UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTER ENDED JUNE 30, 2009

COMMISSION FILE NO. 0-10854

SOMERSET INTERNATIONAL GROUP, INC.

(Exact name of Registrant as specified in its charter)

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

90 Washington Valley Road, Bedminster, NJ 07921

(Address of Principal Executive Offices)

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

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“the Exchange Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such report), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

(See Note 1B – Basis of Presentation in Notes To Financial Statements)

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

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

Large Accelerated Filer o

Accelerated Filer o

Non-Accelerated Filer o

Smaller Reporting Company x

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

Yes o No x

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

As of August 14, 2009, there were 23,348,655 shares of the registrant’s Common Stock, par value $.001 per share, outstanding.

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

(See Note 1B – Basis of Presentation)

June 30, 2009

Part I - Financial Information	Page

Item 1. Financial Statements:

Consolidated Balance Sheets–June 30, 2009 (Unaudited) and December 31, 2008	3

Unaudited Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2009 and 2008	4

Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2009 and 2008	5

Notes to the Consolidated Financial Statements (unaudited)	6 - 12

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	17

Item 4. Controls and Procedures	18


Part II - Other Information:

Item 1. Legal Proceedings	18

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	18

Item 3. Defaults Upon Senior Securities	18

Item 4. Submission of Matters to a Vote of Security Holders	18

Item 5. Other Information	19

Item 6. Exhibits	19

Signatures	19

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(SEE NOTE 1B – BASIS OF PRESENTATION)

JUNE 30, 2009 AND DECEMBER 31, 2008

	June 30, 2009			December 31, 2008
	(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents	$	36,453		$	65,732
Accounts receivable, net		649,189			645,233
Inventories		570,318			488,156
Prepaid expenses		59,209			4,209
Other current asset		9,990			10,444
Total Current Assets		1,325,159			1,213,774

Property and equipment, net		96,609			115,873

Other Assets:
Deposits		9,825			9,825
Deferred financing costs, net		165,840			215,000
Customer lists, net		1,321,811			1,619,185
Distribution agreements, net		11,556			52,928
Goodwill		2,200,355			2,200,355
Total other assets		3,709,387			4,097,293

TOTAL ASSETS	$	5,131,155		$	5,426,940

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

Current Liabilities:
Accounts payable and accrued expenses	$	1,509,907		$	1,264,356
Promissory notes payable - current		1,413,362			1,360,561
Dutchess promissory notes payable - current		3,870,600			1,023,000
Accrued interest payable		559,264			276,865
Deferred revenue		288,626			268,081
Total Current Liabilities		7,641,759			4,192,863

Dutchess promissory notes payable – non-current		--			2,853,407
Promissory notes – non-current		33,711			40,499
TOTAL LIABILITIES		7,675,470			7,086,769

Stockholders’ (Deficit):
Common Stock, 200,000,000 shares authorized, $.001 par value, 23,348,655 and 23,333,655 shares issued and outstanding in 2009 and 2008, respectively		23,348			23,334
Capital in excess of par value		31,367,243			31,366,808
Accumulated deficit		(33,934,906	)		(33,049,971	)
Total stockholders’ (deficit)		(2,544,315	)		(1,659,829	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT )	$	5,131,155		$	5,426,940

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

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

(SEE NOTE 1B – BASIS OF PRESENTATION)

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008

	Three Months Ending June 30,						Six Months Ending June 30,
	2009			2008			2009			2008

Equipment sales	$	319,487		$	365,015		$	756,937		$	809,319
Installation and service revenues		290,888			550,901			513,831			631,534
Contract revenues		405,690			357,561			833,248			1,084,080
Total revenues		1,016,065			1,273,477			2,104,016			2,524,933

Costs of goods sold
Material cost of systems sold		201,561			348,892			467,502			704,289
Install and service costs		141,334			233,826			300,334			473,549
Engineering and development		30,962			35,576			60,801			71,526
Total costs of goods sold		373,857			618,294			827,637			1,249,364

Gross margin		642,208			655,183			1,275,379			1,275,569

Selling, general, and administrative expenses
Selling, general and administrative expense		620,468			757,760			1,396,544			1,693,873
Depreciation expense		10,859			8,444			21,718			15,046
Amortization expense		193,955			185,224			387,910			383,193
Total selling, general, and administrative expenses		825,282			951,428			1,806,172			2,092,112

Loss from operations		(183,074	)		(296,245	)		(530,793	)		(816,543	)

Other Income (Expense)
Interest (expense)		(193,724	)		(119,125	)		(349,705	)		(285,532	)
Other (expense)		18			--			18			(500	)
Total other income (expense)		(193,706	)		(119,125	)		(349,687	)		(286,032	)

Loss before income taxes		(376,780	)		(415,377	)		(880,480	)		(1,102,575	)

Provision for (benefit from) income taxes		870			(11	)		4,455			259

Net Loss	$	(377,650	)	$	(415,366	)	$	(884,935	)	$	(1,102,834	)

Basic and diluted net loss per common share	$	(0.02	)	$	(0.02	)	$	(0.04	)	$	(0.05	)

Weighted Average Number of Common Shares		23,348,655			23,058,655			23,348,489			23,058,655

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

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

(SEE NOTE 1B – BASIS OF PRESENTATION)

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008

	2009			2008
Cash Flows From Operating Activities:
Net (Loss)	$	(884,935	)	$	(1,102,834	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation		21,718			15,046
Amortization		387,910			383,193

Changes in operating assets and liabilities:
Accounts receivable		(3,956	)		104,110
Inventories		(82,162	)		39,556
Other current assets		454			20,838
Accounts payable and accrued expenses		245,545			496,448
Prepaid expense		(55,000	)		3,568
Deposits		--			(9,554	)
Accrued interest payable		282,399			45,922
Deferred revenue		20,545			(6,556	)
Net Cash Provided (Used) by Operating Activities		(67,482	)		(10,263	)

Cash Flows From Investing Activities:
Purchase of equipment		(2,454	)		(2,971	)
Net Cash Used by Investing Activities		(2,454	)		(2,971	)

Cash Flows From Financing Activities:
Payment of Dutchess debenture		--			(158,000	)
Proceeds from issuance stock		450			--
Proceeds from issuance of promissory notes		80,000			--
Payment of promissory notes payable		(37,793	)		(104,165	)
Net Cash Provided (Used) by Financing Activities		40,657			(262,165	)

Net Change in Cash and cash equivalents		(29,279	)		(275,399	)
Cash and cash equivalents at Beginning of the Period	$	65,732		$	350,110
Cash and cash equivalents at End of the Period	$	36,453		$	74,711

Cash paid for interest	$	72,874		$	239,148
Cash paid for taxes	$	4,455		$	259

Non Cash Investing & Financing Activities:
Promissory note obligation incurred upon acquisition of equipment	$	--		$	61,187

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

Note 1. Business and Basis of Presentation

A. Nature of the Business

Somerset International Group, Inc. (the “Company”) is in the business of acquiring profitable or 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.

Our executive office is located at 90 Washington Valley Road, Bedminster, New Jersey, 07921.

Customers are located primarily in the northeastern United States.

B. Basis of Presentation

The unaudited consolidated financial statements included herein have not been reviewed by the Company’s independent registered public accounting firm. Therefore, these financial statements have not been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Also, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The unaudited interim consolidated financial statements as of June 30, 2009 reflects all adjustments (consisting of normal recurring accruals) which, in the opinion of management, are considered necessary for a fair presentation of its financial position as of June 30, 2009 and the results of its consolidated operations and its consolidated cash flows for the periods ended June 30, 2009 and 2008.

The Unaudited Consolidated Statements of Operations for the periods ended June 30, 2009 and 2008 are not necessarily indicative of results for the full year.

The unaudited consolidated financial statements should be read in conjunction with the audited financial statements of the Company and the notes thereto as of and for the year ended December 31, 2008 as included in the Company’s Form 10-K filed with the Commission on March 31, 2009.

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

Note 2. Significant Accounting Policies

A. Cash and cash equivalents

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

B. Accounts Receivables

Accounts receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. Accounts receivables are stated at the amount billed to the customer. Interest is not billed or accrued. Accounts receivables in excess of 90 days old are considered delinquent. Payments to accounts receivables are allocated to the specific invoices identified on the customers remittance advice or, if unspecified, are applied to the oldest invoice. The Company has an allowance for doubtful accounts of approximately $36,000 and $41,000 as of June 30, 2009 and December 31, 2008, respectively, based on its historical collectability.

C. Property and Equipment

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. Use of 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. Such estimates include the fair value estimates related to the net tangible and identifiable assets of acquired companies and the estimated fair value of reporting units used when evaluating Goodwill for impairment.

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 net operating loss carryforwards, other items, and related deferred tax assets and 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 financial instruments.

H. Reclassifications:

Certain reclassifications were made to the 2008 financial statements in order to conform to the 2009 financial statement presentation. Such reclassifications had no effect on the prior reported net loss.

I. Principles of Consolidation:

The consolidated financial statements include the operations of Somerset International Group, Inc., its wholly owned subsidiaries Fire Control Security Systems, Inc. and Secure System, Inc., and Secure System Inc.’s wholly owned subsidiaries Meadowlands Electronics 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 2009 and 2008 the Company issued warrants as part of certain debt financings and 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.

The Company has three separate and distinct revenue streams – equipment sales, installation and maintenance.

The description of each stream is as follows:

·	Equipment:

The pricing for an equipment sale is generally established through a customer purchase order and is a separate stand-alone arrangement. Revenue is recognized for equipment sales upon the delivery of the equipment, which is the date on which customer becomes responsible for the payment of the equipment.

·	Installation:

Installation services are a separate stand-alone arrangement consisting of final connections of the equipment and individual testing of the equipment pieces. Such services occur after electrical work has been contracted and supervised by the customer, and completed by an outside third party. Installation services, when performed by the Company, are separately negotiated with the customer, and are recognized upon completion of the service by the Company.

·	Maintenance:

These are separately priced contracts that are entered into with a customer typically after the installation services are performed. Maintenance services are not bundled into any other service. These maintenance services are recognized as revenues as the services are performed. These services are billed at the end of the month after the service is provided or if provided through a contractual arrangement then pre-billed for the defined periods, i.e. quarterly, semi-annual, or annual. Deferred Revenue on the Company’s balance sheet represents amounts billed to customers for maintenance to be performed in future periods.

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.

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

M. Loss Per Share:

The Company computes net loss per share under the provisions of SFAS No. 128, “Earnings per Share” (SFAS 128), and utilizes guidance provided by SEC Staff Accounting Bulletin No. 98 (SAB 98). Under the provisions of SFAS 128 and SAB 98, basic loss per share is computed by dividing the Company’s net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share excludes potential common shares if the effect is anti-dilutive. Diluted earnings per share are determined in the same manner as basic earnings per share except that the number of shares is increased assuming exercise of dilutive stock options and warrants using the treasury stock method. As the Company had a net loss, the impact of the assumed exercise of the stock options and warrants is anti-dilutive and as such, these amounts have been excluded from the calculation of diluted loss per share. For the periods ended June 30, 2009 and 2008, 4,234,753 and 3,018,146 of common stock equivalent shares, respectively, 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 June 30, 2009, no impairment charge was necessary.

In accordance with SFAS No.142, the Company reviews the carrying value of goodwill and intangible assets with indefinite lives annually or on an interim basis in certain circumstances as required. The Company measures impairment losses by comparing carrying value to fair value. The impairment test compares the carrying amount of the reporting unit to its fair value. Discounted cash flows are utilized to determine the fair value of the assets being evaluated. The impairment test in 2008 and 2007 supported the carrying value of goodwill, and as such, no write-down in the carrying value of goodwill was recorded.

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

Note 3. Recent Accounting Pronouncements

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 concluded that this pronouncement did not 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. This pronouncement did not have a significant impact on its financial condition or results of operations.

In December 2007, the FASB revised Statement of Financial Accounting Standard No. 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 had no business combinations and therefore there has been no impact related to this pronouncement.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”), which provides guidance on events that occur after the balance sheet date but prior to the issuance of the financial statements. SFAS No. 165 distinguishes events requiring recognition in the financial statements and those that may require disclosure in the financial statements. Furthermore, SFAS No. 165 requires disclosure of the date through which subsequent events were evaluated. SFAS No. 165 is effective for interim and annual periods after June 15, 2009. The Company adopted SFAS No. 165 for the quarter ended June 30, 2009, and have evaluated subsequent events through August 14, 2009.

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of the FASB Statement No. 162.” (“SFAS No. 168”). SFAS No. 168 stipulates the FASB Accounting Standards Codification is the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The implementation of this standard is not expected to have a material impact on our consolidated financial position and result of operations.

Note 4. Commitments and Contingencies

The Company has entered into an employment agreement with the President and CEO that became effective January 6, 2004. The employment agreement had a term of five years. In the event of termination of employment without cause, the agreement provides that the Company shall pay severance equaling the greater of the balance of the term of the agreement or one year’s salary. On August 29, 2008, the Board of Directors, with the approval of a majority of the shareholders of the Company entered into an amendment to extend the employment agreement dated January 6, 2004 for an additional 3 years from January 6, 2009. On January 6, 2009, the President and CEO signed an additional agreement, in which he agreed to permanently waive the fiscal 2009 salary increase provided for in his employment agreement. The additional agreement is for the period of January 6, 2009 though January 5, 2010.

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

Meadowlands leased its facility through a three year lease that terminated on February 28, 2009, at a monthly rent of $3,450. Effective March 1, 2009, it relocated its facilities to those occupied by Fire Control.

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

In the normal course of business, the Company is subject to various proceedings and claims, the resolution of which will not, in management's opinion, have a material adverse affect on the Company's financial position or results of operations.

Note 5. Unregistered Sale of Equity Securities

In January 2009, the Company entered into a convertible promissory note with an accredited investor for $30,000 bearing an interest rate of 15% per annum and with a conversion rate of $.25 per share. In accordance with the note the Company issued the investor 15,000 shares of the Company’s common stock valued at $450. 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. This note was due July 1, 2009.

In January 2009, the Company entered into a convertible promissory note with an accredited investor for $50,000 bearing interest of 15% per annum and with a conversion rate of $.25 per share. In accordance with the note the Company issued the investor a warrant to purchase 25,000 shares of the Company’s common stock which is exercisable at $.001 per share. This note was due April 26, 2009.

The debt discount related to the conversion feature and warrants associated with these convertible promissory notes are insignificant to these financial statements.

Note 6. Dutchess Debentures

Substantially all principal payments due under the terms of the Dutchess Debentures during 2009 are in arrears. Partial payments of interest on these debentures have been made during 2009.

Note 7. Equity Incentive Plan

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

On April 2, 2009, in accordance with the Plan, two employees were issued a total of 175,000 shares under the Plan. The shares vest over three years, have an exercise period of seven years, and were issued at an exercise price of $0.015 per share.

Note 8. Subsequent Events

None.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(SEE NOTE 1B – BASIS OF PRESENTATION)

Item 2.

General

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

Critical Accounting Policies and Estimates

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

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

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

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

There are 13,100,000 warrants for common stock issued and outstanding. At June 30, 2009, fair value associated with the outstanding warrants is not significant. The holders of the majority of such warrants are subject to ownership limitations and the warrants are not freely transferable. Common stock equivalents are reflected net of such limitiations.

Results of Operations

Revenues

Revenues of $1,016,065 and $2,104,016, for the three and six months ended June 30, 2009, respectively, decreased by $257,412 and $420,917 over revenues of $1,273,477 and $2,524,933 for the three and six months ended June 30, 2008. This was primarily attributable to a decrease in revenues at Meadowlands of $190,109 and $201,793 and Secure of $89,424 and $160,575, respectively, for the three months and six months ended June 30, 2009 versus the same periods in 2008. Equipment Sales and Installation revenues decreased by $305,541 and $170,085, respectively, for the three months and six months ended June 30, 2009 versus the same periods in 2008, and Maintenance revenues increased $48,129 and decreased by $250,832, respectively, the three months and six months ended June 30, 2009 versus the same periods in 2008.

Costs of Goods Sold

Costs of Goods Sold of $373,857 and $827,637 for the three and six months ended June 30, 2009, respectively, decreased by $244,437 and $421,727 over Cost of Goods Sold of $618,294 and $1,249,364 for the three and six months ended June 30, 2008. This was primarily attributable to a decrease in cost of systems sold of $147,331 and $258,267, respectively, as well as a decrease in the installation and service costs of $92,492 and $173,215, respectively, for the three and six months ended June 30, 2009 and 2008.

Gross Margin

Gross Margin of $642,208 and $1,275,379, respectively, for the three and six months ended June 30, 2009 decreased by $12,975 and $190 over Gross Margin of $655,183 and $1,275,569, respectively, for the three and six months ended June 30, 2008. This was a direct result of the decreases in Revenues and the Cost of Goods Sold described above.

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

SG&A expenses of $620,468 and $1,396,544 for the three and six months ended June 30, 2009, respectively, decreased by $137,292 and $297,327, respectively, over SG&A expenses of $757,760 and $1,693,871 for the three and six months ended June 30, 2008. This was primarily attributable to decrease in Payroll of $63,010 and $421,416, respectively, for the three and six months ended June 30, 2009.

Other Income (Expense)

Other Expense of $193,705 and $349,687 for the three and six months ended June 30, 2009 increased by $74,580 and $63,655, respectively, over Other Expense of $119,125 and $286,032 for the three and six months ended June 30, 2008. This is primarily attributable to the interest expense on the Dutchess convertible debentures issued in June 2007 and November 2007.

Net (Loss)

Net Loss attributable to common stockholders of $377,650 and $884,935 for the three and six months ended June 30, 2009 decreased by $37,716 and $217,899, respectively, over the Net Loss of $415,366 and $1,102,834 for the three and six months ended June 30, 2008. This was a direct result of the decrease in Gross Margin described above and the decreases in the Selling, General, and Administrative expenses described above.

Liquidity and Capital Resources:

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

We completed the Secure merger by obtaining a short term bridge financing of $504,000. Pursuant to the terms of the offering, we had a minimum raise of $500,000 and a maximum raise of $700,000. As of March 11, 2005, we raised the minimum of $500,000 and these proceeds were distributed to Secure as part of that transaction. Each of the investors in this financing received nine (6) month notes with a twelve (12%) percent annual interest rate. For each dollar invested, an investor received a note for a dollar repayable in full nine months from the date of the note and one share of our common stock. In addition, the notes are convertible, at the option of the holder, into shares of common stock at the price of $0.25 per share. Consequentially, we issued a total of 504,000 shares to these investors. Such notes were due and payable September 11, 2005. We had requested a ninety day extension on such notes and we received approval from all of the noteholders. Although the ninety day extension had passed as of March 28, 2006, none of the noteholders has declared a default and we intend to repay any unconverted notes through the proceeds of additional financings. As of March 31, 2007, $430,000 of principal amount and all related accrued interest to date has been retired through cash payments due of $180,000 and the balance converted to common stock in accordance with the terms of the private placement.

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

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

At June 30, 2009, the Company had negative working capital of approximately $6,317,000.

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

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

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

Recent Accounting Pronouncements

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4.

Controls and Procedures

The Company's management evaluated, with the participation of its President, the effectiveness of the design/operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the SEC Act of 1934) as of March 31, 2009. Based on such evaluation, the President of the Company concluded that its disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and regulations of the Securities and Exchange Commission and is not operating in an effective manner.

As reported in the Company’s Form 10-K for the year ended December 31, 2008, the Company performed an assessment of the effectiveness of its controls and procedures and disclosed several material weaknesses related to that assessment.

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

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

In January 2009, the holders of two promissory notes convertible into the Company’s common stock filed suit in the Superior Court of New Jersey. Each party claims to be owed $20,000 in principal, approximately $11,400 of accrued interest through December 31, 2008, and counsel fees. The Company is attempting to negotiate forbearance agreements.

In January 2009, the holder of a promissory note convertible into the Company’s common stock filed suit in the Superior Court of New Jersey. The party claims to be owed $54,000 in principal, approximately $30,900 of accrued interest through December 31, 2008, and counsel fees. The Company is attempting to negotiate a forbearance agreement.

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

None.

Item 3. Defaults Upon Senior Securities

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

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

None.

Item 5. Other Information.

None.

Item 6. Exhibits.

(a) Exhibits:

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

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

(b) Reports on Form 8K:

None

SIGNATURES

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

	SOMERSET INTERNATIONAL GROUP, INC.
	(Registrant)

Date: August 14, 2009	By:	/s/ John X. Adiletta
	John X. Adiletta,
	Chief Executive Officer
	Chief Financial Officer

SOMERSET INTERNATIONAL GROUP,INC. 10-Q