UNITED STATES


SECURITIES AND EXCHANGE
COMMISSION


WASHINGTON,D.C.20549






FORM 10-Q








QUARTERLY REPORT UNDER SECTION 13 OR
15(D)


OF THE SECURITIES EXCHANGE ACT OF
1934




FOR THE QUARTER ENDEDSEPTEMBER 30, 2008





COMMISSION FILE NO.
0-10854




SOMERSET
INTERNATIONAL GROUP, INC.


(Exact name of Registrant as specified
in its charter)




DELAWARE
              13-2795675(State or other jurisdiction of
      incorporation or organization)
              (I.R.S.
      Employer  Identification
No.)




90 Washington Valley Road,Bedminster,NJ07921


(Address of Principal Executive
Offices)





Registrant's Telephone No., including
area code: (908) 719-8909








Indicate by checkmark 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 (“the Exchange Act”) during the preceding
12 months (or for such shorter period that the registrant was required to file
such report), and (2) has been subject to such filing requirements for the past
90 days.





YesxNoo




Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act (Check
One):




Large Accelerated Filero
            Accelerated Filero
            Non-Accelerated Filero
            Smaller Reporting Companyx




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




YesoNox




Indicate the number of shares
outstanding of each of the issuer's classes of Common Stock:




As ofNovember 14, 2008, there were 23,158,655 shares of the
registrant’s Common Stock, par value $.001 per share,
outstanding.













SOMERSET INTERNATIONAL GROUP, INC. AND
SUBSIDIARIES





INDEX TO FORM 10-Q


September 30, 2008








Part I - Financial
      Information
            PageItem 1.
      Financial Statements:Consolidated
      Balance Sheets–September 30, 2008 (Unaudited) andDecember 31,
      2007
            3Unaudited
      Consolidated Statements of Operations for the Three and
      NineMonths
      EndedSeptember 30,
      2008and
      2007
            4Unaudited
      Consolidated Statements of Cash Flows for the Nine
      MonthsEndedSeptember 30,
      2008and
      2007
            5Notes
      to the Consolidated Financial Statements
(unaudited)
            6Item 2.
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations
            11Item 3.
      Quantitative and Qualitative Disclosures About Market
      Risk.
            14Item 4. Controls
      and Procedures
            14Part II - Other
      Information:Item 1. Legal
      Proceedings
            14Item 2.
      Unregistered Sales of Equity Securities and Use of
      Proceeds
            14Item 3. Defaults
      Upon Senior Securities
            15Item 4.
      Submission of Matters to a Vote of Security Holders
            15Item 5. Other
      Information
            15Item 6.
      Exhibits
            15Signatures
            15








2







SOMERSET INTERNATIONAL GROUP, INC. AND
SUBSIDIARIES


CONSOLIDATED BALANCE
SHEET


SEPTEMBER 30, 2008ANDDECEMBER 31, 2007





September 30,
              2008
            
            
            December 31,
              2007(Unaudited)ASSETSCurrent
      Assets:Cash and cash
      equivalents
            
            $
            79,262
            
            
            $
            350,110Accounts
      receivable, net
            
            
            880,764
            
            
            
            951,177Inventories
            
            
            547,792
            
            
            
            572,707Prepaid
      expenses
            
            
            5,766
            
            
            
            8,982Other current
      asset
            
            
            9,554
            
            
            
            20,838Total Current
      Assets
            
            
            1,523,138
            
            
            
            1,903,814Property and equipment,
      net
            
            
            126,897
            
            
            
            77,331Other
      Assets:Deposits
            
            
            9,825
            
            
            
            9,825Deferred financing costs,
      net
            
            
            266,739
            
            
            
            313,333Non compete covenant,
      net
            
            
            24,714
            
            
            
            37,313Customer lists,
      net
            
            
            1,767,047
            
            
            
            2,213,107Software,
      net
            
            
            --
            
            
            
            12,743Distribution agreements,
      net
            
            
            93,341
            
            
            
            140,622Goodwill
            
            
            2,200,355
            
            
            
            2,200,355Total other
      assets
            
            
            4,362,021
            
            
            
            4,927,298TOTAL
      ASSETS
            
            $
            6,012,056
            
            
            $
            6,908,443LIABILITIES AND STOCKHOLDERS’
      EQUITY(DEFICIT)Current
      Liabilities:Accounts payable and accrued
      expenses
            
            $
            1,443,377
            
            
            $
            793,389Promissory notes payable -
      current
            
            
            1,210,505
            
            
            
            1,116,109Dutchess promissory notes payable
      - current
            
            
            723,000
            
            
            
            461,000Accrued interest
      payable
            
            
            256,861
            
            
            
            201,225Stockholder loan
      payable
            
            
            50,000
            
            
            
            --Deferred
      revenue
            
            
            285,133
            
            
            
            310,911Total Current
      Liabilities
            
            
            3,968,876
            
            
            
            2,882,634Dutchess promissory notes payable
      – non-current
            
            
            3,135,848
            
            
            
            3,574,000Promissory notes –
      non-current
            
            
            47,196
            
            
            
            --Stockholder note payable, -
      non-current
            
            
            --
            
            
            
            121,419TOTAL
      LIABILITIES
            
            
            7,151,920
            
            
            
            6,578,053Stockholders’ Equity
      (Deficit):Common Stock,
      200,000,000 shares authorized, $.001 par value,
                23,083,655 and
      23,058,655 shares issued and outstanding in 2008 and 2007,
      respectively
            
            
            23,083
            
            
            
            23,059Capital in excess of par
      value
            
            
            31,351,808
            
            
            
            31,349,583Accumulated
      deficit
            
            
            (32,514,755
            )
            
            
            (31,042,252
            )Total stockholders’ equity
      (deficit)
            
            
            (1,139,864
            )
            
            
            330,390TOTAL LIABILITIES AND
      STOCKHOLDERS’ EQUITY (DEFICIT )
            
            $
            6,012,056
            
            
            $
            6,908,443





The Notes to the Consolidated Financial
Statements are an integral part of these statements.






3







SOMERSET INTERNATIONAL GROUP, INC. AND
SUBSIDIARIES


UNAUDITED CONSOLIDATED STATEMENTS OF
OPERATIONS


FOR THE THREE AND NINE MONTHS ENDEDSEPTEMBER 30,
2008AND
2007




Three Months
      Ending
              September
    30,
            
            
            Nine Months
      Ending
              September
    30,2008
            
            
            2007
            
            
            2008
            
            
            2007RevenuesEquipment
      sales
            
            $
            359,153
            
            
            $
            853,988
            
            
            $
            1,168,472
            
            
            $
            1,024,037Installation
      revenues
            
            
            466,403
            
            
            
            35,057
            
            
            
            1,097,937
            
            
            
            500,163Maintenance
      revenues
            
            
            312,062
            
            
            
            392,260
            
            
            
            1,396,142
            
            
            
            875,170Total
      revenues
            
            
            1,137,618
            
            
            
            1,281,305
            
            
            
            3,662,551
            
            
            
            2,399,370Costs of goods
      soldMaterial cost of systems
      sold
            
            
            262,823
            
            
            
            608,428
            
            
            
            967,112
            
            
            
            560,570Install and service
      costs
            
            
            103,967
            
            
            
            150,295
            
            
            
            310,672
            
            
            
            703,423Engineering and
      development
            
            
            32,520
            
            
            
            37,160
            
            
            
            104,046
            
            
            
            117,869Total costs of goods
      sold
            
            
            399,310
            
            
            
            795,883
            
            
            
            1,381,830
            
            
            
            1,381,862Gross
      margin
            
            
            738,308
            
            
            
            485,422
            
            
            
            2,280,721
            
            
            
            1,017,508Selling, general, and
      administrative expensesSelling, general and
      administrative expense
            
            
            758,940
            
            
            
            576,845
            
            
            
            2,719,657
            
            
            
            1,295,010Depreciation
      expense
            
            
            11,847
            
            
            
            3,987
            
            
            
            26,893
            
            
            
            7,605Amortization
      expense
            
            
            185,225
            
            
            
            166,969
            
            
            
            568,418
            
            
            
            289,274Total selling, general, and
      administrative expenses
            
            
            956,012
            
            
            
            747,801
            
            
            
            3,314,968
            
            
            
            1,591,889Loss from
      operations
            
            
            (217,704
            )
            
            
            (262,379
            )
            
            
            (1,034,247
            )
            
            
            (574,381
            )Other Income
      (Expense)Interest
      (expense)
            
            
            (145,061
            )
            
            
            (110,782
            )
            
            
            (430,593
            )
            
            
            (284,990
            )Other
      (expense)
            
            
            (478
            )
            
            
            --
            
            
            
            (978
            )
            
            
            (24,000
            )Total other income
      (expense)
            
            
            (145,539
            )
            
            
            (110,782
            )
            
            
            (431,571
            )
            
            
            (308,990
            )Loss before income
      taxes
            
            
            (363,243
            )
            
            
            (373,161
            )
            
            
            (1,465,818
            )
            
            
            (883,371
            )Provision for (benefit from)
      income taxes
            
            
            6,426
            
            
            
            44
            
            
            
            6,685
            
            
            
            2,505Net
    Loss
            
            
            (369,669
            )
            
            
            (373,205
            )
            
            
            (1,472,503
            )
            
            
            (885,876
            )Dividends on preferred
      stock
            
            
            --
            
            
            
            89,582
            
            
            
            --
            
            
            
            268,746Net loss attributable to common
      stockholders
            
            $
            (369,669
            )
            
            $
            (462,787
            )
            
            $
            (1,472,503
            )
            
            $
            (1,154,622
            )Basic and diluted net loss per
      common share
            
            $
            (0.02
            )
            
            $
            (0.04
            )
            
            $
            (0.06
            )
            
            $
            (0.14
            )Weighted Average Number of Common
      Shares
            
            
            23,069,253
            
            
            
            10,949,552
            
            
            
            23,062,226
            
            
            
            8,357,033





The Notes to the Consolidated Financial
Statements are an integral part of these statements.








4







SOMERSETINTERNATIONAL GROUP, INC. AND
SUBSIDIARIES


UNAUDITED CONSOLIDATED STATEMENTS OF
CASH FLOWS


FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2008 AND 2007




2008
              
              
              2007Cash
      Flows From Operating Activities:Net
      (Loss)
              
              $
              (1,472,503
              )
              
              
              (885,876
              )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Depreciation
              
              
              26,893
              
              
              
              7,605Amortization
              
              
              568,418
              
              
              
              289,274Stock
      issued for services
              
              
              --
              
              
              
              31,924Stock
      issued for note payable extension
              
              
              --
              
              
              
              10,000Amortization
      of debt discount
              
              
              --
              
              
              
              24,000Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              70,413
              
              
              
              (29,373
              )Inventories
              
              
              24,915
              
              
              
              17,217Other
      current assets
              
              
              11,284
              
              
              
              40,975Accounts
      payable and accrued expenses
              
              
              646,486
              
              
              
              (265,916
              )Prepaid
      expense
              
              
              3,216
              
              
              
              -Deposits
              
              
              
              
              
              
              -Accrued
      interest payable
              
              
              55,636
              
              
              
              152,518Deferred
      revenue
              
              
              (25,778
              )
              
              
              (40,081
              )Employment
      contracts payable
              
              
              
              
              
              
              (12,264
              )Net
      Cash Provided (Used) by Operating Activities
              
              
              (91,020
              )
              
              
              (659,997
              )Cash
      Flows From Investing Activities:Purchase
      of equipment
              
              
              (2,971
              )
              
              
              (18,453
              )Proceeds
      from sale of fixed assets
              
              
              7,806
              
              
              
              --Acquisition
      of subsidiary, net
              
              
              --
              
              
              
              1,000Net
      Cash Used by Investing Activities
              
              
              4,835
              
              
              
              (17,453
              )Cash
      Flows From Financing Activities:Payment
      of Dutchess debenture
              
              
              (176,152
              )
              
              
              --Proceeds
      from issuance of promissory notes
              
              
              50,000
              
              
              
              95,000Payment
      of promissory notes payable
              
              
              (110,760
              )
              
              
              (395,821
              )Proceeds
      from shareholder loan
              
              
              50,000
              
              
              
              --Proceeds
      from issuance of stock
              
              
              2,249
              
              
              
              --Payment
      of stockholders note payable
              
              
              --
              
              
              
              (69,890
              )Payment
      of seller note
              
              
              --
              
              
              
              (102,500
              )Cash
      received from attorney’s escrow from Dutchess financing
              
              
              --
              
              
              
              1,245,000Net
      Cash Provided (Used) by Financing Activities
              
              
              (184,663
              )
              
              
              771,789Net
      Change in Cash  and cash equivalents
              
              
              (270,848
              )
              
              
              94,339Cash at Beginning of the Period
              
              
              350,110
              
              
              
              1,598Cash and cash equivalents at End of the Period
              
              $
              79,262
              
              
              
              95,937Cash
      paid for interest
              
              $
              374,957
              
              
              $
              239,148Cash
      paid for taxes
              
              $
              6,426
              
              
              $
              --Non
      Cash Investing & Financing Activities:Promissory
      note obligation incurred upon acquisition of equipment
              
              $
              80,430
              
              
              $
              --Accretion
      of preferred stock dividends
              
              $
              --
              
              
              $
              268,746Seller
      note acquired in a business combination
              
              $
              --
              
              
              $
              605,000Stock
      sold in a business combination
              
              $
              --
              
              
              $
              100,000Proceeds
      from Dutchess deposited into attorney’s escrowaccount, net of fees
              
              $
              --
              
              
              $
              2,495,000Debt
      converted into common stock
              
              $
              --
              
              
              $
              487,928Investment
      in Meadowlands and Vanwell paid fromattorney’s escrow account
              
              $
              --
              
              
              $
              1,250,000Series
      A Preferred stock converted to common shares
              
              $
              --
              
              
              $
              3,972,880




The Notes to the Consolidated Financial
Statements are an integral part of these statements.






5




SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)




Note 1.  Business and Basis of
Presentation





A.Nature of
the Business





Somerset International Group, Inc.
(“Somerset”) was incorporated under the laws of
the State ofDelawarein 1968. Our current activity is the
acquisition of profitable and near term profitable private small and medium
sized businesses that provide proprietary security products and solutions for
people and enterprises – from personal safety to information security – and
maximizing the profitability of our acquired entities and to act as a holding
company for such entities.





On June 30, 2007, we entered into a
Stock Purchase Agreement (“Agreement”) in which Secure, our wholly owned
subsidiary, purchased all the shares of Meadowlands Fire, Safety, and Electrical
Supply Co., Inc., a New Jersey corporation, and Vanwell Electronics, Inc., a New
Jersey corporation (collectively “Meadowlands”) from Keith Kesheneff and Kathryn
Kesheneff, being all of the shareholders of Meadowlands.  Pursuant to
the Agreement, Secure acquired Meadowlands, whereby Meadowlands became a wholly
owned subsidiary of Secure.  Meadowlands specializes in the
distribution, sale, installation and maintenance of fire and security equipment
and systems that include fire detection, video surveillance, and burglar alarm
equipment.  The results of operations for the acquired entity were
included in consolidated statements of operations beginningJuly 1, 2007





Effective October 1, 2007, we entered
into a Stock Purchase Agreement (“Agreement”) in which Somerset purchased all
the shares of Fire Control Electrical Systems, Inc., a New Jersey corporation, (
“Fire Control”) from Vincent Bianco and Opie Brinson, being all of the
shareholders of Fire Control.  Pursuant to the Agreement,Somersetacquired Fire Control whereby Fire
Control became a wholly owned subsidiary ofSomerset.  Fire Control specializes in the
distribution, sale, installation and maintenance of fire and security equipment
and systems that include fire detection, video surveillance, and burglar alarm
equipment.  The results of operations for the acquired entity were included
in consolidated statements of operations beginningOctober 1, 2007.





Our executive office is located at90 Washington Valley
Road,Bedminster,New Jersey,07921.





B.Basis of
Presentation




The unaudited consolidated financial
statements included herein have been prepared by the Company pursuant to the
rules and regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and footnotes required by accounting
principles generally accepted in theUnited Statesfor complete financial statements. The
unaudited interim consolidated financial statements as of September 30, 2008
reflects all adjustments (consisting of normal recurring accruals) which, in the
opinion of management, are considered necessary for a fair presentation of its
financial position as of September 30, 2008 and the results of its consolidated
operations and its consolidated cash flows for the periods ended September 30,
2008 and 2007.





The Unaudited Consolidated Statements of
Operations for the periods endedSeptember 30, 2008and 2007 are not necessarily indicative
of results for the full year.





The unaudited consolidated financial
statements should be read in conjunction with the audited financial statements
of the Company and the notes thereto as of and for the year ended December 31,
2007 as included in the Company’s Form 10-K filed with the Commission on April
1, 2008.





The accompanying financial statements
have been prepared in conformity with accounting principles generally accepted
in theUnited States of
America, which contemplate
continuation of the Company as a going concern.  This contemplates the
realization of assets and the liquidation of liabilities in the normal course of
business. Currently, the Company does not have significant cash or other
material assets, nor does it have operations or a source of revenue which is
adequate to cover its administrative costs for a period in excess of one year
and allow it to continue as a going concern.  Management is actively
involved in exploring additional business opportunities which they believe will
allow the Company to increase shareholder’s value and allow it to continue as a
going concern. The Company will require financing to fund its current operations
and will require additional financing to acquire or develop other business
opportunities.  These conditions raise substantial doubt about the
Company’s ability to continue as a going concern.  The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.




Note 2. Significant Accounting
Policies




A.Cash and
cash equivalents




Cash and cash equivalents include cash
on hand and in the bank, as well as all short-term securities held for the
primary purpose of general liquidity.  Such securities normally mature
within three months from the date of acquisition.






6


SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)




B.Accounts
Receivables




Accounts receivables are
uncollateralized customer obligations due under normal trade terms requiring
payment within 30 days from the invoice date.  Accounts receivables
are stated at the amount billed to the customer.  Interest is not
billed or accrued.  Accounts receivables in excess of 90 days old are
considered delinquent.  Payments to accounts receivables are allocated
to the specific invoices identified on the customers remittance advice or, if
unspecified, are applied to the oldest invoice.  The Company has an
allowance for doubtful accounts of approximately $41,000 and $74,000 as of
September 30, 2008 and December 31, 2007, respectively, based on its historical
collectability.




C.Property,
Equipment, and Leasehold Improvements




Property, equipment, and leasehold
improvements are stated at cost.  Depreciation is provided on a
straight-line method over the estimated useful lives of the assets ranging from
two-seven years.  Leasehold improvements are depreciated over the
lesser of their useful lives or the term of the lease.  Expenditures
for maintenance and repairs are charged to expense as
incurred.





D.Concentration
of Credit Risk:




The Company maintains its cash in bank
deposit accounts at high credit quality financial institutions.  The
balances, at times, may exceed federally insured limits.





Currently, Secure System, Inc. has five
customers which accounted for all of their revenues.  Meadowlands has
approximately 200 accounts and Fire Control has approximately 150 accounts which
accounted for all of their revenues.  While our goal is to diversify
Secure’s and Fire Control’s customer base, Secure expects to continue to depend
upon a relatively small number of customers for a significant percentage of its
revenues for the foreseeable future. Significant reductions in sales to any of
our customers may have a material adverse effect on us by reducing our revenues
and our gross margins.





E.Estimates:





The preparation of financial statements
in conformity withUnited
Statesgenerally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures including the disclosure of
contingent assets and liabilities.  Accordingly, actual results could
differ from those estimates.





F.Income
Taxes:





Deferred income tax assets and
liabilities are recognized for the differences between financial and income tax
reporting basis of assets and liabilities based on enacted tax rates and laws.
The deferred income tax provision or benefit generally reflects the net change
in deferred income tax assets and liabilities during the year. The current
income tax provision reflects the tax consequences of revenues and expenses
currently taxable or deductible on the Company’s various income tax returns for
the year reported. The Company’s deferred tax items are deferred compensation
and net operating loss carryforwards, and other deferred tax assets have been
offset by a valuation allowance for the same amount.





G.Fair Value
of Financial Instruments:





The carrying amounts of cash, accounts
receivable, accounts payable, promissory notes payable, and stockholder note
payable approximate fair value because of the terms of these
items.





H.Reclassifications:




Certain reclassifications were made to
the 2007 financial statements in order to conform to the 2008 financial
statement presentation. Such reclassifications had no effect on the prior
reported net loss.




I.Principles
of Consolidation:




The consolidated financial statements
include the operations of Somerset International, Inc., its wholly owned
subsidiaries Fire Control Security Systems, Inc. and Secure System, Inc., and
Secure System Inc.’s wholly owned subsidiaries Meadowlands Fire, Safety, and
Electrical Supply Co., Inc., and Vanwell Electronics Inc. All significant
intercompany accounts and transactions have been eliminated in
consolidation.




J.Stock Based
Compensation and Stock Sales:





Stock and warrants issued for employee
compensation services have been determined based on the value of the instrument issued at date of issuance
for such services.  In addition, during 2007 the Company issued
warrants as part of certain sales of common stock.  The
value of these warrants has been included in additional paid in capital as part
of the value of the overall stock sale.








7


SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)




K.Revenue
Recognition:





Installation and maintenance revenues
include installation of equipment and testing at customer sites, fees for leased
wireless equipment, and fees for equipment maintenance. These revenues are
recognized as the services are performed, or ratably over time in the case of
fees that may be billed quarterly or semi-annually in advance. Revenues related
to pre-billed services are deferred until the service is provided and thereby
earned. Equipment revenue is recognized when the equipment is delivered to the
customer. The Company recognizes revenue only when persuasive evidence of an
arrangement exists, when delivery of merchandise has occurred or services have
been rendered, the fee is established and is determinable and collection is
reasonably assured.




L.Inventory:





Inventory consists primarily of parts
and work in process products held for sale.  Inventory is stated at
the lower of cost or market, with cost being determined on a first in/first out
basis.





In accordance with APB 28, one of
the Company’s subsidiaries uses estimated gross profit rates to determine costs
of goods sold during interim periods.  The remaining subsidiaries use
perpetual inventories to determine cost of goods sold during interim
periods.  This is different from the method used at annual inventory
dates.  The other subsidiaries perform physical inventory counts when
calculating year-end values.  Historically, this has not resulted in
any material adjustment to the cost of goods sold.





M.Loss Per
Share:




The Company computes net loss per share
under the provisions of SFAS No. 128, “Earnings per Share” (SFAS 128), and
utilizes guidance provided by SEC Staff Accounting Bulletin No. 98 (SAB 98).
Under the provisions of SFAS 128 and SAB 98, basic loss per share is computed by
dividing the Company’s net loss for the period by the weighted-average number of
shares of common stock outstanding during the period. Diluted net loss per share
excludes potential common shares if the effect is anti-dilutive. Diluted
earnings per share is determined in the same manner as basic earnings per share
except that the number of shares is increased assuming exercise of dilutive
stock options and warrants using the treasury stock method. As the Company had a
net loss, the impact of the assumed exercise of the stock options and warrants
is anti-dilutive and as such, these amounts have been excluded from the
calculation of diluted loss per share. For the periods ended September 30, 2008
and 2007, 3,299,374 and 3,047,514 of common stock equivalent shares were
excluded from the computation of diluted net loss per share after considering
ownership limitations of certain warrants and conversion
features.





N.Goodwill and
Intangible Assets:




Goodwill and intangible assets result
primarily from acquisitions accounted for under the purchase method. In
accordance with Statement of Financial Accounting Standards (“SFAS") No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142") goodwill and intangible
assets with indefinite lives are not amortized but are subject to impairment by
applying a fair value based test. Intangible assets with finite useful lives
related to software, customer lists, covenant not to compete and other
intangibles are being amortized on a straight-line basis over the estimated
useful life of the related asset, generally three to seven
years.





O.Recoverability
of Intangible and Other Long Lived Assets:




In accordance with SFAS No.142, the
Company reviews the carrying value of goodwill and intangible assets with
indefinite lives annually or in certain circumstances as required. The Company
measures impairment losses by comparing carrying value to fair value. Fair value
is determined using a price to sales multiple of comparable
companies.





In accordance with SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets," long-lived
assets used in operations are reviewed for impairment whenever events or a
change in circumstances indicate that carrying amounts may not be
recoverable.  For long-1ived assets to be held, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and fair value.





Note 3. Recent Accounting
Pronouncements





Effective January 1, 2008, the
Company adopted SFAS No. 157, "Fair Value Measurements" (SFAS 157). In
February 2008, the FASB issued FASB Staff Position
No.  FAS 157-2, "Effective Date of FASB Statement No. 157",
which provides a one year deferral of the effective date of
SFAS 157 for non-financial assets and non-financial liabilities, except
those that are recognized or disclosed in the financial statements at fair value
at least annually. Therefore, the Company has adopted the provisions of
SFAS 157 with respect to its financial assets and liabilities only.






8
 
 SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
  SFAS 157 defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principles and enhances disclosures about fair value
measurements.  Fair value is defined under SFAS 157 as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date.  Valuation techniques used to measure fair value
under SFAS 157 must maximize the use of observable inputs and minimize the
use of unobservable inputs. The standard describes a fair value hierarchy based
on three levels of inputs, of which the first two are considered observable and
the last unobservable, that may be used to measure fair value which are the
following:





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





• Level 2—Inputs other than
Level 1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.




• Level 3—Unobservable inputs that
are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities.




The adoption of this statement did
not have a material impact on the Company's consolidated results of operations
and financial condition.




EffectiveJanuary 1, 2008, the Company adopted SFAS No. 159
"The Fair Value Option for Financial Assets and Financial Liabilities"
(SFAS 159). SFAS 159 allows an entity the irrevocable option to elect
fair value for the initial and subsequent measurement for specified financial
assets and liabilities on a contract-by-contract basis. The Company did not
elect to adopt the fair value option under this Statement for any of its
financial instruments.




Please refer to the Company’s Form 10K
for further discussion regarding recent accounting
pronouncements.




Note
4.  Commitments




The Company has entered into an
employment agreement with the President and CEO that became effectiveJanuary 6, 2004. The employment agreement has a term of
five years. In the event of termination of employment without cause, the
agreement provides that the Company shall pay severance equaling the greater of
the balance of the term of the agreement or one year’s
salary.  On August 29, 2008, the Company entered into an
amendment to extend the employment agreement  for an additional 3
years until January 6, 2012.





Secure leases its facility on a year to
year basis at a monthly rent of $4,821.





Meadowlands leases its facility on a
year to year basis at a monthly rent of $3,450.





Fire Control leases its facility through
a three year lease that expiresDecember 31, 2010at a monthly rent of
$4,800.





The employment agreement resulting from
theJune 30,
2007acquisition of
Meadowlands requires payments of approximately $12,500 per month until February,
2008 and consulting fees of $6,000 per month until June
2008.





Note 5.UnregisteredSaleof Equity
Securities





On August 22, 2008, the Company entered
into a convertible promissory note (the “Note”) with an accredited investor for
$50,000 with a conversion rate of $.25 per share. The Note is due 180 days after
its issuance, or, the closing date of any additional debt or equity raised by
the Company in excess of $250,000.  In addition, the Company must pay
a minimum of 360 days of interest regardless of when the Note is
paid.  In accordance with the Note the Company issued the investor
25,000 shares of the Company’s common stock. Such shares were issued pursuant to
an exemption from registration at Section 4(2) of the Securities Act of 1933 and
are restricted in accordance with Rule 144 of the Securities Act of
1933.





Note
6.   Modification of Terms of
Dutchess Debentures





On
September 8, 2008, Somerset International Group, Inc. (the “Company”) entered
into an amendment to its Debenture dated June 12, 2007 (the “June Debenture”)
between Dutchess Private Equities Fund, Ltd. (“Dutchess”) and the Company; and a
debenture dated November 13, 2007 (the “November Debenture”) between Dutchess
and the Company (collectively, the Debenture”).  Pursuant to the
amendment, the parties agreed to the following:






9


SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)




1.
            The
      Company  shall pay interest at the rate of 14% per annum,
      compounded daily, on the unpaid face amount of the debenture to
      Dutchess  with  monthly interest payments at 12%
      of  the interest accrued on the principal balance of the a
      debenture from the last interest payment until such time as the current
      interest payment is due and payable and the remaining 2% of the interest
      due and payable upon request from Dutchess or upon the maturity
      date.




2.
              The
      Company warrants that no indebtedness of our company is senior to the
      Debenture in right of       payment,
      whether with respect to interest, damages or upon liquidation or
      dissolution or otherwise.


3.
            As
      to the June Debenture, commencing on December 30, 2007,  the
      Company agreed to make the following
      monthly     amortizing
  payments:





December 30, 2007 – May 31, 2008
Fifteen thousand dollars ($15,000)/month


June 30, 2008 Thirty-five thousand
dollars ($35,000)


July 31, 2008 Fifteen thousand dollars
($15,000)


August 31, 2008 – December 30, 2008
Two thousand dollars ($2,000)/month


January 31, 2009 – May 31, 2009
Forty-five thousand dollars ($45,000)/month


June
      30, 2009 thereafter until the face amount is paid in full Seventy-five
      thousand dollars ($75,000)/month





4.
            As
      to the November Debenture, commencing on December 30, 2007,  the
      Company shall make the following monthly amortizing
    payments:





January 31, 2008 – July 31, 2008 Eight
thousand dollars ($8,000)


August 31, 2008 – January 31, 2009
Three thousand dollars ($3,000)


February 28, 2009 – July 31, 2009
Twenty thousand dollars ($20,000)/month


August 31, 2009 – April 30, 2010
Thirty thousand dollars ($30,000)/month


May 31, 2010 thereafter until the face
amount is paid in full Forty thousand dollars ($40,000)/month





As
additional consideration for Dutchess to enter into this Amendment, the Company
issued a warrant to Dutchess to purchase up to 900,000 shares of the Company’s
common stock with an exercise price equal to par value.  Dutchess’s
ownership of the Company’s shares is limited to 4.99% of shares issued and
outstanding.   The fair value of these warrants is not material
to these financial statements.





Note
7.   Equity
Incentive Plan





On August 29, 2008, the Board of
Directors, with the approval of a majority of the shareholders of the Company,
adopted the 2008 Equity Incentive Plan (the “Plan”) which will be administered
by a compensation committee (the “Committee”) appointed by the
Board.





The total
number of shares reserved and available for grant and issuance is 2,500,000
shares.  The maximum number of shares granted to a participant may not
exceed 20% of the total shares subject to the Plan.  Only directors,
officers, employees, consultants, and advisors of the Company and its
subsidiaries are eligible for awards under the Plan.  Additionally,
the awards granted under the Plan may not be transferred or
assigned.





Options
may be granted to eligible persons, and the exercise period and price, as
defined in the Plan, shall be determined by the Committee.  Share
limits and shares available under the Plan, outstanding awards, as well as the
prices of awards are subject to adjustment if certain events occur.





There have been no shares issued under
the Plan.





Note 8.Subsequent
Events





OnOctober 27, 2008, the Company entered into a convertible
promissory note with an accredited investor for $150,000 with a conversion rate
of $.25 per share. In accordance with the note the Company issued the investor
75,000 shares of the Company’s common stock.  Such shares were issued
pursuant to an exemption from registration at Section 4(2) of the Securities Act
of 1933 and are restricted in accordance with Rule 144 of the Securities Act of
1933.






10


SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL


CONDITION AND RESULTS OF
OPERATIONS





Item
2.




General





The information contained in Item 2
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results may materially differ from those
projected in the forward-looking statements as a result of certain risks and
uncertainties set forth in this report. Although management believes that the
assumptions made and expectations reflected in the forward-looking statements
are reasonable, there is no assurance that the underlying assumptions will, in
fact, prove to be correct or that actual results will not be different from
expectations expressed in this report.




Critical Accounting Policies and
Estimates





The discussion and analysis of our
financial condition and results of operations are based upon our financial
statements, which have been prepared in accordance with accounting principles
generally accepted in theUnited States of America. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amount of assets and liabilities, revenues and expenses, including stock issued
for services and or compensation and related disclosure on contingent assets and
liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions and
conditions.  Critical accounting policies are defined as those that
are reflective of significant judgments, estimates, and uncertainties and
potentially result in materially different results under different assumptions
and conditions.





We have established an allowance for
doubtful accounts for accounts receivable.  We analyzed the ability to
collect accounts that are large, none of which are currently past
due.  Management will evaluate the adequacy of the subsidiaries’
allowance on a periodic basis.





We write down inventory for
estimated excess or obsolete inventory equal to the difference between the cost
of inventory and the estimated market value based upon assumptions about future
demand and market conditions.  If actual market conditions are less
favorable than those projected by management, additional inventory write-downs
may be required.





We account for our goodwill and
intangible assets pursuant to SFAS No. 142, Goodwill and Other Intangible
Assets. Under SFAS 142, intangibles with definite lives continue to be amortized
on a straight-line basis over the lesser of their estimated useful lives or
contractual terms. Goodwill and intangibles with indefinite lives are evaluated
at least annually for impairment by comparing the asset’s estimated fair value
with its carrying value, based on cash flow methodology.





There are 13,115,000 warrants for common
stock issued and outstanding.  At September 30, 2008, fair value
associated with the outstanding warrants is not significant.  The
holders of the majority of such warrants are subject to ownership limitations
and the warrants are not freely transferable.





Results of
Operations





Revenues




Revenues of $1,137,618 and $3,662,551,
respectively, for the three and nine months ended September 30, 2008 decreased
by $143,687 and increased by $1,263,181, respectively, over revenues of
$1,281,305 and $2,399,370, respectively, for the three and nine months ended
September 30, 2007.  This was primarily attributable to theJune 30, 2007acquisition of Meadowlands, theOctober 1, 2007acquisition of Fire Control offset by a
decrease in revenues of Secure of $245,658 and $774,770 for the three and nine
months endedSeptember 30,
2008versus the same
periods in 2007.  This nine months decrease at Secure is attributable
to an decrease of $178,361 in equipment sales, a decrease in installation
revenues of $456,779, and $139,630 in decreased maintenance
revenues.





Costs of Goods
Sold




Costs of Goods Sold of $399,310 and
$1,381,830, respectively, for the three and nine months endedSeptember 30, 2008decreased by $396,573 and $32,
respectively, over cost of goods sold of $795,883 and $1,381,862, respectively,
for the three and nine months endedSeptember 30, 2007. This was primarily attributable to theJune 30, 2007acquisition of Meadowlands and theOctober 1, 2007acquisition of Fire Control offset by a
decrease of $420,025 in nine months costs of goods sold for Secure relating to
the decrease in revenues described above.






11


SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
 CONDITION AND RESULTS OF
OPERATIONS


Gross Margin





Gross Margin of $738,308 and $2,280,721,
respectively, for the three and nine months endedSeptember 30, 2008increased by $252,886 and $1,263,213,
respectively, over gross margins of $485,422 and $1,017,508, respectively, for
the three and nine months endedSeptember 30, 2007. This was a direct result of the
increases in Revenues and the Cost of Goods Sold described
above.





Selling, General, and Administrative
Expenses (“SG&A”)





SG&A expenses of $956,012 and
$3,314,968, respectively, for the three and nine months ended September 30, 2008
increased by $208,211 and $1,723,079, respectively, over SG&A expenses of
$747,801 and $1,591,889, respectively, for the three and nine months ended
September 30, 2007. This was primarily attributable to theJune 30, 2007acquisition of Meadowlands and theOctober 1, 2007acquisition of Fire
Control.





Other Expense




Other expense of $145,539 and $431,571,
respectively, for the three and nine months ended September 30, 2008 increased
by $34,757 and $122,581, respectively, over other expenses of $110,782 and
$308,990, respectively, for the three and nine months ended September 30, 2007.
This is primarily attributable to the interest expense on the Dutchess
convertible debentures issued in June 2007 and November
2007.





Dividends on Preferred
Stock




Dividends on preferred stock for the
three months and nine months ended September 30, 2008 were $0, which decreased
from $89,582 and $268,746, respectively, for the three and nine months ended
September 30, 2007.  OnSeptember 28, 2007, in accordance with the terms of the
Series A Preferred Stock, all of the holders of preferred stock converted their
stock, as well as, accrued dividends, to common stock.





Net (Loss)





Net Loss attributable to common
stockholders of $369,669 and $1,472,503, respectively, for the three and nine
months ended September 30, 2008 decreased by $93,118 and increased by $317,881,
respectively, over net losses of $462,787 and $1,154,622, respectively, for the
three and nine months ended September 30, 2007. This was a direct result of the
increase in Gross Margin described above offset by the changes in the Selling,
General, and Administrative expenses and Other Expense and Dividends on
Preferred Stock described above.





Liquidity and Capital
Resources:





We are currently financing our
operations primarily through cash generated by financing activities in the form
of promissory notes, convertible debentures, and equity investments. We financed
our business acquisitions through the issuance of redeemable preferred stock,
cash generated from promissory notes, and convertible
debentures.





We completed the Secure merger by
obtaining a short term bridge financing of $504,000. Pursuant to the terms of
the offering, we had a minimum raise of $500,000 and a maximum raise of
$700,000. As ofMarch 11,
2005, we raised the minimum
of $500,000 and these proceeds were distributed to Secure as part of that
transaction. Each of the investors in this financing received nine (6) month
notes with a twelve (12%) percent annual interest rate. For each dollar
invested, an investor received a note for a dollar repayable in full nine months
from the date of the note and one share of our common stock. In addition, the
notes are convertible, at the option of the holder, into shares of common stock
at the price of $0.25 per share.  Consequentially, we issued a total
of 504,000 shares to these investors. Such notes were due and payableSeptember 11,
2005. We had requested a
ninety day extension on such notes and we received approval from all of the
noteholders. Although the ninety day extension had passed as ofMarch 28, 2006, none of the noteholders has declared a
default and we intend to repay any unconverted notes through the proceeds of
additional financings.  As ofSeptember 30, 2007, $430,000 of principal amount and all
related accrued interest to date has been retired through cash payments due of
$180,000 and the balance converted to common stock in accordance with the terms
of the private placement.








12


SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
 CONDITION AND RESULTS OF
OPERATIONS


We completed the Meadowlands acquisition
by using a portion of the proceeds of the five year Convertible Debenture that
we issued with gross proceeds of $2,700,000.  Pursuant to this
Debenture, we are required to make mandatory interest only payments to the
Investor in the amount of 1/12th of the Interest due on the outstanding balance
of the Debenture each month for the first nine months after closing on the
acquisition.  Pursuant to this Debenture, we also are required to make
mandatory principal payments to the Investor throughout the life of the
Debenture.  For months 7 thru 12, we must pay $15,000 per month, for
months 13 thru 18 we must pay $35,000 per month, for months 19 thru 24 we must
pay $45,000, for month 25 thru month 35 we must pay $75,000 per month and on
month 36 all amounts then current will be due payable. (See Note
6)





We completed the Fire Control
acquisition by using a portion of the proceeds of the five year Convertible
Debenture that we issued with gross proceeds of $1,350,000.  Pursuant
to this Debenture, we are required to make mandatory interest only payments to
the Investor in the amount of 1/12th of the Interest due on the outstanding
balance of the Debenture each month for the first two months after closing on
the acquisition.  The first payment is due within thirty (30) days of
Closing.  Pursuant to this Debenture, we also are required to make
mandatory principal payments to the Investor throughout the life of the
Debenture.  For months 3 thru 9, we must pay $8,000 per month, for
months 10 thru 15 we must pay $15,000 per month, for months 16 thru 21 we must
pay $20,000, for month 22 thru month 30 we must pay $30,000 per month, for month
31 thru month 35 we must pay $40,000 per month and on month 36 all amounts then
current will be due payable. (See Note 6)





At September 30, 2008, the Company had
negative working capital of approximately $2,445,738.




We plan to establish a source of
revenues sufficient to cover our operating costs by acquiring additional
companies that are generating positive cash flows from operating activities
either at acquisition or projected to do so in the future , thereby furthering
the objective of becoming profitable and generating positive cash flow from
operating activities on a consolidated basis.  The funds needed to
continue operations over the next twelve months will be raised from accredited
investors and/or institutional investors as in the previous financings. During
this period, the Company will attempt to reduce or defer expenses until the
capital is available.





Our need for capital may change
dramatically as a result of any additional business acquisition or combination
transaction.  There can be no assurance that we will identify any
additional suitable business, product, technology or opportunity in the
future.  Further, even if we locate a suitable target, there can be no
assurance that we would be successful in consummating any acquisition or
business consolidation on favorable terms or that we will be able to profitably
manage the business, product, or technology, if acquired, or otherwise
engaged.  The Company intends to acquire cash flow positive companies
of such size or number that will allow it to continue as a going
concern.  If we are unable to obtain debt and/or equity financing on
reasonable terms, we could be forced to delay or scale back our plans for
expansion. Consequently, there is substantial doubt about our ability to
continue to operate as a going concern.





Management intends to ask
pertinent questions of the proposed candidates or opportunities in the course of
its diligence phase.  Management will rely heavily on a business plan,
financial statements and projections, and management’s views of the
future.  Unless something comes to management’s attention as a result
of its review of the proposed candidate’s audited financial statements, which
causes management to have serious concerns on the viability or integrity of the
financial records and business projections, which would result in a
disqualification of such candidate, a transaction would be approved by the Board
of Directors.  When a transaction requires shareholder approval, a
shareholder meeting must be held and a shareholder vote taken.  A
proxy statement would be mailed to shareholders informing them of the meeting
and requesting their vote.  However, in lieu of holding a meeting, a
majority of shareholders may sign a Shareholder’s Resolution approving of such
transaction.  If a meeting is not held, an information statement must
be mailed to all of its shareholder’s informing them of the action taken by the
majority shareholders.





Recent Accounting
Pronouncements




EffectiveJanuary 1, 2008, the Company adopted SFAS No. 157,
"Fair Value Measurements" (SFAS 157).  In February 2008, the FASB
issued FASB Staff Position No. FAS 157-2, "Effective Date of FASB Statement
No. 157", which provides a one year deferral of the effective date of
SFAS 157 for non-financial assets and non-financial liabilities, except
those that are recognized or disclosed in the financial statements at fair value
at least annually.  Therefore, the Company has adopted the provisions
of SFAS 157 with respect to its financial assets and liabilities
only.  SFAS 157 defines fair value, establishes a framework for
measuring fair value under generally accepted accounting principles and enhances
disclosures about fair value measurements. Fair value is defined under
SFAS 157 as the exchange price that would be received for an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date.  Valuation techniques used to
measure fair value under SFAS 157 must maximize the use of observable
inputs and minimize the use of unobservable inputs.  The standard
describes a fair value hierarchy based on three levels of inputs, of which the
first two are considered observable and the last unobservable, that may be used
to measure fair value which are the following:






13


SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL
 CONDITION AND RESULTS OF
OPERATIONS


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





• Level 2— Inputs other than
Level 1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or
liabilities.





• Level 3— Unobservable inputs that
are supported by little or no market activity and that are significant to the
fair value of the assets or liabilities.





The adoption of this statement did not have a material impact on the
Company's consolidated results of operations and financial
condition.




EffectiveJanuary 1,
2008, the Company adopted
SFAS No. 159 "The Fair Value Option for Financial Assets and Financial
Liabilities" (SFAS 159). SFAS 159 allows an entity the irrevocable option to
elect fair value for the initial and subsequent measurement for specified
financial assets and liabilities on a contract-by-contract basis. The Company
did not elect to adopt the fair value option under this Statement for any of its
financial instruments.




Item 3.





Quantitative and Qualitative Disclosures
About Market Risk





Not required for smaller reporting
companies.








Item 4.





Controls and
Procedures




The Company's management evaluated, with
the participation of its President, the effectiveness of the design/operation of
its disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the SEC Act of 1934) as ofSeptember 30, 2008. Based on such evaluation, the
President of the Company concluded that its disclosure controls and procedures
are designed to ensure that information required to be disclosed by the Company
in the reports that it files or submits under the Securities Exchange Act of
1934 is recorded, processed, summarized and reported within the time periods
specified in the rules and regulations of the Securities and Exchange Commission
and is not operating in an effective manner.





As reported in the Company’s Form 10-K
for the year endedDecember
31, 2007, the Company
performed an assessment of the effectiveness of its controls and procedures and
disclosed several material weaknesses related to that
assessment.





There were no changes in internal
control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f)
under the SEC Act of 1934) that occurred during the Company’s last fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Company’s internal control over financial
reporting.







PART II - OTHER
INFORMATION




Item 1.  Legal
Proceedings.





On
September 4, 2008, Keith Kesheneff and Kathryn Kesheneff filed suit in Superior
Court in New Jersey against the Company claiming that they are owed $355,000 for
failure to pay a purchase price adjustment note issued by the
Company.  The Company filed an answer, with counterclaims, on October
27, 2008, generally contesting all claims.






14


SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES




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




On August 22, 2008, the Company entered
into a convertible promissory note with an accredited investor for $50,000 with
a conversion rate of $.25 per share.  In accordance with the note the
Company issued the investor 25,000 shares of the Company’s common stock. Such
shares were issued pursuant to an exemption from registration at Section 4(2) of
the Securities Act of 1933 and are restricted in accordance with Rule 144 of the
Securities Act of 1933.





On October 27, 2008, the Company entered
into a convertible promissory note with an accredited investor for $150,000 with
a conversion rate of $.25 per share. In accordance with the note the Company
issued the investor 75,000 shares of the Company’s common stock.  Such
shares were issued pursuant to an exemption from registration at Section 4(2) of
the Securities Act of 1933 and are restricted in accordance with Rule 144 of the
Securities Act of 1933.





Item 3.  Defaults Upon Senior
Securities





There have been no notices of default
provided to the Company, except as described in Item 1
above..





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





On August
29, 2008, the Board of Directors, with the approval of a majority of the
shareholders of the Company, adopted the 2008 Equity Incentive Plan (the “Plan”)
which will be administered by a compensation committee (the “Committee”)
appointed by the Board.


Item 5.  Other
Information.





None.




Item 6. Exhibits.





(a)           Exhibits:




31.1 Certification pursuant to Section
302 of Sarbanes Oxley Act of 2002.


32.1 Certification pursuant to Section
906 of Sarbanes Oxley Act of 2002.





(b)           Reports
on Form
8K:





OnAugust 22, 2008, the Company filed an 8K pursuant
to:


Item 3.02: Unregistered Sales of Equity
Securities





OnSeptember 16, 2008, the Company filed an 8K pursuant
to:


Item 1.02 based on the entry into a
definitive material agreement.





OnSeptember 22, 2008, the Company filed and 8K pursuant
to:


Item 1.02 based on the entry into a
definitive material agreement.








SIGNATURES




Pursuant to the requirements of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.





SOMERSET INTERNATIONAL GROUP,
      INC.(Registrant)Date: November 14,
      2008
            By:
            /s/ John X.
      AdilettaJohn X.
      Adiletta,Chief Executive
      OfficerChief Financial
      Officer