UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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

For the fiscal year ended: December 31, 2007



or

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

For the transition period from: _____________ to _____________

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SOMERSET INTERNATIONAL GROUP, INC.

(Exact name of registrant as specified in its charter)

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|                                  |              |                    
|--------------------------------- | ------------ | -------------------
|Delaware                          |              | 13-2795675         
|(State or Other Jurisdiction      | (Commission  | (I.R.S. Employer   
|of Incorporation or Organization) | File Number) | Identification No.)

90 Washington Valley Road, Bedminster, NJ 07921

(Address of Principal Executive Office) (Zip Code)

(908) 719-8909

(Registrants telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

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|                                                            |                  |                                          
|----------------------------------------------------------- | ---------------- | -----------------------------------------
|Securities registered pursuant to Section 12(b) of the Act:
|                                                            |                  |                                          
|Title of each class                                         |                  | Name of each exchange on which registered
|Common Stock, $.001 par value                               |                  | OTC Bulletin Board                       
|                                                            |                  |                                          
|Securities registered pursuant to Section 12(g) of the Act:
|                                                            |                  |                                          
|                                                           
|                                                            | (Title of Class) |                                          

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ̈    No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ̈    No ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was



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required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ̈ý    No  ̈ý

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or  information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

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

State registrants revenues for its most recent fiscal year:  $3,879,312.

The aggregate market value of the registrants common stock held by non-affiliates of the registrant, computed by reference to the closing price of a share of common stock on March 31, 2008 was $1,232,822.

On March 31, 2008, there were 23,058,655 outstanding shares of the registrants common stock, $.001 par value.







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PART I

ITEM 1.

DESCRIPTION OF BUSINESS

(a)  State of Incorporation; Offices and Facilities

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 System, Inc., (Secure), a New Jersey corporation, which provides wireless security products and services marketed throughout the United States. The acquisition was completed on March 11, 2005.  On June 30, 2007, we entered into a Stock Purchase Agreement (Agreement) in which Secure, our wholly owned subsidiary, purchased all the shares of Meadowlands Fire, Safety, and Electrical Supply Co., Inc., a New Jersey corporation, and Vanwell Electronics, Inc., a New Jersey corporation (collectively Meadowlands) from Keith Kesheneff and Kathryn Kesheneff, being all of the shareholders of Meadowlands.  Pursuant to the Agreement, Secure acquired Meadowlands whereby Meadowlands became a wholly owned subsidiary of Secure.  Meadowlands specializes in the distribution, sale, installation and maintenance of fire and security equipment and systems that include fire detection, video surveillance, and burglar alarm equipment.  Effective October 1, 2007, we entered into a Stock Purchase Agreement (Agreement) in which Somerset purchased all the shares of Fire Control Electrical Systems, Inc., a New Jersey corporation, ( Fire Control) from Vincent Bianco and Opie Brinson, being all of the shareholders of Fire Control.  Pursuant to the Agreement, Somerset acquired Fire Control whereby Fire Control became a wholly owned subsidiary of Somerset.  Fire Control specializes in the distribution, sale, installation and maintenance of fire and security equipment and systems that include fire detection, video surveillance, and burglar alarm equipment.  Our executive office is located at 90 Washington Valley Road, Bedminster, New Jersey.

(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. 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.



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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.

On June 30, 2007, we entered into a Stock Purchase Agreement (Agreement) in which Secure, our wholly owned subsidiary, purchased all the shares of Meadowlands Fire, Safety, and Electrical Supply Co., Inc., a New Jersey corporation, and Vanwell Electronics, Inc., a New Jersey corporation (collectively Meadowlands) from Keith Kesheneff and Kathryn Kesheneff, being all of the shareholders of Meadowlands.  Pursuant to the Agreement, Secure acquired Meadowlands whereby Meadowlands became a wholly owned subsidiary of Secure.  Meadowlands specializes in the distribution, sale, installation and maintenance of fire and security equipment and systems that include fire detection, video surveillance, and burglar alarm equipment.  The results of operations for the acquired entity will be included in consolidated statements of operations beginning July 1, 2007.  The purchase was financed through the use of some of the proceeds of the June 15, 2007 convertible debenture.

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

Effective October 1, 2007, we entered into a Stock Purchase Agreement (Agreement) in which Somerset purchased all the shares of Fire Control Electrical Systems, Inc., a New Jersey corporation (collectively Fire Control) from Vincent A. Bianco and Opie F. Brinson, being all of the shareholders of Fire Control.  Pursuant to the Agreement, Somerset acquired Fire Control whereby Fire Control became a wholly owned subsidiary of Somerset.  Fire Control specializes in the distribution, sale, installation and maintenance of fire and security equipment and systems that include fire detection, video surveillance, and burglar alarm equipment.  The results of operations for the acquired entity will be included in consolidated statements of operations beginning October 1, 2007.  The purchase was financed through the use of some of the proceeds of the November 12, 2007 convertible debenture.

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

(d)  2007 Revenues

Somerset had revenues of $3,879,312 in fiscal 2007.

(e) Patents and Trademarks

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



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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.

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 28, 2008, Somerset has 1 employee, Secure has 12 employees, Meadowlands has 16 employees, and Fire Control has 14 employees. These employees include 4 in assembly and engineering, 4 in sales and marketing, 22 in service and installation, and 13 in operations and 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.



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PART II

ITEM 5.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

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 2007, and the first quarter of calendar year 2008 up to March 29, 2008. 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.

|     |  |        |  |       |  |      
|---- |  | ------ |  | ----- |  | -----
|Year |  | Period |  | High  |  | Low  
|2007 |  | First  |  | $0.22 |  | $0.10
|2007 |  | Second |  | $0.38 |  | $0.09
|2007 |  | Third  |  | $0.19 |  | $0.10
|2007 |  | Fourth |  | $0.19 |  | $0.05
|2008 |  | First  |  | $0.15 |  | $0.05



As of December 31, 2007, there were approximately 635 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, 2007, 12,280,000 warrants have been issued to eight 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, 5,000 warrants are exercisable at $.20 per share for a period of five years, 5,000 warrants are exercisable at $.18 per share for a period of five years, 90,000 warrants and are exercisable at $.20 if exercised within the twelve months from the from April 2, 2007, $.30 if exercised within 12 months to 24 months from the issue date; and $.40 if exercised within 24 months to 36 months, 50,000 warrants are exercisable at $.12 per share for a period of three years, 7,000,000 exercisable at $.05 if exercised within the twelve months from June 15, 2007, 5,000,000 exercisable at $.05 if exercised within the twelve months from November 12, 2007.  The warrants may be exercised in full or in part (but not of a fractional share) by the holder.



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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-K 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 changeinevents, 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, |  | 2007 |             | 2006
|Sales                                                 |  | $    | 3,879,312   |      | $ | 1,740,391  
|Operating Expenses                                    |  |      | 4,920,38    |      |   | 2,715,126  
|Loss from Operations                                  |  |      | (1,041,068) |      |   | (974,735)  
|Net Loss attributable to Common Stockholders          |  |      | (1,753,078) |      |   | (1,495,687)
|Basic Loss per Common Share                           |  |      | (0.15)      |      |   | (0.23)     



|                                   |  |      |           |      |   |             |  |  | 
|---------------------------------- |  | ---- | --------- | ---- | - | ----------- |  |  | 
|Financial Position at
December 31, |  | 2007 |           | 2006
|Total Assets                       |  | $    | 6,908,443 |      | $ | 3,628,268  
|Total Liabilities                  |  |      | 6,578,053 |      |   | 2,341,264  
|Shareholders Equity(Deficit)       |  |      | 330,390   |      |   | (2,730,967)



General



On June 30, 2007, we entered into a Stock Purchase Agreement (Agreement) in which Secure, our wholly owned subsidiary, purchased all the shares of Meadowlands Fire, Safety, and Electrical Supply Co., Inc., a New Jersey corporation, and Vanwell Electronics, Inc., a New Jersey corporation (collectively Meadowlands) from Keith Kesheneff and Kathryn Kesheneff, being all of the shareholders of Meadowlands.  Pursuant to the Agreement, Secure acquired Meadowlands whereby Meadowlands became a wholly owned subsidiary of Secure.  The purchase was financed through the use of some of the proceeds of the June 15, 2007 convertible debenture.

Effective October 1, 2007, we entered into a Stock Purchase Agreement (Agreement) in which Somerset purchased all the shares of Fire Control Electrical Systems, Inc., a New Jersey corporation (collectively Fire Control) from Vincent A. Bianco and Opie F. Brinson, being all of the shareholders of Fire Control.  Pursuant to the Agreement, Somerset acquired Fire Control whereby Fire Control became a wholly owned subsidiary of Somerset.  The purchase was financed through the use of some of the proceeds of the November 12, 2007 convertible debenture.



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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 2 to our financial statements.



We have only established an allowance for doubtful accounts for Secures subsidiary accounts receivable and Fire Control. We analyzed the ability to collect accounts that are large, none of which are currently past due for Secure. Historically, Secure has not incurred bad debt expense and that trend is anticipated to continue.  Management will evaluate Secures subsidiary allowance and Fire Control on a periodic basis.

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



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

Revenues



Revenues of $3,879,312 for the year ended December 31, 2007 increased by $2,138,921 over revenues of $1,740,391 during the year ended December 31, 2006. $198,395 of the increases in revenues for the twelve month period was attributable to Secure.  $1,530,609 of the increases in revenues for the twelve month period was attributable to the June 30, 2007 acquisition of Meadowlands.  $409,917 of the increases in revenues for the twelve month period was attributable to the October 1, 2007 acquisition of Fire Control. The increases at Secure was primarily attributable to an increase in Equipment Sales and Installation Revenues of $171,852 and a decrease in Subscription Revenues of $156,443 for the same period for the twelve months ended December 31, 2006 offset by an increase in Maintenance Revenues of $182,986.

Costs of Goods Sold



Costs of Goods Sold for the year ended December 31, 2007 increased to $1,780,290, representing an increase of $688,040 over costs of goods sold of $1,092,250 during the year ended December 31, 2006.  Approximately $753,849 of the increases in costs and expenses for the twelve month period were attributable primarily to the acquisition of Meadowlands and Fire Control offset by a decrease in costs of goods sold for Secure of approximately $71,160.  The decrease at Secure was primarily attributable to a decrease in installation and service costs of $129,385 offset by an increase in materials cost of $58,225.

Gross Margin

Gross Margin for the year ended December 31, 2007 increased to $2,099,023 and 54.1% of revenue, representing an increase of $1,450,882 from a gross margin of $648,141 and 37.2% of revenue during the year ended December 31, 2006.  $1,176,345 of the increases in gross margin and percentage of gross margin for the twelve month period were attributable primarily to the acquisition of Meadowlands and Fire Control and an increase in gross margin for Secure of $274,540.

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

SG&A expenses for the year ended December 31, 2007 of $3,140,091, increased by $1,517,215 over SG&A expenses of $1,622,876 during the year ended December 31, 2006.  Selling and marketing expenses



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decreased by approximately $22,402, general and administrative expenses increased by $1,165,668, amortization expense increased by approximately $363,990, and depreciation expense increased by $9,959 from the year ended December 31, 2006.  $887,862 of the increase in general and administrative expenses was primarily attributable to the acquisition of Meadowlands and Fire Control.  Substantially, all of the increase in amortization expense and depreciation was attributable to the acquisition of Meadowlands and Fire Control. $292,519 of the increase in general and administrative expenses was attributable to Secure in professional fees, salaries, and travel.

Other Expense



Other Income (Expense) increased to $443,167 for the year ended December 31, 2007 from $161,624 during the year ended December 31, 2006, representing an increase of approximately $281,543.  Interest expense for the year ended December 31, 2007 increased by $246,090 to $416,534 from interest expense of $170,444 during the year ended December 31, 2006. This increase is primarily attributable to the interest on the convertible debentures issued in June and November 2007, 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.  Amortization expense of debt discount increased from $0 for the year ending December 31, 2006 to $24,000 during the year ended December 31, 2007.

Dividends on Preferred Stock



Dividends on preferred stock for the year ended December 31, 2007 were $268,746 versus $358,328 in dividends during the year ended December 31, 2006, which represented a decrease of $89,582. These dividends are attributable to the redeemable convertible preferred shares issued in conjunction with the March 11, 2005 merger with Secure System, Inc.  These preferred shares were all converted to common stock on September 30, 2007.

Net (Loss)

Net Loss attributable to common stockholders for the year ended December 31, 2007 increased by $257,391 to $1,753,078 from $1,495,687 during the year ended December 31, 2006.  The increase in net loss is offset by an increase in gross margin described above for the period and primarily attributable to  an increase in selling, general, and administrative expenses for the year as described above.

Liquidity and Capital Resources



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



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

We completed the Meadowlands acquisition by using a portion of the proceeds of the five year Convertible Debenture that we issued with gross proceeds of $2,700,000.  Pursuant to this Debenture, we are required to make mandatory interest only payments to the Investor in the amount of 1/12th of the Interest due on the outstanding balance of the Debenture each month for the first nine months after closing on the acquisition.  Pursuant to this Debenture, we also are required to make mandatory principal payments to the Investor throughout the life of the Debenture.  For months 7 thru 12, we must pay $15,000 per month, for months 13 thru 18 we must pay $35,000 per



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month, for months 19 thru 24 we must pay $45,000, for month 25 thru month 35 we must pay $75,000 per month and on month 36 all amounts then current will be due payable.

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



At December 31, 2007, the Company had negative working capital of $978,820, and stockholder equity of $330,390.  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.

Recent Accounting Pronouncements

We adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109" ("FIN 48"), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement 109, "Accounting for Income Taxes", and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements or adjustments to our deferred tax assets and related valuation allowance. Our evaluation was performed for the tax years ended December 31, 2003, 2004, 2005 and 2006, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2007.



8



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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 February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 which is effective for fiscal years beginning after November 15, 2007. This statement permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. We are currently evaluating the potential impact of this statement.

In December 2007, the FASB revised Statement of Financial Accounting Standard N. 141 (SFAS 141R), Business Combinations, which is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  Early application is not permitted before that date.  SFAS 141R requires assets and liabilities recorded in a business combination to be recorded at fair value and replaces the cost-allocation process under the prior standard.  In addition, SFAS 141R requires separate recognition of acquisition costs and requires recognition of contractual contingencies at fair value as of the acquisition date.  Further, the revised standard requires capitalization of research and development assets and requires fair value recognition of contingent consideration as of the acquisition date.   The Company is currently evaluating the potential impact of this pronouncement.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161 (SFAS 161), Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133, which is effective for fiscal years, and interim periods within those fiscal years, beginning on or after November 15, 2008.  Early application is encouraged.  SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows.  The Statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation.  In addition, the standard requires tabular disclosure of fair value of derivative instruments and their gains and loss, requires disclosure regarding credit risk related contingent features of the Companys derivative instruments and requires cross referencing within the footnote disclosures regarding information about derivative instruments.   The Company does not expect that this pronouncement will have a significant impact on its financial condition or results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160 (SFAS 160), Non-Controlling Interests in Consolidated Financial Statements, An Amendment of Accounting Research Bulletin No. 51, which is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Early application is not permitted before that date.  SFAS 160 changes the terminology of minority interests, which will now be known as non-controlling interest and requires that non-controlling interests be clearly identified within stockholders equity as a separate component from the parent companys equity and net income or loss attributable to non-controlling interests be clearly identified and presented on the face of the consolidated statement of operations.  In addition, the standard requires adequate disclosure between interests of the parent company and interests of the non-controlling equity holders.   The Company does not expect that this pronouncement will have a significant impact on its 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



9



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The Company's management evaluated, with the participation of its President, the effectiveness of the design/operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the SEC Act of 1934) as of December 31, 2007.  Based on such evaluation, the President of the Company concluded that its disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and regulations of the Securities and Exchange Commission and is not operating in an effective manner.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles. Under the supervision and with the participation of management, including our President, we conducted a review, evaluation, and assessment of the effectiveness of our internal control over financial reporting as of December 31, 2007 based upon the criteria set forth in Internal Control  Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

During managements evaluation of internal controls over financial reporting, the following material weaknesses in the internal control over financial reporting procedures were found:

·

There is no Audit Committee in place as required by the Sarbanes-Oxley Act of 2002.

·

There is no Whistleblower Policy adopted and communicated to all staff and management

·

There are no controls in place to ensure complete and accurate recording of all trade payables, accrued liabilities and accrued purchases

·

There are no controls in place to ensure complete and accurate preparation of the Statement of Cash Flows as they are currently not reviewed and re-calculated by a person other than the preparer.

·

There is no independent review of expenditures that are approved by the CEO by the Audit Committee to ensure validity of expenditures.

·

There is no independent review of expenditure classifications to ensure they are complete and accurate.

·

All spreadsheets that are used in connection with preparation of the financial statements are not independently re-calculated, reviewed and approved by management.

·

There is no independent review and re-calculation of stockholders equity section of the financial statement.

·

There is no independent review and re-calculation of investments in subsidiaries and other equity investment values represented in the financial statements.

·

There is no independent review by company management that financial statements are prepared in conformity with GAAP and SEC reporting requirements as well as related footnote disclosures based on current GAAP and SEC standards.

Based on the material weaknesses noted above, management concludes that the internal controls over financial reporting are not effective.  Management will be undertaking remediation efforts on a cost-effective basis to remediate material weaknesses during the next fiscal year.  Based on cost constraints not all material weaknesses are expected to be remediated.  As a result, internal controls over financial reporting are expected to remain not effective until revenues from operations are sufficient to support additional internal controls and the formation of an audit committee.

There were no changes in internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the SEC Act of 1934) identified in connection with the evaluation as of December 31, 2007 by the President, which occurred during the most recent fiscal quarter, which have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.





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This annual report does not include an attestation report of the companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the companys registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only managements report in this annual report.



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Part III

ITEM 9.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are:

|                 |  |                                                        |  |                             
|---------------- |  | ------------------------------------------------------ |  | ----------------------------
|Name             |  | Positions with registrant and age as of
March 28, 2008 |  | Has served as director since
|John X. Adiletta |  | President,
Chief Executive Officer,
Chairman, 59       |  | 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 38 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. 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, 2007.

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, 2007, 2006 and 2005 in all capacities for the accounts of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO).



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|                              |  |      |  |                         |         |                      |  
|----------------------------- |  | ---- |  | ----------------------- | ------- | -------------------- | -
|Name and Principal Position   |  | Year |  | Restricted Compensation |         | Annual  Stock Awards
|John X. Adiletta, CEO (2) (3) |  | 2007 |  | $                       | 332,750 |                      | 0
|                              |  | 2006 |  | $                       | 302,500 |                      | 0
|                              |  | 2005 |  | $                       | 290,000 |                      | 0
|Paul L. Patrizio (1) (2)      |  | 2005 |  | $                       | 0       |                      | 0



(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 Chairman, 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 retirement plan.

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 28, 2008 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.



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|                |  |                                                            |  |                                      |  |                 
|--------------- |  | ---------------------------------------------------------- |  | ------------------------------------ |  | ----------------
|Title  of Class |  | Name                                                       |  | Number of Shares  Beneficially Owned |  | Percent of Class
|Common          |  | John X. Adiletta                                           |  | 5,750,000                            |  | 24.94%          
|                |  | c/o 90 Washington Valley Road
Bedminster, New Jersey 09721 |  |                                      |  |                 
|Common          |  | William F. Farley                                          |  | 4,980,436                            |  | 21.60%          
|                |  | c/o 90 Washington Valley Road
Bedminster, New Jersey 07921 |  |                                      |  |                 
|Voting          |  | All Directors and  Officers as a group                     |  | 5,750,000                            |  | 24.94%          



ITEM 12.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The stockholder note payable was $388,526 at December 31, 2007. 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.  Payments are currently in arrears.



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.

On December 31, 2007, the Company approved the issuance of 1,700,000 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 $100,000 in salary owed to John X. Adiletta at the rate of $0.05 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.



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PART IV

ITEM 13.

EXHIBITS LIST AND REPORTS ON FORM 8-K

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

On January 16, 2007, the Company filed a Form 8K that on January 15, 2007, 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 as follows:  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, 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 April 17, 2007, the Company filed a Form 8K that on April 2, 2007, the Company approved the issuance of a convertible promissory note for $45,000 to Karl Kaplan and issued a common stock purchase warrant to Karl Kaplan for 90,000 warrants. The warrants have a term of three years and exercise prices of $.20 if exercised within the twelve months from the issue date, $.30 if exercised within 12 months to 24 months from the issue date; and $.40 if exercised within 24 months to 36 months from the issue date. Such note and warrant 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 17, 2007, the Company filed a Form 8K that:

·

On June 15, 2007, Dutchess Private Equities Fund, Ltd. (the Investor) purchased a convertible debenture (Debenture) from us for $2,700,000 (Face Amount) which has a five-year term and bears annual interest at 12%.

·

On June 15, 2007, we also entered into a convertible promissory note and common stock purchase warrant agreement (collectively Note) with Sophia Meneve (Holder) in the amount of $50,000.  The Note matures 60 days from the date of issuance (Maturity Date) and bears annual interest at 12%.  We are required to pay the Holder a minimum of 180 days of interest on the principal being repaid.  Similarly, although there is no penalty for prepayment, we must pay the Holder a minimum of 180 days of interest on the principal being repaid.  As additional consideration we issued to the Holder 50,000 shares of our common stock, par value $.001 and a warrant to purchase an additional 50,000 shares of our common stock at a strike price of $.12 per share.

·

On June 15, 2007, the Company approved the issuance 25,000 shares to Karl Kaplan and 25,000 shares to Julie Boyle in consideration of a waiver provided to the Company pursuant to a recent financing.  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 7, 2007, the Company filed a Form 8K that on June 30, 2007, we entered into a Stock Purchase Agreement (Agreement) in which Secure System, Inc., a New Jersey Corporation (hereinafter Secure or the Buyer), our wholly owned subsidiary, purchased all the shares of Meadowlands Fire, Safety, and Electrical Supply Co., Inc., a New Jersey corporation, and Vanwell Electronics, Inc., a New Jersey corporation (collectively Meadowlands or the Company) from Keith Kesheneff and Kathryn Kesheneff, being all of the shareholders of Meadowlands.  Pursuant to the Agreement, Secure acquired Meadowlands whereby Meadowlands became a wholly owned subsidiary of Secure.  The closing of the transactions contemplated by the Agreement was subject to customary closing conditions, including the delivery of financial statements by Meadowlands.

On July 10, 2007, the Company filed a Form 8K/A that the Audited Consolidated Financial Statements of Meadowlands Fire, Safety, and Electrical Supply Co., Inc. and Vanwell Electronics, Inc as of December 31, 2006 and 2005 were filed as Exhibit 99.1 and Exhibit 99.2



15



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On July 20, 2007, the Company filed a Form 8K that on July 12, 2007, the Company approved the issuance of the following shares restricted common stock for the conversion of outstanding convertible notes to the Company:

|                      |   |                           
|--------------------- | - | --------------------------
|Monte and Joan Engler |  | 248,539 restricted shares.
|Joshua Emanuel        |  | 248,539 restricted shares.
|Randa Globerman       |  | 49,708 restricted shares. 
|Walter & Gail Harris  |  | 49,708 restricted shares. 



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 addition to the above, these shareholders received a total of 480,000 shares of common stock registered in the Companys SB-2 registration statement filed with the SEC.  That on July 19, 2007, the Company approved the issuance of the 245,613 shares of restricted common stock to William Farley for the conversion of outstanding convertible notes to 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.  In addition to the above, this shareholder received 600,000 shares of common stock registered in the Companys SB-2 registration statement filed with the SEC.

On July 25, 2007, the Company filed a Form 8K that on July 24, 2007, the Company, by a vote of a majority of its holders of Series A Convertible Preferred Stock and its Board of Directors, approved an amendment to its Articles of Incorporation by modifying the Certificate of Designations of its Series A Convertible Preferred Stock effective August 1, 2007 as follows:



 Mandatory Conversion.   After not less than seventy (70%) of the Series A Preferred Stock has been converted into shares of Common Stock, the Company shall have the option to convert all remaining shares of Series A Preferred Stock into Common Stock..

On September 6, 2007, the Company filed a Form 8K that the Consolidated Financial Statements of Meadowlands Fire, Safety, and Electrical Supply Co., Inc. and Vanwell Electronics, Inc as of June 30, 2007 were filed as Exhibit 99.3 and Exhibit 99.4.

On October 15, 2007, the Company filed a Form 8K that on October 12, 2007, the Company approved the issuance of a total of 9,932,200 shares of the Companys common stock to seventy five shareholders pursuant to conversions of the Companys Series A 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.

On November 20, 2007, the Company filed a Form 8K that effective October 1, 2007, we entered into a Stock Purchase Agreement (Agreement) in which we purchased all the shares of Fire Control Electrical Systems, Inc., a New Jersey corporation (FCES or the Company) from Vincent A. Bianco and Opie F. Brinson, being all of the shareholders of FCES.  Pursuant to the Agreement, we acquired FCES whereby FCES became our wholly owned subsidiary.  The closing of the transactions contemplated by the Agreement was subject to customary closing conditions, including the delivery of financial statements by FCES.  This transaction closed on November 14, 2007 upon closing of the financing with Dutchess Private Equities Fund, Ltd.  That on November 14, 2007, Dutchess Private Equities Fund, Ltd. (the Investor) purchased a convertible debenture (Debenture) from us for $1,350,000 (Face Amount) which has a five-year term and bears annual interest at 12%.  The proceeds of the Debenture were used to complete the purchase of all of the shares of FCES.  Pursuant to this Debenture, we are required to make mandatory interest only payments to the Investor in the amount of 1/12th of the Interest due on the outstanding balance of the Debenture each month for the first six months after closing on the acquisition.  The first payment is due on November 30, 2007.  Pursuant to this Debenture, we also are required to make mandatory principal payments to the Investor throughout the life of the Debenture.  For months 1 thru 7, we must pay $8,000 per month, for months 8 thru 13 we must pay $15,000 per month, for months 14 thru 19 we must pay $20,000, for month 20 thru month 28 we must pay $30,000 per month, for month 29 and each month thereafter until the balance has been paid in full we must pay $40,000 per month.  In conjunction with the Debenture, we have also issued to the Investor a warrant to purchase a number of shares equal to 5,000,000 with a strike price equal to $.05 per share.  The warrants have a term of five years from the date of issuance.



16



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On January 2, 2008, the Company filed a Form 8K that on December 31, 2007, the Company approved the issuance of 1,700,000 shares of the Companys common stock to John X. Adiletta as a conversion of accrued compensation of $100,000 and that the Company had approved the issuance of a total of 240,000 shares of the Companys common stock to Dian Griesel and 40,000 shares of James K. Moran for 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

(b) Exhibits

14

Code of Ethics

31.1

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.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

For the Company's fiscal years ended December 31, 2007 and December 31, 2006, the Company was billed approximately $115,000 and $135,000, respectively for professional services rendered for the audit and review of its financial statements, as well as the issuance of consents on registration statements.

Audit Related Fees

None for 2007 and 2006.

Tax Fees

For the Company's fiscal years ended December 31, 2007 and 2006, the Company incurred $6,750 and $6,505, respectively for preparation of its corporate income tax returns.

All Other Fees

None for 2007 and 2006.



17



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Signatures

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

Date:  March 31, 2008

| |                                    |                                          
| | ---------------------------------- | -----------------------------------------
| | SOMERSET INTERNATIONAL GROUP, INC.
| |                                    | (Registrant)                             
| |                                    |                                          
| | By:                                | /s/ John X. Adiletta                     
| |                                    | John X. Adiletta,
Chief Executive Officer









18



---

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONTENTS TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

|                                                                                                      |     
|----------------------------------------------------------------------------------------------------- | ----
|                                                                                                      |     
|                                                                                                      | Page
|                                                                                                      |     
|REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                               | F-2 
|                                                                                                      |     
|CONSOLIDATED FINANCIAL STATEMENTS:                                                                    |     
|                                                                                                      |     
|Balance Sheets
December 31, 2007 and 2006                                                             | F-3 
|                                                                                                      |     
|Statements of Operations
For the Years Ended December 31, 2007 and 2006                               | F-4 
|                                                                                                      |     
|Statement of Changes in Shareholders' Equity (Deficit)
For the Years Ended December 31, 2007 and 2006 | F-5 
|                                                                                                      |     
|Statements of Cash Flows
For the Years Ended December 31, 2007 and 2006                               | F-7 
|                                                                                                      |     
|Notes to  Consolidated  Financial Statements                                                          | F-8 





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 sheetS of Somerset International Group, Inc. and Subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years 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, 2007 and 2006, and the consolidated results of their operations and their cash flows for the years 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, 2007 and 2006 of approximately $1,484,000 and $1,137,000, respectively, an accumulated deficit of approximately $31,042,000 as of December 31, 2007 and the Company utilized net cash in operating activities of approximately $1,254,000 for the year then ended. In addition, at December 31, 2007, the Company had a working capital deficit of approximately $979,000. Managements plan with respect to this matter are discussed in Note 1B and includes 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, NJ

March 31, 2008









F-2





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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006

|                                                                                             |      |              |      |   |             
|-------------------------------------------------------------------------------------------- | ---- | ------------ | ---- | - | ------------
|                                                                                             | 2007 |              | 2006
|ASSETS                                                                                       |      |              |      |   |             
|Current Assets:                                                                              |      |              |      |   |             
|Cash                                                                                         | $    | 350,110      |      | $ | 1,598       
|Accounts receivable, net                                                                     |      | 951,177      |      |   | 161,425     
|Inventories                                                                                  |      | 572,707      |      |   | 296,452     
|Prepaid expenses                                                                             |      | 8,982        |      |   | 23,786      
|Other current assets                                                                         |      | 20,838       |      |   | 9,554       
|Total Current Assets                                                                         |      | 1,903,814    |      |   | 492,815     
|                                                                                             |      |              |      |   |             
|Property and equipment, net                                                                  |      | 77,331       |      |   | 8,785       
|                                                                                             |      |              |      |   |             
|Other Assets:                                                                                |      |              |      |   |             
|Deposits                                                                                     |      | 9,825        |      |   | --          
|Deferred financing costs, net                                                                |      | 313,333      |      |   | --          
|Non compete covenant, net                                                                    |      | 37,313       |      |   | 107,939     
|Customer Lists, net                                                                          |      | 2,213,107    |      |   | 734,921     
|Software, net                                                                                |      | 12,743       |      |   | 83,453      
|Distribution agreements, net                                                                 |      | 140,622      |      |   | --          
|Goodwill                                                                                     |      | 2,200,355    |      |   | 2,200,355   
|Total other assets                                                                           |      | 4,927,298    |      |   | 3,126,668   
|                                                                                             |      |              |      |   |             
|TOTAL ASSETS                                                                                 | $    | 6,908,443    |      | $ | 3,628,268   
|                                                                                             |      |              |      |   |             
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                        |      |              |      |   |             
|                                                                                             |      |              |      |   |             
|Current Liabilities:                                                                         |      |              |      |   |             
|Accounts payable and accrued expenses                                                        | $    | 793,389      |      | $ | 889,953     
|Promissory notes payable - current                                                           |      | 1,116,109    |      |   | 1,136,927   
|Dutchess promissory notes payable - current                                                  |      | 461,000      |      |   | --          
|Employment contracts payable                                                                 |      | --           |      |   | 6,939       
|Accrued interest payable                                                                     |      | 201,225      |      |   | 246,948     
|Deferred revenue                                                                             |      | 310,911      |      |   | 60,497      
|Total Current Liabilities                                                                    |      | 2,882,634    |      |   | 2,341,264   
|                                                                                             |      |              |      |   |             
|Dutchess promissory notes payable  non-current                                              |      | 3,574,000    |      |   | --          
|Stockholder note payable, - non-current                                                      |      | 121,419      |      |   | 313,837     
|                                                                                             |      |              |      |   |             
|TOTAL LIABILITIES                                                                            |      | 6,578,053    |      |   | 2,655,101   
|                                                                                             |      |              |      |   |             
|Convertible redeemable preferred stock                                                       |      | --           |      |   | 3,704,134   
|                                                                                             |      |              |      |   |             
|Stockholders Equity:                                                                        |      |              |      |   |             
|Common Stock, 200,000,000 shares authorized, $.001 par                                       |      | 23,059       |      |   | 6,934       
|value, 23,058,655 and 6,933,676 shares issued and outstanding
in 2007 and 2006, respectively |      |              |      |   |             
|Capital in excess of par value                                                               |      | 31,349,583   |      |   | 26,551,273  
|Accumulated deficit                                                                          |      | (31,042,252) |      |   | (29,289,174)
|Total stockholders equity (deficit)                                                         |      | 330,390      |      |   | (2,730,967) 
|                                                                                             |      |              |      |   |             
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY(DEFICIT)                                          | $    | 6,908,443    |      | $ | 3,628,268   

See accompanying Notes to the Consolidated Financial Statements



F-3





---





SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006



|                                                    |      |             |      |   |            
|--------------------------------------------------- | ---- | ----------- | ---- | - | -----------
|                                                    | 2007 |             | 2006
|Revenues                                            |      |             |      |   |            
|Equipment Sales                                     | $    | 2,282,936   |      | $ | 440,089    
|Installation Revenues                               |      | 542,523     |      |   | 375,733    
|Subscription Revenues                               |      | --          |      |   | 156,443    
|Maintenance Revenues                                |      | 1,053,853   |      |   | 768,126    
|Total revenues                                      |      | 3,879,312   |      |   | 1,740,391  
|                                                    |      |             |      |   |            
|Costs of goods sold                                 |      |             |      |   |            
|Material cost of systems sold                       |      | 978,158     |      |   | 166,084    
|Install and service costs                           |      | 644,198     |      |   | 763,247    
|Engineering and development                         |      | 157,934     |      |   | 162,919    
|Total costs of goods sold                           |      | 1,780,290   |      |   | 1,092,250  
|                                                    |      |             |      |   |            
|Gross margin                                        |      | 2,099,023   |      |   | 648,141    
|                                                    |      |             |      |   |            
|Selling, general, and administrative expenses       |      |             |      |   |            
|Selling, general and administrative expense         |      | 2,515,055   |      |   | 1,371,789  
|Depreciation expense                                |      | 16,430      |      |   | 6,471      
|Amortization expense                                |      | 608,606     |      |   | 244,616    
|Total selling, general, and administrative expenses |      | 3,140,091   |      |   | 1,622,876  
|                                                    |      |             |      |   |            
|Loss from operations                                |      | (1,041,068) |      |   | (974,735)  
|                                                    |      |             |      |   |            
|Other Income(Expense)                               |      |             |      |   |            
|Amortization of debt discount                       |      | (24,000)    |      |   | --         
|Interest expense                                    |      | (416,534)   |      |   | (170,444)  
|Other income                                        |      | (2,633)     |      |   | 8,820      
|Total other income                                  |      | (443,167)   |      |   | (161,624)  
|                                                    |      |             |      |   |            
|Loss before income taxes                            |      | (1,484,235) |      |   | (1,136,359)
|                                                    |      |             |      |   |            
|Provision for income taxes                          |      | 97          |      |   | 1,000      
|                                                    |      |             |      |   |            
|Net Loss                                            |      | (1,484,332) |      |   | (1,137,359)
|                                                    |      |             |      |   |            
|Dividends on preferred stock                        |      | 268,746     |      |   | 358,328    
|                                                    |      |             |      |   |            
|Net loss attributable to common stockholders        | $    | (1,753,078) |      | $ | (1,495,687)
|                                                    |      |             |      |   |            
|Basic and diluted net loss per common share         | $    | (0.15)      |      | $ | (0.23)     
|                                                    |      |             |      |   |            
|Weighted Average Number of Common Shares            |      | 11,525,387  |      |   | 6,443,763  



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 |  |           |       |        |   | TOTAL    
|                                                                           |   | SHARES          |   | PAR VALUE    |  | SHARES               |  | PAR VALUE |       | SHARES |   | PAR VALUE |   | CAPITAL IN
EXCESS OF PAR |   | ACCUMULATED DEFICIT |  | STOCKHOLDERS
EQUITY (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              |  |                                | -            |  |   | 60,000     
|Issuance of Common Stock for cash and warrants                             | - |                 |   | -            |  | 50,000               |  |           | 50    |        | - |           | - |                          |   | 9,950               |  |                                | -            |  |   | 10,000     
|Issuance of Common Stock for
services                                      | - |                 |   | -            |  | 100,000              |  |           | 100   |        | - |           | - |                          |   | 19,900              |  |                                | -            |  |   | 20,000     
|Issuance of Common Stock for cash and warrants                             | - |                 |   | -            |  | 75,000               |  |           | 75    |        | - |           | - |                          |   | 14,925              |  |                                | -            |  |   | 15,000     
|Issuance of Common Stock for cash and warrants                             | - |                 |   | -            |  | 75,000               |  |           | 75    |        | - |           | - |                          |   | 14,925              |  |                                | -            |  |   | 15,000     
|Issuance of Common Stock for services                                      | - |                 |   | -            |  | 175,000              |  |           | 175   |        | - |           | - |                          |   | 34,825              |  |                                | -            |  |   | 35,000     
|Issuance of Common Stock for
Conversion of officer advance                 | - |                 |   | -            |  | 171,785              |  |           | 172   |        | - |           | - |                          |   | 34,185              |  |                                | -            |  |   | 34,357     
|Issuance of Common Stock for cash and warrants                             | - |                 |   | -            |  | 125,000              |  |           | 125   |        | - |           | - |                          |   | 24,875              |  |                                | -            |  |   | 25,000     
|Issuance of Common Stock for payment of an accrued liability to an officer | - |                 |   | -            |  | 175,000              |  |           | 175   |        | - |           | - |                          |   | 34,825              |  |                                | -            |  |   | 35,000     
|Issuance of Common Stock for services                                      | - |                 |   | -            |  | 25,000               |  |           | 25    |        | - |           | - |                          |   | 4,975               |  |                                | -            |  |   | 5,000      
|Issuance of Common Stock as a
debt discount on note payable                | - |                 |   | -            |  | 25,000               |  |           | 25    |        | - |           | - |                          |   | 4,975               |  |                                | -            |  |   | 5,000      
|                                                                           |   |                 |   |              |  |                      |  |           |       |        |   |           |   |                          |   |                     |  |                                |              |  |   |            
|Balance 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-5





---





SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006



|                                                                           |   |                 |   |              |  |                      |  |           |        |        |   |           |   |                          |   |                     |  |                  |              |  |   |             | 
|-------------------------------------------------------------------------- | - | --------------- | - | ------------ |  | -------------------- |  | --------- | ------ | ------ | - | --------- | - | ------------------------ | - | ------------------- |  | ---------------- | ------------ |  | - | ----------- | 
|                                                                           |   | PREFERRED STOCK |   | COMMON STOCK |  | CLASS A
COMMON STOCK |  |           |        |        |   |           |  
|                                                                           |   | SHARES          |   | PAR VALUE    |  | SHARES               |  | PAR VALUE |        | SHARES |   | PAR VALUE |   | CAPITAL IN
EXCESS OF PAR |   | ACCUMULATED DEFICIT |  | EQUITY (DEFICIT)
|Balance at December 31, 2006                                               | - |                 | $ | -            |  | 6,933,676            |  | $         | 6,934  |        | - |           | - |                          | $ | 26,551,273          |  | $                | (29,289,174) |  | $ | (2,730,967)
|                                                                           |   |                 |   |              |  |                      |  |           |        |        |   |           |   |                          |   |                     |  |                  |              |  |   |            
|Net Loss                                                                   | - |                 |   | -            |  | -                    |  |           | -      |        | - |           | - |                          |   | -                   |  |                  | (1,484,332)  |  |   | (1,484,332)
|Issuance of dividends on Convertible Redeemable Preferred Stock            | - |                 |   | -            |  | -                    |  |           | -      |        | - |           | - |                          |   | -                   |  |                  | (268,746)    |  |   | (268,746)  
|Issuance of Common Stock for services                                      | - |                 |   | -            |  | 50,000               |  |           | 50     |        | - |           | - |                          |   | 9,950               |  |                  | -            |  |   | 10,000     
|Issuance of Common Stock for cash                                          | - |                 |   | -            |  | 60,000               |  |           | 60     |        | - |           | - |                          |   | 6,144               |  |                  | -            |  |   | 6,204      
|Issuance of Common Stock for cash                                          | - |                 |   | -            |  | 84,700               |  |           | 85     |        | - |           | - |                          |   | 15,839              |  |                  | -            |  |   | 15,924     
|Issuance of Common Stock for cash and warrants                             | - |                 |   | -            |  | 50,000               |  |           | 50     |        | - |           | - |                          |   | 23,950              |  |                  | -            |  |   | 24,000     
|Issuance of Common Stock for extension of debt terms                       | - |                 |   | -            |  | 50,000               |  |           | 50     |        | - |           | - |                          |   | 7,450               |  |                  | -            |  |   | 7,500      
|Issuance of Common Stock for conversion of debt                            | - |                 |   | -            |  | 2,459,173            |  |           | 2,459  |        | - |           | - |                          |   | 399,632             |  |                  | -            |  |   | 402,091    
|Issuance of Common Stock to
seller                                         | - |                 |   | -            |  | 666,666              |  |           | 667    |        | - |           | - |                          |   | 99,333              |  |                  | -            |  |   | 100,000    
|Issuance of Common Stock for conversion of debt                            | - |                 |   | -            |  | 572,240              |  |           | 572    |        | - |           | - |                          |   | 85,264              |  |                  | -            |  |   | 85,836     
|Issuance of Common Stock for conversion of preferred stock                 | - |                 |   | -            |  | 9,932,200            |  |           | 9,932  |        | - |           | - |                          |   | 3,962,948           |  |                  | -            |  |   | 3,972,880  
|Retirement of Common Stock                                                 | - |                 |   | -            |  | (300,000)            |  |           | (300)  |        | - |           | - |                          |   | (59,700)            |  |                  | -            |  |   | (60,000)   
|Issuance of Common Stock to
seller                                         | - |                 |   | -            |  | 500,000              |  |           | 500    |        | - |           | - |                          |   | 149,500             |  |                  |              |  |   | 150,000    
|Issuance of Common Stock for
services                                      | - |                 |   | -            |  | 300,000              |  |           | 300    |        | - |           | - |                          |   | 14,700              |  |                  | -            |  |   | 15,000     
|Issuance of Common Stock for payment of an accrued liability to an officer | - |                 |   | -            |  | 1,700,000            |  |           | 1,700  |        | - |           | - |                          |   | 83,300              |  |                  | -            |  |   | 85,000     
|Balance at December 31, 2007                                               | - |                 | $ | -            |  | 23,058,655           |  | $         | 23,059 |        | - |           | - |                          | $ | 31,349,583          |  | $                | (31,042,252) |  | $ | 330,390    



See accompanying Notes to the Consolidated Financial Statements



F-6





---





SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006



|                                                     |                                                      |             |           |   |             |         |  |  | 
|---------------------------------------------------- | ---------------------------------------------------- | ----------- | --------- | - | ----------- | ------- |  |  | 
|                                                     | 2007                                                 |             | 2006     
|Cash Flows From Operating Activities:                |                                                      |             |           |   |            
|Net (Loss)                                           | $                                                    | (1,484,332) |           | $ | (1,137,359)
|Adjustments to reconcile net loss to                 |                                                      |             |           |   |            
|net cash used in operating activities:               |                                                      |             |           |   |            
|Amortization of debt discount                        |                                                      | 24,000      |           |   | 5,000      
|Depreciation                                         |                                                      | 16,430      |           |   | 251,087    
|Amortization                                         |                                                      | 608,606     |           |   |            
|Stock issued for services                            |                                                      | 25,000      |           |   | 120,000    
|Loss on disposal of vehicle                          |                                                      | --          |           |   | 1,572      
|Stock issued to settle accrued compensation          |                                                      | 85,000      |           |   | --         
|Other adjustments                                    |                                                      | (50,000)    |           |   | --         
|Stock issued for interest                            |                                                      | 195,427     |           |   | --         
|Changes in operating assets and liabilities:         |                                                      |             |           |   |            
|Accounts receivable                                  |                                                      | 174,842     |           |   | 40,823     
|Inventories                                          |                                                      | 38,794      |           |   | 43,481     
|Other current assets                                 |                                                      | 1,062       |           |   | 5,837      
|Accounts payable, accrued expenses, officer advance  |                                                      | (863,732)   |           |   | 515,070    
|Prepaid expense                                      |                                                      | 63,880      |           |   | --         
|Deposits                                             |                                                      | 11,450      |           |   | --         
|Accrued interest payable                             |                                                      | (45,723)    |           |   | 116,374    
|Deferred revenue                                     |                                                      | (47,678)    |           |   | 39,127     
|Employment contracts payable                         |                                                      | (6,939)     |           |   | (37,178)   
|Net Cash Used in Operating Activities                |                                                      | (1,253,913) |           |   | (36,166)   
|Cash Flows From Investing Activities:                |                                                      |             |           |   |            
|Acquisition of subsidiaries, net of cash acquired    |                                                      | (1,542,306) |           |   | --         
|Purchase of equipment                                |                                                      | (53,161)    |           |   | --         
|Net Cash Used in Investing Activities                |                                                      | (1,595,467) |           |   | --         
|Cash Flows From Financing Activities:                |                                                      |             |           |   |            
|Proceeds from issuance of Dutchess debentures        |                                                      | 3,695,000   |           |   | --         
|Payment of convertible notes and debenture           |                                                      | (514,997)   |           |   | --         
|Proceeds from issuance of notes payable              |                                                      | 95,000      |           |   | 50,000     
|Proceeds from issuance of stock                      |                                                      | 46,128      |           |   | 65,000     
|Payment for return and retirement of stock           |                                                      | (10,000)    |           |   | --         
|Payment of stockholder note payable                  |                                                      | (113,239)   |           |   | (118,723)  
|Net Cash Provided by (Used in ) Financing Activities |                                                      | 3,197,892   |           |   | (3,723)    
|Net Change in Cash                                   |                                                      | 348,512     |           |   | (39,889)   
|Cash at Beginning of the Year                        |                                                      | 1,598       |           |   | 41,487     
|Cash at End of the Year                              | $                                                    | 350,110     |           | $ | 1,598      
|Cash paid for:                                       |                                                      |             |           |   |            
|Interest                                             | $                                                    | 274,330     |           | $ | 57,026     
|Income Taxes                                         |                                                      | 97          |           |   | 1,000      
|Non Cash Investing & Financing Activities:           |                                                      |             |           |   |            
|                                                     | Accretion of preferred stock dividends               |             | 268,746   |   |             | 358,328
|                                                     | Conversion of convertible redeemable                 |             |           |   |             |        
|                                                     | preferred shares to common stock                     |             | 3,972,880 |   |             | --     
|                                                     | Conversion of convertible debt to common stock       |             | 300,000   |   |             | --     
|                                                     | Stock issued to repay officer loan                   |             | --        |   |             | 34,357 
|                                                     | Stock issued for allowed expenses owed to an officer |             | --        |   |             | 35,000 
|                                                     | Deferred Finance Cost Paid with Note Payable         |             | 355,000   |   |             | --     



See accompanying Notes to the Consolidated Financial Statements



F-7





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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

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.

On June 30, 2007, we entered into a Stock Purchase Agreement (Agreement) in which Secure, our wholly owned subsidiary, purchased all the shares of Meadowlands Fire, Safety, and Electrical Supply Co., Inc., a New Jersey corporation, and Vanwell Electronics, Inc., a New Jersey corporation (collectively Meadowlands) from Keith Kesheneff and Kathryn Kesheneff, being all of the shareholders of Meadowlands.  Pursuant to the Agreement, Secure acquired Meadowlands whereby Meadowlands became a wholly owned subsidiary of Secure.  Meadowlands specializes in the distribution, sale, installation and maintenance of fire and security equipment and systems that include fire detection, video surveillance, and burglar alarm equipment (see Note 10).

Effective October 1, 2007, we entered into a Stock Purchase Agreement (Agreement) in which Somerset purchased all the shares of Fire Control Electrical Systems, Inc., a New Jersey corporation, ( Fire Control) from Vincent Bianco and Opie Brinson, being all of the shareholders of Fire Control.  Pursuant to the Agreement, Somerset acquired Fire Control whereby Fire Control became a wholly owned subsidiary of Somerset.  Fire Control specializes in the distribution, sale, installation and maintenance of fire and security equipment and systems that include fire detection, video surveillance, and burglar alarm equipment.  The results of operations for the acquired entity will be included in consolidated statements of operations beginning October 1, 2007 (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.  This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. 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.  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, 2007 and 2006 of approximately $1,484,000 and $1,137,000, respectively, and had an accumulated deficit of approximately $31,042,000 and a stockholders equity of $330,390 as of December 31, 2007.  The Company also utilized net cash in operating activities of approximately $1,254,000 in 2007. In addition at December 31, 2007, the Company has a working capital deficit of $978,820. 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



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 2.

Significant Accounting Policies

A.

Cash and cash equivalents

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

B.

Accounts Receivables

Accounts receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date.  Accounts receivables are stated at the amount billed to the customer.  Interest is not billed or accrued.  Accounts receivables in excess of 90 days old are considered delinquent.  Payments to accounts receivables are allocated to the specific invoices identified on the customers remittance advice or, if unspecified, are applied to the oldest invoice.  The Company has an allowance for doubtful accounts of $73,915 and $0 as of December 31, 2007 and 2006, respectively, based on its historical collectability.

C.

Property, Equipment, and Leasehold Improvements

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

D.

Concentration of Credit Risk:

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

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

E.

Estimates:

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

F.

Income Taxes:

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

G.

Fair Value of Financial Instruments:

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

H.

Reclassifications:

Certain reclassifications were made to the 2006 financial statements in order to conform to the 2007 financial statement presentation.  Such reclassifications had no effect on the prior reported net loss.





F-9



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





I.

Principles of Consolidation:

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

J.

Stock Based Compensation and Stock Sales:

Stock and warrants issued for employee compensation services have been determined based on the value of the instrument issued at date of issuance for such services.  In addition, during 2007 and 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.

K.

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.

L.

Inventory:

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

M.

Loss Per Share:



The Company computes net loss per share under the provisions of SFAS No. 128, Earnings per Share (SFAS 128), and utilizes guidance provided by SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128 and SAB 98, basic loss per share is computed by dividing the Companys net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share excludes potential common shares if the effect is anti-dilutive. Diluted earnings per share is determined in the same manner as basic earnings per share except that the number of shares is increased assuming exercise of dilutive stock options and warrants using the treasury stock method. As the Company had a net loss, the impact of the assumed exercise of the stock options and warrants is anti-dilutive and as such, these amounts have been excluded from the calculation of diluted loss per share. For the periods ended December 31, 2007 and 2006, 3,047,514 and 5,108,333 of common stock equivalent shares were excluded from the computation of diluted net loss per share after considering ownership limitations of certain warrants and conversion features.

N.

Goodwill and Intangible Assets:

Goodwill and intangible assets result primarily from acquisitions accounted for under the purchase method. In accordance with Statement of Financial Accounting Standards (SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") goodwill and intangible assets with indefinite lives are not amortized but are subject to impairment by applying a fair value based test. Intangible assets with finite useful lives related to software, customer lists, covenant not to compete and other intangibles are being amortized on a straight-line basis over the estimated useful life of the related asset, generally three to seven years.  As of December 31, 2007, no impairment charge was necessary.

O.

Recoverability of Intangible and Other Long Lived Assets:

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





F-10



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





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, 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.

Note 3.

Recent Accounting Pronouncements



We adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48, "Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109" ("FIN 48"), on January 1, 2007. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement 109, "Accounting for Income Taxes", and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements or adjustments to our deferred tax assets and related valuation allowance. Our evaluation was performed for the tax years ended December 31, 2003, 2004, 2005 and 2006, the tax years which remain subject to examination by major tax jurisdictions as of December 31, 2007.

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 February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities  Including an Amendment of FASB Statement No. 115 which is effective for fiscal years beginning after November 15, 2007. This statement permits an entity to choose to measure many financial instruments and certain other items at fair value at specified election dates. Subsequent unrealized gains and losses on items for which the fair value option has been elected will be reported in earnings. We are currently evaluating the potential impact of this statement.

In December 2007, the FASB revised Statement of Financial Accounting Standard N. 141 (SFAS 141R), Business Combinations, which is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  Early application is not permitted before that date.  SFAS 141R requires assets and liabilities recorded in a business combination to be recorded at fair value and replaces the cost-allocation process under the prior standard.  In addition, SFAS 141R requires separate recognition of acquisition costs and requires recognition of contractual contingencies at fair value as of the acquisition date.  Further, the revised standard requires capitalization of research and development assets and requires fair value recognition of contingent consideration as of the acquisition date.   The Company is currently evaluating the potential impact of this pronouncement.

In March 2008, the FASB issued Statement of Financial Accounting Standard No. 161 (SFAS 161), Disclosures about Derivative Instruments and Hedging Activitiesan amendment of FASB Statement No. 133, which is effective for fiscal years, and interim periods within those fiscal years, beginning on or after November 15, 2008.  Early application is encouraged.  SFAS 161 changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entitys financial position, financial performance, and cash flows.  The Statement requires that objectives for using derivative instruments be disclosed in terms of underlying risk and accounting designation.  In addition, the standard requires tabular disclosure of fair value of derivative instruments and their gains and loss, requires disclosure regarding credit risk related contingent features of the Companys derivative instruments and requires cross referencing within the footnote disclosures regarding information about derivative instruments.   The Company does not expect that this pronouncement will have a significant impact on its financial condition or results of operations.







F-11



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





In December 2007, the FASB issued Statement of Financial Accounting Standard No. 160 (SFAS 160), Non-Controlling Interests in Consolidated Financial Statements, An Amendment of Accounting Research Bulletin No. 51, which is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  Early application is not permitted before that date.  SFAS 160 changes the terminology of minority interests, which will now be known as non-controlling interest and requires that non-controlling interests be clearly identified within stockholders equity as a separate component from the parent companys equity and net income or loss attributable to non-controlling interests be clearly identified and presented on the face of the consolidated statement of operations.  In addition, the standard requires adequate disclosure between interests of the parent company and interests of the non-controlling equity holders.   The Company does not expect that this pronouncement will have a significant impact on its financial condition or results of operations.

Note 4.

Promissory Notes Payable

The Companys debt obligations are comprised of Dutchess notes payable issued in connection with the Companys acquisitions of Vanwell and Meadowlands and their acquisition of Fire Control and other various notes payable.  The following is a summary of those obligations:

Various Notes Payable:

Outstanding balances on notes payable consist of the following at December 31:

|                                                                                                                                                                                                                                                                                                                 |      |           |      |   |          
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --------- | ---- | - | ---------
|                                                                                                                                                                                                                                                                                                                 | 2007 |           | 2006
|Note issued in January 2004 with interest at 12% per annum, convertible at $0.25 per share.  Payment due date was extended to December 31, 2005.                                                                                                                                                                 | $    | 175,000   |      | $ | 175,000  
|Note issued in June 2004 with interest at 12% per annum, convertible at $0.25 per share.  Payment due date was extended to December 31, 2005. [a]                                                                                                                                                                |      | 100,000   |      |   | 100,000  
|Notes issued in March 2005, with interest at 15% per annum, convertible at $0.15 per share. Payment due date was extended to December 31, 2005.                                                                                                                                                                  |      | 74,000    |      |   | 504,000  
|Note issued in April 2005 with interest at 12% per annum, convertible at the lesser of $0.15 per share.  Payment due date was extended to December 31, 2005. [b]                                                                                                                                                 |      | 20,000    |      |   | 20,000   
|June 2007, non-interest bearing short term note issued to the sellers in connection Vanwell and Meadowlands acquisition, convertible into the Companys common stock at $0.40 per share.  Management has determined that imputed interest related to this note is not significant to these financial statements. |      | 125,000   |      |   | --       
|September 2007, non-interest bearing short term note issued to the sellers in connection Vanwell and Meadowlands acquisition.  Management has determined that imputed interest related to this note is not significant to these financial statements.                                                            |      | 355,000   |      |   | --       
|Other notes paid or converted to Company common stock during 2007                                                                                                                                                                                                                                                |      | --        |      |   | 150,000  
|10% stockholder note payable, with monthly payments of $17,928.  Payments are in arrears.                                                                                                                                                                                                                        |      | 388,528   |      |   | 501,764  
|Total notes payable                                                                                                                                                                                                                                                                                              |      | 1,237,528 |      |   | 1,450,764
|Less Current Portion                                                                                                                                                                                                                                                                                             |      | 1,116,109 |      |   | 1,136,927
|Non-Current Portion                                                                                                                                                                                                                                                                                              | $    | 121,419   |      | $ | 313,837  



[a]:  In connection with the June 2004 note, the Company issued 100,000 shares of stock valued at approximately $15,000, which was recorded as a debt discount paid and is amortizable over the life of the debt.  Due to limitations on conversion, debt discount related to the warrants and conversion feature is insignificant to these financial statements.

[b]:  In connection with the April 2005 note, the Company issued 20,000 shares of stock valued at approximately $6,000, which was recorded as a debt discount paid and is amortizable over the life of the debt.  Due to limitations on conversion, debt discount related to the warrants and conversion feature is insignificant to these financial statements.







F-12



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Dutchess Notes Payable:

Dutchess notes payable consist of the following at December 31:

|                                                                                                                                                                                                                                                                                         |      |           |      |   |   
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | --------- | ---- | - | --
|                                                                                                                                                                                                                                                                                         | 2007 |           | 2006
|June 2007 12% convertible note payable with Dutchess Private Equities Fund, Ltd., with nine monthly interest payments commencing June 30, 2007, convertible at the lesser of $0.20 per share or 75% of the lowest closing bid price for the previous 10 business days [a], [b]           | $    | 2,685,000 |      | $ | --
|November 2007 12% convertible note payable with Dutchess Private Equities Fund, Ltd., with nine monthly interest payments commencing November 30, 2007, convertible at the lesser of $0.10 per share or 75% of the lowest closing bid price for the previous 10 business days [ [c], [d] |      | 1,350,000 |      |   | --
|Total Dutchess notes payable                                                                                                                                                                                                                                                             |      | 4,035,000 |      |   | --
|Less Current Portion                                                                                                                                                                                                                                                                     |      | 461,000   |      |   | --
|Non-Current Portion                                                                                                                                                                                                                                                                      | $    | 3,574,000 |      | $ | --



[a]:  Subsequent payments on the June 2007 note are as follows:

·

$15,000 per month from December 2007 through May 2008

·

$35,000 per month from June 2008 through November 2008

·

$45,000 per month from December 2009 through May 2009

·

$75,000 per month from June 2009 through May 2010

·

Balloon payment due June 2010



[b]:  In connection with the June 2007 note, the Company issued, as amended, a 5-year warrant to purchase 7,000,000 shares of stock with an exercise price of $.05 per share. Deferred financing costs paid to Dutchess, amounting to $205,000 is amortizable over the life of the debt.  Due to limitations on conversion, debt discount related to the warrants and conversion feature is insignificant to these financial statements.

[c]:  Subsequent payments on the November 2007 note as follows:

·

$8,000 per month from January 2008 through July 2008

·

$15,000 per month from August 2008 through January 2009

·

$20,000 per month from February 2009 through July 2009

·

$30,000 per month from August 2009 through April 2010

·

$40,000 from May 2010 through remainder of loan until loan is paid.



[d]:  In connection with the November 2007 note, the Company issued a 5-year warrant to purchase 5,000,000 shares of stock with an exercise price of $0.05 per share. Deferred financing costs paid to Dutchess, amounting to $150,000 is amortizable over the life of the debt.  Due to limitations on conversion, debt discount related to the warrants and conversion feature is insignificant to these financial statements.

Future principal maturities on the Dutchess notes payable approximate the following:

|     |   |          
|---- | - | ---------
|2008 | $ | 461,000  
|2009 | $ | 1,035,000
|2010 | $ | 1,340,000
|2011 | $ | 1,185,000
|2011 | $ | 14,000   
|     | $ | 4,035,000



The Dutchess notes are securitized by the assets of the company.





F-13



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





Note 5.

Preferred Stock



As of December 31, 2007, no shares of Series A Redeemable Convertible Preferred Stock are issued and outstanding.  On September 28, 2007, in accordance with the terms of the Series A Preferred Stock, all of the holders of preferred stock converted such stock to common stock.



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 6.

Inventory

Inventory consists of the following:

|                 |      |         |      |   |        
|---------------- | ---- | ------- | ---- | - | -------
|                 | 2007 |         | 2006
|Raw materials    | $    | 467,457 |      | $ | 174,765
|Work in progress |      | 95,250  |      |   | 113,137
|Finished goods   |      | 10,000  |      |   | 8,550  
|Total            | $    | 572,707 |      | $ | 296,452



Note 7.

Property, Equipment, and Leasehold Improvements



|                                                     |      |           |      |   |          |  |  |  | 
|---------------------------------------------------- | ---- | --------- | ---- | - | -------- |  |  |  | 
|                                                     | 2007 |           | 2006
|Equipment                                            | $    | 308,002   |      | $ | 25,378  
|Furniture                                            |      | 97,173    |      |   | -       
|Leasehold Improvements                               |      | 69,108    |      |   | -       
|vEHICLES                                             |      | 442,638   |      |   | 3,537   
|                                                     |      | 916,921   |      |   | 28,915  
|Accumulated Depreciation                             |      | (839,590) |      |   | (20,130)
|Property, Equipment, and Leasehold Improvements, net | $    | 77,331    |      | $ | 8,785   



Note 8.

Related Party Transactions



The balance of the stockholder note payable was $388,526 and $501,764 at December 31, 2007 and 2006 respectively. The original stockholder 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.  Such payments are in arrears as of December 31, 2007.



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.

On December 31, 2007, the Company approved the issuance of 1,700,000 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 $100,000 in compensation owed to John X. Adiletta at the rate of $0.05 per share.  Such





F-14



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





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

Note 9.

Stockholders Equity (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, 2007 and 2006.

As of December 31, 2007, 23,058,655 shares of common stock are issued and outstanding and held by 635 shareholders. There are also 12,280,000 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, 2007:

|           |  |                 |  |                                  |  |       |  |                           
|---------- |  | --------------- |  | -------------------------------- |  | ----- |  | --------------------------
|Issue Date |  | Expiration Date |  | Number of Shares of Common Stock |  | Price |  | Basis for Warrant issuance
|08/19/05   |  | 08/18/08        |  | 25,000                           |  | **    |  | Stock Purchase Agreement  
|06/30/05   |  | 06/29/08        |  | 25,000                           |  | **    |  | Stock Purchase Agreement  
|09/06/05   |  | 09/05/10        |  | 5,000                            |  | $0.20 |  | Consulting Services       
|09/06/05   |  | 09/05/10        |  | 5,000                            |  | $0.18 |  | Consulting Services       
|10/21/05   |  | 10/20/08        |  | 15,000                           |  | **    |  | Stock Purchase Agreement  
|02/06/06   |  | 02/05/09        |  | 10,000                           |  | **    |  | Stock Purchase Agreement  
|05/26/06   |  | 05/25/09        |  | 15,000                           |  | **    |  | Stock Purchase Agreement  
|05/26/06   |  | 05/25/09        |  | 15,000                           |  | **    |  | Stock Purchase Agreement  
|08/15/06   |  | 08/14/09        |  | 25,000                           |  | **    |  | Stock Purchase Agreement  
|04/17/07   |  | 04/16/10        |  | 90,000                           |  | **    |  | Stock Purchase Agreement  
|06/15/07   |  | 06/14/12        |  | 7,000,000                        |  | $0.05 |  | Convertible Debenture*    
|06/15/07   |  | 06/14/10        |  | 50,000                           |  | $0.12 |  | Stock Purchase Agreement  
|11/14/07   |  | 11/13/12        |  | 5,000,000                        |  | $0.05 |  | Convertible Debenture*    
|           |  |                 |  | 12,280,000                       |  |       |  |                           



*  Pursuant to the warrant agreement, the conversion of these warrants are subject to ownership limitations.

**  The warrants are exercisable at $.30 if exercised within the twelve months from 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.

As of December 31, 2007, intrinsic value associated with the outstanding warrants is not significant.



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.







F-15



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





The following is a summary of common stock issued by the Company during 2007 and 2006:

|               |  |                                                  |  |                                         |  |        |          
|-------------- |  | ------------------------------------------------ |  | --------------------------------------- |  | ------ | ---------
|Date           |  | Shares Issued [b]                                |  | Consideration                           |  | Amount
|January 2006   |  | 300,000 at $0.20 per share                       |  | Marketing services                      |  | $      | 60,000   
|February 2006  |  | 50,000 at $0.20 per share                        |  | Private placement [a], [c]              |  |        | 10,000   
|February 2006  |  | 100,000 at $0.20 per share                       |  | Marketing services                      |  |        | 20,000   
|May 2006       |  | 150,000 at $0.20 per share                       |  | Private placement [a], [c]              |  |        | 30,000   
|May 2006       |  | 175,000 at $0.20 per share                       |  | Consulting services                     |  |        | 35,000   
|June 2006      |  | 171,785 at $0.20 per share                       |  | Officer expense reimbursement           |  |        | 34,357   
|August 2006    |  | 125,000 at $0.20 per share                       |  | Private placement [a], [c]              |  |        | 25,000   
|September 2006 |  | 175,000 at $0.20 per share                       |  | Reimbursed expenses to the CEO          |  |        | 35,000   
|September 2006 |  | 25,000 at $0.20 per share                        |  | Legal services                          |  |        | 12,500   
|November 2006  |  | 25,000 at $ 0.20 per share                       |  | As part of convertible notes [d]        |  |        | 5,000    
|January 2007   |  | 50,000 at $0.20 per share                        |  | Consulting services                     |  |        | 10,000   
|March 2007     |  | 60,000 at $0.10 per share                        |  | Purchase  Unrestricted Shares          |  |        | 6,204    
|June 2007      |  | 84,700 at $0.19 per share                        |  | Purchase  Unrestricted Shares          |  |        | 15,924   
|June 2007      |  | 50,000 at $0.20 per share                        |  | Waiver for recent financing.            |  |        | 10,000   
|June 2007      |  | 666,666 at $.015 per share                       |  | Stock purchase agreement                |  |        | 100,000  
|June 2007      |  | 50,000 at $0.15 per share                        |  | Private Placement                       |  |        | 7,500    
|June 2007      |  | 332,152 at $0.25 per share                       |  | Conversion of notes payable             |  |        | 83,038   
|June 2007      |  | 2,127,021 unrestricted shares at $0.15 per share |  | Conversion of notes payable             |  |        | 319,053  
|June 2007      |  | 572,240 unrestricted shares at $0.15 per share   |  | Conversion of notes payable             |  |        | 85,836   
|October 2007   |  | 9,932,000 at $0.40 per share                     |  | Conversion of preferred stock           |  |        | 3,972,880
|November 2007  |  | 500,000 at $0.30 per share                       |  | Stock purchase agreement                |  |        | 150,000  
|December 2007  |  | 1,700,000 at approximately $0.06 per share       |  | Payment of accrued officer compensation |  |        | 85,000   
|December 2007  |  | 300,000 at $0.05 per share                       |  | Consulting services                     |  | $      | 15,000   



[a]: See warrant table for warrants issued.

[b]: All shares issued are restricted shares unless otherwise noted.

[c]: The Company has agreed to piggyback registration rights with respect to this issuance.

[d]: Value of such shares based on relative fair value of stock issued in accordance with Emerging Issues Task Force No. 98-5 and 00-27.



Note 10.

Acquisition Agreements



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

The preliminary allocation of the total purchase price of Meadowlands Fire, Safety, and Electrical Supply Co., Inc., and Vanwell Electronics, Inc.s net tangible and identifiable assets was based on their estimated fair value as of June 30, 2007. Adjustments to these estimates will be included in the allocation of the purchase price of Meadowlands Fire, Safety, and Electrical Supply Co., Inc. and Vanwell Electronics, Inc., if the adjustment is determined within the purchase price allocation period of up to twelve months. The total purchase price of $1,955,000 has been allocated as follows:





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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







|                                                  |   |          
|------------------------------------------------- | - | ---------
|Customer list                                     | $ | 1,210,000
|Distribution agreement                            |   | 73,120   
|Tangible assets acquired and liabilities assumed: |   |          
|Other current assets                              |   | 927,974  
|Non-current assets                                |   | 5,447    
|Accounts payable and accrued liabilities          |   | (261,541)
|                                                  |   |          
|Total purchase price                              | $ | 1,955,000



The $1,955,000 purchase price was paid as follows:



|                     |   |          
|-------------------- | - | ---------
|Cash                 | $ | 1,250,000
|Seller note          |   | 250,000  
|Common stock         |   | 100,000  
|Promissory note      |   | 355,000  
|                     |   |          
|Total purchase price | $ | 1,955,000



Amortization related to the customer list and distribution agreement is approximately $340,000 per year for the next 4 years.

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

Pursuant to the agreement, the Company agreed to pay additional consideration in the event that certain working capital thresholds were met in the form of two promissory notes.  Such thresholds were not met and the additional consideration was not required.

In addition, if the Adjusted EBITDA of Fire Control Electrical Systems, for the twelve-month period ended June 30, 2007 had been less than One Hundred Twenty Five Thousand and 00/100 Dollars ($125,000) there would have been an adjustment to the Purchase Price as defined by the agreement.

The preliminary allocation of the total purchase price of Fire Control net tangible and identifiable assets was based on their estimated fair value as of September 30, 2007. Adjustments to these estimates will be included in the allocation of the purchase price of Fire Control, if the adjustment is determined within the purchase price allocation period of up to twelve months. The total purchase price of $500,000 has been allocated as follows:

|                         |   |          
|------------------------ | - | ---------
|Customer list            | $ | 600,000  
|Distribution agreement   |   | 92,405   
|Cash                     |   | 56,694   
|Accounts Receivable, net |   | 281,147  
|Inventory                |   | 133,819  
|Prepaid Expenses         |   | 22,925   
|Deposits                 |   | 2,925    
|Fixed Assets             |   | 26,368   
|Other Assets             |   | 12,346   
|Accrued Expenses         |   | (182,978)
|Deferred Revenue         |   | (215,295)
|Other liabilities        |   | (330,356)
|                         | $ | 500,000  





F-17



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS







| |  | 
| |  | 



The $500,000 purchase price was paid as follows:



|                     |   |         
|-------------------- | - | --------
|Cash                 | $ | $350,000
|Common stock         |   | 150,000 
|                     |   |         
|Total purchase price | $ | $500,000



The following un-audited pro-forma summary presents the results of operations as if the Meadowlands and Fire Control acquisitions described above had occurred as of the beginning of each of the periods presented below and is not necessarily indicative of the results that would have occurred had the transactions been completed as of that date or results that may occur in the future.

Pro-forma results for the twelve months ended 2007 and 2006 are as follows:

|                                       |                   |             |                   |   |             
|-------------------------------------- | ----------------- | ----------- | ----------------- | - | ------------
|                                       | December 31,
2007 |             | December 31,
2006
|Total revenues -                       | $                 | 7,028,000   |                   | $ | 7,343,000   
|Net loss -                             | $                 | (1,486,000) |                   | $ | (1,126,000 )
|Basic and diluted net loss per share - | $                 | 0.13        |                   | $ | 0.17        



Note 11.

Intangibles and Goodwill



Following is a summary of non-goodwill intangibles at the end of the year:



|                                     |  |             |           |                          |   |         |  |   |          
|------------------------------------ |  | ----------- | --------- | ------------------------ | - | ------- |  | - | ---------
|Intangibles subject to amortization: |  | GrossAmount |           | Accumulated Amortization |   | Net    
|Customer Lists                       |  | $           | 2,805,700 |                          | $ | 592,593 |  | $ | 2,213,107
|Covenants not to Compete             |  |             | 195,226   |                          |   | 157,913 |  |   | 37,313   
|Distribution Agreements              |  |             | 165,505   |                          |   | 24,883  |  |   | 140,622  
|Software                             |  |             | 214,600   |                          |   | 201,857 |  |   | 12,743   
|                                     |  | $           | 3,381,031 |                          | $ | 977,246 |  | $ | 2,403,785



Amortization expense related to these assets for 2007 was approximately $504,000.  Estimated amortization expense for each of the ensuing years through December 31, 2012 is, approximately, $688,000, $658,000, $621,000, $412,000, and $23,000.

The following table summarizes the activity in goodwill for 2007 and 2006:

|                                |   |          
|------------------------------- | - | ---------
|Beginning balance 1/1/2006, net | $ | 2,200,355
|2006 activity                   |   | 0        
|Ending balance 12/31/2006, net  | $ | 2,200,355
|2007 activity                   |   | 0        
|Ending balance 12/31/2007, net  | $ | 2,200,355



The Companys annual impairment test indicated that no impairment had occurred in 2007 and 2006 relating to the Secure reporting unit.

Note 12.

Commitments



The Company has entered into an employment agreement with the President and CEO that became effective January 6, 2004. The employment agreement has a term of five years. In the event of termination of employment without cause, the agreement provides that the Company shall pay severance equaling the greater of the balance of the term of the agreement or one years salary.

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

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





F-18



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SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





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

Note 13.

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:

|                                   |      |           |      |   |          
|---------------------------------- | ---- | --------- | ---- | - | ---------
|                                   | 2007 |           | 2006
|Tax Benefit at U.S. statutory rate | $    | (305,000) |      | $ | (398,000)
|Non Deductible Expenses            |      | --        |      |   | -        
|Change in valuation allowance      |      | 305,000   |      |   | 398,000  
|Provision for income taxes         | $    | - --      |      | $ | -        



|                                         |   |             |  |   |            
|---------------------------------------- | - | ----------- |  | - | -----------
|Federal net operating loss carryforwards | $ | 1,320,000   |  | $ | 1,015,000  
|State net operating loss carryforwards   |   | 287,000     |  |   | 220,000    
|Other                                    |   | 79,000      |  |   | 79,000     
|Valuation allowance                      |   | (1,686,000) |  |   | (1,314,000)
|Net deferred tax asset                   | $ | --          |  | $ | --         



The Company has federal and state net operating loss carry forwards of approximately $3,900,000 and $3,800,000, respectively.  Such carryforwards expire at various times through 2028 and may be limited due to ownership changes.  Management estimates that net operating losses for Fire Control approximate $140,000.  Such losses are limited to due to a change in control.

Note 14.

Subsequent Events

None.









F-19