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 JUNE 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, NJ  07921


(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.


Yes x  No o








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 o
              Accelerated
      Filer o
              Non-Accelerated
      Filer o
              Smaller
      Reporting Company x




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


Yes o No x




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




As of
August 13, 2008, there were 23,058,655 shares of the registrant’s Common Stock,
par value $.001 per share, outstanding.

















SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES





INDEX TO
FORM 10-Q


June 30,
2008





Part
      I - Financial Information
              PageItem
      1. Financial Statements:Consolidated
      Balance Sheets–June 30, 2008 (Unaudited) and December 31,
    2007
              3Unaudited
      Consolidated Statements of Operations for the Three and
SixMonths
      Ended June 30, 2008 and 2007
              4Unaudited
      Consolidated Statements of Cash Flows for the Six MonthsEnded
      June 30, 2008 and 2007
              5Notes
      to the Consolidated Financial Statements (unaudited)
              6Item
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations
              12Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk.
              17Item
      4. Controls and Procedures
              17Part
      II - Other Information:Item
      1. Legal Proceedings
              17Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
              17Item
      3. Defaults Upon Senior Securities
              17Item
      4. Submission of Matters to a Vote of Security Holders
              17Item
      5. Other Information
              17Item
      6. Exhibits
              17Signatures
              18
  2





SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEET


JUNE
30, 2008 AND DECEMBER 31, 2007


June
      30,
              2008
            
            
            December
      31, 2007(Unaudited)ASSETSCurrent
      Assets:Cash
      and cash equivalents
            
            $
            74,711
            
            
            $
            350,110Accounts
      receivable, net
            
            
            847,067
            
            
            
            951,177Inventories
            
            
            533,151
            
            
            
            572,707Prepaid
      expenses
            
            
            5,414
            
            
            
            8,982Other
      current asset
            
            
            --
            
            
            
            20,838Total
      Current Assets
            
            
            1,460,343
            
            
            
            1,903,814Property
      and equipment, net
            
            
            126,443
            
            
            
            77,331Other
      Assets:Deposits
            
            
            19,379
            
            
            
            9,825Deferred
      financing costs, net
            
            
            284,815
            
            
            
            313,333Non
      compete covenant, net
            
            
            28,410
            
            
            
            37,313Customer
      lists, net
            
            
            1,915,733
            
            
            
            2,213,107Software,
      net
            
            
            --
            
            
            
            12,743Distribution
      agreements, net
            
            
            109,102
            
            
            
            140,622Goodwill
            
            
            2,200,355
            
            
            
            2,200,355Total
      other assets
            
            
            4,557,794
            
            
            
            4,927,298TOTAL
      ASSETS
            
            $
            6,144,580
            
            
            $
            6,908,443LIABILITIES
      AND STOCKHOLDERS’ EQUITY(DEFICIT)Current
      Liabilities:Accounts
      payable and accrued expenses
            
            $
            1,293,972
            
            
            $
            793,389Promissory
      notes payable - current
            
            
            1,136,361
            
            
            
            1,116,109Dutchess
      promissory notes payable - current
            
            
            718,000
            
            
            
            461,000Accrued
      interest payable
            
            
            247,147
            
            
            
            201,225Deferred
      revenue
            
            
            304,355
            
            
            
            310,911Total
      Current Liabilities
            
            
            3,699,835
            
            
            
            2,882,634Dutchess
      promissory notes payable – non-current
            
            
            3,159,000
            
            
            
            3,574,000Promissory
      notes – non-current
            
            
            40,409
            
            
            
            --Stockholder
      note payable, - non-current
            
            
            17,780
            
            
            
            121,419TOTAL
      LIABILITIES
            
            
            6,917,024
            
            
            
            6,578,053Stockholders’
      Equity (Deficit):Common
      Stock, 200,000,000 shares authorized, $.001 par value, 23,058,655 and
      23,058,655 shares issued and outstanding in 2008 and 2007,
      respectively
            
            
            23,059
            
            
            
            23,059Capital
      in excess of par value
            
            
            31,349,583
            
            
            
            31,349,583Accumulated
      deficit
            
            
            (32,145,086
            )
            
            
            (31,042,252
            )Total
      stockholders’ equity (deficit)
            
            
            (772,444
            )
            
            
            330,390TOTAL
      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT )
            
            $
            6,144,580
            
            
            $
            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 SIX MONTHS ENDED JUNE 30, 2008 AND 2007




Three
      Months Ending
                June
      30,
              
              
              Six
      Months Ending
                June
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Equipment
      sales
              
              $
              365,015
              
              
              $
              56,214
              
              
              $
              809,319
              
              
              $
              170,049Installation
      revenues
              
              
              550,901
              
              
              
              161,589
              
              
              
              631,534
              
              
              
              465,106Maintenance
      revenues
              
              
              357,561
              
              
              
              259,900
              
              
              
              1,084,080
              
              
              
              482,910Total
      revenues
              
              
              1,273,477
              
              
              
              477,703
              
              
              
              2,524,933
              
              
              
              1,118,065Costs
      of goods soldMaterial
      cost of systems sold
              
              
              348,892
              
              
              
              30,211
              
              
              
              704,289
              
              
              
              88,118Install
      and service costs
              
              
              92,492
              
              
              
              212,239
              
              
              
              206,705
              
              
              
              417,152Engineering
      and development
              
              
              35,576
              
              
              
              41,716
              
              
              
              71,526
              
              
              
              80,709Total
      costs of goods sold
              
              
              476,960
              
              
              
              284,166
              
              
              
              982,520
              
              
              
              585,979Gross
      margin
              
              
              796,517
              
              
              
              193,537
              
              
              
              1,542,413
              
              
              
              532,086Selling,
      general, and administrative expensesSelling,
      general and administrative expense
              
              
              899,101
              
              
              
              353,096
              
              
              
              1,960,717
              
              
              
              718,165Depreciation
      expense
              
              
              8,444
              
              
              
              1,809
              
              
              
              15,046
              
              
              
              3,618Amortization
      expense
              
              
              185,224
              
              
              
              61,154
              
              
              
              383,193
              
              
              
              122,305Total
      selling, general, and administrative expenses
              
              
              1,092,769
              
              
              
              416,059
              
              
              
              2,358,956
              
              
              
              844,088Loss
      from operations
              
              
              (296,252
              )
              
              
              (222,522
              )
              
              
              (816,543
              )
              
              
              (312,002
              )Other
      Income (Expense)Interest
      (expense)
              
              
              (119,125
              )
              
              
              (121,949
              )
              
              
              (285,532
              )
              
              
              (174,208
              )Other
      (expense)
              
              
              --
              
              
              
              (24,000
              )
              
              
              (500
              )
              
              
              (24,000
              )Total
      other income (expense)
              
              
              (119,125
              )
              
              
              (145,949
              )
              
              
              (286,032
              )
              
              
              (198,208
              )Loss
      before income taxes
              
              
              (415,377
              )
              
              
              (368,471
              )
              
              
              (1,102,575
              )
              
              
              (510,210
              )Provision
      for (benefit from) income taxes
              
              
              (11
              )
              
              
              208
              
              
              
              259
              
              
              
              2,461Net
      Loss
              
              
              (415,366
              )
              
              
              (368,679
              )
              
              
              (1,102,834
              )
              
              
              (512,671
              )Dividends
      on preferred stock
              
              
              --
              
              
              
              89,582
              
              
              
              --
              
              
              
              179,164Net
      loss attributable to common stockholders
              
              $
              (415,366
              )
              
              $
              (458,261
              )
              
              $
              (1,102,834
              )
              
              $
              (691,835
              )Basic
      and diluted net loss per common share
              
              $
              (0.02
              )
              
              $
              (0.06
              )
              
              $
              (0.05
              )
              
              $
              (0.10
              )Weighted
      Average Number of Common Shares
              
              
              23,058,655
              
              
              
              7,091,211
              
              
              
              23,058,655
              
              
              
              7,039,288





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





4





SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES


UNAUDITED
CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR
THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007






2008
              
              
              2007Cash
      Flows From Operating Activities:Net
      (Loss)
              
              $
              (1,102,834
              )
              
              $
              (512,671
              )Adjustments
      to reconcile net loss tonet
      cash used by operating activities:Depreciation
              
              
              15,046
              
              
              
              3,618Amortization
              
              
              383,193
              
              
              
              122,305Interest
      expense paid from attorney’s escrow account
              
              
              --
              
              
              
              17,809Stock
      issued for services
              
              
              --
              
              
              
              31,924Stock
      issued for note payable extensions
              
              
              --
              
              
              
              10,000Amortization
      of debt discount
              
              
              --
              
              
              
              24,000Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              104,110
              
              
              
              (46,197
              )Inventories
              
              
              39,556
              
              
              
              (23,195
              )Other
      current assets
              
              
              20,838
              
              
              
              21,665Accounts
      payable and accrued expenses
              
              
              496,448
              
              
              
              289,112Prepaid
      expense
              
              
              3,568
              
              
              
              --Deposits
              
              
              (9,554
              )
              
              
              --Accrued
      interest payable
              
              
              45,922
              
              
              
              128,569Deferred
      revenue
              
              
              (6,556
              )
              
              
              (43,816
              )Employment
      contracts payable
              
              
              --
              
              
              
              (5,464
              )Net
      Cash Provided (Used) by Operating Activities
              
              
              (10,263
              )
              
              
              17,659Cash
      Flows From Investing Activities:Purchase
      of equipment
              
              
              (2,971
              )
              
              
              (685
              )Net
      Cash Used by Investing Activities
              
              
              (2,971
              )
              
              
              (685
              )Cash
      Flows From Financing Activities:Payment
      of Dutchess debenture
              
              
              (158,000
              )
              
              
              --Proceeds
      from issuance of promissory notes
              
              
              --
              
              
              
              45,000Payment
      of promissory notes payable
              
              
              (104,165
              )
              
              
              (55,679
              )Net
      Cash Provided (Used) by Financing Activities
              
              
              (262,165
              )
              
              
              (10,679
              )Net
      Change in Cash  and cash equivalents
              
              
              (275,399
              )
              
              
              6,295Cash
      at Beginning of the Period
              
              
              350,110
              
              
              
              1,598Cash
      and cash equivalents at End of the Period
              
              $
              74,711
              
              
              $
              7,893Cash
      paid for interest
              
              $
              239,148
              
              
              $
              --Non
      Cash Investing & Financing Activities:Promissory
      note obligation incurred upon acquisition of
    equipment
              
              $
              61,187
              
              
              $
              --Accretion
      of preferred stock dividends
              
              $
              --
              
              
              $
              179,164Proceeds
      from note payable deposited into attorney’s escrowaccount
              
              $
              --
              
              
              $
              50,000Seller
      note acquired in a business combination
              
              $
              --
              
              
              $
              250,000Stock
      sold in a business combination
              
              $
              --
              
              
              $
              100,000Proceeds
      from Dutchess deposited into attorney’s escrowaccount,
      net of fees
              
              $
              --
              
              
              $
              2,495,000Debt
      converted into common stock
              
              $
              --
              
              
              $
              250,000Investment
      in Meadowlands and Vanwell paid fromattorney’s
      escrow account
              
              $
              --
              
              
              $
              1,200,000


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


5




SOMERSET INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES




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 June 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 June 30, 2008
and the results of its consolidated operations and its consolidated cash flows
for the periods ended June 30, 2008 and 2007.






6




SOMERSET INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES


The Unaudited Consolidated Statements
of Operations for the periods ended June 30, 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.





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 $39,603 and $73,915 as of June 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.









7




SOMERSET
INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
 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 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.






8




SOMERSET INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES


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.




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 June 30, 2008 and
2007, 3,018,146 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.






9




SOMERSET INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES






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. 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.






10




SOMERSET INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES





•
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 ata 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.














11














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 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 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 12,280,000
warrants for common stock issued and outstanding.  At June 30, 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.








12





Results
of Operations





Revenues




Revenues of $1,273,477 and $2,524,933,
respectively, for the three and six months ended June 30, 2008 increased by
$795,774 and $1,406,868, respectively, over revenues of $477,703 and $1,118,065,
respectively, for the three and six months ended June 30, 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 $159,529 for the three months ended June 30, 2008.  This
decrease is attributable to an increase of $29,606 in equipment sales offset by
a decrease in installation revenues of $120,927 and $68,208 in decreased
maintenance revenues.





Costs
of Goods Sold




Costs of Goods Sold of $476,960 and
$982,520, respectively, for the three and six months ended June 30, 2008
increased by $192,794 and $396,541, respectively, over cost of goods sold of
$284,166 and $585,979, respectively, for the three and six months ended June 30,
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 $95,944 in costs of goods sold for Secure relating to the decrease
in revenues described above.





Gross
Margin





Gross Margin of
$796,517 and $1,542,413, respectively, for the three and six months ended June
30, 2008 increased by $602,980 and $1,010,327, respectively, over gross margins
of $193,537 and $532,086, respectively, for the three and six months ended June
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
$1,092,762 and $2,358,956, respectively, for the three and six months ended June
30, 2008 increased by $676,703 and $1,514,868, respectively, over SG&A
expenses of $416,059 and $844,088, respectively, for the three and six months
ended June 30, 2007. 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 of $119,125 and $286,032,
respectively, for the three and six months ended June 30, 2008 decreased by
$26,824 and increased by $87,824, respectively, over other expenses of $145,949
and $198,208, respectively, for the three and six months ended June 30, 2007.
This is primarily attributable to the interest expense on the Dutchess
convertible debentures issued in June 2007 and November 2007.






13






Dividends
on Preferred Stock




Dividends on preferred stock for the
three months and six months ended June 30, 2008 were $0, which decreased from
$89,582 and $179,164, respectively, for the three and six months ended June 30,
2007.  On September 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 $415,366 and $1,102,834,
respectively, for the three and six months ended June 30, 2008 decreased by
$42,895 and increased by $410,999, respectively, over net losses of $458,261 and
$691,835, respectively, for the three and six months ended June 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 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 had 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.





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.






14







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.





At June 30, 2008, the Company had
negative working capital of approximately $2,239,492.




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.






15







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.








16







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 June 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 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.





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.








17








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:
      August 13, 2008
              By:
              /s/ John X.
      AdilettaJohn
      X. Adiletta,Chief
      Executive OfficerChief
      Financial Officer