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 ENDED MARCH 31, 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, NJ  07921

(Address of Principal Executive Offices)



(908) 719-8909

Registrant's Telephone No., including area code:



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.  Yes ý    No  ̈



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 filer   ̈ | Accelerated filer   ̈ | Non-accelerated filer   ̈ | Smaller reporting company  ý



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



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



As of May 14, 2008, there were 23,058,655 Shares of the registrants Common Stock, par value $.01 per share, outstanding.







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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

March 31, 2008



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|PART I  FINANCIAL INFORMATION
Page
Item 1.
Financial Statements
1
Consolidated Balance Sheets-March 31, 2008 (Unaudited) and December 31, 2007
1
Unaudited Consolidated Statements Of Operations for the Three Months Ended
March 31, 2008 and 2007
2
Unaudited Consolidated Statements Of Cash Flows For The Three Months Ended
March 31, 2008 And 2007
3
Notes To Unaudited Consolidated Financial Statements
4
Item 2.
Managements Discussion And Analysis Of Financial Condition And Results Of Operations
9
Item 3.
Quantitative And Qualitative Disclosures About Market Risk
12
Item 4.
Controls And Procedures
12
PART II  OTHER INFORMATION
Item 1.
Legal Proceedings
13
Item 2.
Unregistered Sales Of Equity Securities And Use Of Proceeds
13
Item 3.
Defaults Upon Senior Securities
13
Item 4.
Submission Of Matters To A Vote Of Security Holders
13
Item 5.
Other Information
13
Item 6.
Exhibits
13
Signatures
14







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PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements:

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

MARCH 31, 2008 AND DECEMBER 31, 2007

|                                                                                                                                                    |  |                |             |                   |   |             |  
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | ----------------- | - | ----------- | -
|                                                                                                                                                    |  | March 31,
2008 |             | December 31,
2007 |  
|                                                                                                                                                    |  | (Unaudited)    |             |                   |   |            
|ASSETS                                                                                                                                              |  |                |             |                   |   |             |  
|Current Assets:                                                                                                                                     |  |                |             |                   |   |             |  
|Cash and equivalents                                                                                                                                |  | $              | 111,810     |                   | $ | 350,110     |  
|Accounts receivable, net                                                                                                                            |  |                | 864,773     |                   |   | 951,177     |  
|Inventories                                                                                                                                         |  |                | 539,822     |                   |   | 572,707     |  
|Prepaid expenses                                                                                                                                    |  |                | 3,122       |                   |   | 8,982       |  
|Other current asset                                                                                                                                 |  |                |            |                   |   | 20,838      |  
|Total Current Assets                                                                                                                                |  |                | 1,519,527   |                   |   | 1,903,814   |  
|Property and equipment, net                                                                                                                         |  |                | 72,772      |                   |   | 77,331      |  
|Other Assets:                                                                                                                                       |  |                |             |                   |   |             |  
|Deposits                                                                                                                                            |  |                | 19,380      |                   |   | 9,825       |  
|Deferred financing costs, net                                                                                                                       |  |                | 297,040     |                   |   | 313,333     |  
|Non compete covenant, net                                                                                                                           |  |                | 36,962      |                   |   | 37,313      |  
|Customer lists, net                                                                                                                                 |  |                | 2,064,418   |                   |   | 2,213,107   |  
|Software, net                                                                                                                                       |  |                |            |                   |   | 12,743      |  
|Distribution agreements, net                                                                                                                        |  |                | 124,863     |                   |   | 140,622     |  
|Goodwill                                                                                                                                            |  |                | 2,200,355   |                   |   | 2,200,355   |  
|Total other assets                                                                                                                                  |  |                | 4,743,018   |                   |   | 4,927,298   |  
|TOTAL ASSETS                                                                                                                                        |  | $              | 6,335,317   |                   | $ | 6,908,443   |  
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                      |  |                |             |                   |   |             |  
|Current Liabilities:                                                                                                                                |  |                |             |                   |   |             |  
|Accounts payable and accrued expenses                                                                                                               |  | $              | 1,009,584   |                   | $ | 793,389     |  
|Promissory notes payable - current                                                                                                                  |  |                | 1,104,784   |                   |   | 1,116,109   |  
|Dutchess promissory notes payable - current                                                                                                         |  |                | 582,000     |                   |   | 461,000     |  
|Accrued interest payable                                                                                                                            |  |                | 237,433     |                   |   | 201,225     |  
|Deferred revenue                                                                                                                                    |  |                | 296,354     |                   |   | 310,911     |  
|Total Current Liabilities                                                                                                                           |  |                | 3,230,155   |                   |   | 2,882,634   |  
|Dutchess promissory notes payable  non-current                                                                                                     |  |                | 3,392,000   |                   |   | 3,574,000   |  
|Stockholder note payable, - non-current                                                                                                             |  |                | 70,245      |                   |   | 121,419     |  
|TOTAL LIABILITIES                                                                                                                                   |  |                | 6,692,400   |                   |   | 6,578,053   |  
|Stockholders Equity (Deficit):                                                                                                                     |  |                |             |                   |   |             |  
|Common Stock, 200,000,000 shares authorized, $.001 par
value, 23,058,655 and 7,043,676 shares issued and
outstanding in 2008 and 2007, respectively |  |                | 23,059      |                   |   | 23,059      |  
|Capital in excess of par value                                                                                                                      |  |                | 31,349,583  |                   |   | 31,349,583  |  
|Accumulated deficit                                                                                                                                 |  |                | (31,729,725 | )                 |   | (31,042,252 | )
|Total stockholders equity (deficit)                                                                                                                |  |                | (357,083    | )                 |   | 330,390     |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)                                                                                                |  | $              | 6,335,317   |                   | $ | 6,908,443   |  



The Notes to the Consolidated Financial Statements are an integral part of this statement.



1



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

|                                                    |  |      |            |      |   |           |  
|--------------------------------------------------- |  | ---- | ---------- | ---- | - | --------- | -
|                                                    |  | 2008 |            | 2007 |  
|                                                    |  |      |            |      |   |           |  
|Revenues                                            |  |      |            |      |   |           |  
|Equipment sales                                     |  | $    | 444,304    |      | $ | 113,835   |  
|Installation revenues                               |  |      | 80,633     |      |   | 303,517   |  
|Maintenance revenues                                |  |      | 726,519    |      |   | 223,010   |  
|Total revenues                                      |  |      | 1,251,456  |      |   | 640,362   |  
|                                                    |  |      |            |      |   |           |  
|Costs of goods sold                                 |  |      |            |      |   |           |  
|Material cost of systems sold                       |  |      | 355,397    |      |   | 57,907    |  
|Install and service costs                           |  |      | 114,213    |      |   | 204,913   |  
|Engineering and development                         |  |      | 35,950     |      |   | 38,993    |  
|Total costs of goods sold                           |  |      | 505,560    |      |   | 301,813   |  
|                                                    |  |      |            |      |   |           |  
|Gross margin                                        |  |      | 745,896    |      |   | 338,549   |  
|                                                    |  |      |            |      |   |           |  
|Selling, general, and administrative expenses       |  |      |            |      |   |           |  
|Selling, general and administrative expense         |  |      | 1,061,621  |      |   | 365,069   |  
|Depreciation expense                                |  |      | 6,602      |      |   | 1,809     |  
|Amortization expense                                |  |      | 197,969    |      |   | 61,151    |  
|Total selling, general, and administrative expenses |  |      | 1,266,192  |      |   | 428,029   |  
|                                                    |  |      |            |      |   |           |  
|Loss from operations                                |  |      | (520,296   | )    |   | (89,480   | )
|                                                    |  |      |            |      |   |           |  
|Other (Expense)                                     |  |      |            |      |   |           |  
|Interest expense                                    |  |      | (166,407   | )    |   | (52,259   | )
|Other expenses                                      |  |      | (500       | )    |   |          |  
|Total other expense                                 |  |      | (166,907   | )    |   | (52,259   | )
|                                                    |  |      |            |      |   |           |  
|Loss before income taxes                            |  |      | (687,203   | )    |   | (141,739  | )
|                                                    |  |      |            |      |   |           |  
|Provision for income taxes                          |  |      | 270        |      |   | 2,253     |  
|                                                    |  |      |            |      |   |           |  
|Net Loss                                            |  |      | (687,473   | )    |   | (143,992  | )
|                                                    |  |      |            |      |   |           |  
|Dividends on preferred stock                        |  |      |           |      |   | 89,582    |  
|                                                    |  |      |            |      |   |           |  
|Net loss attributable to common stockholders        |  | $    | (687,473   | )    | $ | (233,574  | )
|                                                    |  |      |            |      |   |           |  
|Basic and diluted net loss per common share         |  | $    | (0.03      | )    | $ | (0.03     | )
|                                                    |  |      |            |      |   |           |  
|Weighted Average Number of Common Shares            |  |      | 23,058,655 |      |   | 6,986,787 |  



The Notes to the Consolidated Financial Statements are an integral part of this statement.



2



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2008 AND 2007

|                                                     |  |      |          |      |   |          |  
|---------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|                                                     |  | 2008 |          | 2007 |  
|Cash Flows From Operating Activities:                |  |      |          |      |   |          |  
|Net (Loss)                                           |  | $    | (687,473 | )    | $ | (143,992 | )
|Adjustments to reconcile net loss to                 |  |      |          |      |   |          |  
|net cash used in operating activities:               |  |      |          |      |   |          |  
|Depreciation                                         |  |      | 6,602    |      |   | 1,809    |  
|Amortization                                         |  |      | 197,969  |      |   | 61,151   |  
|Stock issued for services                            |  |      |         |      |   | 16,000   |  
|                                                     |  |      |          |      |   |          |  
|Changes in operating assets and liabilities:         |  |      |          |      |   |          |  
|Accounts receivable                                  |  |      | 86,404   |      |   | (141,397 | )
|Inventories                                          |  |      | 32,885   |      |   | 13,120   |  
|Other current assets                                 |  |      | 20,838   |      |   | 8,541    |  
|Accounts payable and accrued expenses                |  |      | 212,452  |      |   | 163,972  |  
|Prepaid expense                                      |  |      | 5,860    |      |   |         |  
|Deposits                                             |  |      | (9,555   | )    |   |         |  
|Accrued interest payable                             |  |      | 36,208   |      |   | 42,691   |  
|Deferred revenue                                     |  |      | (14,557  | )    |   | 62,892   |  
|Employment contracts payable                         |  |      |         |      |   | (2,732   | )
|Net Cash Provided (Used) in Operating Activities     |  |      | (112,367 | )    |   | 82,055   |  
|                                                     |  |      |          |      |   |          |  
|Cash Flows From Investing Activities:                |  |      |          |      |   |          |  
|Purchase of equipment                                |  |      | (2,434   | )    |   |         |  
|Net Cash Used in Investing Activities                |  |      | (2,434   | )    |   |         |  
|                                                     |  |      |          |      |   |          |  
|Cash Flows From Financing Activities:                |  |      |          |      |   |          |  
|Payment of Dutchess debenture                        |  |      | (61,000  | )    |   |         |  
|Payment of promissory notes payable                  |  |      | (62,499  | )    |   | (27,608  | )
|Net Cash Provided by (Used in ) Financing Activities |  |      | (123,499 | )    |   | (27,608  | )
|                                                     |  |      |          |      |   |          |  
|Net Change in Cash                                   |  |      | (238,300 | )    |   | 54,447   |  
|Cash at Beginning of the Period                      |  |      | 350,110  |      |   | 1,598    |  
|Cash at End of the Period                            |  | $    | 111,810  |      |   | 56,045   |  
|                                                     |  |      |          |      |   |          |  
|Cash paid for:                                       |  |      |          |      |   |          |  
|Interest                                             |  | $    | 128,830  |      |   |         |  
|Income Taxes                                         |  | $    | 270      |      |   |         |  
|                                                     |  |      |          |      |   |          |  
|Non Cash Investing & Financing Activities:           |  |      |          |      |   |          |  
|Accretion of preferred stock dividends               |  | $    |         |      |   | 89,582   |  





The Notes to the Consolidated Financial Statements are an integral part of this statement.



3



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 of Delaware in 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 July 7, 2004, we entered into a Plan and Agreement of Merger with Secure Systems, Inc., a New Jersey corporation, which provides wireless security products and services marketed throughout the United States.

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 beginning July 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, Somerset acquired Fire Control whereby Fire Control became a wholly owned subsidiary of Somerset. 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 beginning October 1, 2007.

Our executive office is located at 90 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 the United States for complete financial statements. The unaudited interim consolidated financial statements as of March 31, 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 March 31, 2008 and the results of its consolidated operations and its consolidated cash flows for the three month period ended March 31, 2008 and 2007.

The Unaudited Consolidated Statements of Operations for the three months ended March 31, 2008 and 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.



4



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NOTE 1.

BUSINESS AND BASIS OF PRESENTATION (Continued)

B.

Basis of Presentation (Continued)

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United 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.

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 $56,629 and $73,915 as of March 31, 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.



5



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NOTE 2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

E.

Estimates:

The preparation of financial statements in conformity with United States generally 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.

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.



6



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NOTE 2.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 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 March 31, 2008 and 2007, 3,047,514 and 140,000 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.



7



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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. 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.

Effective January 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 effective January 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.

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 expires December 31, 2010 at a monthly rent of $4,800.

The employment agreement resulting from the June 30, 2007 acquisition 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.

SUBSEQUENT EVENTS

None.



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Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

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 the United 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 only established an allowance for doubtful accounts for Secures subsidiary accounts receivable. We analyzed the ability to collect accounts that are large, none of which are currently past due for Secure. Historically, Secure has not incurred bad debt expense and that trend is anticipated to continue. Management will evaluate Secures 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 12,280,000 warrants for common stock issued and outstanding. At March 31, 2008, intrinsic 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 $1,251,456 for the three months ended March 31, 2008 increased by $611,094 over revenues of $640,362 during the three months ended March 31, 2007. This was primarily attributable to the June 30, 2007 acquisition of Meadowlands and the October 1, 2007 acquisition of Fire Control offset by a decrease in revenues of Secure of $369,583 for the three months ended March 31, 2008. Of this decrease, $332,580 is attributable to a decrease of $332,580 in equipment sales and installation revenues and $37,003 in decreased maintenance revenues.

Costs of Goods Sold

Costs of Goods Sold of $505,560 for the three months ended March 31, 2008 increased by $203,747 over costs of goods sold of $301,813 during the three months ended March 31, 2007. This was primarily attributable to the June 30, 2007 acquisition of Meadowlands and the October 1, 2007 acquisition of Fire Control offset by a decrease of $122,570 in costs of goods sold for Secure relating to the decrease in revenues described above.



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Gross Margin

Gross Margin for the three months ended March 31, 2008 increased to $745,896 and 59.6% of revenue from a gross margin of $338,549 and 52.9% of revenue during the three months ended March 31, 2007. This was a direct result of the changes in Revenues described above offset by the changes in the Cost of Goods Sold described above.

Selling, General and Administrative Expenses (SG&A)

SG&A expenses for the three months ended March 31, 2008 of $1,061,621 increased by $696,552 for the three months over G&A expenses of $365,069 during the three months ended March 31, 2008. This was primarily attributable to the June 30, 2007 acquisition of Meadowlands and the October 1, 2007 acquisition of Fire Control.

Other Expense

Other expense for the three months ended March 31, 2008 increased to $166,907 from other expense of $52,259 during the three months ended March 31, 2007. This increase 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 ended March 31, 2008 were $0, which decreased from $89,582 in dividends during the three months ended March 31, 2007. On September 28, 2007, in accordance with the terms of the Series A Preferred Stock, all of the holders of preferred stock converted such stock and accrued dividends to common stock.

Net (Loss)

Net Loss attributable to common stockholders for the three months ended March 31, 2008 increased by $453,899 to $687,473 from $233,574 during the three months ended March 31, 2008. 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 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 of March 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 payable September 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 has passed as of March 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 of September 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.



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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.

At March 31, 2008, the Company had negative working capital of approximately $1,710,600.

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 such time as 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 us 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 each shareholder 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.



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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. 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.

Effective January 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 instrutments.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

The Company is not aware of any market risks that would have a significant impact on the Companys financial position or results of operations.

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 of March 31, 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 ended December 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.





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PART II - OTHER INFORMATION



Item 1.

Legal Proceedings.

The Company is currently not a party to any pending legal proceedings and no such action by or to the best of its knowledge, against the Company has been threatened.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.

Defaults Upon Senior Securities

There have been no notices of default provided to the Company.

Item 4.

Submission of Matters to a Vote of Security Holders

None.

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:



On April 11, 2008, the Company filed an 8K pursuant to:

·

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





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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: May 14, 2008 | By:                                | /s/ JOHN X. ADILETTA   
|                   |                                    | John X. Adiletta,      
|                   |                                    | Chief Executive Officer
|                   |                                    | Chief Financial Officer





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