U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549


------------------------------------------------------




**FORM
      10-KSB**




ANNUAL
      REPORT PURSUANT TO SECTION 13 or 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





**For
      the fiscal year ended December 31, 2006**


______________________________________________________________





Commission
      File No.: 0-10854


___________________________________________________________





**Somerset
      International Group, Inc.**


(Exact
      name of registrant as specified in its charter)





DELAWARE
            No.
                13-27956-75(State
                or other jurisdiction of incorporation or organization)
            (I.R.S.
                Employer Identification)





90
      Washington Valley Road, Bedminster, New Jersey


(Address
      of principal executive offices)




07921
            (908)
                719-8909(Zip
                Code)
            (Registrant's
                Telephone Number)





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





Securities
      registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par
      value





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





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrants knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. /X/




State
      issuer's revenues for its most recent fiscal year: $1,740,391





As
      of
      March 29, 2007, the aggregate market value of the voting stock held by
      non-affiliates of the registrant was $596,197 based upon a last sales price
      on
      such date of $0.20.





Check
      whether the issuer has filed all documents and reports required to be filed
      by
      Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
      the
      distribution of securities under a plan confirmed by a court. Yes /X/
      No


As
      of
      March 29, 2007, 7,043,676 shares of the registrants Common Stock were
      outstanding.





Transitional
      Small Business Disclosure Format: Yes No /X/





Transfer
                Agent as of March 29, 2007:
            American
                Stock Transfer & Trust Co.
              6201
                15thAvenue
              Brooklyn
                NY 11219







1




**PART
      I**








**Item
      1. Description of Business**





(a)
      State
      of Incorporation; Offices and Facilities





Somerset
      International Group, Inc. (“Somerset”), the registrant, was incorporated under
      the laws of the State of Delaware in 1968 and commenced operations in 1972.
      Effective December 31, 2001, Somerset (formerly known as ORS Automation, Inc.)
      ceased conducting operations. The decision to cease operations was made prior
      to
      the year end after our two principal customers, who accounted for substantially
      all of our sales, canceled all orders for products in the foreseeable future
      and
      based upon the general decline in electronics manufacturing activity. 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. The
      acquisition was completed on March 11, 2005 (see Note 9). Our executive office
      is located at 90 Washington Valley Road, Bedminster, New Jersey, 07921.





(b)
      Nature of Business





From
      inception through the fiscal year ended December 31, 2001, we were primarily
      engaged in the production and sale of computer-based vision products for
      automatic part alignment, machine guidance, identification, inspection, control
      of industrial processes and visual sensing systems for use with industrial
      automation equipment. These products and control systems were sold to machine
      manufacturers who then incorporated them into machines sold to an end user.
      The
      end users were typically automated, high volume electronic circuit and component
      manufacturers globally located. Our current activity is the acquisition of
      profitable and near term profitable private small and medium sized businesses
      and maximizing the profitability of our acquired entities and to act as a
      holding company for such entities.





(c)
      Corporate Developments





On
      July
      7, 2004, we executed an Agreement and Plan of Merger with Secure Systems, Inc.,
      a New Jersey corporation which provides wireless security products and services.
      The closing was subject to a financing of five hundred thousand dollars
      ($500,000) to provide working capital to the merged company.


2


In
      addition, we agreed to issue three million four dollars ($3,000,004)
      of Redeemable Convertible Preferred Stock to the shareholders of the
      wireless company and assume five hundred five thousand dollars ($505,000) of
      existing indebtedness. The financing for this transaction was completed on
      March
      11, 2005, and the merger closed on March 11, 2005.




Pursuant
      to the Agreement and Plan of Merger (the “Agreement”) between us, Secure System,
      Inc. (“Secure” or “SSI”), a New Jersey corporation; and SECSYS Acquisition Corp.
      (“SECSYS”), a New Jersey corporation and our wholly owned subsidiary, Secure
      merged into SECSYS and as the surviving entity of the merger became our wholly
      owned subsidiary. In consideration for the acquisition of all of the outstanding
      shares of Secure, we paid a total of $500,000 to Secure to be used as working
      capital and issued a total of 3,000,004 shares of our Series A Convertible
      Preferred Stock to the shareholders of Secure. These shares of Preferred Stock
      are convertible into shares of our common shares at the option of the
      shareholder at the conversion rate of $.40 per share until September 30, 2007,
      $.60 per share until September 30, 2008, and $.80 per share
      thereafter.





The
      acquisition was financed through 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 six (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 six 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.





(d)
      2006
      Revenues





Somerset
      had revenues of $1,740,391 in fiscal 2006.





(e)
      Patents and Trademarks





Somerset
      retained its patents and other intellectual property, which is carried at a
      zero
      basis.





Somerset
      holds United States Patent No. 3,877,019, titled "Photo-measuring Materials
      Device for Computer Storage of Photographic and Other Materials", granted April
      8, 1975; No. 3,908,078, titled "Method and Apparatus for Digital Recognition
      of
      Objects Particularly Biological Materials", granted September 23, 1975; No.
      4,613,269, titled "Robotic Acquisition of Objects By Means Including Histogram
      Techniques", granted September 23, 1986 and No. 4,642,813, titled
      "Electro-Optical Quality Control Inspection of Elements on a Product", granted
      February 10, 1987. Although Somerset relied primarily on its technological
      know-how and expertise in the field of machine vision, some products were
      nevertheless based, in part, on the technology underlying these patents. No
      assurance can be given as to the validity and scope of the protection provided
      by these patents.






3





Somerset
      holds and used several registered trademarks. "ORS" was used as a general
      identifying symbol in respect of its Products. "i-bot" was used in conjunction
      with systems when adapted for use with industrial robots and the related
      electronic grippers. "FLEXVISION" identified a flexible image computer. The
      alignment products were identified by "i-lign" and circuit board inspection
      systems were identified by "i-flex". Somerset has also copyrighted critical
      software.





(f)
      Employees





As
      of
      March 29, 2007, Somerset has 1 employee and Secure has 16 employees. These
      employees include 4 in manufacturing and engineering, 1 in sales and marketing,
      9 in service and installation, and 2 in administration. No employees are
      currently covered under collective bargaining agreements.





**Item
      2. Description of Property**





Somerset’s
      executive office is located at 90 Washington Valley Road, Bedminster, New
      Jersey, 07921. The Company leases such space on a month to month
      basis.





**Item
      3. Legal Proceedings**





The
      Company is not presently parties to any litigation, nor to the Company’s
      knowledge and belief is any litigation threatened or contemplated.





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




None




**PART
      II**





**Item
      5. Market for Common Equity and Related Stockholder
      Matters**





On
      October 15, 1986, Somerset’s common stock was delisted from NASDAQ for failure
      to meet the minimum capital and surplus requirements of the NASD By-Laws. Since
      there were no market makers for Somerset’s stock, trading, if any, has been
      sporadic. There were no public stock transactions during 2003 and 2002.





On
      November 10, 2004, the Company was notified that it had received clearance
      from
      the National Association of Securities Dealers (“NASD”) to have its Common Stock
      quoted on the Over the Counter (“OTC”) Bulletin Board.





Our
      common stock is currently traded on the OTC Bulletin Board under the symbol
      “SOSI.” Our common stock has been quoted on the OTC Bulletin Board since
      November 10, 2004. The following table sets forth the range of high and low
      bid
      quotations for each quarter of calendar year 2005, and the first quarter of
      calendar year 2006 up to March 29, 2007. These quotations as reported by the
      OTC
      Bulletin Board reflect inter-dealer prices without retail mark-up, mark-down,
      or
      commissions and may not necessarily represent actual
      transactions.


4





**Year**
            **Period**
            **High**
            **Low**2006
            First
            $0.35
            $0.102006
            Second
            $0.40
            $0.202006
            Third
            $0.20
            $0.202006
            Fourth
            $0.25
            $0.182007
            First
            $0.22
            $0.13





As
      of
      December 31, 2006, there were approximately 567 holders of record of Somerset’s
      common stock.





Dividends





We
      have
      never paid dividends on our common stock and do not anticipate paying such
      dividends in the foreseeable future. The payment of future cash dividends by
      us
      on our common stock will be at the discretion of our Board of Directors and
      will
      depend on our earnings, financial condition, cash flows, capital requirements
      and other considerations as our board of directors may consider relevant.
      Although dividends are not limited currently by any agreements, it is
      anticipated that future agreements, if any, with institutional lenders or others
      may limit our ability to pay dividends on our common stock. Notwithstanding
      the
      above, we have agreed to issue dividends to the holders of Series A Preferred
      Stock as set forth above. We are not statutorily prohibited from paying
      dividends.





Warrants





As
      of
      December 31, 2006, 140,000 warrants have been issued to seven warrant holders.
      The warrant holders are entitled to purchase fully paid and nonassessable shares
      of the our common stock, $.001 par value per share at a per share purchase
      price
      in the following manner: 25,000 exercisable at $.30 if exercised within the
      twelve months from June 30, 2005, the date of the warrant; $.40 if exercised
      within 12 months to 24 months from the date of the warrant; and $.50 if
      exercised within 24 months to 36 months from the date of the warrant, 25,000
      exercisable at $.30 if exercised within the twelve months from August 19, 2005,
      the date of the warrant; $.40 if exercised within 12 months to 24 months from
      the date of the warrant; and $.50 if exercised within 24 months to 36 months
      from the date of the warrant, 15,000 exercisable at $.30 if exercised within
      the
      twelve months from October 21, 2005, the date of the warrant; $.40 if exercised
      within 12 months to 24 months from the date of the warrant; and $.50 if
      exercised within 24 months to 36 months from the date of the warrant, 10,000
      exercisable at $.30 if exercised within the twelve months from February 1,
      2006,
      the date of the warrant; $.40 if exercised within 12 months to 24 months from
      the date of the warrant; and $.50 if exercised within 24 months to 36 months
      from the date of the warrant, 30,000 exercisable at $.30 if exercised within
      the
      twelve months from May 26, 2006, the date of the warrant; $.40 if exercised
      within 12 months to 24 months from the date of the warrant; and $.50 if
      exercised within 24 months to 36 months from the date of the warrant, and 25,000
      exercisable at $.30 if exercised within the twelve months from August 14, 2006,
      the date of the warrant; $.40 if exercised within 12 months to 24 months from
      the date of the warrant; and $.50 if exercised within 24 months to 36 months
      from the date of the warrant. The warrants may be exercised in full or in part
      (but not of a fractional share) by the holder. In addition, the 5,000 warrants
      are exercisable at $.20 per share for a period of five years and 5,000 warrants
      are exercisable at $.18 per share for a period of five years.







5





Stock
      Option Grants





There
      are
      no options to purchase our securities outstanding. We may in the future
      establish an incentive stock option plan for our directors, employees and
      consultants.




**Item
      6. Management's Discussion of Financial Condition and Results of
      Operations**





This
      Annual Report on Form 10-KSB include forward-looking statements within the
      meaning of the Private Securities Litigation Reform Act of 1995 including,
      without limitation, statements containing the words "believes," "anticipates,"
      "intends," "expects," "estimates," "may," "will," "likely," "could" and words
      of
      similar import. Such statements include statements concerning the Company's
      business strategy, operations, cost savings initiatives, future compliance
      with
      accounting standards, industry, economic performance, financial condition,
      liquidity and capital resources, existing government regulations and changes
      in,
      or the failure to comply with, governmental regulations. All statements in
      this
      report that are not historical are forward-looking statements within the meaning
      of Section 21E of the Securities Exchange Act as amended, including statements
      regarding Somerset statements regarding future sales and its efforts to attract
      new customers for its products and develop new products. Such statements are
      subject to risks and uncertainties that could cause actual results to differ
      materially from those projected, including, but not limited to, uncertainties
      relating to technologies, product development, our ability to generate
      sufficient cash from operations or from investors or lenders to fund product
      development and sales and marketing efforts needed to attract new customers,
      operations, manufacturing, market acceptance, cost and price of Somerset
      products, ability to attract new customers, regulatory approvals, competition,
      intellectual property of others, and patent protection and litigation. The
      Company's actual results may differ materially from the results discussed in
      such forward-looking statements because of a number of factors, including those
      identified elsewhere in this Annual Report on Form 10-K. Somerset expressly
      disclaims any obligation or undertaking to release publicly any updated or
      revisions to any forward-looking statements contained herein to reflect any
      change in its expectations with regard thereto or any change **** in **** events,
      conditions, or circumstances on which any such statements are
      based.





The
      table
      below presents selected financial data for Somerset for the past two
      years.





Results
      of Operations




For The Year Ended December 31,
            
            2006
            
            2005Sales
            
            $
            1,740,391
            
            $
            1,539,560Operating Expenses
            
            
            2,715,126
            
            
            2,262,127Loss from Operations
            
            
            (974,735
            )
            
            (722,567
            )Net
                Loss attributable to Common Stockholders
            
            
            (1,495,687
            )
            
            (1,396,260
            )Basic Loss per Common Share
            
            
            (0.23
            )
            
            (0.27
            )






6






Financial Position at
                December
                  31,
              
              2006
              
              2005Total Assets
              
              $
              3,628,268
              
              $
              4,010,961Total Liabilities
              
              
              2,655,101
              
              
              2,159,792Shareholders’ Deficit
              
              
              (2,730,967
              )
              
              (1,494,639
              )




General




On
      July
      7, 2004, we entered into an Agreement and Plan of Merger with a Secure Systems,
      Inc. which provides wireless security products and services. The closing was
      subject to a financing for an investment of five hundred thousand dollars
      ($500,000) to provide working capital to the merged company. In addition, we
      issued three million and four dollars ($3,000,004) of Redeemable Convertible
      Preferred Stock to the shareholders of Secure Systems and assumed five hundred
      five thousand dollars ($505,000) of existing indebtedness plus accrued interest.
      The financing for the acquisition was completed on March 11, 2005, and the
      merger was closed on March 11, 2005.





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. For a detailed discussion on the
      application of these and other accounting policies see Note 1 to our financial
      statements.




We
      have
      not established an allowance for doubtful accounts on our accounts receivable.
      In not establishing the allowance for doubtful accounts, we analyzed the ability
      to collect accounts that are large, none of which are currently past due.
      Historically, SSI has not incurred bad debt expense and that trend is
      anticipated to continue.





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.






7







The
      Company currently generates all of its revenue from its acquisition of Secure
      System, Inc. The opportunity for increased revenues at Secure will result from
      an increase in installations at new and existing customer sites. There are
      approximately 6,900 accredited post secondary institutions and 5,700 hospitals
      the represent Secure’s primary addressable market. The recognition and need for
      security solutions has increased significantly in the post 9/11 environment.
      Secure has established a website for additional leads and marketing exposure
      and
      has increased its emphasis on indirect sales channels since the acquisition
      and
      expects that this emphasis and its direct sales efforts will result in
      additional installations. In addition, the Company expects to increase its
      revenues through the acquisition of additional companies that it has
      targeted.





Revenues




Revenues
      of $1,740,391 for the year ended December 31, 2006 increased by $200,831 over
      revenues of $1,539,560 during the year ended December 31, 2005. The increases
      in
      revenues for the twelve month period were attributable primarily to the full
      year reporting of the March 11, 2005 merger with Secure System, Inc. Revenues
      for Secure, on a proforma basis, decreased $170,738 for the twelve months ended
      December 31, 2006 as compared to the twelve months ended December 31, 2005.
      This
      was primarily attributable to a decrease in Equipment Sales and Installation
      Revenues of $171,081 and a decrease in Subscription Revenues of $79,560 for
      the
      same period for the twelve months ended December 31, 2006 offset by an increase
      in Maintenance Revenues of $79,903.





Costs
      of
      Goods Sold




Costs
      of
      Goods Sold for the year ended December 31, 2006 increased to $1,092,250,
      representing an increase of $90,236 over costs of goods sold of $1,002,014
      during the year ended December 31, 2005. The increases in costs and expenses
      for
      the twelve month period were attributable primarily to the full year reporting
      of the March 11, 2005 merger with Secure System, Inc. Costs of goods sold for
      Secure, on a proforma basis, decreased $169,102 for the twelve months ended
      December 31, 2006 as compared to the twelve months ended December 31, 2005.
      This
      was attributable to a decrease in materials cost of $71,274, a decrease in
      factory overhead of $5,481, a decrease in installation and service costs of
      $113,383, offset by an increase in engineering costs of $21,036.





Gross
      Margin





Gross
      Margin for the year ended December 31, 2006 increased to $648,141 and 37.2%
      of
      revenue, from a gross margin of $537,546 and 34.9% of revenue during the year
      ended December 31, 2005. Gross Margin for Secure, on a proforma basis, decreased
      $1,636 from $649,777 and 34% of revenue for the twelve months ended December
      31,
      2006 as compared to the twelve months ended December 31, 2005.





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





SG&A
      expenses for the year ended December 31, 2006 of $1,622,876, increased by
      $362,763 over SG&A expenses of $1,260,113 during the year ended December 31,
      2005.


8


Selling
      and marketing expenses increased by $67,689, general and administrative expenses
      increased by $259,926, amortization expense increased by $40,766, and
      depreciation expense decreased by $5,618 from the year ended December 31, 2005.
      The increase in general and administrative was primarily attributable to an
      increase in financing and investor relations costs of $101,841, consulting
      fees
      of $22,562, and accounting fees of $15,565 for the twelve months ended December
      31, 2006 as compared to the twelve months ended December 31, 2005.





Interest
      Expense




Interest
      expense for the year ended December 31, 2006 increased to $170,444, from
      interest expense of $144,681 during the year ended December 31, 2005. This
      increase is attributable to the interest on the promissory notes acquired with
      the merger with Somerset-New Jersey, as well as from the promissory notes issued
      in conjunction with the March 11, 2005 merger with Secure System, Inc.




Other
      Income (Expense)




Amortization
      expense of debt discount decreased from $167,914 to $0 during the year ended
      December 31, 2006. The decrease in other expense for the period was primarily
      attributable to complete amortization of debt discount for the promissory notes
      issued in conjunction with the March 11, 2005 merger with Secure System, Inc.




Dividends
      on Preferred Stock




Dividends
      on preferred stock for the year ended December 31, 2006 were $358,328 versus
      $359,748 in dividends during the year ended December 31, 2005. These dividends
      are attributable to the redeemable convertible preferred shares issued in
      conjunction with the March 11, 2005 merger with Secure System, Inc.





Net
      (Loss)





Net
      Loss
      attributable to common stockholders for the year ended December 31, 2006
      increased by $99,427 to $1,495,687 from $1,396,260 during the year ended
      December 31, 2005. The increase in net loss is primarily due to an increase
      in
      gross margin of $110,595 for the period and reduced by an increase in selling,
      general, and administrative expenses for the year of $368,043.




Liquidity
      and Capital Resources




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




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 six (6)
      month
      notes with a twelve (12%) percent annual interest rate.


9


For
      each dollar
      invested, an investor received a note for a dollar repayable in full six 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.




At
        December 31, 2006,
        the Company had negative working capital of $1,848,449, and a stockholders’
deficit of $2,730,967. It is for these factors that our auditors have issued
        an
        explanatory paragraph with regard to our ability to continue as a going
        concern.


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 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.


10





**Recent
      Accounting Pronouncements**




In
      December 2004, the FASB revised FASB Statement No. 123R, Accounting for
      Stock-Based Compensation. This Statement supersedes APB Opinion No. 25,
      Accounting for Stock Issued to Employees, and its related implementation
      guidance. This Statement establishes standards for the accounting for
      transactions in which an entity exchanges its equity instruments for goods
      or
      services. It also addresses transactions in which an entity incurs liabilities
      in exchange for goods or services that are based on the fair value of the
      entity’s equity instruments or that may be settled by the issuance of those
      equity instruments. This Statement focuses primarily on accounting for
      transactions in which an entity obtains employee services in share-based payment
      transactions. This Statement does not change the accounting guidance for
      share-based payment transactions with parties other than employees provided
      in
      Statement 123 as originally issued and EITF Issue No. 96-18, “Accounting for
      Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
      in
      Conjunction with Selling, Goods or Services.” It applies in the first reporting
      period beginning after December 15, 2005. The adoption of Statement No. 123R
      (revised 2004) is not expected to have a material impact on the Company’s
      financial position, liquidity, or results of operations.




In
        September 2006,
        the FASB issued SFAS No. 157, Fair Value Measurements, and (“SFAS No. 157”),
        which defines fair value, establishes a framework for measuring fair value,
        and
        expands disclosures about fair value measurements. SFAS No. 157 will be
        effective for the Company beginning January 1, 2008. Management is currently
        evaluating the effect SFAS No. 157 will have on the Company’s financial
        condition or results of operations.




In
      July 2006, the
      FASB has published FASB Interpretation No. 48 (“FIN No. 48”), Accounting for
      Uncertainty in Income Taxes, to address the noncomparability in reporting tax
      assets and liabilities resulting from a lack of specific guidance in FASB
      Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for
      Income Taxes, on the uncertainty in income taxes recognized in an enterprise’s
      financial statements. FIN No. 48 will apply to fiscal years beginning after
      December 15, 2006, with earlier adoption permitted. The adoption of FIN 48
      is
      not expected to have a material effect on the Company’s financial condition or
      results of operations.





**Item
      7. Financial Statements and Supplementary Data**





Financial
      Statements and schedules filed herewith are listed in the table of contents
      to
      the financial statements on page F-1.





**Item
      8. Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





None





**Item
      8A. Controls and Procedures**





Evaluation
      of disclosure controls and procedures





Our
      principal executive officer and principal financial officer evaluated our
      disclosure controls and procedures (as defined in rule 13a-14(c) and 15d-14(c)
      under the Securities Exchange Act of 1934, as amended) as of December 31, 2006
      (the Evaluation Date). Based on that evaluation, our principal executive officer
      and principal financial officer concluded that, as of the Evaluation Date,
      the
      disclosure controls and procedures in place were effective to ensure that
      information required to be disclosed by us, including our consolidated
      subsidiaries, in reports that we file or submit under the Exchange Act, is
      recorded, processed, summarized and reported on a timely basis in accordance
      with applicable rules and regulations.






11





Although
      our principal executive officer and principal financial officer believes our
      existing disclosure controls and procedures are effective to enable us to comply
      with our disclosure obligations, we intend to formalize and document the
      procedures already in place and establish a disclosure committee.





Changes
      in internal controls





We
      have
      not made any significant changes to our internal controls subsequent to the
      Evaluation Date. We have not identified any significant deficiencies or material
      weaknesses or other factors that could significantly affect these controls,
      and
      therefore, no corrective action was taken.




**Part
      III**





**Item
      9. Directors and Executive Officers of the Registrant**





On
      February 12, 2004, two directors of the Company, James R. Solakian and Conrad
      R.
      Huss, resigned as directors of the Company. On February 12, 2004, John X.
      Adiletta and Paul L Patrizio were named new directors and officers of the
      Company. Effective March 10, 2005, Mr. Patrizio resigned as a
      director.





The
      directors and executive officers of the Company are:





Name
            Positions
                with registrant
              and
                age as of March 30, 2006
            Has
                served as
              director
                sinceJohn
                X. Adiletta
            President,
                Chief Executive Officer, Chairman, 57
            February,
                2004





John
      X.
      Adiletta, President, Chief Executive Officer and a member of the Board of
      Directors of the Company since February 12, 2004, at which time Somerset
      International Group Inc., a New Jersey corporation 45% owned by Mr. Adiletta
      purchased the majority of the controlling stock held by J.R.S. Holdings L.L.C.
      Mr. Adiletta is a senior executive with over 35 years of multi-functional
      experience in the telecommunication services, mobile and modular facilities
      leasing, and vehicle leasing industries. Mr. Adiletta currently serves on the
      Board of Directors of Output Services Group, Inc., a privately held
      company.





Term
      of Office:





Our
      sole
      director is appointed for a one-year term to hold office until the next annual
      general meeting of our shareholders or until removed from office in accordance
      with our bylaws. Our officers are appointed by our board of directors and hold
      office until removed by the board.





All
      officers and directors listed above will remain in office until the next annual
      meeting of our stockholders, and until their successors have been duly elected
      and qualified. There are no agreements with respect to the election of
      Directors.


12


We
      have
      not compensated our Directors for service on our Board of Directors, any
      committee thereof, or reimbursed for expenses incurred for attendance at
      meetings of our Board of Directors and/or any committee of our Board of
      Directors. Officers are appointed annually by our Board of Directors and each
      Executive Officer serves at the discretion of our Board of Directors. We do
      not
      have any standing committees. Our Board of Directors may in the future determine
      to pay Directors’ fees and reimburse Directors for expenses related to their
      activities.




None
      of
      our Officers and/or Directors have filed any bankruptcy petition, been convicted
      of or been the subject of any criminal proceedings or the subject of any order,
      judgment or decree involving the violation of any state or federal securities
      laws within the past five (5) years.





Certain
      Legal Proceedings:




No
      director, nominee for director, or executive officer of the Company has appeared
      as a party in any legal proceeding material to an evaluation of his ability
      or
      integrity during the past five years.





Compliance
      with 16(A) of the Exchange Act:





Section
      16(a) of the Exchange Act requires the Company’s officers and directors, and
      persons who beneficially own more than 10% of a registered class of the
      Company’s equity securities, to file reports of ownership and changes in
      ownership with the Securities and Exchange Commission and are required to
      furnish copies to the Company. To the best of the Company’s knowledge, all
      reports required to be filed were timely filed in fiscal year ended December
      31,
      2005.





Code
      of Ethics:





The
      Company has adopted a Code of Ethics applicable to its Chief Executive Officer
      and Chief Financial Officer. This Code of Ethics is filed herewith as an
      exhibit.




**Item
      10. Executive Compensation**





The
      following summary compensation table sets forth all compensation paid by
      Somerset during the fiscal years ended December 31, 2006, 2005 and 2004 in
      all
      capacities for the accounts of the Chief Executive Officer (CEO) and Chief
      Financial Officer (CFO).





Name
                and Principal Position
            
            Year
            
            Annual
              Compensation
            
            Restricted
              Stock
                AwardsJohn
                X. Adiletta, CEO (2) (3)
            
            
            2006
            
            $
            302,500
            
            
            02005
            
            $
            290,000
            
            
            02004
            
            $
            197,039
            
            
            0Paul
                L. Patrizio (1) (2)
            
            
            2005
            
            $
            02004
            
            $
            194,211
            
            
            0





13




(1)
            Paul
                L. Patrizio resigned as Executive Vice President, Principal Financial
                Officer, Secretary and Director on March 11,
                2005




(2)
            In
                2004, John X. Adiletta and Paul Patrizio were entitled to salaries
                of
                $250,000 in accordance with their employment agreements dated January
                6,
                2004. On December 31, 2004, Mssrs. Adiletta and Patrizio signed an
                agreement waiving their salary and other expenses for the period
                from
                October 1, 2004 through March 31, 2005. On October 4, 2004, we issued
                200,000 shares of our restricted common stock to both Mr. Patrizio
                and Mr. Adiletta. These shares were issued for accrued salary of
                $100,000 and were valued at $.50 per share. This accrued salary was
                for
                approximately 4.8 months based on their salaries of $250,000 for
                the
                year. (3)
              In
                  2005, John X. Adiletta was entitled to a salary of $275,000 and
                  a bonus of
                  $75,000 in accordance with his employment agreement dated January
                  6, 2004.
                  On December 31, 2004, Mssrs. Adiletta and Patrizio signed an agreement
                  waiving their salary and other expenses for the period from October
                  1,
                  2004 through March 31, 2005. On December 31, 2005, we issued 300,000
                  shares of our restricted common stock to Mr. Adiletta. These shares
                  were issued for accrued salary of $150,000 and were valued at $.50
                  per
                  share. This accrued salary was for approximately 6.5 months based
                  on his
                  salary of $275,000 for the year.


John
      X.
      Adiletta, our President and CEO, entered into an employment Agreement with
      Somerset-NJ in January 2004, pursuant to which he currently receives a base
      salary of $250,000 (subject to a minimum upward adjustment of 10% annually).
      Pursuant to our merger with Somerset-NJ we assumed the obligations set forth
      in
      the employment agreement. Mr. Adiletta is also eligible for such bonus
      compensation as may be determined by the Board of Directors from time to time,
      as well as a bonus of five percent (5%) of the earnings before interest,
      depreciation, and amortization based on our audited consolidated results. The
      employment agreement terminates on December 31, 2009. The agreement contains
      non-competition and termination non-solicitation provisions which survive the
      termination of Mr. Adiletta’s employment for one year. In the event of
      termination of employment without cause, the agreement provides that we shall:
      (1) pay Mr. Adiletta severance equaling the greater of the balance of the
      term of the agreement or one year’s salary, (2) provide to Mr. Adiletta
      certain medical (including disability) and vacation benefits; and (3) within
      3
      months of termination, pay to Mr. Adiletta an amount equal to the bonus
      paid to Mr. Adiletta in the preceding year under the agreement. In the
      event of a change of control, as defined in the agreement, Mr. Adiletta may
      at his election, at any time within one year after such event, terminate the
      agreement with 60 days prior written notice. Upon such termination,
      Mr. Adiletta is entitled to: (1) a lump-sum severance payment equal to 200%
      of Mr. Adiletta’s annual salary rate in effect as of the termination, or if
      greater, such rate in effect immediately prior to the change in control of
      Somerset, (2) an amount equal to 200% of his bonus for the previous year; and
      (3) for a eighteen (18) month period after such termination certain disability,
      accident and group health insurance benefits.





Directors
      do not receive any monetary remuneration for their services as such.





The
      Company does not have a pension plan.


14





**Item
      11. Security Ownership of Certain Beneficial Owners and
      Management**





The
      following table sets forth the number and percentage of the shares of Somerset’s
      voting stock owned as of March 29, 2006 by all persons known to Somerset who
      own
      more than 5% of the outstanding number of such shares, by all directors of
      Somerset, and by all officers and directors of Somerset as a group. Unless
      otherwise indicated, each of the stockholders has sole voting and investment
      power with respect to the shares beneficially owned.





Title
                of Class
            Name
            Number
                of SharesBeneficially
                Owned
            Percent
              of
                ClassCommon
            John
                X. Adiletta
              c/o
                90 Washington Valley Road
              Bedminster,
                New Jersey 09721
            2,936,633
            41.98%Common
            Paul
                L. Patrizio(1)
              c/o
                90 Washington Valley Road
              Bedminster,
                New Jersey 07921
            1,000,000
            14.29%Voting
            All
                Directors and
              Officers
                as a group
            2,936,633
            41.98%





(1)
      This
      amount reflects the return of 1,289,848 shares as described in Note
      10.





**Item
      12. Certain Relationships and Related Transactions**





On
      March
      10, 2005, our former officer and director, Paul Patrizio, agreed to return
      shares totaling 1,289,848, which were valued at $193,476, pursuant to the terms
      of his resignation as an officer and director of the Company.




The
      stockholder note payable was $501,764 at December 31, 2006. The note plus
      accrued interest matured on December 31, 2001. On July 1, 2004, the Company
      amended the note to add accrued interest through June 30, 2004 of $266,855
      to
      the principal amount of $503,602. The new principal amount of the note was
      repaid with a $150,000 payment on March 11, 2005 and monthly payments of $17,928
      including annual interest at 10% beginning March 1, 2006 and ending July 1,
      2009




On
      December 31, 2005, we approved the issuance of 300,000 shares of restricted
      common stock to John X. Adiletta. These shares were issued based on the
      conversion of $150,000 in accrued compensation owed to John X. Adiletta at
      the
      rate of $0.50 per share. Such shares were issued pursuant to an exemption from
      registration at Section 4(2) of the Securities Act of 1933 and are restricted
      in
      accordance with Rule 144 of the Securities Act of 1933.





On
      June
      30, 2006, the Company approved the issuance of 171,785 shares of restricted
      common stock to John X. Adiletta, the Company’s President and Chief Executive
      Officer. These shares are being issued based on the conversion of $34,357 in
      advances owed to John X. Adiletta at the rate of $0.20 per share.


15


Such
      shares were issued pursuant to an exemption from registration at Section 4(2)
      of
      the Securities Act of 1933 and are restricted in accordance with Rule 144 of
      the
      Securities Act of 1933.





On
      September 29, 2006, the Company approved the issuance of 175,000 shares of
      restricted common stock to John X. Adiletta, the Company’s President and Chief
      Executive Officer. These shares are being issued based on the conversion of
      $35,000 in expenses owed to John X. Adiletta at the rate of $0.20 per share.
      Such shares were issued pursuant to an exemption from registration at Section
      4(2) of the Securities Act of 1933 and are restricted in accordance with Rule
      144 of the Securities Act of 1933.





**PART
      IV**





**Item
      13. Exhibits List and Reports on Form 8-K**





(a)
      Reports on Form 8-K and Form 8K-A




On
      January 6, 2006, the Company filed a Form 8K that on December 31, 2005, the
      Company had approved the issuance of 300,000 shares of restricted common stock
      to John X. Adiletta. These shares are being issued based on the conversion
      of
      $150,000 in accrued compensation owed to John X. Adiletta at the rate of $0.50
      per share. Such shares were issued pursuant to an exemption from registration
      at
      Section 4(2) of the Securities Act of 1933 and are restricted in accordance
      with
      Rule 144 of the Securities Act of 1933.





On
      January 20, 2006, the Company filed a Form 8K that on January 19, 2006, that
      the
      Company had approved the issuance of 300,000 shares of restricted common stock
      to Crescent Fund, LLC pursuant to the consulting agreement between the Company
      and Crescent Fund, LLC dated January 17, 2006. Such shares were issued pursuant
      to an exemption from registration at Section 4(2) of the Securities Act of
      1933
      and are restricted in accordance with Rule 144 of the Securities Act of
      1933.





On
      February 8, 2006, the Company filed a Form 8K that on February 6, 2006, that
      the
      Company had approved the issuance of 50,000 shares of restricted common stock
      to
      Monte Engler & Joan Mannion for a $10,000 investment made pursuant to a
      Stock Purchase Agreement with the Company dated February 1, 2006. Such shares
      were issued pursuant to an exemption from registration at Section 4(2) of the
      Securities Act of 1933 and are restricted in accordance with Rule 144 of the
      Securities Act of 1933.





On
      February 21, 2006, the Company filed a Form 8K that on February 20, 2006, that
      the Company had approved the issuance of 100,000 shares of restricted common
      stock to John Toedtman for consulting services rendered. Such shares were issued
      pursuant to an exemption from registration at Section 4(2) of the Securities
      Act
      of 1933 and are restricted in accordance with Rule 144 of the Securities Act
      of
      1933.





On
      May
      30, 2006, the Company filed a Form 8K that on May 26, 2006, that the Company
      had
      approved the issuance of 75,000 shares of restricted common stock to Joshua
      Emanuel pursuant to a stock purchase agreement at $.20 per shares for a total
      of
      $15,000.


16


In
      addition, the Company issued Mr. Emanuel warrants to purchase a total of up
      to
      15,000 shares of common stock at a per share purchase price of: $.30 if
      exercised within twelve months from the date of the agreement; $.40 if exercised
      within 12 months to 24 months from the date of the agreement and $.50 if
      exercised within 24 months to 36 months from the date of the Agreement. Such
      shares and warrants were issued pursuant to an exemption from registration
      at
      Section 4(2) of the Securities Act of 1933 and are restricted in accordance
      with
      Rule 144 of the Securities Act of 1933.





On
      May
      30, 2006, the Company filed a Form 8K that on May 26, 2006, that the Company
      had
      approved the issuance of 75,000 shares of restricted common stock to Randa
      Globerman pursuant to a stock purchase agreement at $.20 per shares for a total
      of $15,000. In addition, the Company issued Ms. Globerman warrants to purchase
      a
      total of up to 15,000 shares of common stock at a per share purchase price
      of:
      $.30 if exercised within twelve months from the date of the agreement; $.40
      if
      exercised within 12 months to 24 months from the date of the agreement and
      $.50
      if exercised within 24 months to 36 months from the date of the Agreement.
      Such
      shares and warrants were issued pursuant to an exemption from registration
      at
      Section 4(2) of the Securities Act of 1933 and are restricted in accordance
      with
      Rule 144 of the Securities Act of 1933.





On
      May
      30, 2006, the Company filed a Form 8K that on May 26, 2006, that the Company
      had
      approved the issuance of 175,000 shares of restricted common stock to Dominick
      & Dominick, LLC pursuant to an Advisory Agreement dated May 17, 2006. Such
      shares were issued pursuant to an exemption from registration at Section 4(2)
      of
      the Securities Act of 1933 and are restricted in accordance with Rule 144 of
      the
      Securities Act of 1933.





On
      July
      6, 2006, the Company filed a Form 8K that on June 30, 2006, that the Company
      had
      approved the issuance of 171,785 shares of restricted common stock to John
      X.
      Adiletta as a full payment for the his Officer Advance of $34,357 as shown
      on
      the books and records of the Company. Such shares were issued pursuant to an
      exemption from registration at Section 4(2) of the Securities Act of 1933 and
      are restricted in accordance with Rule 144 of the Securities Act of
      1933.





On
      August
      16, 2006, the Company filed a Form 8K that on August 15, 2006, that the Company
      had approved the issuance of 125,000 shares of restricted common stock to Karl
      Kaplan for a $25,000 investment pursuant to a Stock Purchase Agreement dated
      August 14, 2006. Such shares were issued pursuant to an exemption from
      registration at Section 4(2) of the Securities Act of 1933 and are restricted
      in
      accordance with Rule 144 of the Securities Act of 1933.





On
      October 4, 2006, the Company filed a Form 8K that on September 29, 2006, that
      the Company had approved the issuance of 175,000 shares of restricted common
      stock to John X. Adiletta for conversion of expense amounts owed in the amount
      of $35,000 at $.20 per share. Such shares were issued pursuant to an exemption
      from registration at Section 4(2) of the Securities Act of 1933 and are
      restricted in accordance with Rule 144 of the Securities Act of
      1933.





On
      October 17, 2006, the Company filed a Form 8K that on September 29, 2006, that
      the Company had approved the issuance of 15,625 shares to Linda Michaels and
      9,375 shares to Sichenzia Ross Friedman Ference, LLP for legal services
      rendered. Such shares were issued pursuant to an exemption from registration
      at
      Section 4(2) of the Securities Act of 1933 and are restricted in accordance
      with
      Rule 144 of the Securities Act of 1933.





On
      December 14, 2006, the Company filed a Form 8K that on November 15, 2006, that
      the Company had approved the issuance of 25,000 shares to Julie Boyle pursuant
      to a Bridge Note between Ms. Boyle and the Company. Such shares were issued
      pursuant to an exemption from registration at Section 4(2) of the Securities
      Act
      of 1933 and are restricted in accordance with Rule 144 of the Securities Act
      of
      1933.





On
      January 16, 2007, the Company filed a Form 8K that on January 15, 2007, that
      the
      Company, by a vote of a majority of its holders of Series A Convertible
      Preferred Stock, approved an amendment to its Articles of Incorporation by
      modifying the Certificate of Designations of its Series A Convertible Preferred
      Stock effective January 15, 2007 that the first Redemption Date was amended
      and
      extended to July 14, 2007.





On
      January 26, 2007, the Company filed a Form 8K that on January 22, 2007, that
      the
      Company had approved the issuance of 50,000 shares to Starobin Partners pursuant
      to a consulting agreement between the Company and Wellfleet Partners, Inc.
      Such
      shares were issued pursuant to an exemption from registration at Section 4(2)
      of
      the Securities Act of 1933 and are restricted in accordance with Rule 144 of
      the
      Securities Act of 1933.





(b)
      Exhibits




**Method of Filing**
              **Exhibit
                  No.**
              **Exhibits**Incorporated
                  by reference to Form 8-K, dated April 29, 1991.
              2(a)
              Plan
                  of Reorganization under Chapter 11 of the United States Bankruptcy
                  Code,
                  dated April 8, 1991Incorporated
                  by reference to Exhibit 2(b) to Form10KSB, for the year ended10KSB,
                  for
                  the year ended
              2(b)
              Order
                  Closing Case and Issuing Final Decree Pursuant to 11 U.S.C. Section
                  350(a)
                  and Bankruptcy Rules 3022 and 5009, dated September 1,
                  1992Incorporated
                  by reference to Exhibit 3(a) to Form S-1, File No.
                  2-70609.
              3(a)
              Certificate
                  of Incorporation of ORS Automation, Inc. as amended through December
                  29,
                  1980.Incorporated
                  by reference to Exhibit 3(b) to Form S-1, File No.
                  2-70609.
              3(b)
              By-Laws
                  of ORS Automation, Inc.Incorporated
                  by reference to Exhibit 3 to Form 10-Q for the Quarter ended June
                  30,
                  1983.
              3(c)
              Certificate
                  of Amendment of Certificate of Incorporation of ORS Automation,
                  Inc. filed
                  with the Secretary of State of Delaware on May 27,
                  1983.Incorporated
                  by referenceto
                  Exhibit 3(d) to Form 10-K, for the Year ended December 31,
                  1991.
              3(d)
              Certificate
                  of Amendment of Certificate of Incorporation of ORS Automation,
                  Inc. filed
                  with the Secretary of State of
                Delaware
                  on May 30, 1985.






17




Incorporated
                  by reference to Exhibit 3(e) to Form 10-K, for the Year ended December
                  31,
                  1991.
              3(e)
              Certificate
                  of Designations of The Preferred Stock of ORS Automation, Inc.
                  filed with
                  the Secretary of State of Delaware on December 30,
                  1986.Incorporated
                  by reference to Exhibit 3(f) to Form 10-K, for the Year ended December
                  31,
                  1991.
              3(f)
              Certificate
                  of Reorganization and Amendment Pending Confirmation of Plan of
                  Reorganization of ORS Automation, Inc. filed with the Secretary
                  of State
                  of Delaware on December 30, 1986.Incorporated
                  by reference to Exhibit 10(a) to Form 10-K, for the Year ended
                  December
                  31, 1991.
              10(a)
              Lease
                  by and between ORS Automation, Inc. and SLM II, dated June 28,
                  1991.Incorporated
                  by reference to Exhibit 10(b) to Form 10KSB, for the year ended
                  December
                  31, 1992
              10(b)
              Amendment
                  "B" to Lease by and between ORS Automation, Inc.
                and
                  SLM II dated May 22, 1992.Incorporated
                  by reference to Exhibit 10(c) to Form 10KSB, for the year ended
                  December
                  31, 2000
              10(c)
              Amendment
                  “F” to Lease by and between ORS Automation, Inc. and SLM II dated July
                  7,
                  2000.Incorporated
                  by reference to Exhibit 10 (d) to Form 13 D, for the year ended
                  December
                  31, 2002
              10
                  (d)
              Schedule
                  13D by and between ORS Automation, Inc. and J.R.S. Holdings, Inc.
                  dated
                  October 31, 2002Exhibit
                  filed with Form 10 KSB
                For
                  the year ended December 31, 2003
              10
                  (e)
              STOCK
                  PURCHASE AGREEMENT dated December 31, 2003 between J.R. S. Holdings,
                  LLC
                  and Somerset International Group, Inc.14
              Code
                  of Ethics31.1
              Certification
                  of John X. Adiletta pursuant to 18 U.S.C. Section 1350 as adopted
                  pursuant
                  to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
              Certification
                  of John X. Adiletta pursuant to 18 U.S.C. Section 1350 as adopted
                  pursuant
                  to Section 906 of the Sarbanes-Oxley Act of
                  2002.





18






**Item
      14. Principal Accountant Fees and Services**





Audit
      Fees




For
        the
        Company's fiscal years ended December 31, 2006 and December 31, 2005, the
        Company was billed approximately $135,445 and $120,675, respectively for
        professional services rendered for the audit and review of its annual &
quarterly financial statements, as well as the issuance of consents on
        registration statements, filed with the SEC.





Audit
      Related Fees





None
      for
      2006 and 2005.





Tax
      Fees





For
      the
      Company's fiscal years ended December 31, 2006 and 2005, the Company incurred
      $6,505 and $5,735, respectively for preparation of its corporate income tax
      returns.





All
      Other
      Fees





None
      for
      2006 and 2005.





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:
      April 2, 2007   By: */s/
      John X. Adiletta*


John
      X.
      Adiletta,


Chief
      Executive Officer








19


SOMERSET
      INTERNATIONAL GROUP, INC. AND SUBSIDIARY


CONTENTS
      TO CONSOLIDATED FINANCIAL STATEMENTS


DECEMBER
      31, 2006














PageReport
                of Independent Registered Public Accounting Firm
            F-2Consolidated
                Balance Sheet
            F-3December
                31, 2006Consolidated
                Statements of Operations
            F-4For
                the Years Ended December 31, 2006 and 2005Consolidated
                Statements of Stockholders' Deficit
            F-5
                - F-6For
                the Years Ended December 31, 2006 and 2005Consolidated
                Statements of Cash Flows
            F-7For
                the Years Ended December 31, 2006 and 2005Notes
                to Consolidated Financial Statements
            F-8
                - F-26





F-1


Report
      of
      Independent Registered Public Accounting Firm











To
      the
      Board of Directors of Somerset International Group, Inc. and
      Subsidiary:





We
      have
      audited the accompanying consolidated balance sheet of Somerset International
      Group, Inc. and Subsidiary as of December 31, 2006, and the related consolidated
      statements of operations, stockholders' deficit and cash flows for each of
      the
      two years in the period then ended. These consolidated financial statements
      are
      the responsibility of the Company's management. Our responsibility is to express
      an opinion on these consolidated financial statements based on our
      audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements. An audit also includes assessing the
      accounting principles used and significant estimates made by management, as
      well
      as evaluating the overall consolidated financial statement presentation. We
      believe that our audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Somerset
      International Group, Inc. and Subsidiaries as of December 31, 2006, and the
      consolidated results of their operations and their cash flows for each of the
      two years in the period then ended in conformity with accounting principles
      generally accepted in the United States of America.




The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note 1B to
        the
        consolidated financial statements, the Company had net losses for the years
        ended December 31, 2006 and 2005 of approximately $1,137,000 and $1,037,000,
        respectively, an accumulated deficit of approximately $29,289,000 and a
        stockholders’ deficit of $2,731,000 as of December 31, 2006 and the Company
        utilized net cash in operating activities of approximately $36,000 for the
        year
        then ended. In addition, at December 31, 2006, the Company had a working
        capital deficit of $1,848,000. Management’s plan with respect to this matter are
        discussed in Note B and include plans for additional financing to fund its
        current operations and additional financing to acquire or develop other business
        opportunities. These factors raise substantial doubt about the Company’s ability
        to continue as a going concern. The consolidated financial statements do
        not
        include any adjustments that might result from the outcome of this
        uncertainty.











/s/
      WithumSmith+Brown, P.C.


Somerville,
      New Jersey


April
      2,
      2007







F-2








SOMERSET
      INTERNATIONAL GROUP, INC.AND
      SUBSIDIARY


**CONSOLIDATED
      BALANCE SHEET**


**DECEMBER
      31, 2006**





**ASSETS**Current
                Assets:Cash
            
            $
            1,598Accounts
                receivable
            
            
            161,425Inventories
            
            
            296,452Prepaid
                expenses
            
            
            23,786Deposits
            
            
            9,554Total
                Current Assets
            
            
            492,815Property
                and equipment, net
            
            
            8,785Other
                Assets:Non
                compete covenant, net
            
            
            107,939Customer
                Lists, net
            
            
            734,921Software,
                net
            
            
            83,453Goodwill
            
            
            2,200,355Total
                other assets
            
            
            3,126,668TOTAL
                ASSETS
            
            $
            3,628,268**LIABILITIES
                AND STOCKHOLDERS’ DEFICIT**Current
                Liabilities:Accounts
                payable and accrued expenses
            
            $
            889,953Promissory
                notes payable
            
            
            949,000Stockholder
                note payable, current maturities
            
            
            187,927Employment
                contracts payable
            
            
            6,939Accrued
                interest payable
            
            
            246,948Deferred
                revenue
            
            
            60,497Total
                Current Liabilities
            
            
            2,341,264Stockholder
                note payable, net of current maturities
            
            
            313,837TOTAL
                LIABILITIES
            
            
            2,655,101Convertible
                redeemable preferred stock
            
            
            3,704,134Stockholders’
                Deficit:Common
                Stock, 200,000,000 shares authorized,
            
            
            6,934$.001
                par value, 6,933,676 shares issued andoutstandingCapital
                in excess of par value
            
            
            26,551,273Accumulated
                deficit
            
            
            (29,289,174
            )Total
                Stockholders’ Deficit
            
            
            (2,730,967
            )TOTAL
                LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            3,628,268





See
      accompanying Notes to the Consolidated Financial Statements






F-3





SOMERSET
      INTERNATIONAL GROUP, INC.AND
      SUBSIDIARY


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





2006
            
            2005RevenuesEquipment
                Sales
            
            $
            440,089
            
            $
            419,928Installation
                Revenues
            
            
            375,733
            
            
            365,243Subscription
                Revenues
            
            
            156,443
            
            
            190,324Maintenance
                Revenues
            
            
            768,126
            
            
            564,065Total
                revenues
            
            
            1,740,391
            
            
            1,539,560Costs
                of goods soldMaterial
                cost of systems sold
            
            
            166,084
            
            
            162,719Overhead
                cost
            
            
            255,126
            
            
            212,732Install
                and service costs
            
            
            508,121
            
            
            505,696Engineering
                and development
            
            
            162,919
            
            
            120,867Total
                costs of goods sold
            
            
            1,092,250
            
            
            1,002,014Gross
                Margin
            
            
            648,141
            
            
            537,546Selling,
                general, and administrative expensesSelling
                and marketing expense
            
            
            170,494
            
            
            102,805Gen
                and admin expense
            
            
            1,201,295
            
            
            941,369Depreciation
                expense
            
            
            6,471
            
            
            12,089Amortization
                expense
            
            
            244,616
            
            
            203,850Total
                selling, general, and administrative expenses
            
            
            1,622,876
            
            
            1,260,113Loss
                from operations
            
            
            (974,735
            )
            
            (722,567
            )Other Income
                (Expense)Amortization
                of debt discount
            
            
            --
            
            
            (167,914
            )Interest
                expense
            
            
            (170,444
            )
            
            (144,681
            )Other
                  income, net.
            
            
            8,820
            
            
            --Total
                other income (expense)
            
            
            (161,624
            )
            
            (312,595
            )Loss
                before income taxes
            
            
            (1,136,359
            )
            
            (1,035,162
            )Provision
                for income taxes
            
            
            1,000
            
            
            1,350Net
                loss
            
            
            (1,137,359
            )
            
            (1,036,512
            )Dividends
                on preferred stock
            
            
            358,328
            
            
            359,748Net
                loss attributable to common stockholders
            
            $
            (1,495,687
            )
            $
            (1,396,260
            )Basic
                and diluted net loss per common share
            
            $
            (0.23
            )
            $
            (0.27
            )Weighted
                Average Number of Common Shares
            
            
            6,443,763
            
            
            5,262,603





See
      accompanying Notes to the Consolidated Financial Statements














F-4





**SOMERSET
      INTERNATIONAL GROUP, INC.** **AND
      SUBSIDIARY**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ DEFICIT**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**





**PREFERRED
                  STOCK**
              
              **COMMON
                  STOCK**
              
              **CLASS
                  A**
                **COMMON
                  STOCK**
              
              **CAPITAL
                  IN**
              
              
              
              **TOTAL**
                **STOCKHOLDERS’****SHARES**
              
              **PAR
                  VALUE**
              
              **SHARES**
              
              **PAR
                  VALUE**
              
              **SHARES**
              
              **PAR
                  VALUE**
              
              **EXCESS
                  OF PAR**
              
              **ACCUMULATED
                  DEFICIT**
              
              **DEFICIT**Balance
                  at December 31, 2004
              
              
              -
              
              $
              -
              
              
              5,700,044
              
              $
              5,700
              
              
              -
              
              
              -
              
              $
              25,891,130
              
              $
              (26,397,227
              )
              $
              (500,397
              )Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,036,512
              )
              
              (1,036,512
              )Issuance
                  of dividends on Redeemable Preferred Stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (359,748
              )
              
              (359,748
              )Issuance
                  of Common Stock as a debt discount on notes payable
              
              
              
              
              
              
              
              
              504,000
              
              
              504
              
              
              -
              
              
              -
              
              
              150,696
              
              
              -
              
              
              151,200Issuance
                  of Common Stock as a
                debt
                  discount on note payable
              
              
              -
              
              
              -
              
              
              20,000
              
              
              20
              
              
              -
              
              
              -
              
              
              5,980
              
              
              -
              
              
              6,000Issuance
                  of Common Stock for
                services
              
              
              -
              
              
              -
              
              
              62,500
              
              
              63
              
              
              -
              
              
              -
              
              
              15,562
              
              
              -
              
              
              15,625Issuance
                  of Common Stock for cash
              
              
              -
              
              
              -
              
              
              125,000
              
              
              125
              
              
              -
              
              
              -
              
              
              24,875
              
              
              -
              
              
              25,000Issuance
                  of Common Stock for cash
              
              
              -
              
              
              -
              
              
              125,000
              
              
              125
              
              
              -
              
              
              -
              
              
              24,875
              
              
              -
              
              
              25,000Issuance
                  of Common Stock for
                services
              
              
              -
              
              
              -
              
              
              1,250
              
              
              1
              
              
              -
              
              
              -
              
              
              249
              
              
              -
              
              
              250Issuance
                  of Common Stock for cash
              
              
              -
              
              
              -
              
              
              75,000
              
              
              75
              
              
              -
              
              
              -
              
              
              14,925
              
              
              -
              
              
              15,000Issuance
                  of Common Stock for compensation to officer
              
              
              -
              
              
              -
              
              
              300,000
              
              
              300
              
              
              -
              
              
              -
              
              
              149,700
              
              
              -
              
              
              150,000Return
                  of Common Stock from officer
              
              
              -
              
              
              -
              
              
              (1,289,848
              )
              
              (1,290
              )
              
              -
              
              
              -
              
              
              1,290
              
              
              -
              
              
              -Conversion
                  of Redeemable Preferred Stock
              
              
              -
              
              
              -
              
              
              13,945
              
              
              14
              
              
              -
              
              
              -
              
              
              13,931
              
              
              -
              
              
              13,945Balance
                  at December 31, 2005
              
              
              -
              
              $
              -
              
              
              5,636,891
              
              $
              5,637
              
              
              -
              
              
              -
              
              $
              26,293,213
              
              $
              (27,793,487
              )
              $
              (1,494,637
              )











See
        accompanying Notes to the Consolidated Financial Statements








F-5







**PREFERRED
                  STOCK**
              
              **COMMON
                  STOCK**
              
              **CLASS
                  A**
                **COMMON
                  STOCK**
              
              **CAPITAL
                  IN**
              
              
              
              **TOTAL**
                **STOCKHOLDERS’****SHARES**
              
              **PAR
                  VALUE**
              
              **SHARES**
              
              **PAR
                  VALUE**
              
              **SHARES**
              
              **PAR
                  VALUE**
              
              **EXCESS
                  OF PAR**
              
              **ACCUMULATED
                  DEFICIT**
              
              **DEFICIT**Balance
                  at December 31, 2005
              
              
              -
              
              $
              -
              
              
              5,636,891
              
              $
              5,637
              
              
              -
              
              
              -
              
              $
              26,293,213
              
              $
              (27,793,487
              )
              $
              (1,494,637
              )Net
                  Loss
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,137,359
              )
              
              (1,137,359
              )Issuance
                  of dividends on Convertible Redeemable Preferred Stock
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (358,328
              )
              
              (358,328
              )Issuance
                  of Common Stock for services
              
              
              -
              
              
              -
              
              
              300,000
              
              
              300
              
              
              -
              
              
              -
              
              
              59,700
              
              
              -
              
              
              60,000Issuance
                    of Common Stock and warrants for cash
              
              
              -
              
              
              -
              
              
              50,000
              
              
              50
              
              
              -
              
              
              -
              
              
              9,950
              
              
              -
              
              
              10,000Issuance
                  of Common Stock for
                services
              
              
              -
              
              
              -
              
              
              100,000
              
              
              100
              
              
              -
              
              
              -
              
              
              19,900
              
              
              -
              
              
              20,000Issuance
                    of Common Stock and warrants for cash
              
              
              -
              
              
              -
              
              
              75,000
              
              
              75
              
              
              -
              
              
              -
              
              
              14,925
              
              
              -
              
              
              15,000Issuance
                    of Common Stock and warrants for cash
              
              
              -
              
              
              -
              
              
              75,000
              
              
              75
              
              
              -
              
              
              -
              
              
              14,925
              
              
              -
              
              
              15,000Issuance
                  of Common Stock for services
              
              
              -
              
              
              -
              
              
              175,000
              
              
              175
              
              
              -
              
              
              -
              
              
              34,825
              
              
              -
              
              
              35,000Issuance
                  of Common Stock for
                Conversion
                  of officer advance
              
              
              -
              
              
              -
              
              
              171,785
              
              
              172
              
              
              -
              
              
              -
              
              
              34,185
              
              
              -
              
              
              34,357Issuance
                  of Common Stock  and warrants for cash
              
              
              -
              
              
              -
              
              
              125,000
              
              
              125
              
              
              -
              
              
              -
              
              
              24,875
              
              
              -
              
              
              25,000Issuance
                  of Common Stock for payment of an accrued liability to an
                  officer
              
              
              -
              
              
              -
              
              
              175,000
              
              
              175
              
              
              -
              
              
              -
              
              
              34,825
              
              
              -
              
              
              35,000Issuance
                  of Common Stock for services
              
              
              -
              
              
              -
              
              
              25,000
              
              
              25
              
              
              -
              
              
              -
              
              
              4,975
              
              
              -
              
              
              5,000Issuance
                  of Common Stock as a
                debt
                  discount on note payable
              
              
              -
              
              
              -
              
              
              25,000
              
              
              25
              
              
              -
              
              
              -
              
              
              4,975
              
              
              -
              
              
              5,000Balance
                  at December 31, 2006
              
              
              -
              
              $
              -
              
              
              6,933,676
              
              $
              6,934
              
              
              -
              
              
              -
              
              $
              26,551,273
              
              $
              (29,289,174
              )
              $
              (2,730,967
              )






See
          accompanying Notes to the Consolidated Financial Statements







F-6







SOMERSET
      INTERNATIONAL GROUP, INC.AND
      SUBSIDIARY


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005**




2006
            
            2005Cash
                Flows From Operating Activities:Net 
                loss
            
            $
            (1,137,359
            )
            $
            (1,036,512
            )Adjustments
                to reconcile net loss tonet
                cash used in operating activities:Amortization
                of debt discount
            
            
            5,000
            
            
            167,914Depreciation
                and amortization
            
            
            251,087
            
            
            215,939Stock
                issued for services
            
            
            120,000
            
            
            15,875Stock
                issued for compensation
            
            
            --
            
            
            150,000Loss
                on disposal of vehicle
            
            
            1,572
            
            
            --Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            40,823
            
            
            24,237Inventories
            
            
            43,481
            
            
            21,508Other
                current assets
            
            
            5,837
            
            
            3,692Accounts
                payable, accrued expenses, officer advance
            
            
            515,070
            
            
            249,400Accrued
                interest payable
            
            
            116,374
            
            
            95,574Deferred
                revenue
            
            
            39,127
            
            
            (143,125
            )Employment
                contracts payable
            
            
            (37,178
            )
            
            (120,362
            )Net
                Cash Used in Operating Activities
            
            
            (36,166
            )
            
            (355,860
            )Cash
                Flows From Investing Activities:Acquisition
                of subsidiary,net
                of cash acquired
            
            
            --
            
            
            14,810Purchase
                of equipment
            
            
            --
            
            
            (3,075
            )Net
                Cash Provided by Investing Activities
            
            
            --
            
            
            11,735Cash
                Flows From Financing Activities:Payment
                of note payable
            
            
            --
            
            
            (53,503
            )Proceeds
                from issuance of promissory notes
            
            
            50,000
            
            
            524,000Proceeds
                from issuance of stock
            
            
            65,000
            
            
            65,000Payment
                of stockholders note payable
            
            
            (118,723
            )
            
            (150,000
            )Net
                Cash Provided by (Used in ) Financing Activities
            
            
            (3,723
            )
            
            385,497Net
                Change in Cash
            
            
            (39,889
            )
            
            41,372Cash
                at Beginning of the Year
            
            
            41,487
            
            
            115Cash
                at End of the Year
            
            $
            1,598
            
            $
            41,487Cash
                paid for:Interest
            
            $
            57,026
            
            $
            49,689Income
                Taxes
            
            $
            1,000
            
            $
            1,350Non
                Cash Investing & Financing Activities:Common
                stock issued in connection withprivate
                placement of notes
            
            $
            --
            
            $
            157,200Accrual
                of preferred stock dividends
            
            $
            358,328
            
            $
            359,748Convertible
                redeemable preferredstock
                issued in business combination
            
            $
            --
            
            $
            3,000,004Conversion
                of convertible redeemablepreferred
                shares to common stock
            
            $
            --
            
            $
            13,945Employment
                contract entered into inconnection
                with business combination
            
            $
            --
            
            $
            359,748Stock
                issued to repay officer loan
            
            $
            34,357
            
            $
            --Stock
                  issued for
                  accrued expenses owed to an officer
            
            $
            35,000
            
            $
            --Debt
                discount recorded on note payable
            
            $
            5,000
            
            $
            --


See
      accompanying Notes to the Consolidated Financial Statements





F-7




**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO 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 and commenced operations in 1972. Effective December
      31, 2001, Somerset (formerly known as ORS Automation, Inc.) ceased conducting
      operations. The decision to cease operations was made prior to the year end
      after our two principal customers, who accounted for substantially all of our
      sales, canceled all orders for products in the foreseeable future and based
      upon
      the general decline in electronics manufacturing activity. 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.
      The acquisition was completed on March 11, 2005 (see Note 10). Our executive
      office is located at 90 Washington Valley Road, Bedminster, New Jersey,
      07921.





B.  Basis
      of Presentation





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 business opportunities which they believe will allow the Company
      to
      increase shareholder’s value and allow it to continue as a going concern. As of
      March 11, 2005, the Company has acquired a company that provides wireless
      security products (Note 10). In order to continue operations, the Company
      requires additional capital infusions to acquire or develop business
      opportunities. Management continues to search out financing opportunities to
      finance its operations. If management is unsuccessful in this regard, they
      would
      seek to sell or dissolve the Company. The Company had net losses for the years
      ended December 31, 2006 and 2005 of approximately $1,137,000 and $1,037,000,
      respectively, and had an accumulated deficit of approximately $29,289,000 and
      a
      stockholders’ deficit of $2,731,000 as of December 31, 2006. The Company also
      utilized net cash in operating activities of approximately $36,000 in
      2006. In addition at December 31, 2006, the Company has a working capital
      deficit of $1,848,449. 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.




F-8


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


Note
      2.
      Significant Accounting Policies





A. 
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 does not have an allowance for doubtful accounts as
        of
        December 31, 2005 based on their historical collectibility.




B. 
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.




C.  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.




Secure
        has four
        customers which accounted for 100% of its revenues, accounts receivable,
        and
        deferred revenue as of and for the year ended December 31, 2006. While the
        goal
        is to diversify its 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
        its customers may have a material adverse effect by reducing revenues and
        gross
        margins.




D.  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.





E.  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.


F-9


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


The
      Company’s deferred tax items are accrued compensation and net operating loss
      carryforwards, which have been offset by a valuation allowance for the same
      amount.





F.  Fair
      Value of Financial Instruments:





The
      carrying amounts of cash, accounts payable, and promissory notes payable
      approximate fair value because of the short maturity of these items. It is
      not
      practical to estimate the fair value of the stockholder note payable due to
      its
      related party nature.





G.  Reclassifications:





Certain
      reclassifications were made to the 2005 financial statements in order to conform
      to the 2006 financial statement presentation. Such reclassifications had no
      effect on the prior year net loss.





H.  Principles
      of Consolidation:





The
      consolidated financial statements include the operations of Somerset
      International, Inc. and its wholly owned subsidiary, Secure System, Inc. All
      significant intercompany accounts and transactions have been eliminated in
      consolidation.




I.  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 2006 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.




J.  Revenue
      Recognition:




Installation,
      subscription 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.




K.   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.


F-10


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





L.   Loss
      Per Share:




The
        Company computes
        net loss per share under the provisions of SFAS No. 128, “Earnings per Share”
(SFAS 128), using the guidance of 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
        loss
        per share is determined in the same manner as basic loss 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 warrants is anti-dilutive and as such,
        these amounts have been excluded from the calculation of diluted loss per
        share.
        For the years ended December 31, 2006 and 2005, 140,000 and 75,000 of common
        stock equivalent shares in the form of warrants were excluded from the
        computation of diluted net loss per share.


M.  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.
      As of December 31, 2006, no impairment charge was necessary.





N.  Recoverability
      of Intangible and Other Long Lived Assets:





In
      accordance with SFAS No.142, the Company reviews the carrying value of goodwill
      an 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
        change
        circumstances indicate that carrying amounts may not be recoverable. For
        long-1ived assets to be held used, 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 carrying
        amount and fair value. As of December 31, 2006 no impairment charge was
        necessary.




Note
      3.
      Stockholders’ Deficit




The
      preferred stock of the Company has a par value of $.001 per share and
      100,000,000 shares have been authorized to be issued. No shares of preferred
      stock were issued or outstanding at December 31, 2006 and 2005.






F-11


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**






As
      of
      December 31, 2006, 6,933,676 shares of common stock are issued and outstanding
      and held by 567 shareholders. There are also 140,000 warrants issued and
      outstanding. Holders of our common stock are entitled to one vote for each
      share
      on all matters submitted to a stockholder vote.





The
      following is a summary of warrants outstanding at December 31,
      2006:




Issue
                  Date
              Expiration
                  Date
              Number
                  of Shares of Common Stock
              
              Basis
                  for Warrant issuance08/19/05
              08/18/08
              25,000
              **
              Stock
                  Purchase Agreement06/30/05
              06/29/08
              25,000
              **
              Stock
                  Purchase Agreement09/06/05
              09/05/10
              5,000
              **
              Consulting
                  Services09/06/05
              09/05/10
              5,000
              **
              Consulting
                  Services10/21/05
              10/20/08
              15,000
              **
              Stock
                  Purchase Agreement02/06/06
              02/05/09
              10,000
              **
              Stock
                  Purchase Agreement05/26/06
              05/25/09
              15,000
              **
              Stock
                  Purchase Agreement05/26/06
              05/25/09
              15,000
              **
              Stock
                  Purchase Agreement08/15/06
              08/14/09
              25,000
              **
              Stock
                  Purchase Agreement




**
The
      warrants are exercisable prices ranging from $.18 per share up to $.50 per
      share
      depending on the date of exercise.




Holders
      of common stock do not have cumulative voting rights.




Therefore,
      holders of a majority of the shares of common stock voting for the election
      of
      directors can elect all of the directors. Holders of our common stock
      representing a majority of the voting power of our capital stock issued and
      outstanding and entitled to vote, represented in person or by proxy, are
      necessary to constitute a quorum at any meeting of our stockholders. A vote
      by
      the holders of a majority of our outstanding shares is required to effectuate
      certain fundamental corporate changes such as liquidation, merger or an
      amendment to our Articles of Incorporation.




Although
      there are no provisions in our charter or by-laws that may delay, defer or
      prevent a change in control, we are authorized, without shareholder approval,
      to
      issue shares of preferred stock that may contain rights or restrictions that
      could have this effect. Certain provisions of the Delaware General Corporate
      Law
      may serve to delay, defer or prevent a change in control of the
      company.




Holders
      of common stock are entitled to share in all dividends that the board of
      directors, in its discretion, declares from legally available funds. However,
      no
      cash dividend may be declared and paid or set apart for payment upon our Common
      Stock until after providing for each class of stock, if any, having preference
      over the common stock.






F-12




**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**






In
      the
      event of liquidation, dissolution or winding up, each outstanding share entitles
      its holder to participate pro rata in all assets that remain after payment
      of
      liabilities and after providing for each class of stock, if any, having
      preference over the common stock.




Holders
      of our common stock have no pre-emptive rights, no conversion rights and there
      are no redemption provisions applicable to our common stock.




In
      addition, we also have Class A common stock, which has a par value of $.0035
      per
      share and 12,000,000 shares have been authorized to be issued. As of December
      31, 2006, there are no shares of Class A common stock issued and outstanding.
      Both common stock and Class A common stock have the same voting
      rights.





In
      April
      2005, the Company approved the issuance of 60,000 shares of restricted common
      stock for legal services rendered and 2,500 shares of restricted common stock
      all at $.25 per share for services rendered.




In
      June
      2005, a private placement to an accredited investor was completed in the amount
      of twenty-five thousand dollars ($25,000). This investor was issued 125,000
      shares of the Company’s common stock and warrants to purchase 25,000 shares of
      the Company’s common stock. The warrants are effective for three years and have
      an exercise price of $0.30 per share during the first year, $0.40 per share
      during the second year, and $0.50 per share during the third year. The Company
      has agreed to piggyback registration rights with respect to the Common Stock
      and
      the underlying warrants. This stock was issued on July 12, 2005.




In
      August
      2005, a private placement to an accredited investor was completed in the amount
      of twenty-five thousand dollars ($25,000). This investor was issued 125,000
      shares of the Company’s common stock and warrants to purchase 25,000 shares of
      the Company’s common stock. The warrants are effective for three years and have
      an exercise price of $0.30 per share during the first year, $0.40 per share
      during the second year, and $0.50 per share during the third year. The Company
      has agreed to piggyback registration rights with respect to the Common Stock
      and
      the underlying warrants. This stock was issued on August 19, 2005.




In
      August
      2005, the Company approved the issuance of 1,250 shares of restricted common
      stock for services rendered. The Company has agreed to piggyback registration
      rights with respect to the Common Stock. This stock was issued on August 19,
      2005.





In
      September 2005, the Company approved the issuance of 5,000 warrants for services
      rendered. The Company has agreed to piggyback registration rights with respect
      to the underlying Common Stock. These warrants were issued on September 6,
      2005.





In
      October 2005, the Company approved the issuance of 75,000 shares of restricted
      common stock and warrants to purchase 15,000 shares of the Company’s common
      stock. The warrants are effective for three years and have an exercise price
      of
      $0.30 per share during the first year, $0.40 per share during the second year,
      and $0.50 per share during the third year.


F-13


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


The
      Company has agreed to piggyback registration rights with respect to the Common
      Stock and the underlying warrants to the Richard M. Lilly Revocable Trust for
      a
      $15,000 investment made pursuant to a Stock Purchase Agreement with the Company
      dated October 25, 2005. Such shares were issued pursuant to an exemption from
      registration at Section 4(2) of the Securities Act of 1933 and are restricted
      in
      accordance with Rule 144 of the Securities Act of 1933 and that the Company
      approved the issuance of 13,945 shares of restricted common stock to Richard
      Lappin based on the conversion of his 13,945 shares of Series A Redeemable
      Convertible Preferred Stock. Such shares were issued pursuant to an exemption
      from registration at Section 4(2) of the Securities Act of 1933 and are
      restricted in accordance with Rule 144 of the Securities Act of
      1933.





In
      November 2005, the Company approved the issuance of 5,000 warrants for services
      rendered. The Company has agreed to piggyback registration rights with respect
      to the underlying Common Stock. These warrants were issued on November 28,
      2005.




In
      December 2005, the Company approved the issuance of 300,000 shares of restricted
      common stock to John X. Adiletta. These shares are being issued based on the
      conversion of $150,000 in accrued compensation owed to John X. Adiletta at
      the
      rate of $0.50 per share. Such shares were issued pursuant to an exemption from
      registration at Section 4(2) of the Securities Act of 1933 and are restricted
      in
      accordance with Rule 144 of the Securities Act of 1933.





In
      January 2006, the Company approved the issuance of 300,000 shares of restricted
      common stock for marketing services rendered at $.20 per share for services
      rendered. This stock was issued on January 19, 2006.





In
      February 2006, a private placement to an accredited investor was completed
      in
      the amount of ten thousand dollars ($10,000). This investor was issued 50,000
      shares of the Company’s common stock and warrants to purchase 10,000 shares of
      the Company’s common stock. The warrants are effective for three years and have
      an exercise price of $0.30 per share during the first year, $0.40 per share
      during the second year, and $0.50 per share during the third year. The Company
      has agreed to piggyback registration rights with respect to the Common Stock
      and
      the underlying warrants. This stock was issued on February 6, 2006. The Company
      also approved the issuance of 100,000 shares of restricted common stock for
      marketing services rendered at $.20 per share for services rendered. This stock
      was issued on February 20, 2006.





In
      May
      2006, a private placement to two accredited investors was completed in the
      amount of fifteen thousand dollars ($15,000) each. Each investor was issued
      75,000 shares of the Company’s common stock and warrants to purchase 15,000
      shares of the Company’s common stock. The warrants are effective for three years
      and have an exercise price of $0.30 per share during the first year, $0.40
      per
      share during the second year, and $0.50 per share during the third year. The
      Company has agreed to piggyback registration rights with respect to the Common
      Stock and the underlying warrants. This stock was issued on May 16 and May
      17,
      2006 respectively. The Company also approved the issuance of 175,000 shares
      of
      restricted common stock for consulting services rendered at $.20 per share
      for
      the services rendered. This stock was issued on May 17, 2006.






F-14


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**






In
      June
      2006, the Company approved the issuance of 171,785 shares of restricted common
      stock to John X. Adiletta. These shares are being issued based on the conversion
      of $34,357 in advances owed to John X. Adiletta at the rate of $0.20 per share.
      This stock was issued on June 30, 2006.





In
      August
      2006, a private placement to an accredited investor was completed in the amount
      of twenty-five thousand dollars ($25,000). This investor was issued 125,000
      shares of the Company’s common stock and warrants to purchase 25,000 shares of
      the Company’s common stock. The warrants are effective for three years and have
      an exercise price of $0.30 per share during the first year, $0.40 per share
      during the second year, and $0.50 per share during the third year. The Company
      has agreed to piggyback registration rights with respect to the Common Stock
      and
      the underlying warrants. This stock was issued on August 14, 2006.





In
      September 2006, the Company approved the issuance of 175,000 shares of
      restricted common stock to John X. Adiletta. These shares are being issued
      based
      on the conversion of $35,000 in expenses owed to John X. Adiletta at the rate
      of
      $0.20 per share. This stock was issued on September 29, 2006. The Company also
      approved the issuance of 25,000 shares of restricted common stock for legal
      services rendered at $.20 per share for the services rendered. This stock was
      issued on September 29, 2006.





In
      November 2006, a private placement to an accredited investor was completed
      in
      the amount of fifty thousand dollars ($50,000) with interest payable at twelve
      (12%) percent per annum. This investor received a six month Convertible
      Promissory Note in the amount of $50,000 and was issued 25,000 shares of the
      Company’s common stock. The Company has agreed to piggyback registration rights
      with respect to the Common Stock. This stock was issued on November 15,
      2006.





Note
      4. Preferred Stock




As
      of
      December 31, 2006, 2,987,381 shares of Series A Redeemable Convertible Preferred
      Stock are issued and outstanding and 716,753 shares of Series A Redeemable
      Convertible Preferred Stock which are reserved for issuance for accrued
      dividends are held by the previous Secure Systems, Inc. shareholders. Holders
      of
      our Series A Convertible Preferred Stock are not entitled to vote at any meeting
      of the shareholders or by consent given in lieu of a meeting of the shareholders
      with respect to any matters presented to the stockholders of the Corporation
      for
      their action or consideration.




Holders
      of Series A Convertible Preferred Stock are entitle to receive, out of the
      assets of the Corporation legally available for the payment of dividends,
      dividends payable in cash or stock at the sole discretion of the Board of
      Directors . Dividends shall accrue at the rate of eight cents ($.08) per share
      per annum until January 15, 2006 and at the rate of twelve cents ($.12) per
      share per annum thereafter. Dividends upon the Series A Convertible Preferred
      Stock are cumulative and accrue from the date of original issue. Dividends
      shall
      cease to accrue upon the Conversion Date with respect to any shares of Series
      A
      Preferred Stock converted. No cash dividend may be declared and paid or set
      apart for payment upon the Corporation’s Common Stock until any accrued dividend
      on any outstanding shares of Series A Preferred Stock has been fully paid or
      declared and set apart for payment.






F-15


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


In
      the
      event of liquidation, dissolution and winding up, the holders of the Series
      A
      Preferred Stock shall be entitled to receive in cash out of the assets of the
      Corporation, whether from capital or from earnings available for distribution
      to
      its stockholders, before any amount shall be paid to the holders of common
      stock, the sum of One Dollar ($1.00) per share, plus any accrued and unpaid
      dividends.




The
      holders of shares of Series A Preferred Stock have the right to convert each
      share of Series A Preferred Stock into that number of fully-paid and
      nonassessable shares of Common Stock at the Conversion Rate of $1.00 per share
      until January 15, 2006 and at $.90 per share until September 29, 2006, $.40
      per
      share until September 29, 2007, $.60 per share until September 29, 2008, and
      $.80 per share thereafter.





In
      December 2005, the Company filed a Form 8K that the Company had, by a vote
      of a
      majority of its holders of Series A Convertible Preferred Stock, approved an
      amendment to its Articles of Incorporation by modifying the Certificate of
      Designations of its Series A Convertible Preferred Stock effective January
      15,
      2006. This amendment extended the first redemption date of the Preferred Stock
      to January 14, 2007.





In
      September 2006, the Company filed a Form 8K that the Company had, by a vote
      of a
      majority of its holders of Series A Convertible Preferred Stock, approved an
      amendment to its Articles of Incorporation by modifying the Certificate of
      Designations of its Series A Convertible Preferred Stock effective September
      29,
      2006. In this amendment the Conversion Price for purposes of calculating the
      Conversion Rate was decreased from $.90 per share to $0.40 per share if
      conversion occurs within 12 months of the filing of the amendment; $.60 per
      share if conversion occurs between 12 and 24 months of the filing of the
      amendment; or $80 per share thereafter; and when the Company either completes
      an
      acquisition of an entity with in excess of $5.0 million in annual operating
      revenues or causes an acquisition to be completed by its subsidiary, Secure
      Systems, Inc. of an entity with in excess of $2.0 million dollars in annual
      operating revenue then the Company will no longer be required to redeem the
      Series A Convertible Preferred Stock as set in Section 5.1 of the original
      certificate of designation filed on March 11, 2006 and amended on December
      27,
      2005.





In
      January 2007, the Company filed a Form 8K that the Company had, by a vote of
      a
      majority of its holders of Series A Convertible Preferred Stock, approved an
      amendment to its Articles of Incorporation by modifying the Certificate of
      Designations of its Series A Convertible Preferred Stock effective January
      15,
      2007. This amendment extended the first redemption date of the Preferred Stock
      to July 14, 2007.




The
      holders of shares of Series A Preferred Stock have scheduled and conditional
      redemption rights. On July 14, 2007 (the “First Redemption Date”), we shall
      redeem 50% of the shares of Series A Preferred Stock then held by each
      Registered Holder. On July 15, 2007 (the “Second Redemption Date”), we shall
      redeem all shares of Series A Preferred Stock then outstanding.


F-16


**SOMERSET
      INTERNATIONAL GROUP, INC.** **AND
      SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





In
      the
      event that any of the following conditions set forth in the Certificate of
      Designation occurs and is continuing, and the Holders of a majority of the
      outstanding Series A Preferred Stock send to us a written demand for redemption,
      then we shall immediately redeem all of the outstanding Series A Preferred
      Stock
      for a redemption price of $1.00 per share of Preferred Stock:




1.  The
      Corporation shall default in making the full payment due to the Holders on
      any
      Redemption Date, and the default shall continue for a period of ten (10) days;
      or




2.  Secure
      System, Inc. (“Secure”) shall default in making any payment due to the holders
      of the Profit Participation Certificates issued with the Series A Preferred
      Stock, which expired on September 7, 2006, and such default shall continue
      for a
      period of ten (10) days after written notice of default is given to the
      Corporation; or




3.  Any
      of
      the representations or warranties made by the Corporation in the Agreement
      and
      Plan of Merger (the “Merger Agreement”) pursuant to which the Series A Preferred
      Stock was issued, or in any agreement, certificate or financial or other written
      statements heretofore or hereafter furnished by the Corporation in connection
      with the execution and closing of the Merger Agreement shall be false or
      misleading in any material respect at the time made; or




4.  The
      Corporation shall default in complying with any covenant in this Certificate
      of
      Designations or in the Merger Agreement or in a Stock Pledge and Escrow
      Agreement given for the benefit of the Holders of the Series A Preferred Stock
      (the “Stock Pledge Agreement”), and such default shall continue for a period of
      thirty (30) days after written notice of the default has been given to the
      Corporation; or




5.  Secure
      shall make any payment to the Corporation or to any affiliate of the Corporation
      or person associated with the Corporation, whether as a dividend, loan, payment
      in compensation or otherwise, except for payments for services rendered, or
      for
      goods sold and delivered for an amount not greater than would be paid for such
      goods to a third party vendor as evidenced by contemporaneous market price
      information; or




6.  Secure
      shall issue any capital stock or securities or other instruments convertible
      into capital stock or shall grant to any person the right to purchase or
      otherwise acquire its capital stock; or




7.  A
      default
      or an event of default shall have occurred and be continuing for more than
      thirty (30) days with respect to any Funded Debt in excess of $50,000 in the
      aggregate owed by the Corporation or by Secure. For purposes hereof, “Funded
      Debt” means all (a) indebtedness for borrowed money or for the deferred purchase
      price of property or services (other than trade liabilities and accrued expenses
      incurred in the ordinary course of business and payable in accordance with
      customary practices), whether on open account or evidenced by a note, bond,
      debenture or similar instrument or otherwise, (b) obligations under capital
      leases, (c) reimbursement obligations for letters of credit, banker’s
      acceptances or other credit accommodations, (d) contingent obligations and
      (e)
      obligations secured by any lien on the Corporation’s property or Secure’s, even
      if the Corporation or Secure, as applicable, has not assumed such obligations;
      or






F-17


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**






8.  Either
      the Corporation or Secure shall (A) admit in writing its inability to pay its
      debts generally as they mature; (B) make an assignment for the benefit of
      creditors or commence proceedings for its dissolution; or (C) apply for or
      consent to the appointment of a trustee, liquidator or receiver for its or
      for a
      substantial part of its property or business; or




9.  A
      trustee, liquidator or receiver shall be appointed for either the Corporation
      or
      Secure or for a substantial part of its property or business without its consent
      and shall not be discharged within sixty (60) days after such appointment;
      or




10.  Any
      money
      judgment, writ or warrant of attachment, or similar process in excess of One
      Hundred Thousand ($100,000) Dollars in the aggregate shall be entered or filed
      against the Corporation or Secure or any of its properties or other assets
      and
      shall remain unpaid, unvacated, unbonded or unstayed for a period of sixty
      (60)
      days or in any event later than five (5) days prior to the date of any proposed
      sale thereunder; or




11.  Bankruptcy,
      reorganization, insolvency or liquidation proceedings or other proceedings
      for
      relief under any bankruptcy law or any law for the relief of debtors shall
      be
      instituted by or against the Corporation or Secure and, if instituted against
      the Corporation or Secure, shall not be dismissed within sixty (60) days after
      such institution or the Corporation or Secure shall by any action or answer
      approve of, consent to, or acquiesce in any such proceedings or admit the
      material allegations of, or default in answering a petition filed in any such
      proceeding; or




Our
      Board
      of Directors has the authority, without further action by the shareholders,
      to
      issue from time to time the preferred stock in one or more series for such
      consideration and with such relative rights, privileges, preferences and
      restrictions that the Board may determine. The preferences, powers, rights
      and
      restrictions of different series of preferred stock may differ with respect
      to
      dividend rates, amounts payable on liquidation, voting rights, conversion
      rights, redemption provisions, sinking fund provisions and purchase funds and
      other matters. The issuance of preferred stock could adversely affect the voting
      power or other rights of the holders of common stock.




Note
      5.
      Inventory





Inventory
      consists of the following:





2006Raw
                materials
            
            $
            174,765Work
                in progress
            
            
            113,137Finished
                goods
            
            
            8,550Total
            
            $
            296,452







F-18


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


Note
      6. Property,
      Equipment, and Leasehold Improvements





2006Equipment
            
            $
            25,378Furniture
            
            
            --Leasehold
                Improvements
            
            
            --Vehicles
            
            
            3,53728,915Accumulated
                Depreciation
            
            
            (20,130
            )Property,
                Equipment, and Leasehold Improvements, net
            
            $
            8,785




Note
      7.
      Related Party Transactions




On
      March
      10, 2005, our former officer and director Paul Patrizio agreed to return shares
      totaling 1,289,848, which were valued at $193,476, pursuant to the terms of
      his
      resignation as an officer and director of the Company. The Company has retired
      these shares and has adjusted the par value of common stock and additional
      paid
      in capital to reflect this retirement.




The
      stockholder note payable was $501,764 at December 31, 2006. The principal amount
      of the note was partially repaid with a $150,000 payment on March 11, 2005
      and
      monthly payments of $17,928 including annual interest at 10% beginning March
      1,
      2006 and ending July 1, 2009




On
      December 31, 2005, the Company issued 300,000 shares of restricted common stock
      to John X. Adiletta, the Company’s President and Chief Executive Officer. These
      shares were issued based on the conversion of $150,000 in accrued compensation
      owed to John X. Adiletta at the rate of $0.50 per share. Such shares were issued
      pursuant to an exemption from registration at Section 4(2) of the Securities
      Act
      of 1933 and are restricted in accordance with Rule 144 of the Securities Act
      of
      1933.





On
      June
      30, 2006, the Company approved the issuance of 171,785 shares of restricted
      common stock to John X. Adiletta, the Company’s President and Chief Executive
      Officer. These shares are being issued based on the conversion of $34,357 in
      advances owed to John X. Adiletta at the rate of $0.20 per share. Such shares
      were issued pursuant to an exemption from registration at Section 4(2) of the
      Securities Act of 1933 and are restricted in accordance with Rule 144 of the
      Securities Act of 1933.





On
      September 29, 2006, the Company approved the issuance of 175,000 shares of
      restricted common stock to John X. Adiletta, the Company’s President and Chief
      Executive Officer. These shares are being issued based on the conversion of
      $35,000 in expenses owed to John X. Adiletta at the rate of $0.20 per share.
      Such shares were issued pursuant to an exemption from registration at Section
      4(2) of the Securities Act of 1933 and are restricted in accordance with Rule
      144 of the Securities Act of 1933.





F-19


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**


Note
      8.
      Recent Accounting Pronouncements




In
      December 2004, the FASB revised FASB Statement No. 123R, Accounting for
      Stock-Based Compensation. This Statement supersedes APB Opinion No. 25,
      Accounting for Stock Issued to Employees, and its related implementation
      guidance. This Statement establishes standards for the accounting for
      transactions in which an entity exchanges its equity instruments for goods
      or
      services. It also addresses transactions in which an entity incurs liabilities
      in exchange for goods or services that are based on the fair value of the
      entity’s equity instruments or that may be settled by the issuance of those
      equity instruments. This Statement focuses primarily on accounting for
      transactions in which an entity obtains employee services in share-based payment
      transactions. This Statement does not change the accounting guidance for
      share-based payment transactions with parties other than employees provided
      in
      Statement 123 as originally issued and EITF Issue No. 96-18, “Accounting for
      Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
      in
      Conjunction with Selling, Goods or Services.” It applies in the first reporting
      period beginning after December 15, 2005. The adoption of Statement No. 123R
      (revised 2004) did not have a material impact on the Company’s financial
      position, liquidity, or results of operations.





In
      July
      2006, the FASB has published FASB Interpretation No. 48 (“FIN No. 48”),
      Accounting for Uncertainty in Income Taxes, to address the noncomparability
      in
      reporting tax assets and liabilities resulting from a lack of specific guidance
      in FASB Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting
      for Income Taxes, on the uncertainty in income taxes recognized in an
      enterprise’s financial statements. FIN No. 48 will apply to fiscal years
      beginning after December 15, 2006, with earlier adoption permitted. The adoption
      of FIN 48 is not expected to have a material effect on the Company’s financial
      condition or results of operations.





In
      September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, and
      (“SFAS No. 157”), which defines fair value, establishes a framework for
      measuring fair value, and expands disclosures about fair value measurements.
      SFAS No. 157 will be effective for the Company beginning January 1, 2008.
      Management is currently evaluating the effect SFAS No. 157 will have on the
      Company’s financial condition or results of operations.





Note
      9.
      Promissory Notes Payable




On
      January 17, 2004, Somerset-New Jersey closed a $175,000 bridge financing from
      one accredited investor pursuant to a Promissory Note with interest payable
      at
      twelve (12%) percent per annum. Pursuant to such note, the principal and
      interest will mature on the earlier of the subsequent financing by the Company
      or one year from date of issuance. In addition to the agreement to repay the
      Note and interest, the investor received a 10% ownership interest in
      Somerset-New Jersey. As a result of this transaction, Somerset-NJ recorded
      a
      debt discount of $3,500, which is being amortized over the life of the bridge
      financing agreements. This Note was extended to December 31, 2005. These notes
      are convertible at any time at the holder’s option into common stock at $0.25
      per share.




F-20


**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





On
      April
      29, 2004, the Company closed a $100,000 bridge financing from one accredited
      investor pursuant to a Promissory Note with interest payable at twelve (12%)
      percent per annum. Pursuant to such note, the principal and interest will mature
      on the earlier of the subsequent financing by the Company or one year from
      date
      of issuance, with a minimum of 90 days of interest to be paid. As part of the
      agreement, the investor was to receive 100,000 shares of the Company’s Common
      Stock. The Company has agreed to register the Common Stock with the Securities
      and Exchange Commission later of June 30, 2004 or one hundred and eighty (180)
      days from closing of the first acquisition, which is September 10, 2005. This
      stock was issued on July 1, 2004. This Note was extended to December 31, 2005.
      These notes are convertible at any time at the holder’s option into common stock
      at $0.25 per share.




On
      June
      25, 2004, the Company closed a $100,000 bridge financing from one accredited
      investor pursuant to a Promissory Note with interest payable at twelve (12%)
      percent per annum. Pursuant to such note, the principal and interest will mature
      on the earlier of the subsequent financing by the Company or one year from
      date
      of issuance, with a minimum of 90 days of interest to be paid. In addition
      to
      the repayment of the Note and interest, the investor received 100,000 shares
      of
      the Company’s Common Stock. This stock was valued at $15,000. As a result of
      this transaction, the Company has recorded a Debt Discount of $15,000, which
      is
      being amortized over the life of the Promissory Note Payable, which is one
      year.
      The Company has agreed to register the Common Stock with the Securities and
      Exchange Commission the later of June 30, 2004 or one hundred and eighty (180)
      days from closing of the first acquisition, which is September 10, 2005. This
      stock was issued on July 1, 2004. This Note was extended to December 31, 2005.
      These notes are convertible at any time at the holder’s option into common stock
      at $0.25 per share.





On
      March
      11, 2005, a private placement to accredited investors was completed in the
      amount of five hundred thousand four dollars ($504,000) with interest payable
      at
      twelve (12%) percent per annum. These investors received six month Convertible
      Secured Promissory Notes in the amount of $504,000 and were issued 504,000
      shares of the Company’s common stock, valued at $.30 per share. The Company has
      agreed to register the Common Stock with the Securities and Exchange Commission
      within one hundred and eighty (180) days from closing, which is September 12,
      2005. The registration statement was filed on September 12, 2005. This stock
      was
      issued on March 11, 2005. These Notes were extended to December 11, 2005. The
      total value of the shares issued and the corresponding beneficial conversion
      feature that was created as a result of the issuance of the shares in connection
      with the convertible notes totaled $151,200 and has been recorded as a debt
      discount with a corresponding increase to equity. The total discount of $151,200
      has been amortized over the original life of the loan, and is fully amortized
      as
      of December 31, 2005. These notes are convertible at any time at the holder’s
      option into common stock at $0.25 per share.




On
      April
      1, 2005, a private placement to an accredited investor was completed in the
      amount of twenty thousand dollars ($20,000) with interest payable at twelve
      (12%) percent per annum. This investor received a six month Convertible Secured
      Promissory Note in the amount of $20,000 and was issued 20,000 shares of the
      Company’s common stock. The Company has agreed to register the Common Stock with
      the Securities and Exchange Commission within one hundred and eighty (180)
      days
      from closing, which is September 30, 2005.


F-21




**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





This
      stock was issued on April 1, 2005. The total value of the shares issued and
      the
      corresponding beneficial conversion feature that was created as a result of
      the
      issuance of the shares in connection with the convertible notes totaled $6,000
      and has been recorded as a debt discount with a corresponding increase to
      equity. The total discount of $6,000 has been amortized over the original life
      of the loan, and is fully amortized as of December 31, 2005. The Note is
      convertible at any time at the holder’s option into common stock at $0.25 per
      share.





On
      November 15, 2006, the Company closed a $50,000 bridge financing from one
      accredited investor pursuant to a Promissory Note with interest payable at
      twelve (12%) percent per annum. Pursuant to such note, the principal and
      interest will mature on the earlier of the subsequent financing by the Company
      or six months from date of issuance, with a minimum of one year’s interest to be
      paid. As part of the agreement, the investor was to receive 25,000 shares of
      the
      Company’s Common Stock. The total value of the shares issued and the
      corresponding discount that was created as a result of the issuance of the
      shares in connection with the convertible notes totaled $5,000 and has been
      recorded as a debt discount with a corresponding increase to equity. The Company
      has agreed to piggyback registration rights for the Common Stock. These notes
      are convertible at any time at the holder’s option into common stock at $0.25
      per share.




Current
      Debt at December 31, 2006




Jan
                  2004 Note -
              
              $
              175,000Apr
                  2004 Note -
              
              
              100,000Jun
                  2004 Note -
              
              
              100,000Mar
                  2005 Notes -
              
              
              504,000Apr
                  2005 Note -
              
              
              20,000Nov
                  2006 Note -
              
              
              50,000Stockholder
                  Note -  (see Note 7)
              
              
              187,927sub
                  - Total -
              
              $
              1,136,927




Long
      Term
      Debt:




Stockholder
                  Note -(see Note
                  7)
              
              
              313,837Total
                  debt -
              
              $
              1,450,764




Note
      10.
      Acquisition Agreement




On
      July
      7, 2004, the Company, through a newly created wholly owned subsidiary, which
      owned no assets as of June 30, 2004, entered into an Agreement and Plan of
      Merger with a New Jersey Corporation which provides wireless security products
      and services. The closing was subject to a financing of five hundred thousand
      dollars ($500,000) to provide working capital to the merged company. In
      addition, the Company was to issue three million four dollars ($3,000,004)
      of
      Redeemable Convertible Preferred Stock to the shareholders of the wireless
      company and assume five hundred five thousand dollars ($505,000) of existing
      indebtedness. The redemption price of the preferred stock is $1.00 per share.


F-22




**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**





The
      value
      of the convertible preferred stock was primarily based upon potential repayment
      requirements called for in the agreement (assuming the preferred stockholder
      does not exercise the conversion option). The financing for the acquisition
      of
      the wireless security products and services company was completed on March
      11,
      2005 and the transaction was closed on March 11, 2005. The results of
      operations, from March 11, 2005 for the acquired entity, are included in the
      10KSB consolidated statements of operations for the year ending December 31,
      2005.




The
      allocation of the total purchase price of Secure System, Inc.’s net tangible and
      identifiable assets was based on their estimated fair value as of March 11,
      2005. Adjustments to these estimates were to be included in the allocation
      of
      the purchase price of Secure System, Inc. if the adjustment is determined within
      the purchase price allocation period of up to twelve months. The excess of
      the
      purchase price over the identifiable intangible and net tangible assets was
      allocated to goodwill. The total purchase price of $3.0 million has been
      allocated as follows:





Goodwill
              
              $
              2,200,355Customer
                  list
              
              
              995,700Software
              
              
              214,600Tangible
                  assets acquired and liabilities assumed:Cash
                  and marketable debt securities
              
              
              14,810Other
                  current assets
              
              
              630,796Non-current
                  assets
              
              
              25,842Accounts
                  payable and accrued liabilities
              
              
              (311,612
              )Other
                  liabilities
              
              
              (770,487
              )Total
                  purchase price
              
              $
              3,000,004




In
      addition, the Company has entered into employment and consulting agreements
      with
      two former officers. The Company capitalized the present value of this
      obligation as an asset and recorded a related liability as of March 11,
      2005.




We
      have
      estimated the fair value of other intangible assets. These estimates are based
      on a preliminary valuation and are subject to change upon management’s review of
      the final valuation.




The
        following table sets forth the components of the Company’s intangible assets at
        December 31, 2005 and 2006:




Fair
                  Value
              
              Accumulated
                Amortization
              
              Net
                  Book Values
                as
                  of
                December
                  31, 2005
              
              Weighted
                  Average
                Useful
                  Life
                (in
                  months)Customer
                  List
              
              $
              995,700
              
              $
              (118,536
              )
              $
              877,164
              
              
              84Software
              
              
              214,600
              
              
              (59,611
              )
              
              154,989
              
              
              36Covenant
                  not to compete
              
              
              164,679
              
              
              (25,700
              )
              
              138,779
              
              
              36Total
                  intangible assets
              
              $
              1,374,979
              
              $
              (203,847
              )
              $
              1,170,932








F-23




**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**




Fair
                Value
            
            Accumulated
              Amortization
            
            Net
                Book Values
              as
                of
              December
                31, 2006
            
            Weighted
                Average
              Useful
                Life
              (in
                months)Customer
                List
            
            $
            995,700
            
            $
            (260,779
            )
            $
            734,921
            
            
            84Software
            
            
            214,600
            
            
            (131,147
            )
            
            83,453
            
            
            36Covenant
                not to compete
            
            
            164,679
            
            
            (56,740
            )
            
            107,939
            
            
            36Total
                intangible assets
            
            $
            1,374,979
            
            $
            (448,666
            )
            $
            926,313




Customer
      base represents the expected future benefit to be derived from Secure System’s
      existing customer contracts, backlog and underlying customer relationships.
      Software represents the expected future benefit to be derived from Secure
      System’s proprietary software.





The
      follow represents the amortization of the intangibles for the following five
      years:





2007
            
            $
            216,3502008
            
            $
            156,7432009
            
            $
            144,8182010
            
            $
            144,8182011
            
            $
            144,818




The
        following table
        summarizes the activity in goodwill for 2006 and 2005:


Beginning
                balance, 1/01/2005
            
            $
            0Acquired
                in a
                business combination
            
            
            2,200,355Ending
                balance, 12/31/2005
            
            $
            2,200,3552006
                activity
            
            
            0Ending
                balance 12/31/2006
            
            $
            2,200,355




The
      Company’s annual impairment test indicated that no impairment had occurred in
      2006 and 2005 relating to the Secure reporting unit.





Note
      11.
      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,






F-24




**SOMERSET
        INTERNATIONAL GROUP, INC.** **AND
        SUBSIDIARY**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**






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





The
      consulting agreements resulting from the business combination requires payments
      of approximately $10,000 per month until July of 2007.




Note
      12.
      Income Taxes:




The
      reconciliation of income tax expense computed at the U.S. federal statutory
      rate
      to the provision for income taxes is as follows for the year ended December
      31:




2006
              
              2005Tax
                  Benefit at U.S. statutory rate
              
              $
              (398,000
              )
              $
              (489,000
              )Change
                  in valuation allowance
              
              
              398,000
              
              
              489,000Other
              
              
              1,000
              
              
              1,350Provision
                  for current income taxes
              
              $
              1,000
              
              $
              1,350




At
      December 31, 2006, the Company has federal net operating loss carryforwards
      of
      approximately $3,000,000, which are available to offset future federal taxable
      income. These carryforwards expire between the years 2009 and 2021. Also, at
      December 31, 2006, the Company’s state net operating loss carryforwards
      approximated $ 2,900,000 and expire between 2010 and 2013.




Deferred
      income taxes are summarized as follows at December 31, 2006:




Deferred
                tax
                asset:Federal
                net operating loss carryforwards
            
            $
            1,015,000State
                net operating loss carryforwards
            
            
            220,000AccruedCompensation
            
            
            79,000Valuation
                allowance
            
            
            (1,314,000
            )Net
                deferred tax asset
            
            $
            --





As
      seen
      in the above table, any future tax benefit which may result from utilization
      of
      these net operating loss carryforwards has been fully reserved for.





Future
      expiration of net operating loss carryforwards for the periods ending after
      December 31, 2006 is as follows:


F-25





Year
            
            Federal
            
            Year
            
            State2009
            
            $
            29,411
            
            
            2010
            
            $
            343,8992010
            
            
            16,059
            
            
            2011
            
            
            38,2312016
            
            
            343,899
            
            
            2011
            
            
            9322017
            
            
            38,471
            
            
            2011
            
            
            107,9912018
            
            
            932
            
            
            2012
            
            
            1,036,5122019
            
            
            383,850
            
            
            2013
            
            
            1,136,3592020
            
            
            1,036,5122021
            
            
            1,136,359Total
            
            $
            2,985,493
            
            
            
            
            $
            2,939,791




The
      aforementioned losses are subject to limitations due to changes in controlling
      ownership in accordance with relevant provisions of the Internal Revenue
      Code.





Note
      13.
      Subsequent Events





On
      January 22, 2007, the Company approved the issuance of 50,000 shares to Starobin
      Partners pursuant to a consulting agreement between the Company and Wellfleet
      Partners, Inc. Such shares were issued pursuant to an exemption from
      registration at Section 4(2) of the Securities Act of 1933 and are restricted
      in
      accordance with Rule 144 of the Securities Act of 1933.





On
      March
      8, 2007, the Company approved the issuance of 60,000 shares of unrestricted
      common stock to Dutchess Private Equities Fund, LP pursuant to the investment
      agreement between the Company and Dutchess Private Equities Fund, LP dated
      October 24, 2006.




F-26