Term Notes (the “Notes”) issued by the Company in the aggregate principal amount of $1,500,000, of which $1,000,000 has been issued.  The conversion of the Notes is subject to an effective Registration Statement to be filed by the Company.  On November 18, 2006, the registration statement had not become effective, which resulted in an event of default.  The default interest rate charged on the outstanding balance is 15%.  The Company has adjusted accrued interest for the change in rate.  The Company continues its efforts towards the registration becoming effective.

Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information.

None.

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Item 6. Exhibits

Description of Exhibit			Exhibit No.
302 Certifications			31
	(i)	Certificate of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	31.1
	(ii)	Certificate of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	31.2
	(i)	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**	32.1

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SHEARSON FINANCIAL NETWORK, INC.
Date:August 14, 2007
	By:	/s/  Michael A. Barron
		Michael A. Barron
		Chief Executive Officer
Date:August 14, 2007
	By:	/s/  Theresa Carlise
		Theresa Carlise
		Chief Financial Officer (Principal Accounting Officer)

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