Shearson Financial Network 10-KSB 12-31-2006

10KSB 1 form10ksb.htm SHEARSON FINANCIAL NETWORK 10-KSB 12-31-2006 Shearson Financial Network 10-KSB 12-31-2006

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB

(MARK ONE)

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

For the fiscal year ended December 31, 2006

Commission file number

000-32745

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 89074

(Address of Principal Executive Offices including Zip Code)

(702) 868-7900

(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:

COMMON STOCK, $0.001 PAR VALUE

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark 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 10-K, or any amendment to this Form 10-K.

Issuer’s revenue as of December 31, 2006 approximately $8,532,953

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes ¨ No x

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

Aggregate market value of Common Stock held by shareholders based on the closing price of the registrant's Common Stock on the OTC: BB on February 28, 2007 was $ 6,031,308.

Number of outstanding shares of common stock as of February 28, 2007 totals 301,565,417.

Documents Incorporated By Reference : None

Transitional Small Business Disclosure Format (Check one):

Yes ¨ No x

SHEARSON FINANCIAL NETWORK, INC.

TABLE OF CONTENTS

	PAGE
PART I

Item 1. Description of Business	3
Item 2 Description Of Property	14
Item 3 Legal Proceedings	14
Item 4 Submission of Matters to a Vote of Security Holders	15
Item 5 Market for Common Equity and Related Stockholder Matters	15
Item 6. Management’s Discussion and Analysis or Plan of Operation	16
Item 7. Financial Statements	26
Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	53
Item 8A. Controls and Procedures	53
Item 8B. Other Information	53
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act	53
Item 10. Executive Compensation	54
Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	56
Item 12. Certain Relationships and Related Transactions	57
Item 13. Exhibits	58
Item 14. Principal Accountant Fees and Services	58
SIGNATURES	60

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PART I

This Annual Report contains forward-looking statements about the Company's business, financial condition and prospects that reflect management's assumptions and beliefs based on information currently available. There can be no assurance that the expectations indicated by such forward-looking statements will be realized. If any of management's assumptions should prove incorrect, or if any of the risks and uncertainties underlying such expectations should materialize, Shearson financial Network, Inc., actual results may differ materially from those indicated by the forward- looking statements.

The key factors that are not within the Company's control and that may have a direct bearing on operating results include, but are not limited to, acceptance of the Company's products and services, the Company's ability to expand its customer base, managements' ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.

There may be other risks and circumstances that management may be unable to predict. When used in this Report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify and qualify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions. However, the forward-looking statements contained herein are not covered by the safe harbors created by Section 21E of the Securities Exchange Act of 1934.

Item 1.

Description of Business

Shearson Financial Network, Inc., formerly known as Blue Star Coffee, Inc. and Consumer Direct of America, (“CDA”) is a Nevada corporation formed in July, 2000 to sell specialty coffee beans, brewed coffee and espresso-based beverages through company-owned and franchised retail locations. In February 2002, Blue Star, which was then in the development stage, acquired all of the outstanding stock of Consumer Capital Holdings, Inc. and Consumer Capital Holdings became a wholly owned subsidiary of Blue Star. After its acquisition of Consumer Capital Holdings, Blue Star changed its name to Consumer Direct of America. On May 1, 2006, the Company changed its name to Shearson Financial Network, Inc., (“SFN”) 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’s wholly owned subsidiary, Shearson Home Loans, formerly known as Consumer Direct Lending Inc. ("CDL") is a Nevada corporation formed in October 2001 to originate retail mortgages and to provide mortgage banking services. The board of directors of CDL approved to change the name of the Company from Consumer Direct Lending, Inc. to Shearson Home Loans on June 22, 2005. Shearson Home Loans establishes banking and correspondent relationships with major lenders and banks.

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. At present, the Company sells its loan servicing through correspondent relationships with BNC, Countrywide, Impac and Aegis.

On February 20, 2002 Blue Star Coffee, Inc., a Nevada corporation (the “Registrant”) acquired Consumer Capital Holding, Inc., (“CCHI”) a Nevada corporation through a stock exchange affected pursuant to an Acquisition Agreement dated February 20, 2002 (the “Agreement”). Pursuant to the Agreement the stockholders of CCHI transferred to the Registrant all of the issued and outstanding shares of capital stock of CCHI and the Registrant issued to the stockholder of CCHI an aggregate of 1,047,900 post split shares of the common, par value $0.02, per share, of the Registrant. The amount of consideration was determined by arms length negotiations between the Registrant and the stockholders of CCHI.

On June 6, 2002 Shearson Financial Network, Inc., acquired Lending Servicing Corporation dba Las Vegas Mortgage (“LSC”) a Nevada corporation through a stock exchange and cash effected pursuant to an Acquisition Agreement dated June 6, 2002 (the “Agreement”). Pursuant to the Agreement the stockholders of LSC transferred to the Registrant all of the issued and outstanding shares of capital stock of LSC and the Registrant issued to the stockholder of LSC an aggregate of 120,000 post split shares of the common stock par value $0.02, per share, of the Registrant and $100,000 in cash. The amount of consideration was determined by arms length negotiations between the Registrant and the stockholders of LSC.

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On November 20, 2003, Shearson Financial Network, Inc. acquired Pro Mortgage Corp.(“PRO” or “Pro Mortgage”), a California corporation through a stock exchange effected pursuant to an Acquisition Agreement dated November 20, 2003 (the “Agreement”). Pursuant to the Agreement, the two stockholders of PRO transferred to the Registrant all of the issued and outstanding shares of capital stock of PRO and the Registrant issued to the two stockholders of PRO an aggregate of 150,000 post split shares of the common stock, par value $0.02, per share, of the Registrant, PRO has conducted its mortgage brokerage finance business under the name PRO Mortgage. The amount of the considerations was determined by arms-length negotiations between the Registrant and the stockholders of PRO.

On October 1, 2004, the Company rescinded its acquisition agreement with Pro Mortgage Corporation. On November 20, 2003 the Company and Pro Mortgage entered into an acquisition agreement, whereby Pro Mortgage and the Company agreed to exchange 1,000 shares of Pro Mortgage capital stock, representing 100% of the issued and outstanding capital stock of Pro Mortgage, in exchange for 3,000,000 shares of the Company’s capital stock, (the “Exchange”). The Exchange was never duly authorized and approved by the parties thereto, and each of the parties hereto desires to rescind the exchange. In connection with such rescission the Company transferred and assigned its shares of the Pro Mortgage capital stock to the Pro Mortgage shareholders and the Pro Mortgage shareholders transferred back its shares of the common stock of the Company. The Company views this rescission as nullification and accordingly has not included any operating activities related to PRO in the Company’s consolidated financial statements.

On July 15, 2004, the Company acquired 84.9% of the outstanding common stock of Ocean West Holding Corporation, (“Ocean West” or “OWHC”) through a stock exchange affected pursuant to a Purchase and Sale of Capital Stock Agreement. Marshall L. Stewart, Daryl S. Meddings, Enfo Loan Corporation, Kingsley and Nancy Cannon and Dale and Suzanne Delmege agreed to sell 4,921,930 of their shares of common stock of Ocean West to CDA in exchange for 622,381 shares of CDA (the “Transfer”). The consideration was based on the average monthly trading prices of each company’s shares for the month of June 2004. The Transfer resulted in CDA having majority control and ownership, of Ocean West. Ocean West Holding Corporation is a holding company, which holds all of the issued and outstanding stock of Ocean West Enterprises.

On June 6, 2005, InfoByPhone, Inc. a Delaware corporation, consummated an agreement with OWHC, pursuant to which InfoByPhone, Inc. exchanged all of its 6,000,000 then issued and outstanding shares of common stock for 6,000,000 shares, or approximately 56% of the common stock of OWHC. As a result of the agreement the transaction was treated for accounting purposes as a recapitalization by the accounting acquirer (InfoByPhone, Inc.). Prior to the exchange, OWHC intended to issue a dividend pay out to its shareholders, which was represented of 100% of the issued and outstanding shares of Ocean West Enterprises, the wholly owned subsidiary of Ocean West Holding Corporation. This dividend payout did not occur which resulted in OWHC having 100% interest in Ocean West Enterprises.

The Company received cash proceeds in the amount of $400,000 from the sale of the public holding company, Ocean West Holdings (OTC:BB:OWHC). The sale of OWHC was directed by the Board of Directors of Ocean West and the payment to the Company was made by Ocean West as a reduction against the monies loaned to Ocean West by CDA.

On February 7, 2006, Shearson Financial Network, Inc. agreed to sell Shearson Home Loans, Inc., a Nevada Corporation ("SHL"), and wholly owned subsidiary of Shearson Financial Network, Inc., Inc. ("CDA"), to Paragon Financial Corporation (PGNF), pursuant to the terms and conditions of a Share Exchange Agreement dated February 7, 2006 (the "Exchange Agreement") among CDA, SHL and PGNF. Pursuant to the Exchange Agreement, PGNF acquired all of the common stock of SHL for 149,558,791 shares of PGNF common stock and 79 shares of PGNF Series F Preferred Stock (convertible into 443,217,018 shares of PGNF Common Stock), valued at approximately $16,000,000. Each share of the Series F Preferred Stock automatically converts into 5,610,342 shares of PGNF common stock upon the filing of an amendment to PGNF articles. Immediately prior to entering into the Exchange Agreement, PGNF had 119,566,360 shares of PGNF common stock outstanding. In addition, PGNF had outstanding warrants to purchase 18,531,592 shares of PGNF common stock and outstanding debt convertible into 4,846,000 shares of PGNF common stock arriving at an exchange ratio of 4 to 1.

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On May 5, 2006, the Company rescinded its acquisition agreement with PGNF. On February 7, 2006 the Company and PGNF entered into an acquisition agreement, whereby PGNF and the Company acquired all of the common stock of SHL for 149,558,791 shares of PGNF common stock and 79 shares of PGNF Series F Preferred Stock (convertible into 443,217,018 shares of PGNF Common Stock), valued at approximately $16,000,000. Each share of the Series F Preferred Stock automatically converts into 5,610,342 shares of PGNF common stock upon the filing of an amendment to PGNF articles, (the “Exchange”). The Exchange was never duly authorized and approved by the parties thereto, and each of the parties hereto desires to rescind the exchange. In connection with such rescission the Company transferred and assigned its shares of the PGNF capital stock and preferred stock to the PGNF shareholders and the PGNF shareholders transferred back its shares of the common stock of the Company. The Company views this rescission as nullification and accordingly has not included any operating activities related to PGNF in the Company’s consolidated financial statements.

On June 5, 2006, we agreed to acquire all of the issued and outstanding shares of common stock of Real Property Technologies ("RPT"), a New York corporation ("RPT"), from its shareholders ("shareholders"), pursuant to the terms and conditions of a Share Exchange Agreement (the "Exchange Agreement") among SHAREHOLDERS, RPT and us. Pursuant to the Exchange Agreement, we exchanged 100,000 shares of our Series A-1 Convertible Preferred Stock valued at approximately $40,000,000. Each share of the Series A-1 Convertible Preferred Stock has a stated value of four hundred dollars ($400.00). The acquisition of RPT diversifies our mortgage operations and our mortgage banking capability via its extensive database of real property information.

RPT is a leading real estate information company with headquarters in New York. We had planned to integrate RPT into Shearson Financial Network and operate RPT as a separate data network as the database has numerous marketing advantages for our mortgage operations.

On March 27, 2007, the Company rescinded its agreement with RPT. The parties believed that the Exchange was not as beneficial as anticipated to both parties, and desire to rescind said agreement effective December 31, 2006. The parties shall remain in the same position as that they were prior to the execution of the Exchange Agreement.

On June 9, 2006, we agreed to acquire certain assets and defined liabilities of eHome CreditCorp. (“EHC”), a New York corporation (“EHC”), from its shareholders (“shareholders”), pursuant to the terms and conditions of an Asset Purchase Agreement (the “Agreement”) among SHAREHOLDERS, EHC and us. Pursuant to the Agreement, we exchanged 7,500 shares of our Series A-1 Preferred Stock valued at approximately $3,000,000. Each share of the Series A-1 Preferred Stock has a stated value of four hundred dollars ($400.00). The acquisition of EHC diversifies our mortgage operations and our mortgage banking capability. EHC is a leading mortgage banker with headquarters in Garden City, New York. We have integrated EHC into our previously completed acquisition of Shearson Homes Loans and use the brand name Shearson Home Loans for all of our mortgage operations.

CHL is a regional mortgage banker with headquarters in Mellville, New York, and is licensed to lend in several states including New York and California. The agreement was subject to the approval of the New York State Banking Commission. We had planned to integrate CHL into our previously completed acquisition of Shearson Homes Loans.

On November 16, 2006, the Company rescinded its acquisition agreement with Continental Home Loans, Inc., (“CHL”) effective November 9, 2006. The Exchange was never duly authorized and approved by the parties thereto, and each of the parties hereto desires to rescind the exchange. In connection with such rescission the Company is released from all consideration. The Company views this rescission as nullification and accordingly has not included any operating activities related to CHL in the Company’s consolidated financial statements.

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On July 29, 2006, Shearson Financial Network, Inc. (the "Company") entered into a Share Exchange Agreement and Plan of Reorganization Agreement (the “Agreement”) with Allstate Home Loans Inc. (“Allstate”), and the sole shareholder of all of the issued and outstanding shares of Allstate (the “Allstate Shareholder”). Pursuant to the Agreement, which closed on July 29, 2006, the Company is purchasing from the Company’s sole shareholder 850 shares of Allstate’s issued and outstanding shares of common stock. As of July 29, 2006, Allstate had 1,000 shares common stock that are issued and outstanding.

Pursuant to the Agreement, the Company issued the Allstate Shareholder $2,000,000 worth of the Company’s common stock at a price of $0.025 per share, the closing price per shares of the Company’s common stock on July 29, 2006 and, as a result, the Company issued the Allstate Shareholder 80,000,000 shares of its common stock.

Pursuant to the Agreement, the Company is assuming 50% of the debt owed to the Allstate Shareholder which shall be no greater than $1.25 million dollars. Pursuant to the Agreement, the Company, at its sole option, may immediately convert said debt any time after the July 29, 2006 (the “Closing”) , to three thousand (3,000) shares of Series A-1 Convertible Preferred Stock of the Company with a value of $400.00 per share. Said shares shall have a liquidation preference such that upon the investment funding in an amount in excess of ten million dollars by an investment company into the Company, holder may require the Company to liquidate the Series A-1 Convertible Preferred Stock into $1.25 million dollars in cash from the proceeds from said funding. In the event the Company does not secure an investment by an investment company within six months from the Closing, then the holders will have the right to convert the Series A-1 Convertible Preferred Shares into common stock at the conversion price of $0.025 per share for a total of 48 million shares. The Company will use its best efforts to cause a registration statement to be filed pursuant to the conversion of the shares into common stock.

Competitive Legislative Advantage of SFN

The Acting Secretary of the United States Department of Housing and Urban Development, “HUD” has submitted revisions to the Real Estate Settlement Procedures Act (RESPA) to the office of Management and Budget for final approval. The proposed changes, although the final draft has not been made public, are expected to have far reaching effects within the Mortgage Industry. As previously written, the new changes will place a decided advantage in the hands of mortgage bankers and state and federal banks. Mortgage Brokers will find themselves at a clear disadvantage in terms of competitive pricing when compared with banking operations.

If the bill, as last reviewed, passes, the Mortgage Brokers will be forced to make the transition to banking, become a “net branch” of an existing mortgage banking operation or be acquired by someone like Shearson Financial Network, Inc. To remain a mortgage broker in a clearly disadvantaged position will ultimately lead to failure in the business.

It should be noted that many “net branch” arrangements as currently practiced are not recognized as legal operations according to HUD. The net branches are prohibited from originating FHA loans under such an arrangement. Additionally, as net branch operations, the branch manager receives no equity for his contributions to the parent banking company. In the case of SFN, there is value received, as additional compensation can be earned through production and a viable exit strategy is provided.

This pending legislation will provide additional momentum for large successful brokerage houses to make the transition to a wholly owned subsidiary of Shearson Financial Network, Inc.

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Growth Strategy

We plan to continue our growth strategy through the acquisition and affiliation of mortgage brokerage firms who do not currently bank their own production. By providing more efficient services to these smaller firms, bank products, and other services not readily available to smaller companies, we can accrete loan volume without having to "organically" grow the business. Banking of the accreted loan volume generates windfall revenue to the Company. Thus the rate of growth of our revenue stream is dramatically accelerated.

The Company's principal short-term focus is to:

establish relationships with 30 mortgage brokerage companies;

increase the number of installations with the Company's existing mortgage brokerage branches.

In addition to the residential mortgage origination market, the Company has identified three other potential growth opportunities: (i) adding complementary services to the mortgage lending process such as title search, property appraisals, relocation services and cash management; (ii) exploiting other financial markets such as home equity loans, life insurance sales and personal financial planning. Although the Company currently has no specific plans in these areas, the Company intends to explore these additional growth opportunities as part of its long-term strategic growth plan.

Products

We offers a competitive range of mortgage loan products to provide flexibility to mortgage loan brokers and our retail division. These products vary in loan-to-value ratio and income requirements as well as other factors. The following is a list of our primary standard products:

Conforming Mortgage Products -- Adjustable and fixed rate loan programs that meet the guidelines for purchase by government-sponsored entities, such as FNMA and FHLMC which guarantee mortgage backed securities, and by permanent investors in mortgage backed securities secured by, or representing ownership in, such mortgage loans.

Alt A Mortgage Products -- Alternative-A loans are adjustable and fixed rate loans that usually do not meet FNMA and FHLMC guidelines due to various reasons. These loans usually do not meet this guideline because they require a reduced amount of income verification and may exceed these agencies maximum loan-to-value ("LTV") guidelines. These loans are sold to institutional investors such as Credit Suisse First Boston, Banco Popular and Bear Stearns.

Second Mortgage Program -- Fixed rate amortizing and fixed rate with a balloon payment programs that are limited to borrowers we identify as A+ through B credit, risks, with a maximum combined loan-to-value ratio equal to 90%.

JUMBO Loans -- Adjustable and fixed rate loan program for loans that exceed the loan limits set by the FNMA (Fannie Mae) and the FHLMC (Freddie Mac). These loans are sold to investors in the secondary market that specialize in these types of loans and are structured to meet the guidelines provided by specific investors.

Non-Conforming Loans -- Fixed- rate first mortgage loans that are amortized over a fifteen or thirty-year period as well as loans with a balloon payment in fifteen years and payable during the fifteen-year period under a thirty-year amortization schedule.

Loan Origination

We originate both purchase and refinance mortgage loans. The percentage of refinance loans as compared to total volume for the year ended December 31, 2006 was 54.3% and 56.8% for the year ending December 31, 2005.

We originate loans primarily through three different channels. The first is directly through our "corporate" retail division. This division deals directly with the client. Most of the retail loans are referred to us through real estate agents or past clients. The remaining clients are generated through various marketing techniques such as direct mail, telemarketing, or various lead providers. We have closed this division in the early part of its fiscal year and has decided to focus its attention on the two remaining channels, as discussed below. The corporate retail loans comprised 1.7% of our loan volume for the year ended December 31, 2006 as compared to 7.7% of our loan volume for the year ended December 31, 2005.

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The second method of origination is through our branch network of retail branches. A retail branch is where all related branch expenses must be paid for through branch revenues and the manager of the branch is compensated only through the branch profits. We have concentrated on developing this area of our business in recent months because we believe this is one of the most cost effective and efficient ways to increase loan originations. The net branches comprised 92.3 % of the volume for the year ended December 31, 2006 and 92% of the loan volume in the fiscal year ended December 31, 2005. As of December 31, 2006 we had 13 retail branches licensed in 33 states. These branches are located in areas close to potential borrowers and referral sources. Being located near these referral sources better enables us in developing referral business. Our goal is to continue to develop and maintain recurring referral sources. To supplement branch business, we continue to develop lead programs through various providers.

Underwriting Process

Loans originated through the corporate retail division or retail branches require processing. Processing procedures vary depending on specific loan program and investor requirements. Loan applications are reviewed and verified for accuracy. The verification process includes, but is not limited to: (i) evaluation of the borrower's credit worthiness by obtaining a formal credit report through an approved credit agency, (ii) third party verification of the applicant's income and deposit information, and (iii) obtaining a preliminary title and appraisal report. Once processing is complete, the file is sent on to underwriting.

Regardless of how a loan is generated, all loans must be underwritten in accordance with guidelines set forth by management and the secondary market investors. Some underwriting criteria include borrower income and credit worthiness, loan-to-value ratios, property condition and type, insurance requirements and investor requirements. Our underwriting guidelines also comply with those guidelines set forth by the FNMA, FHLMC, FHA, Veterans Administration ("VA") and private institutional investors. The underwriting guidelines are intended to aid in evaluating the credit history of the potential borrower, the capacity of the borrower to repay the mortgage loan, the value of the real property, which will secure the loan, and the adequacy of such property as collateral for the proposed loan. The loan terms, including interest rate and maximum loan-to-value ratio, are determined based upon the underwriter's review of the loan application and related data and the application of the underwriting guidelines.

We employ only experienced underwriters. Our Underwriting Manager must approve the hiring of all underwriters, including those who will be located in a regional or branch office. Our underwriters must have had either substantial underwriting experience or substantial experience with us in other aspects of the mortgage finance industry before becoming part of the underwriting department. All underwriters are required to participate in ongoing training, including regular supervisory critiques of each underwriter's work. We believe that our underwriting personnel have the ability to analyze the specific characteristics of each loan application and make appropriate credit judgments.

The level of income verification varies with program type. The underwriting guidelines include four levels of documentation requirements for applicants, which are referred to as the "Full Documentation," "Lite Documentation," "Stated Income Documentation," and "No Documentation" programs. The purchasers in the secondary market dictate the level of income documentation required for a specific loan. Except for the No Documentation programs, where verification of income is not required, we review:

the applicant’s source of income;

calculate the amount of income from sources listed on the loan application or other documentation;

review the credit history of the applicant;

calculate the debt service-to-income ratio to determine the applicant’s ability to repay the loan;

review the type and use of the property being financed; and

review the property.

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Under our Full Documentation programs, applicants are generally required to submit two written forms of verification of stable income for at least twelve months. Under our Lite Documentation programs, the applicant may submit twenty-four months of bank statements in lieu of traditional documentation such a tax returns and pay-stubs. Our Stated Income Documentation programs may be accepted based upon the monthly income stated on the mortgage loan application if other criteria are met. Our No Documentation programs do not give consideration to income. Instead, more weight is given to the borrowers credit history and property value. All of the programs require a telephone verification of the employment of salaried employees. In the case of purchase money loans, under the Full Documentation program guidelines and, on all purchase loans where the loan-to-value ratio is greater than 80%, we also verify source of funds to be deposited by the applicant into escrow.

In most cases, our underwriters determine the applicant's ability to repay the loan using: (a) a qualifying rate that is equal to the stated interest rate on fixed-rate loans, (b) the initial interest rate on loans which provide for three years of fixed interest rate and payments before the initial interest rate adjustment, or (c) 2% above the initial interest rate on other adjustable-rate loans. The underwriting guidelines require that mortgage loans be underwritten following a standard procedure that complies with applicable federal and state laws and regulations. It also requires our underwriters to be satisfied of the value of the property to be mortgaged based upon a review of the appraisal. In general, the maximum principal amount of loans originated under our conventional program is $650,000; however, management may approve and make larger loans on a case-by-case basis. Larger loans also require approval by the intended purchaser of the loan.

Automated underwriting systems are rapidly becoming the industry standard when underwriting conventional loans. These systems can be used for underwriting loan programs such as FHA and VA; and at times specific investors require their use. The two primary systems are the FNMA's Desktop Underwriter and the FHLMC's Loan Prospector. Over the past few years, the trend has moved toward the exclusive use of these systems.

Management evaluates the underwriting guidelines on an ongoing basis and periodically modifies them to reflect current assessments of various issues relating to underwriting analysis. In addition, as new loan products are developed, we adopt underwriting guidelines that we believe are appropriate for the new products. All loans are underwritten to the standards of the intended purchasers of the loans. We make certain representations and warranties customary in the industry relating to, among other things, accurate information, program standards, and compliance with laws and regulations. If we are found to have breached such a representation or warranty, we could be required to repurchase the loan.

Quality Control

We have implemented a loan quality control process to help enforce sound lending practices and compliance with our policies and procedures as well the compliance requirements of agencies such as HUD, Fannie Mae and the requirements of other purchasers of mortgages. On February 28, 2007, Shearson Home Loans was approved as a HUD approved lender. Prior to funding a loan, we perform a "pre-funding quality control audit" in which our staff re-verifies the borrower's credit history and employment, using automated services as well as verbal verifications. In addition, an independent appraiser appraises properties that will potentially secure the mortgage loans. A qualified licensed independent appraiser must conduct all appraisals and the appraisal must conform to the Uniform Standards of Professional Appraisal Practice adopted by the Appraisal Standards Board of the Appraisal Foundation. Our personnel also review every appraisal to confirm the adequacy of the property as collateral prior to funding.

In addition, our quality assurance department audits a percentage of all loans that are funded. The department reviews the documentation, including appraisals and verifications, for compliance with established underwriting guidelines and lending procedures. The department also reexamines the funding documents for accuracy, completeness and adherence to corporate, state and federal requirements. As part of the audit process, any deficiencies discovered are reported to senior management to determine trends and any need for additional training of personnel.

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Loan Funding

Loans that are closed using our own credit facilities are funded through short term borrowing on our warehouse lines of credit. We pay interest on funds advanced under the warehouse line of credit at a pre-negotiated rate. The rate at which we borrow is variable in nature and typically averages between 6.5% and 8.5%. We currently have approval for $20,000,000 in warehouse capability. We have our primary warehouse line of $10 million with Warehouse One and a provision in the facility for an additional $10,000,000. 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 $5.4 million at December 31, 2006. 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.

Payment of cash dividends or redemption of shares is also restricted to net income after the date of the applicable agreement computed on a cumulative basis.

Sale of Loans

The percentage of originated loans that were funded using our warehouse lines of credit was 12.4% of the total volume as compared to 17.3% of the total dollar volume for the year ended December 31, 2005. We generally sell substantially all of the loans originated. Once we have funded a loan through a credit facility, the next objective is to sell the loan as quickly as possible, which typically happens in ten to fifteen business days. In some instances we hold the loan for sale and may be unable to sell the loan. A reconciliation package is prepared for our accounting department. The file then moves on to the shipping department where it is copied and stacked to specific investor guidelines. After we receive the final closing statement, usually two to three days after funding, the file is sent to the appropriate investor and revenue is recognized. We typically make general representations and warranties to purchasers of the mortgages relating to borrower disclosures, closing procedures, credit documentation, follow-up documentation and accuracy of representations. In many cases, purchasers of the mortgages will require language in the documentation mandating that we return all or a portion of the premium and any premium paid for servicing rights for loans that are paid off early, typically prior to the end of the first six months. In most cases, we are only liable for premium recapture if the loan is being prepaid as a result of a refinancing through us or one of our affiliates.

Purchasers of loans vary from time to time as the purchasers get in and out of the market. For the year ended December 31, 2006 one buyer purchased in excess of 10% of our production funded on our warehouse lines of credit. For the year ended December 31, 2005, one buyer purchased in excess of 10% of our production funded on our warehouse lines of credit: Countrywide purchased 90%. Our secondary marketing department chooses the purchaser for a particular loan. Commitments to purchase loans are made on a loan-by-loan basis. We are not required to provide a certain number of loans to any purchaser.

Mortgage Loan Servicing Rights

We currently sell the servicing rights on essentially all the loans we fund. At the time the loan is sold, the purchaser of the loan typically pays us a premium for the release of the servicing rights. The premium is paid for the right to collect the servicing fees for the period the loan remains on the investor's books. A typical spread for an "A" grade loan is 1/4 of 1% annually. In the past, we occasionally retained servicing rights, but no longer do so on a regular basis. Since we are not currently set up to service loans in-house, we contract with a third party to sub-service any loans for which we have servicing rights. The sub-servicer is responsible for accepting and posting all payments, maintaining escrow accounts and reporting to the end investors, such as Fannie Mae. For this service, we typically pay the sub-servicer a monthly fee averaging $6 to $7 per loan.

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Lender Relations

Today's mortgage lenders are seeking bigger shares of the market at less cost to them. As of December 31, 2006, the following lenders were represented Countrywide Funding Corporation, BNC Mortgage Corporation of America, IMPAC Funding Corporation and Greenpoint.

Regulation

The consumer finance industry is highly regulated; therefore we are is subject to extensive and complex rules and regulations of, and examinations by, various federal, state and local government authorities. These rules impose obligations and restrictions on our loan origination, credit activities and secured transactions. In addition, these rules limit the interest rates, finance charges and other fees that we may assess, mandate extensive disclosure to borrowers, prohibit discrimination, and impose multiple qualifications and licensing obligations. Failure to comply with these requirements may result in, among other things, loss of HUD approved status, demands by purchasers of mortgages for indemnification or mortgage loan repurchases, exercise of rights of rescission of mortgage loans by borrowers, class action lawsuits by borrowers, administrative enforcement actions, and civil and criminal liability. Currently the Company is an approved HUD lender. We use our quality assurance program to monitor compliance and, based upon assessments of our compliance staff, believe that we are in compliance with applicable rules and regulations in all material respects.

Our loan origination activities are subject to the laws and regulations in each state in which we conduct lending activities. For example, state usury laws limit the interest rates that we can charge on our loans. In connection with plans to expand our geographic reach, we have investigated requirements in additional states. We currently hold licenses or exemption certificates in thirty-three states. We do not have operations or significant loan activity in all of these states at this time. Our current operations and loan activity is primarily in California. California originations made up 44.9% of our total volume based on units. Our lending activities are also subject to various federal laws, including the Truth-in-Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act and the Home Mortgage Disclosure Act. We are not currently making loans subject to the Homeownership and Equity Protection Act of 1994. More specifically, we are subject to disclosure requirements under the Truth-in-Lending Act and Regulation Z promulgated thereunder. The Truth-in-Lending Act is designed to provide consumers with uniform, understandable information relating to specify terms and conditions of loan and credit transactions and, by standardizing the form of information provided, facilitate comparisons among available credit options. The act also gives consumers the right to change their minds about a credit transaction by guaranteeing consumers a three-day right to cancel some credit transactions, such as loans of the type we originate. In addition, the Truth-in-Lending Act gives consumers the right to rescind the loan transaction if the lender fails to provide the required disclosures to the consumer. We are also required to comply with the Equal Credit Opportunity Act of 1994 and Regulation B promulgated thereunder, the Fair Credit Reporting Act, the Real Estate Settlement Procedures Act of 1975 and the Home Mortgage Disclosure Act of 1975. The Equal Credit Opportunity Act prohibits lenders from discriminating against an applicant for a loan on the basis of race, color, sex, age, religion, national origin or marital status. Regulation B prohibits lenders from requesting some types of information from loan applicants. The Fair Credit Reporting Act requires lenders to supply applicants with information relating to the denial of any loan application. Beginning with loans originated in 1997, the Home Mortgage Disclosure Act requires that we file annual reports with HUD for collection and reporting of statistical data in loan transactions. The Real Estate Settlement Procedures Act mandates disclosures concerning settlement fees and charges and mortgage servicing transfer practices. It also prohibits the payment or receipt of kickbacks or referral fees in connection with the performance of settlement services.

The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") was signed into law by President Bush on July 30, 2002 in response to public concerns regarding corporate accountability in connection with the recent accounting scandals at Enron and WorldCom. The Sarbanes-Oxley Act generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission ("SEC"), under the Securities Exchange Act of 1934 ("Exchange Act"). The Sarbanes-Oxley Act includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. The Sarbanes-Oxley Act represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and management and between a board of directors and its committees. Of the new requirements imposed by the Sarbanes-Oxley Act, among others, we currently have no "independent directors" on our board of directors, no audit committee, compensation committee nor nomination committee and we do not have any independent "financial experts" on our board of directors. As a result, we currently would not be eligible to have our shares listed on the NASDAQ, AMEX or NYSE, even if we were to meet the other listing requirements of such self-regulatory organizations.

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The laws and regulations under which we operate are subject to change at any time. In addition, new laws or regulations may be added at any time. There can be no assurance that any change or addition of laws will not make compliance more difficult or more extensive, restrict ability to originate, broker, purchase or sell loans, further limit the amount of commissions, interest or other charges which may be earned, or otherwise adversely affect our business or prospects.

Competition

The mortgage market is intensely competitive and rapidly evolving, and competition is expected to intensify even more in the future. We compete mainly on the selection of mortgage products we offer and on customer service. Barriers to entry are minimal, and competition is likely to increase significantly as new companies enter the market and current competitors expand their services. Further, there can be no assurance that our competitors and potential competitors will not develop services and products that are equal or superior to those of Shearson Financial Network or that achieve greater market acceptance than our products and services. We currently compete with traditional mortgage companies and Internet companies offering mortgage and real estate related services, including, but not limited to:

various online mortgage brokers, including E-LOAN, Inc. and Lendingtree.com;

mortgage banking companies, commercial banks, savings associations, credit unions and other financial institutions which originate mortgage loans;

Real estate agents; and

Mortgage brokers.

Many of our mortgage banking and mortgage brokerage competitors have competitive advantages including the following:

Longer operating histories;

Greater name recognition and more extensive customer bases; and

Substantially greater financial, marketing, technical and other resources.

As previously stated, our business depends primarily on providing direct person - to - person mortgage services to a diversified client base consisting of consumers. To remain competitive, we must increase the volume of mortgage loan transactions that we effect and maintain sustainable margins on such mortgage transactions.

Also, we will need to maintain strategic relationships with a critical mass of lenders and mortgage brokers to fulfill consumer demand. This will take significant time and resources, and will require that we provide our lending and brokerage partners with compelling reasons to partner with us, as many of these partners are also current or potential competitors of ours.

Finally, we will need to continue developing our technology to facilitate transactions for both consumers and lenders, as well as to permit lenders and any strategic partners to integrate their services easily and seamlessly with those of Shearson Financial Network, Inc.

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Licensing and Regulation of Mortgage Brokerage Loan Business

We are licensed as a mortgage banker and broker, and are otherwise authorized to originate mortgage loans in thirty-three states. Our mortgage brokerage operations are subject to extensive regulation by federal and state authorities. The United States Department of Housing and Urban Development (“HUD”) regulates certain aspects of the mortgage lending business. The Real Estate Settlement Procedures Act of 1974 (“RESPA”), a Federal statute, requires that certain disclosures, such as a Truth-in-Lending Statement, be made to borrowers and that certain information, such as the HUD Settlement Costs booklet, be provided to borrowers. The Fair Housing Act prohibits among other practices, discrimination, unfair and deceptive trade practices, and requires disclosure of certain basic information to mortgagors concerning illicit terms. If the Company fails to comply with such regulations, possible consequences could include loss of approved status, demands for indemnification, class action lawsuits, and administrative enforcement actions.

RESPA contains certain prohibitions regarding the giving or taking of a fee, anything of value for the referral of business to any mortgage broker however, there is no prohibition regarding the payment of reasonable fees for the provision of goods, services and facilities. From time to time in its debate over tax reform, Congress has discussed eliminating deductibility of mortgage interest. Should this occur, it would reduce the number of those who can afford homeownership, which would reduce potential demand for the Company’s products and services. Additionally several large law firms have promoted class action claims alleging that certain industry fee practices violate RESPA. While the mortgage broker industry has responded vigorously to these activities, no assurances can be given as to their outcome and the impact on the industry.

In California, regulation and licensing of mortgage brokers falls under the California Department of Real Estate (DRE). Other than banking industry employees, who are exempt from DRE licensing requirements, individuals engaged directly in the origination of loans or the dissemination of certain information are required to be licensed by the DRE. Accordingly, Shearson Financial Network, Inc. and some of its affiliates will be required to be licensed in accordance with the differing requirements of the various states in which offices and operations are established. Failure by Shearson Financial Network, Inc. to comply with the multitude of government regulations and licensing requirements to which we are subject could have a material adverse effect on our business, financial condition and results of operations.

Intellectual Property

Trademarks and other proprietary rights are important to our success and our competitive position. Although we seek to protect our trademarks and other proprietary rights through a variety of means, we may not have taken adequate steps to protect these rights. We may also license content from third parties in the future and it is possible that it could be subjected to infringement actions based upon the content licensed from these third parties. Any claims brought against us, regardless of their merit, could result in costly litigation and the diversion of our financial resources and technical and management personnel. Further, if any claims are proved valid, through litigation or otherwise, we may be required to change our trademarks and pay financial damages, which could adversely, affect our business.

We typically enter into confidentiality agreements with our employees and consultants and generally control access to and distribution of our technologies, documentation and other proprietary information. Despite our efforts to protect our proprietary rights from unauthorized use or disclosure, parties may attempt to disclose, obtain or use our rights. The steps we have taken may not prevent misappropriation of our proprietary rights, particularly in foreign countries where laws or law enforcement practices may not protect our proprietary rights as fully as in the United States.

Employees

As of December 31, 2006, we had 39 full-time employees, of whom 26 were in administrative and 13 were at the branch locations. We believe that relations with our employees are good.

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Item 2.

Description of Property.

We lease approximately 17,538 square feet of general office space in premises located at 2470 St. Rose Parkway, Henderson, Nevada and 8 Hughes Parkway, Irvine, California. Our lease for these spaces expires in July 2009 and November 2009, respectively.

The Henderson lease provides for monthly payments of $8,600. The square footage of this space is 5,400. The Irvine lease is for approximately 12,138 square feet with a monthly rent of $18,365.

We evaluate on a continuing basis the suitability and adequacy of all of its branch office locations, and has active programs of relocating or closing any as necessary to maintain efficient and attractive facilities. We believe that our present facilities are adequate for its operating purposes. The branch locations are leased independently of the Company.

Our branch offices are located at:

Name	Address

Allstate Santa Margarita	Rancho Santa Margarita, CA
Allstate Newport Beach	Newport Beach, CA
Allstate Irvine 2	Irvine, CA
Allstate Woodland Hills	Woodland Hills, CA
Allstate Irvine 3	Irvine, CA
Allstate Huntington Beach	Huntington Beach, CA
Allstate San Clemente	San Clemente, CA
Allstate Newport Lending	Irvine, CA
Allstate Hesperia	Hesperia, CA
Allstate Plantation	Plantation, FL
Allstate Hawaii	Kalua Kona, HI
Allstate Salem	Salem, OR
Shearson Home Loans	Henderson, NV

Item 3.

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 contented by the parties to be of a breach of contract nature from a certain Asset Acquisition Agreement that we claim we never consummated therefore services are not liable under the agreement. The counterclaims of a similar nature which we are claiming no liability and 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 of which was advanced to Consulting Services prior to the knowledge that the transaction was not closing. 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 where Ocean West would sell and IndyMac would purchase mortgages. IndyMac claims that it later identified nine loans that it purchased from Ocean West which allegedly did not meet the terms and conditions it required 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 would make 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.

CDA was never served with the Summons or Complaint or any other pleading in this action until very recently, when it received a certificate of certified mailing Re: Notice of Filing Exemplified Judgment advising that a Court in California had entered a default judgment against it in the amount of $604,391.27. CDA had not been served with any prior pleading. As such, counsel for CDA has prepared and filed Motions to Set Aside and Void the default Judgment as it pertains to CDA.

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Item 4.

Submission of Matters to a Vote of Security.

None.

PART II

Item 5.

Market for Common Equity and Related Stockholder Matters.

Our common stock has been traded in the over-the-counter bulletin board (OTCBB) governed by the NASD. Our common stock trades under the symbol "SFNN.OB". The quotations listed below reflect interim dealer prices without retail mark-up mark-down or commission and may not represent actual transactions. Trading of our stock has been minimal with limited or sporadic quotations and therefore we believe there is no established public market for the common stock.

The following table sets forth the high and low bid quotations per share of the Company’s registered securities for each quarter during the last two fiscal years, as reported by the OTCBB.

	Common Shares
Year Ended December 31, 2006:	High		Low

Quarter Ended March 31, 2006	$	0.16	$	0.06
Quarter Ended June 30, 2006	$	0.06	$	0.02
Quarter Ended September 30, 2006	$	0.02	$	0.01
Quarter Ended December 31, 2006	$	0.05	$	0.02

Year Ended December 31, 2005:	High		Low

Quarter Ended March 31, 2005	$	0.13	$	0.04
Quarter Ended June 30, 2005	$	0.17	$	0.05
Quarter Ended September 30, 2005	$	0.40	$	0.12
Quarter Ended December 31, 2005	$	0.60	$	0.22

As of December 31, 2006, there were approximately 556 stockholders of record of our common stock. The transfer agent for our Common Stock is Continental Stock Transfer and Trust Company.

We have never declared or paid any cash dividends on our common stock. We do not anticipate paying any cash dividends to stockholders in the foreseeable future. In addition, any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements, and such other factors as the Board of Directors deem relevant.

Item 6.

Management’s Discussion and Analysis or Plan of Operations

This section should be read in conjunction with Item 7. Financial Statements.

Forward-Looking Statements

Statements contained in this Form 10-KSB 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,” “intends” 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.

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Critical Accounting Policies

As set forth in greater detail in the Footnote (1) to Shearson Financial's financial statements “Summary of Significant Accounting Policies”, the Company recognizes revenue upon sale of a loan when the documents are shipped to the independent investors, and all rights have passed and the Company has become obligated to convey the loan, thereby isolating the transferred assets from the Company and fulfilling all criteria of SFAS No. 140. If these criteria were not met, then revenue recognition would be delayed until the proceeds were subsequently received from the investors, typically within the following month.

Pursuant to SFAS No. 91, the Company capitalizes its loan origination costs, including an amount of its payroll and related costs which are directly attributable to the credit origination process. The measurement of such capitalizable costs requires the use of some judgments by management, as to the portion of such costs associated with credit origination and with other activities.

Disclosure, pursuant to SFAS No. 107, is required of the fair value of financial instruments. However, since most of the Company’s financial instruments turn over within a very short time period, management discloses that the net book value approximates fair value at the balance sheet date.

New Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43, Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts of idle facility expense, freight, handing costs, and spoilage. This statement requires that those items be recognized as current period charges regardless of whether they meet the criterion of "so abnormal" which was the criterion specified in ARB No. 43. In addition, this Statement requires that allocation of fixed production overheads to the cost of production be based on normal capacity of the production facilities. This pronouncement is effective for the Company beginning October 1, 2005. The Company does not believe adopting this new standard will have a significant impact to its financial statements.

In December 2004, the FASB issued SFAS No. 123 (revised 2004). Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The new standard will be effective for the Company in the first interim or annual reporting period beginning after December 15, 2005. The Company expects the adoption of this standard will have a material impact on its financial statements assuming employee stock options are granted in the future.

Results of Operations

The Company is a direct-to-consumer mortgage banker/broker whose revenues are derived primarily from the origination commissions earned on the closing of mortgage and home equity loans that it sells.

Real estate purchase transactions and therefore the mortgage banking industry are subject to seasonal trends. These trends generally reflect nationwide home sale patterns. Such sale typically peaks in the in the spring and summer months while declining in late fall and winter months. However the refinance segment of the industry is less seasonal, changing instead as interest rates rise and fall.

During the fiscal year ended December 31, 2006, we made 2,092 loans with an aggregate dollar value of approximately $503 million compared to 1,219 loans with an aggregate dollar value of approximately $223,444,389 for the year ended December 31, 2005. This represents an increase in the number of loans of 873 per year or 71% increase. Most of the loans originated were in principal amounts averaging $240,439.

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Consolidated revenues from origination, sale of loans and fee revenue generated by contract services increased 25% during the fiscal year ended December 31, 2006 or $1.7 million from the year ending December 31, 2005. The increase is primarily due to the Company’s acquisition of mortgage brokerages.

Selling, general and administrative expenses decreased 11.6% or $1.3 million for the year ended December 31, 2006 as compared to the year ended December 31, 2005. Salary and payroll taxes increased $82,000 or 8.2%, professional fees increased 22.2% or $675,000, which was offset by a decrease in SGA of 50.6% or $2 million, for the year ended December 31, 2006 as compared to the same period in 2005. The decrease is primarily due to the elimination of operating costs related to the decrease in overhead by the Company’s acquisition efforts.

The Company incurred costs associated with the debt discount amortization related to the beneficial conversion features in the amount of $167,883, for the year ended December 31, 2006 and $2,904,110, for the year ended December 31, 2005.

Depreciation decreased $20,634 or 3% for the year ended December 31, 2006 as compared to the year ended December 31, 2005. Depreciation increased 50,909 or 8% for the year ended December 31, 2005 as compared to the year ended December 31, 2004.

Interest expense increased $509,849 or 276.7% to $694,139 for the year ended December 31, 2006 as compared to 184,290 for the year ended December 31, 2005. The increased is related to an increase in interest rates on several of its existing notes as well as an increase in borrowings.

Shearson Financial Network had a loss from operations of $3.8 million for the year ended December 31, 2006 compared to loss of $6.8 for the year ended December 31, 2005. We had net income of $2.8 million for the year ended December 31, 2006, a net loss of $11.0 for the year ended December 31, 2005 and a net loss of $11.3 million for the year ended December 31, 2004. The primary reason for increase in profit was a increase in revenues, decrease in SGA and the forgiveness of three notes totaling $7.8 million. The loss in the prior year related to the costs associated with the consolidation of the Company’s operations and by eliminating non profitable units and restructuring the Company’s base of operations to eliminate certain costs to outsourcing.

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. If our loan volume increases too rapidly, the increase could have a severe impact on our liquidity. Our warehouse credit facilities limit the amount that may be advanced on each loan funded. Therefore, cash must be used to fund the additional dollars needed to close escrow. The revenue is not recognized until the loan is sold. Thus, it is crucial that we closely monitor loan volume.

Since inception through December 31, 2006, the Company has an accumulated deficit of $26,074,241; however for the year ended December 31, 2006, the Company incurred a profit of $2.8 million. Should the Company not be able to maintain its profitability this would raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph on our independent auditors' report on the December 31, 2006 consolidated financial statements, which are included with this amended annual report.

Net cash used for operating activities for the year ended December 31, 2006 was $20.3 million compared to net cash provided by operating activities for the year ended December 31, 2005 of $5.9. The primary sources of cash used for the year ended December 31, 2006 was from net income of $2.8 million, an increase in loans available for sale of $18.9 million, increase in accounts receivable and receivables from loans sold, net of $890,000, a decrease in prepaid expenses of $319,213, an increase in other assets of $353,000, decrease in accounts payable of $334,176, increase in interest payable of $216,000, depreciation of $664,000, amortization of debt discount expense of $168,000, increase in minority shareholder interest of $87,000, forgiveness of debt of $7.8 million and stock based expenses of $3.8 million. As investors purchase loans, the amounts advanced for such loans through the warehouse line 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. The primary sources of cash provided by the year ended December 31, 2005 was from an decrease in loans available for sale of $10.1 million, an decrease in accounts receivable of $123,391, an decrease in prepaid expenses of $177,650, an decrease in other assets of $3.7 million, decrease in goodwill of $732,105, decrease due to sale of asset of $560,417, decrease in goodwill of $732,105, decrease in accounts payable of $2 million, increase in interest payable of $88,111 which is offset by the Company’s net loss of $10.9 million, depreciation of $684,820, write down of capitalized investment of 352,829 and stock based expenses of $3.0 million.

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Net cash used in investing activities during the year ended December 31, 2006 was $5,660, which was primarily used to purchase property and equipment. Net cash provided by investing activities during the year ended December 31, 2005 was $150,769, 12,209 was used to purchase equipment and $162,978 related to the fixed asset disposition relating to Ocean West.

Net cash provided by financing activities for the year ended December 31, 2006 was $20.3 million, consisting primarily of $18.6 million in advances on line of credit, proceeds of related notes payable of $148,000, payments of notes payable of $300,000, proceeds of notes payable of $1.6 million, issuance of common stock of 242,000 and exercise of warrant of 1,726. Net cash used for financing activities for the year ended December 31, 2005 was $6.2 million, consisting primarily of $8.4 million in advances on line of credit, proceeds of related notes payable of $617,846, payments of notes payable of $66,799, payments of long term debt of $493,759, treasury stock redeemed for services of $271,600, sale of Ocean West $1,966,393 and preferred dividends of $69,481 paid to former subsidiary.

Based on dollar volume, during the year ended December 31, 2006 we funded approximately 12.4% of our loans through our warehouse credit facilities as compared to 17.3% of the total dollar volume for the year ended December 31, 2005. Loans that are closed using our own credit facilities are funded through short term borrowing on our warehouse lines of credit. We pay interest on funds advanced under the warehouse line of credit at a pre-negotiated rate. The rate at which we borrow is variable in nature and typically averages between 6.5% and 8.5%. We currently have our primary warehouse line of $10 million with Warehouse One with a provision in the facility for an additional $10,000,000. 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.

Allstate Home Loans, Inc., which the Company acquired 85% of the outstanding stock on July 27, 2006, has a line of credit with IMPAC and RFC. The IMPAC line is a credit facility for $50,000,000, charged interest averaging between 6.5% and 8.5% and is personally guaranteed by Greg Shanberg, former President of Allstate Home Loans. The RFC line of credit is a $30,000,000 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 the cash requirement and is in default. The facilities are collateralized by the related mortgage loans receivable.

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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 2006. 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 anticipates raising equity capital in the amount of $2.0 million during 2006 in order to fund the integration of this growth. If such financing is not available on satisfactory ters, 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.

Interest Rate Risks

The uncertainty, which potentially has the single largest effect on the results of our operations, is interest rate trends. Trends in interest rates are not only important to the refinance business, but are also very important in the purchase market as well. As interest rates rise, more individuals are eliminated as potential borrowers. The reason for this is simple - as interest rates get higher, so do the mortgage payments. Higher payments mean fewer people have the ability to qualify for loans. Historically, a rising interest rate market is more difficult for mortgage bankers like us to deal with than for banks. The reason for this is that banks tend to have an advantage in an adjustable rate market, because banks have the ability to hold loans and, therefore, can be more creative in designing adjustable rate loans to fit the borrower's needs. Mortgage bankers are limited to loan products that can be sold in the secondary market or securitized. These programs have become more competitive in recent years, but banks still retain a competitive advantage.

Inflation has an impact on us because it typically has an impact on interest rates. As the threat of inflation becomes more of a concern, interest rates tend to rise. This result is based upon the perception that the Federal Reserve Bank will revise short-term interest rates to keep inflation in check. This concern ultimately affects interest rates.

The primary market risks that we face are interest rate risks. Interest rate movements affect the interest expense on our warehouse lines of credit, the interest income earned on loans held for sale, the value of mortgages held for sale and the ultimate gain recognized on mortgage loans which are sold. In a high interest rate environment, borrower demands for mortgage loans, especially refinancing of existing mortgages, decline. Higher interest rates may also adversely affect the volume of mortgage loans. In a low interest rate market, typically one in which the interest rates have declined sufficiently to make refinancing for lower rates economical, we may incur early pay-off penalties when significant number of loans we originate are refinanced within the first six months of the loan being sold to an investor.

We protect against interest rate risks to the extent we can by pre-selling most loans to investors prior to funding, locking in rates and returns. The method of locking in rates and returns varies from investor to investor. Some investors will commit to rates by telephone while others require written commitments via facsimile or e-mail. The investor responds with a commitment or trade number upon confirmation. At that point, the rate and purchase price for that loan are guaranteed for a definite period of time. We have the option with most investors to lock in rates for either a best efforts or mandatory delivery. A mandatory delivery brings the best price, typically 1/4 of 1% higher, but requires us to deliver the loan within the committed time frame. If we do not meet the deadline, we may have to pay a penalty, usually ranging from $300 to $1,000. The lock period that we give to the broker/borrower is typically a minimum of five days before the loan package needs to be delivered to the investor. The loan must be in "fundable" form when it is delivered to the investor. This means that both the credit and the collateral packages must be complete. If this is not the case, which happens rarely, the investor may re-price the loan. In such event, if the market has deteriorated, we have some interest rate risk.

We also monitor and work to match the interest rates we charge on our loans to the interest rates on the warehouse line of credit used to fund the loan. Since the time period that the financing for any one loan is outstanding is short, typically ten to fifteen business days, the risk of a negative interest rate gap continuing for an extended period time is lessened. Upon sale of the loan, the interest rate risk shifts to the investor. In the past, management has at times used hedging strategies to lessen the risks arising out of rising and falling interest rates, but is not currently using hedging strategies due to the complexities involved in hedging and personnel needed to properly manage it.

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Risk Factors Relating to Our Business and Our Industry

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 subject, nor can it be assumed that there are not other risks and uncertainties which may be more significant.

Although the Company has a profit for the year ended December 31, 2006 of $2.8 million, the Company has suffered recurring losses from operations, has an accumulated deficit as of December 31, 2006 of $26,074,241, that raise substantial doubt about the Company’s ability to continue as a going concern;

the Company’s dependence on its warehouse lines of credit.

the Company’s need for additional funding sources so that its ability to originate and fund loans is not impaired; and

the Company’s ability to compete with banks and other mortgage lenders that are significantly larger.

If we are unable to maintain adequate funding sources, our ability to originate and fund loans will be impaired.

Our ability to originate and purchase mortgage loans depends to a large extent upon our ability to secure financing upon acceptable terms to fund and hold the mortgage loans until sold. We currently fund all but a few of the mortgage loans we purchase and originate through credit facilities with commercial banks and financial institutions collateralized by loan purchase agreements. On rare occasions, we fund loans out of cash flow without using our credit facilities. These agreements are generally terminable at will by either party and must be renewed each year. Our borrowings are in turn repaid with proceeds received when mortgage loans are sold. We currently rely on Warehouse One to provide our primary credit facilities for our loan originations and purchases. Any failure to renew or obtain adequate funding under our financing facilities or other financing arrangements, or any substantial reduction in the size of or increase in the cost of such facilities, could have a material adverse effect on our business, results of operations and financial condition. To the extent we are not successful in maintaining or replacing existing financing, we may have to curtail our mortgage loan origination and purchase activities, which could have a material adverse effect on our operations and financial condition.

In the event we are required to raise additional equity financing, there can be no assurance that any such equity 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. Any equity financing could result in dilution to existing stockholders.

General economic conditions may adversely affect our business. Economic conditions affect the overall level of activity in the mortgage business. The decision to buy, sell or refinance a residence is affected by such economic conditions as the overall growth or decline of the economy, the level of consumer confidence, real estate values, interest rates and investment returns expected by the financial community. These conditions can affect the number and size of mortgage loans of the types we typically originate and make these mortgage loans less attractive to borrowers or to investors in the mortgages. In addition, a decline in real estate values will have an adverse effect on the loan-to-value ratios for the related mortgage loans, weakening the collateral coverage and resulting in greater exposure in the event of a default. This greater exposure to default could make it more difficult for us to obtain interim financing for mortgage loans we originate or purchase or decrease the availability of purchasers of such mortgage loans.

We are likely to originate and sell fewer mortgage loans if interest rates rise. In periods of rising interest rates, historically the demand for mortgage loans has declined which could result in lower revenues for us. The refinancing segment of the mortgage business is usually the first segment affected. The reason is that as interest rates rise, the costs of refinancing outweigh any interest rate saving eliminating those who are refinancing solely to reduce their interest rate. For the year ended December 31, 2006, refinance loans made up approximately 54.9% in total dollar volume of our loans. Rising interest rates also affect the purchase segment of the mortgage business. As interest rates increase, payment amounts rise decreasing the number of potential borrowers who feel they can afford the payments and who qualify for the mortgages.

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Interest rate fluctuations can affect the profitability of our mortgage loans. Changes in interest rates can affect the volume, net interest income and sale of mortgage loans originated and purchased by us. When we purchase or originate a loan, we usually have a commitment from a third party to purchase that loan. Generally, we fund the loan using borrowings from our lines of credit that are limited to specific uses and are known as warehouse lines of credit. The warehouse line of credit is repaid upon the sale of the warehoused loans. Before we sell the mortgage loan, we are entitled to receive interest income on the loan from the borrower and we simultaneously pay interest expense to the institution providing the warehouse line of credit. The interest rate we receive during this period and the interest rate we pay are usually different. The profitability of the loan is affected by this difference and fluctuations in interest rates before the mortgage loan is sold. Although we generally have a commitment to sell the mortgage loan before we commit to fund the mortgage loan, there are situations in which we bear a risk of changes in interest rates prior to the mortgage loan being sold. In particular, if interest rates increase during the time before we sell an uncommitted mortgage loan but after we have funded the mortgage loan, we could be required to sell the principal of the mortgage loan for less than we funded, thereby decreasing the mortgage loan’s profitability or incurring a loss on the mortgage loan’s sale.

Payments for mortgage loan servicing rights may be less in times of stable or declining interest rates. The prices we receive upon the sale of mortgage loans and servicing rights depend upon a number of factors, including the general supply of and demand for mortgage servicing rights, as well as prepayment and delinquency rates on the portfolios of mortgage servicing rights being sold. Interest rate changes can also affect the profitability of the sale of mortgage loan servicing rights to a third party. Purchasers of mortgage loan servicing rights analyze a variety of factors to determine the purchase price they are willing to pay, including the prepayment sensitivity of servicing rights. Because of the increased likelihood of prepayment of loans in periods of declining interest rates, the price of mortgage loan servicing rights related to higher rate mortgage loans may be less than in times of stable or increasing interest rates, which could adversely affect our operations and financial condition.

We must depend on brokers to be accurate in their representations regarding compliance and loan quality and may incur losses if representations are inaccurate. In addition to depending on brokers to generate mortgage loans, we depend on brokers to be accurate in their representations and warranties regarding compliance with regulations and the quality of the loans to be funded. In the event such mortgage brokers are inaccurate in their representations and warranties, we may be subject to lawsuits and/or regulatory actions.

We depend on programs that purchase and guarantee loans. Generally, the institutional investors that purchase mortgage loans that we originate generate funds by selling mortgage-backed securities. This funding mechanism is largely dependent upon the continuation of programs administered by national government-sponsored mortgage entities, such as Freddie Mac, Fannie Mae and Ginnie Mae, which provide the context for, and facilitate the issuance of, such securities. We also sell a small portion of our loans, less than 1% directly to Fannie Mae. Although we are not aware of any proposed changes in these programs, the discontinuation of, or a significant reduction in, the operations of such programs could have a material adverse effect on our operations. In addition, the sponsor may change the mortgage loan products eligible for these programs from time to time. Changes could affect the profitability of specific types of mortgage loan products by changing the administrative costs of purchasing or originating the mortgage loans or other aspects of the programs.

Our competitors in the mortgage banking industry are often larger making it more difficult for us to compete successfully. We face strong competition in originating, purchasing and selling mortgage loans and related mortgage servicing rights. Our competition is principally from savings and loan associations, other mortgage companies, and commercial banks and, to a lesser degree, credit unions and insurance companies, depending upon the type of mortgage loan product offered. We compete with these entities by striving to provide timely service to mortgage brokers and borrowers and develop competitive products. Many of these institutions have greater financial resources than we do and maintain a significant number of branch offices in the areas in which we conduct operations. Increased competition for mortgage loans from other lenders may result in a decrease in the volume of mortgage loans that we are able to originate and purchase. If we are unable to compete effectively, our operations and financial condition could be materially and adversely affected.

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Real property with environmental problems securing our loans may cause us to incur liability. In the course of our business, we sometimes acquire residential real estate that served as collateral for loans that are in default. It is possible that hazardous substances or waste, contaminants or pollutants could be present on such properties and not discovered until after we have taken possession. In such event, we might be required to remove such substances from the affected properties at our expense. The cost of such removal could substantially exceed the value of the affected properties or the loans secured by such properties. There can be no assurance that we would have adequate remedies against the prior owners or other responsible parties, or that we would not find it difficult or impossible to sell the affected real properties either prior to or following such removal. These costs could have a material adverse effect on our operations and financial condition.

Most of our assets are pledged to secure debt leaving few if any assets that might be distributed to shareholders in liquidation. Due to our financing needs, with the occasional exception of loans funded by us, all of our mortgage assets will be used to secure purchase agreements, bank borrowings or other credit arrangements for at least the near future. We hope to be able to fund more loans ourselves at some point in the future, but may never be able to do on a significant scale. At most times, our debt under the line of credit is approximately equal to the value of our mortgage loan assets. Therefore, such mortgage assets would not be distributed to stockholders in the event of liquidation, except to the extent that the market value of the assets exceeds amounts due our creditors. The market value of the mortgage assets will fluctuate as a result of market factors such as interest rates and prepayment rates as well as the supply of, and demand for, such mortgage assets. In the event of the bankruptcy of a counter-party with whom we have an agreement, we might experience difficulty recovering our pledged mortgage assets, which may adversely affect our operations and financial condition.

We could be required to sell mortgage assets under adverse market conditions. If we are not able to renew or replace credit facilities as they come up for renewal, we could be required to sell mortgage assets under adverse market conditions and, as a result, could incur permanent capital losses. A sharp rise in interest rates or increasing market concern about the value or liquidity of mortgage assets in which we have a significant investment will reduce the market value of the mortgage assets, which would likely cause lenders to require additional collateral. A number of such factors in combination may cause difficulties for us including a possible liquidation of a major portion of our mortgage assets at disadvantageous prices with consequent losses, which would have a material adverse effect on our financial status and could render us insolvent. Additionally, although we intend generally to sell our mortgage assets within ninety days or less of generation or purchase because such assets will be pledged under financing agreements, our ability to sell mortgage assets to obtain cash will be greatly limited. Our inability to sell such assets could have a material adverse effect on our operations and financial condition.

We may need additional equity financing, which may or may not be available, to expand our business and to reduce our interest costs. Our primary operating cash requirement is the funding or payment of interest expense incurred on borrowings. We also must fund general operating and administrative expenses and from time to time capital expenditures. We currently fund these cash requirements primarily through our lines of credit and the sale of loans. Our current plan is to decrease our reliance on the lines of credit and increase the volume of loan sales. Our ability to implement this business strategy will depend upon our ability to increase stockholders’ equity thereby establishing a reserve, which may be used to fund loans. There can be no assurance that we will be able to raise additional equity on favorable terms. We cannot presently estimate the amount and timing of additional equity financing requirements because such requirements are tied to, among other things, our growth. If we were unable to raise such additional capital, our ability to expand and our results of operations and financial condition could be adversely affected.

Defaults in mortgage loans or characteristics of property securing the mortgages may adversely affect our ability to sustain the volume of mortgages. We fund mortgage loans by drawing on our line of credit, then as soon as possible and typically within fifteen days, sell the loan in the secondary market. We use the proceeds of the sale of a loan to repay the amount borrowed to fund that loan. Thus, the composition of mortgage loans we hold changes from day to day. There are also loans that for one reason or another we do not sell, but hold. This is rare, but does happen from time to time. During the time we hold any mortgage loans, we are subject to increased credit risks, including risks of borrower defaults and bankruptcies and special hazard losses that are not covered by standard hazard insurance, such as those occurring from earthquakes or floods. In the event of a default on any mortgage loan we hold, we will bear the risk of loss of principal to the extent that the value of the secured property and any payments from an insurer or guarantor are less than the amount owed on the mortgage loan and the costs of realizing on the collateral. Any loans in default will also cease to be eligible collateral for our borrowings, which means we will have to finance the loan out of other funds until it is ultimately liquidated. Although we intend to establish reserves in amounts we believe are adequate to cover these risks, there can be no assurance that any such reserves will be sufficient to offset losses on mortgage loans in the future. Even assuming that properties securing mortgage loans we hold provide adequate security for such mortgage loans, there will likely be delays, which could be substantial, in prosecuting foreclosures. State and local statutes and rules may delay or prevent foreclosure on, or sale of, the mortgaged property and may limit revenues in which case proceeds we receive may not be sufficient to repay all amounts due on the related mortgage loan. Some properties that collateralize our mortgage loans may have unique characteristics or may be subject to seasonal factors that could materially prolong the time period required to resell the property.

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Real estate is illiquid and its value is dependent on conditions beyond our control. The fair market value of the real property underlying any mortgage we acquire may decrease. The value is largely dependent on factors beyond our control and may be affected by adverse changes in national or local economic conditions. The value may also be affected by the need to comply with environmental laws or the ongoing need for capital improvements, particularly in older structures. National disasters could result in unusual loss, as could adverse changes in zoning laws and other factors that are beyond our control.

We are liable for representations and warranties made to purchasers and insurers. In the ordinary course of business, we make representations and warranties to the purchasers and insurers of mortgage loans and the related mortgage servicing rights regarding compliance with laws, regulations and program standards. In broker-generated loans, we generally receive similar representations and warranties from the brokers from whom we purchase the loans. If any of these representations and warranties is inaccurate, we may be required to repurchase the corresponding mortgage loans and/or may be liable for damages. In some cases, a portion of the costs of a repurchase are covered by our errors and omissions insurance. Some or all of the costs are also often recovered upon the sale of the collateral for the loan or by ultimate repayment. There can be no assurances that we will not experience greater losses in the future.

Mortgage loans are subject to significant government regulation. Federal, state and local governmental authorities regulate our activities as a lender. The Truth in Lending Act, and Regulation Z promulgated there under, mandate that mortgage lenders meet requirements designed to provide consumers with uniform, understandable information on the terms and conditions of mortgage loans and credit transactions. The Equal Credit Opportunity Act prohibits creditors from discriminating against applicants on the basis of race, color, sex, age or marital status, among other restrictions and requirements. In instances in which the applicant is denied credit, or the rate or charge for a mortgage loan increases as a result of information obtained from a consumer credit agency, the Fair Credit Reporting Act of 1970 requires the lender to supply the applicant with a name and address of the reporting agency. The Real Estate Settlement Procedures Act and the Debt Collection Practices Act require us to file an annual report with HUD. If we fail to comply with any of these regulations, we could be prohibited from engaging in operations which would have a material adverse effect on our results of operations and financial condition.

We may issue Preferred Shares which have preferences over common shares. Our Certificate of Incorporation authorizes the issuance of Preferred Shares with designations, rights and preferences as determined from time to time by its Board of Directors. The Board of Directors is empowered, without shareholder approval, to issue series of Preferred Shares with dividends, liquidation, conversion, voting or other rights that could adversely affect the rights of the holders of common shares. The voting rights of any Preferred Shares, however, are limited by the Certificate of Incorporation and cannot exceed the voting rights of any common shares. The issuance of preferred shares can be used as a method of discouraging, delaying or preventing a change of control of the Company.

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We currently do not meet certain corporate governance requirements imposed by the Sarbanes-Oxley Act and are not eligible to have our shares listed on NASDAQ, AMEX or the NYSE. The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley Act") was signed into law by President Bush on July 30, 2002 in response to public concerns regarding corporate accountability in connection with the recent accounting scandals at Enron and WorldCom. The stated goals of the Sarbanes-Oxley Act are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The Sarbanes-Oxley Act generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission ("SEC"), under the Securities Exchange Act of 1934 ("Exchange Act"). The Sarbanes-Oxley Act includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules. Of the new requirements imposed by the Sarbanes-Oxley Act, among others, we currently have no “independent directors” on our board of directors, no audit committee, compensation committee nor nomination committee and we do not have any independent “financial experts” on our board of directors. As a result, we currently would not be eligible to have our shares listed on the NASDAQ, AMEX or NYSE, even if we were to meet the other listing requirements of such self-regulatory organizations. This may have the effect of depressing the prevailing market price of our common shares on the OTC Bulletin Board.

Risks Relating to Our Common Stock

If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholder to sell their securities in the secondary market. Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

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Item 7.

Financial Statements.

Pollard-Kelley Auditing Services, Inc.

Auditing Services

3250 West Market St, Suite 307, Fairlawn, OH 44333 330-836-2558

Report of Independent Registered Public Accounting Firm

Board of Directors

Shearson Financial Network, Inc.

(Formerly Consumer Direct of America)

We have audited the accompanying balance sheets of Shearson Financial Network, Inc. (formerly Consumer Direct of America) and Subsidiaries as of December 31, 2006 and 2005, and the related statements of income, changes in stockholders’ equity, and cash flows for the two year period ended December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conduct our audits 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 financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2006 and 2005 and the results of its operations and it cash flows for two year period ended December 31, 2006, in conformity with U.S. generally accepted accounting standards.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Going Concern portion of Note 1 to the financial statements, the Company has not generated significant profits to date. This factor among others raises substantial doubt about the Company’s ability to continue as a going concern. Management plans in relation to this matter are also discussed in the Going Concern portion of Note 1. The accompanying consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.

Pollard-Kelley Auditing Services, Inc.

/S/ Pollard-Kelley Auditing Services, Inc.

Fairlawn, Ohio

April 11, 2007

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SHEARSON FINANCIAL NETWORK, INC.

CONSOLIDATED BALANCE SHEET

	December 31,
2006	2006
Assets
Current assets:
Cash and cash equivalents	$	9,032
Mortgage loans held for sale		19,760,396
Accounts receivable and receivables from loans sold, net		1,587,419
Prepaid and other current assets		114,068
Total current assets		21,470,915
Property and equipment, net		1,417,227

Other assets:
Goodwill		6,543,483
Other assets		1,184,946
Total other assets		7,728,429
Total assets	$	30,616,571
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$	1,035,525
Bridge notes payable		1,200,000
Stock subscription payable		20,000
Interest payable		356,426
Notes payable		141,780
Notes payable - related party		915,405
Line of Credit		19,426,568
Total current liabilities		23,095,704
Long-term liabilities:
Long term debt, net of current portion		1,000,000
Total long- term liabilities		1,000,000
Total liabilities		24,095,704
Minority shareholder interest		86,977
Stockholders' equity :
Preferred stock, $0.01 par value, 15,000,000 shares authorized 10,500 and 0 issued and outstanding at December 31, 2006 and December 31, 2005, respectively		4,250,000
Common stock, $0.001 par value, 500,000,000, 289,942,886 and 37,544,108 shares issued and outstanding December 31, 2006 and December 31, 2005, respectively		289,943
Additional paid-in capital		27,968,189
Accumulated deficit		(26,074,241	)
Total stockholders' equity		6,433,890
Total liabilities and stockholders' equity	$	30,616,571

See accompanying notes to consolidated financial statements.

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	2006			2005

Revenues
Loan origination and sale of mortgage loans	$	8,532,953		$	6,483,748
Marketing revenues and commissions		--			335,536
Rental income		--			6,905
Total revenue		8,532,953			6,826,190

Cost of sales		2,839,108			2,786,367

Gross Profit		5,693,845			4,039,822

Expenses
Salary and payroll taxes		3,224,681			3,143,080
Professional fees		3,716,388			3,041,777
Selling, general and administrative		1,937,636			3,926,577
Depreciation expense		664,186			684,820
Total expenses		9,542,891			10,796,254

Loss from operations		(3,849,046	)		(6,756,432	)

Other (expense) income
Interest expense		(694,139	)		(184,290	)
Debt discount expense		(167,883	)		(2,904,110	)
Impairment of goodwill net		--			(732,105	)
Other expense		(185,318	)		(352,829	)
Forgiveness of debt		7,818,216			--
Total other (expense) income		6,770,875			(4,173,333	)

Income (loss) before minority shareholder interest		2,921,829			(10,929,765	)

Income applicable to minority shareholder interest		164,397			--
Net income (loss)		2,757,432			(10,929,765	)

Dividends on preferred shares		--			(69,481	)
Net loss applicable to common shareholders	$	2,757,432		$	(10,999,246	)
Net loss per share, basic and diluted	$	0.02		$	(0.50	)
Net loss per common share, applicable to common shareholders, basic and diluted	$	0.02		$	(0.50	)
Weighted average number of common shares outstanding, basic and diluted		138,718,185			21,942,476

See accompanying notes to consolidated financial statements

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SHEARSON FINANCIAL NETWORK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

	2006			2005
Cash flows from operating activities:
Net income (loss)	$	2,757,432		$	(10,929,765	)

Adjustments to reconcile net income (loss) from operations to net cash (used in) provided by operations:
Depreciation		664,186			684,820
Debt discount amortization		167,883			--
Forgiveness of debt		(7,818,216	)		--
Stock based expenses		3,811,375			2,972,838
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable and receivables from loans sold, net		(889,849	)		123,3919	)
(Increase) decrease in mortgage loans available for sale		(18,929,196	)		10,074,577
(Increase) decrease in prepaid expenses		319,213			177,650
(Increase) decrease in goodwill		--			732,105
(Increase) decrease related to sale of asset		--			(560,417	)
(Increase) decrease in other assets		(352,829	)		3,345,749
Increase (decrease) in accounts payable and accrued expenses		(334,176	)		(2,072,271	)
Increase (decrease) in stock subscription payable		20,000			--
Increase (decrease) in interest payable		215,632			88,111
Increase (decrease) in minority shareholder interest		86,977			532,595
Net cash (used in) provided by operating activities		(20,281,568	)		5,875,041
Cash flows from investing activities:
Purchase of fixed assets		(5,660	)		(12,209	)
Disposition of fixed assets		--			162,978
Net cash (used in) provided by investing activities		(5,660	)		150,769
Cash flows from financing activities:
Advances (payments)on lines of credit		18,597,711			(8,428,350	)
Proceeds from notes payable		1,588,925
Proceeds from related notes payable		147,560			617,846
Payments of notes payable		(300,000	)		(66,799	)
Payments of long term debt		--			(493,759	)
Exercise of warrant		(1,726	)		--
Redemption (purchase) of treasury stock		---			271,600
Issuance of common stock		242,389
Dividends paid on preferred shares of subsidiary		--			(69,481	)
Net cash provided by (used in) financing activities		20,274,859			(6,202,551	)
Net decrease in cash and cash equivalents		(12,369	)		(176,740	)
Cash and cash equivalents, beginning of period		21,401			198,141
Cash and cash equivalents, end of period	$	9,032		$	21,401
Supplemental disclosure of cash flow information
Interest paid	$	367,500		$	251,199 -

See accompanying notes to consolidated financial statements.

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	Common Stock						Preferred Stock				Treasury			Additional Paid in			Accumulated			Total Stockholders'
	Shares			Amount			Shares		Amount		Stock			Capital			Deficit			Equity (Deficit)
Balance December 31, 2004		7,306,675		$	7,307						$	(271,600	)	$	17,953,311		$	(17,832,428	)	$	(143,411	)
Stock issued for services		2,595,221			2,595										722,825						725,420
Stock issued for debt		1,909,000			1,909										320,301						322,210
Stock issued for warrant		902,675			903																903
Stock issued for acquisition		480,930			481										98,938						99,419
Stock issued for equity services		23,656,470			23,656										1,529,196						1,552,852
Stock issued for AP settlement		194,320			194										182,345						182,539
Stock issued for deferred compensation		416,667			417										37,083						37,500
Stock subscription payable		82,150			82										82,150						82,232
Treasury stock redeemed for services												271,600									271,600
Dividends paid to preferred shares of subsidiary																		(69,481	)		(69,481	)
Net loss		-			-			-		-		-			-			(10,929,765	)		(10,929,765	)
Subtotal		30,237,433			30,237			-		-		271,600			2,972,838			(10,999,246	)		(7,724,571	)

Balance December 31, 2005		37,544,108			37,544			-		-		-			20,926,149			(28,831,673	)		(7,867,980	)
Stock issued for AP settlement		8,010,000			8,010										312,390						320,400
Stock issued for services		137,485,000			137,485										3,024,865						3,162,350
Stock issued for deferred compensation		27,077,808			27,078										993,610						1,020,688
Stock issued for services in 2005 reversed 2006		(1,900,000	)		(1,900	)									(207,100	)					(209,000	)
Exercise of warrant		1,725,911			1,726										(1,726	)					-
Stock issued for acquisition		80,000,000			80,000										1,920,000						2,000,000
Debt discount related to beneficial conversion feature															1,000,000						1,000,000
Preferred stock issued for acquisition								10,500		4,250,000											4,250,000
Issuance of stock		59			-																-
Net income		-			-			-		-		-			-			2,757,432			2,757,432
Subtotal		252,398,778			252,399			10,500		4,250,000		-			7,042,039			2,757,432			14,301,870

Balance December 31, 2006		289,942,886		$	289,943			10,500	$	4,250,000	$	-		$	27,968,188		$	(26,074,241	)	$	6,433,890

See accompanying notes to consolidated financial statements.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(1)

Summary of Significant Accounting Policies:

Basis of Presentation:

Shearson Financial Network, Inc. (“CDA”) formerly known as Blue Star Coffee, Inc. is a Nevada corporation formed in July, 2000 to sell specialty coffee beans, brewed coffee and espresso-based beverages through company-owned and franchised retail locations. In February 2002, Blue Star, which was then in the development stage, acquired all of the outstanding stock of Consumer Capital Holdings, Inc. and Consumer Capital Holdings became a wholly owned subsidiary of Blue Star. After its acquisition of Consumer Capital Holdings, Blue Star changed its name to 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”). Shearson Home Loans, (“SHL”), formerly known as Consumer Direct Lending Inc. ("CDL") is a Nevada corporation formed in October 2001 to originate retail mortgages and to provide mortgage banking services. The board of directors of CDL approved to change the name of the Company from Consumer Direct Lending, Inc. to Shearson Home Loans on June 22, 2005. Shearson Home Loans establishes banking and correspondent relationships with major lenders and banks.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations and has an accumulated deficit of $26,074,241 as of December 31, 2006, which raises substantial doubt about the Company's ability to continue as a going concern.

Going Concern:

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, the Company has net income of $2,757,432 for the year ended December 31, 2006; however the Company incurred a net ordinary loss of $10,999,246 during the prior year ended December 31, 2005. Although a substantial portion of the Company’s cumulative net loss is attributable to non-cash operating expenses, management believes that it will need additional equity or debt financing to be able to sustain profitability. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

Management is attempting to raise additional equity and debt financing to sustain operations until it can market its services, expands its customer base, and achieves profitability. The successful outcome of future activities cannot be determined at this time and there are no assurances that if achieved, the Company will have sufficient funds to execute its intended business plan or generate positive operating results.

The accompanying financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

Nature of Business:

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”).

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

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 27, 2007, acquired 85% of the outstanding common stock through a stock exchange. The minority shareholder interest of 15% of Allstate Home Loans amounts to $86,977 which is reflected on the accompanying consolidated balance sheet. All significant inter-company accounts and transactions have been eliminated.

Risks and Uncertainties:

The Company operates in a highly competitive industry that is subject to intense competition and potential government regulations. Significant changes in interest rates or the underlying economic condition of the United States or any specific region of the United States real estate market could have a matrially adverse impact on the Company’s operations.

Use of Estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts 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 reported periods. Significant estimates made by the Company’s management include, but are not limited to, the realizability of mortgage loans held for sale, mortgage servicing rights, and the recoverability of property and equipment through future operating profits. Actual results could materially differ from those estimates.

Concentration of Credit Risk:

The Company maintains, at times, cash balances at certain financial institutions in excess of amounts insured by federal agencies. For the year ended December 31, 2006; 1 buyers purchased 10% and the year ended December 31, 2005; 1 buyer purchased 90%, of the Company’s mortgages.

Cash and Cash Equivalents:

For the purpose of the statement of cash flows, the Company considers all highly liquid holdings with maturities of three months or less at the time of purchase to be cash equivalents.

Mortgage Loans Held for Sale:

Mortgage loans held for sale to investors are stated at the lower of cost or market value computed on the aggregate method by residential loan type (unrealized losses are offset by unrealized gains) and are evaluated at the end of each year, and are determined by outstanding commitments from investors or current investor yield requirements. The amount by which cost exceeds market value is accounted for as a valuation allowance and any changes in the valuation allowance are included in the determination of net income. As of December 31, 2006 and December 31, 2005, there was no valuation allowance required as cost was estimated not to exceed market value. A substantial portion of loans was sold to investors within 30 days subsequent to December 31, 2006 and December 31, 2005.

Mortgage Servicing:

The Company recognizes as separate assets or liabilities the obligation to service mortgage loans for others, through loan origination, by allocating total costs incurred between the loan and the servicing rights retained based on their relative fair values. Amortization of mortgage service assets or rights (“MSRs”) is based on the ratio of net servicing income received in the current period to total net servicing income projected to be realized from the MSRs. Amortization of mortgage service liabilities (“MSLs”) is based on the ratio of net servicing costs paid in the current period to total net servicing costs projected to be paid from the MSL. Projected net servicing income is in turn determined by the estimated future balance of the underlying mortgage loan portfolio, which declines over time from prepayments and scheduled loan amortization. The Company estimates future prepayment rates based on current interest rate levels, other economic conditions and market forecasts, as well as relevant characteristics of the servicing portfolio, such as loan types, interest rate stratification and recent prepayment experience. MSRs are periodically evaluated for impairment, which is recognized in the statement of operations during the applicable period through additions to an impairment reserve. For purposes of performing its impairment evaluation, the Company stratifies its servicing portfolio on the basis of certain risk characteristics including loan type and interest rate. The Company has determined that no impairment allowance is needed as of December 31, 2006 and December 31, 2005. For the year ended December 31, 2006 and December 31, 2005, no mortgage servicing rights were capitalized. Amortization expense related to mortgage servicing rights for the years ended December 31, 2006 and December 31, 2005, was $0 and $6,532, respectively.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

Property and Equipment:

Property and equipment are stated at cost, less accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, ranging from three to thirty years. Depreciation expense related to property and equipment was $664,186 and $684,820 for the year ended December 31, 2006 and the year ended December 31, 2005. Maintenance and repairs are charged to operations when incurred. Major betterments and renewals are capitalized. Gains or losses are recognized upon sale or disposition of assets.

Long-Lived Assets:

The Company accounts for its long-lived assets in accordance with SFAS No. 144, “Accounting For The Impairment or Disposal of Long-Lived Assets” which requires that long-lived assets and certain identifiable intangibles to be held and used by any entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Pursuant to SFAS 144, management of the Company assesses the recoverability of property and equipment by determining whether the depreciation of such assets over their remaining lives can be recovered through projected undiscounted cash flows. The amount of impairment, if any, is measured based on fair value (projected discounted cash flows) and is charged to operations in the period in which such impairment is determined by management. To date, management has not identified any impairment of property and equipment. There can be no assurance, however, that market conditions or demands for the Company’s services will not change which could result in future long-lived asset impairment.

Intangible Assets

The Company has adopted FASB 142. Under guidance of SFAS 142, net assets of companies acquired in purchase transactions are recorded at fair value at the date of acquisition, as such, the historical cost basis of individual assets and liabilities are adjusted to reflect their fair value. Identified intangibles are amortized on an accelerated or straight-line basis over the period benefited. Goodwill is not amortized, but is reviewed for potential impairment on an annual basis at the reporting unit level. The impairment test is performed in two phases. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of the reporting unit with its carrying amount, including goodwill. Of the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; however, if the carrying amount of the reporting unit exceeds its fair value, an additional procedure must be performed. That additional procedure compares the implied fair value of the reporting units’ goodwill (as defined in SFAS 142) with the carrying amount of that goodwill. An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value.

The Company sold its interest in Ocean West on June 6, 2005, and recorded a charge of impairment of $2,698,498 offset by the assets net of liabilities at the time of sale of $1,966,393 or $732,105 for the year ended December 31, 2005. The Company does not feel there has been any impairment of the remaining Goodwill due to; increase in revenues for the company, decreases in expenses for the company and decreases in overhead for the company.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

Revenue and Cost Recognition:

Revenue from the sale of loans is recognized at the time the loans are sold or when the Company has shipped the loan file to independent investors consistent with the criteria established in SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” At this point, all of the services required to be performed for such revenues have been completed. Loan origination costs and incremental direct costs are deferred and recognized over the term of the loan as an adjustment of the loan yield until the loan is sold. Incremental direct costs include credit reports, appraisal fees, document preparation fees, wire fees, tax and filing fees, funding fees and commissions. When the loan is sold and service is released, the unamortized loan origination costs and incremental direct selling costs are netted against the revenue and recorded to the statement of operations. Revenue from the servicing of loans is recognized as earned.

Basic and Diluted Loss Per Share:

In accordance with SFAS No. 128, “Earnings Per Share,” the basic loss per common share is computed by dividing net loss available to common stockholders after reducing net income by preferred stock dividend, by the weighted average common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if diluted potential common stock had been converted to common stock. Common stock equivalents have not been included in the earnings per share computation for the years ended December 31, 2006 and 2005 as the amounts are anti-dilutive.

Advertising:

The Company expenses advertising costs as incurred. The advertising costs for the year ended December 31, 2006 and the year ended December 31, 2005 were $352,942 and $600,882, respectively.

Income Taxes:

The Company accounts for income taxes under SFAS No. 109, “Accounting for Income Taxes.” Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.

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.

The amounts that have been charged against income for those services were approximately $3,024,865 and $2,972,838 for 2006 and 2005, respectively.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

Fair Value of Financial Instruments:

The Company has adopted SFAS No. 107, “Disclosures About Fair Value of Financial Instruments.” SFAS No. 107 requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. For certain of the Company’s financial instruments including cash, receivables, and accounts payable and accrued expenses, the carrying amounts approximate fair value due to their short maturities. The amounts shown for notes payable also approximate fair value because current interest rates and terms offered to the Company for similar debt are substantially the same.

New Accounting Pronouncements:

In December 2004, the FASB issued SFAS No. 123 (revised 2004). Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) effective December 15, 2005, supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The Company expects the adoption of this standard will have a material impact on its financial statements assuming employee stock options are granted in the future. As of December 31, 2006, there were no outstanding employee stock options.

Reclassifications:

Certain prior year balances have been reclassified to conform to current year presentation. Such classifications had no effect on net income.

(2)

Property and Equipment:

A summary is as follows:	December 31,
	2006
Furniture and fixtures	$	803,228
Equipment		1,643,159
Software		896,004
Leasehold improvements		109,477
Automobiles		17,295

Less accumulated depreciation and amortization		(2,051,936	)

Property and equipment, net	$	1,417,227

(3)

Goodwill

The origin of Goodwill is from:

Las Vegas Mortgage	$	1,372,916
Ocean West		--
eHome Credit		2,514,124
Allstate Home Loans		2,733,864
	$	6,543,483

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

The Las Vegas Mortgage purchase took place in June of 2003. The goodwill arose out of the difference between the purchase price and the fair market value of assets received.

In June of 2003, the Company acquired all of the outstanding stock of Las Vegas Mortgage in exchange for $100,000 in cash and $1,361,726 of the Company’s stock. The purpose of the transaction was to expand its interests in the Las Vegas market. Las Vegas Mortgage had branches and relationships in the Las Vegas Area. The Company had a call center in Las Vegas and wanted to get into the Mortgage Business in Las Vegas. This acquisition allowed the Company to have an entrance in the Las Vegas market. Due to the acquisition of Las Vegas Mortgage the Company was able to move its corporate headquarters to Las Vegas and expand its network. The acquisition of Las Vegas Mortgage was primary in the expansion and growth of the Company from a small mortgage company in California to a major mortgage broker in the Western States.

In July of 2004, the Company purchased 84.9% stock interest in Ocean West. The Company sold its interest in Ocean West on June 6, 2005, and recorded a charge of impairment of $2,698,498 offset by the assets net of liabilities at the time of sale of $1,966,393 or $732,105.

On June 9, 2006, we agreed to acquire certain net assets and defined liabilities in the amount of $485,876 from eHome CreditCorp. (“EHC”), a New York corporation, for 7,500 shares of Series A-1 Preferred Stock valued at approximately $3,000,000.

On July 29, 2006, Shearson Financial Network, Inc. (the "Company") entered into a Share Exchange Agreement and Plan of Reorganization Agreement (the “Agreement”) with Allstate Home Loans Inc. (“Allstate”), and the sole shareholder of all of the issued and outstanding shares of Allstate (the “Allstate Shareholder”). Pursuant to the Agreement, which closed on July 29, 2006, the Company is purchasing from the Company’s sole shareholder 850 shares of Allstate’s issued and outstanding shares of common stock. The net assets and liabilities at time of the acquisition was $516,136. The consideration for this purchase equaled $2,000,000 in common stock and $1,250,000 in the Company’s preferred stock, totaling $3,250,000.

Other intangible assets are evaluated for impairment if events and circumstances indicate a possible impairment. Such evaluation of other intangible assets is based on undiscounted cash flow projections.

After reviewing the requirements of FASB 142, the Company has not elected to impair any of the Goodwill for the year ended December 31, 2006 due to; increases in number of contracts for the company, increase in revenues for the company and decreases in expenses for the company.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(4)

Other Assets

As of December 31, 2006, other assets is comprised of the following:

Unamortized debt discount (see Note 7)	$	832,117
Capitalized investments (see Note 11)		352,829
	$	1,184,946

(5)

Credit Facilities and Joint Venture Agreement

On September 21, 2004 the Company entered into a term loan facility with Club Vista Holdings Inc., (“Club Vista”) pursuant to which a revolving line of credit arrangement for which $5,000,000 can be borrowed from time to time on a secured basis. Collateral shall be evidenced by an assignment of Borrowers interest in all mortgage notes for which funds have been advanced. Interest under the term loan facility will be determined and imposed in accordance with the respective cost of funds that Lender may incur. The maturity will be on a revolving basis for the incurrence of indebtedness for the period of one year. The funds advanced under this facility will be used exclusively as follows; to fund home loans and various costs, fees, expenses and other payments made in connection with the loans made by the Borrower, to fund any fees relating to warehouse banking lines and for any such purposes specifically authorized by the Lender in writing. The net proceeds related to the term loan shall be divided 50/50 between the Company and Club Vista of which the Company shall maintain at all times a separate accounting for such transactions. As of December 31, 2006 and December 31, 2005, the Company’s balance on this facility was $0 and $5,000,000, respectively. During 2006, Club Vista did not elect to renew the facility and has forgiven the balance of the note of $5,000,000. For further information refer to Note 12 in the Notes to consolidated financials statements as described herein.

On September 14, 2004, the Company entered into a joint venture agreement with Club Vista to offer a product, home equity lines of credit or HELOC. The proceeds of such will be split 50/50 between both parties. The credit facility of this joint venture shall be contributed by Club Vista in the form of a mortgage warehouse credit facility for $10,000,000 to be collateralized by the Note and Deed of Trust on each and every loan transaction. Borrowings may only be used for the sole purpose of warehousing CDA loans. No interest shall be paid on the initial contributions to the capital of the joint venture. The joint venture may be dissolved at any time by agreement by both parties. During 2006, Club Vista elected to dissolve the joint venture and forgave the balance of the note of $2,668,216. As of December 31, 2006 and December 31, 2005, the balance of the facility was $0 and 2,668,216, respectively. For further information refer to Note 12 in the Notes to consolidated financials statements as described herein.

(6)

Warehouse Lines of Credit

Loans that are closed using our own credit facilities are funded through short term borrowing on our warehouse lines of credit. We pay interest on funds advanced under the warehouse line of credit at a pre-negotiated rate. The rate at which we borrow is variable in nature and typically averages between 6.5% and 8.5%. We currently have our primary warehouse line of $10 million with Warehouse One and a provision in the facility for an additional $10,000,000. 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.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

Allstate Home Loans, Inc., which the Company acquired 85% of the outstanding stock on July 27, 2006, has a line of credit with IMPAC and RFC. The IMPAC line is a credit facility for $50,000,000, charged interest averaging between 6.5% and 8.5% and is personally guaranteed by Greg Shanberg, former President of Allstate Home Loans. The balance on this facility as of December 31, 2006 was $466,695. The RFC line of credit is a $30,000,000 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 the cash requirement and is in default. The balance of this facility for the year ended December 31, 2006 is $18,180,381. The facilities are collateralized by the related mortgage loans receivable.

Formerly, we had a warehouse line of credit with Bank of Arizona through our subsidiary, Shearson Home Loans for $10,000,000. Currently we are not using the facility. The facility was collateralized by the related mortgage loans receivable. Interest was due monthly at the bank reference rate plus an established percentage, varying from prime plus 1 to 1.5%. There are restrictive covenants relating to tangible net worth of not less than $250,000 and a debt to equity ratio no greater than 20:1. As of December 31, 2006 and 2005, the outstanding balance with Bank of Arizona was $0 and $828,858, respectively.

(7)

Convertible Debenture and Common Stock Purchase Warrants:

On June 30, 2006, the Company entered into a Securities Purchase Agreement, (“Agreement”), by and among the Company, AJW Partners, LLC (“Partners”), AJW Offshore, Ltd. (“Offshore”), AJW Qualified Partners (“Qualified”) and New Millenium Capital Partners, II, LLC (“Millenium”). Partners, Offshore, Qualified and Millenium are collectively referred to as the “Purchasers”. The Agreement provides for the sale by the Company to the Purchasers of Secured Convertible Term Notes (the “Notes”) issued by the Company in the aggregate principal amount of $1,500,000 (“Principal Amount”). The Principal Amount is to be funded by the Purchasers in three traunches $500,000 on July 24, 2006, $500,000 upon filing the Registration Statement and $500,000 upon effectiveness of the Registration Statement. The offering of Notes under the Agreement was made pursuant to Section 4(2) of the Securities Act of 1933, as amended. The Notes matures three years from the date of each Note, bear interest at 6% per annum, unless the common stock of the Company is greater than $0.025 per share for each trading day of a month, in which event no interest is payable during such month, and principal and interest due at maturity. The Notes are convertible into common stock of the Company at 50% discount to the average of the three lowest trading prices of the common stock during the 20 trading day period prior to conversion. In connection with the subject offering, the Company issued an aggregate of 30,000,000 warrants (10,000,000 upon each traunch of financing) to purchase common stock at a price of $0.02 per share. The warrants are exercisable for a period of five years. The Company has the right to redeem the Notes under certain circumstances and the right to prevent conversions in any month where the stock price is less than $0.05 per share. The conversion of the Notes is subject to an effective Registration Statement to be filed by the Company. In the event the Company is unable to have the Registration Statement declared effective within the timeframe of the Agreement, we may be required to pay to the Note Holders an amount equal to the then outstanding principal amount of the Notes multiplied by two hundredths (.02) times the sum of: (a) the number of months (prorated for partial months) after the filing date or the end of the one hundred and eighty day period and prior to the date the Registration Statement is declared effective, (b) the number of months (prorated for partial months) that sales of all of the shares registered cannot be made after the Registration Statements is declared effective and (c) the number of months (prorated for partial months) that the common stock is not listed or included for quotation or the OTCBB, NASDAQ Small Cap, NYSE or AMEX or that trading has been halted after the Registration has been declared effective. If thereafter, sales could not be made pursuant to the Registration Statement, for an additional period of one month, the Company shall pay an additional $20,000 for $1,000,000 of outstanding principal under the Notes. As of December 31, 2006, the registration statement was not effective and as a result the Company owed the investors 63%of the prorated rate of $20,000 or $12,667 in penalties. Further, any amounts owing to the investors shall be paid in cash or, at the Company’s option, shares of common stock priced at 50% discount to the market price. On July 19, 2006, the Company filed a Form SB-2 and amended such by filing a Form SB-2/A on February 14, 2007. The Company is in the process of a review of its filings and anticipates completing the document, as soon as practical. The Agreement contains a conversion limit which limits the ability of the Purchasers to convert the Notes to not exceed 4.99% of the Company’s outstanding shares of common stock at any given time.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

As of December 31, 2006, the Company has received the 1^st and 2^nd traunch totaling $1,000,000 of the Notes and considers two thirds of the 30,000,000 warrants or 20,000,000 granted.

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 year ended December 31, 2006, the Company amortized a total of $167,883.

During December 31, 2004, the Company entered into three convertible debentures totaling $5,620,000 of which $0 and $5,000,000 was remaining at December 31, 2006 and 2005. Additionally, certain debt holders were entitled to warrants to purchase 116,667 shares of common stock at a weighted average exercise price of $2.38 per share. In accordance with EITF 00-27, the Company has determined the value of the convertible debenture and the fair value of the detachable warrants issued in connection with this debt. The estimated value of the warrants of $275,750 was determined using the Black-Scholes option pricing model under the following assumptions: life of 1 year, risk free interest rate of 3.5%, a dividend yield of 0% and volatility of 142%. The face amount of these debts of $5,620,000 was proportionately allocated to the convertible debt and the warrants in the amounts of $5,440,925 and $179,075, respectively. These notes were then allocated between the debt and the beneficial conversion feature, which attributed to $5,000,000 and $440,925, respectively. The combined total discount is $122,667, which is being amortized over the term of the convertible debt. For the year ended December 31, 2006 and December 31, 2005, the Company has amortized a total of $0 and $2,904,110, respectively.

(8)

Long-Term Debt:

A summary of long term debt is as follows:

	December 31, 2006
Secured Convertible Term Notes (the “Notes”) issued by the Company to various investment entities. The Notes matures three years from the date of each Note, bear interest at 6% per annum, unless the common stock of the Company is greater than $0.025 per share for each trading day of a month, in which event no interest is payable during such month, and principal and interest due at maturity. The Notes are convertible into common stock of the Company at 50% discount. See footnote 7.	$	1,000,000
Convertible secured promissory note bearing interest at 10% per annum or default interest of 18% compounded daily, payable June 15, 2005. Note has the ability to convert to the Company’s common stock at a conversion price per share equal to the lesser of (a) $1.50 and (b) 70% of the price per share for which shares of common stock, issued by maker to purchasers in equity financing. See footnote 7.		500,000
Convertible secured with substantially all the assets of the Company, promissory note payable to an individual, bearing interest at 10% per annum, secured by 300,000 shares of the Company’s common stock, payable June 15, 2005. Note has a convertible feature to convert to the Company’s common stock at a exercise price equal to $0.001 per share, number of shares determined by multiplying the principal amount by 50%and dividing by the stock’s closing trading price on the OTCBB on the date thereof. See footnote 7		700,000
Unsecured promissory note payable to an individual, bearing interest at 10% per annum, payable upon demand.		141,780
Unsecured promissory note payable to an individual, bearing interest at 10% per annum, payable upon demand. This note has been forgiven by its lender, and was for $150,000.		--
Unsecured promissory note payable to a related party, bearing interest at 10% per annum, payable upon demand.		125,000
Unsecured promissory note payable to a related party, bearing interest at 10% per annum, payable upon demand.		688,396
Unsecured promissory note payable to a related party, bearing interest at 10% per annum, payable upon demand.		102,010
		3,257,185
Less current maturities		(2,257,185	)
	$	1,000,000

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

The following table summarizes the aggregate maturities of debt:

Years ending
2007	$	2,257,185
2007		--
2008		--
2009		1,000,000
2010		--
Thereafter		--
	$	3,257,185

Interest expense incurred under debt obligations amounted to $688,815 and $184,290, for the year ended December 31, 2006 and the year ended December 31, 2005.

(9)

Commitments and Contingencies:

Operating Leases

The Company leases its facilities that expire through the year 2009. These agreements generally provide that the Company pay operating costs such as taxes, insurance, and maintenance.

Future annual minimum payments under operating leases are as follows:

Years ending December 31,
2007	$	323,580
2008		323,580
2009		235,250
Thereaafter	$	882,410

Rental expense under operating leases for the year ended December 31, 2006 and the year ended December 31, 2005 was $401,289 and $310,072, respectively.

Litigation

In the normal course of business, the Company is involved in various legal actions. It is the opinion of management that none of these legal actions will have a material effect on the financial position or results of operations of the Company.

On April 14, 2004, the Company commenced an action against Consulting Services LLC. Consulting Services LLC instituted a counterclaim on April 19, 2004, against the Company. Both claims are contented by the parties to be of a breach of contract nature from a certain Asset Acquisition Agreement in which the Company claims never consummated therfore services are not liable under the agreement. The counterclaimis of a similare nature which CDA is claiming no liabilty and Consulting Services LLC is asking for the the amount of stock agreed to be given for services per the acquistion agreement of approximately 2.4 million shares of the Company’s stock valued at the time to be approximately $1.8 million and $655,321 for certain liabilities the Company were to assume per the agreement upon closing. The Company is asserting its position of no liability and asking for approximately $712,859 of which was advanced to Consulting Services prior to the knowledge that the transaction was not to close. In order to secure repayment of approximately $712,829 previously advanced to the defendant, the Company collateralized various assets. The Company's management believes to have secured sufficient collateral in order to recoup $352,829 of the $712,829. As of December 31, 2006, the $352,829 is included as a part of other assets in the accompanying consolidated balance sheet (see note 4).In April of 2005, the Company filed a motion for summary judgement. Management of the Company anticipates a favorable outcome and has determined it is not necessary to impair this investment.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

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 between a purported agreement between IndyMac Bank and Ocean West where Ocean West would sell and IndyMac would purchase mortgages. IndyMac claims that it later identified nine loans that it purchased from Ocean West which allegedly did not meet the terms and conditions it required 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 would make 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.

Employment Agreements

Our employment agreement with Michael Barron requires him to perform the duties of Chairman of the Board and Chief Executive Officer at an annual salary of $300,000. He received 160,000 shares of restrictive stock which vests ratably on a monthly basis during the first two years of the term of the agreement. In addition, Mr. Barron is entitled to receive a performance bonus if our actual annual revenues and net income equals or exceeds projected annual revenues and net income approved by our Board. His performance bonus will be equal to the percentage of his annual salary equal to 50% plus the percentage by which actual income exceeds projected income. He is entitled to the same benefits afforded to other executives. He is also entitled to a car allowance of $1,000 per month. His employment agreement provides that if we terminate him without cause, he is entitled to receive a lump sum payment equal to twice his annual salary plus the present value of a performance bonus computed on the basis that we achieve all of our performance targets. Mr. Barron's employment agreement commenced as of June 15, 2006 and terminates on June 14, 2009.

Our employment agreement with Joseph Cosio-Barron requires him to perform the duties of -President at an annual salary of $300,000. He received 160,000 shares of restrictive stock which vests ratably on a monthly basis during the first two years of the term of the agreement. In addition, Mr. Cosio-Barron is entitled to receive a performance bonus if our actual annual revenues and net income equals or exceeds projected annual revenues and net income approved by our Board. His performance bonus will be equal to the percentage of his annual salary equal to 50% plus the percentage by which actual income exceeds projected income. He is entitled to the same benefits afforded to other executives. He is also entitled to a car allowance of $1,000 per month. His employment agreement provides that if we terminate him without cause, he is entitled to receive a lump sum payment equal to twice his annual salary plus the present value of a performance bonus computed on the basis that we achieve all of our performance targets. Mr. Cosio-Barron's employment agreement commenced as of June 15, 2006 and terminates on June 14, 2009.

Our employment agreement with Theresa Carlise requires her to perform the duties of Chief Financial Officer at an annual salary of $196,800. In addition, Ms. Carlise is entitled to receive a performance bonus if our actual annual revenues and net income equals or exceeds projected annual revenues and net income approved by our Board. Her performance bonus will be equal to the percentage of her annual salary equal to 50% plus the percentage by which actual income exceeds projected income. She is entitled to the same benefits afforded to other executives. Her employment agreement provides that if we terminate him without cause, she is entitled to receive a lump sum payment equal to twice his annual salary plus the present value of a performance bonus computed on the basis that we achieve all of our performance targets. Ms. Carlise employment agreement commenced as of October 1, 2006 and terminates on October 1, 2009.

No amounts are accrued for the deferred compensation as the Company has had no pre-tax profits.

(10)

Preferred Stock:

The Company’s articles of incorporation authorize up to 15,000,000 shares of $0.01 par value preferred stock. Shares of preferred stock may be issued in one or more classes or series at such time and in such quantities the board of directors may determine. All shares of any one series shall be equal in rank and identical in all respects. Preferred stockholders have liquidation preference up to the amount of the original equity investment. Each share of preferred stock is convertible into one share of common stock. As of December 31, 2006 and 2005, there were 10,500 and 0 preferred shares issued, respectively.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

The Company’s former subsidiary, Ocean West Holding Corp., had preferred stock issued and outstanding prior to the sale in 2005. There were $0 and $69,481 of dividends paid during the years December 31, 2006 and December 31, 2005, respectively.

(11)

Acquisition or Disposition of Assets

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

On June 6 2006, we agreed to acquire all of the issued and outstanding shares of common stock of Continental Home Loans Inc. (“CHL”), a New York corporation (“CHL”), from its shareholders (“shareholders”), pursuant to the terms and conditions of a Share Exchange Agreement (the “Exchange Agreement”) among SHAREHOLDERS, CHL and us. Pursuant to the Exchange Agreement, we exchanged shares of our Common Stock, valued at approximately $2,560,000 plus notes payable from the selling shareholders in the amount of $640,000. CHL is a regional mortgage banker with headquarters in Mellville, New York, and is licensed to lend in several states including New York and California. The agreement was subject to the approval of the New York State Banking Commission. We had planned to integrate CHL into our previously completed acquisition of Shearson Homes Loans.

On July 29, 2006, the Company entered into a Share Exchange Agreement and Plan of Reorganization Agreement (the “Agreement”) with Allstate Home Loans Inc. (“Allstate”), and the sole shareholder of all of the issued and outstanding shares of Allstate (the “Allstate Shareholder”). Pursuant to the Agreement, which closed on July 29, 2006, the Company is purchasing from the Company’s sole shareholder 850 shares of Allstate’s issued and outstanding shares of common stock. As of July 29, 2006, Allstate had 1,000 shares common stock that are issued and outstanding.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(12)

Forgiveness of Debt:

During the year ended December 31, 2006, Club Vista Holdings, Inc. a non related party, elected to write off three notes totalling $7,818,216 as of December 31, 2005, resulting in the forgiveness of debt. The Company reflected the debt forgiveness of $5,150,000 in the quarter ended June 30, 2006 and the remaining $2,668,216 during the quarter ended September 30, 2006.

(13)

Stock Option Plans

The Company has elected to follow Accounting Principles Board Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees” and the related interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123 (FASB 123), “Accounting for Stock-Based Compensation,” requires the use of option valuation models that were not developed for use in valuing employee stock options. Under APB 25, if the exercise price of the Company’s employee stock options is equal to or greater than the market price of the underlying stock on the date of the grant, no compensation expense is recognized.

The Shearson Financial Network, Inc. Stock Incentive Plan 2002 (the “Plan”) provides for the grant of 1,950,000 incentive or non-statutory stock options to purchase common stock. Employees, who share the responsibility for the management growth or protection of the business of the Company and certain Non-Employee (“Selected Persons”), are eligible to receive options which are approved by a committee of the Board of Directors. These options primarily vest over five years and are exercisable for a ten-year period from the date of the grant. No stock options or awards may be granted under this plan after October 15, 2012. On December 31, 2005, the Board of Directors of the Company elected to cancel the outstanding options; 80,000 to Michael Barron and 80,000 to Joseph Cosio-Barron and terminate the plan.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

Pro forma information regarding net income and earnings per share is required by FASB 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted beginning in the fiscal year subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the year ended December 31, 2005: risk free rate of 3.5%; no dividend yield; volatility factors of the expected market price of the Company's common stock of 142%; and weighted-average expected life of the option of five years. For the year ending December 31, 2004: risk-free interest rate of 3.5%; no dividend yield; volatility factors of the expected market price of the Company’s common stock of 142%; and weighted-average expected life of the option of five years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option’s vesting period.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

The Company’s pro forma information follows:

	December 31, 2006		December 31, 2005

Pro forma net (loss) income applicable to common shareholders	$	2,747,432	$	(11,360,578	)

Pro forma net (loss) income applicable to common shareholders per share: Basic and fully diluted	$	0.02	$	(2.11	)

A summary of the Company’s stock option activity follows:

	December 31, 2006					December 31, 2005
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price

Outstanding - beginning of year		480,000		$	12.15		1,200,000		$	6.60

Granted		--			--		--			--

Exercised		--			--		--			--

Cancelled		(480,000	)	$	1.45		(720,000	)	$	2.90

Outstanding - end of year		--			--		480,000		$	12.15

Exercisable - end of year		--			--		128,000			1.45

(14)

Stock Incentive Plan:

On May 14, 2004 the Company and its Board approved the 2004 Stock Compensation Plan. The plan provides for the issuance of 750,000 shares of the Company’s common stock. Employees, who share the responsibility for the management growth or protection of the business of the Company and certain Non-Employee (“Selected Persons”), are eligible to receive options which are approved by a committee of the Board of Directors. The termination date of the Plan is May 13, 2014. As of December 31, 2006 all of the shares have been issued under this plan.

On May 14, 2005 the Company adopted the 2005 Stock Compensation Plan. The purpose of the plan is to provide the Company with a means of compensating selected key employees (including officers) of, and consultants and advisors to, the Company and its subsidiaries for their services with shares of Common Stock of the Company. All shares awarded or sold under the plan will be newly issued shares of the Company's Common Stock. The number of shares subject to the plan is 5,000,000. The Company's Board of Directors will adjust the number and kind of shares subject to the plan in the event of any recapitalization, reclassification, reorganization, merger, consolidation, share exchange, other business combination in which the Company is the surviving parent corporation, stock split-up, combination of shares, or dividend or other distribution payable in capital stock or rights to acquire capital stock.

The Company's Board of Directors administers the plan and selects those who are to participate in the plan. The Board determines the number of shares to be awarded or sold to participants, the times of such awards or sales, the consideration to be paid for the shares, and the conditions, rights of repurchase, rights of first refusal and transfer restrictions, if any, that will apply. At the Board's discretion, shares may be issued in consideration of services fully performed, if such services are not in connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities. Each award or sale of shares under the plan must be evidenced by a written agreement between the Company and the recipient of the shares. The Board may make changes in or additions to the plan which it deems to be proper and in the best interests of the Company and its stockholders.

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

The plan became effective on May 14, 2005 and will automatically terminate on May 13, 2015. The Board may also act to suspend or terminate the plan at any time, without notice. The plan is not subject to provisions of the Employee Retirement Income Security Act of 1974. An "affiliate" of the Company as defined by regulations under the Securities Act may not offer or sell the shares received under the plan except pursuant to an effective registration statement under the Securities Act or an available exemption from registration.

As of December 31, 2006 all of the shares have been issued under this plan.

The Company filed a form S-8 to register 10,000,000 shares of its common stock for its key employees, consultants and advisors. The 2006 Stock Compensation Plan became effective January 1, 2006 and shall terminate on December 31, 2014. The stock is valued at the stock’s closing price as of the date the Board approves the issuance. As of December 31, 2006 all of the shares have been issued under this plan.

(15)

Stock Equity:

Pursuant to a Bridge Loan and Security Agreement (the "Bridge Loan Agreement") with the Company dated February 26, 2004 and amended May 6, 2004 and April 8, 2005, an individual loaned $500,000 to the Company. The loan and interest and other payments payable to the individual were payable on June 15, 2005. The Bridge Loan Agreement provided for the grant of a security interest to the individual in the form of 300,000 shares of common stock. The 300,000 shares of common stock were transferred to the individual on April 8, 2005 as payment for certain amounts owed to the individual pursuant to the Bridge Loan Agreement. Pursuant to the agreement dated April 8, 2005, the same individual acquired 850,000 shares of common stock through the exercise of warrants with a strike price of $.01 on April 20, 2005.

On July 29, 2005, the Company entered into a common stock purchase agreement with an accredited investor in a private placement (the "Private Placement") exempt from the registration requirements under the Securities Act of 1933, as amended (the "Securities Act"). In connection with the Private Placement, the Company sold (i) 4,166,667 shares at the purchase price of six cents ($.06) for $250,000 (a 30% discount on the closing bid price for the prior trading day), which sale closed on July 29, 2005; and (ii) 11,989,796 shares at the price of four and nine-tenths cents ($.049) for $587,500 (a 30% discount on the closing bid price for the prior trading day), which sale closed on August 5, 2005. Pursuant to the Private Placement, the accredited investor had the option, exercisable until August 28, 2005, to purchase an additional $662,500 amount of shares of common stock at the per share price of the lower of (i) $.06 and (ii) 30% below the closing price of the shares on the OTC bulletin board on the trading day prior to purchase. The use of the net proceeds of the Private Placement was primarily for funding working capital acquisitions.

The shares of common stock offered and sold in the Private Placement have not been registered under the Securities Act and were sold in reliance upon the exemption for the securities registration afforded by Regulation D of the Securities Act. The investor represented to the Company that it is an "Accredited Investor," as defined in Rule 501 of Regulation D, under the Securities Act. In connection with the Private Placement, the Company entered into a registration rights agreement with the investor, pursuant to which the Company agreed to promptly file a registration statement covering re-sales from time-to-time by the investor of the shares of common stock purchased in the Private Placement. The Company issued a total of 16,156,462 shares of common stock for a total value of $1,329,082.

On April 14, 2006, the Company filed Form PRE 14A, requesting a vote of its shareholders, to increase the authorized shares of the Company to 200,000,000 from 100,000,000.

On May 26, 2006, the Company filed Form 14C, requesting a vote of shareholders to increase its authorized shares of common stock to 500,000,000 from 200,000,000

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(16)

Stock Subscription Agreement

On or about March 23, 2005, Vertical Capital Partners (a Delaware corporation) subscribed to acquire 2,000,000 shares of common stock of the Company at a purchase price of $.001 per share pursuant to an investment banking agreement between the Company and Vertical Capital Partners. This subscription agreement has been canceled and on July 11, 2005, Vertical returned the entire 2,000,000 shares of common stock to the Company and said shares were marked "CANCELLED" and are to be returned to the Company's treasury. Despite the cancelled subscription agreement, Vertical remains the owner 31,000 or less shares of common stock of the Company. Vertical has sole dispositive and voting power with respect to 31,000 or less shares of common stock of the Company.

(17)

Deferred Income Taxes:

Income taxes are generally provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets for financial and income tax reporting.

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.

The deferred tax assets relating to the net operating loss carry forward has been fully reserved as of December 31, 2006.

(18)

Business Consolidation:

As of December 31, 2006, the consolidated financials of Shearson Financial Network consisted of Shearson Financial, (parent) and Shearson Home Loans, Inc, (subsidiary) of which, the subsidiary includes 85% equity interest of Allstate Home Loans, Inc.

SHEARSON FINANCIAL NETWORK

DECEMBER 31, 2006

	Shearson			Shearson
	Home Loans			Financial			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	8,817		$	215		$	9,032
Mortgage loans held for sale		19,760,396						19,760,396
Accounts receivable and receivables from loans sold, net		1,587,419						1,587,419
Due to from parent/subsidiary		1,405,999			(1,405,999	)		-
Prepaid and other current assets		88,367			25,701			114,068
Total current assets		22,850,998			(1,380,083	)		21,470,915

Property and equipment, net		833,095			584,132			1,417,227

Other assets:
Goodwill		-			6,543,483			6,543,483
Other assets		-			1,184,946			1,184,946
Total other assets		-			7,728,429			7,728,429

Total assets	$	23,684,093		$	6,932,479		$	30,616,572

Liabilities and Stockholders' Equity

Liabilities
Current liabilities:
Accounts payable and accrued expenses	$	570,113		$	465,413		$	1,035,525
Due to from parent/subsidiary		(1,826,738	)		1,826,738			-
Stock subscription payable					20,000			20,000
Bridge notes payable					1,200,000			1,200,000
Accrued interest payable		66,195			290,231			356,426
Notes payable					141,780			141,780
Notes payable - related party					915,405			915,405
Line of credit		19,426,568			-			19,426,568
Total current liabilities		18,236,138			4,859,567			23,095,705

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		18,236,138			5,859,567			24,095,704

Minority shareholder interest		86,977			-			86,977

Stockholders' equity:
Common stock, $0.001 par, 500,000,000 authorized 290,287,210 issued and outstanding		-			289,943			289,943
Preferred Stock, $0.01 par, 15,000,000 authorized 10,500 issued and outstanding		-			4,250,000			4,250,000
Additional paid-in capital		-			27,968,189			27,968,189
Accumulated earnings (deficit)		5,360,978			(31,435,220	)		(26,074,242	)
Total stockholders' equity		5,360,978			1,072,912			6,433,890

Total liabiltiies and stockholders' equity	$	23,684,092		$	6,932,479		$	30,616,571

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SHEARSON FINANCIAL NETWORK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

SHEARSON FINANCIAL NETWORK

FOR THE YEAR ENDED DECEMBER 31, 2006

	Shearson			Shearson
	Home Loans			Financial			Consolidated
Revenues:
Loan origination and sale of mortgage loans	$	8,532,953		$	-		$	8,532,953
Other income		-			-			-
Total revenues		8,532,953			-			8,532,953

Cost of Sales		2,839,108			-			2,839,108

Gross Profit		5,693,845			-			5,693,845

Expenses:
Salary & payroll taxes		1,596,576			1,628,106			3,224,681
Professional fees		228,642			3,487,746			3,716,388
Selling, general and administrative		1,731,384			206,251			1,937,636
Depreciation expense		389,437			274,749			664,186
Total expenses		3,946,039			5,596,852			9,542,891

Income (loss) from operations		1,747,806			(5,596,852	)		(3,849,046	)

Other (expense) income
Interest expense		(5,325	)		(688,815	)		(694,139	)
Debt discount expense		-			(167,883	)		(167,883	)
Forgiveness of debt		-			7,818,216			7,818,216
Other expense		-			(185,318	)		(185,318	)
Total other (expense) income		(5,325	)		6,776,200			6,770,875

Income before minority shareholder interest		1,742,481			1,179,348			2,921,829

Income applicable to minority shareholder interest		164,397			-			164,397

Net income	$	1,578,084		$	1,179,348		$	2,757,432

(19)

Related-Party Transactions:

On January 21, 2005, the Company borrowed $125,000 from its Chief Financial Officer, Wayne Bailey.

During the month of December 2005, the Company entered in to financing agreement with Eclipse Holding Company (“Eclipse”), which is 50% owned by the Company’s Chief Executive Officer, Michael Barron. The Company entered into an agreement with Eclipse to borrow a total of $750,000 in the form of a note payable, with an interest of 10% per annum. At December 31, 2006, the outstanding balance on this note was $688,395.50. The agreement calls for the issuance of common stock warrants. As of December 31, 2006 and 2005, the Company issued 17,000,000 and 5,000,000 shares, respectively.

On January 11, 2006, Joseph Cosio-Barron, the Company’s President advanced the Company $75,000 and on January 31, 2006 advanced an additional $27,009.70, for a total of $102,009.70. The advances are in the form of a demand note which incurs interest at 10% per annum.

(20)

Subsequent Event:

On February 28, 2007, Shearson Home Loans entered into a Joint Venture Agreement Operating by and between the Company and Stinson Financial Group, Inc. (“SFG”), The parties have no material relationship with the Company or its affiliates other than in respect to the material definitive agreement. The Agreement allows for the formation of a LLC to engage in originating mortgage loans for a period of one year, automatically renewable for an additional year, unless either party notifies the other of the intent not to renew within 90 days prior to the scheduled expiration. The Joint Venture shall be conducted by SFG and SHL through the LLC. SHL and SFG shall each own their respective interests in the LLC through SHL with 50%, and SFG with 50% in such LLC. An initial contribution of $1,000 shall be directed to the benefit of the LLC from both SHL and SFG.

On February 13, 2007, the Company filed Form S8 to register 53,308,207 shares of its common stock, under the 2007 Stock Compensation Plan for its key employees and certain professionals.

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.

Item 8.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

Previously reported and not reported here in accordance with the Instructions to Item 304 of Regulation S-B.

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Item 8A. Controls and Procedures.

As required by SEC rules, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures within 90 days of the filing of this annual 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 are effective but we have made changes 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.

Item 8B. Other Information

N/A

PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act.

Directors and Executive Officers

The following table sets forth information regarding our executive officers and directors:

Name	Age	Office
Michael A. Barron	55	Chairman and Chief Executive Officer
Joseph Cosio-Barron	57	President
Lee Shorey	62	Executive Vice President, Secretary, Treasurer and Director
Theresa Carlise	47	Chief Financial Officer

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Directors hold office for a period of one year from their election at the annual meeting of stockholders and until their successors are duly elected and qualified. Officers are elected by, and serve at the discretion of, the Board of Directors. None of the above individuals has any family relationship with any other.

Michael A. Barron - Chairman & CEO, founded Shearson Financial Network, Inc., formerly Consumer Direct of America in May 2001. From September 1998 to April 2001, Mr. Barron was semi-retired and a consultant to various mortgage companies. From March 1995-1998, Mr. Barron pioneered the first nationwide commercially deployed video conference mortgage financing platform for Intel Corporation which as a licensed mortgage banker and broker in 20 states funded over $1 billion in closed loans. In November 1988, he founded and served as President, until 1992, of Finet Holdings Corporation (NASDAQ:FNCM), a publicly traded mortgage broker and banking business specializing in e-mortgage financing on site in real estate offices and remote loan origination via the Internet (www.finet.com). In June 1979, TRW hired Mr. Barron to develop its real estate information services division (TRW/REIS) that acquired 11 companies in the field and eventually became the world's largest repository of real estate property information - Experian. Mr. Barron was a founder of Citidata, the first electronic provider of computerized real estate multiple listing services (MLS) in the nation from 1975 to 1979. Mr. Barron was the Senior Planner for the City of Monterey where he was the HUD liaison for the City's downtown redevelopment project. He master planned the city's redevelopment of famous Cannery Row, Fisherman's Wharf, and was Secretary of the Architectural Review Committee. Mr. Barron holds a B.S. degree from California Polytechnic University and has completed courses in the MBA program at UCLA.

Joseph Cosio-Barron - President. Joined the Company in March 1, 2002. Prior to joining the Company, he was associated with CBS Consultants, Inc. a California Corporation and served as Managing Partner and President from 1996 to 2002. CBS Consultants, Inc. a financial firm offered highly specialized services in Securities compliance and lending for hotels, resorts, and casinos and their development and construction. From 1991-1996 was associated with Finet Holdings Corporation, a Delaware Corporation as Executive Vice President. Finet is a publicly held company presently trading on NASDAQ. Finet is an industry innovator and at the leading edge of financial lending services for residential mortgages. As Executive Vice President, was entirely responsible for all operations, sales, marketing, development, securities compliance and production. From 1980-1990 Terra West Construction, as President, a company which he founded. A construction and sales company, which in addition to building single-family subdivisions, strip, centers, duplex and fourplex units also developed syndications and formed limited partnerships for large-scale developments throughout California. From 1973-1980 Multi-Financial Corporation, a California Corporation, as Senior Vice-President. Multi-Financial Corporation a real estate investment firm that both owned and managed commercial, retail, and residential income properties in Northern California. Mr. Cosio-Barron received a BA of Business Management, San Francisco State College and a JD Law Degree from Golden Gate University.

Theresa Carlise - Chief Financial Officer. Ms. Carlise joined the Company on October 1, 2006. Ms. Carlise has an extensive background as a CFO and Director of a pubically traded music retail distribution company, which had revenues in excess of $200,000,000, located in 38 states and employed over 2,000 employees for a period of 16 years. Prior to her employment she served as a financial consultant for two years to the Company assisting in all matters as related to the financial operations of the Company. Ms. Carlise served in a similar capacity at another publically traded mortgage banking company which eventually was acquired by the Company. Ms. Carlise earned a B.S. degree in Finance, with a minor in Economics at Indiana University of Pennsylvania.

Lee Shorey - Executive Vice President, Secretary, Treasurer and Director, has over 30 years experience in finance, mortgage brokerages and real estate services companies. Mr. Shorey holds a BS Degree in Accounting. Mr. Shorey held the position of VP Administration/HR for Virtual Mortgage Network. In that capacity Mr. Shorey managed the general accounting, statistical reporting, document preparation and research for preparation of business plan, reporting on regional activity, tracking sales and production, handling payroll and HR activities for the company. Prior to that assignment, Mr. Shorey functioned as the Controller for Finet Corporation, a San Francisco area computerized loan origination company. Mr. Shorey held the position of VP Operations for American Financial Network located in Dallas, TX., one of the first computerized loan origination networks. In addition to the above, Mr. Shorey has had several years of experience in training, procedures and marketing with Associates Corporation during his 18 years with that Company.

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Item 10.

Executive Compensation.

SUMMARY COMPENSATION TABLE

NAME AND PRINCIPAL POSITION	Salary ($)				Bonus ($)		Stock Awards ($)		Option Awards ($)		Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Michael A. Barron,		2004	$	180,000		--		--		--		--		--		--	$	180,000
Chief Executive Officer		2005	$	180,000		--		--		--		--		--		--	$	180,000
and Chairman		2006	$	300,000		--		--		--		--		--		--	$	300,000

Joseph Cosio-Barron,		2004	$	120,000		--		--		--		--		--		--	$	120,000
President		2005	$	165,000		--		--		--		--		--		--	$	165,000
		2006	$	300,000		--		--		--		--		--		--	$	300,000

Theresa Carlise		2004		--		--		--		--		--		--		--		--
Chief Financial Officer		2005		--		--		--		--		--		--		--		--
		2006	$	42,900		--		--		--		--		--		--	$	42,900

Lee Shorey		2004		--		--		--		--		--		--		--		--
Executive Vice		2005	$	84,000		--		--		--		--		--		--	$	84,000
President, Secretary, Treasurer and Director		2006	$	90,000		--		--		--		--		--		--	$	90,000

Outstanding Equity Awards at Fiscal Year End

There were no unexercised options, unvested shares of common stock or any awards under an equity incentive plan as of December 31, 2006 for our Chief Executive Officer and our two most highly compensated executive officers other than the Chief Executive Officer.

Employment Agreements

Our employment agreement with Michael Barron requires him to perform the duties of Chairman of the Board and Chief Executive Officer at an annual salary of $300,000. Mr. Barron is entitled to receive a performance bonus if our actual annual revenues and net income equals or exceeds projected annual revenues and net income approved by our Board. His performance bonus will be equal to the percentage of his annual salary equal to 50% plus the percentage by which actual income exceeds projected income. He is entitled to the same benefits afforded to other executives. He is also entitled to a car allowance of $1,000 per month. His employment agreement provides that if we terminate him without cause, he is entitled to receive a lump sum payment equal to twice his annual salary plus the present value of a performance bonus computed on the basis that we achieve all of our performance targets. Mr. Barron's employment agreement commenced as of June 15, 2006 and terminates on June 14, 2009.

Our employment agreement with Joseph Cosio-Barron requires him to perform the duties of -President at an annual salary of $300,000. Mr. Cosio-Barron is entitled to receive a performance bonus if our actual annual revenues and net income equals or exceeds projected annual revenues and net income approved by our Board. His performance bonus will be equal to the percentage of his annual salary equal to 50% plus the percentage by which actual income exceeds projected income. He is entitled to the same benefits afforded to other executives. He is also entitled to a car allowance of $1,000 per month. His employment agreement provides that if we terminate him without cause, he is entitled to receive a lump sum payment equal to twice his annual salary plus the present value of a performance bonus computed on the basis that we achieve all of our performance targets. Mr. Cosio-Barron's employment agreement commenced as of June 15, 2006 and terminates on June 14, 2009.

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Code of Ethics

The Company has not yet adopted a Code of Ethics that applies to the Company’s principal executive officer, principal financial officer and principal accounting officer, but expects to in the near future.

Director Compensation

We currently do not compensate our directors for attending Board meetings, but we do reimburse them for out-of-pocket expenses.

Director Independence

None of our directors are independent directors, using the Nasdaq definition of independence.

Nominating Committee

We do not have a separately designated nominating committee because the board makes all decisions regarding director nominations.

Subsequent Event

On February 13, 2007, the Company filed Form S8 to register 53,308,207 shares of its common stock, under the 2007 Stock Compensation Plan for its key employees and certain professionals.

Stock Option Plan

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On May 21, 2004, the Company filed a Form S-8 to register 750,000 shares of its common stock at an offering price of $2.20 per share. Currently, all of the shares under this plan, 2004 Stock Compensation Plan, have been issued.

On June 13, 2005, the Company filed a Form S-8 to register 5,000,000 shares of its common stock at an offering price of $0.30 per share. Currently, all of the shares under this plan have been issued.

On January 3, 2006, the Company filed a Form S-8 to register 10,000,000 shares of its common stock at an offering price of $0.08 per share. Currently, all of the shares under this plan have been issued.

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information with respect to beneficial ownership of the Common Stock as of April 2, 2007 by (i) each person known by us to be the beneficial owner of more than five percent of our Common Stock, (ii) each of our executive officers and directors, and (iii) all of our executive officers and directors as a group. See "Management."

Name and Address of Beneficial Owner ⁽¹⁾	Number of Shares Beneficially Owned ⁽²⁾		Percent of Common Stock Beneficially Owned ⁽³⁾
Michael A. Barron (Chief Executive Officer and Chairman)		7,650,918		2.6	%
Joseph Cosio-Barron (President)		12,440,618		4.3	%
Lee Shorey (Executive Vice President, Secretary, Treasurer and Director)		1,071,000		0.4	%
Theresa Carlise (Chief Financial Officer)		1,000,000		0.3	%
Greg Shanberg (4)		80,000,000		27.6	%
Crusader Capital Partners		15,021,462		5.2	%
Keith Fink (5)		35,552,675		12.2	%
Eclipse Holding Corporation (6)		22,000,000		7.6	%
All Officers and Directors as a group (4 persons)		22,163,536		7.6	%

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(1) The address of each of the beneficial owners is 2470 St. Rose Parkway, Suite 314, Henderson, Nevada 89074, except as indicated.

(2) In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are currently exercisable, or become exercisable within 60 days are deemed outstanding. However, such shares are not deemed outstanding for purposes of computing the percentage ownership of any other person.

(3) Based on 290,287,210 shares outstanding as of February 5, 2007, plus the number of shares, which the beneficial owner has the right to acquire within 60 days, if any, as indicated in footnote (2) above.

(4) Address is c/o Allstate Home Loans, 8 Hughes Parkway, Irvine, CA

(5) Address is 11500 Olympic Blvd., #316, Los Angeles, CA 90064

(6) Address is c/o J. Helfer, 21800 Oxnard, Suite # 850, Woodland Hills, CA 91367

Item 12. Certain Relationships and Related Transactions and Director Independence.

On January 21, 2005, the Company borrowed $125,000 from its former Chief Financial Officer, Wayne Bailey.

During the month of December 2005, the Company entered in to financing agreement with Eclipse Holding Company, which is 50% owned by the Company’s Chief Executive Officer, Michael Barron. The Company entered into an agreement to borrow a total of $750,000 in the form of a note payable, with an interest of 10% per annum. At December 31, 2006, the outstanding balance on this note was $688,395.50. The agreement calls for the issuance of common stock warrants. As of December 31, 2006 and 2005, the Company issued 17,000,000 and 5,000,000 shares, respectively.

No members of the Company’s board are independent nor were there any independent directors on the Company’s board during 2006.

Item 13. Exhibits.

No.		Title

2.1		Share Exchange Agreement by Paragon Financial Corporation and Shearson Home Loans, dated February 13, 2006 (14)
2.3		Purchase of Common Stock Agreement between the Registrant and Crusader Capital Partners, LLC, dated August 1, 2005. (16)
3.1		Articles of Incorporation of the Registrant (1)
3.2		Amendment to Articles of Incorporation of the Registrant
3.3		Amendment to Articles of Incorporation of the Registrant
2.3		Purchase and Sale of Capital Stock Agreement between the Registrant and Ocean West Holding Corporation, dated July 15, 2004. (4)
3.4		Bylaws of the Registrant (1)
3.5		Amendment Articles of Incorporation
4.3		Stock Subscription Agreement between the Registrant and Ocean West Corporation, dated July 1, 2004. (5)
4.4		Stock Subscription Agreement between the Registrant and Ocean West Corporation, dated August 1, 2004. (6)
4.5		Stock Subscription Agreement between the Registrant and Ocean West Corporation, dated September 1, 2004. (7)
4.6		Stock Subscription Cancellation Agreement between Registrant on Ocean West Holding Corporation, dated September 28, 2004, (12)
4.7		Stock Subscription Agreement between the Registrant and Ocean West Enterprise, dated September 28, 2004, (12)
5.0		Convertible Promissory Note between the Registrant and Club Vista Holdings Inc., dated July 31, 2004. (8)
5.1		Credit Facility Agreement Note between the Registrant and Club Vista Holdings Inc., dated September 21, 2004. (9)
5.2		Joint Venture Agreement between the Registrant and Club Vista Holdings Inc., dated September 14, 2004. (10)
5.3		Opinion of counsel for 2006 Compensation Plan, dated January 3, 2006 (15)
5.4		Joint Venture Operating Agreement between Registrant and Stinson Financial Group Inc., dated February 28, 2007. (18)
5.5		Rescission Agreement between Registrant and Real Properties Technologies, dated March 27, 2007. (26)
10.1		Common Stock Purchase Agreement dated February 20, 2002 between the Registrant and Consumer Capital Holdings, Inc. (2)
10.2		The Registrant’s 2002 Stock Incentive Plan (3)
10.3		Rescission and Settlement Agreement dated October 1, 2004, (13)
10.4		Promissory Note dated October 25, 2004, (13)
10.5		2006 Stock Compensation Plan, dated January 3, 2006 (15)
10.6		2005 Stock Compensation Plan, dated June 13, 2005. (17)
10.7		Share Exchange Agreement by and between Registrant and Continental Home Loans, Inc., dated June 6, 2006. (21)
10.8		Share Exchange Agreement by and between Registrant and Allstate Home Loans, Inc., dated July 29, 2006. (20)
10.9		Share Exchange Merger Agreement by and between Registrant and RPT Group Inc., dated June 5, 2006. (19)
10.10		Asset Purchase Agreement between Registrant and EHome Credit Corp, dated June 6, 2006. (21)
10.11		Amendment No 1 to Asset Purchase Agreement by and between Registrant and EHome Credit Corp, dated November 20, 2006 *
10.12		Employment Agreement between the Registrant and Michael Barron, dated May 1, 2006. *
10.13		Employment Agreement between the Registrant and Joseph Cosio-Barron, dated May 1, 2006. *
10.14		Employment Agreement between the Registrant and Theresa Carlise, dated October 1, 2006. *
10.15		Rescission Agreement between Registrant and Continental Home Loans, dated November 9, 2006. (22)

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No.		Title

10.16		Rescission and Settlement Agreement between Registrant and Paragon Financial, dated May 5, 2006. (23)
10.17		Office space lease between the Registrant and Mammoth Henderson I LLC. dated October 11, 2006 *
10.18		Office space sublease between the Registrant and u-Nav Microelectronics Corp. dated February 6, 2007 *
10.19		Promissory Note between Registrant and Joseph Cosio-Barron, dated January 31, 2006 *
10.20		2007 Stock Compensation, dated February 12, 2007. (24)
10.21		Compensation Agreement dated February 12, 2007. (24)
10.22		Promissory Note Conversion Agreement by and between Registrant and LaJolla Cove Investors, dated January 29, 2007 (25)
16.2		Letter from Chavez and Koch, CPA’s, dated February 8, 2005 (11)
21.1		Subsidiaries.
31.1		Certification of Chief Executive Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a
31.2		Certification of Chief Financial Officer Pursuant to the Securities Exchange Act of 1934, Rules 13a
32.0		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes

* filed by amendment

(1)		Incorporated by reference to the exhibits to the Registrant’s Registration Statement on Form 10-SB dated May 8, 2001 and filed with the SEC on May 11, 2001.
(2)		Incorporated by reference to the exhibits to Registrant’s Report on Form 8-K dated March 4, 2002 and filed with the SEC on March 6, 2002.
(3)		Incorporated by reference to the exhibit to the Registrant’s Registration Statement on Form S-8 dated November 22, 2002 and filed with the SEC on November 23, 2001
(4)		Previously filed as an exhibit to Form 8-K, dated August 3, 2004
(5-10)		Previously filed as an exhibit to Form 10QSB for the period ended September 30, 2004.
(11)		Previously filed as an exhibit to Form 8-K, dated February 8, 2005.
(12)		Previously filed as an exhibit to Form 10QSB, for the period ended September 30, 2004
(13)		Previously filed as an exhibit to Form 10KSB, for the period ended December 31, 2004, dated April 15, 2005.
(14)		Previously filed as an exhibit to Form 8-K, dated February 13, 2006.
(15)		Previously filed as an exhibit to Form S-8, dated January 3, 2006.
(16)		Previously filed as an exhibit to Form 8-K, dated August 1, 2005.
(17)		Previously filed as an exhibit to Form S-8, dated June 13, 2005.
(18)		Previously filed as an exhibit to Form 8-K, dated March 09, 2007.
(19)		Previously filed as an exhibit to Form 8-K, dated March 09, 2007.
(20)		Previously filed as an exhibit to Form 8-K, dated July 29, 2006.
(21)		Previously filed as an exhibit to Form 8-K, dated June 6, 2006.
(22)		Previously filed as an exhibit to Form 8-K, dated November 9, 2006.
(23)		Previously filed as an exhibit to Form 8-K, dated May 5, 2006.
(24)		Previously filed as an exhibit to Form S-8, dated February 12, 2007.
(25)		Previously filed as an exhibit to Form 8-K, dated February 26, 2007.
(26)		Previously filed as an exhibit to Form 8-K, dated April 2, 2007.

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Item 14. Principal Accountant Fees and Services.

The Company retained Pollard Kelley Auditing Services Inc .as the Company's independent auditor and to examine the financial statements of the Company for the fiscal year ended December 31, 2006 and 2005. Pollard Kelley Auditing Services Inc performed the services listed below and was paid the fees listed below for the fiscal year ended December 31, 2006 and 2005.

Audit Fees

Pollard Kelley Auditing Services Inc. expects aggregate fees of approximately $45,000 for the fiscal year ended December 31, 2006 and was paid approximately $30,000 for the fiscal year ended December 31, 2005, for professional services rendered for the audit of the Company's annual financial statements and for the reviews of the financial statements included in the Company's quarterly reports on Form 10-QSB.

Audit Related Fees

Pollard Kelley Auditing Services Inc. were not paid additional fees for either of the fiscal years ended December 31, 2006 or December 31, 2005 for assurance and related services reasonably related to the performance of the audit or review of the Company's financial statements.

Tax Fees

Pollard Kelley Auditing Services Inc .estimates fees in the amount of $0 for the fiscal year ended December 31, 2006 and 2005 for professional services rendered for tax compliance, tax advice and tax planning.

All Other Fees

Pollard Kelley Auditing Services Inc. were not paid any other fees for professional services during the fiscal years ended December 31, 2006 and 2005.

Audit Committee

The Company does not have an audit committee.

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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.

Shearson Financial Network, Inc.

By:	/s/ Michael A. Barron	April 11, 2007
	Michael A. Barron, Chief Executive Officer and Chairman
	(Principal Executive Officer)

By:	/s/ Theresa Carlise	April 11, 2007
	Theresa Carlise, Chief Financial Officer,
	(Principal Financial Officer)