UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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x ý ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended: December 31, ~~2008~~2009

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _____________ to _____________

SOMERSET INTERNATIONAL GROUP, INC.

(Exact name of registrant as specified in its charter)

———————


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)


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)

———————

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

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 xý

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 required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x ¨ 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. x

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 x

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

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 June 30, 2008 was $1,384,692.

On March 31, 2009, there were 23,348,655 outstanding shares of the registrant’s common stock, $.001 par value.

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

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, 2010 was $189,273.

On March 31, 2010, there were 23,348,655 outstanding shares of the registrant’s common stock, $.001 par value.

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

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

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

(b) Nature of Business

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.

One of our subsidiaries, designs, assembles, installs and maintains a proprietary personal security system for colleges and mental health facilities where potential for crime exists.

Three of our subsidiaries specialize in the distribution, sale, installation, and maintenance of fire and security equipment and systems that include fire detection, video surveillance, and burglar alarm equipment.

There are three streams of revenues derived from these subsidiaries:

1.	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.

2.	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.

3.	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.

~~Pursuant to the Agreement and Plan of Merger (the “Agreement”) between us, Secure System, Inc~~None. (“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. These preferred shares were all converted to common stock on September 30, 2007.

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 (6d) 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~~2009 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.Revenues

3 Somerset’s revenues were $4,219,561 for the twelve months ended December 31, 2009.

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 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.

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) 2008 Revenues

Somerset’s revenues were $4,732,444 for the twelve months ended December 31, 2008.

(e) Patents and Trademarks

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

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

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 31, ~~2009~~2010, Somerset has 1 employee, Secure has 86 employees, Meadowlands has 1411 employees, and Fire Control has 11 employees. 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. Secure’s office is located at 1800 Bloomsbury, Ocean, NJ 08812 on a ~~year~~month to ~~year~~month basis and Meadowlands and Fire Control are located at 45 ~~Pearl~~ Pearl Street, North Plainfield, NJ 07060 subject to a three year lease, expiring on December 31, 2010.

Item 3. 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 a purchase price adjustment note issued by the Company. The Company filed an answer, with counterclaims, on October 27, 2008, generally contesting all claims. The parties recently agreed upon settlement terms. A form of settlement agreement is being reviewed by counsel.

InOn June ~~January~~26, 2009, the ~~holders of two promissory notes convertible into the~~ Company~~’s common~~ ~~stock~~ filed suit in the ~~Superior~~United States District Court for the District of New Jersey~~. Each~~ ~~party claims~~against toTSG beCapital ~~owed~~Partners, LLC and others seeking to recover $20105,000 in ~~principal,~~financing ~~approximately~~fees ~~$11,400~~paid ofby ~~accrued interest~~the ~~through~~Company, ~~December~~plus 31damages for fraud, counsel ~~2008~~fees, and ~~counsel fees~~interest. The Company ~~is attempting~~has toserved ~~negotiate~~its ~~forbearance~~complaint ~~agreements~~and is pursuing its claims.

InOn August ~~January~~6, 2009, the ~~holder~~holders of athree promissory ~~note~~notes convertible into the Company’s common stock ~~filed~~obtained ~~suit~~judgments against the Company in the Superior Court of New Jersey~~. The~~ ~~party claims~~totaling ~~to be owed~~ $54157,~~000 in principal~~636.31, ~~approximately~~plus ~~$30,900~~costs of ~~accrued interest through December 31, 2008, and counsel fees~~$720. ~~The Company is attempting to negotiate a forbearance agreement~~00.

5On January 19, 2010, the holders of promissory note convertible into the Company’s common stock filed suit against the Company demanding payment of the principal amount of $175,000.00, plus accrued interest, and counsel fees. The Company has retained counsel to respond to the litigation and to interpose such defenses as are lawfully available.

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

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 BoardNone.

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 between our company and John X. Adiletta for an additional 3 years from January 6, 2009.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issued Purchases of Equity Securities

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~~Pink ~~Bulletin~~Sheets ~~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 ~~2008~~ 2009, and the first quarter of calendar year ~~2009~~2010 up to March 30, ~~2009~~ 2010. 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
2008	First	$0.15	$0.10
2008	Second	$0.15	$0.08
2008	Third	$0.09	$0.03
2008	Fourth	$0.07	$0.03
2009	First	$0.05	$0.02
2009	Second	$0.04	$0.01
2009	Third	$0.01	$0.01
2009	Fourth	$0.01	$0.01
2010	First	$0.02	$0.01

~~As of December 31, 2008, there were approximately 414 holders of record of Somerset’s common stock.~~4

As of December 31, 2009, there were approximately 293 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 had 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 of December 31, ~~2008~~2009, 13,~~115~~100,000 warrants have been issued to seven warrant holders. The warrant holders are entitled to purchase fully paid and nonassessable shares of our common stock, $.001 par value per share at a per share purchase price in the following manner:

Issue Date	Expiration Date	Number of Shares of Common Stock	Price	Basis for Warrant issuance
09/06/05	09/05/10	5,000	$0.20	Consulting Services
09/06/05	09/05/10	5,000	$0.18	Consulting Services
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
09/08/08	09/07/13	900,000	$0.001	Amendment to Convertible Debenture
Total		13,115,000
01/26/09	01/25/12	50,000	$0.001	Convertible Note
Total		13,100,000

** 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.

The warrants may be exercised in full or in part (but not of a fractional share) by the holder subject to ownership limitations under the respective agreements.

Stock Options

~~There are no options to purchase our securities outstanding.~~5

On April 2, 2009, in accordance with the Plan, two employees were issued a total of 175,000 shares under the Plan.

Issue Date	Expiration Date	Number of Shares of Common Stock	Price
04/02/09	04/01/12	100,000	$0.015
04/02/09	04/01/12	75,000	$0.015
Total		175,000

Item 6. Selected Financial Data

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

Results of Operations For The Year Ended December 31,	~~2008~~2009			~~2007~~2008
Sales	$	4,~~732~~219,~~444~~561		$	34,~~879~~732,~~312~~444
Operating Expenses		65,~~160~~148,~~659~~980			46,~~920~~160,~~381~~659
Loss from Operations		(1929,~~428,215~~419	)		(1,~~041~~428,~~068~~215	)
Net Loss attributable to Common Stockholders	$	(21,~~007~~653,~~719~~834	)	$	(12,~~753~~007,~~078~~719	)
Basic Loss per Common Share	$	(0.0907	)	$	(0.1509	)

Financial Position at December 31,	~~2008~~	2009			~~2007~~2008
Total Assets		$	54,~~426~~802,~~940~~022		$	65,~~908~~426,~~443~~940
Total Liabilities			78,~~086~~115,~~769~~235			67,~~578~~086,~~053~~769
Shareholders Equity(Deficit)		$	(13,~~659~~313,~~829~~213	)	$	~~330~~(1,~~390~~659,829	)

Item 7. Management's Discussion of Financial Condition and Results of Operations

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

General

Critical Accounting Policies and Estimates

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

We have only established an allowance for doubtful accounts for Secure’s subsidiary accounts receivable 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 ~~account~~write ~~for~~down ~~our~~inventory ~~goodwill~~for ~~and~~estimated ~~intangible~~excess ~~assets~~or ~~pursuant~~obsolete toinventory ~~SFAS~~equal ~~No. 142, Goodwill and Other Intangible Assets. Under SFAS 142, intangibles with definite lives continue~~ to bethe ~~amortized on~~difference abetween ~~straight-line basis over~~ the ~~lesser~~cost of ~~their estimated useful lives or~~ ~~contractual~~inventory ~~terms. Goodwill~~ and ~~intangibles with indefinite lives are evaluated at least annually for impairment. The impairment test compares~~ the ~~carrying~~ ~~amount~~estimated ofmarket ~~the~~value ~~reporting~~based ~~unit~~upon toassumptions ~~its~~about ~~fair value. Discounted~~future ~~cash~~demand ~~flows~~and ~~are~~market ~~utilized to determine the fair value of the assets being evaluated~~conditions. ~~The~~ ~~impairment~~If ~~test~~actual inmarket ~~2008~~conditions ~~and~~are ~~2007~~less ~~supported the~~favorable ~~carrying~~than ~~value~~those ofprojected ~~goodwill,~~by ~~and as such~~management, noadditional inventory write-~~down~~downs inmay ~~the carrying value of~~be ~~goodwill was recorded~~required.

We account for our goodwill and intangible assets pursuant to Professional Standards, which require that 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. 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 2009 and 2008 supported the carrying value of goodwill, and as such, no write-down in the carrying value of goodwill was recorded.

Revenues

Revenues of $4,~~732~~219,~~444~~561 for the year ended December 31, ~~2008~~2009 ~~increased~~decreased by $~~853~~512,~~132~~883 over revenues of $34,~~879~~732,~~312~~444 during the year ended December 31, ~~2007~~2008. ~~Revenues~~Equipment ~~increase~~Sales revenues decreased by $1994,~~750,740~~ 069 for the twelve ~~month~~ ~~period~~months ~~due~~ended toDecember ~~Meadowlands~~31, ~~and~~2009 ~~Fire~~versus ~~Control~~the ~~which~~same ~~were~~period ~~acquired~~ in ~~2007~~2008. ~~This~~Installation ~~increase~~revenues ~~was~~increased ~~offset~~ by ~~a decline in revenues of~~ $~~897~~423,~~608 for~~722 ~~Secure.~~and ~~The decreases at Secure were primarily attributable to a decrease in~~Maintenance ~~Equipment~~revenues ~~Sales~~increased ~~and~~by ~~Installation Revenues of~~ $~~716~~57,~~419~~464 ~~and~~for athe ~~decrease~~twelve ~~in Maintenance~~months ~~Revenues~~ended ofDecember ~~$181~~31,~~189~~ ~~for~~2009 versus the same period in 2008.

Costs of Goods Sold

Costs of Goods Sold for the year ended December 31, ~~2008~~2009 decreased to $1,~~761~~866,~~243~~260, representing a decrease of $19570,~~047~~433 over costs of goods sold of $12,~~780~~436,~~290~~693 during the year ended December 31, ~~2007~~2008. ~~Increase~~This ofwas ~~$576,762~~primarily attributable to a decrease in ~~costs~~cost ~~and~~of systems ~~expenses~~sold of $276,746 for the twelve ~~month period~~months ~~were~~ended ~~attributable~~December ~~primarily~~31, to2009 versus the ~~acquisition~~same ofperiod ~~Meadowlands~~in ~~and~~2008, ~~Fire Control~~as ~~which~~well ~~was~~as ~~offset by~~ a decrease in ~~costs~~the ofinstallation ~~goods~~and ~~sold~~service costs ~~for Secure~~ of ~~approximately~~ $~~595~~275,~~809. The~~578 ~~decrease~~and at$18,109 ~~Secure was primarily attributable to a decrease~~ in ~~cost~~engineering ~~of materials~~ and ~~factory~~development ~~overhead~~costs offor the ~~$238,126,~~twelve ~~and~~months aended ~~decrease~~December in31, ~~installation~~2009 ~~and~~versus ~~service~~the ~~costs~~same ofperiod in ~~$335,716~~2008.

Gross Margin

Gross Margin for the year ended December 31, ~~2008~~2009 increased to $2,~~971~~353,~~201~~301 representing an increase of $~~872~~57,~~178~~550 from a gross margin of $2,~~099~~295,~~023~~751 during the year ended December 31, ~~2007~~2008. ~~$1,173,977~~This ofwas ~~the~~a ~~increases~~direct inresult ~~gross~~of ~~margin for~~ the ~~twelve month~~net ~~period~~decreases ~~were~~in ~~attributable~~Revenues ~~primarily to~~ and the ~~acquisition~~Cost of ~~Meadowlands~~Goods ~~and Fire~~Sold ~~Control~~described ~~offset by a decrease in gross margin for Secure of $301,799~~above.

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

SG&A expenses for the year ended December 31, ~~2008~~2009 of $43,~~399~~282,~~416,~~720 ~~increased~~decreased by $1441,~~259,325~~246 over SG&A expenses of of $3,~~140~~723,~~091~~966 during the year ended December 31, ~~2007~~2008. Selling ~~general~~ general and administrative expenses ~~increased~~decreased by $1367,~~015~~937,~~243,~~ amortization expense decreased ~~increased~~ by $~~222~~84,~~594~~986, and depreciation expense increased by $2111,~~488~~ 677 from the year ended December 31, ~~2007~~2008. ~~The~~This ~~increase~~was inprimarily ~~selling,~~attributable to ~~general,~~decrease ~~and~~in ~~administrative~~payroll expenses ~~was~~of ~~primarily~~$607,637 ~~attributable~~for to the ~~acquisition~~ oftwelve ~~Meadowlands~~months ~~and~~ended ~~Fire Control. Substantially~~December 31, ~~all~~2009 of versus the ~~increase~~same period in ~~amortization~~2008 ~~expense~~ and ~~depreciation~~offset ~~was~~by ~~attributable~~non-material toincreases ~~the~~in ~~acquisition~~other ~~of Meadowlands and Fire Control~~categories.

Other Income (Expense)

Other Expense increased to $~~560~~716,~~500~~471 for the year ended December 31, ~~2008~~2009 from $~~443~~560,~~167~~500 during the year ended December 31, ~~2007~~2008, representing an increase of $~~117~~155,~~333~~971. Interest expense for the year ended December 31, ~~2008~~2009 increased by $~~151~~108,~~060~~539 to $~~567~~676,~~594~~133 from interest expense of $~~416~~567,~~534~~594 during the year ended December 31, ~~2007~~2008. This ~~increase~~ is ~~primarily~~ primarily attributable to the interest expense on the Dutchess convertible debentures issued in June 2007 and November ~~2007,~~2007and 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~~2009. ~~and issued during 2008. Amortization expense of debt discount decreased to $0 for the year ending December 31, 2008 from $24,000 during the year ended December 31, 2007.~~

Dividends on Preferred Stock

Dividends on preferred stock for the year ended December 31, 2008 were $0 versus $268,746 in dividends during the year ended December 31, 2007, which represented a decrease of $268,746. 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, ~~2008~~2009 ~~increased~~decreased by $~~254~~353,~~641~~885 to $21,~~007~~653,~~719~~834 from $12,~~753~~007,~~078~~719 during the year ended December 31, ~~2007~~2008. The ~~increase~~decrease in net loss is ~~offset~~primarily byattributable anto the increase in gross margin described above for the period and ~~primarily~~a ~~attributable~~decrease ~~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 promissory notes, and convertible debentures.

~~We completed~~Substantially ~~the~~all ~~Secure~~principal ~~merger by obtaining a short term bridge financing of~~payments ~~$504,000.~~due ~~Pursuant~~under to the terms of the ~~offering,~~Dutchess weDebentures ~~had~~during a2009 ~~minimum~~are ~~raise of~~in ~~$500,000 and a maximum raise of $700,000~~arrears. Partial Aspayments of ~~March~~interest ~~11,~~on ~~2005, we raised the minimum of $500,000 and~~ these ~~proceeds~~debentures were ~~distributed to Secure as part of~~made ~~that~~during ~~transaction.~~2009 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~~through ~~share~~March ~~of our common stock. In addition~~31, ~~the notes are convertible, at the option of the holder, into shares of common stock at the price of $0~~2010.~~25 per share.~~ ~~Consequentially,~~The wefailure ~~issued~~to apay ~~total~~any ofprincipal ~~504,000~~or ~~shares~~interest ~~to these investors. Such notes were~~ due ~~and~~under ~~payable~~these ~~September 11,~~debentures ~~2005.~~within Weten ~~had~~days ~~requested a ninety day extension on such notes and we received approval from all~~ of the ~~noteholders.~~due ~~Although the ninety day extension had~~date ~~passed~~is asconsidered ofan ~~March~~“event ~~28, 2006, none~~ of ~~the noteholders has declared a~~ default ~~and we intend to repay any unconverted notes through the proceeds of additional financings~~”. As ~~of September 30~~such, ~~2007,~~the ~~$430,000~~entire ofbalance of principal ~~amount~~ and ~~all related accrued~~ interest toon ~~date has been retired through cash payments due of $180,000 and~~ the ~~balance~~Dutchess ~~converted~~Notes toare ~~common~~payable ~~stock~~on ~~in accordance with the terms of the private placement~~demand.

WeAt ~~completed~~December ~~the Meadowlands acquisition by using a portion of the proceeds of the five year Convertible Debenture that we issued with gross proceeds of $2~~31,~~700,000. Pursuant to~~ ~~this Debenture~~2009, ~~we are required to make mandatory interest only payments to~~ the ~~Investor~~Company ~~in the amount of 1/12th of the Interest due on the outstanding~~had ~~balance~~negative ofworking ~~the~~capital 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. As~~approximately ~~to this Debenture~~$6, ~~commencing on December 30~~789, ~~2007, the Company agreed to make the following monthly amortizing payments:~~202.

·We ~~December~~plan ~~30,~~to ~~2007~~establish –a ~~May~~source ~~31,~~of revenues ~~2008~~sufficient ~~Fifteen~~to ~~thousand~~cover ~~dollars~~our ~~($15~~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,~~000)~~ 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/~~month~~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. 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.

· June 30, 2008 Thirty-five thousand dollars ($35,000)

· July 31, 2008 Fifteen thousand dollars ($15,000)

· August 31, 2008 – December 30, 2008 Two thousand dollars ($2,000)/month

· January 31, 2009 – May 31, 2009 Forty-five thousand dollars ($45,000)/month

· June 30, 2009 thereafter until the face amount is paid in full Seventy-five thousand dollars ($75,000)/month

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.

As to the November Debenture, commencing on December 30, 2007, the Company shall make the following monthly amortizing payments:

· January 31, 2008 – July 31, 2008 Eight thousand dollars ($8,000)

· August 31, 2008 – January 31, 2009 Three thousand dollars ($3,000)

· February 28, 2009 – July 31, 2009 Twenty thousand dollars ($20,000)/month

· August 31, 2009 – April 30, 2010 Thirty thousand dollars ($30,000)/month

· May 31, 2010 thereafter until the face amount is paid in full Forty thousand dollars ($40,000)/month

At December 31, 2008, the Company had negative working capital of approximately $2,979,000. 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 attempt to reduce or defer expenses until the capital is available. 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.

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.

129

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

In ~~September~~ ~~2006~~January 2010, the Financial Accounting Standards Board (FASB) issued ~~SFAS~~Update ~~No. 157~~2010-06, "Fair Value Measurements, and ~~(“SFAS~~ ~~No.~~Disclosures ~~157”~~(Topic 820),: Improving ~~which~~Disclosures ~~defines~~about Fair ~~fair~~Value ~~value~~Measurements", ~~establishes~~which ais ~~framework~~effective for annual reporting periods ~~measuring~~beginning ~~fair~~after ~~value~~December 15, ~~and~~2009 ~~expands~~except for the disclosures about ~~fair value measurements.~~purchases, ~~SFAS~~sales, ~~No.~~issuance ~~157~~and ~~will~~settlements bein ~~effective~~the ~~for~~rollforward ~~the~~of ~~Company~~activity ~~beginning~~in ~~January~~Level 1,3 ~~2008.~~fair ~~Management~~value ismeasurements ~~currently~~which ~~evaluating~~are ~~the~~effective ~~effect~~for ~~SFAS~~fiscal ~~No.~~years ~~157~~beginning ~~will~~after ~~have~~December 15, on2010. This ~~the Company’s~~update ~~financial~~modifies ~~condition~~current orprofessional ~~results~~standards ofto require ~~operations.~~certain disclosures as follows:

~~Effective January 1, 2008, the Company adopted SFAS No. 159 "~~The ~~Fair~~amounts ~~Value~~of ~~Option~~significant ~~for Financial~~transfers ~~Assets~~in and ~~Financial~~out ~~Liabilities"~~of ~~(SFAS~~Level ~~159).~~1 ~~SFAS~~and ~~159~~2 ~~allows an entity the irrevocable option to elect~~ fair value ~~for~~measurements ~~the initial~~ and ~~subsequent measurement for specified financial assets and liabilities on a contract-by-contract basis. The Company did not elect to adopt~~ the ~~fair~~reasons ~~value option under this Statement~~ for ~~any~~those ~~of its financial instruments~~transfers.

~~In December~~Information ~~2007,~~in the ~~FASB~~reconciliation ~~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~~measurements ~~replaces~~using ~~the cost-allocation~~significant ~~process~~unobservable ~~under~~inputs ~~the~~(Level ~~prior~~3) ~~standard. In~~about ~~addition~~purchases, ~~SFAS 141R~~sales, ~~requires~~issuance ~~separate recognition of acquisition costs~~ and ~~requires~~settlements ~~recognition of~~(that ~~contractual contingencies at fair value as of the acquisition date. Further~~is, ~~the~~on ~~revised~~a ~~standard~~gross ~~requires~~basis ~~capitalization~~rather ~~of research~~than ~~and development assets and requires fair value recognition of contingent consideration~~ as ofone ~~the~~net ~~acquisition date~~number). ~~The Company is currently evaluating the potential impact of this pronouncement.~~

13Fair value measurement disclosures for each class of assets and liabilities.

InDescription ~~March 2008, the FASB issued Statement~~ of ~~Financial~~valuation ~~Accounting~~techniques ~~Standard No. 161 (SFAS 161), “Disclosures about Derivative Instruments~~ and ~~Hedging~~inputs ~~Activities—an amendment~~used 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~~measure ~~enhanced~~fair ~~disclosures~~value ~~about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted~~ for ~~under~~both ~~Statement~~recurring ~~133~~ and ~~its~~non ~~related interpretations,~~recurring 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 ofmeasurements 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~~fall ~~will~~into ~~have~~either aLevel ~~significant~~2 ~~impact on its financial condition~~ or ~~results~~ ofLevel ~~operations~~3.

In ~~December~~ ~~2007~~October 2009, ~~the~~ FASB issued ~~Statement~~Update ~~of Financial Accounting Standard~~ No. ~~160 (SFAS 160), “Non~~2009-~~Controlling Interests in Consolidated Financial Statements~~13, An ~~Amendment~~"Revenue ofRecognition: ~~Accounting~~Multiple-Deliverable ~~Research~~Revenue ~~Bulletin~~Arrangements ~~No. 51”,~~ which is effective for ~~fiscal~~ ~~years, and interim periods within those~~ fiscal years, beginning on or after ~~December~~June 15, ~~2008. Early~~2010 ~~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~~certain ~~interests~~disclosures beregarding ~~clearly~~multiple ~~identified~~deliverable ~~within~~revenue ~~stockholders’~~arrangements ~~equity~~ as awell ~~separate~~as ~~component~~addressing ~~from~~ the ~~parent~~accounting ~~company’s~~for ~~equity~~multiple ~~and~~deliverable ~~net~~arrangements ~~income~~to ~~or loss~~enable ~~attributable~~reporting entities to ~~non-controlling~~account ~~interests~~for beproduct ~~clearly identified~~ and ~~presented~~services ~~on the~~separately ~~face~~rather ofthan ~~the~~a combined ~~consolidated statement of operations~~unit. InThe ~~addition, the~~Company ~~standard~~is ~~requires~~currently ~~adequate~~evaluating ~~disclosure between interests of~~ the ~~parent company~~impact ~~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~~pronouncement.

Effective January 1, 2008, the Company adopted SFAS No. 157, "Fair Value Measurements" (SFAS 157). In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, "Effective Date of FASB Statement No. 157", which provides a one year deferral of the effective date of SFAS 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. Therefore, the Company has adopted the provisions of SFAS 157 with respect to its financial assets and liabilities only. SFAS 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and enhances disclosures about fair value measurements. Fair value is defined under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:10

In October 2009, FASB issued Update No. 2009-14, "Software: Certain Revenue Arrangements That Include Software Elements”, which is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The update impacts the recognition of revenue arrangements that include both tangible products and software elements and related disclosures. The Company is currently evaluating the impact of this pronouncement.

●In ~~Level~~October 1—2009, ~~Quoted~~FASB ~~prices~~issued inUpdate ~~active~~No. 2009-15, ~~markets~~"Accounting for ~~identical~~Own-Share ~~assets~~Lending Arrangements in Contemplation of Convertible Debt Issuance or ~~liabilities~~Other Financing”, which amends current professional standards regarding share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009. The Company is currently evaluating the impact of this pronouncement.

● Level 2— Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

● Level 3— Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Since these financial statements had no fair value measurements that would require fair value disclosure under this pronouncement, the adoption of this statement did not have a material impact on the Company's consolidated results of operations and financial condition.

Item 8. 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 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

~~None~~ Not applicable, as no audit was performed.

Item 9(A). Controls and Procedures

Evaluation of disclosure 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 December 31, ~~2008~~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.

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, ~~2008~~2009 based upon the criteria set forth in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

1511

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. On March 23, 2009, prior to filing the 10-K, this deficiency was remediated.

·	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 determine that the inventory valuation has not been impaired due to obsolescence and or reduction of net realizable value below cost.

·	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, 2008 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.

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.

1612

Part III

Item 10. Directors and Executive Officers and Corporate Governance

The directors and executive officers of the Company are:

Name	Positions with registrant and age as of March 3130, ~~2009~~2010	Has served as director since
John X. Adiletta	President, ~~Chief Executive Officer, Chairman, 60~~	February, 2004
	Chief Executive Officer,
	Chairman, 61

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.13

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 39 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, ~~2008~~2009.

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 11. Executive Compensation

The following summary compensation table sets forth all compensation paid by Somerset during the fiscal years ended December 31, ~~2008~~2009, ~~2007~~2008 and ~~2006~~2007 in all capacities for the accounts of the Chief Executive Officer (CEO) and Chief Financial Officer (CFO).

Name and Principal Position	Year	Annual Compensation	Restricted Stock Awards
John X. Adiletta, CEO	~~2008~~2009	$366,000	0
	2008	$366,000	0
	2007	$332,750	0
	2006	$302,500	0

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~~ 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~~ 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 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. 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, Mr. Adiletta signed an additional agreement, in which he agreed to permanently waive the 2009 salary increase provided for in his employment agreement. The additional agreement is for the period of January 6, 2009 though January 5, 2010. On January 6, 2010, Mr. Adiletta signed an additional agreement, in which he agreed to permanently waive the 2010 salary increase provided for in his employment agreement. The additional agreement is for the period of January 6, 2010 though January 5, 2011.

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

The Company ~~does~~has ~~not have~~ a ~~pension~~401(k) retirement savings plan.

Item 12. 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 31, ~~2009~~2010 by all persons known to Somerset who own more than 5% of the outstanding number of such shares, by all directors of Somerset, and by all officers and directors of Somerset as a group. Unless otherwise indicated, each of the stockholders has sole voting and investment power with respect to the shares beneficially owned.

Title of Class	Name	Number of Shares Beneficially Owned	Percent of Class
Common	John X. Adiletta ~~c/o 90 Washington Valley Road Bedminster, New Jersey 09721~~	5,750,000	24.62%
Common	William F. Farley c/o 90 Washington Valley Road Bedminster, New Jersey 07921	4,980,436	21.33%
	c/o 90 Washington Valley Road
Voting	All Directors and Officers as a group	5,750,000	24.62%
	Bedminster, New Jersey 09721
Common	William F. Farley	4,980,436	21.33%
	c/o 90 Washington Valley Road
	Bedminster, New Jersey 07921
Voting	All Directors and Officers as a group	5,637,633	24.62%

Item 13. Certain Relationships and Related Transactions

The stockholder note payable was $388,528 at December 31, 2008. The note plus accrued interest matured on December 31, ~~2007~~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 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.

Item 14. Principal Accounting Fees and Services

Audit Fees

For the Company's fiscal ~~years~~year ended December 31, ~~2008~~2009 there was no audit performed and therefore no fees. For the Company's fiscal year ended December 31, ~~2007~~2008, the Company was billed approximately $122,000 ~~and $115~~,~~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~~.

Tax Fees

For the Company's fiscal years ended December 31, ~~2008~~2009 and ~~2007~~2008, the Company incurred $0no ~~and~~fees ~~$6,505, respectively~~ for preparation of its corporate income tax returns.

All Other Fees

None for ~~2008~~2009 and ~~2007~~2008.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:

-approved by our audit committee; or

-entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.

We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors.

The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees was pre-approved. However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.

PART IV

Item 15. Exhibits, Financial Statement Schedules

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

On January 2, ~~2008~~2009, the Company filed an 8K ~~for~~to disclose that the ~~issuance~~Company ofhad entered ~~shares~~into toa ~~John~~convertible X.promissory note with an accredited investor for ~~Adiletta~~$30,000 ~~Dian~~with ~~Griesel~~a ~~and.~~conversion ~~James~~rate Kof $.25 ~~Moran~~per share.

On January 28, 2008, the Company filed an 8K for the Stock Purchase Agreement from Fire Control Electrical Systems, Inc. and that the Company entered into a convertible debenture with Dutchess Private Equities Fund, Ltd.

On April 11, 2008, the Company filed an 8K to disclose that Secure System, Inc. a wholly owed subsidiary of the Company had renewed its contract with the State of New York’s Office of Mental Health.

On August 22, 2008, the Company filed an 8K to disclose that it had entered into a convertible promissory note with an accredited investor for $50,000 with a conversion rate of $.25 per share.

On September 16, 2008, the Company filed an 8K to disclose it entered into an amendment to its (i) Debenture dated June 12, 2007 (the “June Debenture”) between Dutchess Private Equities Fund, Ltd. and the Company; and (ii) Debenture dated November 13, 2007 between Dutchess and the Company.

On September 22, 2008, the Company filed an 8K that the Board of Directors of the Company had adopted the 2008 Equity Incentive Plan and entered into an amendment to extend the Employment Agreement dated January 6, 2004 between the Company and John X. Adiletta for an additional 3 years.

On October 22, 2008, the Company filed an 8K to disclose that the Company had entered into a convertible promissory note with an accredited investor for $150,000 with a conversion rate of $.25 per share.

On December 19, 2008, the Company filed an 8K that it had issued 175,000 shares of the Company’s common stock to BrandQuest Development Group, Inc. for services rendered.

(b) Exhibits

14 ~~Code~~ Code of Ethics*

31.1 Certification of John X. Adiletta pursuant to ~~18U~~18 U.S.C. Section 1350 as adopted pursuant to ~~toSection~~Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of John X. Adiletta pursuant to ~~18U~~18 U.S.C. Section 1350 as adopted pursuant to ~~toSection~~Section 906 of the Sarbanes-Oxley Act of 2002.

.*Filed as an exhibit to our December 31, 2008 Form 10k filed with the SEC on

March 31, 2009.

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)
		SOMERSET INTERNATIONAL GROUP, INC.
Date: March 31, 2009	By:	/s/ John X. Adiletta
		(Registrant)
		John X. Adiletta,
Date: March 31, 2010	By:	/s/ John X. Adiletta
		Chief Executive Officer
		John X. Adiletta
		Chief Executive Officer

2118

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONTENTS TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, ~~2008~~2009

	Page
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS	Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	F-2
Unaudited Balance Sheets December 31, 2009 and 2008	F-2
CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Statements of Operations For the Years Ended December 31, 2009 and 2008	F-3
Balance Sheets December 31, 2008 and 2007	F-3
Unaudited Statements of Stockholders' Equity (Deficit) For the Years Ended December 31, 2009 and 2008	F-4
Statements of Operations For the Years Ended December 31, 2008 and 2007	F-4
Unaudited Statements of Cash Flows For the Years Ended December 31, 2009 and 2008	F-5
Statements of Stockholders' Equity (Deficit) For the Years Ended December 31, 2008 and 2007	F-5 - F-6
Notes to Unaudited Consolidated Financial Statements	F-6 - F-20
Statements of Cash Flows For the Years Ended December 31, 2008 and 2007	F-7
Notes to Consolidated Financial Statements	F-8 - F-25

F-1

~~Report of~~ ~~Independent~~SOMERSET ~~Registered~~INTERNATIONAL ~~Public~~GROUP, ~~Accounting~~INC. ~~Firm~~AND SUBSIDIARIES

To(SEE ~~the~~NOTE ~~Board~~1B of– ~~Directors~~BASIS ofOF ~~Somerset International Group, Inc. and Subsidiaries:~~PRESENTATION)

~~We have~~UNAUDITED ~~audited~~CONSOLIDATED ~~the~~BALANCE accompanying consolidated balance sheets of Somerset International Group, Inc. and Subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the two years in the period then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.SHEET

WeDECEMBER 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 examining31, on2009 aAND 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.2008

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, 2008 and 2007, and the consolidated results of their operations and their cash flows for each of the two years in the period then ended in conformity with accounting principles generally accepted in the United States of America.

	2009			2008
ASSETS
Current Assets:
Cash and cash equivalents	$	43,633		$	65,732
Accounts receivable, net		572,548			645,233
Inventories		615,379			488,156
Prepaid expenses		84,208			4,209
Other current assets		10,265			10,444
Total Current Assets		1,326,033			1,213,774

Property and equipment, net		127,617			115,873

Other Assets:
Deposits		7,120			9,825
Deferred financing costs, net		116,676			215,000
Customer Lists, net		1,024,221			1,619,185
Distribution agreements, net		--			52,928
Goodwill		2,200,355			2,200,355
Total other assets		3,348,372			4,097,293

TOTAL ASSETS	$	4,802,022		$	5,426,940

LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)

Current Liabilities:
Accounts payable and accrued expenses	$	1,685,102		$	1,264,356
Promissory notes payable - current		1,493,017			1,360,561
Dutchess promissory notes payable - current		3,875,920			1,023,000
Accrued interest payable		791,290			276,865
Deferred revenue		269,906			268,081
Total Current Liabilities		8,115,235			4,192,863

Dutchess promissory notes payable – non-current		--			2,853,407
Promissory notes payable – non-current portion		--			40,499
TOTAL LIABILITIES		8,115,235			7,086,769

Stockholders’ Equity(Deficit):

Common Stock, 200,000,000 shares authorized,		23,349			23,334
$.001 par value, 23,348,655 and 23,333,655 shares issued and outstanding in 2009 and 2008 respectively
Capital in excess of par value		31,367,243			31,366,808
Accumulated deficit		(34,703,805	)		(33,049,971	)
Total Stockholders’ (Deficit)		(3,313,213	)		(1,659,829	)

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)	$	4,802,022		$	5,426,940

~~The~~See accompanying ~~consolidated~~Notes ~~financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1B~~ to the ~~consolidated~~Consolidated ~~financial~~Financial statements, the Company had net losses for the years ended December 31, 2008 and 2007 of approximately $2,008,000 and $1,484,000, respectively, an accumulated deficit of approximately $33,050,000 and a stockholders’ deficit of $1,660,000 as of December 31, 2008 and the Company utilized net cash in operating activities of approximately $167,000 for the year then ended. In addition, at December 31, 2008, the Company had a working capital deficit of approximately $2,979,000. 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.Statements

/s/ WithumSmith+Brown, P.C.

Somerville, NJ

March 31, 2009

F-2

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

~~CONSOLIDATED~~UNAUDITED ~~BALANCE~~CONSOLIDATED ~~SHEETS~~STATEMENTS OF OPERATIONS

~~DECEMBER~~(SEE NOTE ~~31,~~1B ~~2008~~– ~~AND~~BASIS ~~2007~~OF PRESENTATION)

	2008			2007
ASSETS
Current Assets:
Cash and cash equivalents	$	65,732		$	350,110
Accounts receivable, net		645,233			951,177
Inventories		488,156			572,707
Prepaid expenses		4,209			8,982
Other current assets		10,444			20,838
Total Current Assets		1,213,774			1,903,814
Property and equipment, net		115,873			77,331
Other Assets:
Deposits		9,825			9,825
Deferred financing costs, net		215,000			313,333
Non compete covenant, net		--			37,313
Customer Lists, net		1,619,185			2,213,107
Software, net		--			12,743
Distribution agreements, net		52,928			140,622
Goodwill		2,200,355			2,200,355
Total other assets		4,097,293			4,927,298
TOTAL ASSETS	$	5,426,940		$	6,908,443
LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)
Current Liabilities:
Accounts payable and accrued expenses	$	1,264,356		$	793,389
Promissory notes payable - current		1,360,561			1,116,109
Dutchess promissory notes payable - current		1,023,000			461,000
Accrued interest payable		276,865			201,225
Deferred revenue		268,081			310,911
Total Current Liabilities		4,192,863			2,882,634
Dutchess promissory notes payable – non-current		2,853,407			3,574,000
Stockholder note payable - non-current		--			121,419
Promissory notes payable – non-current portion		40,499			--
TOTAL LIABILITIES		7,086,769			6,578,053
Stockholders’ Equity(Deficit):
Common Stock, 200,000,000 shares authorized,		23,334			23,059
$.001 par value, 23,333,655 and 23,058,655 shares issued and outstanding in 2008 and 2007 respectively
Capital in excess of par value		31,366,808			31,349,583
Accumulated deficit		(33,049,971	)		(31,042,252	)
Total Stockholders’ Equity(Deficit)		(1,659,829	)		330,390
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY(DEFICIT)	$	5,426,940		$	6,908,443

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008


	2009			2008
Revenues
Equipment sales	$	1,446,838		$	2,440,907
Installation revenues		960,086			536,364
Maintenance revenues		1,812,637			1,755,173
Total revenues		4,219,561			4,732,444

Costs of goods sold
Material cost of systems sold		972,518			1,249,264
Install and service costs		775,884			1,051,462
Engineering and development		117,858			135,967
Total costs of goods sold		1,866,260			2,436,693

Gross margin		2,353,301			2,295,751

Selling, general, and administrative expenses
Selling, general, and administrative expense		2,486,911			2,854,848
Depreciation expense		49,595			37,918
Amortization expense		746,214			831,200
Total selling, general, and administrative expenses		3,282,720			3,723,966

Loss from operations		(929,419	)		(1,428,215	)

Other Income(Expense)
Interest expense		(676,133	)		(567,594	)
Other income (expense)		(40,338	)		7,094
Total other expense		(716,471	)		(560,500	)

Loss before income taxes		(1,645,890	)		(1,988,715	)

Provision for income taxes		7,944			19,004

Net loss		(1,653,834	)		(2,007,719	)


Net loss attributable to common stockholders	$	(1,653,834	)	$	(2,007,719	)

Basic and diluted net loss per common share	$	(0.07	)	$	(0.09	)

Weighted Average Number of Common Shares		23,348,573			23,170,528

See accompanying Notes to the Consolidated Financial Statements

F-3

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

~~CONSOLIDATED~~UNAUDITED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~STOCKHOLDERS’ EQUITY (DEFICIT)

~~FOR~~(SEE ~~THE~~NOTE ~~YEARS~~1B ~~ENDED~~– ~~DECEMBER~~BASIS ~~31,~~OF ~~2008 AND 2007~~PRESENTATION)

	2008			2007
Revenues
Equipment sales	$	2,440,907		$	2,282,936
Installation revenues		536,364			542,523
Maintenance revenues		1,755,173			1,053,853
Total revenues		4,732,444			3,879,312
Costs of goods sold
Material cost of systems sold		1,249,264			978,158
Install and service costs		376,012			644,198
Engineering and development		135,967			157,934
Total costs of goods sold		1,761,243			1,780,290
Gross margin		2,971,201			2,099,023
Selling, general, and administrative expenses
Selling, general, and administrative expense		3,530,298			2,515,055
Depreciation expense		37,918			16,430
Amortization expense		831,200			608,606
Total selling, general, and administrative expenses		4,399,416			3,140,091
Loss from operations		(1,428,215	)		(1,041,068	)
Other Income(Expense)
Amortization of debt discount		--			(24,000	)
Interest expense		(567,594	)		(416,534	)
Other income (expense)		7,094			(2,633	)
Total other expense		(560,500	)		(443,167	)
Loss before income taxes		(1,988,715	)		(1,484,235	)
Provision for income taxes		19,004			97
Net loss		(2,007,719	)		(1,484,332	)
Dividends on preferred stock		--			268,746
Net loss attributable to common stockholders	$	(2,007,719	)	$	(1,753,078	)
Basic and diluted net loss per common share	$	(0.09	)	$	(0.15	)
Weighted Average Number of Common Shares		23,170,528			11,525,387

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

	PREFERRED STOCK				COMMON STOCK				CLASS A COMMON STOCK				CAPITAL IN					TOTAL STOCKHOLDERS’
	SHARES		PAR VALUE		SHARES		PAR VALUE		SHARES		PAR VALUE		EXCESS OF PAR		ACCUMULATED DEFICIT			EQUITY (DEFICIT)

Balance at December 31, 2007		-	$	-		23,058,655	$	23,059		-		-	$	31,349,583	$	(31,042,252	)	$	330,390

Net Loss		-		-		-		-		-		-		-		(2,007,719	)		(2,007,719	)

Issuance of Common Stock for cash		-		-		25,000		25		-		-		2,225		-			2,250
Issuance of Common Stock for cash		-		-		75,000		75		-		-		2,925		-			3,000
Issuance of Common Stock for services		-		-		175,000		175		-		-		12,075		-			12,250
Balance at December 31, 2008		-	$	-		23,333,655	$	23,334		-		-	$	31,366,808	$	(33,049,971	)	$	(1,659,829	)

	PREFERRED STOCK				COMMON STOCK				CLASS A COMMON STOCK				CAPITAL IN					TOTAL STOCKHOLDERS’
	SHARES		PAR VALUE		SHARES		PAR VALUE		SHARES		PAR VALUE		EXCESS OF PAR		ACCUMULATED DEFICIT			EQUITY (DEFICIT)

Balance at December 31, 2008		-	$	-		23,333,655	$	23,334		-		-	$	31,366,808	$	(33,049,971	)	$	(1,659,829	)

Net Loss		-		-		-		-		-		-		-		(1,653,834	)		(1,653,834	)

Issuance of Common Stock for cash		-		-		15,000		15		-		-		435		-			450
Balance at December 31, 2009		-	$	-		23,348,655	$	23,349		-		-	$	31,367,243	$	(34,703,805	)	$	( 3,313,213	)

See accompanying Notes to the Consolidated Financial Statements

F-4

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

~~CONSOLIDATED~~UNAUDITED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’~~CASH ~~EQUITY (DEFICIT)~~FLOWS

~~FOR~~(SEE ~~THE~~NOTE ~~YEARS~~1B ~~ENDED~~– ~~DECEMBER~~BASIS ~~31,~~OF ~~2008 AND 2007~~PRESENTATION)

	PREFERRED STOCK			COMMON STOCK			CLASS A COMMON STOCK			CAPITAL IN				TOTAL STOCKHOLDERS’
	SHARES		PAR VALUE	SHARES		PAR VALUE	SHARES	PAR VALUE		EXCESS OF PAR		ACCUMULATED DEFICIT		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 redeemable preferred stock	-		-	9,932,200		9,932	-	-		3,962,948		-		3,972,880
Return of Common Stock for services	-		-	(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

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008

Cash Flows From Operating Activities:	2009			2008
Net Loss	$	(1,653,834	)	$	(2,007,719	)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation		49,595			37,918
Amortization		746,214			831,200
Gain on sale of equipment		--			(2,500	)
Stock issued for services		--			12,250

Changes in operating assets and liabilities:
Accounts receivable		72,685			305,944
Inventories		(127,223	)		84,551
Prepaid expense		(79,999	)		4,773
Other current assets		179			10,395
Deposits		2,705			--
Accounts payable and accrued expenses		418,747			517,677
Accrued interest payable		514,425			80,890
Deferred revenue		1,825			(42,830	)
Net Cash Used in Operating Activities		(54,681	)		(167,451	)

Cash Flows From Investing Activities:
Purchase of equipment		--			(19,830	)
Proceeds from sale of fixed assets		--			26,300
Net Cash Provided by (Used in) Investing Activities		--			6,470

Cash Flows From Financing Activities:
Payment of Dutchess debentures		--			(206,000	)
Proceeds from issuance of notes payable		80,000			200,000
Payment of seller note		--			(104,165	)
Payment of promissory notes		(47,418	)		(13,232	)
Payment of stockholder note payable		--			--
Net Cash Provided by (Used in ) Financing Activities		32,582			(123,397	)

Net Change in Cash and Cash Equivalents		(22,099	)		(284,378	)
Cash at Beginning of the Year		65,732			350,110
Cash at End of the Year	$	43,633		$	65,732

Cash paid for:
Interest	$	158,856		$	574,878
Income Taxes	$	7,942		$	19,004

Non Cash Investing & Financing Activities:
Promissory note incurred upon acquisition of equipment	$	61,339		$	80,430
Stock issued in conjunction with issuance of notes payable	$	450		$	--

See accompanying Notes to the Consolidated Financial Statements

F-5

SOMERSET INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

	PREFERRED STOCK			COMMON STOCK			CLASS A COMMON STOCK			CAPITAL IN				TOTAL STOCKHOLDERS’
	SHARES		PAR VALUE	SHARES		PAR VALUE	SHARES	PAR VALUE		EXCESS OF PAR		ACCUMULATED DEFICIT		EQUITY (DEFICIT)
Balance at December 31, 2007	-	$	-	23,058,655	$	23,059	-	-	$	31,349,583	$	(31,042,252)	$	330,390
Net Loss	-		-	-		-	-	-		-		(2,007,719)		(2,007,719)
Issuance of Common Stock for in connection with notes payable	-		-	25,000		25	-	-		2,225		-		2,250
Issuance of Common Stock for in connection with notes payable	-		-	75,000		75	-	-		2,925		-		3,000
Issuance of Common Stock for services	-		-	175,000		175	-	-		12,075		-		12,250
Balance at December 31, 2008	-	$	-	23,333,655	$	23,334	-	-	$	31,366,808	$	(33,049,971)	$	(1,659,829)

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, 2008 AND 2007

Cash Flows From Operating Activities:	2008			2007
Net Loss	$	(2,007,719	)	$	(1,484,332	)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of debt discount		--			24,000
Depreciation		37,918			16,430
Amortization		831,200			608,606
Gain on sale of equipment		(2,500	)		--
Stock issued for services		12,250			25,000
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		305,944			174,842
Inventories		84,551			38,794
Prepaid expense		4,773			63,880
Other current assets		10,395			1,062
Deposits		--			11,450
Accounts payable and accrued expenses		517,677			(863,732	)
Accrued interest payable		80,890			(45,723	)
Deferred revenue		(42,830	)		(47,678	)
Employment contracts payable		--			(6,939	)
Net Cash Used in Operating Activities		(167,451	)		(1,253,913	)
Cash Flows From Investing Activities:
Acquisition of subsidiaries, net of cash acquired		--			(1,542,306	)
Purchase of equipment		(19,830	)		(53,161	)
Proceeds from sale of fixed assets		26,300			--
Net Cash Provided by (Used in) Investing Activities		6,470			(1,595,467	)
Cash Flows From Financing Activities:
Proceeds from issuance of Dutchess debentures		--			3,695,000
Payment of Dutchess debentures		(206,000	)		(15,000	)
Proceeds from issuance of notes payable		200,000			95,000
Proceeds from issuance of stock		--			46,128
Payment of seller note		(104,165	)		(124,998	)
Payment of promissory notes		(13,232	)		(375,000	)
Payment for return and retirement of stock		--			(10,000	)
Payment of stockholder note payable		--			(113,239	)
Net Cash Provided by (Used in ) Financing Activities		(123,397	)		3,197,892
Net Change in Cash and Cash Equivalents		(284,378	)		348,512
Beginning of the Year		350,110			1,598
End of the Year	$	65,732		$	350,110
Cash paid for:
Interest	$	574,878		$	274,330
Income Taxes	$	19,004		$	97
Non Cash Investing & Financing Activities:
Promissory note incurred upon acquisition of equipment	$	80,430		$	--
Accretion of preferred stock dividends	$	--		$	268,746
Conversion of convertible redeemable
preferred shares to common stock	$	--		$	3,972,880
Conversion of convertible debt to common stock	$	--		$	300,000
Deferred finance cost paid with note payable	$	--		$	355,000

See accompanying Notes to the Consolidated Financial Statements

F-7

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. 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.

OnOur ~~June~~executive ~~30, 2007,~~office weis ~~entered~~located ~~into~~at ~~a Stock Purchase Agreement (“Agreement”) in which Secure,~~90 ~~our~~Washington ~~wholly~~Valley ~~owned subsidiary~~Road, ~~purchased all the shares of Meadowlands Fire~~Bedminster, ~~Safety,~~ ~~and Electrical Supply Co., Inc., a~~ New Jersey ~~corporation~~, ~~and Vanwell Electronics, Inc~~07921., 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~~Customers 1,are ~~2007,~~located weprimarily ~~entered into a Stock Purchase Agreement (“Agreement”)~~ in ~~which~~ ~~Somerset purchased all~~ the ~~shares of Fire Control Electrical Systems,~~ ~~Inc.,~~northeastern aUnited ~~New Jersey corporation, ( “Fire Control”) from Vincent Bianco and Opie Brinson, being all of the shareholders of Fire Control~~States. 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. Customers are located primarily in the northeastern United States.

B. Basis of Presentation

The unaudited consolidated financial statements included herein have not been audited by the Company’s independent registered accounting firm. Therefore, these statements have not been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The accompanying ~~financial~~unaudited consolidated 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, 2009 and 2008 of approximately $1,654,000 and $2,008,000, respectively, and had an accumulated deficit of approximately $34,700,000 and a stockholders’ deficit of approximately $3,313,000 as of December 31, 2009. The Company also utilized net cash in operating activities of approximately $54,700 in 2009. In addition at December 31, 2009, the Company has a working capital deficit of approximately $6,789,000. 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-86

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, 2008 and 2007 of approximately $2,008,000 and $1,484,000, respectively, and had an accumulated deficit of approximately $33,050,000 and a stockholders’ deficit of approximately $1,660,000 as of December 31, 2008. The Company also utilized net cash in operating activities of approximately $167,000 in 2008. In addition at December 31, 2008, the Company has a working capital deficit of approximately $2,979,000. 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~~ 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 $4131,000 and $7441,000 as of December 31, ~~2008~~2009 and ~~2007~~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.

~~F-9~~Currently, Secure System, Inc. has five customers which accounted for all of their revenues. Meadowlands has approximately 200 active accounts and Fire Control has approximately 150 active 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.

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~~Most ~~estimates~~critical ~~include~~are the fair value estimates related to the net tangible and identifiable assets of acquired companies, as well as customer lists and the estimated fair value of reporting units used when evaluating Goodwill for impairment.

F.	Income Taxes:

The Company files tax returns in the U.S. federal jurisdiction and various states. The Company has no open years prior to 2006.

F-7

The Company adopted the accounting pronouncement dealing with uncertain tax positions as of January 1, 2009. Upon adoption of this accounting pronouncement, the Company had no unrecognized tax benefits. Furthermore, the Company had no unrecognized tax benefits at December 31, 2009.

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.	Principles of Consolidation:

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

I. ~~Stock Based Compensation and Stock Sales~~Reclassifications:

~~Stock~~Certain ~~and~~reclassifications ~~warrants~~were ~~issued~~made ~~for employee compensation services have been~~to ~~determined based on~~ the ~~value~~2008 offinancial ~~the~~statements ~~instrument~~in ~~issued~~order atto ~~date~~conform ofto ~~issuance for such services. In addition, during 2007 and 2008~~ the ~~Company~~2009 ~~issued~~financial ~~warrants~~statement ~~as part of certain sales of common stock~~presentation. ~~The~~Such ~~value~~reclassifications ofhad ~~these warrants~~no ~~has~~effect ~~been included in additional paid in capital as part of the value of~~on ~~the~~2008’s ~~overall~~reported ~~stock~~net ~~sale~~loss.

~~F-10~~J. Stock Based Compensation and Stock Sales:

JStock 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 ~~Revenue~~addition, ~~Recognition:~~during 2009 and 2008 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.

F-8

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

The description of each stream is as follows:

·	Equipment:

·	Installation:

·	Maintenance:

KL. 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.

F-119

LM. Loss Per Share:

The Company computes net loss per share ~~under~~in ~~the~~accordance ~~provisions~~with ofProfessional ~~SFAS~~Standards ~~No. 128, “Earnings per Share” (SFAS 128),~~ and utilizes guidance provided by SEC Staff Accounting Bulletin No. 98 (SAB 98). Under ~~the~~these 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 December 31, ~~2008~~ 2009 and ~~2007~~2008, 34,~~859~~208,~~314~~505 and 3,~~047~~859,~~514~~314 of common stock equivalent shares were excluded from the computation of diluted net loss per share after ~~considering~~ considering ownership limitations of certain warrants and conversion features.

MN. ~~Goodwill~~Advertising ~~and Intangible Assets~~Costs:

~~Goodwill~~Advertising ~~and~~costs ~~intangible~~are ~~assets~~treated ~~result~~as period ~~primarily~~costs ~~from~~and ~~acquisitions~~expenses ~~accounted~~as ~~for~~incurred. During ~~under~~ the ~~purchase~~years ~~method.~~ended ~~In accordance~~December ~~with Statement of Financial Accounting Standards (“SFAS") No. 142~~31, ~~"Goodwill~~2009 and ~~Other~~2008 ~~Intangible~~advertising ~~Assets"~~costs ~~("SFAS~~totaled ~~No.~~approximately ~~142")~~$6,832 ~~goodwill~~ and ~~intangible~~$69,996, ~~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~~respectively, ~~customer lists, covenant not to compete~~ and ~~other intangibles~~ are ~~being~~included ~~amortized~~in onoperating aexpenses ~~straight-line~~in ~~basis over~~ the ~~estimated~~accompanying ~~useful~~consolidated ~~life~~statements of ~~the related asset, generally three to seven years~~income. ~~As of December 31, 2008, no impairment charge was necessary.~~

~~In accordance with SFAS No~~O.~~142,~~ ~~the~~Goodwill ~~Company reviews the carrying value of goodwill~~ and ~~intangible~~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.Assets:

~~In accordance~~Goodwill ~~with~~and ~~SFAS~~intangible ~~No.~~assets ~~144,~~result primarily ~~“Accounting~~from acquisitions accounted for under the ~~Impairment~~purchase ormethod. ~~Disposal of~~In ~~Long-Lived~~accordance ~~Assets~~with Professional Standards," ~~long-lived~~goodwill ~~assets~~and ~~used~~intangible inassets ~~operations~~with indefinite lives are ~~reviewed~~not ~~for impairment~~amortized ~~whenever~~but ~~events~~are orsubject ~~change~~to ~~circumstances~~impairment ~~indicate~~by ~~that~~applying ~~carrying~~a ~~amounts~~fair ~~may~~value ~~not~~based ~~be recoverable~~test. ~~For~~Intangible ~~long-1ived~~ assets towith befinite ~~held~~useful ~~used,~~lives ~~the~~related to ~~Company~~software, ~~recognizes~~customer anlists, ~~impairment~~covenant ~~loss~~not ~~only~~to ifcompete ~~its~~and ~~carrying~~other ~~amount~~intangibles ~~is not~~are ~~recoverable~~being ~~through~~amortized ~~its~~on ~~undiscounted~~a ~~cash~~straight-line ~~flows~~basis ~~and~~over ~~measures~~ the ~~impairment~~estimated ~~loss based~~useful onlife of the related ~~difference~~asset, ~~between~~generally ~~carrying~~three ~~amount~~to ~~and~~seven ~~fair~~years. As ~~value~~of December 31, 2009, no impairment charge was necessary.

FIn accordance with Professional Standards, 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 2009 and 2008 supported the carrying value of goodwill, and as such, no write-12down in the carrying value of goodwill was recorded.

In accordance with Professional Standards, 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

~~Effective~~ In January 12010, ~~2008,~~ the ~~Company~~Financial Accounting ~~adopted~~Standards ~~SFAS~~Board ~~No. 157, "Fair Value Measurements"~~ (~~SFAS 157~~FASB). ~~In February 2008, the FASB~~ issued ~~FASB~~Update ~~Staff Position No. FAS 157~~2010-206, "~~Effective~~Fair ~~Date of FASB Statement No. 157", which~~Value ~~provides~~Measurements ~~a one year deferral of the effective date of SFAS 157 for non-financial assets~~ and ~~non-financial~~Disclosures ~~liabilities,~~(Topic ~~except~~820): Improving ~~those~~Disclosures ~~that are recognized or~~about ~~disclosed~~Fair inValue ~~the financial statements at fair value at least annually. Therefore~~Measurements", ~~the~~which ~~Company~~is ~~has~~effective ~~adopted~~for ~~the~~annual ~~provisions~~reporting ~~of SFAS 157 with respect to~~periods ~~its~~beginning ~~financial~~after ~~assets~~December ~~and liabilities only. SFAS 157 defines fair value~~15, ~~establishes~~2009 aexcept ~~framework~~ for ~~measuring~~the ~~fair value under generally accepted accounting principles and enhances~~ disclosures about ~~fair value~~purchases, ~~measurements. Fair~~sales, ~~value~~issuance isand ~~defined~~settlements ~~under SFAS 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price)~~ in the ~~principal~~rollforward orof ~~most~~activity ~~advantageous market for the asset or liability~~ in anLevel ~~orderly~~3 ~~transaction between market participants on the measurement date. Valuation techniques used to measure~~ fair ~~value~~ ~~under SFAS 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a fair~~ value ~~hierarchy~~measurements ~~based on three levels of inputs, of~~ which ~~the~~are ~~first~~effective ~~two~~for ~~are~~fiscal ~~considered~~years ~~observable~~beginning ~~and~~after ~~the~~December ~~last unobservable~~15, ~~that~~2010. This ~~may~~update bemodifies ~~used~~current toprofessional ~~measure~~standards ~~fair~~to require ~~value~~certain ~~which~~disclosures ~~are~~as ~~the following~~follows:

~~• Level 1—Quoted prices in active markets for identical assets or liabilities.~~F-10

•The ~~Level 2—Inputs~~amounts ~~other~~of ~~than~~significant ~~Level~~transfers ~~1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices~~ in ~~markets~~ ~~that~~and ~~are~~out ~~not~~of ~~active;~~Level or1 ~~other~~and ~~inputs~~2 ~~that~~fair ~~are~~value ~~observable~~measurements orand ~~can~~the ~~be corroborated~~reasons ~~by observable market data~~ for ~~substantially~~those ~~the full term of the assets or liabilities~~transfers.

•Information ~~Level 3—Unobservable~~in ~~inputs~~the ~~that~~reconciliation ~~are~~of ~~supported~~fair byvalue ~~little~~measurements orusing nosignificant ~~market~~unobservable ~~activity~~inputs (Level 3) about purchases, sales, issuance and settlements (that ~~are~~is, ~~significant~~on toa ~~the~~gross ~~fair~~basis ~~value~~rather ofthan ~~the~~as ~~assets~~one ~~or liabilities~~net number).

~~Effective January 1, 2008, the Company adopted SFAS No. 159 "The~~ Fair ~~Value Option for Financial Assets and Financial Liabilities" (SFAS 159). SFAS 159 allows an entity the irrevocable option to elect fair~~ value ~~for the initial and subsequent~~ measurement disclosures for ~~specified~~each ~~financial~~class of assets and liabilities ~~on a contract-by-contract basis~~. ~~The Company did not elect to adopt the fair value option under this Statement for any of its financial instruments.~~

~~Since these~~Description ~~financial~~of ~~statements~~valuation ~~had~~techniques noand ~~fair~~inputs ~~value~~used ~~measurements~~to ~~that~~measure ~~would require~~ fair value ~~disclosure~~for ~~under~~both ~~this~~recurring ~~pronouncement,~~and ~~the~~non ~~adoption~~recurring offair ~~this~~value ~~statement did~~measurements ~~not~~that ~~have~~fall ainto ~~material~~either ~~impact~~Level on2 ~~the~~or ~~Company's~~Level ~~consolidated results of operations and financial condition~~3.

FIn October 2009, FASB issued Update No. 2009-13, "Revenue Recognition: Multiple-Deliverable Revenue Arrangements which is effective for fiscal years beginning on or after June 15, 2010 which requires certain disclosures regarding multiple deliverable revenue arrangements as well as addressing the accounting for multiple deliverable arrangements to enable reporting entities to account for product and services separately rather than a combined unit. The Company is currently evaluating the impact of this pronouncement.

In ~~March~~October ~~2008~~2009, ~~the~~ FASB issued ~~Statement~~ ofUpdate ~~Financial Accounting Standard~~ No. ~~161 (SFAS 161)~~ 2009-14, ~~“Disclosures about~~"Software: ~~Derivative~~Certain ~~Instruments~~Revenue ~~and~~Arrangements ~~Hedging~~That ~~Activities—an~~Include ~~amendment of FASB~~Software ~~Statement No. 133~~Elements”, which is effective prospectively for ~~fiscal~~revenue ~~years,~~arrangements ~~and~~entered into ~~interim~~or ~~periods within~~materially ~~those~~modified in fiscal years, beginning on or after ~~November~~June 15, ~~2008~~2010. ~~Early~~The ~~application~~update isimpacts ~~encouraged. SFAS 161 changes~~ the ~~disclosure~~recognition ~~requirements~~of ~~for~~revenue ~~derivative~~arrangements ~~instruments and hedging activities.~~that ~~Entities~~include ~~are~~both ~~required~~tangible toproducts ~~provide enhanced disclosures about (a) how~~ and ~~why~~software ~~an entity~~elements ~~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 flowsdisclosures. The ~~Statement~~Company ~~requires~~is ~~that~~currently ~~objectives~~evaluating ~~for using derivative instruments be disclosed in terms of underlying risk and accounting designation. In addition,~~ the ~~standard~~impact ~~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~~October 2009, ~~the~~ FASB issued ~~Statement~~Update ~~of Financial Accounting Standard~~ No. ~~160 (SFAS 160), “Non~~2009-~~Controlling Interests in Consolidated Financial Statements~~15, An ~~Amendment of~~ "Accounting ~~Research~~for ~~Bulletin~~Own-Share ~~No.~~Lending ~~51”,~~Arrangements ~~which~~in isContemplation ~~effective for~~of ~~fiscal~~Convertible ~~years,~~Debt ~~and~~Issuance ~~interim periods within those fiscal years, beginning on~~ or ~~after~~ ~~December~~Other 15Financing”, ~~2008. Early~~which ~~application~~amends iscurrent ~~not permitted before~~professional ~~that~~standards ~~date. SFAS~~regarding ~~160 changes the terminology of minority interests, which will now be known as non~~share-~~controlling~~lending ~~interest~~arrangements ~~and requires~~ that ~~non-controlling~~ ~~interests~~have bebeen ~~clearly~~terminated ~~identified within stockholders’ equity~~ as a ~~separate~~result ~~component~~of ~~from~~counterparty ~~the~~default ~~parent~~prior ~~company’s equity and net income or loss attributable~~ to ~~non-controlling~~December ~~interests~~15, ~~be clearly identified and presented on the face of the consolidated statement of operations~~2009. ~~In addition,~~The ~~the~~Company ~~standard~~is ~~requires~~currently ~~adequate~~evaluating ~~disclosure between interests of~~ the ~~parent company~~impact ~~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~~.

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 is currently evaluating the potential impact of this pronouncement.

Note 4. Inventory

Inventory consists of the following at December 31, 2009:

	2008		2007
	2009		2008
Raw materials	$	~~398~~429,~~468~~978	$	~~467~~398,~~457~~468
Work in progress		81116,~~188~~553		9581,~~250~~188
Finished goods		868,~~500~~848		108,~~000~~500
Total	$	~~488~~615,~~156~~379	$	~~572~~488,~~707~~156

F-1411

Note 5. Property, Equipment, and ~~Equipment~~Leasehold Improvements

	2008			2007
	2009			2008
Equipment	$	~~309~~311,~~034~~490		$	~~308~~309,~~002~~034
Furniture		97,203			97,~~173~~203
Leasehold Improvements		69,108			69,108
Vehicles		~~428~~488,~~354~~676			~~442~~428,~~638~~353
Total		~~903~~966,~~699~~477			~~916~~903,~~921~~699
Accumulated Depreciation		(~~787~~838,~~826~~860	)		(~~839~~787,~~590~~826	)
Property and Equipment, net	$	115,873		$	77,331
Property, Equipment, and Leasehold Improvements, net	$	127,617		$	115,873

Depreciation expense for the years ended December 31, 2009 and 2008 was $45,595 and $37,918, respectively.

Note 6. 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. All notes past their respective payment due dates are in default. The following is a summary of those obligations:

F-12

Various Notes Payable:

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

	2008		2007
	2009		2008
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		74,000
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, 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.		20,833		20,833
September 2007, non-interest bearing short term note issued to the sellers in connection Vanwell and Meadowlands acquisition.		355,000		355,000
Note issued in August 2008, with interest at 15% per annum, convertible at $.25 per share. Payment due date is March 2009.		50,000		50,000
Note issued in October 2008, with interest at 15% per annum, convertible at $.25 per share. Payment due date is April 2009.		150,000		150,000
Note issued in January 2009, with interest at 15% per annum, convertible at $.25 per share. Payment due date is April 2009.[c]		30,000		--
Note issued in January 2009, with interest at 15% per annum, convertible at $.25 per share. Payment due date is April 2009. [d]		50,000		--
10% stockholder note payable, with monthly payments of $17,928. Payments are in arrears.		388,528		388,528
Vehicle Loans		79,656		67,699
Total notes payable		1,493,017		1,401,060
Less Current Portion		1,493,017		1,360,561
Long Term Portion	$	--	$	40,499

F-15

June 2007, 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.		20,833		125,000
September 2007, non-interest bearing short term note issued to the sellers in connection Vanwell and Meadowlands acquisition.		355,000		355,000
Note issued in August 2008, with interest at 15% per annum, convertible at $.25 per share. Payment due date is March 2009.		50,000		--
Note issued in October 2008, with interest at 15% per annum, convertible at $.25 per share. Payment due date is April 2009.		150,000		--
10% stockholder note payable, with monthly payments of $17,928. Payments are in arrears.		388,528		388,528
Vehicle Loans		67,699		--
Total notes payable		1,401,060		1,237,528
Less Current Portion		1,360,561		1,116,109
Long Term Portion	$	40,499	$	121,419

[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.

[c]: In connection with the January 2009 $30,000 note, the Company issued 15,000 shares of stock valued at approximately $450, which was recorded as a debt discount paid and is amortizable over the life of the debt. Debt discount related to the conversion feature is insignificant to these financial statements.

[b]: In connection with the January 2009 $50,000 note, the debt discount related to the conversion feature and warrant issued is insignificant to these financial statements.

F-13

Dutchess Notes Payable:

Dutchess notes payable consist of the following at December 31:

	2008		2007
	2009		2008
June 2007 14% convertible note payable, as amended, with Dutchess Private Equities Fund, Ltd., with payments as described below, convertible at the lesser of $0.20 per share or 75% of the lowest closing bid price for the previous 10 business days [a]	$	2,~~581~~582,~~207~~720	$	2,~~685~~581,~~000~~207
November 2007 14% convertible note payable, as amended, with Dutchess Private Equities Fund, Ltd., with payments as described below, convertible at the lesser of $0.10 per share or 75% of the lowest closing bid price for the previous 10 business days [b]		1,~~295~~293,200		1,350,000
Total Dutchess notes payable		3,~~876~~875,~~407~~920		43,~~035~~876,~~000~~407
Less Current Portion		13,~~023~~875,~~000~~920		~~461~~1,023,000
Long Term Portion	$	~~2,853,407~~--	$	32,~~574~~853,~~000~~407

F-16

[a]: 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 are 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 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 are 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.

On September 8, 2008, Somerset International Group, Inc. (the “Company”) entered into an amendment to its Debenture dated June 12, 2007 (the “June Debenture”) between Dutchess Private Equities Fund, Ltd. (“Dutchess”) and the Company; and a debenture dated November 13, 2007 (the “November Debenture”) between Dutchess and the Company (collectively, the Debenture”). Pursuant to the amendment, the parties agreed to the following:

The Company shall pay interest at the rate of 14% per annum, compounded daily, on the unpaid face amount of the debenture to Dutchess with monthly interest payments at 12% of the interest accrued on the principal balance of the a debenture from the last interest payment until such time as the current interest payment is due and payable and the remaining 2% of the interest due and payable upon request from Dutchess or upon the maturity date.

F-14

2.	The Company warrants that no indebtedness of the Company is senior to the Debenture in right of payment, whether with respect to interest, damages or upon liquidation or dissolution or otherwise.

3.	As to the June Debenture, commencing on December 30, 2007, the Company agreed to make the following monthly amortizing payments:

·	December 30, 2007 – May 31, 2008 Fifteen thousand dollars ($15,000)/month

·	June 30, 2008 Thirty-five thousand dollars ($35,000)

·	July 31, 2008 Fifteen thousand dollars ($15,000)

·	August 31, 2008 – December 30, 2008 Two thousand dollars ($2,000)/month

·	January 31, 2009 – May 31, 2009 Forty-five thousand dollars ($45,000)/month

·	June 30, 2009 thereafter until the face amount is paid in full Seventy-five thousand dollars ($75,000)/month

F-17

4.	As to the November Debenture, commencing on December 30, 2007, the Company shall make the following monthly amortizing payments:

·	January 31, 2008 – July 31, 2008 Eight thousand dollars ($8,000)

·	August 31, 2008 – January 31, 2009 Three thousand dollars ($3,000)

·	February 28, 2009 – July 31, 2009 Twenty thousand dollars ($20,000)/month

·	August 31, 2009 – April 30, 2010 Thirty thousand dollars ($30,000)/month

·	May 31, 2010 thereafter until the face amount is paid in full Forty thousand dollars ($40,000)/month

As additional consideration for Dutchess to enter into this Amendment, the Company issued a warrant to Dutchess to purchase up to 900,000 shares of the Company’s common stock with an exercise price equal to par value. Dutchess’s ownership of the Company’s shares is limited to 4.99% of shares issued and outstanding. The fair value of these warrants is not material to these financial statements. This warrant is not freely tradable by Dutchess.

~~Future~~The Dutchess notes are securitized by the assets of the company. Substantially all principal ~~maturities~~payments ondue under the terms of the Dutchess ~~notes~~Debentures ~~payable~~during ~~approximate~~2009 are in arrears. Partial payments of interest on these debentures were made during 2009 and through March 31, 2009. The failure to pay any principal or interest due under these debentures within ten days of the due date ~~following:~~is considered an “event of default”. As such, the entire balance of principal and interest on The Dutchess Notes are payable on demand.

2009	$	1,023,000
2010		1,293,000
2011		1,470,000
2012		90,400
	$	3,876,400

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

Note 7. Preferred Stock

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, ~~2008~~2009 and 2008. 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.

As of December 31, 2008 and 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.F-15

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.

F-18

Note 8. Related Party Transactions

The balance of the stockholder note payable was $388,528 both at December 31, ~~2008~~2009 and ~~2007~~2008. 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, ~~2008~~2009.

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 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)

As of December 31, ~~2008~~2009, 200,000,000 shares of Common Stock are authorized, 23,~~333~~348,655 shares of common stock issued and outstanding, and held by ~~414~~293 shareholders. There are also 13,~~115~~100,000 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, ~~2008~~2009:

Issue Date	Expiration Date	Number of Shares of Common Stock	Price	Basis for Warrant issuance
09/06/05	09/05/10	5,000	$0.20	Consulting Services
09/06/05	09/05/10	5,000	$0.18	Consulting Services
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
09/08/08	09/07/13	900,000	$0.001	Amendment to Convertible Debenture
Total		13,115,000
01/26/09	01/25/12	50,000	$0.001	Convertible Note
Total		13,100,000

F-19

As of December 31, ~~2008~~2009, intrinsic value associated with 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.

In addition, we also have Class A common stock, which has a par value of $.0035 per share and 12,000,000 shares have been authorized to be issued. As of December 31, 2008, there are no shares of Class A common stock issued and outstanding. Both common stock and Class A common stock have the same voting rights. F-16

~~The~~In ~~following~~addition, iswe also have Class A common stock, which has a ~~summary~~par value of ~~common~~$.0035 per share and 12,000,000 shares have been authorized to be issued. As of December 31, 2009, there are no shares of Class A common stock issued byand ~~the~~outstanding. ~~Company~~Both ~~during~~common ~~2008~~stock and ~~2007:~~Class A common stock have the same voting rights.

Date	Shares Issued [a]	Consideration	Amount
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	9,932,200 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
August 2008	25,000 at approximately $0.09 per share	Private Placement		2,250
October 2008	75,000 at approximately $0.04 per share	Private Placement		3,000
November 2008	175,000 at approximately $0.07 per share	Consulting services	$	12,250

The following is a summary of common stock issued by the Company during 2009 and 2008:

F-20


Date	Shares Issued	Consideration	Amount
August 2008	25,000 at approximately $0.09 per share	Private Placement	$	2,250
October 2008	75,000 at approximately $0.04 per share	Private Placement	$	3,000
November 2008	175,000 at approximately $0.07 per share	Consulting services	$	12,250
January 2009	15,000 at approximately $0.03 per share	Private Placement	$	450

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 CoNone., Inc., a New Jersey corporation, and Vanwell Electronics, Inc., a New Jersey corporation (collectively “Meadowlands”) from Keith Kesheneff and Kathryn Kesheneff, being all of the shareholders of Meadowlands. Pursuant to the Agreement, Secure acquired Meadowlands whereby Meadowlands became a wholly owned subsidiary of Secure. Meadowlands specializes in the distribution, sale, installation and maintenance of fire and security equipment and systems that include fire detection, video surveillance, and burglar alarm equipment. The results of operations for the acquired entity were included in consolidated statements of operations beginning July 1, 2007.

The 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. The total purchase price of $1,955,000 has been allocated as follows:

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

F-21

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

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 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. 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-22

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

Cash	$	$350,000
Common stock		150,000
	$	$500,000

Amortization related to the customer list and distribution agreement is approximately $176,000 per year for the next 4 years.

Note 11. Intangibles and Goodwill

Following is a summary of intangibles subject to amortization at December 31, ~~2008~~ 2009:

Intangibles subject to amortization:	Gross Amount	~~Gross Amount~~		Accumulated Amortization	~~Accumulated Amortization~~		Net	~~Net~~
Customer Lists		$	2,805,700		$	1,~~186~~781,~~515~~479		$	1,~~619~~024,~~185~~221
Covenants not to Compete			195,226			195,226			--
Distribution Agreements			165,505			165,505			--
Distribution Agreements			165,505			112,577			52,928
		$	2,971,205		$	1,946,984		$	1,024,221
Software			214,600			214,600			--
		$	3,381,031		$	1,708,918		$	1,672,113

Amortization expense related to these assets for ~~2008~~ 2009 and ~~2007~~2008 was approximately ~~$731,700 and~~ $~~504~~594,~~000~~743 ~~respectively~~annually. Estimated amortization expense for each of the ensuing years through December 31, 2012 is, approximately, ~~$648,000,~~ $~~595~~594,~~000~~743, $~~406~~405,~~000~~993, and $23,~~000~~495.

~~The following table summarizes the activity in goodwill for 2007 and 2006:~~F-17

Beginning balance 1/1/2007, net	$	2,200,355
2007 activity		0
Ending balance 12/31/2007, net	$	2,200,355
2008 activity		0
Ending balance 12/31/2008, net	$	2,200,355

The following table summarizes the activity in goodwill for 2008 and 2009:

F-23


Beginning balance 1/1/2008, net	$	2,200,355
2008 activity		0
Ending balance 12/31/2008, net	$	2,200,355
2009 activity		0
Ending balance 12/31/2009, net	$	2,200,355

The Company’s annual impairment test indicated that no impairment had occurred in ~~2008~~2009 and ~~2007~~2008 relating to the Secure reporting unit.

Note 12. 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 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. 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. On January 6, 2010, Mr. Adiletta signed an additional agreement, in which he agreed to permanently waive the 2010 salary increase provided for in his employment agreement. The additional agreement is for the period of January 6, 2010 though January 5, 2011. The President and CEO’s compensation for the year ended December 31, ~~2008~~2009 was $366,000.

Secure leases its facility on a ~~year to~~month ~~year~~to month 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.

InOn September ~~the~~4, 2008, Keith Kesheneff and Kathryn Kesheneff filed suit in Superior ~~normal~~Court ~~course~~in ofNew ~~business,~~Jersey against the Company isclaiming ~~subject~~that tothey ~~various~~are ~~proceedings~~owed ~~and claims~~$355,000 for a purchase price adjustment note issued by the ~~resolution~~Company. The ofCompany filed ~~which~~an ~~will~~answer, ~~not~~with counterclaims, inon ~~management's~~October ~~opinion~~27, ~~have~~2008, agenerally contesting ~~material~~all ~~adverse~~claims. The ~~affect~~parties onrecently ~~the~~agreed ~~Company's~~upon ~~financial~~settlement terms. A ~~position~~form orof ~~results~~settlement ofagreement is being reviewed by ~~operations~~counsel.

On June 26, 2009, the Company filed suit in the United States District Court for the District of New Jersey against TSG Capital Partners, LLC and others seeking to recover $105,000 in financing fees paid by the Company, plus damages for fraud, counsel fees, and interest. The Company has served its complaint and is pursuing its claims.

On August 6, 2009, the holders of three promissory notes convertible into the Company’s common stock obtained judgments against the Company in the Superior Court of New Jersey totaling $157,636.31, plus costs of $720.00.

F-18

On January 19, 2010, the holders of promissory note convertible into the Company’s common stock filed suit against the Company demanding payment of the principal amount of $175,000.00, plus accrued interest, and counsel fees. The Company has retained counsel to respond to the litigation and to interpose such defenses as are lawfully available.

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:

	2008			2007
	2009			2008
Tax Benefit at U.S. statutory rate	$	(~~485~~388,000	)	$	(~~305~~485,000	)
Non Deductible Expenses		--			--
Change in valuation allowance		~~485~~388,000			~~305~~485,000
Provision for income taxes	$	--		$	--

F-24


Federal net operating loss carryforwards	$	2,193,000		$	1,805 ,000
State net operating loss carryforwards		480,000			394,000
Other		79,000			79,000
Valuation allowance		(2,752,000	)		(2,278,000	)
Net deferred tax asset	$	--		$	--

Federal net operating loss carryforwards	$	1,805 ,000		$	1,320,000
State net operating loss carryforwards		394,000			287,000
Other		79,000			79,000
Valuation allowance		(2,278,000	)		(1,686,000	)
Net deferred tax asset	$	--		$	--

The Company has federal and state net operating loss carry forwards of approximately $8,468,000 and $7,300,000, respectively. Such carryforwards expire at various times through 2028 and may be limited due to ownership changes. Such losses are limited to due to a change in control.

The Company has federal and state net operating loss carry forwards of approximately $7,300,000 and $5,327,000, respectively. Such carryforwards expire at various times through 2028 and may be limited due to ownership changes. Such losses are limited to due to a change in control.

Note 14. Equity Incentive Plan

The total number of shares reserved and available for grant and issuance is 2,500,000 shares. The maximum number of shares granted to a participant may not exceed 20% of the total shares subject to the Plan. Only directors, officers, employees, consultants, and advisors of the Company and its subsidiaries are eligible for awards under the Plan. Additionally, the awards granted under the Plan may not be transferred or assigned.

F-19

Options may be granted to eligible persons, and the exercise period and price, as defined in the Plan, shall be determined by the Committee. Share limits and shares available under the Plan, outstanding awards, as well as the prices of awards are subject to adjustment if certain events occur.

There have been no175,000 shares issued under the Plan.

Note 15. Subsequent Events

InThe ~~January 2009, the~~ Company ~~entered~~has ~~into~~evaluated asubsequent ~~convertible~~events ~~promissory~~through ~~note~~March ~~with an accredited investor for $30~~31,~~000~~ ~~with~~2010 awhich ~~conversion~~is ~~rate~~the ~~of $.25 per share. In~~date ~~accordance~~these ~~with~~financial ~~the~~statements ~~note~~were ~~the Company~~ issued ~~the investor 15~~,~~000~~ ~~shares~~and ofhas ~~the Company’s~~determined ~~common~~that ~~stock. Such~~there ~~shares~~are ~~were issued pursuant to an~~no ~~exemption~~events ~~from~~requiring ~~registration~~recognition ator ~~Section~~disclosure ~~4(2) of the Securities Act of 1933 and are restricted~~ in ~~accordance~~these ~~with Rule 144 of the Securities Act of~~financial ~~1933~~statements.

F-2520

Filing Compare · SOMERSET INTERNATIONAL GROUP,INC.